The Strategic report is only part of the Annual report and accounts 2019. The Strategic report was approved by the Board on 4 March 2020 and signed on its behalf by Maurice Tulloch, Chief Executive Officer.
Non-Financial Information Statement Under sections 414CA and 414CB of the Companies Act 2006, Aviva is required to include, in its Strategic Report, a non-financial information statement. The information required by these regulations is included in Key performance indicators from page 7, Business model from page 9, Our people from page 17, Corporate responsibility from page 20 and Risk and risk management from page 44.
Contents Strategic Report 01 At a glance 02 Chairman’s statement 04 Chief Executive Officer’s review 07 Key performance indicators 09 Business model 10 The external environment 11 Our strategy 14 Section 172 (1) statement and our stakeholders 17 Our people 20 Corporate responsibility 24 Chief Financial Officer’s review 27 Market review 44 Risk and risk management 49 Capital management 51 Our climate-related financial disclosure
Governance 55 Chairman’s Governance Letter 57 Our Board of Directors 59 Directors’ and Corporate Governance report 83 Directors’ remuneration report
IFRS financial statements 109 Independent auditors’ report 117 Accounting policies 132 Consolidated financial statements 139 Notes to the consolidated financial statements 264 Financial statements of the Company
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 www.aviva.com/glossary www.aviva.com
Our purpose ‘With you today, for a better tomorrow’ Aviva has been looking after customers for more than 300 years. We are deeply invested in our people, our communities and the planet. We’re here to be with people today as well as working for a better tomorrow. Our business We offer a wide range of products and solutions to help our customers and partners with their Savings, Retirement and Insurance needs. From 2020, we have reorganised our business into five divisions: Investments, Savings & Retirement Aviva Investors and UK Savings & Retirement1
In the 2019 Strategic Report and 2019 Annual Report and Accounts, we continue to report the results of our businesses by market2 on the basis they were managed in 2019. Read more in the ‘Market review’ section. Our strategy Our strategy is to simplify Aviva into a leading international Savings, Retirement and Insurance business delivering for our customers, shareholders, communities and other stakeholders. We have three strategic priorities: Deliver great customer outcomes: Our focus is on being the best place to meet our customers savings, retirement and insurance needs
Read more about our performance and financial targets in the ‘Key performance indicators’ and ‘Chief Financial Officer’s review’ sections.
Chairman’s statement 2019 was a year of change for Aviva. We reshaped our strategy and senior leadership team, while also facing a period of uncertainty in the external business environment, driven by lower interest rates and the UK decision to exit from the European Union.
On 4 March 2019, after a competitive process that included highly respected and experienced internal and external candidates, the Board was delighted to appoint Maurice Tulloch as Group Chief Executive Officer (CEO). During the year, with the support of the Board, Maurice initiated a review of our strategy in order to simplify Aviva into a leading international savings, retirement and insurance business delivering sustainable growth for shareholders and support for our communities. This strategy will allow us to fulfil our vision to earn our customers’ trust as the best place to save for the future, navigate retirement and insure what matters most to them.
Our purpose Throughout all of this change, it has been and continues to be our core purpose which illuminates our path forward. We are proud to say not only to our customers but to our people, our partners and our communities, that we will be with you today, for a better tomorrow. This means our customers can count on us to be there for them if things go wrong and to put it right, and to help them plan for their future. While the exact words used to express our purpose may have evolved, this continues to be the underlying promise that we navigate our company by, just as it has been over the last 323 years of our corporate history.
Our customers The absolute commitment our people show to our customers every day also remains unchanged. I have always believed that their determination to live up to our value of ‘Care More’ is one of our greatest assets. This is one of the reasons why it was so important to incorporate our people’s perspective as we set about creating a new articulation of our shared purpose.
The human connections that our people forge with our customers really are special. We are there to support them through some of the most important decisions or emotional moments in their lives. By drawing on our expertise and empathy to give them the best possible outcome, we can make a real difference to people when it matters most. And in doing so, we will ensure our financial strength and longterm future.
Our communities As a company, we have always understood that our duty of care reaches far beyond our customers to encompass all those who may be touched by our actions. Whether it is through the use of the volunteering leave granted to every UK employee each year, or through our strategic partnership with the British Red Cross, our people combine forces to build a future we all want to live in. This year also saw the further development of the Aviva Foundation which was created to use unclaimed shareholder assets to support good causes. The Foundation has so far committed £3.7 million in funding to projects that will support our communities and vulnerable customers when they need it most. This has included donations to a pilot project to provide a counselling package to vulnerable home insurance customers experiencing trauma following a serious event such as flooding; and funding a national programme to help people over the age of 50 increase their employability skills and to promote, among businesses, the benefits of being an age-friendly employer.
Changes to the Board We have made a number of changes to our Board composition during 2019 in addition to the appointment of Maurice Tulloch as Group CEO. Andy Briggs and Tom Stoddard stepped down from the Board and looked to pursue other opportunities; we wish them both every future success. After a period as interim Group Chief Financial Officer (CFO), Jason Windsor, formerly CFO of Aviva UK Insurance, was appointed permanently to the role and also joined the Board of Directors on 26 September 2019.
3 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 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. 5 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million and a reduction in operating earnings per share of 2.2 pence. There is no impact on profit before tax attributable to shareholders’ profit.
• Strong growth in operating earnings per share3,6, up 8% to 60.5 pence (2018 restated5: 56.2 pence).
COVID-19 presents a new uncertainty in 2020. Our primary focus is the operational readiness and safety for our customers and staff, such that we continue to deliver on our promises. Our scale, diversity and the strength of our balance sheet allows us to meet any short-term challenges.
Structure, leadership and culture In 2019, we made a number of changes to optimise our organisational structure and leadership. These changes were necessary to simplify our ways of working, improve operational efficiency and resilience. We now have greater focus, commercial rigour and accountability throughout the organisation.
Debt reduction – targeting £1.5 billion reduction in debt by 2022: In 2019, we repaid £0.2 billion of subordinated debt, which was the total amount maturing during the year. With debt maturities of £2.7 billion in the next three years and continued strength in centre liquidity levels and cash generation, we expect to achieve our target, resulting in lower debt leverage3 and declining interest expense.
2 Following the change in the definition of Group adjusted operating profit (see note 2(b)), COR now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts have been restated resulting in an increase in the prior period underwriting costs of £53 million and an increase in Group COR of 0.6%.
Our response to natural catastrophes such as the recent storms in the UK showed Aviva at its best. We provided support to several thousand customers, responding quickly by helping fix damaged properties and using the latest technology to settle claims. We also identified vulnerable customers and worked with our network of suppliers to ensure these claims were given priority.
Excel at the fundamentals We aim to excel at the fundamentals and our 2019 results show the progress we have made in running Aviva better.
In UK Life, we increased sales across our product suite. In annuities & equity release, our capability in longevity data analytics, asset origination and transaction structuring enabled us to grow new business volumes by 29% to £6.2 billion (2018: £4.8 billion). We delivered strong growth in bulk annuity sales, which included the first tranche (£1.7 billion) from Aviva’s own staff pension scheme. In protection, 2019 was more challenging. Whilst new business volumes increased 4% to £1.9 billion (2018: £1.8 billion), adverse experience, and higher reinsurance costs contributed to a reduction in profitability. We responded to these challenges by increasing sophistication of our pricing, underwriting and customer segmentation models.
In Investments, Savings & Retirement (IS&R), we improved customer net inflows despite the uncertain backdrop weighing on investor sentiment. UK Savings and Retirement net inflows1 were £7.5 billion (2018: 6.8 billion) as we maintained our leading position in workplace pensions, winning significant new mandates and delivering strong client retention. We also continued to build momentum and increase share in the platform market. In asset management, investment performance has strengthened, with 84% of Aviva Investors’ funds beating benchmark over a twelve month time horizon, while thirdparty net inflows1 rose to positive £2.3 billion (2018: negative £0.1 billion). Although 2019 was a challenging year for profitability at Aviva Investors, with a lower opening asset position and reduced asset origination weighing on results, the significant improvement in investment performance and flows are a step in the right direction.
SME and mid-market has supported growth in new client acquisition and attractive retention. Our general insurance combined operating ratio (COR)1 increased to 97.5% (2018 restated2: 97.2%) though this included an additional £113 million of costs allocated to the general insurance business as a result of the realignment of our digital operations. Excluding the 1.2 percentage point impact from these costs, our COR would have been 96.3%. The key driver of improvement was Canada, where we successfully responded to challenges in the auto insurance market, resulting in a 5.3 percentage point improvement in COR to 97.8% (2018 restated2: 103.1%).
An important element of our programme to run Aviva better is improving our efficiency. In June, we announced plans to reduce our controllable cost1 base by £300 million per annum, net of inflation. This requires gross (pre-inflation) savings of approximately £500 million relative to our 2018 expense baseline of £4 billion. We have made good progress so far, achieving savings of £72 million3 in 2019 and laying the groundwork necessary to increase savings to approximately £150 million in 2020.
We continue to invest in digital and technology. The integration of our digital activities into our business units will facilitate expense savings as we scale back or stop some activities which are either duplicated or judged not to offer future economic returns. However, we are also aiming to improve the connectivity and co-ordination of digital with our core customer facing businesses. As a result, we are continuing to invest across the group in initiatives that reduce run costs, enhance IT resilience and ensure that our businesses are able to offer service to our customers and distribution partners that is fast, fair and efficient.
My objective remains to run Aviva better. We will improve business performance enhancing returns through disciplined execution on expenses and underwriting. We will focus capital and resources where we can achieve competitive advantage and strong returns. We will take robust action across the portfolio where our performance falls short or where we can see a better way of delivering value to our shareholders.
Our foundations are strong and we have the necessary ingredients to succeed. Our franchises are well regarded by customers and partners, our capital position and risk management capabilities provide a secure footing. We have a team of talented colleagues across the group who are passionate about building a better tomorrow for our customers and providing attractive returns for our shareholders.
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 2 CO2e data includes emissions from our buildings, business travel, water and waste to landfill. 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
These metrics include Alternative Performance Measures (APMs) which are non-GAAP measures that are not bound by the requirements of IFRS. 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.
Changes to KPIs In November 2019 we announced our new strategy, which is set out in more detail in the ‘Our strategy’ section. We also announced five financial targets focussed on economic value: • Solvency II return on equity1 – 2022 target of 12% • Operating Capital Generation1 – targeting £7.5 billion in 2019-22 inclusive • Cash inflows to Group1 – targeting £8.5 billion– £9.0 billion in 2019-22 inclusive • Cost reduction – targeting £300 million reduction in controllable costs1 by 2022 • Debt leverage1 – targeting £1.5 billion reduction in debt by 2022
Non-financial KPIs Customer Net Promoter Score® (NPS®) NPS® is our measure of customer advocacy and we use it in nine of our markets to measure the likelihood of a customer recommending Aviva relative to our competitors. Our relationship NPS® survey shows four years of sustained high levels of customer advocacy in a challenging marketplace. We are working hard to earn customers trust by making things simple for customers thereby improving customer outcomes.
Employee engagement We give our people the freedom to act in line with our values to create an environment in which they can thrive through collaboration and recognition. We measure this through our annual global ‘Voice of Aviva’ survey. Engagement is down three percentage points to 73%, due to a period of uncertainty and change, however, the proportion of employees recommending Aviva as a great place to work is at an all-time high.
Group adjusted operating profit3 Group adjusted operating profit3 increased by 6% to £3,184 million, which included significantly improved performance in Canada and lower expenses and debt costs. See the ‘Market review’ section for further details of the performance of our markets in the year.
5 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other Information’ section of the Annual report and accounts for more information.
Profit before tax attributable to shareholders’ profit (PBT) Profit before tax attributable to shareholders’ profit increased to £3,374 million mainly due to growth in adjusted operating profit1, and positive investment variances driven by lower interest rates, narrowing credit spreads and equity market gains.
Operating earnings per share1,2 Operating earnings per share1,2 increased by 8% to 60.5p, mainly reflecting the growth in adjusted operating profit3.
Cash remittances1 In 2019 cash remittances1 from our markets decreased to £2,597 million (2018: £3,137 million, including £1.25 billion special remittances from UK Life). Within this, UK Life delivered £1,387 million (including £500 million of special remittances), and higher remittances were received from Canada, Europe and Asia.
Controllable costs1 Controllable costs1 decreased by 1% to £3,939 million. The decrease in controllable costs1 mainly reflects our focus on efficiency, partially offset by targeted spend on growth initiatives and IT simplification.
Value of new business on an adjusted Solvency II basis1 Value of new business on an adjusted Solvency II basis (VNB)1 measures growth and is the source of future cash flows in our life businesses. VNB1 increased by 2% to £1,224 million, mainly driven by growth in Bulk Purchase Annuity VNB1 in the UK.
Retirement • UK Life • General Insurance • Europe Life • Asia Life
Our strengths We have unique strengths as a business that gives us a significant competitive advantage: • Strong technical skills • Innovative analytical capabilities • Diversified distribution • Robust capital position • Leading customer franchise • Well recognised brand
…through our products and solutions… Investments and Savings • Individual savings • Workplace savings • Advice and guidance • Investments and asset management
Retirement • Annuities • Equity release mortgages • Drawdown • Pensions
…from which cash and premiums are received… Customers invest their savings with us. For a fee, we manage and administer their investments so they can grow their savings or secure an income in the future
£33.2 billion Paid out in benefits and claims to our customers in 2019
People Our aim is for our people to achieve their potential within a diverse, collaborative and customer-focused organisation.
Our strategy has been developed to respond to and anticipate the following opportunities and challenges posed by the external environment and long-term trends impacting our industry. We acknowledge the risks these trends present and aim to turn these into opportunities for growth and delivery of our strategy.
Political and macroeconomic impact Political and macroeconomic factors can impact the operating environment of our businesses in the UK and abroad. These include the continuation of modest economic growth, falling interest rates, political tensions in the UK and Europe around the finalisation of Brexit, trade pressure between the US and China, and potential volatility around the upcoming US elections.
In 2019, global GDP growth fell to its lowest rate since the financial crisis in 2008 2.8% Source: IMF World Economic Outlook, October 2019
Increase in proportion of UK employees automatically enrolled in a workplace pension scheme between 2012 and 2019 32% Source: Automatic enrolment, The Pensions Regulator, October 2019
Continuous advancement in technologies ‘Big data’ and advances in Artificial Intelligence are leading to new levels of simplicity, convenience and speed. These new technologies are offering advancements to traditional healthcare, allowing people to live longer, and access to new mobility options, in some cases moving from private ownership towards more efficient and cleaner modes of transport, while at the same time also increasing the challenges around the ethical use of data.
Expected increase in productivity caused by impact of Artificial Intelligence technologies by 2035. 40% Source: Accenture, 2019
New risks emerging in a connected world New risks are emerging as a result of technological advancements in the provision and use of personal data, uninterrupted access to services, sharing of information, demise of traditional jobs, as well as development of new skills and capabilities – these changes can create demand for new saving, retirement and insurance products and solutions.
Estimated economic damage from cyber-attacks in 2018 $600 billion Source: Munich Re, 2020
On 4 March 2019, Aviva announced Maurice Tulloch’s appointment as Chief Executive Officer. Following his appointment, Maurice outlined his plans for a thorough review of the Group and business division strategies.
On 20 November 2019, we presented our refreshed strategy, purpose and vision, which are set out below.
Our strategy Our strategy is to simplify Aviva into a leading international savings, retirement and insurance business delivering for our customers, shareholders, and communities. We understand the fast-changing world around us and the implications these changes have on the needs of our customers. Our strategy aims to provide our customers with simplicity, speed and convenience, ensuring reliable service, good value products and transparent communication.
Under our new strategy we have set out three strategic priorities: • Deliver great customer outcomes; • Excel at the fundamentals; • Invest in sustainable growth; and we have simplified our operating model into five new business divisions.
We will deliver great customer outcomes What this means Our focus will be on meeting our customers’ savings, retirement and insurance needs. We will simplify the way in which we interact with and serve our customers, promote resolution as early as possible and enhance our digital platforms. Through our well-known brand, it is our vision that customers will recognise Aviva as the best place to meet their savings, retirement and insurance needs.
We will excel at the fundamentals What this means Our focus will be on the core activities of our business: underwriting, claims management, investment performance and cost efficiency. We will maximise our use of data and analytics and continue to digitise our business.
By pursuing strong performance across the fundamentals, we will embed a performance culture across our business.
We will invest in sustainable growth What this means Our focus will be investing with a clear commercial benefit. We will be selective with the opportunities we pursue and invest where we can generate economic returns and long-term value for our shareholders.
• We Never Rest and have the ambition to be the best we can be • And we Create Legacy, taking a long-term view to build a better and more sustainable future for everyone
1 From 2020. 2 UK Savings & Retirement is reported within UK Life in 2019. 3 Number one by bundled workplace AuA, Broadridge UK DC & Retirement Income, 2018. 4 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including reconciliation to the financial statements (where possible), can be found in the ‘Other information’ section of the Annual report and accounts. 5 Subject to regulatory approval.
Our businesses Under our new strategy, we have simplified our operating model into five new business divisions1: • Investments, Savings & Retirement • UK Life • General Insurance • Europe Life • Asia Life
This simplified operating model enables each business to focus on their strategic, commercial and operational priorities while still benefiting from overall synergies between divisions.
Below we set out an overview of each of these five new business divisions, including their updated strategy, key priorities and financial ambitions.
Investments, Savings & Retirement Overview Helping people meet their savings and retirement needs is one of the biggest challenges facing our communities. We have created a new division that will take on this challenge and provide us with an exciting growth opportunity. This division brings together our global asset manager, Aviva Investors, and our modern UK Savings & Retirement business2 to create a wealth and asset management business. This business will serve a fast-growing market as consumers look to save for their future, safeguard against the unknown and enjoy income in their retirement years.
