Equity risk is also managed using a variety of derivative instruments, including futures and options. Businesses actively model the performance of equities through the use of risk models, in particular to understand the impact of equity performance on guarantees, options and bonus rates. An equity hedging strategy remains in place to help control the Group’s overall direct and indirect exposure to equities. At 31 December 2019 the Group continues to hold a series of macro equity hedges to reduce the overall shareholder equity risk exposure.
Sensitivity to changes in property prices is given in section (i) Risk and capital management, below.
(iii) Interest rate risk Interest rate risk arises primarily from the Group’s investments in long-term debt and fixed income securities and their movement relative to the value placed on the insurance liabilities. A number of policyholder product features have an influence on the Group’s interest rate risk. The major features include guaranteed surrender values, guaranteed annuity options, and minimum surrender and maturity values. Details of material guarantees and options are given in note 46.
Exposure to interest rate risk is monitored through several measures that include duration, capital modelling, sensitivity testing and stress and scenario testing. The impact of exposure to sustained low interest rates is considered within our scenario testing.
Some of the Group’s products, principally participating contracts, expose us to the risk that changes in interest rates will impact on profits through a change in the interest spread (the difference between the amounts that we are required to pay under the contracts and the investment income we are able to earn on the investments supporting our obligations under those contracts). Markets where Aviva is primarily exposed to this risk are the UK, France, Italy and some other Asian business units.
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued The low interest rate environment in a number of markets around the world has resulted in our current investment yields being lower than the overall current portfolio yield, primarily in our investments in fixed income securities. We anticipate that interest rates may remain below historical averages for an extended period of time and that financial markets may continue to have periods of high volatility. Investing activity will continue to decrease the portfolio yield as long as market yields remain below the current portfolio level. We expect the decline in portfolio yield will result in lower net investment income in future periods.
Profit before tax on General Insurance and Health Insurance business is generally a mixture of insurance, expense and investment returns. The asset portfolio is invested primarily in fixed income securities. The portfolio investment yield and average total invested assets in our general insurance and health business are set out in the table below.
(v) Currency risk The Group has minimal exposure to currency risk from financial instruments held by business units in currencies other than their functional currencies, as nearly all such holdings are backing either unit-linked or with-profits contract liabilities or are hedged. As a result the foreign exchange gains and losses on investments are largely offset by changes in unit-linked and with-profits liabilities and fair value changes in derivatives attributable to changes in foreign exchange rates recognised in the income statement.
(d) Liquidity risk Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid assets such as commercial mortgages and infrastructure loans. The Group seeks to ensure that it maintains sufficient financial resources to meet its obligations as they fall due through the application of a Group liquidity risk policy and business standard and through the development of its liquidity risk management plan. At Group and business unit level, there is a liquidity risk appetite which requires that sufficient liquid resources be maintained to cover net outflows in a stress scenario. In addition to the existing liquid resources and expected inflows, the Group maintains significant undrawn committed borrowing facilities (£1,650 million) from a range of leading international banks to further mitigate this risk.
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued (i) Analysis of maturity of insurance and investment contract liabilities For non-linked insurance business, the following table shows the gross liability at 31 December 2019 and 2018 analysed by remaining duration. The total liability is split by remaining duration in proportion to the cash-flows expected to arise during that period, as permitted under IFRS 4, Insurance Contracts.
Long-term business Insurance contracts – non-linked 111,731 8,811 27,184 41,728 34,008 Investment contracts – non-linked 74,641 5,978 19,532 28,313 20,818 Linked business 177,448 16,226 26,002 58,601 76,619 General insurance and health 16,656 7,136 6,665 2,258 597 Total contract liabilities 380,476 38,151 79,383 130,900 132,042
Fixed maturity securities2 191,675 42,764 47,936 99,670 1,305 Equity securities 88,227 — — — 88,227 Other investments2 39,923 34,782 77 4,301 763 Loans 36,184 9,488 4,236 22,457 3 Cash and cash equivalents 15,926 15,926 — — —
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued (e) Life and health insurance risk Life insurance risk in the Group arises through its exposure to mortality risk and exposure to worse than anticipated operating experience on factors such as persistency levels, exercising of policyholder options and management and administration expenses. The Group’s health insurance business (including private health insurance, critical illness cover, income protection and personal accident insurance, as well as a range of corporate healthcare products) exposes the Group to morbidity risk (the proportion of our customers falling sick) and medical expense inflation. The Group chooses to take measured amounts of life and health insurance risk provided that the relevant business has the appropriate core skills to assess and price the risk and adequate returns are available. The Group’s underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. Life insurance risk is managed primarily at business unit level with oversight at the Group level.
The underlying risk profile of our life and health insurance risks, primarily persistency, longevity, mortality and expense risk, has remained stable during 2019. We are also exposed to longevity risk through the Aviva Staff Pension Scheme, to which our economic exposure has been reduced since 2014 by entering into a longevity swap covering approximately £5 billion of pensioner in payment scheme liabilities. Longevity risk remains the Group’s most significant life insurance risk, while persistency risk remains significant and continues to have a volatile outlook with underlying performance linked to some degree to economic conditions. We purchased reinsurance for longevity risk for our annuity business, including the bulk annuity buy-in transaction with the Aviva Staff Pension scheme (see note 52). Group has continued to write considerable volumes of life protection business, and to utilise reinsurance to reduce exposure to potential losses. More generally, life insurance risks are believed to provide a significant diversification against other risks in the portfolio. Life insurance risks are modelled within the internal capital model and subject to sensitivity and stress and scenario testing.
• Longevity risk and internal experience analysis are monitored against the latest external industry data and emerging trends. While individual businesses are responsible for reserving and pricing for annuity business, the Group monitors the exposure to this risk and any associated capital implications. The Group has used reinsurance solutions to reduce the risks from longevity and continually monitors and evaluates emerging market solutions to mitigate this risk further.
Examples of each type of embedded derivative affecting the Group are: • Options: call, put, surrender and maturity options, guaranteed annuity options, options to cease premium payment, options for withdrawals free of market value adjustment, annuity options, and guaranteed insurability options. • Guarantees: embedded floor (guaranteed return), maturity guarantee, guaranteed death benefit, and guaranteed minimum rate of annuity payment;and • Other: indexed interest or principal payments, maturity value, loyalty bonus.
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued Management of general insurance risks Significant insurance risks will be reported under the risk management framework. Additionally, the capital model is used to assess the risks that each general insurance business unit, and the Group as a whole, is exposed to, quantifying their impact and calculating appropriate capital requirements.
Reinsurance strategy Significant reinsurance purchases are reviewed annually at both business unit and Group level to verify that the levels of protection being bought reflect any developments in exposure and the risk appetite of the Group. The basis of these purchases is underpinned by analysis of capital, earnings and capital volatility, cash flow and liquidity and the Group’s franchise value.
