The enhanced content on www.aviva.com supplements the regulatory disclosures within this report.
The Strategic report on pages 1 to 32, contains information about us, how we create value and how we run our business. It includes our strategy, business model, market outlook and key performance indicators, as well as our approach to sustainability and risk.
Governance 34 Chairman’s Governance Letter 36 Our Board of Directors biographies 39 Directors’ and Corporate Governance Report 61 Directors’ remuneration report
IFRS financial statements 86 Independent auditors’ report 93 Accounting policies 106 Consolidated financial statements 229 Financial statements of the Company
Unless otherwise stated, all figures referenced in this report relate to Group.
The Company’s registered office is St Helen’s, 1 Undershaft, London, EC3P 3DQ The Company’s telephone number is +44 (0)20 7283 2000
To ensure we can fulfil our purpose, both today and for the years to come, we depend on getting the fundamentals right. This means having a robust financial position, a clear strategy executed well, and strong values that inform all our decision making as part of a healthy corporate culture. I am pleased this year’s report demonstrates that the fundamentals are in good shape. These results come amidst unprecedented political, economic and technological changes that have an effect on all aspects of our society. Nevertheless, we remain focussed on delivering for our customers, so that they can navigate these uncertain times.
I am pleased to report that our overall people engagement score in 2017 has increased to 75%. In 2017 the Board spent a lot of time developing metrics to assess the Company’s culture and its ability to accelerate growth, and our focus on delayering, simplifying processes, and increasing the speed of execution all show signs of improvement. These measurements are used as part of a broad dashboard of metrics, providing the Board with a holistic view of the culture in our business and a view on the progress made. You can read more on our culture in the ‘Our People’ section of this report.
I am particularly proud of our commitment to act sustainably and responsibly as part of the wider community where we live and work. In 2017, the Aviva Community Fund supported over 800 inspirational projects from Canada to Poland. Our partnership with the British Red Cross has also seen Aviva provide support for those affected by the Manchester and London terrorist attacks and the tragic Grenfell Tower fire in London.
Climate change poses serious risks to our customers and in turn our business. In October 2017 we were awarded the United Nations
Our markets In line with our strategy to focus on those markets and businesses that have the strongest returns and best prospects for growth, we have now finished the process of simplifying the Group.
This means we have focussed our business on eight major markets of the UK, Ireland, France, Poland, Italy, Canada, Singapore and Aviva Investors. We believe that here we are best placed to compete on the strength of our scale, brand and distribution. The
Group adjusted operating profit from these markets (excluding divestitures and businesses held for sale) increased by 6%.
Hong Kong, Indonesia, Vietnam, Turkey and India. These are markets with enormous potential for us and they represent the prospect of higher long-term growth in the future.
We have grown Group adjusted operating profit1 and cash remittances2 and further strengthened our Solvency II capital position. The benefit from foreign exchange movements is offset by the sale of businesses in Europe. Excluding disposals profit has improved for the ongoing businesses despite experiencing significantly lower prior year reserves releases in general insurance.
The Board proposes a final dividend of 19.00 pence per share (2016: 15.88 pence per share) which corresponds to a 50% dividend payout ratio. In line with improved earnings quality and cash flows, in
November 2017 we announced we would increase our dividend payout ratio target to a range of 55-60% of operating EPS3 by 2020.
Looking forward 2018 is the year where we will accelerate our plans for growth. At our Capital Markets Day in November 2017 we announced our intention to pay down debt in 2018, while continuing to invest in our future growth.
(2016: £3.5 billion), Solvency II capital surplus1,4 rose to £12.2 billion (2016: £11.3 billion) and business unit cash remittances1 increased 33% to £2.4 billion (2016: £1.8 billion). Group adjusted operating profit3 increased 2% to £3,068 million
(2016: £3,010 million). Excluding the impact of divestments, our eight major markets delivered a 6% increase in Group adjusted operating profit3, with double-digit growth contributed by the UK, Aviva Investors, France, Poland, Ireland and Singapore. Group adjusted operating profits3 also benefitted from a net positive impact from assumption changes in the UK. However, Canada reported a disappointing result reflecting adverse changes in prior year reserve development and higher current year claims inflation. We have implemented a detailed recovery plan in Canada, raising premium rates and taking actions on underwriting, claims, distribution and expense management. In light of our results, we have increased our total dividend 18%
to 27.4 pence (2016: 23.3 pence). This marks the fourth consecutive year of double-digit growth in the total dividend and we have reached our target of paying out 50% of operating EPS1,2. Having successfully executed our plan to strengthen the balance sheet and focus Aviva on those businesses with the strongest fundamentals, we have increased our growth ambitions.
Our 2017 results provide evidence that we are capable of delivering consistent growth in operating EPS1,2 and dividends.
We have significantly simplified and focussed our geographic footprint over recent years, halving the number of markets in which we have operations. This process is now complete and we are no longer actively seeking to reduce our geographic footprint. As a result, Aviva’s core business is now comprised of eight major markets and six strategic investments.
Italy, Singapore and Aviva Investors. These markets have structural drivers of demand underpinned by economic growth, demographics and regulation. Within these markets, Aviva has competitive strength in distribution, brand, capability and scale efficiency that allows us to deliver consistent growth and attractive returns. The major markets are currently responsible for virtually all of Aviva’s Group adjusted operating profit3 and cash remittances1. Our strategic investments are businesses where we are targeting long-term growth by working with leading local partners in populous countries with strong growth characteristics. Our strategic investment markets are China, Hong Kong, India, Turkey, Vietnam and Indonesia. While in aggregate these businesses make a modest contribution to Aviva’s financial performance today, they are sources of long-term upside for Group adjusted operating profit3, cash-flow and value. Aviva’s capital strength provides us with significant flexibility in terms of future capital allocation. Our Solvency II capital surplus1,4 of £12.2 billion equates to a Solvency II cover ratio1,4 of 198%, well above our 150% to 180% working range. As a result, we have signalled plans to deploy £3 billion of excess cash in 2018 and 2019.
Aviva has made significant, tangible progress in delivering our True Customer Composite strategy in 2017.
In the UK, Aviva is unique as the only large-scale composite insurer with top three positions across multiple product lines. In 2017, we moved to a unified management structure for our life, general and health insurance businesses under the leadership of
Andy Briggs. This change has helped us to increase the collaboration between different product teams and improve our focus on the customer. The strength of our franchises is evident, with large mandate wins driving higher new business volumes across our major product segments. We saw continued success in our partnership channels, expanding our leading position in the bank market and delivering a significant uplift in net flows into our advisor platform. Meanwhile, we made further strong progress in our direct to consumer business, growing net written premiums by 14% and we increased the number of customers in the UK who have more than one product with Aviva by approximately 300,000.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
3 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
(2016: £2.9 billion) and staff pension schemes in surplus of £1.5 billion (2016: £1.1 billion). These exclusions have no impact on Solvency II surplus. The estimated Solvency II position includes the pro forma impacts of the disposals of Friends Provident International Limited (£0.1 billion increase to surplus) and the Italian Avipop Assicurazioni S.p.A (£0.1 billion increase to surplus). The 31 December 2016 Solvency II position included pro forma adjustments for the impact of the announced disposal of Antarius and the future impact of changes to UK tax rules announced by the Chancellor of the Exchequer’s Autumn statement, which was removed following clarification in the 13 July 2017 Finance Bill. The 31 December 2016 Solvency II position also includes an adverse impact of a notional reset of the transitional provisions (TMTP) to reflect interest rates at 31 December 2016 £0.4 billion decrease to surplus.
Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information
Aviva is playing a leading role in the digital revolution of insurance and our intellectual property (IP) has had a significant impact on our business in the past 12 months. Our UK digital and direct business passed the £1 billion premium mark in 2017, delivering growth of 14%. Our digital IP played a pivotal role in helping us to secure long-term relationships with HSBC in the UK and Tencent in
Group Chief Executive Officer 1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
For our key metrics, we have: • Increased Group adjusted operating profit1 by 2% to £3,068 million (2016: £3,010 million)
(2016: £1,805 million) • Increased total dividend per share by 18% to 27.40p (2016: 23.30p) delivering four consecutive years of double digit growth • Delivered a strong Solvency II capital position with an estimated shareholder Solvency II cover ratio2 of 198% (2016: 189%) up 9pp. This includes operating capital generation2 surplus movement in the year of £2.6 billion
• Reported total assets under management2 of £490 billion – an increase of £40 billion on last year
For our customers, we have: • In October, we launched an effortless home claims trial in the UK, settling home insurance claims by asking just three questions • Launched ‘The Ideas Hub’ where new initiatives are trialled with customers using social media
• Partnered with Neos, inventor of a connected home service, which detects leaks, smoke and intruders and alert you instantly by app
IFAs. It is now available in the UK, Singapore, France, Poland and
Canada • Invested in Wealthify, a robo investment platform, in October 2017
• Launched Aviva Quantum with a 500strong team of data scientists
Not Everywhere: • During the year we announced the sale of Friends Provident International
• In Taiwan we sold our joint venture, exiting the market
For our people, we have: • Continued to build a culture and environment which attracts and retains people with the right capabilities for the future • Employee engagement is at 75% with 85% of colleagues seeing how their team’s work aligns to Aviva’s strategy
• Introduced CATS (Culture Action Team) globally with over 2,000 members committed to driving change to embed Aviva’s values
• Delivered our Leadership Accelerator programme to 290 of our senior leaders • Launched Equal Parental Leave to help build an inclusive workforce
For society, we have: • Supported 2,400 community projects, helping 792,000 people
• Spearheaded the establishment of the World Benchmarking Alliance and public, transparent and authoritative league tables of companies’
• Awarded the UN Momentum for Change award in recognition of a decade of work reducing the environmental impact of our business and inspiring action on climate change
• Invested £527.5 million in lower carbon infrastructure as part of our strategic response to climate change
• Target higher than 5% increase in operating EPS3 from 2018 onwards • Aim to deliver £8 billion of cash remittances2 between 2016-2018 inclusive
• Target a Solvency II cover ratio2 working range of between 150%–
• Continue to develop our leaders across Aviva through greater innovation, agility and accountability
• Build on the success of our existing customer propositions, developing products and services that help our customers Defy Uncertainty in an increasingly sustainable way 1. Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
2. This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section.
We use a range of financial and non-financial metrics to measure our performance, financial strength, customer advocacy, employee engagement and impact on society. These include Alternative Performance Measures (APMs) which are non-GAAP measures that are not bound by the requirements of IFRS. These metrics are reviewed annually and updated as appropriate to ensure they remain an effective measure of delivery against our objectives. For 2017, the review of these metrics resulted in the following changes: • Digital convenience for our customers has been amended to ‘Active registrations’ instead of ‘Registrations’. This change ensures we measure users who are actively engaging with MyAviva and other digital platforms every year.
Further guidance in respect of the APMs used by the Group to measure our performance and financial strength is included within the ‘Other Information’ section of the Annual report and accounts. This guidance includes definitions and, where possible, reconciliations to relevant line items or sub-totals in the financial statements. The financial commentary included in this Strategic report should be read in conjunction with this guidance.
Number of markets in 2017: at or above market average: 7 2016: 9 2015: 8
Since 2010 we have reduced carbon emissions (CO2e) from our day-to-day operations by 53% beating our 2020 target of a 50% reduction earlier than planned. We are a carbon neutral company, offsetting the remaining emissions through projects that have benefitted the lives of over one million people since 2012. In 2017 we were awarded the
Group adjusted operating profit1 increased by 2% to £3,068 million with the impact of foreign exchange and disposals largely offsetting. The impact of life assumption and modelling changes were higher in 2017 than in 2016, however, this was offset by a decrease in prior year reserve releases in our General Insurance business.
After adjusting for this one-off change the PBT has increased in line with increased Group adjusted operating profit, which also reflects reduced integration and restructuring costs and gains arising on the disposal of businesses.
Solvency II Value of New Business (SII VNB)2 measures growth and is the source of future cash flows in our life businesses. SII VNB increased by 25% to £1,243 million and includes a £96 million benefit following a clarification to the Solvency II rules on the calculation of transitional measures made by the Prudential Regulation Authority. Excluding this benefit, SII VNB2 has increased by 15% reflecting strong double digit growth in all segments and continued discipline on product mix and pricing across our markets.
The combined operating ratio (COR)2 is a measure of general insurance profitability. The lower the COR is below 100%, the more profitable we are. Excluding the prior year impact of the Ogden discount rate change in the UK, COR deteriorated by 2.4 percentage points on 2016. This was driven by an increase in the claims ratio reflecting lower prior year reserve releases and an increase in claims severity and frequency in Canada. Outside Canada, there has been positive progress, with continued improvement in the underwriting result in the UK and Europe.
Symbol denotes key performance indicators used as a base to determine or modify remuneration.
1. Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
2. This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Our strategic framework responds to and anticipates the nine long-term trends which will impact our industry over the next few years. We acknowledge the risks they present and aim to turn these trends into opportunities for future growth.
My life, my way Customers will continue to want to be much more in control, expecting self-service and simpler, faster access to products and services.
Winning through data & analytics Those who interpret data quickly and intuitively to inform the development of products and services that provide real value for customers will lead the way.
Insurance customers willing to receive computer-generated advice about the type of insurance coverage to purchase 74% Source: Accenture June 2017
Ever-changing planet Changing climate and extreme weather events will have a significant impact on both society and business.
Older and healthier People will live longer and be healthier. Markets will be driven increasingly by attitudes and needs as family structures evolve.
Increase in UK’s average life expectancy at birth between 2010 3 years Source: Imperial College, London, February 2017
Estimated global cost of Cybersecurity breaches by 2021 $6 trillion Source EY Global Information Security Survey 2017-2018
Customers invest their savings with us. We manage these investments to provide them with an income for a more secure future.
Customers benefit from a range of products to meet their needs, with easy access when and how they want it.
£34.6 billion Paid out in benefits and claims to our customers in 2017
We play a significant role in our communities, including as a major employer and a long-term responsible investor.
Our strategy focuses on the things that really matter, puts the customer at the heart of everything we do and provides clear direction across all our markets for how we run our business. We have classified these in three key areas: • True Customer Composite
For Aviva, this means increased customer engagement and retention, and driving towards more cost effective operations.
We are continuing to expand our range of customer propositions to be a True Customer Composite across our geographies, and making it easier and more rewarding for customers to manage multiple products with Aviva through digital.
We have made progress in the strategic partnership market, in particular with expanding the number of insurance products we provide to existing clients, such as HSBC. Rewarding our customers’ loyalty is central to our True
With MyAviva, we give our customers access to all their products in one place and let them easily make changes to their policies or get the latest deal. We now have MyAviva in the UK, Canada. Ireland, France, Poland, Singapore and Italy.
This pilot successfully allowed us to align client objectives to Aviva’s solutions.
In 2017 we announced our acquisition of Friends First in Ireland, which will strengthen our life business in Ireland once the acquisition is completed in 2018. This supports our True Customer Composite model as it strengthens both capabilities and distribution for the Life business in Ireland.
We want to be a 320+ year old disruptor in an industry dominated by complexity. Our purpose is to help customers Defy Uncertainty – to face life’s uncertainties with confidence. Digital tools allow Aviva to offer the convenience, simplicity and rewards to earn our customers’ trust, so that we can help more customers protect what matters to them and save for anything from a comfortable retirement, to a new house or family members. Aviva’s digital investment delivers innovative propositions and a better experience for customers. Stronger digital capability leads to more efficient operational processes so that we can serve customers faster and cheaper.
Technology offers us the opportunity to do far more to help our customers Defy Uncertainty. Aviva will focus increasingly on delivering products and services to customers more in control and allow them to have a more active hand in steering what lies ahead.
Norwich offices. They are catalysts for digital innovation, where creative minds collaborate to turn ideas into new products and services. Examples of this are: • Our chatbots help customers in seconds or provide an insurance quote in minutes • Customers can make most claims online and we settle simple claims within seconds • We give people a discount for driving safely through our Aviva
And because they deal with us digitally, we are able to offer our customers lower prices.
What we are doing differently now and for the future Working with others to benefit our customers
• Globally, among our digital customers 69% are likely to consider Aviva for other products, compared to 52% of nondigital customers • In the UK, 69% of MyAviva registered customers are likely to consider Aviva for other products and services compared to just 53% of those not registered on MyAviva
We want to reinvent insurance for the digital age, to make it simple and accessible for our customers and to challenge traditional distribution and marketing methods. Our new joint venture in Hong Kong aims to do just that. Our partners,
Aviva Ventures is our corporate venture capital fund. It looks for and makes investments in start-ups that have an alignment to the future of the insurance market. In 2017 it significantly expanded the portfolio as well as extending its appetite into making fund investments. We have made investments in six new companies: Roost (US), Casalova (Canada), Neos (UK), Owlstone
Not Everywhere Not Everywhere means that we deploy our resources where we can be most competitive. We are not interested in planting flags or being in 100 countries. We focus on a select number of markets and business lines where we have scale and profitability or a distinct competitive advantage – where we can win.
We are focussed on eight attractive, growing markets where we are, or have the potential to the best in class. It is these businesses that will underpin the cash flow plus growth strategy. Our major markets are: • UK – number one composite insurer providing a core growth engine and high levels of sustainable cash flow
Strategic investments: future, fast growth We have made a number of strategic investments that will accelerate growth and provide increased value over the long term. These investments are: • Digital – leading intellectual property (IP) being rolled out across our markets • China – delivering strong growth in sales and adjusted operating profit in one of the world’s largest insurance markets
• Turkey – leading position in the life and pensions market and exposure to a large, young and growing population
• Global Corporate Solutions (GCS) – selective expansion provides a natural extension to our existing strength in retail and commercial lines
The focus for 2017 has been on our culture; we want to be a business which is simple, innovative and customer centric in everything we do. We employ 30,021 people globally and in the UK, we employ more than 14,600 people.