With a large customer base, scale of assets and strong advisor relationships, this division is well positioned for growth. It will also draw on our strong track record and expertise in the area of responsible investing.
‘As we implement our plans, Aviva will become the leading provider of mass market savings and retirement solutions in the UK and the owner of a strong international asset management brand, serving third parties and global Aviva insurance businesses. I think it’s an exciting future’ – Euan Munro, CEO5
Key priorities for 2020: • Realise value from the strong investment performance, environmental, social and governance (ESG) leadership, distribution reach and platform capability built over the last five years by: growing AuM by winning third party mandates at Aviva Investors, growing AuA by capturing more of the workplace and adviser markets in UK Savings & Retirement and growing Aviva Investors AuM across workplace and individual savings, by offering tailored and appropriate investment propositions to our customers
• Build a strong Investments, Savings & Retirement brand to reposition ourselves in the market
We are already a leading provider within each of these three lines, evidenced by a strong franchise and leading market share positions, including: number one in individual annuities, number two in group protection and number two in individual protection. Across these lines we have a full suite of capabilities, including data analytics, underwriting, asset-liability management, scale efficiencies and access to Aviva Investors’ solutions.
Our focus for UK Life is two-fold: • Generate significant levels of capital and cash flow • Recycle some of that capital to write profitable new business.
• Expand our commercial lines business by continuing to extend our strong small and medium enterprises position to mid-market and Global Corporate & Specialty portfolios
Financial targets • Cash inflows1 to Group of £2.0 – £2.5 billion (cumulative, 2019 –
Key priorities for 2020: • Further develop our multi-channel distribution capability and strengthen the awareness of our brand • Continue to evolve the savings mix towards capital efficient unit linked and hybrid products • Increase sales of protection products across our life customer base • Simplify propositions and increase automation and digitisation to improve cost efficiency
Financial targets • Solvency II return on capital1 of 9.5% (2022) and cash inflows1 to
Asia Life Overview: Asia Life comprises our businesses in Singapore, China, India, Indonesia, Vietnam and Hong Kong.
Our business in Singapore contributed 77% to Asia’s total value of new business in 2019. Here, we are a leader in the financial advisor channel and operate a profitable business offering protection and savings products. Our aim is to continue to grow our market share and further extend our lead in the financial advisor and employee benefits segments with a broad customer footprint across private and public sectors.
In November 2019, we announced the sale of our stake in our Hong Kong joint venture, Blue, to our partner Hillhouse Capital, subject to regulatory approval. We are also in discussions with our partners in relation to our business in Vietnam and joint venture in Indonesia.
Key priorities for 2020: • Extend our lead in the financial advisor channel in Singapore • Further invest in agency and productivity growth in China • Maintain a value-focused approach in product mix and margins • Streamline regional support functions to enhance efficiency
Financial targets (Singapore) • Double digit Value of New Business1 (VNB) and profit growth
Our Board is also focussed on the wider social context within which our businesses operate, including those issues related to climate change which are of fundamental importance to the planet’s wellbeing. A detailed explanation of how Aviva continues to manage the impact of its business on the environment is outlined in the ‘Corporate responsibility’ section of the Strategic report.
Key strategic decisions in 2019 For each matter which comes before the Board, the Board considers the likely consequences of any decision in the long-term and identifies stakeholders who may be affected, and carefully considers their interests and any potential impact as part of the decisionmaking process.
In June 2019, we announced that our life and general insurance businesses in the UK will be managed separately, with our digital direct business integrated into UK General Insurance. This will enable stronger accountability and greater management focus on the UK’s leading life and general insurance business. We also disclosed that we are targeting a £300 million per annum reduction in controllable costs2 by 2022 (net of inflation), which will involve 1,800 role reductions across the Group.
In November 2019, we announced the outcome of a comprehensive strategic review of our business. Our strategy is to simplify Aviva into a leading international savings, retirement and insurance business delivering for our customers, shareholders and communities. We will achieve this by delivering great customer outcomes, excelling at the fundamentals and investing in sustainable growth. These actions will drive higher returns for our shareholders.
Stakeholder engagement The table below sets out our approach to stakeholder engagement during 2019: Stakeholders Why are they important to Aviva? What is our approach to engaging with them? Customers Our purpose, ‘with you today, for a better tomorrow,’ captures the reason we exist as a business. Understanding what’s important to our 33 million customers is key to our long-term success.
• The Board receives regular reporting on customer outcomes and customerrelated strategic initiatives throughout the year. We conducted reviews of the ‘customer journey’ within Aviva and of trust in the Aviva brand.
• During 2019, we reviewed our Board committee structures and repurposed the Governance Committee to the Customer, Conduct and Reputation Committee to ensure comprehensive scrutiny of all customer-related areas.
• For further information on how we engage with our customers, please see the reports from each of our business divisions in the ‘Market review’ section of this Strategic report.
• Our directors have also attended meetings of Your Forum, our fully elected employee forum representing UK employees.
• We believe these methods of engagement with Aviva employees are effective in building and maintaining trust and communication; allowing for openness, honesty and transparency and increasing innovation and productivity within the business. These methods of engagement also act as a platform for Aviva employees to influence change in relation to matters that affect them.
• We are committed to recruiting, training and retaining the best talent we can find. We are proud to have been a pioneer in some areas of employee benefits, including providing six months paid parental leave for all UK employees. The Chairman remains a member of the 30% Club, a business-led organistion committed to accelerating progress towards better gender balance at all levels of organisations. Further information on our approach can be found in the ‘Our people’ section of this Strategic report.
• Our directors maintain oversight of the management of our most important suppliers and our operating subsidiary boards regularly review and report on their performance. During the year, we successfully progressed our migration to a new data centre infrastructure provider, including partial migration to the Cloud.
• In the UK, Aviva is a signatory of the Prompt Payment Code which sets high standards for payment practices. We are a Living Wage employer in the UK, and our supplier contracts include a commitment to paying eligible employees not less than the Living Wage in respect of work provided to Aviva in the UK.
• During the year, the Governance Committee supported the Board in this area by reviewing our Group Corporate Responsibility strategy and overseeing its implementation. This oversight will continue in 2020 through the Customer, Conduct and Reputation Committee.
• Aviva and the British Red Cross have been working in partnership since 2016 to build safer and stronger communities in the UK and beyond, and many of our people have volunteered in support of this work including as Community Reserve Volunteers and through a Global Mapathon, to help map some of the world’s most vulnerable communities, who otherwise could not easily be reached by aid organisations in crises.
• Through the Aviva Foundation, we support the World Benchmarking Alliance which develops benchmarks to encourage sustainable business practices in relation to the UN Sustainable Development Goals. For further information, see the ‘Corporate responsibility’ section of this Strategic report.
• More on how the Board incorporates climate-related risks and opportunities into our governance, strategy and risk management operations is included in ‘Our climate-related financial disclosures’ in this Strategic report.
Regulators As an insurance company, we are subject to financial services regulations and approvals in all the markets we operate in.
• This includes engagement on the management of our climate risk responsibilities to meet the requirements of the Prudential Regulation Authority’s 2019 supervisory statement, ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’.
• The Board meets with shareholders at the Annual General Meeting which provides an opportunity, predominantly for our retail shareholders, to engage directly with the Board.
Our diverse global workforce is made up of 31,181 colleagues, with more than 15,000 colleagues in our home market in the UK.
• Embed inclusion throughout the business, making Aviva a place where everyone can be themselves.
Our values Care More We start with the customer and prioritise delivering a great outcome for them. We do the right thing, making sure we and those around us are acting with positive intent. We don’t shrink from the tough conversations. We’re in it together.
Kill Complexity We can list our priorities on one hand, picking a few things to do brilliantly. We make the call with the right information. We join forces and build it once.
Never Rest We fail fast and learn fast, testing and learning at pace. We embrace digital. We are dissatisfied with the way things are done now. We challenge ourselves to learn about the cutting edge and harness it. We get it done at pace.
• We launched Emerging Leaders@Aviva – a new talent programme to spot and develop potential leaders early in their careers. There was significant interest with 1,000 applications for 134 places. There has been a strong gender and diversity mix (60% of participants are female), with very positive results to date.
• It has been a very successful year for our Global Graduate Leadership Programme, with 51 graduates rolling off the programme and securing roles across the breadth of Aviva. 31 new graduates started in September (48% female).
• We’ve improved our on-demand learning offering with our migration to LinkedIn Learning, tying learning more closely to career progression and performance.
Pride, motivation and advocacy remain strong and consistent. The proportion of employees recommending Aviva as a great place to work is at an all-time high. Significantly more colleagues believe that Aviva cares for their health and wellbeing (up 6 points to 80%) and there have also been solid uplifts in the view that Aviva is a place where people are free from judgement or discrimination. This result in 2019 (82%) is now 13 points higher than in 2015 – a major improvement on Aviva’s culture of inclusion in a short space of time. There is also a strong link between improvements on this metric and those colleagues who feel they have greater freedom to make decisions in their job.
Within Aviva we continue to take our responsibility to consult very seriously. We have a positive and constructive relationship with the trade union Unite as well as a fully elected all-employee representative body (Your Forum). The existence of Your Forum within Aviva is a key way of recognising that we all have a part to play in contributing to the debate on issues and opportunities impacting on our people and our organisation. During 2019, a full re-election process took place with the appointment of over ten employee representatives across the UK. We provided training and coaching for new and existing representatives to ensure that they had the skills and capabilities required to undertake this important role.
In 2019, we hosted a one-day conference on the topic of Redefining Resolution, following the successful launch and implementation of our Conflict Resolution and Mediation policy. The event was attended by nearly 200 external guests from a very broad spectrum of employers, highlighting how Aviva is helping to change the workplace and bring in new ideas through our policy agenda.
We have continued to attend and speak at a large number of public and governmental events to talk about Aviva policies, in particular around our market-leading Equal Parental Leave policy.
At the end of 2019, we had 31% female leaders (2018: 31%). This has been achieved through targeted female development programmes, diverse short lists and a leadership team committed to change. In the UK, our mean and median gender pay gap and gender bonus gaps have all reduced marginally compared to the last two years. Whilst we welcome this movement, the change is minimal. It’s too early to tell whether the actions we’re taking are having a sustainable impact. We’re committed to driving long term change and continue to focus on recruitment, progression and retention.
In 2019, we’ve continued to deliver our Wellbeing@Aviva programme in the UK. We reviewed elements in place since it launched in 2017, making sure it continues to meet our colleagues’ needs, and adding to it where appropriate. We continue to support colleagues to Be Healthy, Be Mindful, Be Secure and Be Awesome – supporting their physical, mental, financial and social wellbeing.
Some specific highlights from 2019 include: • The launch of Digital GP – giving our UK colleagues free access to a
GP via an app 24/7. From January 2019 to September 2019, 4,185 colleagues had registered on the app, with 1,301 GP appointments, 1,093 prescriptions and 170 specialist referrals made.
– Created new presentations on Company pension and Reward, to make sure colleagues understand what they receive from being an Aviva employee.
Our plans for 2020 In 2020, our People priorities will be focused around the role our people play in delivering Aviva’s refreshed strategy. We will build on the best of our culture, becoming more performance led and focused on customer outcomes. We will help our people connect to our purpose and the difference we can all make to Aviva’s success.
The average number of employees during 2019 was 31,791 (2018: 31,232).
The following sections outline the key areas of progress we have made over the course of 2019.
In the UK last year, we launched a pilot with Moneyline (a leading notfor -profit social lender) offering a home contents insurance product. This is designed to support low-income, financially excluded customers and can be arranged at the same time as taking out a short-term loan.
Aviva Poland’s anti-smog campaign continues to benefit customers. Over the last two years the campaign has seen us fund the addition of 400 external air quality sensors to the national network, with over half of these sensors placed in areas voted for by the public. The sensors are accompanied by a downloadable app, to help people keep track of pollution in their city and adjust their actions accordingly for the good of their health.
Creating a better tomorrow for our planet To create a better tomorrow, we need to look after the planet we call home. Our plan to help tackle climate change is backed by our long history as a leader in sustainable practices.
We continue to manage the impact of our business on the environment. Our Corporate Responsibility, Environment and Climate Change business standard focuses on the most material operational environmental impacts, which we have identified as greenhouse gas emissions.
Scope 1 – natural gas, fugitive emissions (leakage of gases from air conditioning and refrigeration systems), oil, and company owned cars.
Scope 3 – business travel and grey fleet (private cars used for business), waste and water.
The following table shows the carbon intensity of our operations: CO2e tonnes per employee CO2e per £m GWP
1 From 1 January 2020 this Committee has become the Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts.
Aviva has a proud heritage in sustainability and was the first global insurer to become carbon-neutral in 2006, while Aviva Investors has invested £6 billion in green assets on behalf of Aviva and external clients since 2015. This includes £3.8 billion in low-carbon infrastructure, such as wind farms and solar panels, and £2.2 billion in green bonds.
Under the Carbon Reduction Commitment Energy Efficiency Scheme, we reported total emissions of 55,374 tonnes of CO₂e in 2019 costing £1,013,344. 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.
More details of our environmental KPI data and our independent assurance process can be found at: www.aviva.com/CRkpisandassurance2019.
The last five years of our Aviva Community Fund programme has supported over 3,000 local projects in ten Aviva markets, investing over £13 million to help build capability and capacity in the charity sector. In 2019 Aviva France continued their ambitious Aviva La Fabrique programme, which saw 46 social entrepreneurs awarded a share of one million euros following over 1.5 million public votes. The Aviva La Fabrique Impact Fund was also set up to allow investors the opportunity to invest in these social enterprises.
Aviva Canada, a major general insurer, is also linking its core business expertise to its community investment. In 2019, the business launched its new social impact platform, Aviva Take Back Our Roads, which aims to make Canadian roads and school zones safer for all. The data-driven platform includes on-the-ground community projects, adoption of innovative safety products and technology, and utilises our employees’ expertise to help solve road safety issues.
In total, 11,600 of our people globally have contributed more than 68,200 volunteering hours to support their local communities throughout 2019. They also gave or fundraised over £2.1 million.
Last year the Aviva Foundation in the UK invested unclaimed assets of shareholders through grants and social enterprise investments. In 2019 the Foundation has now committed to giving £3.7 million to nine non-profit organisations and social enterprises that, working with our business, can support our communities and vulnerable customers. This has included funding counselling for vulnerable home insurance customers who experience trauma following serious events such as flooding.
1 From 2020 this Committee has become the Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts. 2 Our humans rights policy can be found at www.aviva.com/content/dam/aviva-corporate/documents/socialpurpose/pdfs/policies-responses/20171025-Human-Rights-Policy-Final.pdf 3 Please note there are no specific ESG restrictions on the Investment Manager’s decision.
Our Board Governance Committee1 oversees our responsible and sustainable business strategy and the policies that underpin it. Aviva plc is subject to the UK Corporate Governance Code (the Code), which we aim to comply with fully. Kirstine Cooper, Group General Counsel and Company Secretary, is the Aviva Leadership Team member responsible for corporate responsibility and sustainability, and the topic has been covered by the Board Governance Committee1 three times during the course of 2019, as well as once at the Aviva plc Board and twice at the Board Risk Committee.
We have assessed the environmental risks that we face as a business. 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 the ‘Risk and risk management’ section and in ‘Our climate-related financial disclosure’ sections of this Strategic report.
We also manage the risks associated with our community investment activities through the controls outlined in our overarching Corporate Responsibility Business Standard. This includes a governance framework for our charitable donations and partnerships and details of how we manage the risks associated with employee volunteering (for example, through safeguarding). This standard is reviewed each year and communicated to all Aviva businesses.
Our support for human rights We are committed to supporting the human rights and anti-modern slavery agenda both within the organisation through our operations, and outside of it through partnerships and collaboration.
Our human rights policy2 identifies our main stakeholders and the most salient human rights issues for our business. The scope of this policy is group-wide and sets out the Group’s commitment to respect human rights.
• Engaged key suppliers on the topic of human rights and conducted modern slavery threat assessments on a range of those suppliers who, based on their sector, are at a higher risk of being exposed to modern slavery. Since 2018 we have completed 18 assessments, with no cases of modern slavery being discovered at Aviva or in our supply chain. The assessments provide suppliers with the opportunity to spot any potential risks or control gaps which we then work with them to address. In 2019 we have conducted modern slavery training for key employees in five markets.
We invest responsibly with Environmental, Social and Governance (ESG) considerations a central pillar of our investment process3, because we believe it minimises risk and allows us to spot opportunities for our customers, empowering them to make more informed decisions. This process includes areas like climate change, human rights, plastics and gender diversity.
We continue our support of the World Benchmarking Alliance (WBA), alongside the United Nations Foundation. The Alliance is committed to establishing public, transparent and authoritative league tables, ranking companies on their contribution to the SDGs. In 2019 the WBA published their first two rankings on sustainable seafood and climate change. In 2020 this will be accelerated with the publication of a suite of rankings addressing food and agriculture, digital inclusion and gender equality and empowerment.
3 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. 4 IFRS profit before tax attributable to shareholders’ profit. 5 Includes Group centre, debt costs and other items not allocated to the markets. 6 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other information’ section of the Annual report and accounts for more information. 7 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6% and a reduction in the prior period operating earnings per share of 2.2 pence.