We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, media speculation and negative publicity, disclosure of confidential client information, inadequate services, whether or not founded, could impact our brands or reputation. Any of our brands or our reputation could also be affected if products or services recommended by us (or any of our intermediaries) do not perform as expected (whether or not the expectations are founded) or customers’ expectations for the product change. We seek to reduce this risk to as low a level as commercially sensible.
(i) Risk and capital management (i) Sensitivity test analysis The Group uses a number of sensitivity tests to understand the volatility of earnings, the volatility of its capital requirements, and to manage its capital more efficiently. Sensitivities to economic and operating experience are regularly produced on the Group’s key financial performance metrics to inform the Group’s decision making and planning processes, and as part of the framework for identifying and quantifying the risks to which each of its business units, and the Group as a whole, are exposed.
Long-term business Sensitivities as at 31 December 2019 31 December 2019 Impact on profit before tax £m Interest rates
31 December 2019 Impact on shareholders’ equity before tax £m Interest rates
Insurance participating — 5 (10) (65) 60 (50) 10 (5) Insurance non-participating (985) 1,265 (800) (120) 105 (240) (145) (955) Investment participating (85) 55 (5) (5) 5 (25) — — Investment non-participating — 5 — 5 (5) (5) — — Assets backing life shareholders’ funds (190) 205 (30) (30) 30 — — — Total (1,260) 1,535 (845) (215) 195 (320) (135) (960)
Insurance participating (75) 35 (15) (105) 70 (20) (5) (5) Insurance non-participating (975) 1,130 (695) (125) 105 (210) (115) (865) Investment participating (40) 40 (10) (15) (15) (15) — — Investment non-participating — — — 10 (25) (20) — — Assets backing life shareholders’ funds (95) 105 (25) 20 (20) — — —
Changes in sensitivities between 2019 and 2018 reflect underlying movements in the value of assets and liabilities, the relative duration of assets and liabilities and asset liability management actions. The sensitivities to economic and demographic movements relate mainly to business in the UK.
General insurance and health business sensitivities as at 31 December 2019 31 December 2019 Impact on profit before tax £m Interest rates
Gross of reinsurance (210) 165 (115) 185 (175) (140) (315) Net of reinsurance (270) 215 (115) 185 (175) (140) (300)
Gross of reinsurance (240) 235 (115) 165 (165) (120) (325) Net of reinsurance (305) 295 (115) 165 (165) (120) (315)
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued Fund management and non-insurance business sensitivities as at 31 December 2019 31 December 2019 Impact on profit before tax £m Interest rates
Strategic report Governance IFRS financial statements Other information 61 – Derivative financial instruments and hedging This note gives details of the various financial instruments the Group uses to mitigate risk.
In the narrative and tables below, figures are given for both the notional amounts and fair values of these instruments. The notional amounts reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of the derivative transaction. The fair values represent the gross carrying values at the year end for each class of derivative contract held (or issued) by the Group.
Foreign exchange gains of £137 million (2018: losses of £27 million) on translation of the debt to sterling at the statement of financial position date in respect of the effective portion have been recognised in the hedging instruments reserve in shareholders’ equity. The hedge has been fully effective during the year. A gain of £4 million was recognised in the income statement in the prior year due to the termination of a net investment hedge.
(i) The Group’s non-hedge derivatives at 31 December 2019 and 2018 were as follows: Contract/ notional amount £m
Forwards 54,269 1,094 (438) 43,247 148 (256) Interest rate and currency swaps 6,937 141 (316) 7,908 29 (708) Options — — — 1,256 10 —
Total at 31 December 173,984 7,097 (6,517) 204,285 5,357 (6,478) 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
Within 1 year 1,098 2,132 Between 1 and 2 years 593 512 Between 2 and 3 years 448 445 Between 3 and 4 years 434 384 Between 4 and 5 years 358 301 After 5 years 3,996 3,359 6,927 7,133 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity.
(c) Collateral Certain derivative contracts, primarily interest rate and currency swaps, involve the receipt or pledging of cash and non-cash collateral. The amounts of cash collateral receivable or repayable are included in notes 29 and 54 respectively. Collateral received and pledged by the Group is detailed in note 62.
Strategic report Governance IFRS financial statements Other information 62 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar arrangements (a) Offsetting arrangements Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
Offset under IAS 32 Amounts under a master netting agreement but not offset under IAS 32
Financial assets Derivative financial assets 4,447 — 4,447 (2,934) (1,023) (186) 304 Loans to banks and repurchase arrangements 9,322 — 9,322 — (300) (1,614) 7,408
Derivative assets are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value liabilities are recognised as ‘Derivative liabilities’ in note 54. £527 million (2018 restated: £910 million) of derivative assets and £835 million (2018 restated: £869 million) of derivative liabilities are not subject to master netting agreements and are therefore excluded from the table above.
Associates 1 — — 4 1 — — 2 Joint ventures 54 — — 4 49 — (1) 2 Employee pension schemes 9 — — 6 10 — — 7
Our UK fund management companies manage most of the assets held by the Group’s main UK staff pension scheme, for which they charge fees based on the level of funds under management. The main UK scheme holds investments in Group-managed funds and insurance policies with other group companies, as explained in note 52(b)(ii). As at 31 December 2019, the Friends Provident Pension Scheme (‘FPPS’), acquired in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of £646 million (2018: £620 million) issued by a group company, which eliminates on consolidation.
Subsidiaries The principal subsidiaries of the Company at 31 December 2019 are listed below by country of incorporation.
Poland Aviva PowsBlackbirdzechne Towarzystwo Emerytalne Aviva Santander S.A. (81%) Aviva Towarzystwo Ubezpieczen na Zycie S.A. (90%) Aviva Towarzystwo Ubezpieczen Ogolnych S.A. (90%) Santander Aviva Towarzystwo Ubezpieczeń S.A. (51%) Santander Aviva Towarzystwo Ubezpieczeń na Życie S.A. (51%)
Branches The Group also operates through branches, the most significant of which is based in Ireland.
Associates and joint ventures The Group has ongoing interests in the following operations that are classified as joint ventures or associates. Further details of those operations that were most significant in 2019 are set out in notes 19 and 20 to the financial statements.
1 See note 4(b) for further details in respect of operations classified as held for sale
Strategic report Governance IFRS financial statements Other information 65 – Related Undertakings The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note. Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of the Group’s assets.