• Make leadership a way of life so all our people contribute to delivering our strategy and think independently. We want leaders who dream big and move fast in everything they do • Create an inclusive and diverse environment so that everyone can be themselves • Actively invest in the skills, mind-sets and future capabilities we need to win in a digital age
Our values guide everything we do and the decisions we take: Care More
version of this programme will be rolled out to people leaders from 2018
In 2017 our global Voice of Aviva survey focussed on key areas of insight to drive growth. Engagement is up one percentage point to 75% and is now consistent across all of our markets after significant improvements for France and Singapore, 85% of colleagues see how their team’s work aligns to Aviva’s strategy. Our culture journey since 2014 has shown significant shifts towards a culture of more innovation and less bureaucracy. 70% of colleagues feel able to challenge complexity and 69% feel able to try out new and exciting ideas to benefit our customers. Nearly four in five employees believe that Aviva values their health and wellbeing, up nine percentage points in 2017 alone following the launch of a highly successful Health and Wellbeing programme.
Company. In 2017 we focussed our attention on gender and age, for the first time setting a 30% target to increase the proportion of women in senior roles across the Group by 2020. We have also published our gender pay gap in the UK and expect to see that close over time too. A key policy change to contribute to our inclusive culture was the launch of our new equal parental leave policy in Canada, UK, France, Ireland and Singapore. It enables any parent employed by
As a member of The ‘Business Disability Forum’ we’re committed to ensuring that all candidates for recruitment and employees are treated fairly throughout the employee lifecycle including opportunities for training, promotion and career development. We continue to build on the existing strengths of our communities and partnerships with the launch of six global employee resource groups focussing on age, gender balance, caring, disability, sexual orientation, race and ethnicity in 2018. We will also be setting targets and tracking progress in these dimensions in our core markets and Group functions through agreed Statements of Intent overseen by our Global Inclusion
Council. To manage employment risk, we conduct pre-employment screening checking and operate regular performance appraisals for all employees at all levels, which are independently calibrated throughout an employee’s career. Any exceptions to the policies are reported to line management and escalated via the appropriate channels. As a financial services regulated entity, we have a compulsory and tailored annual risk-based training and awareness programme to ensure employees and others acting on Aviva’s behalf know what is expected of them. Our people are regularly updated by the senior team through several mechanisms, such as our intranet and #Uncut episodes, giving employees equal and timely access to information on financial and economic factors affecting Aviva.
We know our employees are a key factor in making our business successful and as such their wellbeing is key. We launched
Innovation, simplicity, inclusion and developing winning capabilities will be key priorities for us as we continue to transform our business. We recognise that we are on a journey to accelerate Aviva’s transformation into a company that puts the customers at the centre of everything we do and our focus will be on ensuring our people can deliver in an innovative and simple way. In 2018 we will continue to focus on developing an inclusive workforce which is fit for the future.
At 31 December 2017, we had the following gender split: Board membership
In 2017, Aviva delivered growth in Group adjusted operating profit1, generated increased cash-flow, further strengthened our Solvency II
Group adjusted operating profit1 increased 2% to £3,068 million (2016: £3,010 million) while operating earnings per share (EPS)2,3 advanced 7% to 54.8 pence (2016: 51.1 pence). The Board of Directors has proposed a final dividend of 19.0 pence per share. This takes the full year dividend per share to 27.4 pence, an increase of 18% and meeting our 2017 dividend payout ratio target of 50% of operating EPS2,3. IFRS profit after tax attributable to shareholders was £1,646 million and basic earnings per share 35.0 pence (2016: £859 million and 15.3 pence respectively). The year-on-year movement in these measures reflects the one-off exceptional charge of £475 million incurred in 2016 as a result of the change in the Ogden discount rate, a reduction in integration and restructuring expenses and gains on divestitures, offset by a re-measurement loss of £118 million arising from our recent announcement to dispose of Friends Provident International, which has been measured at fair value.
France, Spain, Taiwan, and Italy as well as the sale of Friends Provident International. Aviva invested in Vietnam, where we acquired 100% ownership of our joint venture with VietinBank, and we announced the acquisition of Friends First in Ireland, strengthening our position in the Irish life insurance market. In Hong Kong, regulatory approval was recently granted for our joint venture with Tencent and Hillhouse. In 2017, our major markets demonstrated their competitive strength by growing assets, improving net flows and increasing premium volumes. Our priority is to accelerate the performance of our businesses and translate this into attractive and dependable growth in Group adjusted operating profit and dividends.
Aviva Investors is targeting double digit growth by transforming its position and becoming a leading asset manager of both third party and Aviva assets. It is achieving this by focussing on three key areas: • Providing solutions - where the AIMS range of funds seeks to achieve investors' desired outcomes with reduced volatility.
• Real Assets expertise - where our capability and expertise in real estate and infrastructure origination supports both the growing need of Aviva's annuity portfolio and the requirements of external investors, including defined benefit pension schemes.
In 2017, Aviva Investors achieved another year of strong growth, with fund management adjusted operating profit1 rising 21% to £168 million (2016: £139 million). Revenue grew 14% to £577 million
In Ireland, Aviva is a composite insurer with a leading market position in general insurance and a top four position in life insurance. Our strategy in Ireland is to leverage the strong capabilities of the Aviva group, bringing together leading digital propositions and a large-scale composite business model to capitalise on Aviva’s strong brand recognition.
France adjusted operating profit1 was flat in local currency terms at £529 million (2016: £499 million). However, this reflected a partial year contribution from Antarius, which was sold to Societe Generale in April 2017. Excluding Antarius, adjusted operating profit1 increased 13% in local currency terms to £507 million (2016: £421 million).
In life insurance, adjusted operating profit1 excluding Antarius increased 8% in local currency to £403 million (2016: £351 million).
Fee revenues benefitted from higher average AUM2 and our results were further supported by the continued evolution of business mix towards protection and unit linked products. In general insurance, adjusted operating profit1 gained 37% to £104 million (2016: £70 million). Net written premiums increased 3% to £1,053 million (2016: £957 million) due to growth in direct personal lines, while lower weather related claims helped the combined operating ratio2 improve to 94.5% (2016: 97.0%).
In France, we intend to consolidate our distribution into four key channels under a single Aviva brand. This targets improved alignment and efficiency within the distribution network, strengthening Aviva’s ability to develop relationships with customers in the French market across our composite product offering.
Insurance (RBCGI), have expanded our presence into the direct and bank channels. Canada has provided attractive returns on capital in most years and our current positioning provides a long-term opportunity to be a leader in the general insurance market while seeking to develop elements of a composite footprint for the benefit of customers.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Aviva is one of the leading composite insurers in Poland, with a number two position in life insurance underpinned by strong multichannel distribution.
(2016: 92.5%). Aviva Italy is a leader in the market in terms of product design and this is translating into attractive new business volumes and net inflows. We remain focussed on strengthening our strategic positioning in Italy by expanding distribution and increasing emphasis on our composite business model.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the other information section.
At 31 December 2017, Aviva’s Solvency II capital surplus2,4 was £12.2 billion (2016: £11.3 billion), equivalent to a cover ratio2,4 of 198%
UK and other actions as we continue to adapt to the Solvency II regime. Underlying capital generation remained stable at £1.7 billion (2016: £1.7 billion), despite higher premium volumes in general insurance, increased new business sales in life insurance, lower profitability from our Canadian business and the impact of divestitures. Cash remittances2 from our business units were £2,398 million (2016: £1,805 million). The increase in remittances was mainly attributable to the UK, which contributed £1,800 million
(2016: £1,187 million). Remittances from the UK general insurance business increased and special remittances from the life business arising from the Friends Life integration doubled to £500 million. Remittances from Europe of £485 million (2016: £449 million) and
Aviva Investors of £58 million (2016: £39 million) both grew in conjunction with adjusted operating profit1 progression while
Canada’s weaker results led to a decline in remittances to £55 million (2016: £130 million).
• Organic growth – we are targeting greater than 5% growth in Group adjusted operating profit1 from our major markets; • Canada – we expect a partial recovery in adjusted operating profit1 to provide an approximately 1-2% incremental benefit for
Group adjusted operating profit1 in 2018; • Capital management – the debt retirement and share repurchase undertaken in 2017 are expected to support operating EPS2,3 growth by approximately 2% in 2018. Additional actions in 2018, including additional planned debt retirement, are expected to provide a further 1% to 1.5% benefit to operating EPS2,3 in 2018.
• Divestitures – the expected completion of disposals in Spain, Italy and Friends Provident International are expected to reduce operating EPS2,3 by approximately 4% in 2018 depending upon the timing of completion; • Tax rate – our operating tax rate, which was 21% in 2017, may be higher in 2018 depending on business mix of actual profitability.
3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the other information section. 4 Par value includes accrued interest, arrears and in the case of the General Accident plc preference shares, issue premium.
We look after over £260 billion of assets for our customers, helping people save for their long-term goals, in particular their retirement. A key focus is on helping our customers provide for a more comfortable retirement. We support them with secure income from annuities, paying out over £2.6 billion each year. And we are a leading supplier of equity release (lifetime mortgages), lending over £700 million in 20173. Market leading service is at the heart of our business and we insure 2.6 million motor customers and 2.8 million home customers. Customers publicly review their claims experiences with
Defaqto ratings of 5.0 for our Motor policies and 4.6 for Home policies. Over 4.5 million people rely on us to protect them and their families financially against death or illness and we keep those promises paying over £900 million in individual protection claims.
We are also a leading supplier of services to the corporate marketplace, servicing 5 million customers, including 21%4 of the workplace pensions market. We offer pensions, protection, and bulk annuity propositions to both large and small companies, as well as health and general insurance. Our relationship management teams work hard to ensure they understand our clients’ needs so we can bring the best of what we have to offer so our corporate customers can fulfil more of their requirements with Aviva.
products and the Aviva Wellbeing app. Health Essentials enables employers to offer simple top-up cancer and physiotherapy cover to their employees, intended to complement care customers receive through NHS health services. The Wellbeing app helps employees track and improve their overall wellbeing and better manage specific conditions and fitness priorities.
We have access to customers across the UK through our unparalleled distribution network, with a growing Digital Direct offering for sales and service, strong relationships with independent financial advisers, brokers, employee benefit consultants, banks and we have single-tie agreements with three of the largest estate agencies.
Among our many awards, we have won the Insurance Times ‘Insurer of the Year’ award four years running, ‘Health insurer of the year’ at the Health Insurance Awards for the eighth year running in 2017, and ‘Platform of the year’ in 2017 from the LangCat.
Adjusted operating profit5,7 2,201 1,946 Cash remittances6 1,800 1,187 Operating expenses6 1,493 1,408 Solvency II Value of New Business (VNB)6 527 429 Combined Operating Ratio (COR)6,8 93.9% 93.9%
• UK general insurance adjusted operating profit5,7 increased by 4% to £408 million (2016: £392 million) owing to an improvement in the underwriting result, reflecting broad-based organic premium growth of 4% and a continued focus on our core underwriting competencies. Adjusted operating profit5,7 in the prior year excludes an exceptional charge of £475 million associated with the change in the Odgen discount rate. As the impact of Odgen on our current year results is not material, this has resulted in a profit before tax attributable to shareholders’ profits7 of £336 million (2016: loss before tax attributable to shareholders’ profits7 of £246 million).
The Friends Life Part VII transfer was completed on 1 October 2017, delivering further capital benefits, with the final payment towards the £1 billion target to follow in 2018. Special cash remittances6 of £500 million (2016: £250 million) were made to Group during 2017 due to the Friends Life integration, taking the total paid to date to £750 million. These remittances were a key driver behind an overall increase in the cash remitted to Group to £1,800 million (2016: £1,187 million). UK general insurance cash remitted increased to £434 million (2016: £91 million), due to cash being used to fund an increase in the internal reinsurance arrangement in 2016.
Operating expenses6 increased by 6% to £1,493 million (2016: £1,408 million) as we invested in growth and simplification initiatives in the second half of 2017, and incurred the cost of increased general insurance levies. Excluding these initiatives and levies, UK
Solvency II VNB6 increased by 23% to £527 million (2016: £429 million) with growth across all segments. Annuities were impacted by a change in product and asset mix, offset by a £96 million benefit to VNB following a clarification to Solvency II transitional rules.
5 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 4
(excluding the one-off 2016 impact of the change in the Ogden discount rate), reflecting further improvement in the underlying underwriting performance and premium growth, offset by lower levels of prior year reserve releases, with weather experience broadly flat.
• Combining our life, general insurance and health operations in the UK to form a single UK Insurance division. This is helping us to build deeper relationships with our customers, clients and partners. • Transferring the Friends Life customers’ policies to the Aviva brand and welcoming them to the wide range of Aviva services and products.
• All UK customers who are registered on MyAviva are able to manage their policies online, and we have 5.7 million active registered customers by the end of 2017. • To support business customers wishing to reduce defined benefit
• We’ve implemented our ‘Ask It Never’ technology to some of our products. Ask it Never uses advanced analytics, deep data and customer value to make smarter decisions. We ask fewer underwriting questions, making it as simple as possible for our customers to find the best solution to suit their needs. • ‘Aviva Plus’ is an initiative to reward loyal customers and tackle industry wrongs. Customers often get a low first year premium, but see a much higher renewal quote in the second year. We are piloting a project with 50,000 customers to benefit from our industry-first renewal price promise, which means that customers who sign up will pay less than new customers for their home or motor insurance at renewal.
We have supported the need for motor insurance reform through our Road to Reform campaign. We will continue to champion Road to Reform until it becomes law and Aviva has promised to pass on 100% of the savings to its customers when it does. To keep things simple, we’re reviewing the number of variations of our products and intend to materially reduce them. We’re also publishing guides to explain how an insurance premium is calculated and offering specialist training programmes to help our customer-facing teams recognise the needs of vulnerable customers. We strongly believe in harnessing Digital capabilities to benefit customers and will continue to be at the forefront of using technology; we have made a strategic investment in start-up
• We will deliver growth by leveraging the power of Aviva’s breadth of offering within the UK to deliver compelling propositions to meet our customer needs. • Driving digitisation of the Insurance business through customer services, propositions and ensuring we are easy for customers to do business with us, however they choose.
We are the second largest general insurance provider in the market place, providing a range of personal and commercial lines products to over 2.8 million customers with an 10% market share4. Our business is primarily intermediated, sold through a network of 1,100 independent broker partners. We diversified our distribution through the 2016 acquisition of RBC General Insurance
• Integrated RBC GI with the implementation of Guidewire platform in 2017, an automated policy management and billing system.
• Released the Aviva Fraud report, the first of its kind in the industry, raising public awareness on the impact of auto insurance fraud and the need for reforms.
During 2017 we experienced a number of challenges in the Canadian market which have impacted on performance. These included a second successive year of weather claims being adverse to the long-term average following numerous storms and the wildfires in British Columbia. We experienced unfavourable changes in claims patterns, predominantly in our motor business, which affected prior year reserve development.
• We will continue to work with the regulator, leading the market changes motor product reform so that affordable insurance solutions can be provided to our customers.
• We will invest in innovative digital experiences and propositions to disrupt the market and better serve our customers and our broker partners.
We have over nine million customers and operate a composite model across all of our European businesses with the exception of
5 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 4 – ‘Segmental information’ within the Annual report and accounts due to the reclassification of non-insurance business to Other Group activities.
We offer a full range of life, general, protection, health insurance and asset management products in France with significant strengths in distribution through large tied-agents, Financial Advisers, broker networks and direct to customers.
In 2018, we aim to digitise across all channels and implement differentiated customer propositions under a single Aviva brand to grow our customer base significantly.
We offer life, general and health insurance in Italy. We distribute through two major bancassurance partnerships, multi-agents and Independent Financial Advisers. Aviva Italy continues to grow in a stable market with good asset flows of £2.3 billion and a positive economic outlook. Operational and financial highlights in 2017 include: • Grew volumes of our capital-light ‘hybrid product’ that combines unit-linked, with-profit and protection characteristics.
In 2018, we will start developing a market leading composite insurance proposition via a mobile application while expanding functionalities of implemented digital solutions.
The Irish economy shows signs of continued growth1 and we are well placed to benefit from government reform in general insurance compensation and pension auto-enrolment. Operational and financial highlights in 2017 include: • Launched a new composite offering that rewards customer loyalty.
In 2018, our plan is to integrate Friends First while continuing to deliver differentiated digital products and services.
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We have presence in six markets across Asia, from large populous nations like China, India and Indonesia, to advanced regional wealth management centres such as Hong Kong and Singapore. These markets provide an accessible population of around three billion, and most of them have relatively low insurance penetrations compared to more developed Western markets. This offers tremendous growth potential. We currently provide life and health insurance solutions to around 4.2 million customers across our markets in Asia. We operate a multi-distribution strategy which includes tied agency, financial advisers, bancassurance, digital, telemarketing, direct sales force and group.
Our strategy is to disrupt current market practices by placing a greater emphasis on our customers. We offer products individually or in tailored combinations to meet their needs and create real value in line with our multi-distribution strategy.
Investment in distribution channels, digital and analytics capabilities continued throughout 2017. We are starting to see the benefits of earlier investments in Singapore and China, and the overall repositioning of Asia is now starting to take shape.
Adjusted operating profit1,3 from our Life and General Insurance and health businesses remained broadly flat at £227 million (2016: £228 million). Excluding Friends Provident International (FPI), life adjusted operating profit1,3 increased by 10% to £116 million (2016: £101 million) driven by higher profit generated from existing business in China, coupled with new business growth in Singapore from its financial advisory channel which was partially offset by our continued investments in digital and analytics capabilities.