Group adjusted operating profit1 3,184 3,004 180 6% Operating earnings per share2,3 60.5p 56.2p 4.3p 8% IFRS profit before tax4 3,374 2,129 1,245 58% Solvency II return on equity2,5,6 14.3% 12.5% 1.8pp — Solvency II operating own funds generation2,6 2,257 2,022 235 12% Solvency II operating capital generation2,6 2,259 3,198 (939) (29)% Cash remittances2 2,597 3,137 (540) (17)% Controllable costs2 3,939 3,968 (29) (1)% Debt leverage2 31% 33% (2)pp — Estimated Solvency II shareholder cover ratio2,6 206% 204% 2pp — Value of new business on an adjusted Solvency II basis2 1,224 1,202 22 2% Combined operating ratio2 97.5% 97.2% 0.3pp —
In the Business performance review on the next page, our 2019 performance against our new targets has been presented having regard to the new business divisions. UK Life and Investments, Savings & Retirement have been presented together for both the Solvency II operating capital generation2 and Solvency II return on capital2 metrics. This is consistent with the targets presented at the capital markets day in November 2019. Other key performance indicators have been presented separately for UK Life and Aviva Investors.
Overview In 2019, the external environment provided both positives and challenges. Economic growth was subdued across most developed economies and government bond yields fell sharply in the second half of the year, moving into negative territory in a number of European countries. However, equity markets rebounded and were supportive for asset values. The political backdrop remained a source of uncertainty, particularly in the UK, where the December general election weighed on confidence and activity across the economy.
Aviva is designed to perform whatever the external environment and made good operational progress in 2019, delivering increases in customer activity levels and profitability across our businesses. Group adjusted operating profit1 increased 6% to £3,184 million (2018 restated7: £3,004 million) while Solvency II return on equity2,5,6 was 14.3% (2018: 12.5%), continuing to benefit from favourable assumption changes.
Our economic results continued to benefit from significant levels of longevity reserve reductions in our UK Life business, active balance sheet management and other modelling and assumption changes. As a result, net management actions added 6.2% to the Group return on equity2,5,6 (2018: 3.2%) and £0.8 billion to OCG2 (2018: £1.7 billion). In 2018, OCG2 also benefited from a number of actions such as model changes that reduced our solvency capital requirement (SCR).
We remain prudently reserved for life expectancy in our UK annuity portfolio, although in light of recent trends witnessed in 2019, we expect longevity reserve releases to be materially lower in future periods. As a result, while management actions are expected to make a positive contribution to capital generation and RoE over time, we reaffirm our guidance that this is likely to be at a much lower level than has been the case in 2018 and 2019.
On an underlying basis (excluding net management actions), return on equity2,5,6 was 8.1% (2018: 9.3%) and OCG2 was £1.4 billion (2018: £1.5 billion). Our results benefited from improved returns in general insurance, particularly from Canada, and a reduction in debt interest and corporate centre expenditure. However, this was offset by lower returns from our life businesses which were affected by the loss of temporary transitionals on new business, experience variances in the UK, and lower new business profitability in Europe due to record low interest rates.
3 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information
Business performance review Our operational progress in 2019 was reflected in improved IFRS results. Group adjusted operating profit1 increased 6% to £3,184 million (2018 restated2: £3,004 million), which in turn gave rise to 8% growth in operating earnings per share3,4 to 60.5 pence (2018 restated2: 56.2 pence). IFRS profit before tax increased to £3,374 million (2018: £2,129 million) helped by positive investment variances, and this led to basic EPS of 63.8 pence (2018: 38.2 pence).
UK Life and Investments, Savings & Retirement (IS&R) In UK Life and Investments, Savings & Retirement, own funds generation3,5 was £1,314 million (2018: £1,663 million), giving rise to return on capital3,5 of 9.5% (2018: 11.3%). The reduction in results was due to the loss of transitional benefits on new business, adverse experience variances related to persistency, expenses and challenges in the protection market, and lower Group adjusted operating profit1 from Aviva Investors where revenues were impacted by lower opening assets under management in higher margin propositions and divestment of our European indirect real estate business in 2018. Positive assumption changes related to longevity reserves of approximately £0.8 billion were partially offset by a £175 million provision in relation to a heritage pension product where certain pension policyholders may not have been adequately informed of switching options available to them. While financial results were lower, in 2019, we achieved higher sales and customer net inflows1 across our life and savings businesses. This underpinned asset growth of 19% in long-term savings to £138 billion (2018: £116 billion), 9% in annuities & equity release to £67 billion (2018: £62 billion) and 5% in Aviva Investors to £346 billion (2018: £331 billion), supporting a positive outlook for future financial results in our UK Life and Savings segments.
Asia Life In Asia Life, own funds generation increased 30% to £187 million (2018: £144 million) and return on capital3,5 rose to 12.7% (2018: 9.7%). Our businesses in Asia have continued to grow profitably in our larger markets while successfully narrowing losses elsewhere. New business volumes from our continuing operations in Asia increased 22% to £2.7 billion (2018: £2.2 billion) with double digit growth achieved in Singapore and China. This gave rise to Value of new business on an adjusted Solvency II basis (VNB)3 in Asia of £210 million (2018: £194 million), representing growth of 9%.
Corporate centre Corporate centre costs reduced to £183 million (2018: £216 million) as we commenced initiatives aimed at streamlining our head office and reducing project spending, while debt interest expense fell to £255 million (2018: £280 million). The loss from other operations narrowed to £26 million (2018: £212 million loss) primarily as a result of digital and other costs being realigned to our business units.
1 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in 2019 but it is not included in the Group regulatory own funds.
Cash remittances3 were once more very strong in 2019 at £2.6 billion (2018: £3.1 billion). This represents approximately 30% of our four-year target for cash inflows3 to centre (of £8.5-£9.0 billion), underpinning our confidence in meeting this objective. At the end of February 2020, centre liquidity3 was £2.4 billion (February 2019: £1.6 billion).
Looking ahead As CFO of Aviva, my focus is on growing the value of the company safely, by increasing sustainable return on equity2,3, improving growth and avoiding volatility through prudent and proactive financial management. Our 2019 results show we are on the right path and I envisage significant upside in performance and value from delivering further progress.
So far 2020 has brought significant uncertainty, compounded by COVID-19, in relation to macro trends including the level of interest rates, investment market volatility and foreign exchange. However, we have a strong and resilient balance sheet that is designed to withstand volatility.
In the last three years, Group adjusted operating profit4 and OCG3 have benefited from large assumption changes and other actions, most notably a reduction of longevity reserves. We expect our results to benefit from some similar actions over the medium term, but from 2020, we expect this to be in a range of zero to £200 million per annum for IFRS and c.£200 million per annum for OCG3, as we highlighted at our capital markets day in November.
1 Association of British Insurers (ABI) 12 months to end Q319. 2 Broadridge, UK DC and Retirement Income 2018. 3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
Market review This section summarises the performance of our markets (UK Life, Aviva Investors, General Insurance – UK General Insurance and Canada, Europe and Asia) during 2019 on the basis on which they were managed during the year.
On 20 November 2019, we presented our refreshed strategy which simplifies our operating model into five new business divisions effective from 2020 (UK Life; Investments, Savings & Retirement; General Insurance; Europe Life and Asia Life). The main changes are that: • Investments, Savings & Retirement will bring together Aviva Investors and the UK Savings & Retirement business, which is currently reported within UK Life • General Insurance will include our Europe and Asia general insurance operations as well as UK General Insurance and our Canadian general insurance business • Europe Life and Asia Life will only include our Europe and Asia life and health businesses
An overview of each of our five new business divisions, including their updated strategy, key priorities and financial targets is included in the ‘Our strategy’ section.
Overview Aviva is one of the UK’s largest insurers with a 17%1 share of the UK life and savings markets. We are here to earn our customers’ trust as the best place to save for their future, navigate retirement and protect what matters most to them. We are uniquely positioned to help our customers and are a trusted provider of a broad range of products to both individual and corporate customers covering their savings, retirement, insurance and health needs.
With over 11 million customers we have one of the largest customer bases in the UK life and savings markets. We have a strong core capability in managing legacy books of business. We have strong relationships with independent financial advisers, brokers, employee benefit consultants and banks, single-tie agreements with three of the largest estate agencies and a digital direct offering. One of our key priorities is to become the retirement solutions partner of choice and we aim to empower our customers to take control of their financial futures to help them enjoy a secure and happy retirement. We are a leading provider of individual annuities and provide a secure income to 1.2 million customers in the form of an annuity, paying out over £3 billion each year. We are also a leading supplier1 of equity release (lifetime mortgages), lending £770 million in 2019, helping people to raise money to fund whatever matters most to them in life. During 2019 we won ‘Best Equity Release Lender’, ‘Best Equity Release Lender Customer Service’ and ‘Best Financial Protection Provider’ at the What Mortgage Awards.
We continue to build on our defined benefit de-risking and bulk purchase annuity capabilities, supporting our business customers looking to reduce risk. We have a strong brand and leading distribution, with market leading illiquid asset origination supported by a 20-year track record in commercial mortgages and equity release.
We are proud not only of the scale of the financial and wider support that our protection products provide, but the care with which claims are managed. In 2018 we paid out 98.9% of life insurance claims5 equating to £563 million5. We are one of the largest in the market for individual and group protection6. We protect over 5 million people during some of the most difficult times in their lives, such as bereavement and serious illness. We have won several awards recognising our achievements, including, for the second year running, ‘Best Individual Critical Illness Provider’ at both the Health Insurance & Protection Awards and the Cover Excellence awards, and also ‘Best Group Critical Illness Provider’ at the latter.
Health is a key concern for people in the UK. Our aim is to help our customers live more healthily, help them get better if they fall ill and to support them and their families when they can’t. We have been recognised as Health Insurer of the year for the 10th year running7.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
This is largely due to no benefit from transitional relief on new business together with adverse experience on protection business. In 2018, new business written contributed to the calculation of transitional measures (in line with clarification issued by the PRA since 2017) but it is no longer applicable to the Group in 2019. 2018 own funds generation included £218 million of transitional benefits.
UK Life & Health adjusted operating profit2 decreased by 2% to £1,855 million (2018 restated6: £1,886 million). Within this, lower profit in protection and our legacy book were offset by higher profit in annuities & equity release. There was a lower contribution from other items mainly due to the alignment of UK digital business costs within UK Life (which is neutral at Group level).
Long-term savings Long-term savings managed assets1 increased 19% to £138 billion (2018: £116 billion), with net fund inflows1 improving to £5.4 billion (2018: £5.0 billion). Within this, heritage pensions net outflows were £2.1 billion (2018: £1.9 billion). These were more than offset by workplace pension net fund flows which grew to £4.8 billion (2018: £3.7 billion), driven by new scheme wins with large corporates, the benefits of higher auto enrolment contributions and improved retention.
Adjusted operating profit2 has increased by 13% to £211 million (2018 restated6: £187 million).
Protection Protection adjusted operating profit1 decreased by 25% to £166 million (2018 restated4: £221 million) reflecting continued competitive trading conditions in the market, including the impact of hardening reinsurance rates and adverse claims experience in group protection.
Controllable costs3 Controllable costs3 increased 3% to £1,045 million (2018: £1,013 million), including the effect of realigning £52 million of UK digital business costs to UK Life. Excluding these costs, controllable costs3 reduced by 2%. We have benefited from a continued focus on efficiency while continuing to invest in growth and simplification initiatives, including improvements to customer experience.
PVNBP3 increased 15% to £27,570 million (2018: £23,946 million) as strong growth in BPA, workplace pensions, group protection and equity release was partly offset by lower platform and individual annuity volumes. VNB3 increased by 23% to £592 million (2018: £481 million), mainly reflecting growth in volumes and higher margins in annuities & equity release.
Annuities & equity release VNB3 increased 45% to £284 million (2018: £196 million) despite the absence of new business transitional benefits in 2019. Growth has mainly been driven by higher BPA volumes written on a higher average margin due to pricing discipline, improved reinsurance rates and securing higher quality assets.
Health and Other VNB3 improved to £41 million (2018: £34 million), due to growth in health volumes.
Operational and customer highlights During 2019 our operational highlights and examples of great customer outcomes we have delivered include: Customer • We continue to focus on the customer. Our transactional net promotor scores, a measure of the number of customers that would recommend us following a purchase, service or claim, has increased by 10 points to +43 (2018: +33).
Digital & Technology • We have over 5.5 million customers in the UK registered on
MyAviva, allowing them to manage their policies online. We are accessible to new and existing personal and corporate customers however they want to engage with us. In February 2019 we were awarded the Pension Age Innovation Award for Technology. Technology is at the heart of all our product offerings and this award recognises our work in helping to make members’ pensions more accessible and manageable through MyAviva.
Mental Health Pathways Plus, enabling large companies and organisations in the UK to support employees with all addictions, including online gambling, gaming and social media.
1 SuperCarers is an independent organisation that helps individuals and their families navigate the UK care system. www.supercarers.com 2 Association of British Insurers (ABI) 12 months to end Q319 3 Survey of 2,011 employed people carried out by Censuswide on behalf of Aviva in March 2019
• We have made significant changes to our lifetime mortgage proposition, introducing new flexible repayment options. With these new features, customers can take advantage of increased flexibility to make managing their finances in retirement even simpler.
• We continue to promote both financial and health wellbeing in the workplace through Aviva Wellbeing, our desktop and mobile app dedicated to helping people live their best lives. The programme offers a set of services aimed at helping employers strengthen the mental, physical and emotional wellbeing of their employees by inspiring positive behavioural change.
• We continue to receive external recognition for excellent service in the pensions marketplace, receiving a five-star rating in the Thomson’s 2019 Pensions Provider Report. Our commitment to digital development, a solid Group Personal Pension product, improved retirement journey and our ambition to change benefits for the good were all cited as contributing factors.
• Aviva Financial Advice continues to expand its offering. We are also seeing positive engagement with large corporate schemes and SME businesses, connecting group scheme members with advice.
• The over-45s are the fastest growing working age-group in the UK. Aviva’s mid-life MOT leads the market by providing its people with targeted guidance to help this population embrace the opportunities of a longer working life. We have also run sessions for a small number of corporate clients.
• We are working with the PRA on the consultation process in respect of the capital required by firms offering equity release mortgages. We believe equity release is a valuable product for certain customers aged over 55, helping homeowners access money in their later life. We await clarification from the Financial Conduct Authority (FCA) into whether or not it intends to extend the scope of its review of the defined benefit transfer market. 2019 saw activity in this market fall significantly following the FCA’s initial intervention.
• We promote strong regulation that is effectively targeted, efficiently delivered, and supports sustainable growth and innovation. We will continue to work closely with our regulator to bring further improvements to the market over the next two to three years.
1 A global macro strategy bases its holdings primarily on the overall economic and political views of various countries or their macroeconomic principles. Holdings may include long and short positions in various equity, fixed income, currency, commodities, and futures markets.
3 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 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
Being an integral part of the Group, we provide asset management services and solutions to both internal and external customers. We combine our insurance heritage and DNA with our skills and experience in asset allocation, portfolio construction and risk management to provide asset management solutions to institutional, wholesale and retail clients.
In November 2019 Aviva announced the creation of the Investments, Savings & Retirement (IS&R) division effective from 2020. IS&R brings together Aviva Investors and the UK Savings & Retirement business, which in 2019 and prior years was presented within UK Life.
Following global growth in demand among institutional investors, we have also strengthened our focus on our real assets business.
Assets under management2 increased during the year by £15.4 billion to £346.1 billion (2018: £330.7 billion). This is due to £21.4 billion of favourable market and foreign exchange movements, external net inflows of £2.3 billion and £1.3 billion net flows into liquidity funds and cash, partly offset by outflows on our Aviva client of £6.4 billion and £3.2 billion of assets transferred to an external manager, which were previously managed by Aviva Investors under a legacy distribution agreement. Assets under management and administration2 at 31 December 2019 were £382.4 billion (2018: £359.8 billion).
Cash Cash remitted2 to Group was £86 million (2018: £92 million).
• Our AIMS funds have materially improved in 2019, with AIMS Target Return fund up 9.9%, and the Target Income fund up 11.7% over the same period.
• Brexit uncertainty continues to present challenges for the asset management industry. We continue to plan for all eventualities but believe Aviva Investors is already well placed both globally, and particularly within Europe, as we have a significant and longstanding established presence in France, Luxembourg and Poland.
• Our central expectation is for a stabilisation and improvement of global growth (barring any excess negative implications relating to the Coronavirus). This is happening in an environment of supportive monetary conditions. This should be supportive of risk assets.
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR has also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated.
2 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 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
4 2019 General Insurance cash remittances include £83 million (2018: £331 million) received from UK General Insurance in February 2020 in respect of 2019 activity.
Net written premiums (NWP) UK 4,218 4,193 Canada 3,061 2,928 Europe 2,017 1,985 Asia 13 13 9,309 9,119
Adjusted operating profit2 UK 250 383 Canada 191 27 Europe 154 201 Asia (1) (2) 594 609
Combined operating ratio (COR)3 UK 97.9% 94.6% Canada 97.8% 103.1% Europe 95.7% 93.5% Asia 112.8% 123.0% 97.5% 97.2%
We offer Personal lines (Home, Motor and Travel insurance products) and Commercial lines insurance to a wide range of businesses from micro through small and mid-market to large, multinational corporates.
We have increased our Regional and Global Corporate Specialty (GCS) underwriting capability and enhanced our multinational proposition. The commercial lines speciality portfolio continues to grow with new products launched based on customer demand and maximisation of a hardening rate environment, while the completion of Guidewire implementation across SME is delivering digitisation and automation benefits.
We continued to win many awards in 2019, including ‘General Insurer of the Year’ from Insurance Times for the sixth year running.
Overall, adjusted operating profit2,3 was down 35% at £250 million (2018 restated1: £383 million). Excluding an adverse impact of £113 million from alignment of UK digital, adjusted operating profit2 was down 5% at £363 million (2018 restated1: £383 million). Within this, there was a 10% fall in the underwriting result to £199 million (2018 restated1: £221 million) which included higher expenses reflecting continued investment in our IT infrastructure and less favourable prior year reserve releases but lower weather costs compared to 2018. Long-term investment return3 was up 3% at £166 million (2018: £161 million).
