Governance 090 Board of Directors 092 Executive Management 093 Directors’ Report 097 Corporate governance report 106 Nomination Committee report 108 Audit Committee report 111 Risk Committee report 113 Corporate Responsibility
Shareholder information 138 Company address and share capital 140 Related party disclosures 141 Dividend data 142 Guarantees, securitised assets and off-balance sheet arrangements 143 Liquidity and capital resources 148 Audit committee financial experts 148 Code of ethics and Regulation 155 Risks relating to our business
166 Independent auditor’s report 168 Accounting policies 183 Consolidated financial statements 183 Consolidated income statement 184 Pro forma reconciliation of Group operating profit to profit before tax 186 Consolidated statement of comprehensive income 187 Consolidated statement of changes in equity 189 Consolidated statement of financial position 190 Consolidated statement of cash flows 191 Notes to the consolidated financial statements 312 Financial statements of the Company
Group CEO’s review We have beaten all our operating targets and made good strategic progress.
p Our strong operating capital generation and financial discipline have enabled us to pay an increased dividend.
p We achieved all of this during a year dominated by uncertainty in Europe.
Life IRR of at least 12% Cost and efficiency savings of £400 million by end 2012
Andrew Moss Group chief executive increase in total dividend to 26 pence 1 Operating profit on a continuing basis, excluding Delta Lloyd, was £2.2bn (FY2010: £2.0bn). 2 The Group’s accounting policy for operating profit (also referred to as Group adjusted operating profit) remains consistent with prior periods and is set out on page 168. 3 We agreed the sale of our operations in Hungary, Romania, the Czech Republic and our exit from Slovakia in January 2012.
On track £2.5 billion operating profit1, up 6% on a continuing basis2
p Our Customer Cup is a group-wide competition to identify ways to improve customer service. Last year’s winners reduced the time for UK customers to receive payments from investment bond products to two days, which increased customer satisfaction by 42%.
p We’ve been changing the way we do things for our UK customers using an approach called ‘systems thinking’. By simplifying our processes we’ve increased employee engagement and customer satisfaction. More than 50% of our UK business uses ‘systems thinking’. This year applying its principles has, among other things, reduced the time it takes to pay death claims from 30 days to 3.
p Last year more of our customers were willing to recommend us. We continued to improve our customer satisfaction measure, Transactional Net Promoter Score® and more than half our businesses operate in the upper quartile relative to their competition.
p In 2011 we paid out £33 billion in claims and benefits to our customers across the world.
Engaging our people p We continue to improve employee satisfaction levels, empowering our people to make decisions and respond to customers in the way they know to be right.
p In 2011 we invested £12.4 million in community and charity projects and our employees dedicated 60,000 hours of their time to volunteering schemes.
p We are ranked in the top five companies globally in the FTSE4Good’s rating of companies’ corporate responsibility commitments and performance.
p We are the most reputable financial services company in the UK, according to the Reputation Institute.
We are committed to serving our customers and communities well in order to build a stronger, sustainable business, which makes a positive contribution to society and for which our people are proud to work.
® Net Promoter, NPS, and Net Promoter Score are trademarks of Satmetrix Systems, Inc., Bain & Company, and Fred Reichheld.
This is my sixth and final chairman’s statement. In June John McFarlane will take my place, having been chairman designate since January. John did a sterling job as chief executive of Australia and New Zealand Banking Group Limited (ANZ) for ten years. I wish him every success and am confident that he will be a huge asset to this company.
Effectiveness of the board The board takes its governance responsibilities very seriously and I am pleased to confirm that the board is compliant with the principles of the UK Corporate Governance Code relating to leadership and effectiveness. In applying these principles, the board continues to ensure there is a clear distinction between it and the executive leadership of the company by the group chief executive officer. Detailed terms of reference for the board and its committees clearly set out their respective responsibilities. There continues to be a rigorous and transparent procedure for the appointment of new directors. The effectiveness of the board, its committees and directors is assessed annually through a formal evaluation process. Further details of how we have applied the principles of the Code in this regard are set out in our Corporate Governance Report on page 97.
Concerns over the macro-economic environment in Europe dominated market sentiment, resulting in exceptional market volatility and uncertainty in 2011. Against this backdrop, I am pleased to report a year of good progress and operating profits4 of £2.5 billion.
We have beaten our operating targets… During the year we beat our operating targets. We generated £2.1 billion of operating capital. In life insurance, we delivered an internal rate of return (IRR) of 14.4%. In general insurance, we achieved a combined operating ratio (COR) of 96.8%. We also remain on track to meet our £400 million cost and efficiency target by the end of 2012.
…because our strategy is working. Our strategic priorities for 2011 were to increase operating capital generation, allocate capital to our chosen markets where we can grow and earn the highest returns, and simplify our portfolio. We have made good progress against each priority. We have significantly increased operating capital generation. In our 12 priority markets operating profits increased by 9% and we have delivered a strong performance in a number of our other markets. We have achieved this by making tough choices, supporting new business growth in markets where we can earn a strong return, such as the UK, and writing less capital intensive business in other markets. As a result, whilst life and pensions sales are marginally lower we are growing the business profitably. In the UK, which accounts for approximately half of our profits, we have made good progress in our ambition to be the undisputed market leader. With our broad product range and our strengths in underwriting, claims and distribution we have grown operating profits, sales and market share and are well prepared to take advantage of changes such as the Retail Distribution Review and auto-enrolment. In Europe, we increased operating profits and improved new business profitability and delivered strong operating performances in major markets such as France, Spain and Poland. In markets where conditions have been difficult we’ve taken action. In Ireland, for example, we have decided to combine the business with the UK region so that it can benefit from the UK’s scale and underwriting expertise. Whilst in the short term trading conditions in some European markets will be challenging, in the medium-term, Europe contains some of the most attractive insurance markets in the world with strong savings rates.
Good progress – beating operating targets 4 The Group’s accounting policy for operating profit (also referred to as Group adjusted operating profit) remains consistent with prior periods and is set out on page 168. 5 Operating profit on a continuing basis, excluding Delta Lloyd, was £2.2bn (FY2010: £2.0bn).
We delivered further profitable growth in life insurance… Life insurance performance was strong in 2011. We have allocated capital to more profitable areas, such as unit linked and term assurance, and away from more capital intensive products such as with-profits in Europe. We improved the profitability of our life insurance business with a 14.4% life new business IRR, ahead of our target of at least 12%, and increased life insurance operating profits by 7% to £2,123 million. In the UK, the life insurance result is a real highlight. We grew our share of an expanding life and pensions market and sales increased 10% to £11,315 million. We have a 25% market share in individual annuities and are number two in the life insurance protection market. UK life insurance operating profits increased by 8% to £920 million, double the level six years ago, and new business profitability remained strong with an IRR of 15%.
…and achieved a good general insurance result. We continued to grow our general insurance business profitably reflecting progress made in recent years to reduce costs and improve pricing. Our underwriting strength is a major competitive advantage and we increased underwriting profits significantly last year. Total general insurance and health net written premiums increased 8% to £9,162 million and we grew operating profits by 3% to £935 million. UK general insurance performance has been particularly strong. General insurance and health sales increased 8% and we delivered a COR of 96%. We are the market leader in the UK and we hold top three positions in all our major classes of business, including personal motor (with 413,000 net new customers in 2011), homeowner, commercial motor and commercial property. In Aviva Europe general insurance and health net written premiums increased 5% to £2,059 million driven by successful rating actions in a number of markets. General insurance profitability improved and we delivered a COR of 101% (FY 2010:103%).
Group CEO’s review continued 6 Underlying sales exclude an exceptional impact (-£0.5 billion) arising from the sale of Aviva Investors’ Australian equity manufacturing business which completed 1/10/11. 7 On a continuing basis excluding Delta Lloyd.
…so we continue to invest in new ways to serve them… We continue to invest and innovate in digital technology and social media so that we can serve our customers more effectively. We have made good progress and currently have a number of research and development pilots underway in areas such as claims, underwriting and customer service and we were ranked 8th, and the top financial services company, in the FTSE 100 Social Media Index.
Over 100 bank partners around the world 50 awards across 10 countries for customer service, innovation and performance
…so that more and more customers recommend us. Last year more of our customers were willing to recommend us than ever before. We improved our customer satisfaction measure, Net Promoter Score™, last year and now more than half of our businesses operate in the upper quartile relative to local competition. We won more than 50 awards across 10 countries for customer service, innovation and performance including being named general insurer of the year by Insurance Times in the UK; Aviva France’s product range was recognised by several awards from specialist industry publication “Les Dossiers de l’Épargne” and our Singapore business won the service channel innovation award for our direct channel at the IDC Financial Insights Awards.
Our success depends on our people… I am grateful to all my colleagues for their dedication, hard work, and professionalism. I am delighted that we have made encouraging progress in improving employee satisfaction during 2011 and we will continue to work hard at this. During the year we further strengthened the senior management team. Trevor Matthews, a highly experienced and well-regarded insurance industry leader, became UK CEO in December. We also appointed Cathryn Riley to the group executive committee as chief information officer to lead our global IT strategy and drive the best use of emerging technology for Aviva and its customers.
…and we play a responsible role in society. Aviva is a profitable and sustainable business able to meet our responsibilities not just to our shareholders but also to our customers, our employees and society. During 2011, we paid out £33 billion in claims and benefits to our customers, and our staff across the group dedicated 60,000 hours of time to volunteering schemes. We have an important role to provide our customers with prosperity and peace of mind. But we also have a wider commitment to society, supporting those who are not our customers through our Street to School programme where we have now helped 400,000 children. We have been ranked in the top five companies globally in FTSE4 Good’s rating of companies’ corporate responsibility commitments and performance, and recognised as the most reputable financial services company in the UK by the Reputation Institute.
Well placed to build on our strong performance We are well placed to build on last year’s performance and we are therefore increasing our operating targets. Although the economic environment is likely to remain tough for the foreseeable future, we have built a strong, sustainable and diverse business well positioned for further profitable growth.
Sharper focus Over the last few years we have simplified and streamlined Aviva. In the last three years, we have sold the majority of our stake in Delta Lloyd, exited Australia and the UAE, agreed the sale of our Czech and Hungarian operations, and agreed our exit from Slovakia. In 2011 we completed the sale of RAC for £1 billion, reflecting our focus on insurance and savings businesses in priority markets. We will continue to prioritise our investment in markets where we can grow and earn the highest returns, such as the UK, which accounts for approximately half of our profits, and Europe, where savings rates remain high and we have strong franchises.
Balanced earnings The mix of our business – combining life, general insurance and asset management – better balances earnings and cash flows though different operating environments than for a single-line insurer. This combination of our businesses provides capital benefits by diversifying risks. Aviva can hold 30–40% less capital to write new general insurance business than the general insurance business would need to hold on a standalone basis. It is anticipated that this benefit will be reinforced under Solvency II which means that, in the future, our business will be stronger than ever. We have been proactively managing our in-force book for profit, reducing the capital intensity of our life new business. Another feature of our business is that 80% of our life operating profits come from business written in previous years, giving our profitability greater resilience.
p RAC non-core (HPI, AW, BSM), p Delta Lloyd IPO p Aviva Life
Insurance, Australia p Delta Lloyd sell down, Benelux p RAC p Aviva Investors
Improved efficiency Following the successful delivery of our £500 million cost savings target a year early in 2010, we are on track to deliver our commitment of additional cost savings of £200 million and a further £200 million efficiency gains by end of 2012. We have large businesses with strong efficiency and our business and geographic mix allows us to transfer key skills and capabilities across the organisation and share back-office functions, IT and finance resources. As a result of our disposals and improved operational effectiveness we have significantly reduced the Group’s headcount of 54,700 in 2008 to 36,600 in 2011. Reducing roles is never an easy decision, but it is a necessary step in ensuring the long- term sustainability of the business.
Patrick Regan Chief financial officer 9 The Group’s accounting policy for operating profit (also referred to as Group adjusted operating profit) remains consistent with prior periods and is set out on page 168.
A strong life insurance result… Our life insurance performance was strong with operating profits of £2,123 million, an increase of 7% (FY 2010: £1,988 million). This improvement was driven by increases in a number of drivers of our profits. Underwriting margin increased by £63 million to £815 million (FY 2010: £752 million) particularly as a result of higher expense margins.
Total earnings impacted by market conditions IFRS profit before tax was £87 million (FY 2010: £2.4 billion). This includes a loss of £726 million relating to Delta Lloyd for the first four months of the year as a result of the reversal of investment
Group CFO’s review continued 10 The economic capital surplus represents an estimated unaudited position. The capital requirement is based on Aviva’s own internal assessment and capital management policies. The term ‘economic capital’ does not imply capital as required by regulators or other third parties. Pension scheme risk is allowed for through five years of stressed contributions.
variance gains seen in 2010. Profits from Aviva’s continuing operations (including our share of Delta Lloyd as an associate) were £813 million for the year. Operating profits were offset by adverse investment variances of £1,062 million, the vast majority of which were unrealised, which arose largely from widening credit spreads on government and corporate bonds. The profit on disposal of the RAC business was offset by restructuring and integration costs and write downs in the value of our holdings in Delta Lloyd. Aviva has high quality, well managed and diverse fixed income portfolios and we have delivered a consistently strong performance across these assets over a number of years. Operating earnings per share (EPS) was 53.8p (FY 2010: 55.1p). Total EPS was 5.8p (FY 2010: 50.4p) reflecting those credit spread movements seen in the year and the impact of the reversal of investment gains in Delta Lloyd in 2010.
Capital management The actions we have taken in 2011, particularly with the sell down of Delta Lloyd and the sale of RAC, provided important support to our capital position as economic conditions worsened in the second half of the year.
The sale of a further 15% in Delta Lloyd deconsolidated Delta Lloyd from Aviva’s accounts and significantly de-risked our balance sheet. We also sold RAC for cash consideration of £1.0 billion, at 17 times earnings, at the same time increasing Aviva’s tangible net assets by £1.0 billion. The deficit in the Group’s pension schemes was eliminated during 2011 and now shows a surplus on an IAS19 basis. We have substantially reduced our asset risk: our mortgage book has reduced from £35 billion in 2010 to £21 billion in 2011 as a result of the deconsolidation of Delta Lloyd and equity holdings in shareholder assets has decreased from £5.3 billion to little more than £1.3 billion over the same period. The group estimated regulatory capital surplus based on the EU Groups Directive (IGD) was £2.2 billion at 31 December 2011. This was impacted by adverse market movements seen in the second half of the year, particularly in interest rates and credit spreads in continental Europe, which reduced the total by around £1.5 billion. This was offset by the positive contribution from operating profits and capital management actions we have taken. Asset valuations improved in the first two months of 2012 and the estimated IGD solvency surplus at 29 February 2012 was £3.3 billion which represents a coverage ratio of 150%. Aviva’s estimated economic capital surplus10 coverage was approximately 125% at 31 December 2011 (FY 2010: 140%). This was impacted by negative movements in credit markets offsetting the increase in retained profits. Since the end of the year as a result of market improvements and management actions the estimated economic capital surplus coverage has increased to approximately 145% to 150% as at 29 February 2012. Our IFRS net asset value was 435p (FY 2010: 454p). This reflects the profits of the business, the sale of RAC and actuarial gains on the pension scheme, offset by the sell down of Delta Lloyd and the adverse impact of falls in equity, credit and foreign exchange markets. Aviva’s EEV equivalent net asset value per share was 595p (FY 2010: 621p) with the reduction from 2010 driven by the impact of the sell down of Delta Lloyd more than offsetting the increase in retained earnings. Total undiscounted expected profits increased slightly to £33.0 billion (FY 2010: £31.4 billion).
Focused on capital generation and effective balance sheet management By focusing on balance sheet strength, operating capital generation and effective allocation of capital, Aviva has shown its resilience in 2011. This has enabled us to pay a healthy dividend. Our robust performance in life insurance was underpinned by further improvements in capital efficiency and a reduction in costs. Aviva’s general insurance business has gone from strength to strength as we delivered a strong underwriting performance and growth in net written premiums. We are well placed to build on last year’s performance and are therefore increasing our operating targets for 2012. We are targeting a general insurance COR of 97% or better, excluding RAC which was a positive contributor to the COR; a life new business IRR of 13%; and between £1.6 and £1.9 billion of operating capital generation. We are confident about our prospects in 2012 as we continue to focus on operating capital generation and manage our balance sheet effectively to ensure that Aviva remains financially strong.
to £520 million with net written premiums up 8%14 at £4,844 million and COR of 96%
Looking ahead, we aim to become the undisputed UK market leader in life and general insurance. We will focus on underwriting and disciplined risk-selection in general insurance. In life insurance, our strategy and strong market positions mean we are well-placed to take advantage of regulatory changes, such as the Retail Distribution Review and auto-enrolment. We will also maintain our strong position in markets less likely to be affected by these changes, such as protection and annuities.
Europe p Operating profit up 4% to £937 million p Life operating profits up 1% to £898 million with sales down 20% at £10,891 million and life new business IRR of 14%
Aviva Investors p Operating profit down 9% to £91 million p Underlying18 net funded external sales excluding liquidity funds up 137% to £5.6 billion p 60% of institutional funds performed above benchmark p Further improvement in internal and external client service rankings (Investit)
Ea rn in gs p er s ha re (p en ce
Key performance indicators 1 The Group’s accounting policy for operating profit (also referred to as Adjusted operating profit) remains consistent with prior periods and is set out on page 168.
 Focusing on earnings per share allows us to align our strategic priorities with what our shareholders receive.
 Total IFRS return takes into account everything affecting shareholder value, not just operating profits.
Proposed ordinary dividend per share and dividend cover Our Board has recommended a final dividend of 16.00 pence per share (2010: 16.00 pence). This brings the total dividend for the year to 26.00 pence and gives a dividend cover of 2.0 times (2010: 2.1 times) based on total adjusted operating earnings after tax.
 Our intention is to pay a dividend on a basis judged prudent using dividend cover of 1.5–2.0 times, while retaining capital to fund future growth.
Adjusted operating profit before tax Adjusted operating profit1 decreased by £47 million, or 2%, to £2,503 million (2010: £2,550 million). The decrease is impacted by the partial disposal of Delta Lloyd on 6 May 2011, which reduced Delta Lloyd’s contribution to Aviva’s operating profit. Adjusted operating profit from continuing operations (excluding Delta Lloyd as an associate) increased by £129 million, or 6%, to £2,155 million (2010: £2,026 million), reflecting good performance in the UK long-term business, as well as in general insurance in Europe and North America.
Worldwide sales Worldwide sales from continuing operations decreased by £1,534 million, or 4%, to £40,555 million (2010: £42,089 million) reflecting management actions in respect of pricing and capital discipline in Europe and North America. Long-term savings sales from continuing operations decreased by £2,174 million, or 6%, to £31,393 million (2010: £33,567 million). General insurance and health sales from continuing operations increased by £640 million, or 8%, to £9,162 million (2010: £8,522 million).