The general insurance and health business reported a £8 million loss (2016: £13 million loss) as a result of higher claims experience from our health business in Singapore partly offset by an input tax refund from the local authority.
as we continue to reallocate capital to support growth initiatives. Operating expenses2 increased by 13% to £207 million (2016: £177 million) reflecting the additional half year of expenses from Vietnam, higher distribution costs to support volume growth in
• We established Asia Digital (located in the Singapore Digital Garage) to accelerate the delivery of our ‘Digital First’ strategy using global assets such as MyAviva, websites, marketing and analytics systems.
• We acquired the remaining 50% shareholding from VietinBank to form Aviva Vietnam in April and entered into a long-term distribution agreement with the bank to sell products through its network
We believe the long-term favourable trends of the emerging middleclass, increasing awareness in retirement planning and a growing market share in healthcare will persist across the region. We also believe Asia will continue to outperform other markets in insurance growth. The increased use of digital applications in our daily lives and a heightened sense of fintech development play to our strengths in digital and innovation. We are encouraged by multiple Asian governments’ support in this area and we are ever more enthused in seeing consumers’ rapid adoption.
• We will continue to execute and accelerate the growth of our financial adviser platforms in Singapore and look to maximise the expertise to capture similar opportunities in other Asian markets
• We will continue to invest in our digital business and distribution channels so that we can improve customer experiences, innovate and respond quickly to the changing needs of our customers and broker partners
Our aim is to be a global leader in outcome-oriented investing, leveraging our international reach and expertise to solve our clients’
problems – most notably with the Aviva Investors Multi-Strategy (AIMS) range of funds – and increase investments in real assets such as real estate and infrastructure debt and equity. In a world of low interest rates and Solvency II, we provide the solutions for the Group to achieve the returns it needs. We offer winning solutions to the Group and external investors alike.
Revenue 577 506 Operating expenses2 409 367 Cash remittances2 58 39 Assets under management2 353bn 345bn
Revenue has increased by 14% to £577 million due to the full year impact of on-boarding £14 billion of Friends Life assets in 2016, a 40% growth in the AIMS assets under management to £12.6 billion (2016: £9.0 billion) and a 24% increase in the origination of infrastructure assets to £4.1 billion (2016: £3.3 billion). The share of revenue from external clients increased to 34% (2016: 32%).
Operating expenses2 increased to £409 million (2016: £367 million). Cost increases have been controlled and reflect the investment required to support the growth of the business. Integration and restructuring costs were £3 million (2016: £19 million). Cash remitted2 to Group increased by 49% to £58 million (2016: £39 million) due to growth in the profitability of the business.
(2016: £344.5 billion) due to a combination of net fund inflows of £1.6 billion, favourable foreign exchange rate movements of £3.3 billion, favourable liquidity movements of £1.9 billion and the effect of market movements of £2.6 billion offset by the disposal of the Real
• We achieved significant growth in our AIMS range of funds, with the combined assets under management2 increasing from £9 billion to £12.6 billion.
The asset management industry is under intense pressure to demonstrate value to customers and in June the Financial Conduct
Authority (FCA) announced the findings of its asset management market study, highlighting that there is room for improvement. We believe outcome orientated investing aligns well with these findings and we support the push for greater transparency: it is imperative we can prove our value to society and demonstrate how we can support economic growth and development.
• We will further embed our risk and control framework to look after customers and shareholders better and protect our reputation.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 4
This comprises the processes we use to identify, measure, manage, monitor and report risks, including the use of our risk models and stress and scenario testing. Having identified and measured the risks of our business, depending on our risk appetite, we either accept these risks or take action to reduce, transfer or mitigate them.
This refers to the risks that we select in pursuit of return, the risks we accept but seek to minimise and the risks we seek to avoid or transfer, including quantitative expressions of the level of risk we can support (e.g. the amount of capital we are prepared to put at risk).
Types of risk inherent to our business model Risks customers transfer to us
• Market risks result from fluctuations in asset values, including equity prices, property prices, foreign exchange, inflation and interest rates
The types of risk to which the Group is exposed, described in the table below, have not changed significantly over the year. All of the risks below, and in particular operational risks, may have an adverse impact on our brand and reputation.
We like credit risk as we believe we have the expertise to manage it and the structural investment advantages conferred to insurers with longdated, relatively illiquid liabilities enable us to earn superior investment returns.
• Risk appetites set to limit exposures to key market risks • Active asset management and hedging in business units
• Scalable Group-level equity and foreign exchange hedging programme • Pension fund de-risking
• Asset and liability duration matching limits impact of interest rate changes and actions taken to manage guarantee risk, through product design
• Use of reinsurance to reduce the financial impact of a catastrophe and manage earnings volatility • Application of robust and consistent reserving framework to derive best estimate with results subject to internal and external review, including independent reviews and audit reviews
• Underwriting and claims management disciplines • Underwriting appetite framework linked to delegations of authority that govern underwriting decisions • Product development and management framework that ensures products and propositions meet customer needs • Formal and documented claims management philosophies and procedures
• Use of the limit framework covering minimum liquidity cover ratio and minimum central liquidity
• Contingency Funding Plan in place to address liquidity funding requirements in a significant stress scenario
• Product development and review process • Investment performance and risk management oversight and review process • Propositions based on customer needs
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.
• Application of enhanced business standards covering key processes • Our Operational Risk & Control Management Framework which includes the tools, processes and standardised reporting necessary to identify, measure, manage, monitor and report on the operational risks and the controls in place to mitigate those risks within centrally set tolerances • Enhanced scenario based approach to determine appropriate level of capital for operational risks
• On-going investment in simplifying our technology estate to improve the resilience and reliability of our systems 1 Top three risks ranked by diversified Solvency II Solvency Capital Requirement 2 Not quantifiable in terms of economic capital
This table describes the external trends and causal factors impacting our inherent risks, their impact, future outlook and how we take action to manage these risks: Key trends and movement Risk management Outlook
Over the last few years we have taken significant steps to reduce the sensitivity of our balance sheet to interest rates. Our exposure to interest rates movements is mitigated by investing in fixed interest securities which closely match the interest rate sensitivity of our liabilities. Actions taken include close asset liability matching, reducing sales of products with guarantees (in particular in Italy and France), and shifting our sales towards protection and unit-linked products.
and UK for some time to come, there is a risk that a rapid increase in rates could result in a collapse in bond prices, widening spreads and reducing asset prices.
UK-EU relations (Brexit uncertainty) – 18 months since the referendum result there remains considerable uncertainty over the UK’s future relationship with the EU, economic growth and productivity, as well as the status of EU
There is considerable uncertainty over the extent that improvements in life expectancy experienced over the last 40 years will continue into the future e.g. despite continued medical advances emerging, lifestyle changes and strains on public health services may begin to slow or even reverse this trend.
Climate change – potentially resulting in higher than expected weather-related claims (including business continuity claims) and inaccurate pricing of general insurance risk, as well as adversely impacting economic growth and investment markets.
Changes in public policy – any change in public policy (government or regulatory) could influence the demand for, and profitability of, our products. In some markets there are (or could be in the future)
We actively engage with governments and regulators in the development of public policy and regulation. We do this to understand how public policy may change and to help ensure better outcomes for our customers and the company. The Group’s multi-channel distribution and product strategy and geographic diversification underpin the Group’s adaptability to public policy risk, and often provides a hedge to the risk. For example, since the end of compulsory annuitisation in 2015 in the UK we have compensated for falling sales of individual annuities by increasing sales of other life and pension products including bulk purchase annuities.
The UK Government’s lack of parliamentary majority increases the possibility of a general election and change of government resulting in a shift in public policy with consequences for the products we sell and our investment strategy. In other markets in which we operate: a general election will be held in Italy in March 2018; in Poland we face heightened uncertainty on public policy on pension reform; and in Ontario, Canada, further regulatory reform focussed on providing affordable motor insurance is required.
Wannacry attack), and we expect this to increase in 2018 as cyber criminals and rogue states become ever more sophisticated and given the growing importance of digital automation in business strategy.
Our businesses are required to identify business critical outsourced functions (internal and external) and for each to have exit and termination plans and business continuity and disaster recovery plans in the event of supplier failure, which are reviewed annually. Business continuity and disaster recovery plans are subject to annual testing. We also carry out supplier financial stability reviews at least annually.
The recent insolvency of Carillion, which was not a direct supplier of services to Aviva, has brought added focus to this risk and we expect regulatory scrutiny of outsourcing arrangements to increase.
At Aviva we have an approach to business that is both responsible and sustainable and which aligns with our values and supports our strategy. With a clear purpose to Defy Uncertainty, we are using our bright ideas to help tackle some of the most important social and environmental challenges of our time, such as ageing populations and climate change, for the good of our customers, our communities and the world.
We offer a wide range of insurance and savings products to help our 33 million customers protect what’s important to them and save for a comfortable future.
However, we know that we do not always get it right and any complaints and feedback we receive are taken seriously and investigated thoroughly. This commitment is reflected in the customer business standard all our markets abide by (see the policies section of aviva.com/social-purpose).
We have a zero tolerance approach to acts of bribery and corruption. To manage bribery and corruption risks, Aviva operates within a risk management framework which sets high-level policies and standards across all markets. These policies and standards apply to all Aviva directors and employees, business units, and operations, and it is the responsibility of CEOs (or equivalent) to ensure that their business operates in line with them.
The Financial Crime Business Standard guides our risk-based financial crime programmes, which seek to prevent, detect and report financial crime, including any instances of bribery and corruption, while complying fully with relevant legislation and regulation. We implement a risk-based training and awareness framework to ensure employees and others acting on Aviva’s behalf know what is expected of them and how they should manage bribery and corruption risks. We conduct risk-based due diligence when recruiting and when engaging external partners. This includes background checks and a requirement to align to Aviva’s anti-bribery and anti-corruption principles. Managed suppliers are asked to sign-up to our Supplier Code of Behaviour and are also made aware of our Business Ethics
Code, both of which also include reference to human rights and modern slavery. In 2017, 81% of Group and UK managed suppliers agreed to our Code of Behaviour (or had their own equivalent code of behaviour) which requires compliance with all applicable financial crime laws and regulations, including bribery and corruption. In 2017, we engaged 88% of our managed suppliers on corporate responsibility issues. To ensure that anti-bribery and anti-corruption controls are operating effectively we assess relevant management information such as key performance indicators on financial crime risks; compliance oversight; reporting to the appropriate local governance committee; annual attestation to compliance with the
Standard; and inclusion in Internal Audit’s risk based audit programme. At a Group level, the Chief Risk Officer provides Aviva’s
In 2017, we launched the Aviva Community Fund in more markets, giving hundreds of organisations across ten countries the chance to secure the support they need to make a difference in their local communities. We also increased our community investment by 5%, totalling £11.9 million (2016: £11.3 million) and the number of inspirational local projects we supported by 50%, totalling 2,400
British Red Cross (BRC), working together to help communities to be better informed, prepared, and therefore more resilient if disaster strikes. This year we identified and funded four new Red Cross community resilience projects across our markets in Canada,
Singapore, Italy and Poland. In the UK we supported the BRC to help those impacted by the Grenfell Tower fire, and the terror 1 For a definition of these products, please see www.aviva.com/CRreportingcriteria2017.
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Aviva is committed to responsible investment, using our influence to support more sustainable businesses and ultimately a more sustainable economy and society. As part of our commitment to responsible investment we use Environmental, Social and
Governance (ESG) insight to re-orientate capital away from shortterm thinking and towards longer term investment decisions.
We actively promote good practice among the companies we invest in. We aim to identify and reduce ESG risks in our portfolios.
For example, by understanding the quality of the Board of directors of a company and its strategy on issues, such as climate change or the Living Wage, we can gauge how well prepared they are to deal with current or emerging ESG issues.
As an example of our work in this area, Aviva Investors, Aviva’s global asset management company, is focussing on reducing antibiotic resistance at 40 large food producing and retailing companies with high exposure to excessive antibiotic use within their supply chains. Our investments also support the transition to a low-carbon economy (see below for more details).
We believe the UN Sustainable Development Goals (SDGs) can guide us, our customers and society towards a brighter, more sustainable future. However, it is only by changing the rules of capital markets and making finance longer-term and more sustainable that these ambitious goals will be met. We are therefore spearheading the creation of the World Benchmarking Alliance and the establishment of public, transparent and authoritative league tables, ranking companies on their contribution to the SDGs. In
Aviva has been a member of the EU High Level Expert Group on Sustainable Finance, which is making recommendations to the
European Commission on policy changes required to make the flows of finance more sustainable. Among these are proposals to consider capital adequacy rules for investments, reviewing European Supervisory Authorities and clarifying fiduciary duty in the
EU through regulation. Aviva will continue to advocate for these changes at the global level too.
In 2017, Aviva received a UN Momentum for Change Award recognising our work over the last decade to reduce the environmental impact of our business and help inspire action on climate change. We are a carbon neutral company, and continue to offset 100% of any remaining carbon emissions, with our offsetting projects helping over 1 million people since 2012 live better lives (e.g. through provision of clean cook-stoves in Kenya). We are also driving efficiency in our operations. For example, in 2017 our Canadian head office moved into a Gold LEED certified building and we are currently merging four other locations into one energy efficient office site. To date we have achieved a 53% reduction in
CO2e against the 2010 baseline, meeting our 2020 target (of 50%) early. We continue work towards our ambitious long-term target of a 70% reduction by 2030. Under the Carbon Reduction Commitment Energy Efficiency Scheme, we reported total emissions of 128,185 tonnes of CO2e in 2017 costing £2.2 million. This mandatory scheme is limited to UK business emissions from building energy, and includes the property portfolio of our investment funds managed by Aviva Investors. We are also looking at ways to further reduce plastic use in our UK offices.
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Scope 3 – business travel and grey fleet, waste and water.
We have assessed the environmental risks that we face as a business at a global and local level. The most significant of these is the potential impact of climate change on our customers’ lives and our company’s assets. More detail can be found in this report in the
We will use the human rights due diligence data, covering all areas identified in our human rights policy, to inform our work on human rights in 2018. For our complete modern slavery statement, please see www.aviva.com/modernslaverystatement.
As an international insurance group1, our sustainability and financial strength is underpinned by an effective risk management system. Our business will be directly impacted by the effects of climate change and therefore we need to build resilience to and mitigate the risk of the impact of climate change for our customers and investors.
We believe unmitigated climate change presents a real threat to financial stability over the coming decades, both at a governmental and corporate level, to the point where it will permanently impair total asset value.
We have been reporting on climate change in our Annual report and accounts since 2004. This disclosure builds on our 2016 initial response and takes into account the final version of the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations published in July 2017. These pages, along with an expanded version (available at www.aviva.com/TCFD) are Aviva plc’s second annual response to the TCFD framework in our multiple roles as an asset owner, insurer, investor and asset manager.
This Committee met eight times in 2017 and reviews, manages and monitors all aspects of risk management in the Group, including climate risk. Climate change is highlighted as an emerging risk in the ‘Risk and risk management’ section of this report and it is therefore assessed for its proximity and significance to Aviva via our local markets and group emerging risk processes. The Committee has incorporated emerging risk scenarios into our scenario planning, enabling us to review the most significant risks that would affect the Company’s strategy.
One of this Committee’s responsibilities is to oversee the way Aviva meets its corporate and societal obligations. This includes setting the guidance, direction and policies for Aviva’s customer and corporate responsibility agenda and advising the Board and management on this. This Committee met six times in 2017 and formally considered Aviva’s strategic approach to climate change during the year. The Committee continues to ensure the Board remains informed on the issue.
Sustainable Energy Investment metrics, the reports show how our equity and bond portfolios are aligned to the Paris Agreement, both now and in 5 years’ time. We have fed them into the investment strategy review of our businesses to help further shape our ongoing response. Further strategic work is ongoing to understand the impacts of our investments through all asset classes and on a more granular basis. Climate change is part of our asset management House View, which outlines the framework we use to analyse the global financial markets. It is updated quarterly to provide key climate-related physical or policy trends and developments.
Over the past few years we have developed insurance products and services that support customers’ choices to reduce their environmental impact, such as bespoke electric vehicle policies and a generation of domestic scale renewables. We are also building our support of commercial-level opportunities around environmental goods and services. In 2017, we had 20 such products across our markets.
When making investments we need to think long term, since many of our liabilities fall decades in the future. This means we need to be careful and considered in our investments. Within these constraints we have an appetite to invest in low carbon projects around the world.
The ways in which the insurance sector could be impacted by climate change are diverse, complex and uncertain. However, for the purposes of our response we have focussed on the three risk factors that the Prudential Regulation Authority identified in its 2015 report2– Physical, Transition, and Liability.
• The levels of coverage available to make assets insurable • Financial results volatility resulting from the potentially increasing scale of weather losses.
When acquiring property, Aviva Investors’ strategy is to commission an Environmental Assessment Report. This covers important potential risks, such as flood exposure and historic and potential pollution. Within our real estate portfolio, we use the Global Real Estate Sustainability Benchmark (GRESB) to understand the climate resilience and broader sustainability of individual properties and funds. The majority of our real estate and infrastructure investments are located in Europe.
With the Paris agreement to pursue limiting global temperature increases to below 2oC, there will be an increasing number of climate–related policies and regulations to assist this transition, which will impact sectors in different ways. We consider active stewardship to be a fundamental responsibility for us as investors. This includes considered voting at Annual General Meetings (AGMs)
and engagement on climate risk, disclosure and performance. We have focussed on in-depth engagement with companies strategically exposed to climate related risks due to their significant carbon impact and exposure to transition risks (and opportunities).
Aviva has negligible exposure to litigation risks on the insurance side through liability contracts such as professional indemnity for
We have measured, monitored and reduced our operational carbon emissions since 2004, on an absolute and relative basis, and disclose related metrics on an annual basis in our public filings.