1 Following the change in the definition of Group adjusted operating profit (see note 1(b) of the Annual report and accounts), COR now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts have been restated.
3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts 4 The Ogden discount rate in Scotland is still at -0.75%.
Following the announcement by the Lord Chancellor on 15 July 2019 to increase the Ogden discount rate4 from the -0.75% set in 2017 to -0.25%, balance sheet reserves in the UK were calculated using a discount rate of -0.25% at 31 December 2019. This compares to the Ogden discount rate applied at 31 December 2018 of 0.00%. This has resulted in a strengthening of claims reserves of £45 million. The negative impact of this reserve change has been excluded from adjusted operating profit2,3 in line with previous periods. The Ogden discount rate is expected to be reviewed again by the Lord Chancellor within five years.
Personal motor 1,067 1,125 Personal non-motor 1,332 1,369 UK Personal lines 2,399 2,494 99.3% 92.9%
Commercial motor 555 532 Commercial non-motor 1,264 1,167 UK Commercial lines 1,819 1,699 96.0% 97.3% Total 4,218 4,193 97.9% 94.6%
NWP NWP increased by 1% to £4,218 million (2018: £4,193 million).
Commercial lines COR3 of 96.0% (2018: 97.3%) was 1.3pp better yearon -year, reflecting higher prior year reserve releases and lower weather costs.
Controllable costs3 Controllable costs3 increased to £726 million (2018: £600 million). Excluding the impact from the alignment of UK digital, controllable costs3 were up 3% to £619 million (2018: £600 million) reflecting continued investment in our IT infrastructure, partly offset by savings in the underlying costs of running the business.
• In UK Personal lines our aggregator business, QuoteMeHappy, has acquired in excess of 1.4 million customers.
1 Market Security & Analysis inc. 2018 database 2 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 5 – ‘Segmental
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 Following the change in the definition of Group adjusted operating profit (see note 1(b) of the Annual report and accounts), COR now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts have been restated. 5 Includes unwind of discount and pension scheme net finance costs.
• In SME, the sector continues to suffer from significant levels of under-insurance and we are actively supporting customers and brokers with our commercial intelligence tool in identifying gaps; a good customer outcome that will also deliver growth. We also continue to automate and digitise policy administration, reducing manual intervention and cost, while enabling our customers and brokers to access our service by their preferred means.
• During 2019, the FCA published their GI Pricing Market Study Interim Report. We have provided a comprehensive response to this outlining our recommended solution and the action we have already taken. We are broadly supportive of tackling the issues raised, including protecting vulnerable customers and highlighted our progress on safeguarding and AvivaPlus.
We have returned to profitability following the deterioration that began in early 2017 and continued into 2018, which was principally due to increased claims costs in our motor insurance line of business and less favourable prior year reserve releases. Working with our regulator, we successfully achieved rate increases in late 2018 which are now earning through the book. 2019 also saw natural catastrophe losses more in line with the historical 10-year average. As a result, adjusted operating profit2,4 in 2019 has recovered from the 2018 level and profitability actions are taking hold.
Underwriting result 65 (90) Long-term investment return 133 120 Other5 (7) (3)
The improvement in underwriting profit, along with favourable market movements were the key drivers of the current year profit before tax attributable to shareholders’ profits4 of £211 million (2018: loss of £75 million).
NWP Net written premiums were £3,061 million (2018: £2,928 million), up 3% on a constant currency basis. In personal lines, NWP was broadly stable at £2,100 million (2018: £2,107 million). Commercial lines NWP increased to £961 million (2018: £821 million) due to growth in Global Corporate and Specialty new business and rate increases put through during renewals.
COR1 The COR1 improved to 97.8% (2018 restated2: 103.1%) due to the improvement in the underwriting result described above.
• Brand refresh of our Global, Corporate and Specialty line and rebranded Ovation, our high net worth home insurance offering, helping customers better identify with the products they need.
• Launched BuyOnline for RBC property business to help customers, improve sales capacity and reduce commission expenses.
• In Commercial lines, adverse experience, particularly in residential property, along with shrinking capacity has resulted in a hardening market.
4 La Fédération Française de l’Assurance 5 AFER website, and UFF website and French Insurance Federation. 6 ANIA (Italian National Association of Insurance Companies) 7 Polska Izba Ubezpieczeń 8 Insurance Ireland
Overview Aviva operates in a number of markets in Europe with insurance operations in France, Italy, Poland, Ireland and Turkey. During 2019 we have focused on the development and implementation of our market strategies for organic growth and the integration of Friends First in Ireland.
Low interest rates and regulatory pressures in some markets have presented challenges during the year, but through the actions we have taken we believe we are well positioned to succeed.
Adjusted operating profit2,3 Life & Health 827 807 General insurance 154 201 981 1,008
• In Italy we are number five in the life market6 and the second largest non-domestic insurer6. We offer savings, investments, pension and protection products with distribution through a major bancassurance partnership with UBI and also through independent financial advisor networks. Our hybrid proposition maintained its strong performance in the market in 2019, helping to improve our business mix that, together with other management actions and better market conditions, materially strengthened our capital position. In 2020, our current distribution agreements with our two principal bancassurance partners are reaching the end of their terms and we are in ongoing discussions about the future status of our relationships.
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit.
Life new business Present value of new business premiums (PVNBP)3 13,772 12,641 Value of new business on an adjusted Solvency II basis
Europe Life Solvency II operating capital generation3 has increased by £30 million to £754 million (2018: £724 million). Increases in management actions and higher returns on existing business have been partially offset by the increase in new business strain as a result of the low interest rate environment. In 2019, management actions included the beneficial impact of modelling and assumption changes in Italy as well as increased market risk hedging in France, while 2018 included the beneficial assumption changes and a benefit arising from the transfer of pensions business into a supplementary occupational pension fund (FRPS) in France.
Cash Cash remitted to Group3 was £414 million (2018: £336 million). This includes a special remittance of £107 million following the disposal of Avipop in 2018. 2019 remittances from France are £141 million (2018: £176 million), which are shown after adjusting for a capital injection of £139 million (2018: £nil), as the net amount more appropriately reflects the overall remittances received from France during the year.
(2018: £418 million). Within this, the life result was down 5% to £387 million (2018: £408 million), mainly due to lower protection profit (including adverse claims experience in 2019), partly offset by an increase in savings business profit. The health result was £21 million (2018: £10 million) following actions to improve profitability.
• In Ireland, adjusted operating profit2 increased to £59 million (2018: £40 million), an increase of 49% mainly driven by a one-off benefit from methodology and assumption changes and the inclusion of a full year of Friends First in 2019.
• In Turkey, adjusted operating profit2 was £13 million (2018: £10 million), mainly driven by strong growth in our protection business.
France 5,702 4,335 168 210 Poland 624 486 64 58 Italy (excl. Avipop) 5,537 6,263 147 222 Ireland 1,589 1,208 8 11 Other Europe4 (excl. Spain) 320 333 27 13
Excluding disposals, PVNBP3 was up 10% to £13,772 million (2018: £12,625 million). VNB3 decreased by 18% to £414 million (2018: £514 million).
France, PVNBP1 was up 33% reflecting growth in sales of with-profits savings products and the acquisition of a significant collective pension scheme with EDF. VNB1 was down 19% primarily due to an adverse margin impact from lower interest rates. In Poland PVNBP3 increased by 30% driven by the performance of our new protection product and pensions transfers. In Italy, PVNBP1 was down by 11% due to a reduction in standalone with-profits and unit-linked volumes, partially offset by further growth in our hybrid product whilst VNB margins were adversely impacted by lower interest rates.
• Other customer highlights in France included the launch of a new pension product (PERIN) which is compliant with the new French pension regime. In April, in conjunction with Aviva Investors France, we launched Aviva Solutions Durables a sustainable and responsible investment unit-linked life insurance offering. We are widely recognised as a leader in sustainable investing with the broadest range of propositions in the market. We continued our journey to improve the customer experience and during 2019 our funerals business made the switch from paper to nearly fully digital communication. Other digital innovations include the introduction of a chatbot to improve the customer journey and increase the sales conversion rate in our Eurofil distributor and we plan to widen deployment of this tool to retail motor, property and funeral products in 2020.
• Other highlights in Italy included investment in a multimedia marketing campaign which has resulted in a 16pp increase in our brand awareness. Overall customer numbers increased by 56%. Improvements to our customer segmentation capabilities will enhance our ability to design propositions in response to customer and distributor demand.
• In Ireland we completed the integration of the Friends First business. We also successfully delivered the first phase of our new governance and operating model – separating the management of our Irish life and general insurance businesses – and shifted our focus to the realisation of further efficiency benefits and commercial initiatives to improve the margins on our unit-linked products. One of the key drivers here will be the consolidation of our IT administration systems and 50% of this work completed in 2019. We delivered the first phase of our Integrated Protection Product offering best of both Aviva and Friends First to our customers. Improvements were made to our annuity pricing process with a major re-price in August that improved our new business margins during the second half of the year, and the implementation of an annuity reinsurance solution in line with our longevity risk appetite. Our Irish business achieved first place in the annual Broker Service Excellence Awards in 2019 and our policyholder TNPS scores continue to be top quartile in our sector.
1 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR has also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated.
2 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 5 – ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
• In Ireland we are a market leading general insurance provider and continue to benefit from a strong macroeconomic environment with high GDP and low unemployment. Despite a continuing soft personal lines market, we achieved a 92.6% combined operating ratio (COR)3 demonstrating the strength of our underwriting capability. The Irish market has capacity challenges across a number of sectors such as Child Care, Elderly Care, Sports and Hospitality. Business repatriating from the UK continues to form part of the new business pipeline. We continue to prudently underwrite this business, only writing better quality risks with strong rate strength.
Excluding disposals, Europe general insurance adjusted operating profit2 reduced by 22% to £154 million (2018 restated1: £199 million). Dealing with each of the markets in turn: • In France, adjusted operating profit2 was £65 million
(2018 restated1: £92 million), with growth in net earned premiums of 6%, particularly in commercial lines, more than offset by higher large losses and less favourable prior year reserve development than 2018.
• In Italy, excluding disposals, adjusted operating profit2 was down 23% to £22 million (2018: £30 million). Within this net earned premiums were down 3% as underwriting actions taken on the personal motor book during 2018 earned through and there were higher large losses in commercial lines and higher expenses.
NWP Excluding the disposal of Avipop, NWP increased by 3% to £2,017 million (2018: £1,971 million) with growth in France, Italy and Poland (particularly in commercial lines) partly offset by lower premiums in Ireland as we maintained strong underwriting discipline in a soft personal motor market.
Operational and customer highlights • In France we continued to organically build out our SME broker team which resulted in strong growth in commercial lines volumes. We continued to improve our pricing sophistication, notably through use of the RADAR tool which has enhanced our view of margins and competitor pricing. Our innovative Client Unique proposition aims to simplify the sales journey for our retail customers with consistent products and pricing across all distribution channels, together with centralised and efficient claims processing. We launched a pilot phase with 50 agents during the year with results expected during the first quarter in 2020.
• In Italy, we have launched a new Guidewire based underwriting platform offering a simple and flexible range of products initially to smaller businesses and have been commended by the industry for our innovative implementation. In parallel, we commenced a review and renewal of our entire product catalogue and intend to launch across more of our distribution channels so that all our customers and distribution partners can benefit from the simplicity of the new platform. We have achieved strong customer feedback during the year and were ahead of the market on both our customer satisfaction score and retail net promoter score.
• In Ireland the general insurance business has been able to navigate the soft personal lines market with underwriting discipline. We improved the underlying performance of our commercial lines’ portfolio (1pp COR1 improvement). We continued to improve our personal lines pricing sophistication as well as retaining key distribution partners, including a two-year extension with our largest partner An Post Insurance. Our customer recognition remained strong and our RNPS is in the upper quartile and market leading.
Overview Following a strategic review in 2019, we have a selective approach in Asia, focused on high potential markets in Singapore and China. We are continuing to explore strategic options for our businesses in Vietnam and Indonesia.
Life new business Present value of new business premiums (PVNBP)5 3,057 2,656 Value of new business on an adjusted Solvency II basis 206 189 (VNB)5
General Insurance: Net written premiums (NWP) 13 13 Combined operating ratio (COR)3,5 112.8% 122.1%
Singapore 145 123 (1) (2) China 25 22 — — Other Asia (excl. FPI & Hong Kong) (13) (26) — —
Adjusted operating profit4 from our life and health businesses was £276 million (2018 restated3: £263 million). Excluding FPI and Hong Kong, adjusted operating profit4 increased by 29% to £157 million (2018 restated3: £119 million). Within this, Singapore’s result improved 14% to £145 million (2018 restated3: £123 million), with continued investments in our financial advisory channel driving higher new business, and improving profitability in health insurance. China’s adjusted operating profit improved by 18% to £25 million (2018: £22 million).
Life adjusted operating profit for FPI was £128 million (2018: £151 million), while Hong Kong reported an adjusted operating loss of £9 million (2018: £7 million loss).
Controllable costs5 Total controllable costs5 for Asia subsidiaries was £202 million (2018: £187 million). Excluding Hong Kong and FPI, controllable costs5 were £155 million (2018: £140 million). The increase was mainly to support Singapore’s financial adviser development initiative and organic channel growth across Asia.
Solvency II return on capital5 and Solvency II operating capital generation (OCG)5 Asia Life Solvency II return on capital5 has increased by 3.0pp to 12.7% (2018: 9.7%), Solvency II own funds generation increased by £43 million to £187 million (2018: £144 million) and Solvency II operating capital generation5 has increased by £5 million to £60 million (2018: £55 million). The increase is primarily due to growth and beneficial non-economic assumption changes in Singapore.
Cash Cash remitted to Group5 in 2019 has increased to £51 million (2018: £6 million), mainly attributable to improved performance in Singapore. China paid its first dividend to Group of £5 million (2018: £nil) in 2019.
Singapore 1,580 1,279 159 152 China 718 650 43 42 Other Asia (excl. FPI & Hong Kong) 406 279 8 —
Excluding FPI and Hong Kong, PVNBP1 has increased by 20% to £2,704 million (2018: £2,208 million), which was led by double digit growth in Singapore and China, and strong agency channel expansion in Vietnam. Solvency II VNB1 increased by 6% to £210 million (2018: £194 million).
Operational and customer highlights During 2019 Singapore continued to grow its distribution network. Our financial adviser subsidiaries, Aviva Financial Advisers and Professional Investments Advisory Services now have a combined total of 1,819 advisers (2018: 1,540 advisers).
Other key operational and customer highlights during 2019 included: • Our business in Singapore received several major awards including the Sustainability & Corporate Social Responsibility Award from Asia Insurance Review and Singapore’s Best Workplaces (Medium and Large Workplaces) 2019 Award from the Great Place to Work Institute.
• In China, our joint venture won an award from the Project Management Institute recognising our efforts to promote an innovative culture and to reduce complexity for our customers, agents and employees.
• By leveraging Quantum capabilities, Aviva Singapore has integrated artificial intelligence driven solutions across both pricing and distribution. These have contributed to both top line growth and bottom-line profit generation.
Market context and challenges Driven by robust macro fundamentals in Asia, regional insurance markets are expected to continue their growth despite global economic volatility. We continue to believe that the long-term favourable trends of the rising middle-class, increasing awareness of retirement planning and a growing market in healthcare will persist across the region. We also believe Asia will continue to outperform other markets in insurance growth in the coming decade.
Risk and risk management Risk management is key to Aviva’s success. We accept the risks inherent to our core business lines of life, health and general insurance and asset management. We diversify these risks through our scale, geographic spread, the variety of the products and services we offer and the channels through which we sell them.
Looking forward, these risks may be magnified or dampened by current and emerging external trends (for example, climate change, cyber crime and political risks, such as Brexit) which may impact our current and longer term profitability and viability, in particular our ability to write profitable new business.
Our governance This includes risk policies and business standards, risk oversight committees and roles and responsibilities. Line management in the business is accountable for risk management which, together with the risk function and internal audit, form our ‘three lines of defence’. The roles and responsibilities of the Board Governance Committee1, Audit and Risk Committees and management’s Disclosure, Asset Liability and Operational Risk Committees in relation to the oversight of risk management and internal control is set out in the ‘Directors’ and corporate governance report’ in the Annual report and accounts.
Our risk appetite framework This refers to the risks that we select in pursuit of return on capital deployed, the risks we accept but seek to minimise and the risks we seek to avoid or transfer to third parties, including quantitative expressions of the level of risk we can support (e.g. the amount of capital we are prepared to put at risk).
create uncertainty in our ability to offer a minimum investment return on our investments.
Principal risk types The types of risk to which the Group is exposed have not changed significantly over the year and are described in the table below. All of the risks below, and in particular operational risks, may have an adverse impact on our brand and reputation.
We take a balanced approach to credit and believe we have the expertise to manage it and the structural investment advantages conferred to insurers with longdated, relatively illiquid liabilities that enables us to earn superior investment returns.
We actively seek some market risks as part of our investment and product strategy. We have a limited appetite for interest rate and property risks as we do not believe that these are adequately rewarded.
• Risk selection and underwriting on acceptance of new business • Longevity swaps covering pensioner-in-payment scheme liabilities • Product design that ensures products and propositions meet customer needs • Use of reinsurance on longevity risk for our annuity business, including the bulk annuity buy-in transaction with Aviva staff pension scheme.