The direct related undertakings of the Company as at 31 December 2019 are listed below: Name of undertaking Country of incorporation Registered address Share class1 % held
Aviva-COFCO Life Insurance Company Ltd2 China 12/F, Block A, Landgent Centre, 20 East Third Ring Middle Road, Beijing, 100022
Aviva Group Holdings Limited United Kingdom St Helen’s, 1 Undershaft, London, EC3P 3DQ Ordinary shares 100
Barbados c/o USA Risk Group (Barbados) Ltd., 6th Floor, CGI Tower, Warrens, St. Michael, BB22026
Aviva Re Limited Ordinary 100 The Vallis Building, No 58 Par-la-Ville Road, Hamilton HM11 Bermuda
Aviva Warranty Services Inc. Common 100 Bay-Mill Specialty Insurance Adjusters Inc.
Aviva Investors Canada Inc. Common 100 480 University Avenue, Suite 800, Toronto On M5G 1V2
Units 1805-1807, 18th Floor, Block H Office Building, Phoenix Land Plaza, No. A5 Yard, Shuguangxili, Chaoyang District, Beijing
Ordinary Shares 21 12F, 15F Block A, 27F Block B Landgent Centre, 20 East Third Ring Middle Road, Beijing, China
France 3 Boulevard Saint Martin Aviva Impact Investing France Ordinary 100 128 Boulevard Raspail, 75006, Paris
Aviva Monetaire Isr (A) FCP 98 Aviva Multigestion FCP 98 Aviva Oblig International SICAV 89 Aviva Oblirea Ordinary 97 Aviva Patrimoine SICAV 96 Aviva Performance FCP 100 Aviva Rebond FCP 82 Aviva Rendement Europe Ordinary 82 Aviva Selection Opportunites FCP 99 Aviva Selection Patrimoine FCP 98 Aviva Signatures Europe FCP 100 Aviva Structure Index 1. FCP 99 Aviva Structure Index 2 FCP 100 Aviva Structure Index 4. FIPS 100 Aviva Structure Index5 FCP 100 Aviva Small & Mid Caps Euro ISR
Aviva Valeurs Francaises Ordinary 96 Aviva Valeurs Immobilieres Ordinary 83 Aviva Valorisation Opportunite FCP 97 Aviva Valorisation Patrimoine FCP 97 FPE Aviva Investors Euro Corporate Senior Debts
Aviva Patrimoine Immobilier Ordinary 100 Logiprime Europe Ordinary 100 Primotel Europe Ordinary/Preference 99 SCI La Coupole Des Halles Ordinary 100 SCI Pergola Ordinary 100 Société Civile Immobilière Thomas Edison
AXA Lbo Fund IV Feeder Private Equity Fund 38 AXA UK Infrastructure Investment SAS
Croissance Pme A C. FCP 100 29 Avenue de Messine, 75008, Paris
CGP Entrepreneurs Ordinary 74 Aviva Capital Planete FCP 100 UFF Grandes Marques A FCP 99 Myria Asset Management Ordinary 74 UFF Selection Alpha-A (Ufselaa)
Aviva France Ordinary 100 Aviva Solutions Ordinary 100 Croissance Pierre II Ordinary 100 Groupement D’Interet Economique du Groupe Aviva France
Locamat SAS Ordinary 100 Newco Ordinary 100 Selectinvie – Societe Civile Immobiliere
Aviva Actions S2 C. FCP 100 Aviva Couventure Actions FPS 100 91-93 Boulevard Pasteur, 75015, Paris
Aviva Perspective 2021-2025 FCP 100 Aviva Perspective 2026-2030 FCP 100 Aviva Perspective 2031-2035 FCP 100 Aviva Perspective 2036-2040 FCP 100
German Retail I GmbH Ordinary 98 German Retail II GmbH Ordinary 98 German Retail III GmbH Ordinary 98 German Retail Investment Properties Sarl
PO Box 34, St Martin’s House, Le Bordage, Guernsey CY1 4AU
PO Box 287, 4th Floor, West Wing, Trafalgar Court, Admiral Park
WSF Asian Pacific Fund OEIC 33 Hong Kong 21st Floor, Chater House, 8 Connaught Road Central
JPMorgan Indonesia Fund Unit Trust 37 30/F, One Kowloon, 1 Wang Yuen Street, Kowloon Bay, Hong Kong
Pune Office Addresses 103/P3, Pentagon, Magarpatta City, Hadapsar, Pune – 411013
Shares Of No Par Value Shares, 1 Subscriber Euro €1 Shares
Aviva Irl Merrion Multi Asset 30 Unit Trust 100 Aviva Irl Merrion Multi Asset 50 Unit Trust 100 One Park Place, Hatch Street, Dublin 2
AG10 Currency Fund OEIC 95 78 Sir John Rogersons Quay Dublin 2 Ireland
Friends First House Cherrywood Science & Technology Park Loughlinstown Co. Dublin Ireland
Friends First US Property Company Limited 1211 Avenue of the Americas (Proxy)
Alternative Investment 100 2nd Floor, IFSC House, Int’l Financial Services Centre, Custom House Docks
Vontobel Global Equity FAM Fd OEIC 22 JP Morgan House, International Financial Services Centre
Trafalgar Court, Admiral Park CGWM Affinity Fund OEIC 36 CGWM Diversity Fund OEIC 25 CGWM Opportunity Fund OEIC 45 13-18 City Quay, Ireland
Friends First Managed Pensions Funds Designated Activity Company 25 Cabot Square, Canary Wharf
FundLogic Alternatives plc OEIC 30 MDO Management Company SA, 19 rue de Bitbourg
11-12 Hanover Square UT2 Unit Trust 50 130 Fenchurch Street UT2 Unit Trust 50 30-31 Golden Square UT2 Unit Trust 50 Barratt House UT2 Unit Trust 50 Chancery House Unit Trust Unit Trust 50 Irongate House UT Unit Trust 50 New Broad Street House UT Unit Trust 50 Pegasus House and Nuffield House UT2
Quantum Unit Trust Unit Trust 50 Southgate Unit Trust Unit Trust 50 The Designer Outlet Centres (Mansfield) Unit Trust
Unit Trust 97 3rd Floor, One The Esplanade, Jersey, JE2 3QA
16 Avenue de la Gare, 1610 Aviva Investors Luxembourg Services S.a.r.l
Victor Hugo 1 Sarl Ordinary 100 Aviva Investors Polish Retail S.à r.l.