We have enhanced our Environmental, Social, and Governance heat map to include proxy climate risk metrics. This heat map is available to our analysts and fund managers and updated on a monthly basis. It includes a composite carbon exposure metric based on the carbon-intensity of business activities, the extent of operations in jurisdictions with stringent carbon emissions regulations and the quality of a company’s carbon management. We targeted a £500 million annual investment in low-carbon infrastructure from 2015-2020, and an associated carbon saving target of 100,000 CO2e tonnes annually. In 2017, we signed £527.5 million of new investment into wind, solar, biomass and energy efficiency. Aviva holds over £744 million in green bonds.
More broadly, in 2017, we engaged with 989 companies on strategic, social and/or governance (ESG) issues. In the same period we supported 52% of climate change related shareholder resolutions.
We build the possibility of extreme weather events into our planning to help us understand the impact and ensure our pricing is adequate. Catastrophic event model results are supplemented by in-house disaster scenarios. A 1:800 CAT event is required in order for Aviva to incur losses (after reinsurance) above £1 billion. Therefore, multiple very large CAT events would have to occur in a year in order to adversely impact Aviva’s capital position (estimated pro forma Solvency II capital surplus £12.2 billion).
Each of our GI businesses has a Major Incident Response in place to provide customer service and manage costs of major claim events and service demand surges. We continue to invest in analytical solutions such as flood mapping, predictive analytics and risk mitigation techniques that help us better understand risks being transferred to us from our customers and to respond more rapidly when our customers need us. Find out more about our approach at www.aviva.com/TCFD
Our culture As Chairman, I am responsible for establishing and embedding the culture of the Board, which in turn sets the tone from the top for the culture for the Company. Culture has remained high on the Board’s agenda in 2017 and I support the Financial Reporting Council’s
(FRC) proposals for the new UK Corporate Governance Code to give more prominence to the Board’s role in considering the culture of the Company.
We are proposing to shareholders an updated remuneration policy to help achieve our aim of building a culture that promotes our ambitions for growth in both earnings and revenue, by encouraging innovation and reinforcing our strong values. The
Board and I have a strong belief that the way we conduct business and the way we engage with our customers, shareholders and other stakeholders, needs to be aligned to our values and purpose to Defy
Changes to the Board In line with our structured approach to succession planning, there have been a number of Board changes during the year. Maurice
Tulloch joined as an Executive Director in June 2017, taking the role of Chief Executive Officer of International Insurance. Having worked for Aviva for over 25 years, Maurice’s appointment is a great example of our investment in talent from within the Company.
8 4 Europe 9 3 2 Asia Pacific 4 1 2 The Americas 3 1 1 Middle East & Africa 2
— — >10 years — 3 1 5-10 years 2 2 1 4 years 3 — 1 3 years 2 2 — 2 years 2 1 — 1 year — — 1 <1 year 1
support the increased spotlight on this area and are committed to improving diversity throughout the Company, not just with regards to gender and ethnicity, but in the broader sense to include diversity of thought, tenure, age, experience, skills, geographical expertise, educational and professional background.
Chief Executive Officer (Group CEO) are active members of the FTSE
The Board published a Board Diversity and Inclusion Statement in May 2017, to formalise our approach to diversity, and reflect the continued support for the diversity and inclusiveness programme throughout the business. The statement can be found on our website at www.aviva.com/corporate-governance
The Board also recognise the issue of unconscious bias, which could affect decisions in our workplace. We are committed to increasing awareness throughout the Company and plan to deliver training to all senior leaders throughout the Group during 2018. The
Board received training on this during the year, demonstrating our approach to lead from the top down.
Tenure: 5 years 2 months. Appointed to the Board as a Non-
Adrian brings a wealth of experience as a Chairman. His diverse skillset and strategic awareness facilitate open discussion and allow for constructive challenge in the Boardroom.
Tenure: 5 years 3 months. Appointed to the Board in December 2012 and as Group Chief Executive Officer (CEO) in January 2013
Asian insurance giant (AIA). At Aviva Mark has developed and driven the strategy for Aviva to put Digital First and be a leader in offering convenience to insurance customers. Mark is also a champion of sustainability and as a result of this was invited to speak at the
United Nations in New York to further the efforts of companies in achieving the Sustainable Development Goals.
Tenure: 3 years 11 months. Appointed to the Board and as Chief
Committee and a member of the Board of Trustees. Andy is also the
External Appointments: Non-Executive Director of Pool Re and a member of the Insurance Development Forum.
Tenure: 2 years 1 month. Appointed to the Board in February 2016
Tenure: 6 years 1 month. Appointed to the Board in February 2012 and became Senior Independent Non-Executive Director in May
Skills and Experience: Glyn’s knowledge of the Aviva Group brings an in depth understanding of the issues and concerns of shareholders. Glyn’s experience enables him to support the
Tenure: 4 years 3 months. Appointed to the Board in December
Skills and Experience: Patricia is an experienced company Director having served on six ASX-30 Boards, including National Australia
Government working in foreign affairs with a long career in senior executive roles in banking and investment management, including large international treasury and markets operations. She has lived and worked in seven countries in Europe, the U.S. and Australia.
Skills and Experience: Michael brings to the Board experience from his career in both the banking and insurance industries within
Group Ltd, Macquarie Bank Ltd, Washington H Soul Pattinson Pty and Company Ltd (investment) and Rugby World Cup Ltd. Michael is also Chairman of The George Institute for Global Health.
Tenure: 4 years 6 months. Appointed to the Board in September
Skills and Experience: Michael has a detailed understanding of the financial services sector and experience in business transformation.
Central Policy Review Staff (now the Number 10 Policy Unit), allows
Executive Director of the Department of Health and senior adviser to Lazard (investment bank).
Tenure: 1 year 7 months. Appointed to the Board in August 2016
Lewis, Non-Executive Director of Royal Mail plc and member of the
Kirstine established the legal and secretarial function as a global team and is responsible for the provision of legal services to the
Group. She also leads the team on public policy and corporate responsibility.
Sir Malcolm Williamson and Bob Stein retired from the Board at the Annual General Meeting on 10 May 2017.
Governance Code (the Code). Details of how we have applied the
Code principles and complied with its provisions, are set out in this report and the directors’ remuneration report. The Board can confirm that the Company was compliant with the Code throughout the financial year under review. Further information on the Code can be found on the Financial Reporting Council’s (FRC’s) website www.frc.org.uk.
Details of the role of the Board and its committees is described on the next page. The duties of the Board and of each of its committees are set out in their respective Terms of Reference. Our committees’
Terms of Reference can be found on the Company’s website at www.aviva.com/committees and are also available from the Group
Audit, Governance, Nomination and Risk Committees are contained in this report. A report from the Remuneration Committee is included in the directors’ remuneration report.
Directors (NEDs). Maurice Tulloch was appointed to the Board as an
Officer of International Insurance, with responsibility for Aviva’s insurance operations in France, Canada, Ireland, Spain, Italy,
Statement, which supports the Nomination Committee in its approach to succession planning. The statement can be found on the Company’s website at www.aviva.com/corporate-governance.
The implementation of our Diversity Strategy is monitored by the Nomination Committee which reviews the balance of skills, knowledge, experience and diversity on the Board; leads succession planning for appointments to the Board and the senior executive team; and oversees the talent development and broader talent pipeline across the Group. The Board’s skills matrix supports this approach by enabling us to map the broad diversity of the Board in regard to gender, ethnicity, geographical expertise, and current skills and experiences, and to link these to our strategy.
We recognise that the Board sets the tone for inclusion and diversity across the Group and believe we should have a diverse leadership team to support good decision making. Diversity at Aviva encompasses more than just gender and includes, amongst other things, experience, skills, tenure, age, geographical expertise, professional background, gender, ethnicity, disability and sexual orientation. While our percentage of women on the Board has increased from 23% in 2016 to 25% as of the date of this report, we are committed to achieving the target of 33% of women on the
Company. You can read more on the Board’s approach to diversity in the Nomination Committee report.
Activities and allocation of agenda time during 2017 Board strategy and business plans – 31% of agenda time
• Received updates on customer metrics and the processes to reduce complaints
• Undertook deep dives into renewal pricing, customer journeys, and customer operations and transformation
Oversight of risk and risk management – 6% of agenda time
• Reviewed regular updates from its committees and management on legislation and proposed consultations that may affect the
• Maintained a continued focus on the governance framework for the Group’s subsidiaries and supported the further embedding of the Subsidiary Governance Principles
• Approved financial matters in line with the Group Funding Plan, including a capital return to shareholders via a share buyback programme, which was completed on 20 September 2017, and the redemption of debt
People, culture, succession planning and Board effectiveness – 15% of agenda time
• Undertook an external evaluation of the Board’s effectiveness, the effectiveness of each committee and individual directors
• Reviewed the results of the 2017 Voice of Aviva survey, and discussed the organisational results in respect of culture
Committee report sets out the steps taken to identify and appoint new NEDs, which includes consideration of diversity criteria.
Collectively responsible for promoting the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society. The Board sets the Group’s purpose, strategy and values, and satisfies itself that these are aligned with the overall culture of the Group. The Board sets the Group’s risk appetite and satisfies itself that financial controls and risk management systems are robust, while ensuring the Group is adequately resourced. It also ensures there is appropriate dialogue with shareholders on strategy and remuneration. Details of the responsibilities of each of the Board’s committees are set out in this report and the directors’ remuneration report.
The Nomination Committee, having considered the matter carefully, is of the opinion that the current NEDs remain independent, in line with the definition set out in the Code, and are free from any relationship or circumstances that could affect, or appear to affect, their independent judgement. Over half of the
Accordingly, in early 2017 his performance, including his independence, was the subject of a particularly rigorous review pursuant to the recommendations of the Code, having been on the
Board for longer than six years. The Board remains satisfied that
Mike Hawker is independent and will continue to make a valuable contribution. Due to his tenure, Glyn Barker will be subject to a similar review in 2018. The review of the directors’ other interests included the ‘cross directorships’ of Patricia Cross and Mike Hawker who are both directors at Macquarie Group, Glyn Barker’s former position as partner of the Group’s current auditors and Bob Stein’s
Nomination Committee was satisfied this did not affect the judgement or independence of Patricia Cross, Mike Hawker, Glyn
Halfords Group plc provided an example of the Board’s conflicts of interest procedure in practice during the year, as Halfords moved their group insurances to Aviva and this potential conflict of interest was notified to the Board.
All directors have access to the advice and services of the Group
Company Secretary and directors wishing to do so may take independent professional advice at the Company’s expense. No such requests were made during 2017. The Company arranges appropriate insurance cover in respect of legal actions against its directors. The Company has also entered into indemnities with its directors as described in Other Statutory Information.
Senior Insurance Managers Regime (SIMR), role profiles are in place for the Chairman and the Group Chief Executive Officer (Group CEO)
Group to the Group CEO within certain limits, above which matters must be escalated to the Board for determination.
The SID’s role is to act as a sounding board for the Chairman, to serve as an intermediary for the other directors where necessary and to be available to shareholders should they have concerns they have been unable to resolve through normal channels, or when such channels would be inappropriate. Sir Malcolm Williamson and
Group CEO and NEDs are on the Company’s website at www.aviva.com/roles
The Board believes strongly in the development of the directors and the Group’s employees. It is a Company requirement that each director commits to continuing their professional development.
Company’s IT strategy develops. Training sessions have been built into the Board and committees’ plans for 2018 and is scheduled to include directors’ duties. The Chairman ensures all new directors receive a comprehensive induction programme over a number of months, tailored to their particular needs. All new directors receive induction materials, which include: the current strategic and operational plan; recent Board and committee minutes and meeting packs; organisation structure charts; role profiles; a history of the Group; and relevant policies, procedures and governance material. Any knowledge or skill enhancements identified during the director’s regulatory application process are also addressed through their induction programme. Maurice Tulloch completed his induction programme following his appointment during the year.
During 2017, ten Board meetings were held, of which eight were scheduled meetings and two were additional meetings called at short notice. In addition, the Board delegated responsibility for certain items to specially created Board committees, which met seven times.
Bristol. This gave the Board the opportunity to meet the senior management teams and to gain a deeper understanding of the operations and performance of each market. The Board also held a strategy meeting offsite in the UK to set and monitor progress against the Group’s strategy. During 2018, it is planned that the
4 Bob Stein and Sir Malcolm Williamson retired at the AGM on 10 May 2017.
6 Glyn Barker was appointed as a member of the Governance Committee on 10 May 2017.
During 2018, the Board’s agenda will focus on refining our strategic propositions, pursuing growth in our traditional and newer markets and accelerating the rollout of new products and the Aviva
Signature processes. Digital First will remain, and we will continue to monitor our controls around IT and Cyber Security, to protect us against new threats that emerge. Our customer agenda will evolve, and the Board will continue to drive progress with a view to achieving consistently excellent customer service with a product offering that continues to meet customer needs. Offsite strategy days are used to set, and reflect on progress with the Company’s strategy. In these sessions the Board discuss the strategic priorities for the year ahead and set the three year strategic plan and these will continue to occur in 2018.
The Audit, Governance and Risk Committees will continue to consider the opportunities and risks associated with each market and the Remuneration Committee will assess any consequential impact on reward decisions. As the culture programme progresses, the Board will remain close to the annual all-employee survey results, ‘Voice of Aviva’. Succession planning and the continued development of the talent pipeline will continue to be a focus for the Board and Nomination Committee.
The effectiveness of the Board is vital to the success of the Group. The
Secretary. In addition, interviews were held with senior managers and advisers together with former Board members. Following the final report, recommendations were considered by the Board and each committee, and an action plan for areas of focus was agreed, which are outlined in the table below. This will be reviewed during
Malcolm Williamson, and subsequently Glyn Barker, also met without the Chairman present to consider the Chairman’s performance.
To enhance the relationship between Aviva plc and subsidiary boards, the Chairman’s conference was again held in November 2017 allowing the Board to engage with various subsidiary company board members. The ‘INED Portal’ was launched in 2017 in order to strengthen communication lines between the Aviva plc Board and the Independent Non-
Executive Director community and further align the strategy across the Group. We have also appointed Non-Executives from the plc Board to material subsidiaries to continue to strengthen the communications and strategic linkage.
Secretary and Chairman continue to seek opportunities to simplify reporting lines.
Strategy Customer agenda Given the importance of this area, the strategic direction of the customer experience has become a matter for the Board as a whole. As such, ‘customer’ is a standing agenda item on the Board and Governance Committee agendas. In addition, the customer dashboard is reviewed at each Board meeting.
The Board is committed to having a diverse and inclusive leadership team and, as such, in 2017 the Aviva plc Board Diversity and Inclusion Statement was adopted. The statement is in line with the Group’s overall values and also supports the Nomination Committee in its approach to succession planning.
The Board is responsible for promoting the long-term success of the
Company for the benefit of shareholders, as well as taking account of other stakeholders including employees and customers. This includes ensuring that an appropriate system of risk governance is in place throughout the Group. To discharge this responsibility, the
Board has established frameworks for risk management and internal control using a ‘three lines of defence’ model and reserves for itself the setting of the Group’s risk appetite. Further details are contained on the following pages.
Group’s systems of internal control and risk management and has reviewed their effectiveness for the year. The frameworks are designed to identify and manage, rather than eliminate, the risk of the Group failing to achieve its business objectives. These frameworks were in place for the financial year under review and up to the date of this report, and they help to ensure the Group complies with the Financial Reporting Council’s (FRC) guidance on
Brexit), the elevated prices of assets, the emerging strategic risks posed by technology and market changes, risks posed by climate change, the heightened risk of cyber threats and data security,
The Risk Management Framework (RMF) is designed to identify, measure, manage, monitor and report the principal risks to the
Group of achieving its business objectives and is embedded throughout the Group. It is codified through risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group’s worldwide operations. Further detail is set out in note 56.
Solvency II reporting activity. The FRCF process follows a risk-based approach, with management identification, assessment
(documentation and testing), remediation (as required), reporting and certification over key financial reporting related controls.
Data Governance. Disaster Recovery and Cyber Security are the two remaining areas. Further information can be found in the Audit and
The Actuarial function is accountable for the Group-wide actuarial methodology, reporting to the relevant governing body on the adequacy of reserves and capital requirements, as well as underwriting and reinsurance arrangements. The Compliance function supports and advises the business on the identification, measurement and management of its regulatory, financial crime and conduct risks. It is accountable for maintaining the compliance standards and framework within which the Group operates, and monitoring and reporting on its compliance risk profile.
The third line of defence is Internal Audit. This function provides independent and objective assessment on the robustness of the
RMF and the appropriateness and effectiveness of internal control to the Audit, Governance and Risk Committees, market audit committees and the Board. Further information can be found in the
Group, particularly in respect of the risk of not delivering good customer outcomes.
Group. This framework includes tools, processes and standardised reporting necessary to identify, measure, manage, monitor and report on the operational risks to which the Group is, or could be, exposed and the controls in place to mitigate those risks within centrally set tolerances. The details of key failings or weaknesses are reported to the Audit Committee and the Board on a regular basis and are summarised annually to enable them to carry out an effectiveness assessment.
The Audit Committee, working closely with the Risk Committee on behalf of the Board, last carried out a full review of the effectiveness of the systems of internal control and risk management in March 2018 covering all material controls, including financial, operational and compliance controls and the RMF.
The Company places considerable importance on communication with shareholders. The Executive Directors have an ongoing dialogue and a programme of meetings with institutional investors, fund managers and analysts which are managed by the Company’s
Day in Warsaw to update investors and analysts on our financial objectives. Shareholders’ views are regularly shared with the Board through the Group CEO’s and CFO’s reports and periodic briefings from the corporate brokers and other specialist advisors, especially around report publications and policy formations. Further details of shareholder engagement regarding our new Remuneration Policy can be found in the Directors’ remuneration report. The SID was available to meet with major investors to discuss any concerns that could not be resolved through normal channels.
provides a valuable opportunity for the Board to communicate with private shareholders. All directors normally attend the Company’s
AGM, however, Bob Stein did not attend the 2017 AGM due to his retirement. All serving directors plan to attend the 2018 AGM.