 Return on equity shareholders’ funds is calculated as total after-tax operating return, on opening equity shareholders’ funds, including life profits.
 The survey results are used each year to determine and implement actions with the aim of achieving continuous improvement. The survey measures employees’ perceptions of leadership, engagement and more, verifying alignment with our strategic direction and immediate business plans.
 Customer advocacy gives us, in a single, simple measure, an accurate predictor of customer retention and cross-sell opportunity.
Financial and operating performance We are the sixth-largest insurance group in the world based on gross worldwide premiums for the 2010 year. Our main activities are the provision of products and services in relation to long-term insurance and savings, fund management and general insurance.
Factors affecting results of operations Our financial results are affected, to some degree, by a number of external factors, including demographic trends, general economic and market conditions, government policy and legislation and exchange rate fluctuations. See ‘Performance review – Risk and capital management’ for more information on risks associated with these and other factors. In addition, our financial results are affected by corporate actions taken by the Group, including acquisitions, disposals and other actions aimed at achieving our stated strategy. We believe that all of these factors will continue to affect our results in the future.
Demographic trends Our results are affected by the demographic make-up of the countries in which we operate. The types of products that we sell reflect the needs of our customers. For example, in regions and countries with a high proportion of older people, a larger proportion of our sales will reflect their needs for pre- and postretirement planning. Our sales levels will also be impacted by our ability to help provide useful information to such policyholders on retirement planning and to offer products that are competitive and respond to such policyholders’ needs. In our long-term insurance and savings business we make assumptions about key non-economic factors, such as the mortality rate that we expect to be experienced by our policyholders. In countries where the life expectancy is growing, this will need to be reflected in our pricing models as lower mortality rates will increase profitability of life insurance products but will reduce the returns on annuity products. We review our assumptions against our own experience and industry expectations.
Economic conditions Our results are affected by the levels of economic activity in our geographic markets and, consequently, by economic cycles in those markets. High levels of general economic activity typically result in high levels of demand for, and sales of, our products and services. Economic activity in turn is affected by government monetary and fiscal policy as well as by global trading conditions and external shocks such as terrorist activity, war and oil price movements. During 2010, we saw improved economic activity across our regions. Although customers continued to prefer cash deposits, we saw movement towards investment products resulting in increased investment sales, primarily across Europe and Asia. During 2011, concerns over slowing economic growth, higher levels of sovereign debt within, and to a lesser degree outside, the eurozone, the stability and solvency of financial institutions, longer-term low interest rates in developed markets, inflationary threats as well as geopolitical issues have contributed to increased volatility in the financial markets. The continued market volatility across global financial markets saw customers reassert their preference for less complex products and reduce their exposure to investment markets.
With-profits business We write products through our with-profits funds mainly in our UK operating segment, with smaller funds in Ireland and Singapore. These funds enable policyholders to participate in a large pool of diverse investments, therefore reducing their exposure to individual securities or asset classes. The investment pool is managed by us with returns to with-profits policyholders paid through bonuses which are added to the value of their policy. In order to provide an element of stability in the returns to policyholders, bonuses are designed to reduce policyholders’ exposure to the volatility of investment returns over time and to provide an equitable share of surplus earned, depending on the investment and operating performance of the fund. Shareholders also have a participating interest in the with-profit funds and any declared bonuses. Generally, policyholder and shareholder participation in with-profit funds in the UK is split 90:10. The level of bonuses declared to policyholders is influenced by the actual returns on investments and our expectation of future rates of return. While bonuses can never be negative, a predicted sustained fall in equity markets could lead to a reduction in regular and final bonus rates, thereby reducing both policyholder returns and shareholders’ profit under IFRS. During 2008 and 2009, the worsening economic conditions impacted UK bonus levels but the annual effect of this for both policyholders and shareholders was offset by the benefit from the one-off special bonus mentioned below. Improving investment returns over 2010 increased bonus rates although the impact of smoothing inherent within bonus calculations meant that this was not universal. In 2011, low investment returns and the difficult economic outlook led to reductions in regular and final bonus rates. Shareholders’ profits arising on with-profits business under IFRS depend on the total bonuses declared to policyholders on an annual basis. A special bonus distribution was announced for policyholders of two of our UK with-profits funds, with the final payment made in 2010. This special bonus reflected the financial strength of those funds, and provided an uplift to IFRS profits in 2008, 2009 and 2010. The uplift in 2010 was approximately £58 million, net of tax. No special bonus was paid in 2011.
General insurance and health underwriting cycle Our general insurance and health business is comprised of our property and casualty insurance and health insurance operations. In 2011, general insurance and health sales accounted for 32% of group net written premiums from continuing operations. Demand for general insurance is usually price-sensitive because of the limited degree of product differentiation inherent in the industry. As a result, the price of insuring property and casualty risks is subject to a cycle (called an underwriting cycle). In periods when the price of risk is high, the high profitability of selling insurance attracts new entrants and hence new capital into the market. Increased competition however drives prices down. Eventually the business becomes uneconomic and some industry players, suffering from losses, exit the market while others fail, resulting in lower capital invested within the market. Decreased competition leads to increasing prices, thereby repeating the cycle. Although our various general insurance markets are not always at the same stage of the underwriting cycle, price competition has been increasing within the UK and the rest of the world across most of our general insurance business lines in recent years. We are now seeing evidence of increased rating discipline in the UK resulting from volatile investment markets. We expect the underwriting cycle to continue in the future but to be less pronounced than in the past because of structural changes to the industry over the past decade. Capital markets are imposing financial discipline by being increasingly more demanding about performance from insurance companies before extending new capital. Such discipline, together with the increased concentration of competitors within the market, recent natural disasters and the adoption of more scientific pricing methods, is expected to make the underwriting cycle less pronounced in the future.
Natural and man-made disasters Our general insurance and health business results are affected by the amount of claims we need to pay out which, in turn, can be subject to significant volatility depending on many factors, including natural and man-made disasters. Natural disasters arise from adverse weather, earthquakes and other such natural phenomena. Man-made disasters include accidents and intentional events, such as acts of terrorism. These events are difficult to predict with a high degree of accuracy, although they generally occur infrequently at a material level. Our exposure to large disasters has been somewhat reduced through the recent strategic refocusing of our general insurance business mainly towards personal lines business and small- to medium-sized commercial risks. The Group cedes much of its worldwide catastrophe risk to third-party reinsurers but retains a pooled element for its own account gaining diversification benefit. See ‘Financial statements IFRS – Note 56 – Risk Management’ and ‘Financial statements IFRS – Note 42 – Reinsurance Assets’. In 2009, the UK, Ireland and France incurred some weatherrelated losses. In 2010, the UK was impacted by severe freezes in January, November and December. In 2011, France and Ireland were impacted by storm and flood losses and Canada incurred losses from a wildfire in Slave Lake.
Subsequent events In January 2012, we announced the sale of our Czech Republic, Hungary and Romania life and pensions businesses to MetLife Inc. The transaction, which is subject to regulatory approvals in each jurisdiction, is expected to be completed during 2012. Further details can be found in the section ‘Financial statements IFRS – Note 3c – Subsidiaries’. Following a detailed structural review, Aviva has proposed to make its Irish business part of a new UK and Ireland region, aligning many of the activities and services provided for customers. The Irish business would benefit from Aviva UK’s investment in technology, underwriting capability and significant purchasing power, enabling Aviva Ireland to offer more competitive pricing and to introduce new products and services. Aviva’s distribution arrangement with Allied Irish Bank (AIB) for long-term business will cease in 2012 and the bancassurance partnership with AIB is being unwound. A strategic review is underway to determine the most effective distribution channels going forward. Further details can be found in the section ‘Financial statements IFRS – Note 3c – Subsidiaries’.
Acquisitions and disposals Over the last three years we have engaged in a series of acquisitions and disposals, some of which have had a material impact on our results. These transactions reflect our strategic objectives of maximising value for our shareholders by building top five positions in key markets, withdrawing from lines of business or markets that do not offer the potential for market-leading positions and taking advantage of particular opportunities as they arise.
UK with-profits business With-profits products are designed to pay policyholders smoother investment returns through a combination of regular bonuses and final bonuses. Shareholders’ profit emerges from this business in direct proportion to policyholder bonuses, as shareholders receive up to one-ninth of the value of each year’s bonus declaration to policyholders. Accordingly, the smoothing inherent in the bonus declarations provides for relatively stable annual shareholders’ profit from this business. The most significant factors that influence the determination of bonus rates are the return on the investments of the with-profits funds and expectations about future investment returns. Actual and expected investment returns are affected by, among other factors, the mix of investments supporting the with-profits fund, which in turn is influenced by the extent of the inherited estate within the with-profits fund.
General insurance and health business Operating earnings within our general insurance and health business arise when premiums and investment return earned on assets supporting insurance liabilities and shareholder capital, exceed claims costs, costs of acquiring new business and administration costs.
Arrangements for the management of proprietary funds are conducted on an arm’s length basis between our fund management and insurance businesses. Such arrangements exist mainly in the UK, France, Ireland, the US and Canada. Proprietary insurance funds in other countries are externally managed.
Financial highlights The following analysis is based on our consolidated financial statements and should be read in conjunction with those statements. In order to fully explain the performance of our business, we discuss and analyse the results of our business in terms of certain financial measures which are based on ‘nonGAAP measures’ and which we use for internal monitoring and for executive remuneration purposes. We review these in addition to GAAP measures, such as profit before and after tax.
– There is an element of insurance risk borne by the Group therefore, under IFRS, these are reported within net written premiums.
Sales is a non-GAAP financial measure and key performance indicator that we report to our key decision makers in the businesses in order to assess the value of new business from our customers and compare performance across the markets in which we operate. We consider sales to be a critical indicator of new business, and are the basis on which we provide analysis of our results to our shareholders and analysts. The non-GAAP measure of sales is also used internally in the determination of bonus awards as an executive performance measure.
In comparison to IFRS net written premiums, sales do not include premiums received from contracts in-force at the beginning of the year, even though these are a source of IFRS revenue, as these have already been recognised as sales in the year of inception of the contract. In addition, unlike IFRS net written premiums, sales do not reflect the effect on premiums of any increase or decrease in persistency of regular premium contracts compared to what was assumed at the inception of the contract. PVNBP is not a substitute for net written premiums as determined in accordance with IFRS. Our definition of sales may differ from similar measures used by other companies, and may change over time.
General insurance and health sales General insurance and health sales are defined as IFRS net written premiums, which are premiums written during the year net of amounts reinsured with third parties, as set out in the segmental analysis of results in ‘Financial statements IFRS – Note 4 – Segmental information’. For sales reporting, we use the GAAP measure for general insurance and health business. The table below presents our consolidated sales for the three years ended 31 December 2011, 2010 and 2009 for our continuing operations, as well as the reconciliation of sales to net written premiums in IFRS.
 IFRS gross written premiums from existing long-term business: The non-GAAP measure of long-term and savings sales focuses on new business written in the year under review while the IFRS income statement includes premiums received from all business, both new and existing.
Adjusted operating profit We report to our chief operating decision makers in the businesses the results of our operating segments using a financial performance measure we refer to as ‘adjusted operating profit’. We define our segment adjusted operating profit as profit before income taxes and non-controlling interests in earnings, excluding the following items: investment return variances and economic assumption changes on long-term and non-long-term business, impairment of goodwill, joint ventures and associates, amortisation and impairment of other intangibles (excluding the acquired value of in-force business), profit or loss on the disposal of subsidiaries and associates, integration and restructuring costs and exceptional items. While these excluded items are significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of adjusted operating profit enhances the understanding and comparability of the underlying performance of our segments by highlighting net income attributable to ongoing segment operations. Adjusted operating profit for long-term insurance and savings business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the period, with consistent 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. Where assets are classified as fair value through profit and loss, expected return is based on the same assumptions used under embedded value principles for fixed income securities, equities and properties. Where fixed interest securities are classified as available for sale, such as in the US, the expected return comprises interest or dividend payments and amortisation of the premium or discount at purchase. Adjusted operating profit includes the effect of variances in experience for non-economic items, such as mortality, persistency and expenses, and the effect of changes in non-economic assumptions. Changes due to economic items, such as market value movement and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed as nonoperating items. Adjusted operating profit for non-long-term insurance business is based on expected investment returns on financial investments backing shareholder funds over the period. Expected investment returns are calculated for equities and properties by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longerterm rate of return. This rate of return is the same as that applied for the long-term business expected returns. The longer-term return for other investments is the actual income receivable for the period. Changes due to market value movement and interest rate changes, which give rise to variances between actual and expected investment returns, are disclosed as non-operating items. The impact of changes in the discount rate applied to claims provisions is also treated outside adjusted operating profit. Adjusted operating profit is not a substitute for profit before income taxes and non-controlling interests in earnings or net income as determined in accordance with IFRS. Our definition of adjusted operating profit may differ from similar measures used by other companies, and may change over time. The table below presents our consolidated adjusted operating profit for the three years ended 31 December 2011, 2010 and 2009, as well as the reconciliation of adjusted operating profit to profit before tax attributable to shareholders’ profits under IFRS.
Economic assumption changes on general insurance and health business (90) (61) 57
Amortisation and impairment of intangibles (171) (193) (125) Profit on the disposal of subsidiaries
Consolidated results of operations The table below presents our consolidated sales from continuing operations for the three years ended 31 December 2011, 2010 and 2009.
Income Gross written premiums 30,000 31,805 30,208 Premiums ceded to reinsurers (1,673) (1,734) (2,435)
Net earned premiums 28,091 29,998 28,326 Fee and commission income 1,479 1,450 1,563 Net investment income 5,991 18,749 21,910 Share of (loss)/profit of joint ventures
Year ended 31 December 2010 Other income increased by £532 million to £1,754 million in 2010 (2009: £1,222 million). The increase was primarily due to improved financial performance by joint ventures and associates, with the share of profit in the year being £141 million against a loss in 2009 of £463 million.
Expenses (from continuing operations) Year ended 31 December 2011 Claims and benefits paid net of reinsurance in 2011 increased by £2,016 million, or 8%, to £26,934 million (2010: £24,918 million) reflecting increased claims payments in our life businesses. Changes in insurance liabilities in 2011 decreased by £2,878 million, or 44%, to a charge of £3,730 million (2010: £6,608 million). This was primarily due to changes in economic and non-economic assumptions. The change in investment contract provisions of £1,224 million credit (2010: £8,693 million charge) was a result of deteriorating investment market conditions across our regions causing a decrease in contract liabilities.
Profit/(loss) before tax attributable to shareholders’ profits (from continuing operations) Year ended 31 December 2011 Profit before tax attributable to shareholders was £813 million (2010: £1,545 million profit). The decrease was primarily due to the drop in net investment income.
Adjusting items (from continuing operations) Year ended 31 December 2011 The investment return variances and economic assumption changes on long-term insurance business produced a £796 million charge (2010: £219 million charge). The short-term fluctuations and economic assumption changes on the non-life business produced a £356 million charge (2010: £260 million charge). This was due to unfavourable market movements in a number of our regions. The impairment of goodwill, associates and joint ventures was £392 million in 2011 (2010: £23 million). An impairment of £217 million was recognised in respect of the associate, Delta Lloyd. The fair value has been calculated based on the market price of the ordinary shares of Delta Lloyd NV quoted on the NYSE Euronext Amsterdam as at 31 December 2011. Following the announcement of the termination of Aviva Ireland’s bancassurance distribution contract, management reviewed the recoverability of the goodwill associated with this business and an impairment loss of £120 million was recognised, reducing the carrying value of goodwill relating to this business to nil. The UK long-term business had an impairment of £29 million. In Italy, an impairment of £11 million was recognised in respect of Aviva Assicurazioni Vita Spa, as a result of a reduction in management’s estimates for the future profitability of the business due to current economic circumstances. There was an impairment charge of £15 million recognised in respect of goodwill within interests in joint ventures relating to Korea. Amortisation of intangibles decreased by £22 million, or 11%, to £171 million (2010: £193 million). Profit on disposal of subsidiaries and associates was £565 million (2010: £163 million). The profit comprises principally of a £532 million profit in relation to the sale of RAC, as described in note 3 to the IFRS financial statements. Integration and restructuring costs for 2011 were £268 million (2010: £225 million). This includes costs associated with preparing the businesses for Solvency II implementation of £96 million, a £30 million charge in the UK relating to the reattribution of the inherited estate and expenditure relating to the Quantum Leap project in Europe of £51 million. Expenditure relating to other restructuring exercises across the group amounted to £91 million. Exceptional items in 2011 were £57 million unfavourable (2010: £276 million favourable) relating to a £22 million provision for compensation scheme costs for the leveraged property fund in Ireland, and a £35 million expense for the discounted cost of strengthening latent claims provisions in the UK written a significant number of years ago. In 2010, exceptional items mainly related to a £286 million benefit from the closure of the final salary section of the UK staff pension scheme.
Year ended 31 December 2010 The long-term insurance and savings business investment variances and economic assumption change was a £219 million charge (2009: £273 million gain) driven by a reversal of Aviva Europe’s position going from a £194 million gain in 2009 to a £154 million charge in 2010 as economic conditions worsened. The short-term fluctuations and economic assumption changes on the non-life business were a £260 million charge (2009: £175 million credit). This was due to unfavourable market movements in a number of our regions. Impairment of goodwill was £23 million in 2010 (2009: £61 million). The charge primarily related to an impairment recognised in an Italian associate and £9 million against Taiwan. Amortisation of intangibles increased by £68 million to £193 million in 2010 (2009: £125 million) due to a £66 million higher amortisation charge recognised in UK Life relating to an accelerated amortisation period for certain assets. Profit on disposal of subsidiaries and associates was £163 million (2009: £122 million). The profit principally comprises of a £128 million profit in relation to the transaction with RBSG. Integration and restructuring costs for 2010 was £225 million (2009: £286 million) including expenditures relating to restructuring programmes across the Group of £123 million; costs in relation to the European ‘Quantum Leap’ transformation programme of £40 million; and costs associated with preparing the businesses for Solvency II implementation of £59 million. Exceptional items in 2010 were £276 million favourable (2009: £45 million favourable). This included a net gain on the closure of the UK pension schemes of £286 million.
Adjusted operating profit (excluding Delta Lloyd) increased by £129 million, or 6%, to £2,155 million (2010: £2,026 million) for the reasons set out above.
Year ended 31 December 2010 Adjusted operating profit (excluding Delta Lloyd) increased by £374 million, or 23%, to £2,026 million (2009: £1,652 million) for the reasons set out above.