Janus Henderson Horizon – European Growth Fund 2 Rue du Fort Bourbon, L1249 Luxembourg, Grand Duchy of Luxembourg
AFRP Sarl Ordinary 100 AIEREF Holdings 1 Sarl Equity Shares 44 AIEREF Holdings 2 Sarl Ordinary 100 Aviva Investors Alternative Income Solutions General Partner Sarl
EP Megaron GmbH & Co KG KG 100 EP Megaron GP GmbH GP 100
Aviva Investors CELLs Holdings Ordinary 100 Aviva Investors CELLS Stern Sarl
Aviva Investors CELLS SCSp Ordinary 100 Aviva Investors EBC Sarl Ordinary 100 Aviva Investors Climate Transition Equity Fund
Hexagone.S.a.r.l SICAV 100 3 Rue des Labours, L-1912 Haspa Trendkonzept FCP 55 42 Rue de la Vallée, L-2661, Luxembourg LU
World Investment Funds – India Performance Fund 46a Avenue John F Kennedy, L-1855, Luxembourg, Grand Duchy of Luxembourg
EPI NU Sarl Ordinary 100 47 Avenue John F Kennedy, L-1855 Luxembourg
DWS Global Aribusiness FCP 20 Xtrackers II Eurozone Government Bond 15-30 UCITS ETF
Tikehau Senior Loans III Alternative Investment Fund 20 5 rue Heienhaff, L-1736 Senningerberg, Grand Duchy of Luxembourg
Aviva Investors Cells Fund Alternative Investment Fund 64 15 rue du Bourbon, L-1249 Luxembourg, Grand Duchy of Luxembourg
Invesco Funds – Invesco US Fund 562 rue de Neudorf, L – 2220 Luxembourg LU
KMG Sicav – SIF Devere Medical Opportunities Fund 6 H route de Treves, L – 2633, Senningerberg, LUK
Momentum Global Funds Harmony Portfolios Euro Diversifed Fund 6 Route de Treves, L – 2633, Senningerberg, LU
Aviva Investors Fio Obligacji UCITS 79 Aviva Investors Fio Polskich Akcji
Expander Advisors Sp z.o.o Ordinary 90 Life Plus Sp z.o.o Ordinary 90 Aviva Poland Towarzystwo Funduszy Investycyjnych SA
Porowneo pl Sp z.o.o Ordinary 90 Aviva Sfio Subfundusz Aviva Oszczednosciowy
Prosta 69 Poland 00-383 Proowneo.pl Sp zoo Ordinary 90 AI Jana Powla Wroclaw BC Sp Zoo Ordinary 100
Riyad Capital, 6775 Takhassusi Street – Olaya, Riyadh 12331 – 3712
Riyad AI Jarei Fund (SAR) Mutual Fund 28 Riyad AI Jarei Sharia Fund (SAR)
Riyad AI Shujia’a Fund (SAR Mutual Fund 22 Riyad AI Shujia’a Sharia Fund Mutual Fund 90
Ahorro Andaluz, S.A Ordinary 50 Avda de Bruselas – Numero 13, Edificio, America, Piso 1, Puerto d, Alcobendas 28Madrid
Eolica Almatret SL Ordinary 45 Nanclares de Oca, numero 1-B Spain 28022
Mill NU Properties Limited Ordinary A 100 Building a Future (Newham Schools) Limited
Synergy Financial Products Limited 29 Queen Anne’s Gate, London SW1H 9BU
The Designer Retail Outlet Centres (General Partners) Limited 42 Dingwall Road, Croydon, Surrey, CR0 2NE
TenetLime Limited Ordinary 47 TenetSelect Limited Ordinary 47 5 Old Broad Street, London EC2N 1A
Lazard Multicap UK Income Fund 7 Lochside View, Edinburgh, EH12 9DH
Baillie Gifford Investment Funds II ICVC-Baillie Gifford UK Equity Core Fund 12 Throgmorton Avenue
Friends SL Nominees Limited Ordinary 100 Friends SLUA Limited Ordinary 100 Gateway Specialist Advice Services Limited
Sesame Services Limited Ordinary A 100 Suntrust Limited Ordinary 100 Undershaft FAL Limited Ordinary 100 Undershaft FPLLA Limited Ordinary 100 Undershaft SLPM Limited Ordinary 100 Wealth Limited Ordinary 100 St Helen’s, 1 Undershaft, London, EC3P 3DQ
1 Fitzroy Place Limited Ordinary 50 1 Liverpool Street General Partner Limited 1 Liverpool Street Nominee 1 Limited 1 Liverpool Street Nominee 2 Limited
Company name Share Class1 % held 10-11 GNS Limited (Great Newport Street)
11-12 Hanover Square LP LP 50 11-12 Hanover Square Nominee 1 Limited 11-12 Hanover Square Nominee 2 Limited 130 Fenchurch Street General Partner Limited 130 Fenchurch Street Nominee 1 Limited 130 Fenchurch Street LP Limited Partnership 50 130 Fenchurch Street Nominee 2 Limited 1-5 Lowndes Square Management Company Limited 2 Fitzroy Place Limited Partnership
Limited Partnership 100 2-10 Mortimer Street (GP No1) Limited 2-10 Mortimer Street GP Limited 2-10 Mortimer Street Limited Partnership
Limited Partnership 50 30 Station Road Nominee 1 Limited 30 Station Road Nominee 2 Limited 30 Station Road Unit Trust – Closed Ended Fund
Unit Trust 50 30 Warwick Street LP Limited Partnership 50 30 Warwick Street Nominee 1 Limited 30 Warwick Street Nominee 2 Limited 30-31 Golden Square Nominee LP
Aviva Investors UK Equity Fund Collective Investment Scheme 100 Aviva Investors UK Equity Index Fund
Aviva Special PFI GP Limited Ordinary 100 Aviva Special PFI Limited Partnership
Capital Residential Fund Ordinary 88 Cardiff Bay GP Limited Ordinary 100 Chesterford Park (General Partner) Limited
CGU International Holdings BV Ordinary 100 Commercial Union Corporate Member Limited
Capital Residential Fund Limited Partnership 88 Slas Axa Private Equity Unit Trust 100 Slas Venture Capital Ye Cash Ordinary 100 Solar Clean Energy Limited Ordinary 100 Southgate General Partner Limited
The Square Brighton Limited Ordinary 100 Tyne Assets (No2) Limited Ordinary 100 Tyne Assets Limited Ordinary 100 Undershaft Limited Ordinary 100 W Nine LP Limited Partnership 50 W Nine Nominee 1 Limited Ordinary 50 W Nine Nominee 2 Limited Ordinary 50 The Welsh Insurance Corporation Limited
Swan Court Waterman’s Business Park, Kingsbury Crescent, Staines, Surrey, TW18 3BA
Healthcode Limited Ordinary C, Ordinary E 20 Wellington Row, York, YO90 1WR
Aviva Life Services UK Limited Ordinary 100 Aviva Pension Trustees UK Limited
Liontrust UK Ethical Fund OEIC 68 Liontrust Future European Growth Fund
Serviced Offices UK GP Limited GP 50 Norwich Union Life Insurance Company Limited
Acre Platforms Limited Ordinary 40 15 Canada Square, E14 5GL LUC Holdings Limited Ordinary 20 Tec Marina Terra Nova Way, Penarth, Wales United Kingdom CF64 1SA
Common Stock Of No Par Value Shares 2711 Centreville Road, Suite 400, Wilmington, New Castle, DE, 19808
Strategic report Governance IFRS financial statements Other information 66 – Subsequent events 2020 has begun with the outbreak of a new strain of the Coronavirus (COVID-19) in China, with confirmed cases in more than 50 countries, including all of those in which Aviva has material businesses. There is a risk of a significant global pandemic and economic disruption. We have reviewed the exposure of our balance sheet and are taking actions to further reduce our sensitivity to economic shocks. Notwithstanding our robust capital and liquidity position and the operational and financial actions that we are taking, a deterioration in the situation would have adverse implications for our businesses arising from the potential impacts on financial markets, our insurance exposures and our operations. As the situation is rapidly evolving it is not practicable to quantify the potential financial impact of the outbreak on the Group.