AGM and made available on the Company’s website after the meeting at www.aviva.com/agm.
Shareholders are invited to ask questions related to the business of the meeting at the AGM and have an opportunity to meet with the directors following the conclusion of the meeting.
I am pleased to present the Nomination Committee’s report for the year ended 31 December 2017.
Maurice Tulloch as an Executive Director of the Board, and the
Independent Non Executive Director (NEDs) succession process following the retirement of Bob Stein and Sir Malcolm Williamson at the conclusion of the 2017 Annual General Meeting (AGM) on 10 May
The main purpose of the Committee is to monitor the balance of skills, knowledge, experience and diversity on the Board and the succession plans for the Executive Directors. Last year the
Committee expanded its responsibility to include the oversight of talent development for the wider Group. This ensures that a holistic approach to talent development and securing a future talent pipeline is taken throughout the Group.
There have been a number of changes to the Board during the year.
In June 2017 it was agreed that Maurice Tulloch, Chief Executive
Malcolm’s retirement and as a consequence stepped down as Chair of the Audit Committee. He also became a member of the
Governance and Remuneration Committees. In line with our approach to succession planning, Keith Williams became Chair of the Audit Committee and a member of the Risk Committee and in
A skills matrix for Board members and the Company’s executive management has been developed and it supported the
Diversity at Aviva includes but is not limited to gender; it comprises an inclusive environment which respects all strands of diversity including skills and experience, geographical expertise, ethnicity, disability and sexual orientation.
In May 2017, the Board adopted a Diversity and Inclusion statement which supports the Committee in its approach to succession planning. The Board’s Diversity and Inclusion statement, which is in line with the overall Group Diversity and Inclusion strategy, is available on the Company’s website at www.aviva.com/corporate-governance
The Board is also supportive of the recommendations set out in the Parker Review and we aim to increase the ethnic diversity of the
Governance Code, we conduct external evaluations at least every three years. Our 2017 evaluation was conducted by ‘Independent
In 2018 the Committee will continue to focus on succession planning at Board and senior management level, developing our people to ensure we maintain a strong talent pipeline and supporting the leadership programmes that underpin this.
Board and executive level, against a specification for the role and capabilities required for the position and the composition of the
• Oversaw talent development throughout the Group and ensured there is a sufficient pipeline of talent available to achieve the
The Committee recognises the ongoing risk of operational failings and in particular the potential for subsequent regulatory enforcement or fines. The newly implemented Operational Risk &
Control Management (ORCM) framework provides the Committee with ongoing data to monitor the progress being made to improve the Group’s operating controls and to upgrade its systems. The
Board has undertaken a number of training sessions and deep dives into the risks of the business during the year to support this ongoing oversight at both Board and Committee level.
The members of the Committee are shown in the table below.
Keith Williams was appointed as a Committee member on 3 August
Group’s risk appetite, risk profile in relation to capital, liquidity and franchise value and the effectiveness of the Group’s Risk
Management Framework. The Committee reviews the methodology used in determining the Group’s capital requirements and stress testing and ensures that due diligence appraisals are carried out on strategic or significant transactions. In addition to the risks inherent in the Group’s investment portfolio, the Committee reviews the
Group’s operational risks, and the significant ongoing changes to the regulatory framework while monitoring the prudential regulatory requirements across the Group. The Committee also works with the Remuneration Committee to ensure that risk management is properly considered in setting the Remuneration
Policy, and is responsible for promoting a risk awareness culture for the Group.
While reviewing the risk profile the Committee oversaw the analysis of the Group’s current and projected SII capital and
Group and reviewed the capital positions in the Group’s subsidiaries and Group surplus sensitivities.
Committee received regular updates on the cyber security transformation programme in regards to the outcomes, transition plans and timings. A broader assessment of the Company’s IT
(GDPR) will significantly increase the requirements on Aviva to protect customer data and in particular the responsibility of our outsourced suppliers to meet these standards. The management of data protection has been brought together through the Cyber
Security and Data Governance MCIT programmes which will support the Group’s readiness.
• Reviewed reports from the Chief Risk Officer (CRO) which included updates on significant risks facing the Group, the Group’s capital and liquidity position, the control environment, emerging risks and risk profile, liquidity risk appetite and operational, regulatory and conduct risk
• Approved the 2017 Group Capital and Liquidity Plan and subsequent updates
• Reviewed capital and liquidity projections including the Group’s shareholder cover ratio and liquidity cover ratio
• Received updates on the asset portfolio; including global economics, assessment of macro economic impacts on the equity release market and investment updates
• Undertook a review of the internal model components, reviewed internal model validation reports and governance updates
• Reviewed the adequacy and quality of the risk management function
International Financial Reporting Standards (IFRSs), including the new insurance accounting standard issued in 2017, for implementation in 2021, on the Company’s financial operations and financial reporting.
On 27 February 2017, the Lord Chancellor announced a reduction in the discount rate factor used to adjust large personal injury damages awards for future loss of earnings (the Ogden rate)
MCIT. Four MCITs were closed during the year and are now monitored as part of our business as usual processes. The MCIT
During the third quarter of 2017, Aviva received a comment letter from the Corporate Reporting Review Team (CRRT) of the
Following the review undertaken for 2017, a recommendation was made to the Board that I, as Committee Chair, fulfilled each of the requirements for recent and relevant financial experience and competence in accounting and auditing, as did Glyn Barker. Patricia
Cross and Mike Hawker confirmed that they meet the Code requirement for recent and relevant financial experience. The
The main purpose of the Committee is to assist the Board in discharging its responsibilities for monitoring the: • integrity of the Company’s financial statements; • adequacy and effectiveness of our systems of internal control including whistleblowing provisions; and,
The Committee acts independently of management and works closely with the Governance, Remuneration and Risk Committees.
Challenged estimates and judgements for IFRS and SII reporting bases. IFRS judgements included goodwill and intangible asset impairment reviews, restructuring provisions and reserving for insurance contracts, including provisions for the continuing impact of the 2016 Brexit vote on property values and rental incomes.
Reviewed and challenged the principles underpinning the Statement for 2017, and concluded that the Company and its subsidiaries will be able to continue in operation and meet their liabilities as they become due. The Committee therefore continues to consider it appropriate that the Statement covers a three year period.
MCITs Continued to lead the overall progress of the MCIT programme, receiving regular reports from management, particularly on the Fraud Management MCIT, of which the Committee has ownership.
Challenged the assumptions used in the calculation of the Best Estimate Liability component of the technical provisions, the reserves required under SII, and the expense impacts on SII reserves. Reviewed and challenged the longevity, expense and credit default assumptions used for the 2017 half and full year. The challenge around the setting of longevity assumptions was a particularly significant area for review as those judgements could be expected to have a material impact on Aviva’s SII and IFRS results. During 2017 a detailed analysis was conducted, and reviewed by the Committee, to validate changes observed in recent mortality experience and the resulting effect on our existing longevity assumptions. In particular the Committee reviewed the rate of annuitant mortality improvement reflecting recent experience in the UK market. The Committee met with the Chair of the UK Life Audit Committee, which had conducted its own ‘deep dive’ on longevity assumptions, together with the UK Life Chief Financial Officer. This provided an additional opportunity to examine the assumptions in greater detail. Following assessment of the proposed assumption changes the Committee considered the associated release of margins and the timing of recognition of changes in longevity experience in the financial statements.
New IFRSs Prepared for the implementation of new IFRSs, including IFRS 17, the new insurance accounting standard, IFRS 15, in respect of revenue from contracts, IFRS 9 on financial instruments, and IFRS 16 on leases. The Committee assessed the impact of each on the Group’s financial position, processes, systems and data. While the impact of adopting IFRS 17 has yet to be fully assessed it is expected that it will have a significant impact on the measurement and disclosure of insurance contracts. It is not possible to assess the effect of adopting IFRS 9 as the Group has elected to apply the deferral approach permitted by IFRS 4 (with the result that the Standard will be considered alongside IFRS 17). IFRS 15 and IFRS 16 are not expected to have a significant impact on the Group (although all aspects of IFRS 16 are yet to be fully assessed).
Reviewed and challenged the principal assumptions underpinning the GI reserves, in particular the continued appropriateness of maintaining the provision for Ogden bodily injury claims, which was made in the 2016 financial statements.
Committee propose that an auditor other than PwC be selected to serve shareholders going forwards. For this reason, it is currently proposed that a tender process be completed in the 2020 financial year for the 2022 year end. The Committee will continue to monitor the effectiveness and independence of PwC, as well as considering whether this proposed timing remains appropriate in light of business developments.
The external audit is led by the PwC audit partner, Marcus Hine who has held the role for three years. The role of audit partner will be rotated after the 2018 year-end.
The Company has complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Uses of
In line with the Standard, our Committee satisfied itself that for all non-audit engagements, robust controls were in place through a quarterly review process for audit related and non-audit services provided, to ensure that PwC’s objectivity and independence was safeguarded, and concluded that it was in the interests of the
Company to purchase these services from PwC due to their specific expertise. Further details are provided in note 12 of the financial statements.
Group. The Committee receives regular reports on the status of the control environment, reports on our Group’s MCITs, and updates on the management of operational risks and controls under the
More information about our system of internal control and risk management can be found in the ‘Directors’ and Corporate
Internal Audit function and reviews and challenges management on the actions being taken to improve the quality of the overall control environment and the control culture across the Group.
Audit Plan. It also conducts an annual review of the Internal Audit
Function to assess its effectiveness and to satisfy itself that the quality, experience and expertise of the Internal Audit function is appropriate for the business. This is carried out by reviewing reports issued by Internal Audit and the output of an annual stakeholder effectiveness survey. This formal process is supplemented by regular private discussions with both executive management and the External Auditor. During the 2017 year, the Chief Audit Officer
(CAO) role was transitioned to Julian Woodford, who previously held the role of Chief Finance Officer of the UK General Insurance business. The Committee concluded that for 2017 the function performed well and remained effective.
The Committee is also supported in its work by the Audit
The Committee undertakes a rigorous review of its effectiveness annually. More information can be found in the ‘Directors’ and
In 2018, in addition to carrying out its principal function, the
Committee will monitor the implementation of the new IFRSs, with particular focus on IFRS 17, regarding the accounting treatment of insurance contracts, ahead of it coming into effect on 1 January 2021. The Committee will also monitor the impact of changes in longevity, and other key assumptions and ensure we are prepared for the impact of these changes.
• Reviewed and challenged the reserve positions relating to our UK
• Monitored and prepared for the reduction in the Ogden rate in
IFRS and SII key issues and judgements; accounting developments with particular regard to the new IFRS’s; and overview of internal control over financial reporting.
External audit, auditor engagement and policy – 16% of agenda time
• Reviewed the effectiveness of the External Auditor and was satisfied that the services it provided remained effective, objective and fit for purpose
• Reviewed and approved changes to our Internal Audit Charter and
Internal controls, including financial reporting control framework and financial reporting developments – 10% of agenda time
• Reviewed management’s assessment of the effectiveness of our risk management and control environment
• Oversaw the MCIT programme and monitored and challenged progress by management to address the Fraud Management
During 2017, the Committee considered and monitored a range of matters which included our customers, our corporate responsibility agenda, our reputation, our governance operations, organisational redesign and stakeholder engagement.
Sir Malcolm Williamson** 14/05/2015 2 * Chair ** Retired from the conclusion of the 2017 Annual General Meeting (10 May 2017)
Throughout 2017 the Committee focussed on changes in the internal governance of the Group particularly the changes to the governance structure from bringing the UK Insurance (UKI)
Boards of the Group’s regulated entities, the culture action programme and the development of our Aviva Signature processes.
The Committee has also been updated on the culture action programme which aims to drive delivery of our customer first and operational simplicity goals, and the Aviva Signature which are the processes that differentiate us from our competitors.
The Committee has closely engaged with the governance arrangements for preparations for the General Data Protection
This year, the Aviva Community Fund was launched in three additional markets, giving hundreds of organisations across 10 countries the chance to secure the support they need to make a difference in their local communities.
Committee reviewed. In the year, the Committee received a deep dive on the conduct risk in our Italian business from the
The Committee continues to receive updates on the lessons learned from the Financial Conduct Authority’s (FCA) Client
In 2018, the Committee will continue to review the customer agenda concentrating on improving Aviva’s customers’
Committee activities and agenda time during 2017 Customer, risk and reputation – 22% of agenda time
• Regularly reviewed updates from the Chief Audit Officer on any significant control issues
• Received and considered reports detailing ongoing and possible reputational, brand and franchise risks, including media and public policy issues
• Reviewed the Group’s first response to the disclosure recommendations for organisations published by the
• Discussed the outcomes of the 2017 effectiveness review and agreed actions where necessary
• Reviewed and considered the talent development programmes for leadership across the Group
• Reviewed and challenged management’s explanations and actions in response to issues/events
• Received updates on UKD at each Committee meeting and considered the conduct risk framework
• Constructively challenged the UKD Board on matters in relation to conduct, regulatory and financial crime risks and the risk management control framework
Strategic report: • Environment and climate change for disclosure of our greenhouse gas emissions
Details of significant post balance sheet events that have occurred subsequent to 31 December 2017 are disclosed in notes 3 and 62.
Transparency Rule 4.1.5R comprises the Strategic report (which includes the principal risks relating to our business) and details of material acquisitions and disposals made by the Group during the year which are included in note 3. This directors’ and corporate governance report fulfils the requirements of the corporate governance statement under Disclosure Guidance and
Subject to shareholder approval at the 2018 AGM, the final dividend for 2017 will become due and payable on 17 May 2018 to all holders of ordinary shares on the Register of Members at the close of business on 6 April 2018 (payment date approximately four business days later for holders of the Company’s American Depositary Shares
Solvency II regime, the dividend is required to remain cancellable at any point prior to becoming due and payable and to be cancelled if, prior to payment, the Group ceases to hold capital resources equal to or in excess of its Solvency Capital Requirement, or if that would be the case if the dividend was paid. Details of any dividend waivers are disclosed in note 32.
Under UK company law, we may only pay dividends if the
are accumulated, realised profits/(losses) not previously distributed or capitalised, less accumulated, unrealised losses not previously written off based on IFRS. Even if distributable profits are available, we pay dividends only if the amount of our net assets is not less than the aggregate of our called-up share capital and undistributable reserves and the payment of the dividend does not reduce the amount of our net assets to less than that aggregate.
Many of the Company’s subsidiaries are subject to insurance regulations that restrict the amount of dividends that they can pay to us.
December 2017, Aviva plc itself had distributable reserves of greater than £3.5 billion, which would have covered five years of historic dividend payments to our ordinary shareholders. In UK Life, our largest operating subsidiary, distributable reserves, which could be paid to Aviva plc via its intermediate holding company, are based
Strategic report Governance IFRS financial statements Other information on the updated Companies Act 2006 (Distributions of Insurance
Own Funds measure in determining profits available for distribution. While the UK insurance regulatory laws applicable to
UK Life and our other UK subsidiaries impose no statutory restrictions on an insurer’s ability to declare a dividend, the rules require maintenance of each insurance company’s solvency margin, which might impact their ability to pay dividends to the parent company. Our other life and general insurance, and fund management subsidiaries’ ability to pay dividends and make loans to the parent company is similarly restricted by local corporate or insurance laws and regulations. In all jurisdictions, when paying dividends, the relevant subsidiary must take into account its capital position and must set the level of dividend to maintain sufficient capital to meet minimum solvency requirements and any additional target capital expected by local regulators. These minimum solvency requirements, are discussed in ‘Other Information’. We do not believe that the legal and regulatory restrictions constitute a material limitation on the ability of our businesses to meet their obligations or to pay dividends to the parent company, Aviva plc.
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.
Company’s directors are subject to relevant legislation and, in certain circumstances (including in relation to the issue or buying back by the Company of its shares), are subject to authority being given to the directors by shareholders in general meeting. At the 2018 AGM, shareholders will be asked to renew the directors’
authority to allot new securities. Details are contained in the Notice of 2018 Annual General Meeting (Notice of AGM).
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’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 Company’s 2017 AGM, shareholders renewed the Company’s authorities to make market purchases of up to 406 million ordinary shares, up to 100 million 8¾% preference shares and up to 100 million 8⅜% preference shares. Details of shares purchased during 2017 are outlined above. At the 2018 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 available at www.aviva.com/agm. The Company held no treasury shares during the year or up to the date of this report.
The table below shows the holdings of major shareholders in the
BlackRock, Inc1 Above 5% Indirect Above 5% Indirect 1 Holding includes holdings of subsidiaries.
The directors as at the date of this report, together with their biographical details and details of Board appointments, resignations and retirements during the year are shown earlier in the report.
Board can appoint additional directors or appoint a director to fill a casual vacancy. The new director must retire at the first AGM
following their appointment and can only continue as a director if they are elected by shareholders at the AGM.
At no time during the year did any director hold a material interest in any contract of significance with the Company or any of its subsidiary undertakings other than an indemnity provision between each director and the Company and employment contracts between each executive director and a Group company.
The Company has also granted indemnities by way of a deed poll to the directors of the Group’s subsidiary companies, including former directors who retired during the year and directors appointed during the year, which is a ‘qualifying third party indemnity’ for the purposes of the applicable sections 309A to 309C
of the Companies Act 1985. The deed poll indemnity was in force throughout the year and remains in force.
Group companies use financial instruments to manage certain types of risks, including those relating to credit, foreign currency exchange, cash flow, liquidity, interest rates, and equity and property prices. Details of the objectives and management of these instruments are contained in the risk and capital management section and in note 56 on risk management.
(PwC), is unaware and each director has taken all steps that ought to have been taken as a director in order to make themselves aware of any relevant audit information and to establish that PwC is aware of that information.
convening the meeting describes the business to be conducted thereat. Any proxy voting instruction, whether provided online, by post or via CREST, must be received by our Registrar,
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report. The performance review includes the Risk and risk management section. In addition, the financial statements sections include notes on the Group’s borrowings (note 49); its contingent liabilities and other risk factors (note 52); its capital management (note 54); management of its risks including market, credit and liquidity risk (note 56); and derivative financial instruments (note 57).