Year ended 31 December 2010 On a PVNBP basis, sales in our UK long-term insurance and savings business increased by £1,883 million, or 19%, to £11,846 million (2009: £9,963 million). Protection sales stayed broadly level as a 14% increase in core protection products offset a reduction in other areas. Pension sales increased by 8% supported by a strong performance in group personal pensions. Annuities increased by 67% supported by higher sales of bulk purchase annuities and a 34% increase in the sale of individual annuities. Bonds decreased 17% as we continued to manage for value rather than volume. Investment sales increased by 48% due to growth in managed and structured fund sales and as consumers reinvested in property as an asset class. Equity release showed an increase of 58%. Net written premiums in our UK long-term insurance and savings business were £5,469 million, an increase of £1,080 million, or 25%, from £4,389 million in 2009. The increase was primarily due to higher bulk purchase annuity sales. Adjusted operating profit in our UK long-term insurance and savings business increased by 26% to £850 million (2009: £672 million) reflecting the full year benefit of the Reattributed Inherited Estate External Support Account (RIEESA), increased annuity profitability and improved market conditions resulting in higher annual management charge (AMC) income. This was partly offset by a reduction in with-profits shareholder transfers driven by reduced bonus rates and a lower, final special distribution.
Profit before tax was £784 million for 2010 (2009: £611 million) which includes a £128 million one-off benefit from the restructuring of our joint venture with the Royal Bank of Scotland.
Year end 31 December 2010 UK general insurance and health net written premiums were £4,539 million, an increase of £241 million, or 6%, on 2009 (2009: £4,298 million). The increase reflects a combination of factors, including excellent retention, substantial growth in our direct channel, rolling out our direct prices to brokers, good levels of commercial new business and the launch of our corporate risks offering. Adjusted operating profit in 2010 was £579 million, an increase of £44 million, or 8% (2009: £535 million). The increase in adjusted operating profit results from an improvement in current year profitability which more than offsets an adverse impact from weather-related claims of £40 million compared to long-term average (2009: neutral), an £11 million reduction in investment return to £406 million (2009: £417 million) and lower savings on prior year claims development of £87 million (2009: £105 million).
Aviva Europe Aviva Europe has substantial long-term insurance and savings businesses in France, Ireland, Italy, Poland and Spain. We also have a growing presence in Russia and Turkey. We have large general insurance businesses in France, Ireland and Italy as well as smaller operations in Poland and Turkey. Our Europe fund management operations are managed primarily by Aviva Investors. The table below presents sales and net written premiums from our operations in Europe for the three years ended 31 December 2011, 2010 and 2009, including amounts relating to investment sales from Aviva Investors.
The table below presents adjusted operating profit and profit before tax attributable to shareholders’ profits under IFRS from our operations in Europe for the three years ended 31 December 2011, 2010 and 2009.
North America Aviva North America includes the long-term insurance and savings business in the US, which provides life insurance and annuity products, and the general insurance business in Canada. The table below presents sales, net written premiums, adjusted operating profit and IFRS profit/(loss) before tax attributable to shareholders for the three years ended 31 December 2011, 2010 and 2009.
Year ended 31 December 2011 Sales in Aviva North America decreased by £671 million, or 10%, to £6,015 million (2010: £6,686 million). Annuity sales in 2011 declined by £890 million, or 24%, to £2,839 million (2010: £3,729 million), primarily driven by our focus on value over volume, with strong annuity price competition and increased consumer demand for variable annuity products in the first half of 2011. Our protection sales increased by £94 million, or 9%, to £1,093 million (2010: £999 million) reflecting our focus on growth in life business. Life sales account for 28% of our long-term savings sales (2010: 21%). General insurance sales in Canada increased by £125 million, or 6%, to £2,083 million (2010: £1,958 million), reflecting growth in both Personal and Commercial Lines. Aviva North America’s net written premiums decreased by £740 million, or 11%, to £5,703 million (2010: £6,443 million). The decrease was due to lower annuity sales in the US partially offset by premium growth in general insurance. Adjusted operating profit increased by £57 million, or 15%, to £433 million (2010: £376 million). Long-term insurance and savings adjusted operating profit increased by £23 million, or 13%, to £197 million (2010: £174 million) as our in-force book grew and we maintained strong spread management and disciplined pricing in a competitive environment. General insurance adjusted operating profit improved by £32 million, or 14%, to £254 million (2010: £222 million) driven by growth in underwriting profit. Aviva North America’s profit before tax attributable to shareholders’ profits increased by £198 million, or 64%, to £507 million (2010: £309 million). The increase was mainly as a result of improved operating results, favourable short-term investment variances in both our life and general insurance businesses, and lower amortisation of intangibles.
Year ended 31 December 2010 Sales in Aviva North America were £6,686 million, an increase of £341 million, or 5% (2009: £6,345 million). Annuity sales in 2010 grew to £3,729 million, slightly above the previous year’s levels (2009: £3,674 million) reflecting focus on our key distribution partners while balancing productivity, profitability and capital efficiency. Compared to the prior year, our protection sales increased by 15% to £999 million (2009: £871 million) and accounted for 21% (2009: 19%) of our total new business sales in the US reflecting our continued focus on business diversification. The US business experienced its second consecutive year of double digit internally generated growth in 2010. General insurance sales in Canada increased by £158 million, or 9%, to £1,958 million (2009: £1,800 million), benefiting from the impact of foreign exchange, which more than offset a 3% decline on a local currency basis reflecting our actions to eliminate poorly performing personal lines business. Aviva North America’s net written premiums increased by £267 million, or 4%, to £6,443 million (2009: £6,176 million). The increase was a result of higher protection product sales in the US and foreign exchange driven increases in Canada as noted above. Adjusted operating profit was £376 million, an increase of £163 million, or 77% (2009: £213 million). Long-term insurance and savings adjusted operating profit increased 105% to £174 million (2009: £85 million) driven by spread management, expense discipline and an improved economic environment. General insurance adjusted operating profit improved 54% in 2010 to £222 million (2009: £144 million) due to improved risk selection, product pricing and cost savings combined with benign weather in the early part of 2010.
Australia long-term insurance and savings business — — 40 General insurance and health (8) (6) 6 Fund management and non-insurance (30) (34) (21)
Year ended 31 December 2011 Total Asia sales increased by £150 million, or 7%, to £2,328 million (2010: £2,178 million) despite uncertain economic conditions and regulatory climates in China and India. The strong performance reflects the success of our existing bancassurance partnerships. Life and pension sales increased by 10% mainly from the bancassurance channel, whilst investment sales fell due to investor caution in the region. Net written premiums increased by £4 million, or 1%, to £583 million (2010: £579 million) reflecting the growth in the health and online (direct) general insurance platform in Singapore, and momentum gained after entry into the Indonesia health market in 2010. Adjusted operating profit increased by £39 million, or 126%, to £70 million (2010: £31 million). This includes a reserving change benefit in Hong Kong of £25 million in 2011. The 2010 result included £27 million profit from changes to China’s GAAP accounting basis. Profit before tax decreased by £5 million, or 13%, to £34 million (2010: £39 million) due mainly to goodwill impairment of £15 million in Korea.
Year ended 31 December 2010 Total Asia sales excluding Australia increased by £461 million, or 27%, to £2,178 million (2009: £1,717 million1) underpinned by improving economic conditions and reflecting our business expansion in Asia and the success of our bancassurance partnerships. Life and pensions sales (in PVNBP terms) increased by 48%, with more than half of our sales coming from bancassurance channels. Investment sales through Navigator (our wrap administration platform) declined although total funds under administration grew by 23% over the year. Net written premiums increased by £202 million to £579 million (2009: £377 million1). This strong growth reflected the new online (direct) general insurance platform in Singapore, our entry into the Indonesia health market as well as growth in existing markets. This more than offset the drop in net written premiums due to the disposal of the Australian business. Excluding one-off impacts on adjusted operating profit (2010: £27 million from a change in China GAAP basis; 2009: £68 million release of reserves in Singapore) and excluding the contribution from Australia, the underlying adjusted operating profit increased by £40 million reflecting scale and focused cost management. Profit before tax of £39 million was lower than the prior year (2009: £146 million) due to the profit arising in 2009 on the sale of the Australian business and the contribution from substantial investment market movements in 2009.
Aviva Investors Aviva Investors, our fund management business, operates across all four regions providing fund management services to Aviva’s long-term insurance and savings and general insurance operations as well as to a growing number of third-party investors. The table below presents the adjusted operating profit, profit before tax attributable to shareholders’ profits under IFRS and funds under management of Aviva Investors for the three years ended 31 December 2011, 2010 and 2009.
Delta Lloyd (discontinued operations) Delta Lloyd operations include long-term insurance and savings, general insurance and fund management. The table below presents sales and net written premiums from Delta Lloyd for the three years ended 31 December 2011, 2010 and 2009.
Year ended 31 December 2011 On 6 May 2011, the Group sold 25 million shares in Delta Lloyd, reducing our holding to 42.7% of Delta Lloyd’s ordinary share capital, representing 40% of shareholder voting rights. As the Group no longer commands a majority of shareholder voting rights, it no longer controls Delta Lloyd. Accordingly, from 6 May 2011, the Group has ceased to consolidate the results and net assets of Delta Lloyd. Delta Lloyd’s adjusted operating profit for the period to 6 May 2011, when it was deconsolidated, was £191 million. The Group’s share of the adjusted operating profits of its retained interest in Delta Lloyd as an associate for the remainder of 2011was £157 million.
Year ended 31 December 2010 Delta Lloyd reported long-term and savings sales of £3,793 million, a decrease of £536 million, or 12%, on 2009 (2009: £4,329 million). Life and pension sales decreased by 13% to £3,178 million with investment sales reported at £615 million, a decrease of 7% on 2009. Excluding Germany, life and pension sales were 3% lower on a local currency basis. General insurance and health sales at £1,177 million were in line with prior year (2009: £1,163 million) and 5% higher on a local currency basis. This includes amounts from accelerating the reporting of brokered business onto an actual basis; excluding these amounts net written premiums were stable year on year. Delta Lloyd reported net written premiums of £4,340 million in line with 2009 (2009: £4,341 million) primarily due to lower group pension contracts and the closure of the German operation to new business being offset by an increase in annuity product sales. Adjusted operating profit was £536 million, an increase of £137 million on £399 million in 2009. Improved profits in the fund management segment resulted from a substantial one-off performance fee received in late 2010 while life operating profit benefited from increased technical margins and a reduction in administration costs.
Corporate centre and group debt costs and other interest (from continuing operations) The table below presents corporate centre and group debt costs and other interest for the three years ended 31 December 2011, 2010, 2009.
Year ended 31 December 2011 Corporate centre costs decreased by £5 million, or 3%, to £138 million (2010: £143 million). The decrease principally reflects a reduction in project spend of £18 million in the year, and is offset by central spend which increased by £11 million arising from continued commitment to meeting increased regulatory and reporting requirements. Group debt and other interest costs increased by £13 million, or 2%, to £657 million (2010: £644 million). This increase principally relates to higher interest costs on internal lending arrangements of £287 million (2010: £246 million) driven by changes in internal loan balances throughout the year. Group debt costs and other interest includes net pension charge of £46 million (2010: £87 million). This represents the difference between the expected return on pension scheme assets and the interest charge on pension scheme liabilities.
Year ended 31 December 2010 Corporate centre costs were £143 million, an increase of £35 million, or 32%, on £108 million in 2009. The increase principally reflected a higher project spend of £26 million in the year, and higher central costs of £7 million arising from enhanced capacity to meet greater financial and regulatory reporting requirements. Group debt and other interest costs were £644 million, an increase of £36 million or 6% on 2009. The increase principally relates to higher lending arrangement costs in 2010 of £246 million; (2009: £227 million) driven by changes in internal loan balances throughout the year. Group debt costs and other interest includes the net pension charge of £87 million (2009: £74 million). This represents the difference between the expected return on pension scheme assets and the unwind of the discount on pension scheme liabilities.
Amounts in accordance with IFRS 2011 £m £m 2008 £m £m
Share of (loss)/profit after tax of joint ventures and associates (123) 141 (463) (1,101) (302) Profit/(loss) on the disposal of subsidiaries and associates 565 163 122 (8) 49
Expenses Claims and benefits paid, net of recoveries from reinsurers (26,934) (24,918) (23,982) (25,222) (23,321) Change in insurance liabilities, net of reinsurance (3,730) (6,608) (4,234) 4,729 (3,218) Change in investment contract provisions 1,224 (8,693) (10,946) 10,507 (2,036) Change in unallocated divisible surplus 2,721 362 (1,479) 4,452 2,876
Profit/(loss) before tax attributable to shareholders’ profits 813 1,545 1,795 (1,100) 1,357 Tax attributable to shareholders’ profits (229) (323) (508) 393 (330)
Profit/(loss) after tax from continuing operations 584 1,222 1,287 (707) 1,027 Profit/(loss) after tax from discontinued operations (524) 670 28 (178) 471
Continuing operations – Basic (pence per share) 17.0p 37.6p 37.9p (29.8)p 31.9p Continuing operations – Diluted (pence per share) 16.7p 37.0p 37.6p (29.8)p 31.7p
Our history The Group was formed by the merger of CGU plc and Norwich Union plc on 30 May 2000. CGU plc was renamed CGNU plc on completion of the merger, and subsequently renamed Aviva plc on 1 July 2002. CGU plc and Norwich Union plc were both major UK-based insurers operating in the long-term insurance business and general insurance markets. Both companies had long corporate histories. Hand in Hand, which was incorporated in 1696, was acquired by Commercial Union in 1905, which itself was incorporated in 1861. General Accident plc was incorporated in 1865. Norwich Union plc was founded as a mutual society in 1797 and operated as such until 1997 when it demutualised and became an English public limited company. CGU plc was formed in 1998 from the merger of Commercial Union plc and General Accident plc. Between 2000 and 2002, we actively withdrew from lines of business and markets that did not offer the potential for marketleading positions or superior returns, or did not otherwise meet our strategic objectives. We did this principally through the disposal of property and casualty businesses in the UK London Market, the US, Australia, New Zealand and certain European countries. In 2005 we acquired RAC, which was subsequently sold to buyout firm Carlyle Group in 2011 for £1 billion. In 2006, we acquired US financial services company AmerUs. During 2009, we disposed of our long-term savings and wealth management business in Australia and through an IPO we sold approximately 42% of our Dutch business, Delta Lloyd. In January 2010, we integrated our life, general insurance and health businesses in the UK. We also announced the acquisition of River Road Asset Management, a US equity manager, to support the expansion of Aviva Investors business. In 2011, we sold a further 15% of Delta Lloyd bringing our holding down to approximately 43%. We also sold the Aviva Investors business in Australia and we exited UAE as part of our geographic focus. In January 2012, we announced the sale of Czech Republic, Hungary and Romania life and pensions businesses to MetLife Inc. The transaction, which is subject to regulatory approvals in each jurisdiction, is expected to be completed during 2012. Aviva’s distribution arrangement with Allied Irish Bank (AIB) for long-term business will cease in 2012 and the bancassurance partnership with AIB is being unwound. A strategic review is underway to determine the most effective distribution channels going forward. Further details of recent acquisitions and disposals can be found in the section ‘Financial statements IFRS – Note 3 – Subsidiaries’.
Business overview Our aims and strategy We have simplified and streamlined the Group, moving from a federation of independent businesses to a successful global business under a single brand, Aviva. However, there is no doubt the world has changed significantly in the last few years. This is particularly true for Aviva’s customers, who are responding to the uncertain economic climate and lower disposable incomes by paying off debt and saving more, to ensure a more secure financial future for themselves and their families. For insurance companies such as Aviva, current capital constraints demand investment discipline, greater strategic focus and strong balance sheets. In 2010, we assessed our strategic direction against the backdrop of these changes and came away with three principal conclusions:  Increasing geographic focus
We will focus on markets where we have strength and scale. In determining our focus, we will judge markets on their potential to generate both US$100 million of adjusted operating profits and a 12% return on capital employed, or US$1 billion of franchise value for younger businesses. This focus will allow us to capitalise on our leading market positions in the UK and Europe, the world’s largest life and pensions market.1
Our life and general insurance operations are excellent businesses in their own right, but in addition to their inherent strengths there are significant advantages to running these businesses under one brand and in one group, supported by Aviva Investors.
 Building on our core strengths To be the best in both life and general insurance, we will focus on our four core strengths of marketing and distribution, financial discipline, technical excellence and operational effectiveness, benefiting from a powerful brand and growing customer franchise.
Our business Overview We provide around 43 million customers with long-term insurance and savings, general and health insurance, and fund management products and services. Our business is managed through a regional management structure based on four geographic regions: UK, Europe, North America and Asia Pacific. The four regions, together with Aviva Investors, function as six operating segments. Due to the size of the UK region it is split into the UK Life and UK General Insurance segments, which undertake long-term insurance and savings business and general insurance, respectively. Aviva Investors, our fund management business, operates across all four regions providing fund management services to third-party investors and to our long-term insurance businesses and general insurance operations. On 6 May 2011, the Group ceased to hold a majority of the shareholder voting rights in Delta Lloyd. The results of Delta Lloyd up to that date are therefore presented as discontinued operations. For information on the main categories of products sold in each of these geographic segments over the last three years, see ‘Financial and operating performance – Regional performance’.
Life insurance and savings business Long-term insurance and savings business from continuing operations accounted for over 77% of our total business based on worldwide total sales from continuing operations for the year ended 31 December 2011. We reported total long-term insurance and savings new business sales from continuing operations of £27.9 billion and investment sales of £3.5 billion for the year ended 31 December 2011. Our focus remains on growing our business profitably and improving our operational efficiency so that we can fully benefit as our major markets return to economic growth.
Market position In the UK we have a market share of 12% based on annual premium equivalent (APE)2 according to the Association of British Insurers (ABI) quarter three 2011 data. Long-term insurance and savings products in the UK represented 32% of our worldwide sales for the year ended 31 December 2011. In Aviva Europe long-term insurance products represented 30% of total Group worldwide sales for the year ended 31 December 2011. In North America our life and annuity business is a leading provider of both fixed indexed life and fixed indexed annuity products.3 In the Asia Pacific region we operate in ten countries.
Brands and products We have operated under the brand name Aviva globally since June 2010. Our long-term insurance and savings businesses offer a broad range of life insurance and savings products. Our products are split into the following categories:  Pensions – a means of providing income in retirement for an individual and possibly his or her dependants. Our pension products include personal and group pensions, stakeholder pensions and income drawdown.
 Bonds and savings – accumulation products with single or regular premiums and unit-linked or guaranteed investment returns. Our product ranges include single premium investment bonds, regular premium savings plans, mortgage endowment products and funding agreements.
 Investment sales comprise retail sales of mutual fund type products such as unit trusts, individual savings accounts (ISAs) and Open Ended Investment Companies (OEICs).