Profit for the year after tax 1,048 2,197 1 Other expenses in 2018 include a charge of £8 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018 and associated administration costs (see note 36).
Items that will not be reclassified to income statement Remeasurements of pension schemes H (1) 2 Forfeited dividend income H 4 4
Statement of changes in equity For the year ended 31 December 2019
Balance at 1 January 1,003 200 1,207 14 6,438 111 3,555 724 13,252 Profit for the year — — — — — — 2,197 — 2,197 Other comprehensive loss — — — — — — 6 — 6 Total comprehensive income for the year — — — — — — 2,203 — 2,203 Dividends and appropriations 16 — — — — — — (1,189) — (1,189) Reserves credit for equity compensation plans 34 — — — — — 64 — — 64 Shares issued under equity compensation plans 33 2 — 7 — — (55) 49 — 3 Shares purchased in buy-back1 33 (30) — — 30 — — (600) — (600) Reclassification of tier 1 notes to financial liabilities 37,L — — — — — — — — — Aggregate tax effect D — — — — — — 8 — 8
Assets Non-current assets Investments in subsidiaries E 31,788 31,788 Investment in joint venture E 123 123 Receivables and other financial assets F 5,025 5,401 Deferred tax assets G 9 9 Current tax assets G 85 89 37,030 37,410 Current assets Receivables and other financial assets F 241 414 Prepayments and accrued income 13 10 Cash and cash equivalents 74 15
Statement of cash flows For the year ended 31 December 2019
Cash flows from financing activities Proceeds from issue of ordinary shares 27 8 Shares purchased in buy-back — (600) Treasury shares purchased for employee trusts (9) (4) New borrowings drawn down, net of expenses 505 3,023 Repayment of borrowings1 (696) (3,536) Net repayment of borrowings (191) (513) Interest paid on borrowings (316) (335) Preference dividends paid (17) (17) Ordinary dividends paid (1,184) (1,128) Forfeited dividend income 4 4 Coupon payments on direct capital instrument and tier 1 notes (43) (44) Funding provided from subsidiaries 1,807 2,564 Other2 (5) (13) Net cash generated from/(used in) financing activities 73 (78)
The Company is no longer charged staff costs directly by the UK employing entity. Staff costs are included within other operating costs as part of the overall recharges from the service company within the Group.
Interest payable on borrowings 325 325 Interest payable to group companies O(ii) 212 194
D – Tax (i) Tax credited to the income statement The total tax credit comprises: £m
Current tax For this year (90) (94) Prior year adjustments (2) (2)
(ii) Tax credited to other comprehensive income There was no tax credited or charged to other comprehensive income in either 2019 or 2018.
(iii) Tax credited to equity Tax credited directly to equity in the year, in respect of coupon payments on the direct capital instrument and fixed rate tier 1 notes, amounted to £8 million (2018: £8 million).
E – Investments in subsidiaries and joint venture (i) Subsidiaries At 31 December 2019, the Company has two wholly owned subsidiaries, both incorporated in the UK. These are General Accident plc and Aviva Group Holdings Limited. Aviva Group Holdings Limited is an intermediate holding company, while General Accident plc has preference shares listed on the London Stock Exchange. At 31 December 2019, the Company’s investments in subsidiaries have a cost of £31,788 million (2018: £31,788 million). The principal subsidiaries of the Aviva Group at 31 December 2019 are set out in note 64 to the Group consolidated financial statements.
(ii) Joint venture At 31 December 2019, the Company’s investment in the joint venture, Aviva-COFCO Life Insurance Co. Limited has a cost of £123 million (2018: £123 million).
Loans due from subsidiaries held at amortised cost O(i) 5,025 5,401 Amount due from subsidiaries held at amortised cost O(iii) 241 414
(b) The net deferred tax asset arises on the following items: £m
Balance at 1 January 2018 6,438 111 3,555 Arising in the year: Profit for the year — — 2,197 Remeasurements of pension schemes — — 2 Forfeited dividend income2 — — 4 Dividends and appropriations — — (1,189) Reserves credit for equity compensation plans — 64 — Issue of share capital under equity compensation scheme — (55) 49 Shares purchased in buy-back — — (600) Reclassification of tier 1 notes to financial liabilities (note L) — — — Aggregate tax effect — — 8 Balance at 31 December 2018 6,438 120 4,026 Arising in the year: Profit for the year — — 1,048 Remeasurements of pension schemes — — (1) Forfeited dividend income2 — — 4 Dividends and appropriations — — (1,244) Reserves credit for equity compensation plans — 62 — Issue of share capital under equity compensation scheme — (62) 55 Shares purchased in buy-back — — — Reclassification of tier 1 notes to financial liabilities3 (note L) — — 14 Aggregate tax effect — — 8 Balance at 31 December 2019 6,438 120 3,910 1 See notes 34(d) and 39 for further details of balances included in the equity compensation reserve. 2 The Company has commenced a shareholder forfeiture programme, where the shares of shareholders who Aviva has lost contact with over the last 12 years will be forfeited and sold on. Any associated unclaimed dividends will be reclaimed by the Company. After covering administration costs, the majority of the money will be put into a charitable foundation. 3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that date. On 21 November 2019 the instrument was redeemed in full at a cost of £210 million. The difference of £14 million between its carrying amount of £224 million and fair value of £210 million has been charged to retained earnings. See note L for further details.
I – Pension deficits and other provisions (i) Carrying amounts £m
Within 1 year 238 311 549 251 315 566 1 – 5 years 686 1,194 1,880 708 1,231 1,939 5 – 10 years 635 1,451 2,086 673 1,490 2,163 10 – 15 years — 1,417 1,417 — 1,441 1,441 Over 15 years 5,251 2,636 7,887 5,365 2,923 8,288
Where subordinated debt is undated, the interest payments have not been included beyond 15 years. Annual interest payments in future years for these borrowings are £49 million (2018: £49 million).
Loans due to subsidiaries O(ii) 12,675 12,815 Amount due to subsidiaries O(iii) 4,344 4,206
N – Risk management Risk management in the context of the Group is considered in the Group consolidated financial statements, note 60.