It is fundamental to the Group’s longer-term strategy that the directors manage and monitor risk taking into account all key risks the Group faces, including longer-term insurance risks, so that it can continue to meet its obligations to policyholders. The Group is also subject to extensive regulation and supervision including Solvency II
(as detailed in the ‘Risk and risk management’ section of the
Strategic report as well as note 56 of the IFRS financial statements).
• An advanced draft is considered and reviewed by the Disclosure
• Board members receive drafts of the Annual report and accounts for their review and input. This includes the opportunity to discuss the drafts with both management and the External Auditor, challenging the disclosures where appropriate.
Regulation. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each of the current directors, whose names and functions are detailed in the ‘Our Board of Directors’ section in the directors’ and corporate governance report confirm that, to the best of their knowledge: the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the Strategic report and the directors’ and corporate governance report in this annual report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Location in the Annual report and accounts 4 Details of long-term incentive schemes DRR
in delivering Group performance and in embedding for the longterm the culture and practices that will ensure we continue to fulfil our purpose.
At the end of this review, we are not proposing major structural changes to our Policy as we see it as still being fit for purpose. This has been a strong theme of our shareholder interactions. We are however proposing some changes to elements of the Policy as follows: • No change of approach on basic salary or annual bonus, although we propose to introduce phased vesting over three years for the deferred bonus while leaving deferral at 67%.
• Shareholding requirements are being increased for EDs other than the Group Chief Executive Officer (Group CEO), who is already required to hold 300% of salary.
As part of our new Directors’ Remuneration Policy, we are proposing therefore to adopt the following metrics framework for the LTIP.
It is clear from discussions with shareholders on our strategy that
(which is calculated consistently with Operating EPS1) must exceed this hurdle prior to any vesting; and,
The Operating EPS1 targets for each LTIP award will be disclosed in advance.
Shareholders will note we have decided not to proceed with the proposed inclusion of a strategic category metric for the 2018 LTIP.
This was an area where shareholders were split, with some suggesting it is critical to long term value creation, whilst others were opposed and felt that the metrics should remain solely financial return focused. On balance, we did not feel the level of support was sufficient to proceed with this metric in 2018 but have included this as a potential category in our Policy for future LTIPs, subject to full consultation and shareholder support. Such an approach is consistent with the metrics adopted by a number of other insurance and financial services companies in the UK market.
Over the three years of the Policy, we will continue to consider how our metrics can best reflect sustainable achievement of results and long term outcomes for our shareholders.
Setting an appropriate Policy for the next three years is an important enabler for the Group. The Committee intends to continue to offer an appropriately competitive remuneration framework, while achieving the best alignment possible with shareholder outcomes. The Committee considers that the revised
The Committee reviews the formulaic vesting outcomes against our reward metrics and our bonus scorecard to ensure the reward outcomes are appropriate, taking into account a range of factors including underlying financial performance, capital management and risk. Shareholder feedback on this has been positive, and it is clear that it is viewed as an integral and important part of our approach to reward, and to how we ensure outcomes against targets such as EPS are appropriate. We have provided more detail on how this process operates in setting out the Policy in the next section.
International businesses. Maurice’s terms of appointment are consistent with other EDs and are detailed further in this report.
Vesting of 36.9%, all based on the adjusted RoE performance component and with nothing for the TSR component.
These increases are in line with expectations around market movements and inflation in the UK and are consistent with overall increases being applied across our UK-based employees.
Bonus 30% of the annual bonus scorecard will be linked to progress on our
Board and from the Committee during 2017 and I would like to thank them both for their hard work and commitment during their tenures. Glyn Barker joined the Committee in May 2017 and brings with him a deep understanding of accounting and regulatory issues together with in-depth transactional and financial services experience.
• require companies to report on what engagement has taken place with the workforce to explain how executive remuneration aligns with the wider company policy.
We are committed to ensuring alignment between pay and performance and believe that the outcomes for 2017 and the changes we are proposing to make to the Policy in 2018 support this.
The Committee considers that alignment between Group strategy and the remuneration of its EDs is critical. Our Remuneration Policy provides market competitive remuneration, and incentivises EDs to achieve both the annual business plan and the longer-term strategic objectives of the Group. Significant levels of deferral and an aggregate shareholding requirement align EDs’ interests with those of shareholders, aid retention of key personnel, and assist in focussing the EDs on long-term enterprise value creation. As well as rewarding the achievement of objectives, variable remuneration can be zero.
The proposed Policy is subject to shareholder approval at the 2018 AGM on 10 May 2018. If approved, it will apply immediately, for up to three years.
• Relevant pay data including market practice among relevant FTSE listed companies of comparable size to
Aviva in terms of market capitalisation, large European and global insurers and UK financial services companies
Any movement in basic salary takes account of the performance of the individual and the Group.
Committee based on performance against those targets and a quality of earnings assessment and risk review.
To reward EDs for achievement against the Company’s longer-term objectives, to align EDs’ interests with those of shareholders, to aid the retention of key personnel, and to encourage focus on long-term growth in enterprise value.
Shares are awarded annually which vest dependent on the achievement of performance conditions. Vesting is subject to an assessment of quality of earnings, the stewardship of capital and risk review.
Awards will vest based on a combination of financial, strategic and TSR performance metrics. For the 2018 awards the measures and weightings will be: • 50% Operating EPS1 growth subject to two gateway hurdles – Operating RoE2 and SII Shareholder Cover
The performance measures and weightings set out above will replace the previous measures being 50% adjusted performance RoE and 50% TSR against a comparator group.
EDs are eligible to participate in a defined contribution plan up to the annual limit.
Company contributes: • 20% of basic salary for new ED appointments
Company reserves the right to deliver benefits to EDs depending on their individual circumstances, which may include a cash car allowance, life insurance, private medical insurance and access to a company car and driver for business use. In the case of non-UK executives, the Committee may consider additional allowances in line with standard relevant market practice.
Employees who are relocated or reassigned from one location to another receive relevant benefits to assist them and their dependants in moving home and settling into the new location.
Dependent on location and family size, benefits are market related and time bound. They are not compensation for performing the role but are intended to defray costs of a relocation or residence outside the home country.
1 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other information’ section of the Annual report and accounts.
Any vesting decision or confirmation of awards is made after this process has been undertaken.
In the event of a change in control, unless a new award is granted in exchange for an existing award, or if there is a significant corporate event like a demerger, awards under the LTIP would normally vest to the extent that the performance conditions have been satisfied as at the date of the change in control, and unless the Committee decides otherwise, would be pro-rated to reflect the time between the start of the performance period and the change in control event. Awards under the ABP would normally vest on the date of the change in control and may vest if there is a significant corporate event.
The Policy for our EDs is designed as part of the remuneration philosophy and principles that underpin remuneration for the wider Group.
Where considered appropriate, the Committee may make awards on hiring an external candidate to ‘buyout’ remuneration arrangements forfeited on leaving a previous employer. In doing so, the Committee would take account of relevant factors including any performance conditions attached to these awards, the form in which it was paid (e.g. cash or shares) and the timeframe of awards. Buyout awards would be awarded on a ‘like for like’ basis compared to remuneration being forfeited, and would be capped to reflect the value being forfeited. The Committee considers that a buyout award is a significant investment in human capital by Aviva, and any buyout decision will involve careful consideration of the contribution that is expected from the individual.
The charts below illustrate how much EDs could earn under different performance scenarios in one financial year: • Minimum – basic salary, pension or cash in lieu of pension and benefits, no bonus and no vesting of the LTIP
• Target – basic salary, pension or cash in lieu of pension, benefits, and: A bonus of 100% and an LTIP of 300% of basic salary (with notional LTIP vesting at 50% of maximum) for the Group CEO; and A bonus of 100% and an LTIP of 225% of basic salary (with notional LTIP vesting at 50% of maximum) for the CFO, CEO UKI and CEO
• Maximum – basic salary, pension or cash in lieu of pension, benefits, and: A bonus of 200% and an LTIP of 300% of basic salary (with notional LTIP vesting at maximum) for the Group CEO; and A bonus of 150% and an LTIP of 225% of basic salary (with notional LTIP vesting at maximum) for the CFO, CEO UKI and CEO
The value of the LTIP and deferred element of the annual bonus assumes a constant share price and does not include additional shares awarded in lieu of dividends that may have been accrued during the vesting period.
ED employment contracts and NED letters of appointment are available for inspection at the Company’s registered office during normal hours of business, and at the place of the Company’s 2018 AGM from 10.45am on 10 May 2018 until the close of the meeting.
By the Company 12 months, rolling. No notice or payment in lieu of notice to be paid where the Company terminates for cause.
Any payment is subject to phasing and mitigation requirements. An ED would be expected to mitigate the loss of office by seeking alternative employment. Any payments in lieu of notice would be reduced, potentially to zero, by any salary received from such employment.
Remuneration and Benefits The operation of the annual bonus and LTIP is at the Company’s discretion.
Car Allowance A cash car allowance is received, as varied from time to time.
Other benefits Other benefits include participation in the Company’s staff pension scheme, life insurance and, where applicable, access to a Company car and driver for business related use.
In the case of Maurice, 100% of salary for the first 26 weeks, thereafter long term disability insurance may apply.
Date current contract commenced: Policy on payment for loss of office
Where notice of termination of a contract is given, payments to the ED would continue for the period worked during the notice period.
Committee, there may be a payment of a pro rata bonus for the relevant year at the discretion of the Committee.
The treatment of leavers under the ABP and LTIP is determined by the rules of the relevant plans. Good leaver status under these plans would be granted in the event of, for example, the death of an ED. Good leaver status for other leaving reasons is at the discretion of the
In the case of LTIPs, where the Committee determines EDs to be good leavers, vesting is normally based on the extent to which performance conditions have been met at the end of the relevant performance period, and the proportion of the award that vests is prorated for the time from the date of grant to final date of service (unless the Committee decides otherwise). Any decision not to apply this would only be made in exceptional circumstances, and would be fully disclosed. It is not the practice to allow such treatment.
• Its ongoing dialogue with shareholders, the Committee seeks shareholder views and takes them into account when any significant changes are being proposed to remuneration arrangements and when formulating and implementing the Policy. For example, there has been detailed engagement with our largest shareholders regarding the proposed Policy during 2017 continuing into 2018.
NEDs are reimbursed for reasonable expenses, and any tax arising on those expenses is settled directly by Aviva. To the extent that these are deemed taxable benefits, they will be included in the DRR, as required.
Chairman of the Company and NEDs will be determined by the Board within the limits set by shareholders and detailed in the Company’s Articles of Association.
Reasonable costs of travel and accommodation for business purposes are reimbursed to NEDs. On the limited occasions when it is appropriate for a NEDs’
spouse or partner to attend, such as to a business event, the Company will meet these costs. The
The NEDs, including the Chairman of the Company, have letters of appointment which set out their duties and responsibilities. The key terms of the appointments are set out in the table below.
written notice for NEDs and three months written notice for the Chairman of the Company.
Notes 1 The dates shown above reflect the date the individual was appointed to the Aviva plc Board.
2 Appointment end dates are in accordance with the letter of appointment.
Policy will be implemented for 2018. This is in accordance with the requirements of the Large & Medium Sized Companies and Groups
The full terms of reference for the Committee can be found on the Company’s website at www.aviva.com/remunerationcommittee and are also available from the Group General Counsel and Company Secretary.
During the year, the Committee received advice on executive remuneration matters from Deloitte LLP who were appointed by the
Reward Governance Framework, which sets out the key policies, guidelines and internal controls and is summarised on the next page.
In 2017, the Committee undertook an external evaluation of its effectiveness, alongside the exercise undertaken by the Board.
Further details on how this has been carried out and the actions arising are contained in the Directors and Corporate Governance report.
• Engaged external advisors to advise on changes in the regulatory environment and developments in the UK corporate governance framework, and to benchmark the company’s remuneration policies and practices against industry best practice.
• Regularly reviewed the results of engagements with key investors, including discussions on the relationship between senior management remuneration policies and the company’s strategic objectives.
• Reviewed and approved the individual remuneration for each member of the GE for 2017 in relation to their performance against personal targets.
• Reviewed the fees payable to independent NEDs on subsidiary boards in relation to the strategic rationale and comparator benchmarks.
• Approved the Aviva Investors 2016 Bonus Deferral Plan and the identification of the Financial Conduct Authority (FCA)
• Reviewed the strategic ambition targets set for 2017 in relation to the company’s Digital First strategy including the number of active digital registrations and the volume of sales made.
• Reviewed performance testing of all existing LTIP awards, and approved targets for the 2017 LTIP awards.
• Approved the terms of the Aviva Savings Related Share Option
• Reviewed and approved any applications of malus/clawback provisions under incentive plans.
Assurance framework to attest reward operations are conducted within the global remuneration policy,
Approval requirements to ensure reward operations are conducted within the global remuneration policy,
Element of the reward governance framework managed mainly under delegated authority from the
The table below sets out the total remuneration for 2017 and 2016 for each of our EDs.
Basic Salary1 1,028 1,002 708 690 726 707 373 — 2,835 2,399 Benefits2 107 99 86 73 53 51 39 — 285 223 Annual Bonus3 1,945 1,837 997 939 1,022 926 456 — 4,420 3,702 LTIP4 966 1,304 499 673 511 — 70 — 2,046 1,977 Pension5 288 281 198 193 203 198 104 — 793 672
2 The benefits disclosure includes the cost, where relevant, of private medical insurance, life insurance, accommodation, travel and car benefits. In the case of Mark and Andy this also includes benefits resulting from the UK
4 The value of the LTIP for 2017 relates to the 2015 award, which had a three-year performance period ending 31 December 2017. 36.9% of the award will vest in March 2018. An assumed share price of 502.19. pence has been used to determine the value of the award based on the average share price over the final quarter of the 2017 financial year. The LTIP amounts shown in last year’s report in respect of the LTIPs awarded in 2014 were also calculated with an assumed share price of 456.27 pence. The actual share price at vesting was 525.07 pence, leading to an increase in value. The estimated value of the awards for the EDs was £1,718,000; the actual value was 5 Pension contributions consist of employer defined contribution benefits, excluding salary exchange contributions made by the employees, plus cash payments in lieu of pension. EDs are eligible to participate in a defined contribution plan and receive pension contributions and/or a cash pension allowance from the Company in aggregate totaling 28% of basic salary.
7 Year on year increase is due to an additional ED and the first payout under the LTIP for Andy.
The Group’s financial performance, together with non-financial modifiers and personal performance have been used to determine ED
In determining the bonus awards, the Committee took into account the wider performance of Aviva and the experience of shareholders during the year, and is satisfied that the bonus awards above are fair in light of those considerations. One-third of the bonus award for all
EDs will be delivered in cash, with two-thirds being deferred into shares for three years.
The EDs have not received any items in the nature of remuneration other than those disclosed in table 1.
The table below sets out performance against targets. The overall scorecard outcome percentage applies to all of the EDs. The individual bonus decisions for the EDs, explained in the notes below table 7, are determined after taking into account this scorecard assessment and their respective personal performance.
Adjusted IFRS EPS1 30.0% 40.1p 43.3p 46.5p 48.3p Net Cash Remittances2 15.0% £1,758m £1,900m £2,043m £2,171m Operating Capital Generation2 30.0% £1,472m £1,672m £1,872m £2,576m Total Financial Metrics 75.0% 150% Strategic Progress UK digital revenues (m) 12.5% 1.3m 1.5m 1.7m 1.5m MyAviva active registrations (m) 12.5% 5.6m 7.0m 8.4m 7.5m Score before modifier decision3 178% Modifier decision 0% Overall scorecard assessment4 178%
4 This is a key factor in determining individual bonuses for EDs along with personal performance.
For 2017, no adjustment has been made in relation to the modifier factors.
Aviva’s reward strategy includes specific risk and control objectives for senior management and EDs. The aim is to help drive and reward effective risk management and a robust control environment across the Group.
Internal Audit functions looked at the effectiveness and robustness of the risk framework and control environment. The outputs of the assessments were shared with the Risk and
While the modified outcome against the bonus scorecard provides a pool of funding for bonuses, actual bonus decisions are made based on individual contribution and achievements, how the person has assisted the Group achieve progress against its strategic objectives, the leadership they have exhibited and how the individual has demonstrated the Aviva values. Each ED has a target and a maximum opportunity against which this is assessed.
• Amid significant uncertainty Aviva have further strengthened the balance sheet and now have £3bn of excess capital to be deployed in 2018-19.
• Completion of our strategy to dispose of FPI, Spain, Taiwan and
• Launched a solution to the unsustainable UK market practice of pricing new business below that of renewing business. Once the test pilot is complete, it will reward loyal customers and increase trust in the brand.
• Employee engagement remains strong up 1% at 75%. In 2017
Tom Stoddard continued to provide outstanding leadership to the finance function and was instrumental in many initiatives that supported the Group’s strategy, including: • In 2017 we delivered on, or exceeded, market expectations at a
Group level. This strong financial performance lead to upgrading external targets on Operating EPS1 growth, cash remittances2 and dividend pay-out ratio, at our Capital Markets Day and in our
• Strong stewardship of capital - continued to strengthen our balance sheet position, acknowledged by achieving a credit ratings upgrade to double A status.
• As we concluded the fix phase, our balance sheet is well positioned, with a £300 million share repurchase programme and repayment of £500 million of hybrid debt without refinancing completed in 2017.
• Accelerating change activity to improve the finance function, reduce costs and apply zero based budgeting principles across
• Above target underlying performance and improved employee engagement delivered despite the integration of our UK
• Maintained robust risk and controls environment across markets, rolling out the Group operational risk control and management framework.