Some of our insurance and investment contracts contain a discretionary participating feature, which is a contractual right to receive additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts.
2 APE is a recognised sales measure in the UK and is the total of new annual premiums plus 10% of single premiums. 3 AnnuitySpecs.com Indexed Sales & Market Report 3rd Quarter, 2011.
Market position We are a leading general insurer in the UK and we are the second-largest general insurer in Canada (based on gross written premiums for the year ended 31 December 2010). The Group has general insurance operations in France, Italy, Poland, Ireland and Turkey, and in Asia Pacific we sell general insurance and health products in Malaysia, Singapore, Indonesia and Sri Lanka. In the year ended 31 December 2011, 54% of our total general insurance and health new business from continuing operations was written in the UK.
Fund management Aviva Investors, our fund management business, provides fund management services to Aviva’s long-term insurance and savings, and general insurance operations as well as to a growing number of third-party investors. The main fund management operations are in the UK, North America, Europe, Asia Pacific and the Middle East. All sales of retail fund management products are included in our long-term insurance and savings business sales.
Market position Aviva Investors is ranked 42nd globally by assets under management, according to the Towers Watson World 500 largest asset managers study 2010 ranking of asset managers by assets under management. Aviva Investors operates under a single brand across our regions of the UK, Europe, North America and Asia Pacific. Total worldwide funds managed by Aviva Investors at 31 December 2011 was £263 billion, the substantial majority of which currently relates to Aviva’s insurance and savings operations.
United Kingdom Aviva Life Business overview and strategy We are a leading long-term insurance and savings provider in the UK with an overall market share of 12%, based on third quarter 2011 ABI returns. Our strategy is to hold dominant positions in workplace savings, individual annuities and protection while delivering strong 4 ICM Research, January 2012 margins and an Internal Rate of Return (IRR) in excess of the Group’s minimum of 12% overall and at a product level. We are focused on increasing our market share in Group Personal Pensions ahead of auto-enrolment. During 2011, we grew sales at more than twice the market rate, largely in the small and medium-sized enterprise (SME) marketplace where we expect to see the most growth following auto-enrolment. We lead the `at retirement’ market covering individual annuities and equity release with market shares of 25% and 36%, respectively.5 We have made significant headway in our aim to be the clear market leader in protection by extending our distribution through partnerships with Santander and Barclays during 2011. In our opinion, our underwriting, and risk management expertise, together with our strong brand, service and broad distribution, give us a competitive advantage.
Market and competition The industry is entering a period of unprecedented change with significant regulatory changes, such as the Retail Distribution Review (RDR) and auto-enrolment, which will transform the way that long-term savings products are bought and sold. We are well positioned ahead of the implementation of RDR and have an extensive programme underway to ensure both regulatory compliance and ongoing success in our chosen markets. We also hold strong positions in the protection and annuities marketplaces which will be largely unaffected by the RDR. The UK long-term savings market is highly competitive and we consider our main competitors to be Standard Life, Prudential, Legal & General, and Lloyds Banking Group. The principal competitive factors for our life insurance business in the UK are:  financial strength and ratings;  brand strength and our customer advocacy;  risk management;  focus on customers’ needs and quality of service;  product range and the quality of products on offer;  breadth of distribution;  pricing; and  investment management performance.
Products We provide a comprehensive product range focused on both the consumer and corporate market with a 70%:30% split. The pensions and `at retirement’ products we offer include stakeholder and personal pensions, equity release, annuities, income drawdown and with-profits products. Our annuity offerings include immediate life, enhanced, fixed-term annuities and with-profits pension annuities. We provide a number of traditional life insurance products, including level-term, decreasing-term (with or without critical illness), guaranteed whole life insurance, and guaranteed lifelong protection plans.
 strong brand;  customer satisfaction;  claims handling skills; and  management of costs.
Insurance profits in the UK general insurance market are cyclical in nature, with different segments of the market at different stages in the cycle. In 2011, the general insurance market remained competitive and we managed the cycle with disciplined underwriting across all lines of business while seeking to grow in attractive sectors. In personal motor we continued to see significant premium rate increases in 2011 in response to recent increases in claims costs and frequencies. Commercial motor rates have also hardened noticeably over the course of the year, and this is expected to continue into 2012. Homeowner rates (excluding indexation) have seen little movement reflecting a competitive environment and the depressed housing market, although underlying profitability remains good. Conditions in commercial non-motor lines have remained competitive. In recent years, the growing proportion of commercial brokers seeking to trade with us online has led us to invest more heavily in our e-commerce propositions, ensuring we remain competitive and alert to evolving customer needs in this important distribution channel.
Products We provide a wide range of general insurance products focused on personal and commercial customers with a business mix of approximately 60% personal lines and 40% commercial lines. Our products include personal motor, home, travel, payment protection, commercial motor, commercial property and commercial liability insurance. Our personal motor insurance product range includes cover for cars, motorcycles and vans. For businesses we offer cover for fleets and commercial vehicles. Our home insurance products include building and contents insurance and home emergency cover. We also offer single trip and annual travel insurance. Our commercial products focus on insurance for SMEs and the larger UK CSR market.
Information on the company continued model can offer. We are a top six provider in our seven largest markets for life products12 and have a strategy to grow our general insurance presence.
Poland and Spain;  growth in Turkey and Russia;  customer-focused multi-channel distribution;  multi-distribution strength through established retail and bancassurance models; and  excellence in life and general insurance.
We have a strong bancassurance model that serves customers throughout Europe via 63 banking agreements. We have strong partnerships, including Credit du Nord, a subsidiary of Société Générale in France, six savings banks in Spain and relationships with three major banks in Italy. We also have a significant retail franchise, with a presence in all of our markets, operating through more than 8,000 direct and tied agents across 30 networks and with an independent sales force of 6,000 consultants.
France Business overview and strategy Aviva France is one of the top ten insurance businesses in France, being sixth in life insurance and seventh in general insurance as measured by gross written premiums, according to L’Argus de l’Assurance, as at 31 December 2010. Our life business has a 4.5% market share according to the Fédération Française des Sociétés d’Assurances (FFSA) as at 31 December 2010, based on gross written premiums. Our general insurance business has a 1.9% share of the market as based on 2010 premium income, measured by gross written premiums. Our health business has a 2.2% share of the market based on 2010 premium income. We offer a range of long-term insurance and savings products, primarily for individuals, which focus on the unit-linked market. We have a longstanding relationship with the Association Française d’Epargne et de Retraite (AFER), which is the largest retirement savings association in France with 735,000 members as at 31 December 2011. We have a strong partnership with Crédit Du Nord, which operates through 936 bank branches according to its website as of December 2011. Aviva France operates through two main companies: Aviva Vie and Antarius (JV structure with Crédit Du Nord). In our general insurance business we predominantly sell personal and small commercial lines insurance products through an agent network and our direct insurer, Eurofil. Aviva France’s strategy is to continue to diversify and grow our business and to maintain a high level of profitability. We seek to accomplish these goals through our distribution expertise, innovation of products and services, greater communication and brand visibility.
Federation), ANIA (Associazione Nazionale fra le Imprese Assicuratrici), KNF (Polish Financial Supervision Authority), ICEA (Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones), AIRCT (Association of Insurance and Reinsurance Companies of Turkey) and the FSMS (Federal Securities Market Service)
Distribution Through bancassurance partnerships we have established subsidiaries to distribute our products with each of the banks as set out below:  Aseval – in conjunction with Bancaja since 2000;  Unicorp Vida – in conjunction with Unicaja since 2001;  CxG – in conjunction with Caixa Galicia since 2001;  Caja España Vida – in conjunction with Caja España since 2001;  Caja Granada Vida – in conjunction with Caja Granada since 2002; and  Cajamurcia Vida – in conjunction with Cajamurcia since 2007.
Italy Business overview and strategy Aviva Italy is the country’s seventh-largest life insurer, with a market share of 5% based on 2010 premiums excluding Eurovita, according to Associazione Nazionale fra le Imprese Assicuratrici (ANIA). We believe that we are in the top six largest life insurers based on 2010 premiums when we include Eurovita. We are the 12th-largest general insurance company in Italy with a market share of 1% according to ANIA as at 31 December 2010, with over 2.5 million customers. Our strategy is to continue to work with our partners on new products, suited to the current markets, to develop our bancassurance relationships and to expand our customer reach through customer penetration and distribution reach.
Market The Italian life market is dominated by big insurers such as Generali, Fonsai, Allianz and Poste Vita. The top four providers wrote over 40% of the life premium income in 2010 according to ANIA.13 The life insurance industry in Italy reported a decline in volumes as of 30 September 2011 with gross written premiums down by 19% against the same period in 2010 according to the local regulator Istituto per la Vigilanza sulle Assicurazioni Private (ISVAP). The general insurance segment grew by 3% in the same period according to ISVAP, due mainly to increased motor insurance sales. In the Italian market, we believe many customers prefer to buy investment products from well-established providers. We also think that Italy’s consumers prefer a personal relationship with financial services providers, and are reluctant to buy over the telephone or on the internet. Over the last few years, the Italian government has introduced legislation breaking the exclusive relationship between general insurance companies and their ‘tied’ agents. This has opened up the general insurance marketplace to increased competition.
Products Our long-term insurance and savings business offers a wide range of products covering protection, bonds and savings and pensions. The largest segment is single premium savings and investment products. These include unit-linked policies linked to a range of investment funds as well as profit-sharing policies where there is a minimum annual return credited to the policy and the potential for an additional bonus. Also, we provide index-linked products where there is typically some protection of capital at the end of the policy term and a pay-out linked to the performance of an index or basket of shares. We have been focusing on selling protection products and as at 30 September 2011 our share of this market was over 35%, making us a market leader for sales of protection products in Italy based on gross written premiums according to ISVAP. Individual and group pension plans are also available and this part of the market is expected to grow in the long-term given the ageing population and government reforms to reduce the cost of state retirement provision. Our general insurance business in Italy mainly provides motor and home insurance products to 13 ANIA: www.ania.it/PUBBLICAZIONI/Premi_del_Lavoro_diretto_Italiano_.html
Information on the company continued individuals, as well as small commercial risk insurance, including marine insurance, to businesses. For reporting purposes, the Italian general insurance business is shown within ‘Other Europe’ in the general insurance segment.
Distribution Our products are distributed principally through bancassurance partnerships with UniCredit Group, Banco Popolare Italiana Group (BPI), Banca Popolari Unite (BPU) and Unione di Banche Italiana (UBI). These partnerships give us access to more than 6,400 branches. In addition, we also have more than 690 insurance agents and access to approximately 5,700 sales advisers as at 30 January 2012. We distribute general insurance products primarily through agents and brokers, with a growing proportion of bancassurance sales.
Distribution Aviva Ireland has a wide range of distribution channels, including intermediary channels such as brokers, bancassurance partners, corporate partners and direct channels including call centres, the internet and a nationwide branch network. Our long-term insurance and savings products are distributed through our broker network. Our general insurance business is sold through all of our distribution channels, with an increasing proportion offered by direct and corporate partners. We also provide branded products for financial institutions such as AIB, Ulster Bank and One Direct. Traditionally, the majority of our health business was sold via our direct channels; however there was a significant increase in the business sold through the intermediary channel in 2010 which has continued to grow in 2011. Aviva’s distribution arrangement with AIB for long-term business will cease in 2012 and the bancassurance partnership with AIB is being unwound. A strategic review is underway to determine the most effective distribution channels going forward.
Poland (including Lithuania) Business overview and strategy Our Polish life operation is the fourth-largest overall life insurer in Poland (including JV Life), with a market share of 8% based on total premium income as at 30 June 2011 according to the Polish Financial Supervision Authority (KNF).17 Aviva Poland completed its rebrand to Aviva in June 2010. It has more than 830,000 individual and group life customers and manages over £2.9 billion of customers’ assets, providing both long-term insurance and savings products as at 30 September 2011. Our businesses have approximately 2,400 direct sales force members with 56 sales branches across the country as at 31 October 2011.
16 Based on GWP reported IIF Factfile 2008, 2009, 2010 and the draft IIF GWP data for 2010 17 KNF: www.knf.gov.pl/Images/A_Informacje_IIkw_2011k_tcm75-27692.xls
Aviva Poland has been one of the leaders of the second-pillar pension fund market since its launch in 1999. The second-pillar market consists of the obligatory (but privately managed) pension funds. The first pillar is an obligatory, state run, pay as you go system where reserves are not accumulated and in which the current contributors to the system pay the expenses for those currently drawing their pensions. The third pillar funds are made up of voluntary contributions. We have witnessed two significant legislative changes to the second pillar in Poland in the last two years. In 2010 a change was made to pensions legislation limiting pension funds’ potential income by reducing contractual fees and capping total asset management revenues. From 1 May 2011, a further change was introduced whereby contributions received by the second pillar pension funds were reduced from 7.3% of gross salary to 2.3%.18 As a consequence, our pensions business in Poland has a market share of around 23% (down from 24% last year) and 2.7 million customers as at 31 December 2011.18 Our product strategy for pensions is to retain our status as one of the market leaders in terms of assets and customers. In the short term we overhauled our pay and bonus structure for our sales force to link compensation directly with the value generated by the sale. Our general insurance business in Poland started in 1997 and continues to develop. For reporting purposes the general insurance business is shown within ‘Other Europe’ in the general insurance segment.
Market The Polish market for protection products has seen significant growth since 1999, although penetration rates remain relatively low according to our analysis of KNF statistics. In 1999, Poland launched a comprehensive reform of its state pension system and created privately managed funds. This allowed private companies to offer pension products and made it obligatory for all employees under 30 years of age to join one of them. As described above, from 2010 the Polish government started to implement restrictions on the fees that pension fund management companies can charge, and in 2011 changed the allocation of premiums between the first and second pillar, with a reduction of contribution to the latter. The general insurance market is continuing to grow, driven mainly by increases in rates in motor and property insurance in 2011 following increased weather-related claims in 2010.
Products Our life business in Poland provides a broad range of unit-linked, annuities and bonds and savings products. For individuals it offers unit-linked life policies, annuities, single premium savings and health insurance. For institutions it offers group life insurance and employee pension programmes, which are both unit- linked products. Our pension business offers a standard product for all customers as part of the privately managed second pillar pensions market. We offer general insurance products to both commercial entities and individuals in Poland. For institutions we offer selected commercial lines risks such as fire and loss-of-profit insurance, technical insurance, insurance against loss of property during transportation, civil liability insurance and commercial health insurance. For individuals we offer home, accident and travel insurance, which are primarily sold by tied agents, as well as motor insurance, which is sold primarily through our direct operation.
Turkey Business overview and strategy AvivaSA, our long-term insurance and savings business in Turkey, is the second-largest pension provider in the market in terms of assets under management, with a market share of 20.7% as at 11 November 2011 as reported by the Turkish Pensions Monitoring Centre (www.egm.org.tr). Our largest competitor in this market, Anadolu, ranks first with a market share of 21.3%. We are also the sixth-largest life insurer in Turkey with a market share of 5% as at 31 August 2011, as reported by the Association of Insurance and Reinsurance Companies of Turkey. AvivaSA has a bancassurance agreement with Akbank T.A.S., Turkey’s fourth-largest privately owned bank based in terms of total assets according to The Banks Association of Turkey. Aviva Sigorta, our general insurance business in Turkey, is the 15th-largest general insurer in Turkey with a market share of 1.9% as of September 2011 according to the TSRBS (Insurance Union of Turkey). 20 Aviva Sigorta has over 675,000 customers and a sales force of over 750 independent agents and brokers. Our strategy in Turkey is to pursue the high growth potential that we believe this market offers.
Market We believe that Turkey, with its large population and strong economic growth, is a highly attractive market in the medium term. The life market, for example, is growing very fast. It grew by 32% in the year to 30 August 2011 according to the TSRBS20 as measured in life premiums, including accidental death. The general insurance market is slightly more tempered, growing 21% in the year to 30 September 2011, according to the TSRBS.20
Products AvivaSA’s life and savings products include unit-linked pensions, supplemented by protection insurance and other savings products, which are aimed at medium to high-net-worth customers and the leading national and multinational corporations in Turkey. Aviva Sigorta sells a diverse range of products including personal motor, household, commercial property, SME, personal accident, marine and travel insurance.
Russia Business overview and strategy Aviva’s business in Russia is made up of a life company and a non-state pension fund. As at 30 September 2011, Aviva Russia had 1.4 million customers compared with 966,000 as at 31 December 2010. Aviva Russia is ranked fifth in the life insurance market with a 7.2% market share according to the data published by the market regulator, the Federal Securities Market Service (FSMS),21 and first in the non-captive Pillar III pension market with a 19.3% market share, as at 30 June 2011.22 We began trading in early 2006, with a strategy to position the business to take advantage of the growth expected to occur as the Russian life insurance industry develops.
Market Over the last six years the life insurance market in Russia has grown rapidly. It has an estimated compound annual growth rate (CAGR) of 24% (2006-2011) according to the Russian insurance market regulator. However, we believe it is still underdeveloped. Life insurance penetration in Russia was at only 0.08% of GDP in 2010, and is much lower than in other BRIC countries (Brazil, Russia, India and China). We expect that the overall insurance and savings culture will improve and be a key driver for growth in insurance. In the long term we believe the potential for Russia is significant as the outlook for growth is stronger than its counterparts in more established markets.23
Other Europe In January 2012, Aviva announced the sale of Aviva Czech Life, Aviva Hungary Life and Aviva Romania Life & Pensions to MetLife Inc. This transaction is consistent with Aviva’s strategy to focus on markets where it has strength and scale. The transaction, which is subject to regulatory approvals in each jurisdiction, is expected to be completed during 2012.
21 FSMS: 22 FSMS: 23 Russian Federation Federal State Statistics Service: North America Regional overview and strategy Aviva North America consists of two businesses: an indexed life insurance and annuity business in the US, and a general insurance business in Canada. The region is a net capital contributor to the Group and our strategic priorities are to continue to grow profitably and to improve our position and competitiveness. We plan to do this by:  Providing our customers with competitive products that are tailored to their individual needs, with an enhanced and personalised customer services experience;  Building on our strong relationships with our distribution partners;  Growing our life insurance business and strengthening our leading annuity franchise;  Maximising the opportunities created by the proven sophisticated underwriting capabilities of our general insurance business; and
USA Business overview and strategy Aviva USA is a leading provider of fixed indexed life insurance and fixed indexed annuities according to AnnuitySpecs Indexed Sales & Market Report for the third quarter 2011. Aviva USA has approximately one million customers and employs more than 1,700 people across the country, with headquarters in West Des Moines, Iowa and offices in Topeka, Kansas and Melville, New York. Our strategy is to accelerate the growth of our life insurance business and strengthen our leading annuity franchise. Underpinning our strategy is a focus on compelling customer value propositions, enhanced product offerings, personalised service and deeper relationships with key distribution partners. Our market research shows consumers want to be understood and recognised as individuals with unique financial needs. In 2011, Aviva USA expanded its brand campaign, ‘Building Insurance Around You’. The campaign seeks to demonstrate our commitment to treating customers as people, not policies. The national brand launch, agent training sessions in Aviva USA’s home offices, plus other proactive steps to strengthen customer relationships, resulted in favourable feedback from our agents.