We take general insurance risk in measured amounts for explicit reward, in line with our core skills in underwriting and pricing. We have a preference for those risks that we understand well, that are intrinsically well managed and where there is a spread of risks in the same category. General insurance risk diversifies well with our Life Insurance and other risks.
• 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 appetite framework linked to delegations of authority that govern underwriting decisions and underwriting limits
• Asset liability matching methodology develops optimal asset portfolio maturity structures in our businesses to ensure cash flows are sufficient to meet liabilities
• Commercial paper issuance • Use of our limit framework covering minimum liquidity cover ratio and minimum Group Centre liquidity • Contingency funding plan in place to address liquidity funding requirements in a significant stress scenario Asset management risk • Fund liquidity • Performance and margin • Product • Retention risks
• 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
• During 2019 we transitioned IT services to new data centres bringing disaster recovery risk back into tolerance
Principal emerging trends and causal factors This table describes the emerging 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 Economic & credit cycle – uncertainty over prospects for future macroeconomic growth, credit and current low interest rates, and the response of Central Banks, could adversely impact the valuation of our investments or credit default experience as well as the level of the returns we can offer to customers going forwards and our ability to profitably meet our promises of the past.
Over the last few years we have taken significant steps to reduce the sensitivity of our balance sheet to investment risks. While interest rate exposures are complex, we aim to closely duration-match assets and liabilities and take additional measures to limit interest rate risk. We hold substantial capital against market risks, and we protect our capital with a variety of hedging strategies to reduce our sensitivity to shocks. We regularly monitor our exposures and employ both formal and ad hoc processes to evaluate changing market conditions. Other actions taken in the past include reducing sales of products with guarantees and shifting our sales towards protection and unit-linked products.
As 2020 progresses we expect greater clarity to emerge over the terms of any future UK-EU free trade agreement and other aspects of the future relationship and the extent, if at all, to which financial and other services are included. There is a risk that financial services are included in a way that leaves the UK as a “rule taker” of EU regulation, which would negatively impact on the ability for the UK to calibrate financial services rules for UK market needs. There is also a risk that negotiations fail to conclude by 31 December 2020, the end of the transition period under the withdrawal agreement, and without an extension to negotiations the UK may need to revert to trading on World Trade Organisation terms. Any agreement may require an implementation period after 2020. While the ultimate outcome remains uncertain, we expect UK financial markets to be volatile and macroeconomic growth subdued.
Following the decisive general election victory, the new UK government has a clear mandate on Brexit, and a relatively probusiness stance more generally. We believe that a relatively hard Brexit with minimal alignment to the EU is likely by the end of 2020. Within the domestic agenda there are potential risks around tax, pensions legislation and increasing regulatory intervention (particularly on GI pricing).
In the EU there is a review of Solvency II, the key regulatory regime for EU insurers. A new EU Commission has an ambitious agenda for climate change and Artificial Intelligence/data regulation which may bring regulatory changes directly impacting on our businesses in the EU and in a post Brexit UK indirectly.
There is considerable uncertainty as to whether the improvements in life expectancy that have been experienced over the last 40 years will continue into the future. Despite continued medical advances emerging, dietary changes, increasing obesity and strains on public health services have begun to slow this trend, leading in the UK to some significant industry-wide longevity reserve releases in recent years. In the longer term this may even result in a reversal in the trend of increasing life expectancy. Although the latest analysis of population data indicates much lighter mortality in 2019 compared to 2018, which is a marked change to the experience seen during the past decade.
Risk impacted: Market, Credit, Life Insurance risk (mortality, longevity, morbidity), General Insurance (business interruption, travel) and Operational risk.
We have taken significant steps to reduce the sensitivity of our balance sheet to market/credit risks and have contingency plans which are designed to reduce as far as possible the impact on operational service arising from mass staff absenteeism, travel restrictions and supply chain disruption caused by a pandemic. We reinsure much of the mortality risk arising from our Life Protection business and hold capital to cover the risk of a 1-in-200 year pandemic event. We model extreme pandemic scenarios such as a repeat of the 1918 Spanish Influenza pandemic. In the Group and commercial insurance business we limit our potential exposure through our policy wordings. As an investment manager and investor, we engage with companies to ensure the responsible use of antibiotics to reduce the risk that antimicrobial resistance negate the efficacy of medical treatment.
Going forward, increasing migration and international travel is expected to make the containment of future pandemics more challenging.
• Retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised committed credit lines
The Solvency II position disclosed is based on a ‘shareholder view’. The shareholder view is considered by management to be more representative of the shareholders’ risk exposure and the Group’s ability to cover the SCR with eligible own funds and aligns with management’s approach to dynamically manage its capital position. In arriving at the shareholder position, a number of adjustments are typically made to the regulatory Solvency II position. The Group Solvency II capital position, including these adjustments, is summarised in the table below: Own funds 2019 £m £m £m
Estimated Solvency II regulatory surplus as at 31 December 28,347 (15,517) 12,830 27,567 (15,339) 12,228 Adjustments for: Fully ring-fenced with-profit funds (2,501) 2,501 — (2,634) 2,634 — Staff pension schemes in surplus (1,181) 1,181 — (1,142) 1,142 — Notional reset of the transitional measure on technical provisions (TMTP) — — — (127) — (127) Pro forma adjustments1 (117) (75) (192) (113) (6) (119)
Estimated Solvency II shareholder surplus at 31 December 24,548 (11,910) 12,638 23,551 (11,569) 11,982 1 The 31 December 2019 Solvency II position includes three pro forma adjustments that relate to the disposal of FPI (£nil impact on surplus), the disposal of Hong Kong (£nil impact on surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion decrease in surplus as a result of an increase in SCR). The 31 December 2018 Solvency II position includes the pro forma impact of the disposal of FPI (£0.1 billion increase in surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion reduction in surplus as a result of an increase in SCR).
The estimated Solvency II cover ratio1 is 206% at 31 December 2019 (2018: 204%).
The movement in the Solvency II shareholder surplus over the period is shown in the table below: Shareholder view
Solvency II operating capital generation1 (OCG) measures the amount of Solvency II capital the Group generates from operating activities. Capital generated enhances Solvency II surplus which can be used to support sustainable cash remittances1 from our business, which in turn supports the Group’s progressive dividend as well as funding investments that provide sustainable growth. The OCG1 by market is summarised in the table below: Operating capital generation1 2019 £m
UK Life (including UK Savings & Retirement) 1,170 1,821 Aviva Investors 90 126 General Insurance 574 647 Europe Life 754 724 Asia Life 60 55 Group centre, debt costs and Other (389) (175) Total Group Solvency II operating capital generation1 2,259 3,198
• Unrestricted Tier 1 capital includes Aviva’s ordinary share capital and share premium which are high quality instruments with principal loss absorbing features such as permanence, subordination, undated, absence of redemption incentives, mandatory costs and encumbrances
• Restricted Tier 1 includes Aviva’s direct capital instrument (DCI), preference shares and subordinated debt. None of these instruments include principal loss absorbency features and all qualify as restricted Tier 1 capital under transitional provisions
More recently, our Solvency II cover ratio1 has typically been in a range of 190-210%, above our working range. If the ratio was to remain above 200% for an extended period we have scope for additional actions such as further debt reduction or additional investment in business growth and change. Similarly, if the ratio reduced to below the bottom of the working range, we would consider improvement actions which include derisking and reprioritisation of growth initiatives.
We actively manage our centre liquidity and we have defined a liquidity risk appetite that sets a minimum level of centre liquid assets to be held at all times. In addition, we stress our forecast levels of centre liquid assets in order to ensure that we would still able to meet our commitments to pay a progressive dividend and meet our deleveraging ambitions if a liquidity event were to occur.
We use EVA to support strategic decision making, such as transformation projects or M&A, business capital allocation, pricing, hedging, reinsurance and asset allocation. We also use EVA to support a detailed review of each segment of the group to inform strategic planning and performance management.
As an international insurance group, our sustainability and financial strength is underpinned by an effective risk management framework. Our business is directly impacted by the effects of the climate crisis. We believe that unmitigated climate-related risks present a systemic threat to societal and financial stability and therefore to our business, over the coming decades.
This disclosure reflects Aviva’s 2019 response to the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). It sets out how Aviva incorporates climaterelated risks and opportunities into governance, strategy, risk management, metrics and targets and how we are responding to new regulatory requirements. These pages, along with the expanded report, are available at www.aviva.com/TCFD.
Governance Aviva has built a strong system of governance, with effective and robust controls. In 2019 we updated the Senior Management Function’s Statements of Responsibilities in line with the PRA’s Supervisory Statement 3/191. The regulated entities’ Chief Risk Officers (CROs) are responsible for ensuring that climate-related risks and opportunities are identified, monitored and managed through Aviva’s risk management framework and in line with our risk appetite. The Group CRO is responsible for overseeing, at Group level, the embedding of the risk management framework. To support the CROs in meeting regulatory expectations, we have initiated a group-wide climate-related risks and opportunities project. The Group CRO is the executive sponsor of the project.
• For long-term savings and pensions, we integrate consideration of long-term issues into the products and services we offer. We continue to develop our customer Environmental, Social and Governance (ESG) strategy, and offer climate friendly and ethical funds such as the stewardship fund range.
1 Scope 1 -natural gas, fugitive emissions, oil and company owned cars; Scope 2 – electricity, and Scope 3- business travel, grey fleets, waste and water. More details of this analysis can be found on www.aviva.com/social-purpose. 2 RE100’s purpose is to accelerate change towards zero carbon grids, at global scale. Aviva has signed up to the commitment pledging to purchase or generate 100% of our global electricity from renewable sources by 2025
Influence – Aviva continues to provide strong and vocal support for capital market reform, to mobilise the trillions of pounds required to transition to a low carbon economy and correct existing market failures with respect to climate change.
Risk management Rigorous and consistent risk management is embedded across Aviva through our risk management framework, comprising our systems of governance, and risk management processes. This framework sets out how Aviva identifies, measures, manages, monitors and reports on the risks to which it is, or could be, exposed (including climaterelated risks). Aviva considers climate change to be one of the most material long-term risks to our business model, and its impacts are already being felt.
Metrics and targets In addition to Climate VaR, Aviva uses a variety of other metrics to manage, monitor and report its alignment with global or national targets on climate change mitigation and the associated potential financial impact on our business. Whilst recognising the limitations of the metrics and tools used (e.g. the scope of emissions or sectors covered) and that some are backward looking, we believe they are still valuable in supporting our climate-related governance, strategy and risk management. • We track our investment in green assets and low carbon infrastructure. We have already invested £6 billion in green assets (i.e. £3.8 billion in low carbon infrastructure and £2.2 billion in green and sustainable bonds).
• We build the possibility of extreme weather events into our pricing to ensure it is adequate and monitor actual weather-related losses versus planned weather losses by business (net of reinsurance). Catastrophic event model results are supplemented by in-house disaster scenarios. Our general insurance business exposure is limited by being predominantly in Northern Europe and Canada. We require our general insurance businesses to protect against all large, single catastrophe events in line with local regulatory requirements, or where none exist, to at least a 1-in-250-year event.
In this section Page Chairman’s Governance Letter 55 Our Board of Directors 57 Directors’ and Corporate Governance report 59 Directors’ Remuneration report 83
Our Governance Good governance is of fundamental importance to Aviva. At Aviva we have a clear and shared purpose, which is to be with our customers today, for a better tomorrow. Without good governance, underpinned by our values and our culture, we would simply be unable to deliver on that promise for all our stakeholders. I also believe that our strong and consistent approach to governance will enable us to deliver on our strategy to simplify Aviva into a leading international savings, retirement and insurance business.
2018 Corporate Governance Code We welcomed the introduction by the Financial Reporting Council of the revised and simplified 2018 UK Corporate Governance Code (the Code). This is our first year of reporting on our application of and compliance with the Code. Amongst other changes, the Code created a heightened requirement for boards to set and maintain a corporate culture rooted in a strong ethical base, and for directors, and the companies they lead, to build and maintain positive relationships with a diverse and comprehensive range of stakeholders. Considering our stakeholders when performing our duties as directors is not a new concept, and indeed was first codified into the Companies Act 2006, and this is a well-established feature of our Board processes. The Code reinforces the importance of the Board’s consideration of the Company’s stakeholders in its decisionmaking processes, which we describe in our ‘Section 172 (1) statement and our stakeholders’ section in the Strategic report.
The Board has led Aviva through a period of substantial change during 2019 to make sure our Company is fully fit for the future. From October 2018 when our former CEO stepped down until the appointment of Maurice Tulloch as Group Chief Executive Officer (Group CEO) on 4 March 2019, I operated in the capacity as Executive Chairman. This was a hugely challenging but rewarding experience that brought me even greater insight into the businesses of Aviva and which I continue to draw on after reverting to being Non-Executive Chairman.
Aviva Governance Framework We recognise that good governance requires Board ownership and accountability for driving the necessary behaviours and culture that we are striving to achieve at Aviva. Good governance supports the sustainable growth and superior customer outcomes we are targeting.
The governance framework will be applied to each subsidiary across the Group and attested to on an annual basis. This will underpin our focus on board effectiveness at every level of the organisation.
While much has gone well, the Board continues to focus on the Company’s overall control environment. There remains considerable political and economic uncertainty which has led us to review and improve the Company’s risk indicators and our financial and operational risk appetite monitoring, for example around interest rate risk exposures.
Diversity The charts below illustrate the diversity of the Board and senior management as at the date of this report.
Experience and Skills1 Insurance 6 2 9 Banking 6 1 5 Actuarial/Capital Management 3 1 6 Transformation 6 2 3 Law 2 — 2 Government 4 1 1 Customer 4 2 5 IT/Digital 3 2 3 Strategy 6 2 6
Jason Windsor ■ Position: Chief Financial Officer Nationality: British Committee Membership: N/A Tenure: 6 months. Appointed to the Board and as Chief Financial Officer in September 2019. Skills and Experience: Jason became Interim Chief Financial Officer on 1 July 2019 and was previously Chief Financial Officer of Aviva UK Insurance. Jason joined Aviva in 2010 and has extensive experience of the group, including as Chief Capital and Investments Officer, and as a member of the Aviva Leadership Team. Jason has a proven track record as CFO of the UK Insurance business and a deep understanding of Aviva and its markets and brings a strong analytical and commercial perspective to his role as Group CFO. External Appointments: N/A.
George Culmer ▲ Position: Senior Independent Non-Executive Director Nationality: British Committee Membership: Audit Committee, Nomination Committee2, Remuneration Committee, Risk Committee Tenure: 6 months. Appointed to the Board in September 2019 and as Senior Independent Director on 1 January 2020. Skills and Experience: George brings significant board-level experience with 15 years experience as a FTSE 100 Chief Financial Officer, and a deep understanding of insurance and wider financial services. George was previously Chief Financial Officer of Lloyds Banking Group plc and joined its board on 16 May 2012. He has extensive insurance experience and was previously a director and Chief Financial Officer of RSA Insurance Group plc; Head of Capital Management of Zurich Financial Services and Chief Financial Officer of its UK operations. George has a deep understanding of the challenges that affect the industry, Aviva’s businesses, and the implications for shareholders, which enables him to support the Chairman and Board in driving the strategy, culture and values of the Company. External Appointments: Non-Executive Director of Rolls Royce plc.
Our Board of Directors: Biographies Continued 1 The Nomination Committee changed its name to the Nomination and Governance Committee with effect 1 January 2020 2 The Governance Committee changed its name to the Customer, Conduct and Reputation Committee with effect 1 January 2020
Patrick Flynn ▲ Position: Independent Non-Executive Director Nationality: Irish Committee Membership: Audit Committee (Chair), Nomination Committee1, Risk Committee Tenure: 8 months. Appointed to the Board in July 2019. Skills and Experience: Patrick is an experienced finance executive and has significant experience of retail financial and insurance services. Patrick was previously Chief Financial Officer of ING, the Netherlands’ largest financial services group, and was recognised for playing a key role in the transformation of the group to a wellcapitalised and focused financial services provider with a significant retail offering. Prior to that Patrick was Chief Financial Officer of HSBC Insurance and served as a Non-Executive Director of the boards of two listed former ING insurance companies, and this experience thoroughly equips Patrick to chair the Audit Committee. External Appointments: Non-Executive Director of the Royal Bank of Scotland.
Michael Mire ▲ Position: Independent Non-Executive Director Nationality: British Committee Membership: Governance Committee1, Nomination Committee2, Remuneration Committee, Risk Committee Tenure: 6 years 6 months. Appointed to the Board in September 2013. Skills and Experience: Michael has a detailed understanding of the financial services sector and a wealth of experience in business transformation and developing strategies for retail and financial services companies. Michael was a senior partner at McKinsey & Company where he worked for more than 30 years, and alongside his governmental experience, he brings a unique perspective and insight to the Board. External Appointments: Chairman of HM Land Registry, NonExecutive Director of the Department of Health and Social Care, and senior adviser to Lazard.
The full biographies for all our Board and Aviva Leadership Team are available online at www.aviva.com/about-us
The Board can confirm that the Company was compliant with the Code throughout the financial year under review, except for a period of non-compliance with Provision 9 of the Code from 9 October 2018 to 4 March 2019 when Sir Adrian Montague assumed the role of Executive Chairman. Following the appointment of Maurice Tulloch as Group Chief Executive Officer (Group CEO) on 4 March 2019, Sir Adrian reverted to his former position as Non-Executive Chairman.