The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in Euros. However, most of these borrowings have been on-lent to a subsidiary which holds investments in Euros, generating the net investment hedge described in the Group consolidated financial statements, note 61(a).
O – Related party transactions The Company had the following related party transactions.
• An unsecured loan of €650 million with a maturity date of 5 July 2023. The loan accrues interest at a fixed rate of 1.54% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was £551 million (2018: £584 million).
O – Related party transactions continued (i) Loans owed by subsidiaries continued On 21 November 2016, the Company provided an unsecured loan of €500 million to Aviva Group Holdings Limited, its subsidiary, with a maturity date of 27 October 2023. The loan accrues interest at a fixed rate of 1.75% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn was £424 million (2018: £449 million).
On 3 September 2013 Aviva Group Holdings Limited, its subsidiary, provided an unsecured rolling credit facility of £5,000 million to the Company, accruing interest at 75 basis points above 6 month LIBOR and with an initial maturity date of 3 September 2018, which was subsequently extended to 31 December 2023. The total amount drawn down on the facility at 31 December 2019 was £3,045 million (2018: £3,045 million).
P – Subsequent events There are no subsequent events to report.
In order to fully explain the performance of our business, we discuss and analyse our results in terms of financial measures which include a number of Alternative Performance Measures (APMs). APMs are non-GAAP measures which are used to supplement the disclosures prepared in accordance with other regulations such as International Financial Reporting Standards (IFRS) and Solvency II. We believe these measures provide useful information to enhance the understanding of our financial performance. However, APMs should be viewed as complementary to, rather than as a substitute for, the amounts determined according to other regulations.
In addition, we have made certain changes to existing APMs to ensure that they remain relevant and useful for stakeholders.
Further details on APMs derived from IFRS measures and APMs derived from Solvency II measures including changes that have been made in 2019, are provided in the following sections. A further section describes Other APMs.
Group adjusted operating profit‡# Group adjusted operating profit is an APM that supports decision making and internal performance management of the Group’s operating segments that incorporates an expected return on investments supporting the life and non-life insurance businesses. The Group considers this measure meaningful to stakeholders as it enhances the understanding of the Group’s operating performance over time by separately identifying non-operating items. The various items excluded from Group adjusted operating profit, but included in IFRS profit before tax, are: Investment variances, economic assumption changes and shortterm fluctuation in return on investments Group adjusted operating profit for the life insurance business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with allowance for the corresponding expected movements in liabilities. The expected rate of return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return and asset classification.
Impairment, amortisation and profit or loss on disposal Group adjusted operating profit also excludes impairment of goodwill, associates and joint ventures; amortisation and impairment of other intangible assets acquired in business combinations; amortisation and impairment of acquired value of inforce business; and the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates. These items principally relate to merger and acquisition activity which we view as strategic in nature, hence they are excluded from the Group adjusted operating profit APM as this is principally used to manage the performance of our operating segments when reporting to the Group chief operating decision maker.
Other items at 2018 comprised: • A movement in the discount rate used for estimating lump sum payments in settlement of bodily injury claims which resulted in a gain of £190 million (see note 44 (b)). Consistent with the presentation of the change in the Ogden discount rate in 2016, this was disclosed outside of Group adjusted operating profit; • A charge of £63 million relating to the UK defined benefit pension scheme as a result of the requirement to equalise members’ benefits for the effects of Guaranteed Minimum Pension (see note 52(b)). This was disclosed outside of Group adjusted operating profit as the additional liability arose as a consequence of a High
Court judgement in October 2018 in the case involving Lloyds Banking Group; and does not reflect the financial performance of the Group for the year; • A charge of £10 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs (see note 35); • A release of a provision of £78 million relating to the sale of Aviva USA in 2013, which represents the reversal of an item previously excluded from Group adjusted operating profit; and
• A gain of £36 million relating to negative goodwill on the acquisition of Friends First (see note 3), which was excluded from Group adjusted operating profit for consistency with the treatment of impairment of goodwill.
United Kingdom – Life 1,855 1,886 United Kingdom – General Insurance 250 383 Canada 191 27 Europe 981 1,008 Asia 275 261 Aviva Investors 96 148 Other Group activities (464) (709)
Group adjusted operating profit before tax attributable to shareholders’ profit 3,184 3,004
Profit before tax attributable to shareholders’ profits 3,374 2,129 1 During 2019 the Group adjusted operating profit APM has been revised, and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1 (b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax.
In 2019, following the change in the definition of Group adjusted operating profit, the COR has been amended to include the amortisation and impairment of internally generated intangible assets to better reflect their operational nature. Comparative amounts have been restated resulting in an increase in the prior year underwriting costs of £53 million and an increase in COR of 0.6%. Amortisation and impairment of intangible assets acquired in business combinations will continue to be excluded from the COR as these relate to merger and acquisition activity.
Foreign exchange gains/losses (45) 7 Commission income 20 19 Other 5 4
Combined operating ratio 97.5% 97.2% 1 Following the change in the definition of Group adjusted operating profit, COR now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts have been restated resulting in an increase in the prior period underwriting costs of £(53) million and an increase in COR of 0.6%.
Following the change in the definition of the Group adjusted operating profit APM in 2019, operating EPS has been amended and the 2018 comparative amount has been restated resulting in a reduction in the prior year from 58.4 pence to 56.2 pence.
Controllable costs‡ and operating expenses Controllable costs are the controllable operational overheads associated with maintaining our businesses. Controllable costs are calculated as operating expenses, less premium based taxes, fees and levies that vary directly with premiums. These costs are by their nature a direct cost incurred as a result of generating premium income, and therefore not a controllable operational overhead. Operating expenses continues to be a useful measure alongside controllable costs.
A reconciliation of other expenses in the IFRS consolidated income statement to operating expenses (restated) and controllable costs is set out below: £m
Other expenses (IFRS income statement) 3,329 3,843 Less: impairment of goodwill, associates and joint ventures and other amounts expensed (15) (13) Less: amortisation and impairment of intangibles acquired in business combinations1 (87) (97) Less: amortisation and impairment of acquired value of in-force business (406) (426) Less: foreign exchange gains/(losses) 109 (28) Add: other acquisition costs 1,001 954 Add: claims handling costs 339 336 Less: other costs (151) (431)
Controllable costs 3,939 3,968 1 Following the change in the definition of Group adjusted operating profit, operating expenses now include the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts have been restated resulting in an increase in the prior period operating expenses of £112 million.
Operating expenses exclude impairment of goodwill, associates and joint ventures; amortisation and impairment of other intangible assets acquired in business combinations; amortisation and impairment of acquired value of in-force business; and the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates. These items relate to merger and acquisition activity which we view as strategic in nature, hence they are excluded from operating expenses as this is principally used to manage the performance of our operating segments.