Market The US is the world’s largest economy based on 2010 Gross Domestic Product.24 It is also the largest insurance market based on total premiums and has more than 79 million members of the nation’s ‘baby boomer’ generation moving into retirement in the next few years.24 24 World Insurance in 2010, New Swiss Re Sigma study “World insurance in 2010”
The indexed annuity and indexed life markets in which Aviva USA operates are dominated by a small number of insurers. According to third quarter 2011 data compiled by AnnuitySpecs.com, the top five indexed annuity providers hold 58% of the indexed annuities market (3Q10:61%), with the top five indexed life insurance providers accounting for 56% of the market (3Q10:68%). The indexed life product segment grew 38% over the prior year through the third quarter of 2011, attracting new carriers and increasing market competition. The market for index annuity sales did not grow in the first nine months of 2011, as consumers increased purchases of variable annuity products by 18% according to the Life Insurance and Market Research Association (LIMRA).25
Products The general insurance products we provide through our Canadian companies are:  personal, home and motor insurance;  small and medium-size enterprise commercial insurance, including motor, property, liability, boiler and machinery, and surety; and
 niche personal insurance products including holiday and park model trailers, hobby farms, boats as well as antique, classic and custom cars.
Distribution We operate in Canada through a distribution network focused on approximately 1,700 independent group and retail brokers who distribute our core personal and commercial line products. In addition, we work closely with both independent and wholly owned specialty brokers to distribute specialty personal line products.
Business overview and strategy Operating in ten markets in Asia, we have a range of businesses at different stages of development. In China, through our 50% joint venture with COFCO Ltd, we are ranked in the top three among the foreign life insurers in China in terms of APE.30 We have a presence in 12 provinces at 31 December 2011, and over 50 branches. Faced with regulatory changes in bancassurance sales model at bank outlets, we aim to defend volumes and margins by developing alternative distribution channels to reach high net worth customers as well as ‘mass affluent’ customers with an annual household income of at least RMB 200,000. In India, with a wide distribution network of 140 branches spreading across nearly 3,000 towns and cities, we operate in partnership with the Dabur Group through a 26% interest in Aviva Life Insurance Company India Ltd. Tighter regulations on unit-linked products are driving an industry shift towards traditional products such as endowment and health policies. We currently rank 13th among the private life insurance companies in India based on APE as at 31 August 2011 according to the Insurance Regulatory and Development Authority (IRDA).31 Our Singapore subsidiary ranks fifth by APE as at 30 June 2011 according to the Life Insurance Association.32 We are one of the biggest providers of employee benefits and healthcare insurance. We have a strong relationship with DBS Bank. In September 2010, we launched our financial advisory channel Aviva Advisors. In South Korea, we own a 47% stake in Woori Aviva Life Insurance Co., Ltd. through a partnership formed with stateowned Woori Finance Holdings Company Ltd, South Korea’s third-largest financial company. Woori Bank is the second-largest commercial bank in South Korea by market capitalisation. By November 2011, we had market share of 2.1%33 based on initial monthly premiums. In Hong Kong, our business is ranked 22nd in the long-term insurance market by APE as at 30 June 2011 according to the Office of the Commissioner of Insurance. Our strategy is to build 30 APE data released by National Insurance Industry Communication Club which is a non official organization 31 32 Life Insurance Association quarterly emails to the Principal Officer. 33 scale and profitable distribution business in this competitive market by expanding our distribution channels and broadening our products. In Malaysia, our business is a joint venture with CIMB Group, Malaysia’s second-largest financial institution and one of South East Asia’s leading universal banking groups. We own a 49% stake in two companies, Commerce Life Assurance Berhad and Commerce Takaful Berhad. At 30 June 2011, we ranked 12th by APE in Conventional Life & Family Takaful Players in Malaysia.34 In Sri Lanka, we own a 51% stake in listed company Aviva NDB Insurance. We were ranked the second-largest life insurer with 25% market share and fifth-largest general insurer with 8% market share in the country based on gross written premiums in 2010 according to the Insurance Board of Sri Lanka.35 In Indonesia, we have a 60% stake in PT Asuransi Indonesia, in partnership with PT Asuransi Wahana-Tata, a private national general insurer. We are a major provider of group health and pension products and we have started to offer traditional life products such as credit life protection and group life during the year to provide a full suite of general and life products to the local market. In Vietnam, Aviva has a 50:50 joint venture with Vietinbank, a state-owned bank ranked second in the country in terms of its retail branch network. We are capitalising on an untapped retail and SME customer base and aim to be the leading bancassurance player and top market share leader by new business premium within five years. Our joint venture in Taiwan is classified as held for sale. See section ‘Financial statements IFRS – Note 3–Subsidiaries’.
Market We believe the fundamentals of the Asian markets are strong. The Asian Development Bank predicts GDP growth for emerging markets in Asia of 7.2% in 2012.36 Despite inflationary pressures, we believe, Asia’s strong domestic demand and intra-regional trade is likely to sustain this growth momentum, with China and India driving the overall trend. We expect Asia to be the fastest growing region for life insurance globally, with the potential for 15–20% average market growth per annum over the next decade. We believe that South East Asia in particular offers one of the highest insurance margins in the world. By strengthening our multi-channel distribution capability as well as managing our product portfolio for margin and profit, we believe we are well-positioned to continue delivering strong growth in franchise value.
Distribution We operate a multi-distribution strategy in Asia, with particular strength in bancassurance. We aim to continue to harness the benefits of multi-distribution in all of our markets so that we can expand our presence to a wider range of profitable customer segments.
Market and competition We consider our competitor peer group to include large insurance-owned asset managers and major independent global asset managers. Key identified competitive factors for Aviva Investors include:  Our Aviva Group parentage and the associated brand strength, reach and recognition;  Deep knowledge of the needs of sophisticated institutional clients such as pension funds, local government organisations and sovereign wealth funds;  Clear focus on, and commitment to, our major strengths in fixed income, real estate and regional equities;  Our ability to combine these strengths in multi-asset solutions suitable for the volatile environment in which we are operating;  Our large-scale, low-cost provider status, which enables us to prosper in an intensely competitive market; and
 Our risk management expertise, which helps us to deliver returns that are matched to our clients’ risk appetite.
Investment capabilities Aviva Investors offers a wide range of investments across all asset classes in all significant financial centres worldwide. Where we do not directly manage assets, we believe we have the skills and experience to select the right third-party asset managers to complement our own products. Our primary investment capabilities include:  Fixed income – our fixed income teams cover a comprehensive product set: UK government securities, liquidity products, corporate bonds, European and global sovereigns, index-linked bonds, emerging markets (hard and local currency debt) and high-yield instruments;  Real estate – we offer funds specific to property assets in the UK, Europe and Asia, in addition to a global multimanager service;  Multi asset solutions – constructing client solutions across markets and asset classes;  Equities – locally based teams focused on generating above market performance; and
Investment strategies and solutions Aviva Investors and Aviva have long recognised that the most important driver of investment returns for any institutional manager is asset allocation. We have built capabilities to create an optimal mix of assets according to our clients' needs. This capability lends itself to tailored dynamic strategic asset allocation, medium-term asset allocation and tail risk hedging strategies. We have built a comprehensive range of global, local and specialist fixed income capabilities which draw upon a range of sources to deliver investment solutions for sophisticated institutional clients. To satisfy the growing demand for diversified fixed income solutions we have created a flexible platform, Global Markets Alpha, to match our clients’ liabilities and we believe, deliver excess returns by drawing on and combining a range of fixed income capabilities. Our insurance background also means that we have the skills to offer Liability Driven Investment (LDI) solutions to clients, focusing our efforts where we believe we have a competitive advantage – in particular insurance LDI in Europe and pensions LDI in North America. Within real estate we are seeking to leverage our expertise to address long-term requirements from pension funds. In 2011 we created REaLM (Return Enhancing and Liability Matching), a proposition whereby the investor gives up potential future capital gains on underlying real estate assets in favour of enhanced returns throughout the life of the funding (typically 30 to 40 years). Originally developed for our Aviva client, REaLM has already attracted interest and financal commitment from external clients.
Delta Lloyd Delta Lloyd is a financial services provider in the Netherlands and has a growing operation in Belgium. The business has been listed on the NYSE Euronext Amsterdam since November 2009. When it was listed Aviva retained 58.3% of the ordinary share capital and 54.0% of the voting rights in Delta Lloyd. The IPO raised £1 billion of gross disposal proceeds. In May 2011, Aviva sold a further 25 million shares in Delta Lloyd, reducing our holding to 42.7% of Delta Lloyd’s ordinary share capital. This represents 40% of shareholder voting rights. As Aviva no longer commands a majority of shareholder voting rights, it no longer controls Delta Lloyd. Accordingly, the results of Delta Lloyd up to 6 May 2011 are presented as discontinued operations. After this date, Aviva ceased to consolidate Delta Lloyd. Aviva’s share of the profits of its retained interest in Delta Lloyd as an associate are shown within the Delta Lloyd segment within continuing operations.
During 2011, Delta Lloyd offered a scrip dividend. Aviva did not exercise this option which resulted in a further dilution of Aviva’s shareholding by 0.8% to 41.9% of ordinary share capital, and 39.3% of shareholder voting rights. The recoverable amount of Delta Lloyd NV has been determined based on fair value less costs to sell. The fair value has been based on the market price of ordinary shares of Delta Lloyd NV quoted on NYSE Euronext Amsterdam as at 31 December 2011. As a result of this test an impairment of £217 million has been recognised in respect of the associate, reducing its carrying amount to fair value.
Market Delta Lloyd continues to operate in competitive and mature markets. Customers in the Netherlands increasingly demand that suppliers provide value-for-money, high-performing products with transparent charges. The Dutch savings market is competitive with banks now able to offer retirement products on the same terms as insurers. Delta Lloyd has taken the opportunity to sell these bank saving products. In addition, Delta Lloyd expects growth in the Group pension market. Delta Lloyd has taken the opportunity to extend its distribution of the Group pension market through its Be Frank joint venture. In the general insurance market there continues to be competition on premium rates, particularly in the motor sector, due to increasing claims frequencies linked with the economic downturn and weather-related events.
Products The long-term insurance and savings business of Delta Lloyd offers a range of protection, bonds and savings and pensions services, including group pension schemes, annuities, unit-linked bonds, savings products and protection insurance. The general insurance business offers a well-diversified product portfolio including personal, motor, travel and home insurance and small to medium-sized commercial policies. Delta Lloyd also sells retail investment fund and mortgage products in the Netherlands and retail banking products in Belgium.
Distribution Delta Lloyd distributes long-term insurance and savings and general insurance products under three brands: Delta Lloyd, OHRA and through a joint venture with ABN AMRO. Individual investment products are sold through private banks including ABN AMRO, ING and Rabobank. On 30 December 2011, Delta Lloyd Group confirmed a 30-year joint venture for the exclusive distribution and sales of insurance products under the Friesland Bank (Insurances) label. Friesland Bank Assurantiën BV is a 100% subsidiary of FBA Holding BV. Delta Lloyd Group has acquired 51% of the shares of FBA Holding BV.
* Incorporated in England and Wales ** Incorporated in People’s Republic of China
France Aviva Participations SA and its principal subsidiaries: Antarius SA (50.0%) Aviva Assurances SA Aviva Investors France SA Aviva Vie SA Aviva Epargne Retraite Eurofil SA Union Financière de France Banque (Banking) (74.3%)
Associates and joint ventures The Group has ongoing interests in the following operations that are classified as associates or joint ventures. Further details of those operations that were most significant in 2011 are set out in notes 18 and 19 to the financial statements.
Long-term insurance and savings business As stated above, we aim to optimise investment returns while ensuring that sufficient assets are held to meet future liabilities and regulatory requirements. As different types of life insurance business vary in their cash flows and in the expectations placed upon them by policyholders, we need to hold different types of investments to meet these different cash flows and expectations. The UK with-profits business is comprised largely of long-term contracts with some guaranteed payments. We are therefore able to invest a significant proportion of the funds supporting this business in equities and real estate. This is because the long-term nature of these contracts allows us to take advantage of the longterm growth potential within these classes of assets, while the level of guaranteed payments is managed to mitigate the level of risk that we bear in relation to the volatility of these classes of assets. Non-UK participating business, annuities and nonparticipating contracts in all countries, have a high level of guaranteed future payments. We endeavour to match the investments held against these types of business to future cash flows. We therefore have a policy of generally holding fixed income securities and mortgage loans with appropriate maturity dates. With unit-linked business, the primary objective is to maximise investment returns, subject to following an investment policy consistent with the representations that we have made to our unit-linked product policyholders.
Analysis of investments We distinguish between policyholder, participating fund and shareholder investments, which are terms used to reflect the differing exposure to investment gains and losses. Policyholder assets are connected to our unit-linked business, where the policyholder bears the investment risk on the assets in the unit-linked funds. Our exposure to loss on policyholder assets is limited to the extent that income arising from asset management charges is based on the value of assets in the funds. Participating fund assets relate to some of our insurance and investment contracts which contain a discretionary participating feature, which is a contractual right to receive additional benefits as a supplement to guaranteed benefits. Our exposure to investment losses on participating funds is generally limited to our participation in the fund. Shareholder assets are other assets held within our long-term businesses that are not backing unit-linked liabilities or participating funds. Investments held at 31 December 2011 and 31 December 2010 are listed below: Policyholder assets £m
As the table indicates, approximately 32.7% of total investments can be directly attributed to shareholders. The apportionment of our shareholder assets is predominantly weighted towards debt securities and loans. In comparison, policyholder and participating funds contain a greater proportion of equities and other investments (e.g., unit trusts), reflecting the underlying investment mandates. Financial investment balances included in the remainder of these disclosures include financial investments of operations classified as held for sale.
Measurement basis We carry investments on our statement of financial position at either fair value or amortised cost. As shown in the table below, at 31 December 2011, approximately 96% of the group’s total investments were carried at fair value on the statement of financial position.
For more information about financial investments analysed according to their accounting classification and valuation approach, as well as the cost, unrealised gains and losses, impairments, fair value and other information concerning financial investments, see the ‘Financial statements IFRS – Note 25 – Financial investments’.
Convertibles and bonds with warrants — — 21 256 26 — 303
Structured RMBS non-agency ALT A — — — — 5 — 5 RMBS non-agency prime 140 — 5 — — — 145 RMBS agency 41 — — — — — 41
At 31 December 2011, shareholder investment in equity securities amounted to £1.3 billion, the majority of which relates to our Italian business. The investments include £439 million strategic holding in UniCredit and other financial institutions where we have a strategic relationship (£288 million net of minority interest). Of our £6.3 billion exposure to equity investments in banks, trusts and insurance companies, £0.6 billion relates to shareholder investments, which includes our strategic holding as mentioned above.
Exposures to peripheral European countries As with other disclosures in the analysis of assets section, all current and comparative figures stated below exclude Delta Lloyd. Included in our debt securities and other financial assets are exposures to peripheral European countries. All of these assets are valued on a mark to market basis under IAS 39, and therefore our statement of financial position and income statement already reflect any reduction in value between the date of purchase and the balance sheet date. The significant majority of these holdings is within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds. Net of non-controlling interests, our direct shareholder assets exposure to the governments (and local authorities and agencies) of Greece, Ireland, Portugal, Italy and Spain has reduced since 2010 and is detailed below; 86% (2010: 80%) of our shareholder asset exposure to Greece, Ireland, Italy, Portugal and Spain arises from investment exposure in businesses domiciled in the respective countries.
Deposits and credit institutions 158 61 208 427 Minority holdings in property management undertakings 22 579 16 617
We own or lease space in 24 countries around the world. As at 31 December 2011, we owned and occupied land and buildings for our own use with a total book value of £215 million (2010: £440 million). We believe that these facilities are adequate for our present needs in all material respects. We also hold other properties, both directly and indirectly, for investment purposes, valued at £9,848 million at 31 December 2011 (2010: £11,241 million).
Payables and other financial liabilities5 10,334 333 265 1,750 12,682 Net asset value attributable to unitholders 10,352 — — — 10,352
4 The Group has no material finance leases for property and equipment. 5 Includes obligations for repayment of collateral received under stock lending arrangements and derivative transactions amounting to £5,229 million. 6 When subordinated debt is undated or loan notes perpetual, the interest payments have not been included beyond 15 years. Annual interest payments for these borrowings are £73 million. Contractual undiscounted interest payments are calculated using fixed interest rates or prevailing market floating rates as applicable. 7 The unallocated divisible surplus represents the excess of assets over liabilities, including policyholder ‘asset share’ liabilities in the UK, which reflect the amount payable under the realistic Peak 2 reporting regime of the FSA. Although accounted for as a liability, as permitted by IFRS 4, there is currently no expected payment date for the unallocated divisible surplus. 8 Provisions include pension obligations, which have been excluded from the contractual obligations table above, due to the uncertainty of the amount and timing of future cash flows. The Group operates both funded defined benefit and funded defined contribution pension schemes around the world, full details of which are provided in ‘Financial statements IFRS – Note 47 – Pension obligations’. We have a contractual obligation to fund these schemes. However, the amount and timing of the Group’s cash contributions to these schemes is uncertain and will be affected by factors such as future investment returns and demographic changes. Our cash funding of defined contribution schemes is based on percentages of salary. Our cash contribution to defined benefit schemes is agreed in advance with scheme trustees. In 2010 and 2011 respectively, long-term funding agreements were agreed with the trustees of the main UK and RAC schemes which are expected to eliminate the funding deficits over time. Contributions to these and the other schemes are regularly reviewed in light of changes in expectations of investment returns and other assumptions. The discounted scheme liabilities have an average duration of 20 years in the main UK scheme, 22 years in the RAC scheme, 19 years in the Irish scheme and 13 years in the Canadian scheme.
Risk management objectives As a global insurance group, risk management is at the heart of what we do and is the source of value creation as well as a vital form of control. It is an integral part of maintaining financial stability for our customers, shareholders and other stakeholders. Our sustainability and financial strength are underpinned by effective risk management, which allows us to predict future changes, move more quickly and take better decisions for our customers, giving them prosperity and peace of mind. The Group’s risk strategy is to invest its available capital to optimise the balance between return and risk while maintaining an appropriate level of economic (i.e. risk-based) capital and regulatory capital in accordance with our risk appetite. Consequently, our risk management objectives are to:  Embed rigorous risk management throughout the business, based on setting clear risk appetites and staying within these;  Allocate capital where it will make the highest returns on a risk-adjusted basis; and
 Liquidity: the Board requires that the Group maintains significant liquid resources to meet both planned cash outflows and cover unexpected cash requirements under stress conditions. In addition, the Group maintains substantial unutilised committed credit facilities to cover extreme adverse scenarios.