1 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other information’ section.
3 The bonus award shown here relates to Maurice’s qualifying services as a director of Aviva from 20 June 2017 when he was appointed as an ED.
Strategic report Governance IFRS financial statements Other information 2015 LTIP vesting in respect of performance period 2015-2017
The RoE1 and TSR outcome for the 2015 LTIP are detailed in the table below. 36.9% of the award will vest in March 2018.
The Committee discussed those items that impacted the overall results in 2017 including foreign exchange, acquisitions and dispositions, life assumption and modelling changes, prior year reserve development, and other items that are one-off in nature. This provides the
Share and option awards granted to EDs during the year are set out below.
Mark Wilson 27 Mar 2017 LTIP 300% £3,028,197 20% 100% 31 Dec 2019 27 Mar 2022 27 Mar 2017 ABP 121% £1,224,735 N/A 27 Mar 2020
Tom Stoddard 27 Mar 2017 LTIP 225% £1,564,311 20% 100% 31 Dec 2019 27 Mar 2022 27 Mar 2017 ABP 90% £625,723 N/A 27 Mar 2020
Andy Briggs 27 Mar 2017 LTIP 225% £1,603,420 20% 100% 31 Dec 2019 27 Mar 2022 27 Mar 2017 ABP 87% £617,609 N/A 27 Mar 2020 14 Oct 2016 AESOP 0.39% £2,762 N/A 12 Dec 2020
2 Face value for the awards granted on 27 March 2017 has been calculated using the average of the middle-market closing price of an Aviva ordinary share on the three consecutive business days immediately preceding the date of grant, on 27 March 2017 (530.00 pence). The AESOP has been calculated using the average price achieved at purchase of the partnership shares throughout 2017 (515.29 pence).
RoE is calculated as the IFRS profit after tax and non-controlling interest, but excluding the impact of amortisation of acquired value of in force business, investment variances, pension scheme income/charge and economic assumption changes, over average IFRS equity
Achievement of RoE1 targets over the three-year performance period Percentage of shares in award that vests based on achievement of RoE1 targets
Relative TSR determines the vesting of the other 50% of the LTIP award. Performance for the 2017 grant will be assessed against the following companies: Aegon, Allianz, Assicurazioni Generali, AXA, CNP Assurances, Direct Line Group, Legal & General, MetLife, NN Group,
Old Mutual, Prudential, RSA Insurance Group, Standard Life Aberdeen and Zurich Financial.
The performance period for the TSR performance condition will be the three years beginning 1 January 2017. For the purposes of measuring the TSR performance condition, the Company’s TSR and that of the comparator group will be based on the 90-day average TSR
Below Median 0% Median 10% Between median and upper quintile Pro-rata between 10% and 50% on a straight line basis Upper quintile and above 50%
Russell Walls retired from the Board with effect from 8 May 2013.
• Russell was appointed as a NED of Aviva Italia Holdings S.p.A on 4 December 2014 and on 30 April 2015 was appointed as Chair.
• On 13 April 2015 Russell was appointed as a NED of Aviva Annuity UK Limited, Aviva Life Holdings UK Limited, Aviva Life & Pensions UK
• On 31 October 2017 Russell was also appointed as a NED of Aviva Insurance Limited, also a subsidiary companies of Aviva plc.
• The emoluments he received in respect of these directorships for the 2017 financial year were £131,837 and €90,000.
Scott Wheway retired from the Board with effect from 31 December 2016.
There were no payments for loss of office made during the year.
Table below sets out the total remuneration earned by each NED who served during 2017, for Group-related activities.
Claudia Arney4 140 84 1 2 141 86 40 — 181 86 Glyn Barker 164 137 3 3 167 140 — — 167 140 Patricia Cross 128 127 — 2 128 129 53 — 181 129 Belén Romana García 105 105 8 11 113 116 1 — 114 116 Michael Hawker 138 138 — — 138 138 15 — 153 138 Michael Mire 117 117 1 2 118 119 — — 118 119 Keith Williams4 124 44 3 1 127 45 — — 127 45
3 Bob Stein and Sir Malcolm Williamson stepped down from the Board at the 2017 AGM.
4 2017 reflects Claudia and Keith’s first full year on the Board.
The total amount paid in fees to NEDs in 2017 was £1,656,000, which is within the limits set in the Company’s Articles of Association, as previously approved by shareholders.
During the year, the following NEDs were appointed as Directors of subsidiary companies to support and further enhance the flow of information between material subsidiaries and the Group. The additional emoluments received in respect of these roles are detailed below: • Claudia Arney received an additional fee of £40,000 (2016: nil) in respect of her duties as a Board member of Aviva UK Digital Limited
(UKD). Claudia first joined the Board of UKD as a NED on 1 January 2017 and on 14 September 2017 was appointed as Chair.
Limited (AIH). Patricia first joined the Board of AIH as a NED on 1 January 2017 and on 20 September 2017 was appointed as Senior
• Belén Romana García received an additional fee of €1,068 (2016: nil) in respect of her duties as a Board member of Aviva Italia Holding
Holdings UK Limited. Michael stepped down from his role on 31 March 2017.
% change in basic salary 2016-2017 % change in bonus 2016-2017 % change in benefits 2016-2017
Note: The higher bonus outcomes seen for UK-based employees reflects the stronger performance of the major UK businesses compared to that seen in 2016. The change in the CEO’s benefits from £99,000 in 2016 to £107,000 in 2017 includes travel, overnight accommodation and meals which HMRC treats as taxable benefits and not business expenses in the ordinary course of his role.
Table 14 compares the TSR performance of the Company over the past nine years against the TSR of the FTSE 100 Return Index. This index has been chosen because it is a recognised equity market index of which Aviva is a member. In addition, median TSR performance for the
LTIP comparator group has been shown. The companies which comprise the current LTIP comparator group for TSR purposes are listed in the ‘TSR Targets’ section on page 77.
14 Aviva plc nine-year TSR performance against the FTSE 100 index and the median of the comparator group
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
‘Other Information’ section within the Annual report and accounts for further information 2 After integration and restructuring costs.
4 A share buy-back of ordinary shares for an aggregate purchase price of £300 million was undertaken during the year, as described in more detail in note 14. There were no share buy-backs in 2015 or 2016.
5 Total staff costs from continuing operations includes wages and salaries, social security costs, post-retirement obligations, profit sharing and incentive plans, equity compensation plans and termination benefits. The average number of employees in continuing operations was 30,090 (2017) and 29,653 (2016).
• Tom Stoddard was a Trustee of Trout Unlimited (a non-profit conservation organisation) but resigned from this position 30 June 2017.
Neither Tom nor Andy received any fees or other compensation for these appointments. Maurice received £41,500 in respect of his directorship during the year.
The Company requires the Group CEO to build a shareholding in the Company equivalent to 300% of basic salary and each ED to build a shareholding in the Company equivalent to 150% of basic salary.
• The shareholding requirement needs to be built up over a five-year period.
2 Awards granted under the Aviva LTIP which vest only if the performance conditions are achieved.
3 Awards arising through the ABP. Under this plan, some of the earned bonuses are paid in the form of conditional shares and deferred for three years. The transfer of the shares to the director at the end of the period is not subject to the attainment of performance conditions but the shares can be forfeited if the ED leaves service before the end of the period.
4 Savings-related options (without performance conditions) over shares granted under the SAYE plan.
6 Mark will meet his shareholding requirement after the vesting of the 2015 ABP and LTIP awards. 7 Maurice’s basic salary and benefits are set in Canadian dollars and have been converted to sterling using an average exchange rate for 2017.
There were no changes to the EDs interests in Aviva shares during the period 1 January 2018 to 6 March 2018, with the exception of Andy
Sir Adrian Montague 33,082 42,385 Claudia Arney 14,000 14,000 Glyn Barker 11,700 22,700 Patricia Cross 7,000 12,383 Belén Romana García — 790 Michael Hawker 20,000 20,000 Michael Mire 50,000 50,000 Keith Williams — 10,000
There were no changes to the NEDs interests in Aviva shares during the period 1 January 2018 to 6 March 2018.
19 LTIP, ABP, CFO award and options over Aviva shares (audited information)
Mark Wilson LTIP3, 4 2014 601,226 — 282,1297 352,919 — 476.40 525.50 Mar-17 2015 521,276 — — — 521,276 535.00 — Mar-18 2016 606,185 — — — 606,185 475.20 — Mar-19 2017 — 571,358 — — 571,358 523.00 — Mar-20 ABP 2014 150,306 — 170,7807 — — 476.40 525.50 Mar-17 2015 150,591 — — — 150,591 535.00 — Mar-18 2016 245,168 — — — 245,168 475.20 — Mar 19 2017 — 231,082 — — 231,082 523.00 — Mar-20 SAYE6 2014 3,615 — — — 3,615 — 419.00 — Dec 19 – May 20 2016 2,564 — — — 2,564 — 351.00 — Dec 19 – May 20
2 The actual price used to calculate the ABP and LTIP awards is based on a three-day average closing middle-market price of an ordinary share of the Company, prior to grant date. These were in 2014: 489 pence, 2015: 564 pence, 2016: 485 pence and 2017: 530 pence. The actual price used to calculate the CFO Award is based on a three-day average closing middle-market price of an ordinary share of the Company, prior to employment start date, which was 509 pence.
RSA Insurance Group, Standard Life and Zurich Financial. For the 2015, 2016 and 2017 LTIP grant, the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances,
Direct Line Group, Legal & General, MetLife, NN Group, Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial.
6 Options are not subject to performance conditions. The option price was fixed by reference to a three day average closing middle-market price of an ordinary share of the Company, prior to invitation date, with a discount of 20% as permitted under the SAYE plan. Options granted under the SAYE are normally exercisable during the six-month period following the end of the relevant (3 or 5 year) savings contract.
Company’s usage of shares compared to the relevant dilution limits set by the Investment Association in respect of all share plans (10% in any rolling ten-year period) and executive share plans (5% in any rolling ten-year period) was 1.65% and 2.73% respectively on
Remuneration Policy Statement, which outlines how we have complied with each of the requirements. This document was approved by the
Group Remuneration Committee and submitted to the Prudential Regulatory Authority (PRA).
The Solvency II reporting requirements for the year ended 31 December 2017 necessitate firms to produce the Solvency and Financial
NED fees are reviewed annually. No changes were made to the current fee levels, as set out in the table below: 21 Non-executive directors’ fees
Role Fee from 1 April 2018 Fee from 1 April 2017
Chairman of the Company1 £550,000 £550,000 Board membership fee £70,000 £70,000 Additional fees are paid as follows: Senior Independent Director £35,000 £35,000 Committee Chair (inclusive of committee membership fee): • Audit £45,000 £45,000 • Governance £35,000 £35,000 • Remuneration £35,000 £35,000 • Risk £45,000 £45,000 Committee membership: • Audit £15,000 £15,000 • Governance £12,500 £12,500 • Nomination £7,500 £7,500 • Remuneration £12,500 £12,500 • Risk £15,000 £15,000 1 Inclusive of Board membership fee and any committee membership fees.
The implementation of the Policy will be consistent with that outlined in table 1.
• 15% Cash Remittance • 30% progress on strategy – Digital First
LTIP • Group CEO – 300% of salary. • CFO, CEO UKI and CEO International– 225% of salary. • LTIP awards will only be granted subject to shareholder approval of the
Any vesting of the Operating EPS1 element of the LTIP is subject to two gateway hurdles – Operating RoE2 and SII Shareholder Cover Ratio.
Company’s profit and cash flows for the year then ended; • have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union; and
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
• Based on the output of our risk assessment, along with our understanding of the Aviva Group structure, we performed full scope audits over the following components; UK Life, UK General Insurance, Canada, Italy Life and France Life.
Valuation of non- life insurance contract liabilities (Group). Valuation of hard to value investments (Group).
Valuation of life insurance contract liabilities (Group) Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities – Long- term business provisions and Note (40) Insurance liabilities (b) Long-term business liabilities.
Based on the work performed and the evidence obtained, we consider the assumptions used to be appropriate.
(in the portfolio), industry and management views on the future rate of mortality improvements and external factors arising from developments in the annuity market.
• Rate of mortality improvements: this component is more subjective given the lack of data and the uncertainty over how life expectancy will change in the future. Management has adopted the most recent CMI 2016 model and dataset in setting this assumption with specific adjustments to reflect the profile of their portfolio and their views on the rate of mortality improvements.
In addition to the procedures above, in respect of the annuitant mortality assumptions: • We tested the methodology used by management to derive the assumptions with reference to relevant rules and actuarial guidance and by applying our industry knowledge and experience. This included evaluating management’s choice of, and fitting to, the CMI base tables and the adoption of the CMI 2016 model and dataset for improvements and the margin for prudence. • We assessed the results of the experience investigations carried out by
UK Life management for the annuity business to determine whether they provided support for the assumptions used by management.
Based on the work performed and the evidence obtained, we consider the assumptions used for annuitant mortality to be appropriate.
Management use an active approach to setting the assumptions. A long term deduction for credit default is made from the current market yields and a supplementary allowance is also held to cover the risk of higher short term default rates along with a margin for prudence.
Based on the work performed and the evidence obtained, we consider the assumptions for credit default risk to be appropriate.
Future maintenance expenses and expense inflation assumptions are used in the measurement of insurance contract liabilities. The assumptions reflect the expected future expenses that will be required to maintain the in-force policies at the balance sheet date, including an allowance for project costs and a margin for prudence. The assumptions used require significant judgement.
In addition to the procedures above, in respect of the expense assumptions: • We tested the methodology used by management to derive the assumptions with reference to relevant rules and actuarial guidance and by applying our industry knowledge and experience. This included testing the split of expenses between acquisition and maintenance by agreeing a sample to supporting evidence.
Valuation of non-life insurance contract liabilities (Group) Refer to the Audit Committees’ Report, Accounting policy (L) Insurance and participating investment contract liabilities-General insurance and health provisions and Note (40) Insurance liabilities (c) General insurance and health liabilities.
The estimation of non-life insurance contract liabilities involves a significant degree of judgement. The liabilities are based on the estimated ultimate cost of all claims incurred but not settled at 31 December 2017, whether reported or not, together with the related claims handling costs.
Given their size in relation to the consolidated Group and the complexity of the judgements involved, our work focussed on the liabilities in the UK General Insurance and Canada
In the UK General Insurance and Canada markets, we assessed the
Directors’ calculation of the non-life insurance liabilities by performing the following procedures: • We tested the underlying data to source documentation on a sample basis.
• We evaluated the methodology and assumptions used by management, including yield curves, discounted cash flows, property growth rates, longevity and liquidity premiums as relevant to each asset class.
• We tested the operation of data integrity and change management controls for the models, which we baseline every three years.
• Using our valuation experts, we performed independent valuations for a sample of collateralised loans, non-recourse loans and structured bonds. • We assessed the disclosures in the financial statements.
In the Company's statement of financial position, subsidiaries and joint venture are reported at fair value estimated using applicable valuation models underpinned by the company's market capitalisation.
In respect to the fair value of investments in subsidiaries and joint venture: • We understood and tested the methodology in place to determine the fair value of investments in subsidiaries and joint venture. • We tested adjustments made to the market capitalisation and underlying data inputs on a sample basis. • Used our valuation experts, to assess and test the appropriateness for inclusion of selected comparable companies used in the multiples based valuation model, on a sample basis.
Based on the work performed and the evidence obtained, we consider the assumptions used by management to value investments in subsidiaries and joint venture to be appropriate.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group financial statements Company financial statements
How we determined it 5% of Group adjusted operating profit before tax attributable to shareholders’ profits after the deduction of integration and restructuring costs (rounded up to the nearest £’million).
5% of IFRS profit before tax from continuing operations (rounded up to the nearest £’million).
In determining our materiality, we considered financial metrics which we believed to be relevant, and concluded, consistent with last year that profit before tax was the most relevant benchmark as the Company is profitorientated and users of the financial statements will be focussed on this benchmark.
We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and the Company’s ability to continue as a going concern.
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding: • The directors’ confirmation on page 43 of the Annual report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
Other Code Provisions We have nothing to report in respect of our responsibility to report when: • The statement given by the directors, on page 60, that they consider the Annual report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and the Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and the Company obtained in the course of performing our audit.
Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 60, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Following the recommendation of the audit committee, we were appointed by the members on 3 May 2012 to audit the financial statements for the year ended 31 December 2012 and subsequent financial periods. The period of total uninterrupted engagement is 6 years, covering the years ended 31 December 2012 to 31 December 2017.
The Group has adopted the following amendments to standards which became effective for the annual reporting period beginning on 1 January 2017.
(i) Narrow scope amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses The revisions to IAS 12 Income Taxes clarify the accounting for deferred tax assets on unrealised losses and state that deferred tax assets should be recognised when an asset is measured at fair value and that fair value is below the asset’s tax base. It also provides further clarification on the estimation of probable future taxable profits that may support the recognition of deferred tax assets.
(ii) Amendments to IAS 7 – Disclosure Initiative The amendments to IAS 7 Statement of Cash Flows, which form part of the IASB’s Disclosure Initiative, require disclosure of the movements in liabilities arising from financing activities with cash and non-cash changes presented separately. The adoption of this amendment does not have an impact on the Group’s consolidated financial statements as the Group already voluntarily discloses this information in note 49.
Entities The amendments to IFRS 12, which form part of the IASB’s annual improvements process for the 2014-2016 cycle, clarify existing guidance. The adoption of these amendments does not have an impact on the Group’s consolidated financial statements as the clarifications are consistent with our existing interpretation.