Two of our Executive Directors stepped down from their roles during the year to pursue opportunities outside the Group. Andy Briggs left Aviva on 24 April 2019 and was replaced as CEO UK Insurance by Angela Darlington on an interim basis. Following the separation of UKI into three separate divisions, General Insurance, Life and Investment, Savings and Retirement, Angela was confirmed as CEO UK Life with effect from 7 August 2019. Following the departure of Tom Stoddard as Group Chief Financial Officer (Group CFO) on 30 June 2019, and after a period as interim Group CFO, Jason Windsor, formerly CFO of UK Insurance, was appointed permanently to the role and also joined the Board of Directors on 26 September 2019. Jason Windsor joined Aviva in 2010 and has a broad range of experience, including as Chief Capital and Investments Officer, and as a member of the Aviva Leadership Team.
We were delighted to appoint three highly experienced NonExecutive Directors to the Board during the year. Patrick Flynn joined the Board as a Non-Executive Director and a member of the Board Audit, Risk and Nomination Committees on 16 July 2019. He became Chair of the Audit Committee on 4 November 2019. Patrick was previously Chief Financial Officer at ING and has also served as Chief Financial Officer of HSBC Insurance and as a Non-Executive Director on the boards of two listed former ING insurance companies.
George Culmer was appointed as a Non-Executive Director of the Company on 25 September 2019, and he also joined the Board Audit, Remuneration, Risk and Nomination Committees. Following the retirement of Glyn Barker, George was appointed as Senior Independent Director. George was previously Chief Financial Officer of Lloyds Banking Group and has held positions as Chief Financial Officer of RSA Insurance Group plc; Head of Capital Management of Zurich Financial Services and Chief Financial Officer of its UK operations.
Oversight of risk and risk management • Received and discussed reports from the Chief Risk Officer (CRO), and assessed the Group’s significant risks and regulatory issues • Approved the Group’s risk appetite and risk policies which provide the risk framework for managing risk across the Group • Reviewed the effectiveness, challenges and management action plans in relation to the Group’s Operational Risk and Control Management Framework
Governance • Discussed reports from Board committees and management on legislation and proposed consultations that affect or will affect the Group’s legal and regulatory obligations, including the 2018 UK Corporate Governance Code (the Code)
• Reviewed and approved the revised Group Governance Framework • Discussed and approved changes to the Board committee structure, and the repurposing of the Nomination Committee and the Governance Committee to the Nomination and Governance Committee and the Customer, Conduct and Reputation Committee respectively
Significant transactions and expenditure • Approved financial matters in line with the Group Funding Plan, including capital injections where required into regulated subsidiaries, the redemption of the £210 million Step-Up Tier 1 Insurance Capital Securities (STICS) perpetual subordinated loan notes, and an asset reinsurance transaction
Financial reporting and controls, capital structure and dividend policy • Discussed reports provided by the Group Chief Financial Officer
(Group CFO) and by the Group’s committees on key matters of financial reporting, providing the opportunity for the Board to input and challenge where necessary
• Monitored the Group’s financial performance, financial results, approved dividend payments and the adoption of a progressive dividend policy
People, culture, succession planning and Board effectiveness • Oversaw the search process, reviewed candidates and approved the appointment of Maurice Tulloch as Group CEO and Jason Windsor as Group CFO following recommendations from the Nomination Committee
• Undertook an evaluation of the Board’s effectiveness, the effectiveness of each committee and individual directors
Stakeholder engagement In line with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, we report on our stakeholder engagement and other relevant matters in the ‘Section 172 (1) and Our stakeholders’ section of the Strategic report. This outlines how the Board has engaged with our principal stakeholder groups. The Board considers stakeholder engagement, including engagement with our workforce to be a matter of strategic importance.
The Board has established certain principal committees to assist in fulfilling its oversight responsibilities, providing dedicated focus on the areas set out below. Each committee chairman reports to the Board on the committee’s activities after each meeting. Full details of the responsibilities of the Board committees are set out later in this report and in the Directors’ Remuneration report.
With effect from 1 January 2020, certain amendments were made to the structure and defined responsibilities of our suite of Board committees. To better align with our strategy to deliver great customer outcomes we redefined the remit of the Governance Committee around customer and customer conduct issues and renamed this committee the ‘Customer, Conduct and Reputation Committee’ (CCRC). This is also aligned to our refreshed purpose, to ensure our actions in every part of the business are fully focused on consistently earning customers’ trust as the best place to save, retire and insure. To provide more time for the CCRC to consider the customer, we expanded the remit of the Nomination Committee to cover a broader range of governance issues, including subsidiary governance and oversight of the Aviva governance framework, which had previously been considered by the Governance Committee and renamed this the ‘Nomination and Governance Committee’ (NGC). The NGC will continue to play a key role in succession planning for both our Executive and Non-Executive Directors as well as having oversight of our governance framework and regulatory environment.
Upon their establishment, the chairs and members of the new committees were unchanged except for the CCRC which is now chaired by Amanda Blanc following Claudia Arney’s retirement from the Board on 31 December 2019.
Remuneration Committee Assists the Board in its oversight of remuneration by reviewing the Group Remuneration Policy, the Directors’ Remuneration Policy, and recommending remuneration packages for the ALT. Works with the Board Risk Committee to ensure that risk management is considered in setting the Remuneration Policy and promoting a risk awareness culture through the alignment of incentive and rewards with risk management.
Risk Committee Assists the Board in its oversight of risk by assessing the effectiveness of the Group’s risk management framework, risk strategy, risk appetite and risk profile; the methodology used in determining the Group’s capital requirements and stress testing these requirements; assessing the adequacy of the Group’s system of non-financial reporting controls; its cyber strategy and compliance with prudential regulatory requirements.
Board independence During the year the Nomination Committee assessed the independence of the Non-Executive Directors to ensure that they are able to properly fulfil their roles on the Board and provide constructive challenge to the Executive Directors. The independence criteria set out in the Code were taken into account as part of the selection process for the three Non-Executive Directors who joined Aviva during the year.
During 2019, the Committee determined that all Non-Executive Directors were free from any relationship or circumstances that could affect, or appear to affect, their independent judgement. In line with the Code, over half of our Board members, excluding the Chairman, are independent Non-Executive Directors.
Time commitment It is vital to the proper functioning of our Board and committees that each Non-Executive Director is able to commit sufficient time to their roles in order to discharge their responsibilities effectively. In January 2020 the Nomination and Governance Committee assessed the NonExecutive Directors’ time commitment considering both the time required for Aviva Board and committee appointments (including on subsidiary boards) and the number and nature of the directors’ external commitments. All Non-Executive Directors have demonstrated they have sufficient time to devote to their present role within Aviva, including during any potential periods of corporate stress. George Culmer became a Non-Executive Director of Rolls Royce plc on 2 January 2020. The time commitment and potential conflicts involved were assessed by the Nomination and Governance Committee which determined that George has sufficient time to commit to the Aviva Board and committee appointments.
According to the Board’s policy, Executive Directors may hold one external directorship, subject to obtaining the prior consent of the Board. The Executive Directors do not hold any such external directorships at present.
Conflicts of interest In accordance with the Companies Act 2006, the Company’s Articles of Association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits or conditions as are necessary. The decision to authorise a conflict of interest can only be made by non-conflicted directors (those who have no interest in the matter being considered) and in making such a decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success for the benefit of its shareholders as a whole.
Independent advice All directors have access to the advice and services of the Group Company Secretary in relation to the discharge of their duties on the Board and any committees they serve on. Furthermore, any directors may take independent professional advice at the Company’s expense. During the year, no directors sought to do so. The Company arranges appropriate insurance cover in respect of legal actions against its directors and has also entered into indemnities with its directors as described in the ‘Other Statutory Information’ section in this report.
Role profiles Following an update to the Board’s Terms of Reference during 2019 to reflect the provisions of the Code, and consistent with the Senior Managers and Certification Regime (SMCR), amended role profiles have been created for the Non-Executive Chairman, SID, Group CEO, Group CFO and Non-Executive Directors which are all available at www.aviva.com/about-us/roles. A profile for the Executive Chairman was in place during the period that Sir Adrian Montague occupied that role.
The role of the SID is to provide a sounding board for the Chairman and to serve as an intermediary for the other directors where necessary. The SID should be available to shareholders should they have concerns they have been unable to resolve through normal channels, or when such channels would be inappropriate.
Throughout the year the Chairman held meetings with the NonExecutive Directors without management present. Additionally, Glyn Barker as SID met with other Non-Executive Directors without the Chairman present to discuss any matters which they wished to raise.
Induction, training and development A commitment to support the continuing development of all employees is a central part of Aviva’s culture. Our directors are highly supportive of this and are committed to their own ongoing professional development. During 2019, the directors participated in internal training sessions on subjects including blockchain, the impact of IFRS 17, regulatory capital, financial crime, SMCR and directors’ duties. Further training sessions have been incorporated into the Board and Committee plans for 2020. The Board also receives regular briefings on a range of strategically important matters to ensure they are informed of developments in these areas.
A structured and tailored induction programme was prepared for each of our three new Non-Executive Directors appointed this year. This covered, amongst other matters, the current strategic and operational plan; meeting packs and minutes from recent board meetings; stakeholder engagement; organisation structure charts; a history of the Group; role profiles; and all relevant policies, procedures and other governance material. The induction also included meeting key members of the management team and visiting different Aviva office locations. Any knowledge or skill enhancements identified during the directors’ regulatory application process would also be addressed through their induction programme.
Board calendar During 2019, 16 Board meetings were held, of which twelve were scheduled meetings and four were additional meetings called at short notice. In addition, the Board delegated responsibility for certain items to specially created Board committees, which met nine times to discuss these particular items.
George Culmer13 4/4 2/2 — 1/1 — 2/2 1 During the year there were 16 Board meetings, of which 12 were scheduled meetings and 4 were called at short notice. In addition, there were 9 further Board sub-committee meetings held at short notice and attended by the
Chairman. 3 Tom Stoddard resigned as an Executive Director on 30 June 2019. 4 Andy Briggs resigned as an Executive Director on 24 April 2019. 5 Jason Windsor was appointed to the Board as Group Chief Financial Officer on 26 September 2019. 6 Glyn Barker was unable to attend three meetings of the Risk Committee due to prior commitments; he was unable to attend 3 meetings of the Nomination Committee and Remuneration Committee both called at short notice due to prior commitments. Glyn also missed a Board meeting and Audit Committee meeting due to prior engagements. 7 Belén Romana García was unable to attend a meeting of the Audit Committee due to a prior commitment accepted before she became a member of the Audit Committee. 8 Michael Hawker retired as a Non-Executive Director on 31 March 2019. 9 Michael Mire was unable to attend a meeting of the Remuneration Committee called at short notice due to prior commitments. 10 Claudia Arney was unable to attend a meeting of the Risk Committee due to prior commitments. 11 Keith Williams retired as a Non-Executive Director on 23 May 2019. 12 Patrick Flynn joined the Board as a Non-Executive Director on 16 July 2019 and was unable to attend a Board meeting due to prior commitments. 13 George Culmer joined the Board as a Non-Executive Director on 25 September 2019.
Following the appointment of our new Group CEO in March 2019, we embarked on a comprehensive strategic review of our business, identifying a number of changes which are now being implemented to enhance our service to customers and improve the operating efficiencies of our business.
This includes the simplification of Aviva into our five operating divisions from 2020: Investments, Savings and Retirement; UK Life; General Insurance; Europe Life; and Asia Life. In the 2019 Strategic report and 2019 Annual report and accounts, we continue to report the results of our business by market on the basis they were managed in 2019. In making these changes, we are leveraging our substantial digital and insurance expertise to drive better commercial outcomes across Aviva and rigorously controlling our costs, including a £300 million per annum reduction in controllable costs14 by 2022 (net of inflation).
We understand that our financial plans can only be achieved through a relentless focus on the experience of our customers and by working to ensure that we offer each one of our personal and corporate customers great outcomes, earning their trust as the best place to save for the future, navigate retirement and insure what matters most to them. The Board has focused on understanding our customers’ experience, closely monitoring customer metrics and engaging with management to understand the issues involved when our performance did not meet our customers’ expectations.
During 2020, the Board’s agenda will focus on driving delivery of the Group’s strategic priorities, which are to deliver great customer outcomes; excel at the fundamentals; and to continue to invest in sustainable growth.
Our two-day offsite Board strategy session in June 2020 will be used to review our three-year strategic plan and to set out strategic priorities for the year ahead.
Board evaluation The effectiveness of the Board is vital to the success of the Group. The Board undertakes a rigorous evaluation process each year to assess how it, its committees and individual directors are performing. During 2018, an external evaluation was conducted, with a series of outcomes reported in 2019. Following an externally facilitated evaluation process over the last two years, the Board decided that the 2019 evaluation be undertaken through an internal questionnaire prepared in conjunction with Lintstock. Lintstock also provide evaluations to other operating subsidiaries in the Aviva Group. Lintstock are an independent provider of Board evaluations and have no other connection with Aviva or any individual director. The questionnaires covered a variety of areas including board composition, strategic and operational oversight, risk management and internal controls, and culture. The Board considered the final report and the recommendations which were shared with each committee, and an action plan for areas of focus was agreed. The 2018 Board evaluations and 2019 actions are outlined in the table below.
Outcomes from the 2018 Board evaluation and steps taken in 2019 Focus area Theme Feedback/actions Board composition Utilising our skills matrix as part of our Board succession planning
We made certain changes to remits of our Board committees, including repurposing the Governance Committee as the Customer, Conduct and Reputation Committee and the Nomination Committee as the Nomination and Governance Committee. The aim of these changes was to further enhance our focus on the customer and customer conduct issues.
Internal controls Internal controls facilitate effective and efficient operations, the development of robust and reliable internal reporting and compliance with laws and regulations. Group reporting manuals in relation to IFRS and Solvency II reporting requirements and a Financial Reporting Control Framework (FRCF) are in place across the Group. FRCF relates to the preparation of reliable financial reporting, covering both IFRS and 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. Management regularly undertakes quality assurance procedures over the application of the FRCF process and controls.
Works closely with the Risk Committee and is responsible for assisting the Board in its oversight of operational risk across the Group, particularly the risk of not delivering good customer outcomes and compliance with our corporate governance principles. From 1 January 2020 the Governance Committee was renamed the Customer, Conduct and Reputation Committee.
Communication with shareholders 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 Investor Relations function. The Chairman met several of the Company’s major shareholders during 2019. At these meetings a range of issues were discussed within the constraints of information already made public, to understand shareholders’ perspectives. On 20 November 2019 we held a Capital Markets Day in London to update investors and analysts on our strategy and financial objectives. Shareholders’ views are regularly communicated to the Board through the Group CEO’s, and Group CFO’s reports and weekly briefings from the corporate brokers and the Investor Relations function. The SID was available to meet with major investors to discuss any concerns that could not be resolved through normal channels and a formal programme of introductory investor meetings for the new SID commenced in January 2020.
2020 AGM The 2020 AGM will be held on Tuesday 26 May 2020 and the Notice of AGM and related papers will, unless otherwise noted, be sent to shareholders at least 20 working days before the meeting. The AGM provides a valuable opportunity for the Board to communicate with private shareholders. All serving directors attended the Company’s 2019 AGM, and plan to attend the 2020 AGM. A presentation on the Group’s performance will be given at the 2020 AGM and made available on the Company’s website after the meeting at www.aviva.com/agm
The Committee also led the Independent Non-Executive Director succession process in view of the retirement of Michael Hawker, Keith Williams, Claudia Arney and Glyn Barker during the year, and with the appointment of Patrick Flynn, George Culmer and Amanda Blanc to the Board.
Committee membership Michael Hawker and Keith Williams retired from the Board and the Committee on 31 March 2019 and 23 May 2019 respectively, and Glyn Barker and Claudia Arney retired from the Board and the Committee on 31 December 2019. I would like to thank them all for their contribution. The members of the Committee as at 31 December 2019 are shown in the table below. Amanda Blanc joined the Committee on 2 January 2020. Details of members’ experience and qualifications are shown in the ‘Our Board of Directors’ section, and their attendance at Committee meetings during the year is shown within the Directors’ and Corporate Governance report.
George Culmer 25/09/2019 <1 1 Chair 2 Claudia Arney retired from the Committee on 31 December 2019 3 Glyn Barker retired from the Committee on 31 December 2019
Board and executive succession planning The 2018 UK Corporate Governance Code (the Code) places greater emphasis on succession planning and the Committee has built on its existing processes to enhance its focus in this area.
The Committee, on behalf of the Board, regularly assesses the balance of Executive and Non-Executive Directors, and the composition of the Board in terms of skills, experience, diversity and capacity.
Non-Executive Directors Following nine years on the Board, Michael Hawker retired from the Board and as Chair of the Risk Committee on 31 March 2019. Keith Williams retired from the Board and as chair of the Audit Committee, following the conclusion of the Company’s AGM on 23 May 2019. Claudia Arney and Glyn Barker retired from the Board and as chair of the Governance Committee and Senior Independent Director respectively, with effect from 31 December 2019.
Following Michael Hawker’s retirement from the Board, Belén Romana García became the Chair of the Risk Committee with effect from 5 July 2019. Belén has been a member of the Risk Committee since joining the Board in June 2015 and has extensive experience of financial services including insurance, banking, regulation and risk management.
Talent management The Committee also monitors the development of the Aviva Leadership Team (ALT) to ensure that there is a diverse supply of senior executives and potential future Board members with the appropriate skills and experience. Following the appointment of the Group CEO, the ALT was refreshed in line with the Group’s strategic direction. The investment made in growing our leadership capability over the past three years meant that there was a strong pipeline of internal candidates available with the majority of ALT appointments originating internally in line with our succession plans. During 2019, the Committee received regular updates from the Group CEO on the composition and changes to the ALT and considered the development plans and talent profiles of these individuals in line with the Group’s succession plans.