Qualitative statements on the Group’s appetite for taking and retaining particular risk types, the Group’s risk preferences, are set out in the risk management framework policy. The Group’s position against the quantitative risk appetite statements is monitored and reported to the Board on a regular basis. Economic capital risk appetites by risk type and by business unit are set in support of the aggregate Group risk appetite based on the Board approved business plan. More granular risk tolerances and limits are set out in our risk management policies and supporting guidance, which are implemented across the Group.
Risk management The Group’s approach to risk management ensures that significant existing or emerging risks are actively identified, measured, managed, monitored and reported on a continuous basis. Risks are measured considering the significance of the risk to the business and its stakeholders (both internal and external) in the context of our strategy, objectives and risk appetite. Monitoring ensures that risk management approaches are effective, and also seeks to identify risk-taking opportunities to improve the risk-adjusted performance of the Group. Risk management is not only embedded throughout the business but is also aligned with the strategic planning process. We set our business plans guided by our overarching strategy, risk appetite and goal of improving risk-adjusted returns. We integrate risk considerations and capital needs into dayto -day management and decision-making processes. We actively manage our risk profile through a wide range of techniques, including product design, pricing, underwriting, asset allocation, investment management, duration matching, hedging, reinsurance, acquisitions and disposals, management of the capital structure and of committed credit facilities. The development and evaluation of our business plans and our various capital and risk management actions are supported by risk modelling, which has been a key area of further enhancement throughout 2011.
Risk modelling For the purposes of risk identification and measurement, risks are usually grouped by risk type: credit, market, liquidity, general insurance, life insurance and operational risk. Risks falling within these types may affect a number of key metrics including those relating to balance sheet strength, liquidity and profit. They may also affect the performance of the products that we deliver to our customers and the service to our customers and distributors, which can be categorised as risks to our brand and reputation. To evaluate the impact of these risks, we carry out a range of stress (where one risk factor, such as equity returns, is assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests and consider the management actions available to respond to the conditions envisaged. These stress and scenario tests are sometimes prescribed by supervisory authorities, but are supplemented by management-defined scenarios drawn from historical periods of adverse conditions, from risk models and from management discussions. In addition, ‘reverse stress tests’ are generated where the intention is to identify the extreme scenarios which would test the business model to the point of failure. These are used to facilitate discussions on whether business plans should be modified. More details on our capital modelling, including our internal risk-based economic capital model, can be found on page 66. Risk modelling is an area of focus for continued enhancement and development.
Risk policies and procedures To promote a consistent and rigorous approach to risk management across all the businesses and locations in which we operate, we have a set of formal risk policies and business standards. These set out risk management and control requirements for the Group’s worldwide operations. As our business responds to changing market conditions and customer needs, we regularly monitor the appropriateness of our risk policies and business standards to ensure that they remain up-to-date. Businesses regularly identify and review risk exposures. Where risks are outside of tolerance, action plans are required. Similarly, controls are regularly reviewed for effectiveness and remediation actions implemented where necessary. This process is supported by a semi-annual sign-off by the business chief executive and chief financial officers of policy compliance and of the completeness of the list of risks identified. This helps to provide assurance to the various risk oversight committees that there are appropriate controls in place for all our core business activities, and that the processes for managing risk are understood and followed consistently across our global businesses. A top-down, key risk identification and assessment process is carried out monthly in the risk function at Group level based on Group and regional chief risk officer (CRO) and functional risk director input. This includes the consideration of emerging risks and is supported by deeper thematic reviews. The bottom-up and top-down risk assessment processes are used to generate risk reports which are shared with the relevant committees. As part of the annual business planning process, we formally consider the risks present in, and to, the draft plan, the consistency of the draft plan with the Group’s risk appetite and the appropriate management actions and controls to address any risks identified. The risk assessment forms part of the formal plan submitted to the Group Executive Committee (GEC) and Board for discussion and approval.
Risk profile The types of risk to which the Group is exposed have not changed significantly over the year and remain credit, market, insurance, liquidity, operational and reputational risks as described in the risk factors table on pages 64–65 and in note 56 of the financial statements. However, the decision to sell a 15% stake in Delta Lloyd reduced our IFRS balance sheet sensitivity to equity markets and mortgages and the sale of the RAC reduced our strategic equity exposure. The risk profile was also modified by the extension of the equity hedging programme, implementation of credit and inflation hedges and by reducing sales of products with onerous guarantees.
Risk factors This table sets out the definitions of each key risk type, the Group’s risk preferences, the key risk drivers and a summary of the related risk mitigation in 2011.
 Credit risk is an area where we can provide the returns required to offer competitive products to our customers and generate returns for our shareholders
Market Risk of adverse financial impacts due to changes in fair values or future cash flows from fluctuations in interest rates, foreign currency exchange rates, equity prices and property values
 We actively seek some market risks as part of our investment and product strategy
 We have a limited appetite for interest rate risk as we do not believe this is adequately rewarded
 We actively seek to manage foreign currency risk by matching assets and liabilities in functional currencies at business unit level and by hedging
Life insurance Risk of adverse movements in mortality, morbidity, longevity, persistency and expenses (including commissions), and policyholder behaviour around take-up of insurance guarantees and options
 Operational risk should generally be reduced to as low a level as is commercially sensible, on the basis that taking operational risk will rarely provide us with an upside
 We continually seek to improve processes through reduction of errors, rework and broken promises with the outcome of reducing operational losses, improved customer proposition and employee satisfaction and reduced operational risk
Brand and reputation Risk of loss of franchise value due to damage of our brand or our reputation with customers, distributors, investors and regulators
 We continually seek opportunities to improve processes, with the outcome of improved customer proposition, sustained customer confidence and a positive regulatory reputation
 Credit spread: changes in the likelihood of default losses perceived by the market or changes in the default or liquidity risk premium demanded by the market
 Rating migration: changes in rating agency perspective on credit risk
 Property: changes in market value or volatility of portfolios  Interest rate: changes in interest rates or shape of the yield curve  Currency: changes in spot/forward prices, volatility, correlations
 The actual experience on mortality, morbidity, longevity, expenses or persistency (lapse rates) is adverse to the pricing assumptions
 Poor underwriting criteria allow risks to be accepted at inadequate premium levels, or proposals to be accepted, which should be declined
 Policyholder behaviour differs from that assumed such as in the exercise of valuable options
 Enhanced pricing risk selection reflected in improved new business internal rate of return (IRR)
 Product mix changes that reduce overall capital strain  Use of reinsurance to mitigate mortality/morbidity risks  Enhanced guidelines to support businesses through the complete cycle of product design, development and pricing
 Claims incurred from catastrophic events, such as flooding or windstorm
 Claims inflation is higher than assumed  Poor design or inadequate pricing of products
 Systems errors or failure of information and communications systems that affects the delivery of services to our customers
 Adverse changes in external environment including competitive landscape, customer behaviour and distribution models
 Roll out of enhanced business standards covering key processes  Ongoing monitoring of controls
 declare dividends on a basis judged prudent, while retaining capital to support future business growth, using dividend cover on an operating earnings after tax basis* in the 1.5 to 2.0 times range as a guide.
In line with these objectives, the capital generated and invested by the Group’s businesses is a key management focus. Operating capital generation, which measures net capital generated after taking into account capital invested in new business (before the impact of non-operating items) is a core regulatory capital-based management performance metric used across the Group. This is embedded in the Group business planning process and other primary internal performance and management information processes. Capital is measured and managed on a number of different bases. These are discussed further in the following sections.
* The Group’s accounting policy for operating profit (also referred to as Group adjusted operating profit) remains consistent with prior periods and is set out on page 168.
The EU IGD regulatory capital solvency surplus has decreased by £1.6 billion since 31 December 2010 to £2.2 billion. The key movements over the period are set out in the following table: £bn
IGD solvency surplus at 31 December 2010 3.8 Operating profits net of other income and expenses 1.0 Dividends net of scrip (0.5) Market movements including foreign exchange (1.9) Pension scheme funding (0.3) Impact of Delta Lloyd sell down 0.1 Impact of RAC sale 0.2 Restructuring of UK regulated general insurance entities 0.2 Increase in CRR (0.3) Other regulatory adjustments (0.1)
Regulatory capital – UK Life with-profit funds The available capital of the with-profit funds is represented by the realistic inherited estate. The estate represents the assets of the long-term with-profit funds less the realistic liabilities for nonprofit policies within the funds, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs, guarantees and promises. Realistic balance sheet information is shown below for the three main UK with-profit funds: Old With-Profit Sub-Fund (OWPSF), New With-Profit Sub-Fund (NWPSF) and With-Profit Sub-Fund (WPSF). These realistic liabilities have been included within the long-term business provision and the liability for insurance and investment contracts on the consolidated IFRS statement of financial position at 31 December 2011 and 31 December 2010.
2 Estimated realistic inherited estate at 31 December 2010 was £nil billion, £0.3 billion and £1.8 billion for NWPSF, OWPSF and WPSF respectively.
5 The risk capital margin (RCM) is 2.7 times covered by the inherited estate and support arrangement (31 December 2010: 3.7 times).
The financial modelling techniques employed in economic capital enhance our practice of risk and capital management. They enable understanding of the impact of the interaction of different risks, allowing us to direct risk management activities appropriately. These same techniques are employed to enhance product pricing and capital allocation processes. Unlike more traditional regulatory capital measures, economic capital also recognises the value of longer-term profits emerging from inforce and new business, allowing for consideration of longer-term value emergence as well as shorter-term net worth volatility in our risk and capital management processes. We continue to develop our economic capital modelling capability for all our businesses as part of our development programme to increase the focus on economic capital management and meeting the emerging requirements of the Solvency II framework and external agencies.
Rating agency Credit ratings are an important indicator of financial strength and support access to debt markets as well as providing assurance to business partners and policyholders over our ability to service contractual obligations. In recognition of this we have solicited relationships with a number of rating agencies. The agencies generally assign ratings based on an assessment of a range of financial factors (e.g. capital strength, gearing, liquidity and fixed charge cover ratios) and non-financial factors (e.g. strategy, competitive position and quality of management). Certain rating agencies have proprietary capital models which they use to assess available capital resources against capital requirements as a component in their overall criteria for assigning ratings. Managing our capital and liquidity position in accordance with our target rating levels is a core consideration in all material capital management and capital allocation decisions. The Group’s overall financial strength is reflected in our credit ratings. The Group’s rating from Standard & Poor’s is AA- (‘very strong’) with a Negative outlook; Aa3 (‘excellent’) with a Negative outlook from Moody’s; and A (‘excellent’) from A M Best. The outlook on the group’s rating from AM Best is ‘Under review with Negative Implications’. These ratings continue to reflect our strong competitive position, positive strategic management, strong and diversified underlying earnings profile and strong liquidity position.
Financial flexibility The Group’s borrowings are comprised primarily of long dated hybrid instruments with maturities spread over many years, minimising refinancing risk. In addition to central liquid asset holdings of £1.5 billion, the Group also has access to unutilised committed credit facilities of £2.1 billion provided by a range of leading international banks.
For general insurance business this reflects the movement in required capital, which has been assumed to equal the regulatory minimum multiplied by the local management target level. Where appropriate movements in capital requirements exclude the impact of foreign exchange and other movements deemed to be non-operating in nature.
– Post disposal, all Delta Lloyd capital generation, including life business, has been included within general insurance, fund management and non-insurance profits on an IFRS basis.
As well as financing new business investment, the operating capital generated is used to finance corporate costs, service the Group’s debt capital and to finance shareholder dividend distributions. After taking these items into account the net operating capital generated after financing is £1.0 billion.
Interest, corporate and other costs (0.6) (0.6) External dividend net of scrip (0.5) (0.5)
Basis of preparation This review complies with the recommendations of the European Union (EU) Modernisation Directive, the Companies Act 2006 (Contents of Directors’ Report: Business Review) and is in line with current best practice. It is addressed to, and written for, the members of Aviva plc with the aim of providing a fair review of our business development, performance and position at the current time. In producing this review, we aim to present a view that is balanced and comprehensive and that is consistent with the size and complexity of our business. The review is written in the context of the risks and uncertainties facing our business. We anticipate that the format and content of the review will evolve over time, along with developments in our business and the external environment.
Key performance indicators The Companies Act requires that a fair review of the business contains financial and, where applicable, non-financial key performance indicators (KPIs). We consider that our financial KPIs are those that communicate to the members the financial performance and strength of the Group as a whole. These KPIs comprise:  earnings per share (International Financial Reporting
Accounting basis of preparation In addition to presenting our results and financial position on an International Financial Reporting Standards basis, we also use Market Consistent Embedded Value (MCEV) as an alternative performance measure. Details of the accounting basis of preparation are set out on the following page.
By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events that are beyond our control. For example, certain insurance risk disclosures are dependent on our choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses could differ materially from those that we have estimated. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements include, but are not limited to:  global economic business conditions;  monetary and interest rate policies;  foreign currency exchange rates;  equity and property prices;  the impact of competition, inflation and deflation;  changes to regulations, taxes and legislation;  the timing and impact of acquisitions and business combinations in relevant industries;  natural and other disasters;  changes to consumer saving and spending habits; and  our success in managing the above factors.
Consequently, our actual future financial condition, performance and results of operation could differ materially from the plans, goals and expectations set out in our forward-looking statements. We undertake no obligation to update the forward-looking statements contained in this review or any other forward-looking statements we make.
Market Consistent Embedded Value (MCEV) basis of reporting We present the results and financial position of our life and related businesses on an MCEV basis, in addition to the IFRS basis. MCEV methodology represents an alternative basis of reporting the value of the Group’s life and related businesses and the drivers of performance. This basis values cash flow from assets consistently with market prices and is consistent with the way pricing is assessed and the business is managed. The MCEV methodology adopted is in accordance with the MCEV Principles published by the CFO Forum in October 2009. Under this methodology, the total profit recognised over the full lifetime of an insurance policy is the same as under the IFRS basis of reporting. However, the MCEV basis gives a market-consistent indication of the profitability of business on inception. Additionally, shareholders’ funds on an MCEV basis incorporate internally-generated additional value of in-force business (AVIF), which is excluded for IFRS reporting. These financial statements include supplementary information on MCEV reporting in the ‘MCEV financial statements’ section.
Longer-term investment return The long-term nature of most of our operations means that shortterm realised and unrealised gains and losses are shown as an adjustment to operating profit. We focus instead on operating profit incorporating a longer-term investment return (LTIR). The rates of return that we use for equity and property in our LTIR methodology are aligned with the rates that we use under MCEV principles. For fixed interest securities, we include the amortisation of premiums or discounts arising on purchase, thereby producing an LTIR that is equivalent to the gross redemption yield.
Critical accounting policies and estimates The preparation of financial statements requires the Group to select accounting policies and make estimates and assumptions that affect items reported in the consolidated income statement, consolidated statement of financial position, other primary statements and notes to the financial statements. These are set out on pages 168 to 182.
Our corporate responsibility (CR) strategy directs our worldwide business to focus on success in the long term. It is central to our overall business strategy, it helps our people to feel proud of the organisation they work for and our customers place trust in us to bring them prosperity and peace of mind. In this report we highlight how we are addressing the issues that are material for our business. These issues include responding to the need to improve trust and transparency in the financial services sector; attracting and retaining talent; developing communities; influencing the climate change agenda and promoting sustainable products and services. The report that follows contains a summary of the progress and performance of our CR programme in 2011 aligned to these material issues. A more detailed review is available online at www.aviva.com/corporate-responsibility/reports.
 Expanded our carbon footprint boundaries to include waste and water emissions.
 Participated in the Lord Davies’ review to highlight the importance of improving gender balance of Women on Boards.
 Increased employee engagement, 5.5% increase in volunteering hours and a 5% increase to 79% in employees who think our commitment to CR is genuine.
Opportunities during 2012 In the development of our strategy, it is important that we recognise the issues that affect our sustainability and manage the associated risks. By working to turn these issues into opportunities for our business we help to shape the wider debate and action in our societies.
Governance Aviva is proud to have a well-established governance structure providing strong leadership and direction. Our Corporate Responsibility Committee was chaired by non-executive director Carole Piwnica in 2011, and comprises our chairman, group CEO and two other non-executive directors, Scott Wheway and Euleen Goh. Carole Piwnica retired at the end of 2011, Gay Huey Evans takes over the chairmanship of the Committee going forward. The Committee reviews strategy and policy and receives regional and functional reports four times a year. In 2011, it received a report from all regional offices and paid close attention to the restructuring of the work that the Internal Audit team cover to support embedding corporate responsibility throughout the organisation. The Committee also received reports from the IT, procurement, sustainable and responsible investment (SRI) and customer teams. As standing items it had business ethics and the Street to School programme to discuss. The Corporate Responsibility Committee’s report can be found on page 113. Our CR leadership team supports and advises on the management and implementation of the global CR programme. The members comprise group CR specialists, regional CR leads and HR directors who work together to adopt and refine CR strategies, assess progress, identify actions that need to be taken and embed our programmes in different parts of the business. In addition, the Aviva Board receives both annual and ad hoc updates on CR strategy, activities and progress. Our CR programme is regularly on the agenda at executive management committees. The group and regional CEOs have CR key performance indicators included in their role profiles. 10% of all senior managers’ bonuses are targeted on leadership and engagement Employee Promise Survey scores.