Standards, interpretations and amendments to published standards that are not yet effective and have not been adopted early by the Group or the Company
The following new standards, amendments to existing standards have been issued, are not yet effective and have not been adopted early by the Group or the Company: (i) IFRS 9, Financial Instruments (including amendments to IFRS 4, Insurance Contracts) In July 2014, the IASB published IFRS 9 Financial Instruments which will replace IAS 39 Financial Instruments: Recognition and Measurement. The standard incorporates new classification and measurements requirements for financial assets, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39, and new hedge accounting requirements. Under IFRS 9, all financial assets will be measured at either amortised cost or fair value. The basis of classification will depend on the business model and the contractual cash flow characteristics of the financial assets. The standard retains most of IAS 39’s requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value changes attributable to own credit is to be recognised in other comprehensive income instead of the income statement. The hedge accounting requirements are more closely aligned with risk management practices and follow a more principle based approach. In September 2016, the IASB published amendments to
IFRS 4 Insurance Contracts that address the accounting consequences of the application of IFRS 9 to insurers prior to implementing the new accounting standard for insurance contracts, IFRS 17, which replaces IFRS 4. The amendments introduce two options for insurers: the deferral approach and the overlay approach. The deferral approach provides an entity, if eligible, with a temporary exemption from applying IFRS 9 until 1 January 2021 at the latest. The overlay approach allows an entity to remove from profit or loss the effects of some of the accounting mismatches that may occur before the new insurance contracts standard is applied. The Group is eligible to apply the deferral approach as its activities are predominantly connected with insurance, as defined by the amendments to IFRS 4. The Group has opted to apply this deferral from 2018.The impact of the adoption of IFRS 9 on the Group’s consolidated financial statements will, to a large extent, have to take into account the interaction with the new insurance contracts standard IFRS 17. As such, it is not possible to fully assess the effect of the adoption of IFRS 9. IFRS 9 has been endorsed by the EU.
In May 2017, the IASB published IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 that was issued in 2005. IFRS 17 applies to all
Strategic report Governance IFRS financial statements Other information types of insurance contracts as well as to certain guarantees and financial instruments with discretionary participation features. In contrast to the requirements in IFRS 4, which are largely based on grandfathering of previous local accounting policies, IFRS 17 provides a comprehensive and consistent approach to insurance contracts. The core of IFRS 17 is the general model, supplemented by a specific adaption for contracts with direct participation features (the variable fee approach) and a simplified approach (the premium allocation approach) mainly for short-duration contracts. The main features of the new accounting model for insurance contracts are, as follows: the measurement of the present value of future cash flows incorporating an explicit risk adjustment and remeasured every reporting period (the fulfilment cash flows); a contractual service margin that is equal and opposite to any day one gain in the fulfilment cash flows of a group of contracts, representing the unearned profit of the insurance contracts to be recognised in profit or loss over the service period (coverage period); the presentation of insurance revenue and insurance service expenses in the statement of comprehensive income based on the concept of insurance services provided during the period; and extensive disclosures to provide information on the recognised amounts from insurance contracts and the nature and extent of risks arising from these contracts.
The impact of the adoption of IFRS 17 has yet to be fully assessed by the Group but it is expected there will be significant impacts relating to the measurement and presentation of the contracts in scope of the standard. This standard applies to annual reporting periods beginning on or after 1 January 2021 and has not yet been endorsed by the EU.
The following new standards, amendments to existing standards have been issued, are not yet effective and are not expected to have a significant impact on the Group’s consolidated financial statements: (iv) IFRS 15, Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. This standard applies to annual reporting periods beginning on or after 1 January 2018 and has been endorsed by the EU.
In June 2016, the IASB issued amendments to IFRS 2 Sharebased Payment. The amendments are effective from 1 January 2018 and have not yet been endorsed by the EU.
(vi) Annual Improvements to IFRSs 2014-2016 These improvements consist of amendments to three IFRSs including IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 12 Disclosure of Interests in Other
12 for annual reporting periods beginning on or after 1 January 2017. These amendments have been endorsed by the
Investment Property. The amendments are effective from 1 January 2018 and have not yet been endorsed by the EU.
(ix) IFRIC 23, Uncertainty over Income Tax Treatments In June 2017, the IASB published IFRIC 23 Uncertainty over
Income Tax Treatments. The standard is effective for annual reporting beginning on or after 1 January 2019 and has not yet been endorsed by the EU.
(B) Group adjusted operating profit The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance management of our operating segments, the Group focuses on
incorporates the expected return on investments which supports its long-term and non-long-term businesses.
Group adjusted operating profit for long-term business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with allowance for the corresponding expected movements in liabilities.
Group adjusted operating profit also excludes impairment of goodwill, associates and joint ventures; amortisation and impairment of other intangibles; amortisation and impairment of acquired value of in-force business; and the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates. These items principally relate to mergers and acquisition
The Group adjusted operating profit APM should be viewed as complementary to IFRS GAAP measures. It is important to consider
The table below sets out those items considered particularly susceptible to changes in estimates and assumptions, and the relevant accounting policy and note disclosures.
Management use estimation techniques to determine the amortisation profile and impairment test by reference to the present value of estimated future profits. These tests are sensitive to expense and lapse assumptions.
During the year management reassessed the critical estimates previously provided and, based on their assessment of qualitative and quantitative risk factors, resolved to remove goodwill impairment, impairment of financial assets, provisions and contingent liabilities, pension obligations and deferred income taxes.
Subsidiaries are those entities over which the Group has control. The Group controls an investee if and only if the Group has all of the following: • power over the investee,
1 transitional arrangements. The merger reserve is also used where more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue of new shares by the Company, thereby attracting merger relief under the Companies Act 1985 and, from 1 October 2009, the Companies Act 2006.
Accounting for the PUTs and PLPs as subsidiaries, joint ventures, associates or other financial investments depends on whether the
Group is deemed to have control or joint control over the PUTs and PLPs’ shareholdings in the GPs and the terms of each partnership agreement are considered along with other factors that determine control, as outlined above. Where the Group exerts control over a PUT or a PLP, it has been treated as a subsidiary and its results, assets and liabilities have been consolidated. Where the partnership is managed by an agreement such that there is joint control between the parties, notwithstanding that the Group’s partnership share in the PLP (including its indirect stake via the relevant PUT and
Group holds non-controlling interests in PLPs, with no significant influence or control over their associated GPs, the relevant investments are carried at fair value through profit or loss within financial investments.
Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control. Generally, it is presumed that the Group has significant influence if it has between 20% and 50% of voting rights. Joint ventures are joint arrangements whereby the Group and other parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. In a number of these, the Group’s share of the underlying assets and liabilities may be greater or less than 50% but the terms of the relevant agreements make it clear that control is not exercised. Such jointly controlled entities are referred to as joint ventures in these financial statements. Gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates and joint ventures. Losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred between entities.
Other than investments in investment vehicles which are carried at fair value through profit or loss, investments in associates and joint ventures are accounted for using the equity method of accounting. Under this method, the cost of the investment in a given associate or joint venture, together with the Group’s share of that entity’s post-acquisition changes to shareholders’ funds, is included as an asset in the consolidated statement of financial position. As explained in accounting policy O, the cost includes goodwill recognised on acquisition. The Group’s share of their postacquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. Equity accounting is discontinued when the
In the Company’s statement of financial position, subsidiaries, associates and joint ventures are stated at their fair values, estimated using applicable valuation models underpinned by the
Deposits collected under investment contracts without a discretionary participation feature (non-participating contracts) are not accounted for through the income statement, except for the fee
Strategic report Governance IFRS financial statements Other information income (covered in accounting policy I) and the investment income attributable to those contracts, but are accounted for directly through the statement of financial position as an adjustment to the investment contract liability.
X. All other fee and commission income is recognised as the services are provided.
Under current IFRS requirements, insurance and participating investment contract liabilities are measured using accounting policies consistent with those adopted previously under existing accounting practices, with the exception of liabilities remeasured to reflect current market interest rates to be consistent with the value of the backing assets, and those relating to UK with-profits and nonprofit contracts. The long-term business provisions are calculated separately for each life operation, based either on local regulatory requirements or existing local GAAP (at the later of the date of transition to IFRS or the date of the acquisition of the entity); and actuarial principles consistent with those applied in each local market. Each calculation represents a determination within a range of possible outcomes, where the assumptions used in the calculations depend on the circumstances prevailing in each life operation. The principal assumptions are disclosed in note 40(b). For the UK with-profit funds, FRS 27 required liabilities to be calculated on the realistic basis adjusted to remove the shareholders’ share of future bonuses.
These assumptions are set on a prudent basis and can vary by contract type and reflect current and expected future experience.
These estimates depend upon the outcome of future events and may need to be revised as circumstances change. The liabilities are based on the UK regulatory requirements prior to the adoption of Solvency II, adjusted to remove certain regulatory reserves and margins in assumptions, notably for annuity business.
In certain participating long-term insurance and investment business, the nature of the policy benefits is such that the division between shareholder reserves and policyholder liabilities is uncertain. Amounts whose allocation to either policyholders or shareholders has not been determined by the end of the financial year are held within liabilities as an unallocated divisible surplus.
Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. All other embedded derivatives are separated and measured at fair value if they are not considered closely related to the host insurance contract or do not meet the definition of an insurance contract. Fair value reflects own credit risk to the extent the embedded derivative is not fully collateralised.
General insurance and health outstanding claims provisions are based on the estimated ultimate cost of all claims incurred but not settled at the statement of financial position date, whether reported or not, together with related claims handling costs. Significant delays are experienced in the notification and settlement of certain types of general insurance claims, particularly in respect of liability business, including environmental and pollution exposures, the ultimate cost of which cannot be known with certainty at the statement of financial position date. As such, booked claim provisions for general insurance and health insurance are based on the best estimate of the cost of future claim payments plus an explicit allowance for risk and uncertainty. Any estimate represents a determination within a range of possible outcomes. Further details of estimation techniques are given in note 40(c).
The proportion of written premiums, gross of commission payable to intermediaries, attributable to subsequent periods is deferred as a provision for unearned premiums. The change in this provision is taken to the income statement as recognition of revenue over the period of risk.
At each reporting date, the Group reviews its unexpired risks and carries out a liability adequacy test for any overall excess of expected claims and deferred acquisition costs over unearned premiums, using the current estimates of future cash flows under its contracts after taking account of the investment return expected to arise on assets relating to the relevant general business provisions. If these estimates show that the carrying amount of its insurance liabilities (less related deferred acquisition costs) is insufficient in light of the estimated future cash flows, the deficiency is recognised in the income statement by setting up a provision in the statement of financial position.
Amortised cost is calculated as the fair value of consideration received at the date of initial recognition, less the net effect of payments such as transaction costs and front-end fees, plus or minus the cumulative amortisation (using the effective interest rate method) of any difference between that initial amount and the maturity value, and less any write-down for surrender payments.
Goodwill arising on the Group’s investments in subsidiaries is shown as a separate asset, while that on associates and joint ventures is included within the carrying value of those investments. Goodwill on acquisitions prior to 1 January 2004 (the date of transition to IFRS) is carried at its book value (original cost less cumulative amortisation) on that date, less any impairment subsequently incurred. Goodwill arising before 1 January 1998 was eliminated against reserves and has not been reinstated.
4 (see accounting policy L). AVIF is reviewed for evidence of impairment and impairment tested at product portfolio level by reference to a projection of future profits arising from the portfolio.
Intangible assets consist primarily of contractual relationships such as access to distribution networks, customer lists and software. The economic lives of these are determined by considering relevant factors such as usage of the asset, typical product life cycles, potential obsolescence, maintenance costs, the stability of the industry, competitive position and the period of control over the assets. These intangibles are amortised over their useful lives, which range from three to 30 years, using the straight-line method. The amortisation charge for the year is included in the income statement under ‘Other expenses’. For intangibles with finite lives, impairment charges will be recognised in the income statement where evidence of such impairment is observed. Intangibles with indefinite lives are subject to regular impairment testing, as described below.
Depreciation is calculated on the straight-line method to write down the cost of other assets to their residual values over their estimated useful lives as follows: • Properties under construction No depreciation
category is used where the relevant long-term business liability (including shareholders’ funds) is passively managed, as well as in certain fund management and non-insurance operations. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the assets, at their fair values. Debt securities are initially recorded at their fair value, which is taken to be amortised cost, with amortisation credited or charged to the income statement.
Investments classified as trading, other than trading and AFS, are subsequently carried at fair value. Changes in the fair value of trading and other than trading investments are included in the income statement in the period in which they arise.
The Group reviews the carrying value of its AFS investments on a regular basis. If the carrying value of an AFS investment is greater than the recoverable amount, the carrying value is reduced through a charge to the income statement in the period of impairment. The following policies are used to determine the level of any impairment, some of which involve considerable judgement: AFS debt securities
Any subsequent increase in fair value of these impaired securities is recognised in other comprehensive income and recorded in the investment valuation reserve unless this increase represents a decrease in the impairment loss that can be objectively related to an event occurring after the impairment loss was recognised in the income statement. In such an event, the reversal of the impairment loss is recognised as a gain in the income statement.
For securities identified as being impaired, the cumulative unrealised loss previously recognised within the investment valuation reserve is transferred to realised losses for the year with a corresponding movement through other comprehensive income.
All derivatives are initially recognised in the statement of financial position at their fair value, which usually represents their cost. They are subsequently remeasured at their fair value, with the method of recognising movements in this value depending on whether they are designated as hedging instruments and, if so, the nature of the item being hedged. Fair values are obtained from quoted market prices or, if these are not available, by using valuation techniques such as discounted cash flow models or option pricing models. All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative. Premiums paid for derivatives are recorded as an asset on the statement of financial position at the date of purchase, representing their fair value at that date. Derivative contracts may be traded on an exchange or over-thecounter (OTC). Exchange-traded derivatives are standardised and include certain futures and option contracts. OTC derivative contracts are individually negotiated between contracting parties and include forwards, swaps, caps and floors. Derivatives are subject to various risks including market, liquidity and credit risk, similar to those related to the underlying financial instruments. Many OTC
transactions are contracted and documented under International Swaps and Derivatives Association master agreements or their equivalent, which are designed to provide legally enforceable set-off in the event of default, reducing the Group’s exposure to credit risk.
Interest rate futures are exchange-traded instruments and represent commitments to purchase or sell a designated security or money market instrument at a specified future date and price. Interest rate forward agreements are OTC contracts in which two parties agree on an interest rate and other terms that will become a reference point in determining, in concert with an agreed notional principal amount, a net payment to be made by one party to the other, depending upon what rate prevails at a future point in time. Interest rate options, which consist primarily of caps and floors, are interest rate protection instruments that involve the potential obligation of the seller to pay the buyer an interest rate differential in exchange for a premium paid by the buyer. This differential represents the difference between current rate and an agreed rate applied to a notional amount. Exposure to gain or loss on all interest rate contracts will increase or decrease over their respective lives as interest rates fluctuate. Certain contracts, known as swaptions, contain features which can act as swaps or options.
Foreign exchange contracts, which include spot, forward and futures contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed price and settlement date. Foreign exchange option contracts are similar to interest rate option contracts, except that they are based on currencies, rather than interest rates.
On the date a derivative contract is entered into, the Group designates certain derivatives as either: (i) a hedge of the fair value of a recognised asset or liability (fair value hedge); (ii) a hedge of a future cash flow attributable to a recognised asset or liability, a highly probable forecast transaction or a firm commitment (cash flow hedge); or
The Group also documents its assessment of whether the hedge is expected to be, and has been, highly effective in offsetting the risk in the hedged item, both at inception and on an ongoing basis. Changes in the fair value of derivatives that are designated and qualify as net investment or cash flow hedges, and that prove to be highly effective in relation to the hedged risk, are recognised in other comprehensive income and a separate reserve within equity. Gains and losses accumulated in this reserve are included in the income statement on disposal of the relevant investment or occurrence of the cash flow as appropriate.
(V) Loans Loans with fixed maturities, including policyholder loans, mortgage loans on investment property, securitised mortgages and collateral loans, are recognised when cash is advanced to borrowers. Certain loans are carried at their unpaid principal balances and adjusted for amortisation of premium or discount, non-refundable loan fees and
(W) Collateral The Group receives and pledges collateral in the form of cash or non-cash assets in respect of stock lending transactions, certain derivative contracts and loans, in order to reduce the credit risk of these transactions. Collateral is also pledged as security for bank letters of credit. The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. Collateral received in the form of cash, which is not legally segregated from the Group, is recognised as an asset in the statement of financial position with a corresponding liability for the repayment in financial liabilities (note 58). However, where the Group has a currently enforceable legal right of set-off and the ability and intent to net settle, the collateral liability and associated derivative balances are shown net. Non-cash collateral received is not recognised in the statement of financial position unless the transfer of the collateral meets the derecognition criteria from the perspective of the transferor. Such collateral is typically recognised when the Group either (a) sells or repledges these assets in the absence of default, at which point the obligation to return this collateral is recognised as a liability; or (b) the counterparty to the arrangement defaults, at which point the collateral is seized and recognised as an asset.
regulatory requirements prior to the adoption of Solvency II (see accounting policy L). For non-participating investment and investment fund management contracts, incremental acquisition costs and sales enhancements that are directly attributable to securing an investment management service are also deferred. Where such business is reinsured, an appropriate proportion of the deferred acquisition costs is attributed to the reinsurer. Long-term business deferred acquisition costs are amortised systematically over a period no longer than that in which they are expected to be recoverable out of these future margins. Deferred acquisition costs for non-participating investment and investment fund management contracts are amortised over the period in which the service is provided. General insurance and health deferred acquisition costs are amortised over the period in which the related revenues are earned. The reinsurers’ share of deferred acquisition costs is amortised in the same manner as the underlying asset.
Deferred acquisition costs are reviewed by category of business at the end of each reporting period and are written-off where they are no longer considered to be recoverable. Other receivables and payables are initially recognised at cost, being fair value. Subsequent to initial measurement they are measured at amortised cost.
Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, treasury bills and other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are those with less than three months’ maturity from the date of acquisition, or which are redeemable on demand with only an insignificant change in their fair values.