Diversity Diversity and inclusion continue to be an area of focus for the Committee and the Board. The Board is committed to having a diverse and inclusive leadership team which provides a range of perspectives and insights and the challenge needed to support good decision making. Diversity at Aviva includes, but is not limited to gender, and is inclusive of all strands of diversity including skills and experience, geographic background, ethnicity, disability and sexual orientation. The Board is supportive of the recommendations set out in the Parker Review and we aim to increase the ethnic diversity of the Board by 2021, as well as monitoring ethnic diversity in our succession and leadership pipeline.
As at the date of the report the representation of women on the Board has increased from 27% in March 2019 to 33%. We actively support women advancing into senior roles, with the Chairman being an active member of the 30% Club. We are a charter signatory of HM Treasury’s Women in Finance Charter, which commits financial services companies to a range of measures to improve gender diversity amongst senior management. As at the date of this report females represent 35% of the ALT and further details on gender diversity in the workforce can be found in the Strategic report.
For Non-Executive Directors, independence in thought and judgement is vital to facilitating constructive and challenging debate in the boardroom and is essential to the operational effectiveness of the Board and Committees of Aviva.
The Committee determines a Non-Executive Director’s independence in line with Provision 10 of the Code. During 2019 the Committee conducted a particularly rigorous review of Glyn Barker, who had served on the Board for more than seven years. Glyn’s deep understanding of accounting and regulatory issues and his extensive experience as a business leader meant that he also continued to provide independent insight and challenge to the boardroom. After careful consideration the Committee agreed that Glyn remained independent and continued to make a valuable contribution to the Board. The Committee examined Glyn’s former position as a partner at the Group’s current external auditors and was satisfied this did not affect his judgement or independence as a director.
Sir Adrian Montague Chair of the Nomination Committee 4 March 2020
Committee activities during 2019 Evaluation and annual assessment • Assessed the Non-Executive Directors’ independence • Considered and recommended to the Board the election/reelection of each continuing director ahead of their election/reelection by shareholders at the Company’s 2019 AGM
• Considered specific steps to be taken in relation to diversity in Board and executive succession planning
Committee focus during 2019 I am pleased to present the Risk Committee’s (the Committee) report for the year ended 31 December 2019.
Committee membership I assumed the role of Chair on 5 July 2019. Michael Hawker was the Chair until 31 March 2019 when he stepped down from the Board and the Committee after nine years’ service. Glyn Barker and Claudia Arney also retired from the Board and the Committee on 31 December 2019 and I would like to thank them all for their contribution. The members of the Committee as at 31 December 2019 are shown in the table below. Amanda Blanc became a member of the Committee on 2 January 2020 following her appointment to the Board. Details of members’ experience, qualifications and attendance at Committee meetings during the year are shown within the Directors’ and Corporate Governance report.
Control environment During the year the Committee received updates on disaster recovery, cyber resilience and IT outsourcing, and monitored and challenged the progress made by management.
The Committee reviewed the progress made by management in testing Aviva’s ability to recover critical IT services in the event of a disaster and the robustness of the controls to support this on an ongoing basis. The progress made on the disaster recovery testing, and the new facilities provided by the data centre migration, allowed the Committee to support a return to tolerance for Aviva’s disaster recovery risks.
In the case of cyber resilience, the Committee requested that management develop supporting management information (MI) for each business to demonstrate the effectiveness of key controls. The cyber scorecard allows each market to track control effectiveness and take proactive actions to address any issues arising. The Committee recognised that progress had been made across the overall cyber risk and control environment, including an improvement in cyber resilience maturity. In addition, there had been demonstrable improvements in Aviva’s Cyber and Disaster Recovery controls, and focus will remain on ensuring the controls operate at an optimum level.
Notwithstanding these improvements the Committee believes that further work is required on the overall risk and control environment and that the assessment and the subsequent impact on the Company’s 2019 Annual Bonus pool provides a clear statement of the focus on continual improvement across 2020.
Data centre migration As part of the lessons learned from previous change programmes, the Committee ensured that appropriate governance structures were in place for future programmes. During 2019, a joint multi-entity forum was used for the data centre migration project with assurance provided by an independent expert. This forum operated in support of each legal entity board to ensure appropriate oversight of the programme and the most material IT migrations. As a result of this oversight, and the risk management practices embedded within the programme, the migration of Aviva’s data centres was completed with minimal impact to customer service.
Risk culture During the year the Committee reviewed the overall risk culture within the Group and the balance of risk and control expertise. This is in addition to the annual assessment of the performance of all Group business units and functions against the Group Risk and Control Goal which considered a range of quantitative and qualitative measures and outcomes. As a result, there has been a greater focus on risk culture with additional scrutiny on relevant metrics which forms part of the new operational risk appetite framework and focus will remain on further development.
Committee effectiveness review The Committee undertakes a review of its effectiveness annually. More information can be found in the Directors’ and Corporate Governance report.
2020 priorities The Committee will continue to monitor the political environment, following the UK’s exit from the European Union, including progress on trade negotiations and the future regulatory and political relationship. There will continue to be a focus on strengthening the risk and control environment particularly in relation to change activity, cyber risk reduction and ensuring IT service continues to meet customer demands and support the emerging requirements of operational resilience. The new risk reward metric and operational risk appetite should support this momentum while balancing the need to incentivise the required culture and behaviours to ensure controls are sustainably returned to tolerance. The Committee will focus on the potential risks associated with the business growth agenda and cost reduction activities to ensure these stay aligned to our commitment to improve the risk and control environment and deliver great customer outcomes.
In addition, I will continue to ensure a strong dialogue between the Group Risk Committee and our equivalent subsidiary level committees. This will include further developing the strength of the Company’s controls around non-financial and emerging risks and how they support overall operational resilience, the horizontal and geographic review of key risks, remuneration processes and the linkage to culture.
Committee activities during 2019 Risk appetite, risk management and risk reporting • Reviewed reports from the Group Chief Risk Officer (Group CRO), which included updates on significant risks facing the Group, the Group’s capital and liquidity position, the control environment, emerging risks and the Company’s risk profile, and operational, regulatory and conduct risks
• Reviewed and recommended for Board approval, the Group’s risk policies
Group capital and liquidity, financial plan and stress testing • Approved the 2019 Group Capital and Liquidity Plan and subsequent updates • Reviewed capital and liquidity projections including the Group’s SII
Risk Management Plan • Approved the scenarios for group-wide stress testing to support the
Group Recovery Plan • Reviewed the risks to the 2020-2022 Group Plan
Solvency II internal model • Undertook a review of the internal model components, reviewed internal model validation reports and governance updates, and approved changes to the internal model
External factors • Reviewed regular updates on the performance of the Group’s investment portfolios and on the external economic environment and assessed the implications on the Group’s asset portfolio
• Monitored the impact of the decision of the UK to leave the EU, the exit scenarios and regularly reviewed updates regarding the potential impact on our customers and capital and liquidity
• Reviewed the most significant emerging risk scenarios affecting the delivery of the Company’s strategy
Supervisory Report and approved its submission to the regulator • Received updates on the disaster recovery, IT security, IT outsourcing and cyber risk Major Control Improvement Topics, and monitored and challenged progress by management
Group CRO • Reviewed the effectiveness of the systems of internal control and risk management • Reviewed the Company’s reporting on the Taskforce on Climate
Remuneration Committee • Reviewed the adequacy and quality of the risk function • Assessed the performance of all Group business units against the 2019
Committee focus during 2019 I am pleased to present the Audit Committee’s (the Committee) report for the year ended 31 December 2019.
Committee membership I became Chair of the Audit Committee on 4 November 2019 and succeeded Glyn Barker, who had chaired the Committee on an interim basis following the retirement of Keith Williams on 23 May 2019, and pending receipt of my regulatory approval for the role. I would like to thank Glyn for his support to the Committee during this interim phase and prior to his retirement from the Board on 31 December 2019. Michael Hawker also retired from the Committee on 31 March 2019. The members of the Committee as at 31 December 2019 are shown in the table below. Details of their experience, qualifications and attendance at Committee meetings, together with the number of Committee meetings held, during the year are shown in the ‘Our Board of Directors’ section and the Directors’ and Corporate Governance report.
During the year the remit of the Committee was reviewed and clarified in certain areas. The Committee is responsible for overseeing internal controls over financial reporting while the Risk Committee is responsible for the oversight of other areas of internal controls. The Committee’s Terms of Reference were updated accordingly. The Committee acts independently of management and works closely with the Governance, Remuneration and Risk Committees. The cross-membership between these Committees supports good understanding of current issues and efficient communication.
Challenged the assumptions used in the calculation of the Best Estimate Liability component of the technical provisions and the reserves required under Solvency II (SII), and the expense impacts on SII reserves. Reviewed and challenged the longevity, expense and credit default assumptions used for the 2019 half and full year financial statements. The challenge around the setting of longevity assumptions was a particularly significant area for review as those judgements could continue to have a material impact on Aviva’s SII and IFRS results. During 2019, a detailed analysis was conducted, and reviewed by the Committee, to validate changes observed in recent mortality experience and the resulting impact on the 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 review of 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 the recognition of changes in longevity experience in the financial statements. During the year the Committee considered, reviewed and approved the adoption of the relevant industry tables for the Bulk Purchase Annuity business in the UK. The Committee also reviewed proposals for the adoption of updated Continuous Mortality Investigations (CMI) models for mortality improvement including the selection of parameters within the CMI model. The Committee reviewed the continued implementation of a new modelling tool to measure actuarial liabilities in place of an externally hosted product. The implementation of the new model was ongoing and would continue to be applied to further actuarial models on a phased basis. The Committee also approved the maintenance expenses used in the measurement of life insurance contract liabilities in UK Life.
Reviewed and challenged the principal assumptions in the calculation of the GI reserves, in particular the ‘Ogden rate’ for bodily injury claims including the impact of the July 2019 announcement by the Lord Chancellor of the -0.25% Ogden discount rate. This resulted in a £45 million reduction in IFRS profit. The Committee continues to monitor how the Ogden rate might change and subsequent reviews (at least every five years) including the potential for a dual rate, and the impact of future mortality and economic scenarios. The Committee considered the key points of the PRA’s ‘Dear Chief Actuary’ letter and the actions taken across the Group to ensure our reserving remains at best practice level. It also tracked actual weather claims against expectations throughout the year.
Challenged estimates and judgements for IFRS and SII reporting bases. IFRS judgements included goodwill and intangible asset impairment reviews, assets classified as held for sale, (including the continued held for sale of Friends Provident International Limited) and the valuation assumptions for certain mark to model assets and liabilities. With the repeated change of date for the UK exit from the European Union and reflecting the continuing uncertainty and risk of a ‘no deal’ exit from the EU, the Committee continued to review the size and continuation of the allowance in relation to the UK exit from the EU and agreed the allowance should continue to be retained and that further disclosure of the purpose of retaining the allowance be provided in the financial statements. The Committee also reviewed two provisions created in respect of product governance issues for heritage book customers in the UK Life business. The first related to advice given on the transfer from defined benefit pensions to personal pension arrangements and resulted in a £229 million provision (2018: £250 million). The second related to past communications to a specific sub-set of policyholders that may not have adequately informed them of switching options into with-profits funds that were available to them and resulted in a provision of £175 million. In addition, the Committee reviewed an issue relating to the incorrect consolidation of investment funds, the resulting restatement of financial statements at Half Year 2019 following the reclassification of those Investment funds, and the further strengthening of the internal controls for the classification of investment funds going forward. The Committee monitored the additional disclosures required at Full Year 2019 following the restatement at Half Year 2019 and continues to assess the revisions to the control environment.
Tender of external audit Under Competition and Markets Authority regulations, Aviva is required to tender for the provision of the external audit every 10 years. PricewaterhouseCoopers LLP (PwC) was appointed for the first time for the 31 December 2012 financial year end and therefore a mandatory re-tender is required for the year ending 31 December 2022. The Committee initiated and is leading the external audit tender process which is expected to be completed during 2020. The timing of the tender of the external audit will align the appointment, or re-appointment of the external auditor, with the introduction of IFRS 17.
The Internal Audit function is required by professional standards to engage an independent EQA review at least every 5 years. The EQA covers all aspects of the governance and operation of the function including compliance with relevant professional standards. The Committee reviewed the report of the EQA and will continue to monitor the associated action plan for the Internal Audit function following the EQA report.
External auditor PwC was appointed as the Group’s External Auditor (Auditor) in 2012 following a formal tender process. The external audit contract must be put out to tender at least every ten years in conformance with Competition and Markets Authority (CMA) rules on mandatory audit tendering. The Committee has agreed that a competitive tender process will be completed during 2020, for the 2022-year end.
While there is no requirement to rotate audit firms until the current auditor has served a maximum of 20 years, in determining the proposed timing of the tender process, the Committee is mindful that it is necessary to allow the selected auditor appropriate time to become independent should the Committee propose that an auditor other than PwC be selected. 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 Committee is leading the tender and has defined audit quality as the primary criteria for selecting the external auditor. The Committee expressly requested that audit firms outside the ‘big four’ be invited to participate in the tender process and we were pleased that several firms outside the ‘big four’ discussed the audit tender with us.
The external audit is currently led by the audit partner, Andrew Kail, who replaced Marcus Hine by rotation following the approval of the 2018 annual report in March 2019. Andrew completed a detailed transition exercise with Marcus during the completion of the 2018year end audit process.
The Auditor attends every Committee meeting and submits a formal report for discussion. This report updates the Committee on the progress of audit activity, a review of the reasonableness of managements’ approach to key issues, judgements and accounting matters and the impact on the financial statements and assurance around auditor independence. The Auditor also provides the Committee with external benchmarking data around key areas of interest such as annuitant mortality assumptions, pensions and internal controls.
Non-audit fees In 2019 the Group paid PwC £21.2 million (2018: £20.4 million) for audit and audit-related assurance services, with the overall increase primarily due to additional fees relating to the prior year audit of Group subsidiaries. In addition, PwC were paid £0.8 million (2018: £1.9 million) for other services, including £0.7 million (2018: £0.9 million) for other assurance services, giving a total fee to PwC of £22.0 million (2018: £22.3 million).
Internal control The Committee is responsible for supporting the Board in ensuring a robust system of internal control and risk management in the Group. The Committee receives regular reports on the status of the control environment and updates on the management of operational risks and controls under the Operational Risk and Control Management (ORCM) framework. More information about our system of internal control and risk management can be found in the Directors’ and Corporate Governance report. The Committee has clarified its role to provide oversight on internal controls over financial reporting with other areas of internal control overseen by the Risk Committee.
The Committee is also supported in its work by the audit committees that operate in the Group’s subsidiary entities. The subsidiary audit committees review the operation of internal controls in these subsidiaries, and actively challenge judgement made by management, strengthening the overall governance and control framework for the Group. The Committee Chair will meet with subsidiary entity audit chairs during the year to discuss their oversight responsibilities.
Committee activities during 2019 Financial statements and accounting policies • Recommended to the Board for approval the 2019 half and full year financial statements • Approved the IFRS and SII technical provisions with the 2019 half and full year financial statements • Recommended to the Board for approval the SII Solvency and
Financial Condition Report • Reviewed and challenged the reserve positions relating to the
Group Life and GI operations • Reviewed and challenged the treatment and recoverability of goodwill and other intangible assets • Reviewed the Group Chief Financial Officer’s reports which included: IFRS and SII key issues and judgements; accounting developments including the new IFRSs; and overview of internal control and risk management over financial reporting
• Reviewed the Group Risk Actuary’s report on significant issues related to the technical provisions of SII and IFRS
• Reviewed an issue relating to the incorrect consolidation of investment funds, the resulting restatement of financial statements at half year 2019 following the reclassification of those investment funds, and updates to relevant internal controls
External audit, auditor engagement and policy • Reviewed the effectiveness of the Auditor and was satisfied that the services it provided remained effective, objective and fit for purpose
• Monitored compliance with our External Auditor Business Standard on a quarterly basis
• Commenced the process for a tender of the external audit
framework and rectification of controls • Reviewed management’s assessment of the effectiveness of the risk management and control environment • Reviewed the Internal Audit function report to ensure adequacy of the systems of internal control and risk management • Received updates from the Speak Up and whistleblowers’
During the year, the Committee considered and monitored a range of matters which included the treatment of our customers including vulnerable customers, our corporate responsibility agenda, data governance and regulatory compliance.
Committee membership I joined the Board on 2 January 2020 and also assumed the Chair of the Committee. Claudia Arney was the Committee Chair throughout 2019 and I would like to thank Claudia for her leadership of the governance agenda and for enhancing the Committee’s focus on the customer. Glyn Barker retired from the Board and the Committee, on 31 December 2019, and I would also like to thank Glyn for his contribution as a Committee member. The members of the Committee who served during 2019 and as at the date of this report are shown in the table below. Details of their experience, qualifications and attendance at Committee meetings during the year are shown within the Directors’ and Corporate Governance report.
Belén Romana García 26/06/2015 4 1 Chair 2 Claudia Arney retired from the Committee on 31 December 2019 3 Glyn Barker retired from the Committee on 31 December 2019
Committee purpose The main purpose of the Committee is to assist the Board in overseeing our customer and conduct obligations, our data governance, compliance with our corporate governance principles, our broader compliance activities and shaping the culture and ethical values of the Group and our approach to corporate responsibility.
Customers During 2019, the Committee had oversight of the changes to Aviva’s organisational design, particularly the restructuring of the UK Insurance (UKI) business, into two separate businesses to enhance the end to end customer experience and drive clearer accountabilities. This included providing input to the development of the customer measures that form part of the Company’s Annual
The Committee emphasised the importance of the customer agenda in the Group strategy and provided constructive challenge on how customer service and perception could be incorporated into the strategy.
Data During 2019 the Committee reviewed the development and delivery of the data governance and data privacy framework and records management within the Group. A data protection officer has been appointed in each European market and in Aviva Investors and training and awareness of data privacy has been rolled out to all employees to support a strong, robust data privacy culture.