Total AUM3 510 471 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. 2 Includes assets classified as held for sale. 3 Includes AUM of £346 billion (2018: £331 billion) managed by Aviva Investors. 4 AUM managed on behalf of third parties cannot be directly reconciled to the financial statements. 5 UK Platform relates to the assets under management in the UK long-term savings business.
2 Includes valuation adjustments to reflect insurance assets and liabilities valued on a best estimate basis using market-implied assumptions.
6 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in 2019 but it is not included in the Group regulatory own funds.
A number of APMs relating to Solvency II are utilised to measure and monitor the Group’s performance, growth and financial strength: • Solvency II shareholder cover ratio‡ • Value of new business on an adjusted Solvency II basis (VNB)‡ • Operating Capital Generation (OCG) ‡# • Operating own funds generation • Solvency II return on equity (ROE)‡ • Solvency II net asset value (NAV) per share‡ • Solvency II debt leverage ratio
• Pro forma adjustments are made if the Solvency II shareholder cover ratio does not fully reflect the effect of transactions or capital actions that are known as at each reporting date. Such adjustments may be required in respect of planned acquisitions and disposals, group reorganisations and adjustments to the Solvency II valuation basis arising from changes to the underlying regulations or updated interpretations provided by EIOPA. These adjustments are made in order to show a more representative view of the Group’s solvency position.
A reconciliation of the Solvency II regulatory surplus to the Solvency II shareholder surplus is provided below: Own funds 2019 £m £m £m
Estimated Solvency II regulatory surplus 28,347 (15,517) 12,830 Adjustments for: Fully ring-fenced with-profit funds (2,501) 2,501 — Staff pension schemes in surplus (1,181) 1,181 — Notional reset of TMTP — — — Pro forma adjustments1 (117) (75) (192) Estimated Solvency II shareholder surplus 24,548 (11,910) 12,638 1 The 31 December 2019 Solvency II position includes three pro forma adjustments that relate to the disposal of FPI (£nil impact on surplus), the disposal of Hong Kong (£nil impact on surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion decrease in surplus as a result of an increase in SCR).
Estimated Solvency II regulatory surplus 27,567 (15,339) 12,228 Adjustments for: Fully ring-fenced with-profit funds (2,634) 2,634 — Staff pension schemes in surplus (1,142) 1,142 — Notional reset of TMTP (127) — (127) Pro forma adjustments1 (113) (6) (119)
Estimated Solvency II shareholder surplus 23,551 (11,569) 11,982 1 The 31 December 2018 Solvency II position includes the pro forma impact of the disposals of FPI (£0.1 billion increase in surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion reduction in surplus as a result of an increase in SCR).
Value of new business on an adjusted Solvency II basis (VNB)‡ VNB measures the additional value to shareholders created through the writing of new life business in the period. It reflects Solvency II assumptions and allowance for risk, and is defined as the increase in Solvency II own funds resulting from life business written in the period, including the impact of interactions between in-force and new business, adjusted to: • remove the impact of the contract boundary restrictions under
Solvency II contract boundary restrictions – increments / renewals on in-force business 98 73 25 196
Solvency II contract boundary restrictions – new business (51) (131) (31) (213)
Solvency II contract boundary restrictions – increments / renewals on in-force business 126 83 21 230
Businesses which are not in the scope of Solvency II own funds (117) (4) (36) (157)
Matching Adjustment (MA) A MA is applied to certain obligations based on the expected allocation of assets backing new business at each year-end date. This allocation may be different to the MA applied at the portfolio level. Aviva applies a MA to certain obligations in UK Life, using methodology which is set out in the Solvency and Financial Condition Report.
The matching adjustment used for 2019 UK new business (where applicable) was 95 bps (2018: 105 bps).
The table below presents a reconciliation of sales to IFRS net written premiums: £m
The expected investment returns assumed within OCG are consistent with the returns used for Group adjusted operating profit.
OCG is a key component of the movement in Solvency II shareholder surplus. The tables below provide an analysis of the change in Solvency II shareholder surplus.
Operating capital generation 2,257 2 2,259 Non-operating capital generation 178 (362) (184) Dividends1 (1,222) — (1,222) Share buy-back — — — Hybrid debt repayments (210) — (210) Acquired/divested business (6) 19 13 Estimated Solvency II shareholder surplus at 1 Dividends includes £17 million (2018: £17 million) of Aviva plc preference dividends and £21 million (2018: £21 million) of General Accident plc preference dividends.
Solvency II future surplus emergence Solvency II future surplus emergence is a projection of the capital generation from existing long-term in-force life business. The projection is a static analysis as at a point in time and hence it does not include the potential impact of future new business or the potential impact of active management of the business (for example, active management of market, demographic and expense risk through investment, hedging, risk transfer, operational risk and expense management), which may affect the actual amount of OCG earned from existing business in future periods.
The projected surplus, which is primarily expected to arise from the release of risk margin (including transitional measures) and solvency capital requirement as the business runs off over time, is expected to emerge through OCG in future years. The cash flows are real-world cash flows, i.e. they are based on best estimate non-economic assumptions used in the Solvency II valuation and real-world investment returns rather than risk-free. The expected investment returns are consistent with the returns used in IFRS.
Operating own funds generation Operating own funds generation measures the amount of Solvency II own funds generated from operating activities. Operating own funds generation is the own funds component of OCG and follows the methodology and assumptions outlined in OCG.
Unrestricted tier 1 shareholder own funds represents the highest quality tier of capital and includes instruments with principal loss absorbing features such as permanence, subordination, undated, absence of redemption incentives, mandatory costs and encumbrances. The tables below provide a summary of the Group’s regulatory Solvency II own funds by tier and a reconciliation between unrestricted tier 1 regulatory own funds and unrestricted tier 1 shareholder own funds: Regulatory view 2019 £m
FPI (£0.1 billion reduction in own funds) and the disposal of Hong Kong (£nil impact on own funds). The 31 December 2018 Solvency II position includes the pro forma impact of the disposal of FPI (£0.1 billion reduction in own funds).
Solvency II RoE provides useful information as it is used as an economic value measure by the Group to assess growth and performance.
own funds 15,296 15,550 Solvency II Return on Equity 14.3% 12.5%
Solvency II return on capital (unlevered) Solvency II return on capital (unlevered) is calculated as operating own funds generation excluding interest costs divided by opening shareholder Solvency II own funds. It is used as an economic value measure by business divisions to assess growth and performance.
Solvency II net asset value (NAV) per share‡ Solvency II NAV per share is used to monitor the value generated by the Group in terms of the equity shareholders’ face value per share investment. This is calculated as the unrestricted tier 1 Solvency II shareholder own funds, divided by the actual number of shares in issue as at the balance sheet date. Consistent with Solvency II ROE, it is an economic value measure used by the Group to assess growth.