Stakeholder communications By being open and transparent about what we do and how we run our business we believe we have a high degree of integrity and therefore continue to build trust in Aviva for all of our stakeholders. Key to this is the way that we report our CR commitments and performance. We prepare standalone detailed annual reports for the Carbon Disclosure Project, UN Global Compact, ClimateWise and Principles for Responsible Investment. As well as providing a narrative CR report we prepare an Accounting for Sustainability statement using the Connected Reporting Framework to demonstrate the costs associated with our energy, natural resource use and waste management. We also use this
Corporate responsibility continued statement to demonstrate the financial impacts of our community investment and customer advocacy commitments. The Accounting for Sustainability statement is provided on page 82. We are also committed to providing full disclosure to investors on our CR programme and as such respond to EIRIS, SAM, Sustainalytics and Vigeo for inclusion in the FTSE4Good, Dow Jones Sustainability Indices, Ethibel and ECPI indices. This year we have been ranked as one of the top companies in the FTSE4Good ESG ratings. We hold a similarly high position in the STOXX ESG Global Leaders. A full list of our Index rankings can be found on page 79. In terms of leadership participation, Robin Spencer, Aviva’s chief risk officer, became the chair of the Chief Risk Officers’ Forum at the beginning of 2012. Their main focus is Solvency II, however, there is also work being done on raising awareness of environmental, ethical and reputational risks around our industry’s response to controversial areas such as oil sands and banned weapons. Marie Sigsworth, Group CR director, has been on the management committee of Accounting for Sustainability since 2009 and John Ainley, Group HR Director is a member of the CBI Climate Change Board. We believe in the promotion of transparent and integrated reporting, as we think that companies who report on environmental, social and governance issues alongside their financial statement have a greater understanding of those risks affecting the business. Aviva Investors, through its Sustainable Stock Exchange initiative, has called for companies to present a forward-looking sustainability report integrated throughout the Annual Report and Accounts. Steve Waygood, chief responsible investment officer at Aviva Investors, is a member of the International Integrated Reporting Committee working group progressing the development of integrated reports. At the upcoming Earth Summit in Rio 2012, Aviva is calling for an international policy framework on sustainability reporting to progress this issue further. Open dialogue with our stakeholders helps us to define priorities and shape our approach. We have continued to engage closely with governments this year, sharing our insight as both the owner and investor of capital, giving a useful double perspective to aid their public policy development. Specifically we have responded to:  UK Department for Environment, Food and Rural Affairs
‘A long-term focus for corporate Britain’  UK Department for Business Innovation and Skills –
Trust and transparency Building and maintaining trust in Aviva by our customers, our business partners, suppliers, shareholders and employees is of prime importance within a sector that sees some of the lowest levels of trust in society.
Business ethics We aspire to the highest standards of conduct and set out our principles in our business ethics code. This stipulates fairness, honesty and transparency in all we do. Employees in all countries in which we operate are required to uphold the laws of the host country and to conduct themselves according to the business ethics code. Everyone at Aviva has a part to play in upholding our standards and we raise awareness of these responsibilities through our induction programmes. Sign-off of acceptance of the code is required by all staff. Our code has been revised during 2011 to incorporate the requirements of the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act. This code has been rolled out to employees who are required to read and sign the code each year. Through a revision of the sign-up process we have achieved a 89% acceptance of the code this year (2010: 32%). We aim for a sign-off of 100% of employees even though we recognise this might not be feasible each year due to sickness and maternity leave for example. In addition to our business ethics code, Aviva has a code of ethics for senior management as required by section 406 of the Sarbanes-Oxley Act 2002 and the rules issued by the Securities and Exchange Commission. This code can be found on Aviva’s website: www.aviva.com/investor-relations/corporategovernance /code-of-ethics.
The Net Promoter Score®1 (NPS) is our leading, group-wide measure of customer advocacy, comprising a globally consistent relationship and benchmarking survey which is conducted annually. The focus for the business is to ensure we are acting on the feedback from our customers as well as including NPS performance targets as part of our executive directors’ annual remuneration. We listen carefully to what our customers tell us, and we respond quickly and effectively to meet their needs. We provide clear communication on every one of our products and services, including the risks and benefits to customers. Over the last eight years in our annual consumer survey, we have asked more than 200,000 people across 25 countries what they think about risk, savings, retirement, financial advice and other important issues. The latest results show that consumers remain cautious about the general economic situation and are nervous about taking high levels of risk. We found that:  68% of people globally are worried about risk;  30% of people in the UK and 27% in Ireland have already dipped into their savings to make ends meet;  45% of people think that the general economic situation in the country will get worse in the next 12 months; and  people are becoming more interested in protecting what they already have.
Pensions gap Growing pressure on Europe's pensions systems caused by ageing populations is a widely acknowledged problem, with the ratio of retirees to workers only set to increase. In September 2010 Aviva calculated Europe's pension gap – the difference between the amount that people retiring from 2011 to 2051 will need to maintain an adequate standard of living and what they will receive from public and private pensions – at €1.9 trillion. As this gap cannot be reduced with a single solution, the report makes a series of recommendations designed to change attitudes to saving and encourage more people to better understand the financial choices they need to make to prepare for retirement. In 2011 new research in Aviva’s ’Mind the Gap‘ series showed that although it is possible to make a significant positive impact to retirement income by saving more and saving earlier, consumers across the region are ignoring the warning signs about the gap between retirement expectations and levels of saving, leaving them financially under-prepared for retirement. For example, only 23% of Europe’s 18–34 year olds take an interest in information on personal finance. This group should be encouraged more to increase their interest in saving and their understanding of the choices they need to make to plan for their retirement. Access to information such as annual pension statements designed in a clear, simple and engaging way – is clearly one of the actions required. As such, a new report published in November, Towards annual pension statements across the EU called on the European Commission to support action to raise people’s awareness of how much they stand to receive in retirement. The European Commission has subsequently signalled its intent to build a more secure platform for individuals to plan for their retirement through its White Paper An Agenda for Adequate, Safe and Sustainable Pensions which champions recommendations made by Aviva, such as annual pension statements and measures to increase consumer confidence in retirement savings products.
1 Net Promoter, NPS®, and Net Promoter Score are trademarks of Satmetrix Systems, Inc.,
Attracting and retaining talent As a global financial services organisation we recognise our role in finding and building new skills for the workforce, developing a workplace that employees want to join and where they want to develop their career. Delivering on our strategic plans and commitments requires strong leadership and the energy, dedication and belief of all our employees. Over the past three years we have built a strong global HR function to lead our cultural transformation. We have a clear purpose – to bring to life our employee promise to deliver exceptional business performance:  We believe everyone in Aviva has talent and that performance matters.  We work as a team, we are One Aviva, and we aim to do things once, globally.  Our CR agenda drives sustainability that delivers prosperity and peace of mind.  We take personal responsibility.
In 2011, we have advanced our people agenda by maintaining one global approach to talent management, performance management, leadership, and the deployment of Workday, our first common global online HR system is on track. We achieved a strong and improved global participation rate of 85% in our
 Helping Aviva develop and be a sustainable business.  Making it easier to work at Aviva by simplifying and focusing on key global HR tools and processes.
Simplifying HR In line with our One Aviva strategy, we have taken significant steps forward in the last year toward alignment, consistency and simplicity of our people processes and tools. We have continued to roll-out a global HR information system that, for the first time, will put all our people and organisational data into one place. This will make it easier to operate as One Aviva and will allow us to manage the consistency and security of our employees’ personal information. It will also put more control into the hands of managers and employees to manage their own personal information. It enables a new level of self-service access for basic people-related requests and processes. Since our talent process was launched in 2007, we have fully globalised the approach. Every employee is covered by the annual talent process. In 2011, we applied our experience and expertise to further simplify the tools and definitions. It remains one of our greatest success stories in this area. It was one of the first people processes (along with the Employee Promise Survey) for which we truly achieved global consistency. It remains the cornerstone of Aviva’s belief in honest conversations and development planning for staff. In 2011, we announced a new global approach to job levels. Once fully implemented, this will align all roles across Aviva into a common system. We expect this to aid and facilitate global mobility – as well as to create opportunities in future to simplify other, related elements of reward.
Our employee promise Our employee promise is central to our HR strategy. ‘I am recognised for who I am and my contribution matters’. We deliver on our promise by listening, respecting people, recognising and rewarding good work, and by providing continuous development for our employees. We want to employ great people and encourage them to stay with us. We match the right people to the right roles and encourage their best performance. We are developing a strong, gender-balanced leadership and talent management programmes. Our efforts are reflected in continuous improvement in employee feedback since 2008, despite the climate of uncertainty and economic challenge. For the second year, we continued our global brand campaign under the banner of: ’You Are the Big Picture‘. A key aspect of this effort was to engage and recognise the great work of our employees, which is why we put employee engagement and recognition at its heart. We included more stories recognising our employees and celebrating the small human touches that can make a real difference to our customers. Please see our website www.aviva.com/about-us/our-brand/you-are-the-big-picture.
Our employee survey drives local and global change. The results are used by directors and managers to identify areas for improvement across Aviva. Managers of five or more people receive local survey results to use with their teams.
Employee wellbeing Providing a safe and healthy environment for employees, contractors, customers and visitors remains a priority across the group. We have well-established policies and systems in place to ensure wellbeing and minimise risks. Our new group Health and Safety Standard, introduced at the beginning of 2012, sets out our global approach to health and safety. Each business has an occupational health and safety management system that is designed to suit local operating conditions. These requirements apply to every business and cover a wide range of topics, from risk assessments and emergency and incident management, to driving on company business and stress management. In addition, many of our businesses have implemented their own initiatives to promote safety, health and wellbeing among their staff, including employee assistance programmes on finance and health issues, fitness centres, subsidised travel and free ‘bike checks’ for commuters. Flexible benefits packages also give
Our employee network groups continue to make an impact to the organisation and in the community. In 2011 we held a Women’s Network event for International Women’s Day to discuss equality in the workplace, the Aviva UK Pride network had a visible presence at local pride celebrations and the US business ran a Diversity & Inclusion Week. We are recognised in the Stonewall 100, a ranking of gay-friendly employers in the UK.
Globally, we contributed over £12.4 million to develop communities in 2011, a 9% increase on 2010 (2010: £11.4million) and we have improved our measurement approach to record our inputs and outputs more accurately in order to demonstrate the benefit of this investment for our employees, our communities and our brand. Engaging our employees is vital. Employees are allocated three days volunteering leave and over the past year we have seen an increase in volunteering to 60,392 hours. Some 91% of the volunteers surveyed reported positive development and morale benefits. Overall we have seen a 10% uplift in employees who think we do a good job of contributing to our communities and a 5% increase in employees who believe Aviva’s commitment to CR is genuine. Employee giving to charity has also increased with 30% of workforce involved (2010: 29%). Aviva has a clear track record of working with field experts in community development across the third and public sector. We recognise the importance of our partnerships with organisations such as UK Athletics, Save the Children, Consortium for Street Children and Oxfam to enable us to develop and share best practice programmes and to work effectively in areas of community advocacy. This partnership work helped us to develop our Child Safeguarding guidelines as an aid to employees working or volunteering with children on Aviva’s behalf. We recognise the mutual benefit of our community development activity; our employees feel engaged and proud, our communities benefit and our brand reputation is enhanced.
Street to School Our flagship global community development programme Street to School, a five-year commitment to help 500,000 children fulfil their potential, shows our approach in action. 2011 saw a significant increase in the volume and profile of our partnership work to help children off the streets and into education. In collaboration with leading charities and experts, and supported by our employees, partners and customers we have helped 274,245 children this year through preventative education, outreach, healthcare, safe housing and education projects. To date we have helped a total of 400,000 children, 23 Street to School partnerships and programmes are up and running in our markets and we use Street to School to improve advocacy of street children. Here are just a few examples of what we have achieved:  We have helped more than 180,000 children in India through partnerships including CRY (Child Rights and You) and Save the Children in 2011. Aviva also partnered with The Times of India and Vodafone to highlight the issues street children face and how a simple book can make a difference. Now in its third year, the call to action went nationwide through the use of television and social media attracting over one million books and 104,000 followers on Facebook.
 We are working with SHÇEK, Turkey’s Social Services and Child Protection agency, to help children in Istanbul. In 2011, SHÇEK awarded Aviva a silver medal in its annual awards for our support to street children. Aviva Turkey colleagues continue to support the charity donating cash, clothes, books and homemade goods.
 In 2011, more than 14% of our UK employees were actively involved in Street to School through volunteering, fundraising or donating. We reached over 4.6 million customers with Street to School messaging and donated over £69,000 to Railway Children through ‘£ per policy’ customer incentives.
 We sponsored pioneering research into ‘The State of the World’s Street Children’ and the first International Day of the Street Child; raising awareness of the plight of street children across the world.
Oxfam with the resources and materials to respond to emergencies as soon as they happen, such as those in East Africa and the Philippines.
Climate change and environment Protecting the environment to mitigate against man-made climate change are key priorities for Aviva that we believe requires action today, not tomorrow. Our strategy to deliver action focuses firstly on control of our own environmental impacts to reduce greenhouse gas emissions from energy, waste and travel. We continue to compensate for our operational emissions worldwide by purchasing carbon credits from the voluntary carbon market. We apply our understanding to work within our sphere of influence externally to encourage sustainable practices with our customers, suppliers, governments and the companies in which we invest. Our focused attention in driving down energy use while at the same time increasing our carbon boundaries has resulted in a relative carbon reduction of 3% (2010: 4%). In 2009 we announced our long-term target of a reduction of 30% carbon dioxide (CO2) emissions by 2020 from our baseline of 2006. By 2010 we had achieved a 10% reduction from 2006. Due to the sale of the RAC, a significant contributor to our carbon footprint, it has been necessary to restate our baseline year to 2010. Our long-term carbon reduction ambition has not changed but due to the baseline year change the target is now an absolute reduction of 20% from 2010 to 2020. Our relative annual target reduction is set at 5% to help us achieve the longer-term target. We also set global annual targets in other key areas, summarised below: 2011 targets Performance
Reduce relative CO2 emissions by 5%* (3)% Reduce water use by 4% (26)% Reduce waste by 4% (25)% Increase percentage of recycled waste by 2% (until 80% recycled rate is achieved) 73%
As a major international real estate manager, we are working with our partners and advisers to show leadership in sustainability across the real estate industry. Our Sustainability Charter guides our efforts to improve the sustainability performance of our managed portfolio and new construction projects. Through the Sustainability Forum convened to implement the charter, we have increased our focus on energy, water and waste management, transport, occupier engagement and staff training. In February 2011 we launched the first commercial insurance product endorsements to support the drive to a low-carbon economy. These products will cover wind turbines and solar power manufacturers, biomass and waste to energy production.
Just as important, our products can encourage behaviour change and contribute to more sustainable economies as well as providing access to financial stability and protection. For many families in emerging economies, Aviva products will be the first time they have accessed insurance. Over recent years, the political drive to reduce carbon emissions, along with high oil and gas prices and fears about energy security, have combined to boost the global renewable energy sector. Climate change poses serious risks, but it has also opened up massive opportunities for new technology. The renewable energy sector is forecast to increase in value by up to £45 billion by 2015. We want to be part of the solution, providing the financial service products that are needed to support a more sustainable, stable world economy. In March 2011, the Carbon Connect report ‘Energy Efficiency: The Untapped Business Opportunity’ called on insurers to develop solutions for renewable energy projects. We are developing new products and investments that support the low-carbon economy and the renewable energy sector. We are providing insurance for home renewable technologies in Canada as well as offering customers the chance to replace household items with more environmentally friendly goods when needed. In terms of commercial insurance, we offer a range of covers to suit policyholders ranging from small companies using a single solar panel to national onshore wind farms. Our public liability cover now also includes failure to supply power and professional indemnity cover for environmental consultants. We also want to encourage our customers to adopt more sustainable behaviours. To this extent we:  give customers the ability to manage their policies online;  provide insurance products and loans that benefit lowcarbon vehicles, people who drive less and people who use sustainable transport; and
Sustainable stock markets Aviva Investors is a leader in the field of responsible investment and from 2012 onwards will start to include environmental, social and governance considerations (ESG) in all mainstream investment decisions. Aviva is a founding member of the Principles for Responsible Investment (PRI) and is also represented on the PRI Advisory Council. These principles inform our approach to all our investments. Part of our approach is to encourage good governance and responsible practice is to engage with companies on ESG issues and vote on their strategies at annual general meetings. The most significant project on voting and engagement issues is our involvement in the Sustainable Stock Exchanges initiative. This is focused on enabling all investors to vote directly on the sustainability disclosure of listed companies, rather than using a surrogate such as the annual report and accounts. In 2008 Aviva Investors CEO Alain Dromer called on all the listing authorities of the global stock markets to consider whether their corporate governance codes should be updated to include a provision promoting CR reporting. Specifically, we proposed that all stock market listing authorities establish a listing requirement that companies:  consider how responsible and sustainable their business model is; and  present a forward-looking sustainability strategy at their annual general meeting (AGM) for shareholder approval.
Overall, the main purpose of our proposed corporate responsibility reporting requirement, and the associated AGM vote, is to try to create the right kind of discussions within the boardrooms of listed companies around the world, and then between the company and its shareholders. Since 2008, the Sustainable Stock Exchange initiative has continued to gather momentum. In 2011 we led a group of 24 institutional investors representing US$1.6 trillion to call for sustainability disclosure from listed companies. We wrote to 30 of the world’s largest stock exchanges to ask them to address inadequate sustainability reporting by companies. Developed using Bloomberg data, the letter also ranked individual listing authorities on a sustainability league table that assessed the current level of environmental, social and governance disclosure among listed companies. We believe this initiative has significant potential to make capital markets work better and be more sustainable. We held events at each of the UK political party conferences this year to discuss sustainable stock markets.
Corporate Responsibility Index (2011); and  Stonewall Workplace Equality Index – ranked 98 in the top 100 employers in the UK.
Trust and transparency Business ethics % of employees signing of receipt, understanding and acceptance of our Business Ethics Code on an annual basis
Customers % of businesses that are in or above the upper quartile relative to the local market average (NPS score)
CO2 emissions (tonnes) – absolute 177,077 154,726 148,251 165,115 Reduce relative CO2 emissions by 5% CO2 emissions (tonnes) – relative n/a n/a 153,013 148,404
Waste generated (tonnes) – absolute 19,311 11,812* 12,042 8,995 Reduce waste generated by 4%
Proportion of recycled waste 84% 79% 75% 73% 80% or above
Attracting and retaining talent % of women in senior management 22% 22% 21% 20%
% of employees who feel that they are treated with respect, regardless of their position
New KPI New KPI 73% 78% Meet/exceed GFS benchmark (2011: 77%)
% of employees who rate us favourably on leadership index* New KPI 66% 64% 70% Meet/exceed GFS benchmark (2011: 70%)
Suppliers % of ’managed supply‘ spend where supplier signed code of behaviour New KPI New KPI New KPI 31%
% of ’managed supply‘ spend where supplier has successfully completed the CR element of the supplier process
New KPI New KPI New KPI New KPI To be reported on from 2012
Number of employee hours spent volunteering 67,700 79,900 57,250 60,390 Increase the % of employee participation in volunteering
% of employees who feel that Aviva does a good job of contributing to the communities in which we live and work
4%  Meet/exceed GFS* benchmark * GFS stands for the Global Financial Services benchmark. This is a tough external benchmark that we use as a stretch target. In the equivalent regional benchmarks we are consistently performing above the benchmark.
In a change from 2010 reporting we have removed Delta Lloyd data from our environmental footprint as it is now out of operational control. Absolute CO2 data – The increase in the absolute CO2 emissions figure for 2011 is due to the following factors: updating the electricity conversion factors to the most recent ones available, increasing the scope of our data collection in India to all the office locations. We have also reported on the electricity consumption from the UK outsourced data centre for the first time since its sale in 2009, the CO2 emission equivalent from waste to landfill and water, our businesses in Indonesia, and Aviva Investor businesses in Luxembourg and Singapore. RAC was sold at the end of Q3 2011 and therefore our data reflects its consumption for the first three quarters only.