The Committee also reviewed the outcomes of the board evaluations completed by subsidiaries across the Group and monitored the action plans developed by subsidiary boards to reflect those outcomes.
Corporate responsibility The Committee continued to monitor our approach to corporate responsibility and the corporate responsibility strategy to build pride and trust in our company. During the year, the Committee approved updates to the Business Ethics Code to include explicit references to human rights and the reporting of climate change related risks. The Committee also continued to monitor and support our community investment.
2020 priorities In 2020, the Committee will begin to operate under its revised Terms of Reference as the CCRC, with an enhanced focus on the customer agenda, customer conduct issues, the Group’s exposure in managing financial risks from climate change and concentrating on further improving the experience we provide to our customers.
Governance • Considered regular updates from the Group Company Secretary on governance matters, legal and litigation risks which had the potential to impact the reputation of the Group
• Monitored the Group’s compliance with the 2018 UK Corporate Governance Code and other areas of regulation and guidance
People • Reviewed the results of the Voice of Aviva surveys • Reviewed and considered the talent development programmes for leadership across the Group, with a focus on diversity • Approved updates to the Business Ethics Code
The directors submit their Annual report and accounts for Aviva plc, together with the consolidated financial statements of the Aviva group of companies, for the year ended 31 December 2019.
Our policy on hedging The hedging policy is disclosed in note 61.
Dividends Dividends for ordinary shareholders of Aviva plc are as follows: • Paid interim dividend of 9.50 pence per ordinary share
(2018: 9.25 pence) • Proposed final dividend of 21.40 pence per ordinary share
Subject to shareholder approval at the 2020 AGM, the final dividend for 2019 will become due and payable on 2 June 2020 to all holders of ordinary shares on the Register of Members at the close of business on 24 April 2020 (payment date approximately four business days later for holders of the Company’s American Depositary Shares (ADS)).
Final dividend per share (cents)1 2019 9.50 10.62 21.4 – 1 Euro dividend rate per share
Distributable reserves Under UK company law, dividends can only be paid if a company has distributable reserves sufficient to cover the dividend. At 31 December 2019, Aviva plc itself had distributable reserves of greater than £3.9 billion. In UK Life, our largest operating subsidiary, distributable reserves, which could be paid to Aviva plc via its intermediate holding company, are based on the updated Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016 which uses an adjusted Solvency II 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 insurance, 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. 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.
Share class and listing 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.
Share capital During the year, 18,776,934 ordinary shares were allotted to satisfy amounts under the Group’s employee share and incentive plans. At 31 December 2019 the: • issued ordinary share capital totalled 3,921,129,145 shares of 25 pence each (83% of total share capital) • issued preference share capital totalled 200,000,000 shares of £1 each (17% of total share capital)
Rights and obligations attaching to the Company’s ordinary shares and preference shares Rights and obligations attaching to the Company’s shares together with the powers of the Company’s directors are set out in the Company’s Articles of Association (the Articles), copies of which can be obtained from Companies House and the Company’s website at www.aviva.com/articles, or by writing to the Group Company Secretary. The powers of the 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 at a general meeting. At the 2020 AGM, shareholders will be asked to renew the directors’ authority to allot new securities. Details are contained in the Notice of 2020 Annual General Meeting (Notice of AGM).
Disclosure guidance and transparency rule 5 – major shareholders The table below shows the holdings of major shareholders in the Company’s issued ordinary share capital in accordance with the Disclosure Guidance and Transparency Rules (DTRs) notified to the Company as at 31 December 2019 and 4 March 2020. Information provided to the Company under the DTRs is publicly available via the regulatory information services and on the Company’s website.
Directors The directors as at the date of this report, together with their biographical details and details of Board appointments, resignations and retirements is shown earlier in the report.
The rules regarding the appointment and removal of directors are contained in the Company’s Articles. Under the Articles, the 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 purchased and maintained throughout the year directors’ and officers’ liability insurance in respect of itself, its directors and others.
Political donations Aviva did not make any political donations during 2019.
Disclosure of information to the auditor In accordance with section 418 of the Companies Act 2006, the directors in office at the date of approval of this Annual report and accounts confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s External Auditor, PricewaterhouseCoopers (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.
Annual general meeting The 2020 AGM of the Company will be held on Tuesday 26 May 2020 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 1.30pm. The Notice of AGM convening the meeting describes the business to be conducted thereat. Any proxy voting instruction, whether provided online, by post or via CREST or Proxymity voting, must be received by our Registrar, Computershare Investor Services PLC, by no later than 1.30pm on Thursday 21 May 2020. Further details can be found in the shareholder information section of the Notice of AGM.
Articles of association Unless expressly stated to the contrary in the Articles, the Company’s Articles may only be amended by special resolution of the shareholders. The Company’s current Articles were adopted on 10 May 2018.
Going concern 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 53); its contingent liabilities and other risk factors (note 56); its capital management (note 58); management of its risks including market, credit and liquidity risk (note 60); and derivative financial instruments (note 61).
Longer-term viability statement 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 from 1 January 2016, as a result of being designated a Global Systemically Important Insurer by the Financial Stability Board.
The assessment of the Group’s prospects by the directors covers the three years to 2022 and is underpinned by management’s 2020-2022 business plan which includes projections of the Group’s capital, liquidity and solvency.
Based on this assessment, the directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year assessment period.
• The overall co-ordination of the production of the Annual report and accounts is overseen by the Chief Accounting Officer to ensure consistency across the document
• Comprehensive reviews of drafts of the Annual report and accounts are undertaken by members of the Aviva Leadership team and other members of senior management and, in relation to certain parts of the report external legal advisers and the External Auditor
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with IFRS as adopted by the EU. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and apply them consistently • make reasonable and prudent judgements and accounting estimates • state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements
2 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.
The Committee’s primary remit is to ensure that executive pay is aligned with Aviva’s performance in the round. As such, in considering outcomes under the 2019 Annual Bonus and the 2017-19 Long Term Incentive Plan (LTIP), the Committee has sought to ensure that they reflect Aviva’s overall progress over these timeframes.
2019 Annual Bonus The Committee carefully considered financial and strategic performance of the Group, business unit and individual Executive Director (ED) performance during 2019.
As part of the annual bonus framework, further details of which are provided on page 86, the Committee conducted an extensive analysis of the quality of earnings, noting recommendations by the Audit Committee. In addition, the Committee consulted with the Risk Committee, and noted the significant progress made to remediate risk and control issues during 2019. Overall, there has been a very positive response to particular risk and control challenges. Nevertheless, this is a critical area for Aviva, and it was concluded that further work is required to fully embed the desired risk culture and to deliver the target state risk and control environment against a backdrop of internal/external change. Accordingly, a 10% downward adjustment has been applied to the scorecard for risk and controls, which represents an escalation from the 5% applied for 2018. The Committee believes this provides a clear statement of the emphasis which is being placed on continual improvement across 2020 and is further reflected in our annual bonus targets for 2020. This resulted in an adjusted scorecard outcome of 91.1%.
As a result, annual bonuses for Maurice Tulloch and Jason Windsor were 95% and 101% of salary respectively.
The Committee was satisfied that these outcomes fairly reflected the overall performance of the business during 2019, and that no further adjustments were required.
• For 2020, Jason will be eligible for the grant of an award under the LTIP of 225% of basic salary
Jason’s salary is below that of Tom Stoddard prior to his departure, reflecting that Jason is new to the role.
Departure of Andy Briggs and Tom Stoddard On 24 April and 30 June 2019, Andy and Tom respectively stepped down from the Board. The Committee carefully considered the treatment to be applied to their remuneration arrangements as a result of their departure.
Reflecting their performance during their tenure, the leadership and commitment demonstrated during the Group Chief Executive Officer (CEO) transition, the Committee, in its discretion, determined to treat both Andy and Tom as good leavers under the Annual Bonus Plan (ABP) and LTIP. Following his appointment at Phoenix Group, Andy’s LTIP awards have lapsed. Further details can be found on page 93.
2 This measure is derived from the Group adjusted operating profit Alternative Performance Measure (APM). Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts. 3 Group adjusted operating profit is an 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.
• Pensions: On their respective appointments the pension provisions for both Maurice and Jason were set at 14% of salary in line with the rate available to the majority of our UK workforce.
• Addition of LTIP and ABP post-retirement activity restrictions: If after receiving good leaver treatment as a retiree EDs take up employment elsewhere, these restrictions allow awards to be reduced or recovered accordingly.
Gender Pay Gap Report (GPGR) We released our third GPGR in January 2020, along with details of actions we are taking to drive change and close the gender pay gap. The report can be found at www.aviva.com/gpgr
Remuneration in 2020 Salary Maurice and Jason received salary increases of 1.5%, consistent with other Aviva employees in the UK
On financial performance, there are two changes: • Increased weighting on Operating Capital Generation (OCG)1 from 25% to 30% of the total bonus scorecard • Replace Operating Earnings Per Share (EPS)2,3 with Group adjusted
Non-financial metrics will comprise: • Two customer metrics (with a total weighting of 15%): Transactional Net Promoter Score (TNPS) and Relationship Net Promotor Score (RNPS)
• A risk metric (15% weighting): Percentage of Risks Inside Tolerance. The metric will be focused on the High and Very High risks for the major businesses across the Group and is aligned to the Operational Risk Appetite. It will build on the progress made during 2019, on our established risk management framework and risk monitoring and will reinforce our focus on customer outcomes
To ensure that the LTIP aligns with these business goals, SII RoE1 replace Operating EPS2,3 as one half of the framework. SII RoE1 is a fundamental building block to increasing shareholder return over the long-run. SII RoE1 is important in measuring the productive use of our economic capital. A Solvency II cover ratio1 (SII cover ratio) will continue to act as an underpin to the financial metric.
Relative TSR remains an important metric which aligns the EDs to shareholders and continues to be weighted at 50%.
• Engaged with key investors on financial and non-financial metrics for 2020 ABP targets and 2020-2022 LTIP
• Considered and agreed the remuneration packages for the departing EDs, and approved associated regulatory disclosures
• Focused on the alignment of the Policy with an appropriate risk culture and to appropriate sustainability metrics
Senior management objectives, bonus target setting and pay decisions • Determined appropriate levels of discretion to be applied to EDs and senior managers remuneration outcomes, including in relation to Ogden, risk and controls environment and events related to our preference shares
• Discussed and approved the ABP targets for 2019 • Reviewed and approved the proposed individual remuneration for each member of the ALT in relation to their performance • Agreed an appropriate approach to a remuneration package for incoming and outgoing EDs and ALT members • Reviewed wider workforce pay and employment conditions elsewhere in the Group • Reviewed the Risk and Internal Audit 2019 Performance Opinion in relation to remuneration • Discussed and approved the overall maximum bonus pool available to senior managers for the 2019 performance year, taking into account metrics on culture and risk as well as on financial performance www.aviva.com/remuneration-committee
Share plan operation and performance testing • Reviewed performance testing of all existing LTIP awards, and approved targets for the 2019 LTIP awards • Approved vesting of the 2016 LTIP and noted the interim testing for the 2017, 2018 and 2019 awards • Reviewed the proposed changes to future LTIP grants • Approved the terms of the Aviva Savings Related Share Option
• Reviewed and approved any application of malus/clawback provisions under incentive plans
• Approved amendments to share plans rules in line with the 2018 Code 2018 Corporate Governance Code In determining remuneration arrangements at Aviva, the Committee aims to ensure that they support the execution of our strategy and the delivery of sustainable long-term shareholder value. In doing so, the Committee takes into account the 2018 Code, wider workforce remuneration and emerging best practice in relation to ED remuneration.
Sets out the Committee’s scope and responsibilities, including authorities which may be delegated but which still retain Committee oversight Remuneration
Basic Salary1 946 706 177 — 370 728 241 746 1,734 2,180 Benefits2 443 51 10 — 47 85 19 44 519 180 Annual Bonus3 886 598 178 — 338 616 218 632 1,620 1,846 LTIP4 588 637 82 — 559 645 — 662 1,229 1,944 Pension5 138 198 22 — 104 204 67 209 331 611 Total 3,001 2,190 469 — 1,418 2,278 545 2,293 5,433 6,761 1 Basic salary received during the relevant year. 2 The benefits disclosure includes the cost, where relevant, of private medical insurance, life insurance, accommodation, travel and car benefits. In the case of Maurice, Jason and Andy this also includes benefits resulting from the
Strategic report Governance IFRS financial statements Other information 2019 annual bonus outcomes The chart below summarises how our annual bonus operates for 2019.
Step III – Individual performance The bonus scorecard outcome coming out of step II may then be modified based on: • Individual contribution and achievements; • How the individual has assisted the Group achieve progress against its strategic objectives; • The leadership they have exhibited; and • How the individual has demonstrated Aviva’s values.
Step II – Non-financial performance modifiers The Committee considered Group performance against the non-financial modifiers set out below, the outcome of which may result in an adjustment to the bonus scorecard outcome if considered appropriate.
3 2019 non-financial modifiers relating to bonus scorecard Modifier Assessment Employee Employee engagement.
Engagement remains high at 73% but is slightly down on 2018 (76%) due to a period of uncertainty and change.
Customer Performance against our overall focus on customer outcomes, including Brand Trust.
Of the seven core businesses measured, five were either at or above the competitor benchmark.
We are working hard to meet our strategic priority of delivering great customer outcomes by improving service and product simplicity as well as reducing complaints through root cause analysis work.
3 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other Information’ section of the Annual report and accounts for more information. 4 Stated as at end February 2020.
Step III – Individual performance The Committee assessed EDs on their individual performance in the year. Details of each individual’s achievements are set out in the table below.
Maurice was appointed Group CEO from 4 March 2019, previously his role was CEO International and Chairman Global General Insurance (GI). Since being appointed as Group CEO, Maurice has provided strong leadership in the Group and at the PLC Board, with some notable achievements: • Establishment of the strategic direction for the Group to simplify the business and definition of new financial targets as announced at the Capital Markets Day in November
• Built an experienced ALT, promoting talents internally and recruiting seasoned external leaders, with a number of new appointments, including new Group CFO, Group Chief Operating Officer, Group Chief People Officer, Group Chief Risk Officer, with role changes for CEO Europe, Global CEO General Insurance and CEO Investments, Savings & Retirement (IS&R)
• Rebuilt relationships with investor community with two capital market days and a significant investor outreach program
• Launched a new project to reduce costs by £300 million net by 2022, with £72 million reduction achieved in 2019
Jason was appointed as CFO and ED of the Company from 26 September 2019, after becoming interim CFO on 1 July 2019 following Tom’s departure. Jason’s contribution to the finance function and the wider Aviva Group was critical to many key deliveries including: • Assisting the Group CEO in defining the strategic direction and turning it into a coherent set of financial targets as announced at the Capital Markets Day in November
• Increased profile of the Risk & Control environment with clear accountability and engagement, and steps taken to increase the strength of our control environment
• Restructure of the finance function to make it simpler, leaner and more commercial
• Rationalisation of the finance change programme and continued progress in the implementation of IFRS17
Andy was the CEO of Aviva UK Insurance until 30 April 2019. Over this period Andy provided strong leadership in the UK and continued to play an active leadership role at the PLC Board. Notable milestones in 2019 include: • Setting and driving ambitious financial targets for UK Insurance during Q1 to contribute to the overall success of Aviva • Continuing to define and implement growth opportunities across the UK Insurance portfolio • Led the Group wide Customer Pillar work as a fundamental priority for the business • Drove ongoing implementation of AvivaPlus and oversaw postlaunch review process on potential strategic impact on existing customer propositions
• Assisting incoming Group CEO in developing the strategic direction for Aviva
• Continued sponsorship of the Aviva ‘Origins’ community, promoting race, ethnicity, religion and social mobility as an important dimension of diversity and inclusion
The Committee carefully considered the individual performance of each ED. Details of the individual adjustments are reflected in table 4.
Final bonus outcomes – % of salary4 95.2% 100.6% 91.1% 91.1% – % of maximum 49.7% 67.0% 60.7% 60.7% – £ amount £886,3155 £177,6986 £337,9266 £218,2186 1 Pro-rated to reflect International and Group scorecards of 94.1% and 101.1% respectively. 2 The Group CEO has a maximum bonus opportunity of two times target (i.e. 200% of salary) while other EDs have a maximum opportunity of one and a half times target (150% of salary). 3 Maximum bonus opportunity is pro-rated for 2019 to reflect the time spent as CEO International and as Group CEO during the year. 4 The bonus scorecard for EDs can range from 0 to 200%. When the final outcome is above 100%, the resulting final bonus outcome, as a % of salary, is on a ‘1% for 1%’ basis for the Group CEO and on a ‘2% for 1%’ basis for other
EDs; e.g. a final outcome of 140% would result in a bonus of 140% of salary for the Group CEO and 120% of salary for other EDs. When below 100% scaling is ‘1% for 1%’, such that a final outcome of 80% would result in a bonus of 80% of salary for all EDs, including the Group CEO.
5 Pro-rated for different salary as CEO International and as Group CEO during the year 6 This outcome is pro-rated to reflect the time served on the Board
2017 LTIP vesting in respect of performance period 2017-2019 All references to adjusted IFRS RoE relate to the 2017 LTIP award only and represent RoE calculated as IFRS profit after tax and non-controlling interest but excluding investment variances, economic assumption changes, pension scheme income/charge over average IFRS equity (excluding pension scheme net surplus/deficit). The adjusted IFRS RoE1 and TSR2 outcome for the 2017 LTIP are detailed in the table below. 50% of the award will vest in March 2020. No discretion regarding the vesting outcome of the 2017 LTIP was exercised by the Committee.