Solvency II debt leverage ratio Solvency II debt leverage ratio is calculated as Solvency II debt expressed as a percentage of Solvency II regulatory own funds plus senior debt and commercial paper. Where Solvency II debt includes subordinated debt, preference share capital and direct capital instrument and tier 1 notes. The Solvency II debt leverage ratio provides a measure of the Group’s financial strength.
A reconciliation from IFRS sub-ordinated debt to Solvency II regulatory debt is provided below: £m £m
Other APMs Cash remittances‡ # Cash paid by our operating businesses to the Group, comprised of dividends and interest on internal loans. Dividend payments by operating businesses may be subject to insurance regulations that restrict the amount that can be paid. The business monitors total cash remittances at a Group level and in each of its markets.
Centre liquidity Centre liquidity represents cash remitted by the business units to the Group centre less centre operating expenses and debt financing costs. It includes cash disposal proceeds and capital injections. This provides meaningful information because it shows the liquidity at the Group centre available to meet debt interest and central costs and to pay dividends to shareholders.
Spread margin The spread margin represents the return made on the Group’s annuity and other non-linked business, based on the expected investment return, less amounts credited to policyholders. While not a key performance metric of the Group, the spread margin is a useful indicator of the expected investment return arising on this business.
Dividend record date 24 April 2020 14 August 2020 Last day for Dividend Reinvestment
Dividend payment options Shareholders can receive their dividends in the following ways: • Directly into a nominated UK bank account; • Directly into a nominated Eurozone bank account; • The Global Payment Service provided by our Registrar,
Computershare Investor Services PLC (Computershare). This enables shareholders living outside of the UK and the Single Euro Payments Area to elect to receive their dividends or interest payments in a choice of over 125 international currencies; or
You can find further details regarding these payment options at www.aviva.com/dividends and register your choice by contacting Computershare using the contact details opposite, online at www.aviva.com/online or by returning a dividend mandate form. You must register for one of these payment options to receive any dividend payments from Aviva.
Details of each resolution to be considered at the meeting and voting instructions are provided in the Notice of AGM, which is available on the Company’s website at www.aviva.com/agm
The voting results of the 2020 AGM will be accessible on the Company’s website at www.aviva.com/agm shortly after the meeting.
Shareholder contacts: Ordinary and preference shares – Contact: For any queries regarding your shareholding, please contact Computershare: • By telephone: 0371 495 0105
• By email: AvivaSHARES@computershare.co.uk • In writing: Computershare Investor Services PLC, The Pavilions,
• By email: Citibank@shareholders-online.com • In writing: Citibank Shareholder Services, PO Box 43077,
Group Company Secretary Shareholders may contact the Group Company Secretary: • By email: Aviva.shareholders@aviva.com • In writing: Kirstine Cooper, Group Company Secretary, St Helen’s, 1 Undershaft, London, EC3P 3DQ. • By telephone: +44 (0)20 7283 2000 www.frc.org.uk/auditorsresponsibilities www.aviva.com/shareholders mailto:Aviva.shareholders@aviva.com www.aviva.com/online www.aviva.com/dividends mailto:AvivaSHARES@computershare.co.uk www.aviva.com/agm www.aviva.com/agm
This announcement contains, and we may make other verbal or written ‘forward-looking statements’ with respect to certain of Aviva’s plans and current goals and expectations relating to future financial condition, performance, results, strategic initiatives and objectives. Statements containing the words ‘believes’, ‘intends’, ‘expects’, ‘projects’, ‘plans’, ‘will’, ‘seeks’, ‘aims’, ‘may’, ‘could’, ‘outlook’, ‘likely’, ‘target’, ‘goal’, ‘guidance’, ‘trends’, ‘future’, ‘estimates’, ‘potential’ and ‘anticipates’, and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. Aviva believes factors that could cause actual results to differ materially from those indicated in forward-looking statements in the announcement include, but are not limited to: the impact of ongoing difficult conditions in the global financial markets and the economy generally; the impact of simplifying our operating structure and activities; the impact of various local and international political, regulatory and economic conditions; market developments and government actions (including those arising from the outcome of the negotiations on the future economic relationship between the UK and the EU); the effect of credit spread volatility on the net unrealised value of the investment portfolio; the effect of losses due to defaults by counterparties, including potential sovereign debt defaults or restructurings, on the value of our investments; changes in interest rates that may cause policyholders to surrender their contracts, reduce the value of our portfolio and impact our asset and liability matching; the impact of changes in short or long-term inflation; the impact of changes in equity or property prices on our investment portfolio; fluctuations in currency exchange rates; the effect of market fluctuations on the value of options and guarantees embedded in some of our life insurance products and the value of the assets backing their reserves; the amount of allowances and impairments taken on our investments; the effect of adverse capital and credit market conditions on our ability to meet liquidity needs and our access to capital; changes in, or restrictions on, our ability to initiate capital management initiatives; changes in or inaccuracy of assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical downturn of the insurance industry; the impact of natural and manmade catastrophic events (including the impact of COVID-19) on our business activities and results of operations; our reliance on information and technology and third-party service providers for our operations and systems; the inability of reinsurers to meet obligations or unavailability of reinsurance coverage; increased competition in the UK and in other countries where we have significant operations; the impact of actual experience differing from estimates used in valuing and amortising deferred acquisition costs (DAC) and acquired value of in-force business (AVIF); the impact of recognising an impairment of our goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment securities; the effect of legal proceedings and regulatory investigations; the impact of operational risks, including inadequate or failed internal and external processes, systems and human error or from external events (including cyber attack); risks associated with arrangements with third parties, including joint ventures; our reliance on third-party distribution channels to deliver our products; funding risks associated with our participation in defined benefit staff pension schemes; the failure to attract or retain the necessary key personnel; the effect of systems errors or regulatory changes on the calculation of unit prices or deduction of charges for our unit-linked products that may require retrospective compensation to our customers; the effect of fluctuations in share price as a result of general market conditions or otherwise; the effect of simplifying our operating structure and activities; the effect of a decline in any of our ratings by rating agencies on our standing among customers, broker-dealers, agents, wholesalers and other distributors of our products and services; changes to our brand and reputation; changes in government regulations or tax laws in jurisdictions where we conduct business, including decreased demand for annuities in the UK due to changes in UK law; the inability to protect our intellectual property; the effect of undisclosed liabilities, integration issues and other risks associated with our acquisitions; and the timing/regulatory approval impact, integration risk and other uncertainties, such as non-realisation of expected benefits or diversion of management attention and other resources, relating to announced acquisitions and pending disposals and relating to future acquisitions, combinations or disposals within relevant industries, the policies, decisions and actions of government or regulatory authorities in the UK, the EU, the US or elsewhere, including the implementation of key legislation and regulation. For a more detailed description of these risks, uncertainties and other factors, please see the ‘Risk and risk management’ section of the strategic report.