Baseline change – Our long-term carbon reduction target used a baseline year of 2006, the first year of reporting on the RAC, our target was an absolute 30% reduction to 2020. By the end of 2010 we had achieved a 10% reduction to the target. As RAC emissions accounted for 17% of our overall emissions, we have revised our baseline to 2010. As a result our new baseline is 151,531 tonnes of CO2.
5%  Meet/exceed GFS benchmark 6%  Meet/exceed GFS benchmark 5%  Meet/exceed GFS benchmark n/a
Total community investment at/above previous year 3%  Increase the % of employee participation in volunteering 5%  Increase the % of employee participation in volunteering
We have reported the following indicators for 2011:  greenhouse gas emissions;  waste;  resource usage;  customer advocacy; and  developing communities.
Aviva plc – operational carbon footprint covering 100% of employees GHG Emissions data from 1 Jan 2011 to 31 Dec 2011 Tonnes CO2e 2011 2010
Performance, strategy and targets Aviva's relative emissions have reduced this year. This is a combination of improvements in energy efficiency and increased use of technology. Our renewable electricity on a worldwide basis is 7% of our total electricity consumption. In September 2011 we sold the RAC business and the responsibility for the associated environmental impact moved away from Aviva. In respect of carbon emissions RAC accounted for 52,979 tonnes when we began reporting on it in 2006 and 25,491 tonnes in 2010, the last full year of reporting, a reduction of 52%. Our long-term carbon reduction target used a baseline year of 2006, the first year of reporting on the RAC, our target was an absolute 30% reduction to 2020. By the end of 2010 we had achieved a 10% reduction to the target. As RAC emissions accounted for 17% of our overall emissions, we have revised our baseline to 2010. As a result our new baseline is 148,625 tonnes of carbon dioxide. Communication technologies mentioned in last year’s report have impacted travel, particularly in Europe where air kilometres have reduced by 7.6% in 2011. Correspondingly, the use of telepresence, webex and MS Office Communicator has increased; 2,579 meetings were held by telepresence in 2011 (2010: 1,151). We have estimated the cost of travel avoidance from the use of telepresence in 2011 as £1.9 million and 1,417 tonnes in carbon savings. Concentrating on our core business, our strategy to outsource data centres is continuing. We outsourced our UK data centre in 2009 and our Canadian data centre at the end of 2010. 2012 will see the outsourcing of data centres in the US and in Europe. As this outsourcing occurs we will seek to continue to report on the energy consumption related to the processing and storage of Aviva’s data. HP is our business partner in this process for the UK, Canada and the US. With the maturity, and increasing validity of our environmental data collection, we face the challenge of making year-on-year reductions in carbon emissions. We have
Aviva’s CO2 emissions 000 tonnes 7, 2, 7, 2, 4, 4, 7, 7, 5, 5,
Industry benchmark information  Carbon Disclosure Project Score 80 out of 100 in FTSE
 long-term target – zero to landfill for UK operations by 2015 and worldwide by 2020.
Resource usage Direct Company impacts Water The operating cost of water is £1.1million (2010: £1.6 million) with a CO2 equivalent of 503 tCO2. Of the total water consumed, 5% comes from grey water sources and is used for irrigation of the grounds around the buildings.
Paper usage We currently do not track the cost of paper on a global basis.
Environmental incidents During 2011 there were no environmental incidents as a result of our operations (2010: none).
Performance, strategy and targets Water consumption reduced by 26% in 2011; this was partially due to the outsourcing of Aviva Canada’s data centre which was water cooled.
Customer advocacy Direct Company impacts At Aviva, the Net Promoter Score® is our key customer metric. This KPI is derived from the annual Relationship NPS survey conducted across all markets and comparing the local Aviva results with the local competition. This measure is widely regarded as a predictor of future growth, with strong correlations to persistency and retention, repeat purchase and referrals, suggesting that acting on the drivers of this metric will help us to build advocacy and will have a positive impact on business performance. Some preliminary analysis in different markets has shown that customers who score more highly on the NPS scale are indeed more likely to stay with Aviva for longer and more likely to have multiple products, suggesting that improving customer advocacy is beneficial to our company performance.
 In Europe, the majority of markets continue to outperform, when compared to the local market benchmark.
 The UK results have also shown marked improvements against the competitor benchmarks.
Recovering from poor experiences One aspect to maintaining this reputation is how we respond when things go wrong. Especially in a world where a customer can publicly broadcast what we have done and how we have responded, it is more important than ever to actively welcome customer feedback and to treat customers fairly. Of course, delivering products and services in line with our customers’ expectations will ensure that we minimise complaints in the first place, however, accepting that we are human and therefore won’t get it right every single time, we believe that customer complaints are an opportunity for us to win back goodwill that we may have lost. And by listening and learning from this feedback, over the past year we have seen the level of complaints fall and we have also seen improvements in how our customers feel about the interactions they have with us.
Engaging our people In the last year, the proportion of our people who say they would recommend our products and services has increased but remains slightly below the Global Financial Services benchmark. Since we know that the way our people feel about our products and services is directly correlated with how our customers perceive us, maintaining this high performance and the support of our people is critical to building our reputation with our customers.
Developing communities Direct company impacts Our global investment in charitable and community development projects in 2011 was £12.4 million (2010: £11.4 million). This includes cash, time and in-kind donations as well as management costs calculated using the London Benchmarking Group (LBG) model. We also helped leverage an additional £2.8 million of investment where our activity attracted further contributions from our wide network of stakeholders (2010: £1.5 million) including employees.
Independent assurance statement The Aviva corporate responsibility content on pages 72–86 (the CR Report) has been prepared by the management of Aviva, who are responsible for the collection and presentation of information reported. Our responsibility, in accordance with management’s instructions, is to provide a limited assurance engagement on the CR Report content and on selected environmental and community investment data presented in the CR Report. We do not accept or assume any responsibility for any other purpose or to any other person or organisation. Any reliance any such third party may place on the CR Report is entirely at its own risk.
2. Reviewed Aviva’s approach to stakeholder engagement through interviews with a selection of employees at Aviva businesses in the UK, France, Sri Lanka and Group headquarters and reviewing selected associated documentation.
3. Reviewed a selection of external media reports and selected corporate level documents relating to corporate responsibility aspects of Aviva’s performance to test the coverage of topics within the CR Report.
4. Reviewed Aviva’s processes for determining material issues to be included in the CR Report.
Our conclusions On the basis of our review we provide the following conclusions on the CR Report in relation to each of the AA1000AS (2008) assurance principles, overall plausibility and the completeness and accuracy of environmental and community investment performance data. Our conclusions should be read in conjunction with the above section on ‘What we did to form our conclusions’.
Responsiveness Has Aviva responded to stakeholder concerns?  We are not aware of any matters that would lead us to conclude that Aviva has not applied the responsiveness principle in considering the matters to be reported.
 Nothing has come to our attention that causes us to believe that the data relating to the above topics has not been collated properly from Group-wide systems.
 Aviva has expanded its reporting boundaries, both geographically and in scope. This work is encouraging and Aviva should ensure progress is ongoing in this area.
Our assurance team Our assurance team has been drawn from our global Climate Change and Sustainability Services Practice, which undertakes engagements similar to this with a number of significant UK and international businesses. The work has been led and reviewed by a Lead Sustainability Assurance Practitioner.
2. John McFarlane OBE Independent non-executive director and deputy chairman (chairman designate) (Age 64) Appointed to the Board in September 2011. Currently a non-executive director of The Royal Bank of Scotland Group plc (banking) until 30 March 2012, Westfield Holdings Limited (retail mall developer and operator) and Old Oak Holdings Limited (financial holding company). Former chief executive officer of Australia and New Zealand Banking Group Limited, executive director of Standard Chartered plc, head of Citicorp and Citibank UK and Ireland, and managing director of Citicorp Investment Bank. Former director and council member of The London Stock Exchange (financial services) and former non-executive director of Capital
Radio plc (media), The Securities Association (UK securities regulator), the Auditing Practices Board (auditing regulator) and the Business Council of Australia. Former chairman of the Australian Bankers Association. Member of the Nomination Committee.
3. Andrew Moss Group chief executive (Age 53) Appointed to the Board in May 2004. Joined as group finance director and became group chief executive in July 2007. Currently treasurer and a member of the board of The Geneva Association and a member of the board of the Association of British Insurers. Previously director of finance, risk management and operations at Lloyd’s of London (insurance) and formerly held a number of senior management positions at HSBC plc (banking). Member of the Corporate Responsibility and Nomination Committees and a member of the supervisory board of Delta Lloyd N.V.
6. Igal Mayer Executive director (Age 50) Appointed to the Board in January 2011 as chief executive, Aviva Europe. Joined the Group in 1989 and held various senior management positions before becoming chief financial officer and executive vice-president of Aviva Canada, managing director, London markets for CGU Insurance and finance director for Norwich Union Insurance. He was also previously president and chief executive officer of Aviva Canada, chief executive of Aviva UK General Insurance and chief executive of Aviva North America.
8. Mary Francis CBE Independent non-executive director (Age 63) Appointed to the Board in October 2005. Currently senior independent director of Centrica plc (utilities) and a non-executive director of Cable & Wireless Communications plc (telecoms). A senior adviser to Chatham House and chair of governors, James Allen’s Girls’ School. Formerly a senior civil servant, director general of the Association of British Insurers, and a non-executive director of the Bank of England, Alliance & Leicester plc (banking), St Modwen Properties plc (property development) and the Almeida Theatre Company Limited. Member of the Audit, Nomination and Risk Committees.
11. Michael Hawker AM Independent non-executive director (Age 52) Appointed to the Board in January 2010. Currently a non-executive director of Macquarie Bank Limited (banking), Macquarie Group Limited (banking) and Australian Rugby Union. Chairman of The George Institute for Global Health and director/trustee of the George Institute for Global Health (UK). Also a member of the advisory council at General Enterprise Management Services International Limited (private equity). Formerly chief executive and managing director of Insurance Australia Group (insurance) and chairman of the Insurance Council of Australia. Chairman of the Risk Committee and a member of the Audit and Remuneration Committees.
14. Russell Walls Independent non-executive director (Age 68) Appointed to the Board in May 2004. Currently non-executive director of Biocon Limited (healthcare), Signet Jewelers Limited (retail) and Mytrah Energy Limited (wind power producer). Former group finance director of BAA plc (transport), Wellcome plc (pharmaceuticals) and Coats Viyella plc (textiles), treasurer and trustee of the British Red Cross and a member of the Finance Commission of the International Federation of the Red Cross. Formerly senior independent non-executive director of Stagecoach Group plc (transport) and Hilton Group plc (leisure) and a non-executive director of Delphic Diagnostics Limited (medical) and Mersey Docks and Harbour Company (transport). Chairman of the Audit Committee and a member of the Nomination and Risk Committees.
15. Scott Wheway Independent non-executive director (Age 45) Appointed to the Board in December 2007. Currently a strategic adviser to Best Buy Co., Inc. (retail services). Former chief executive officer of Best Buy Europe (retail services), director of The Boots Company plc (pharmacy) (now known as The Boots Company Limited) and managing director and retail director of Boots the Chemist at Alliance Boots plc. Formerly held a number of senior executive positions at Tesco plc (retail services), including chief executive of Tesco in Japan. Chairman of the Remuneration Committee and a member of the Corporate Responsibility Committee.
Trevor Matthews Chief executive, Aviva UK (Age 59) See page 90
Igal Mayer Chief executive, Aviva Europe (Age 50) See page 90
John Ainley Group human resources director (Age 55) Joined the Group in 1999. Formerly held senior HR positions at WH Smith plc, ICL Limited and GEC Avionics Limited. Previously Group HR Director for Norwich Union Insurance and Norwich Union Life. Holds a Law degree and is a Companion of the Chartered Institute of Personnel Development.
Alain Dromer Chief executive, Aviva Investors (Age 57) Joined the Group in September 2007. Formerly global head of group investment businesses at HSBC, senior executive vicepresident and head of asset management and insurance at Credit Commercial de France and director of capital markets at La Compagnie Financiére Edmond de Rothschild. Previously held senior positions at the French Treasury in the Ministry of Finance and the French Institute for Statistics and Economic Studies. Educated at l’École Polytechnique, Paris and l’École Nationale de la Statistique l’Administration Économique, Paris.
Richard Hoskins Chief executive, Aviva North America (Age 47) Joined the Group in 2009. Formerly executive vice-president and chief financial officer of Aviva North America. Previously executive vice-president and chief financial officer for Old Mutual US, acting group finance director and deputy group finance director for Old Mutual plc, London and chief executive officer of National Australia Insurance Services, a subsidiary of National Australia Bank’s UK operations. Previously also held several senior management roles at Lend Lease Corporation, Qantas Airways and Deloitte and Touche. Holds a Bachelor of Arts degree in Business Studies from Sheffield University and is a Member of the Institute of Chartered Accountants of England and Wales.
Amanda Mackenzie Chief marketing and communications officer (Age 48) Joined the Group in 2008. Currently a non-executive director of Mothercare plc. Previously commercial and marketing director for British Gas. Holds a Bachelor of Science in Psychology from the University of London and is a graduate of the INSEAD Advanced Management Programme. President of the Marketing Society, a Fellow of the Royal Society of Arts and a member of the board of the National Youth Orchestra of Great Britain. She is also a member of the Lord Davies steering group which was formed to support his independent review into ‘Women on Boards’.
The directors submit their annual report and accounts for Aviva plc, together with the consolidated financial statements of the Aviva Group of companies, for the year ended 31 December 2011. The Companies Act 2006 requires the directors to present a business review in this Directors’ Report. The requirement is for the Company to set out in this Directors’ Report a fair review of the business of the Group during the financial year ended 31 December 2011, including an analysis of the position of the Group at the end of the financial year and the trends and factors likely to affect the future development, performance and position of the business. The contents of this Directors’ Report, together with the Performance review on pages 20 to 70, the Corporate Responsibility Report on pages 72 to 88, Shareholder Information on pages 138 to 164 (which includes the risks relating to our business), the Corporate Governance Report on pages 97 to 105, and the Directors’ Remuneration Report on pages 114 to 136, constitute the business review and are therefore incorporated into this Directors’ Report by reference. Details of material acquisitions and disposals made by the Group during the year are contained in note 3 to the consolidated financial statements IFRS.
Results The Group results for the year are shown in the consolidated income statement on page 183.
Share capital and control The issued ordinary share capital of the Company was increased by 85,564,296 ordinary shares during the year. 1,574,706 shares were allotted under the Group’s employee share and incentive plans and 83,989,590 shares were allotted under the Aviva Scrip Dividend Scheme for the May 2011 and November 2011 dividends. At 31 December 2011 the issued ordinary share capital totalled 2,905,712,938 shares of 25 pence each and the issued preference share capital totalled 200 million shares of £1 each. Accordingly, the issued and paid-up ordinary share capital constituted 78% of the Company’s total issued share capital and the issued preference share capital constituted 22% of the Company’s total issued share capital at 31 December 2011. All the Company’s shares in issue are fully paid up and the ordinary and preference shares have a Premium and Standard listing respectively on the London Stock Exchange. The Company is listed on the New York Stock Exchange (NYSE) in the form of American Depositary Shares, referenced to ordinary shares, under a depositary agreement with Citibank. Details of the Company’s share capital and shares under option at 31 December 2011 and shares issued during the year are given in notes 29 to 32 of the consolidated financial statements.
The rights and obligations attaching to the Company’s ordinary shares and preference shares, together with the powers of the Company’s directors, are set out in the Company’s articles of association, copies of which can be obtained from Companies House and the Company’s website, www.aviva.com/investorrelations /corporate-governance/articles-of-association, or by writing to the group company secretary. With the exception of restrictions on transfer of the ordinary shares under the Company’s employee share incentive plans while the shares are subject to the rules of the plans, there are no restrictions on the voting rights attaching to the Company’s ordinary shares or the transfer of securities in the Company. Where, under an employee share incentive plan operated by the Company, participants are the beneficial owners of shares but not the registered owners, the voting rights are normally exercised at the discretion of the participants. No person holds securities in the Company carrying special rights with regard to control of the Company. The Company is not aware of any agreements between holders of securities that may result in restrictions in the transfer of securities or voting rights. Unless expressly specified to the contrary in the articles of association of the Company, the Company’s articles of association may only be amended by special resolution of the Company’s shareholders in general meeting. There are a number of agreements that take effect, alter or terminate upon a change of control of the Company, such as commercial contracts and joint venture agreements. None is considered to be significant in terms of their potential impact on the business of the Group as a whole. All of the Company’s employee share incentive plans contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions and pro rata reduction as may be applicable under the rules of the employee share incentive plans. At the 2012 AGM, shareholders will be asked to renew the directors’ authority to allot shares. Details are contained in the Notice of Annual General Meeting (Notice of AGM).
Authority to purchase own shares At the Company’s AGM held on 4 May 2011, shareholders renewed the Company’s authorities to make market purchases of up to 282 million ordinary shares, up to 100 million 83/4% preference shares and up to 100 million 83/8% preference shares. These authorities were not used during the year or up to the date of this report. At the 2012 AGM, shareholders will be asked to renew these authorities for another year and the resolution will once again propose a maximum aggregate number of ordinary shares which the Company can purchase of less than 10% of the issued ordinary share capital. Details are contained in the Notice of AGM. The Company held no treasury shares during the year or up to the date of this report.
Major shareholdings In accordance with the provisions of the Disclosure and Transparency Rules of the Financial Services Authority, as at 31 December 2011, the Company had received the following notifications relating to their holdings percentage of the total voting rights attaching to the issued ordinary share capital of the Company: BlackRock, Inc. held 4.99%; Legal & General Group plc held 3.98% and AXA SA held 3.86%. As at 7 March 2012, the Company had been notified of the following holdings of voting rights in the ordinary share capital of the Company: BlackRock, Inc. 5.15%; Legal & General Group plc 3.98%; and AXA SA 3.86%.
Directors The following persons served as directors of the Company during the year and up to the date of this report: Glyn Barker (appointed 27 February 2012) Mary Francis Richard Karl Goeltz Euleen Goh Michael Hawker Gay Huey Evans (appointed 20 October 2011) Mark Hodges (resigned 2 June 2011) Trevor Matthews (appointed 2 December 2011) John McFarlane (appointed 1 September 2011) Igal Mayer (appointed 19 January 2011) Andrea Moneta (resigned 19 January 2011) Andrew Moss Carole Piwnica (resigned 1 December 2011) Patrick Regan Lord Sharman of Redlynch Leslie Van de Walle Russell Walls Scott Wheway