United Kingdom & Ireland United Kingdom and Ireland comprises two operating segments – Life and General Insurance. The principal activities of our UK and Ireland Life operations are life insurance, long-term health (in the UK) and accident insurance, savings, pensions and annuity business, and include the UK insurance operations acquired as part of the acquisition of Friends Life in 2015. UK and Ireland General Insurance provides insurance cover to individuals and businesses, for risks associated mainly with motor vehicles, property and liability (such as employers’ liability and professional indemnity liability) and medical expenses. UK & Ireland General Insurance includes the results of our Ireland Health business, up to the date of disposal on 1 August 2016.
Poland Activities in Poland comprise long-term business and general insurance operations, including our long-term business in Lithuania.
(a) (i) Segmental income statement for the year ended 31 December 2016
Net earned premiums 3,940 4,118 6,530 471 4,599 2,420 767 — 23 22,868 Fee and commission income 868 140 258 60 98 17 198 326 (3) 1,962 4,808 4,258 6,788 531 4,697 2,437 965 326 20 24,830 Net investment income 24,903 283 2,951 141 533 50 1,240 83 73 30,257 Inter-segment revenue — — — — — — — 234 — 234 Share of profit of joint ventures and associates 172 — 16 7 3 1 17 — — 216 (Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates (3) (8) — — — — — — — (11)
Change in insurance liabilities, net of reinsurance (3,381) (550) (1,221) (79) (1,303) (16) (349) — 6 (6,893) Change in investment contract provisions (10,069) — (1,636) — (1,180) — (1,069) (85) — (14,039) Change in unallocated divisible surplus (259) — (276) 2 132 — 20 — — (381) Fee and commission expense (862) (1,277) (632) (77) (275) (628) (108) (35) 9 (3,885) Other expenses (1,427) (263) (266) (64) (106) (150) (289) (393) (895) (3,853) Inter-segment expenses (212) (8) (1) (5) — (5) — — (3) (234) Finance costs (195) (2) (1) — (3) (4) (3) — (418) (626)
Profit/(loss) before tax 2,275 (247) 325 141 268 164 25 130 (1,248) 1,833 Tax attributable to policyholders’ returns (638) — — — — — (2) — — (640)
Operating profit/(loss) before tax attributable to shareholders 1,579 443 481 146 318 270 201 160 (588) 3,010 1 Total reported income, excluding inter-segment revenue, includes £33,784 million from the United Kingdom (Aviva plc’s country of domicile). Income is attributed on the basis of geographical origin which does not differ materially from revenue by geographical destination, as most risks are located in the countries where the contracts were written.
2 Aviva Investors operating profit includes £2 million profit relating to the Aviva Investors Pooled Pensions business. 3 Other Group activities include Group Reinsurance. 4 Other items include an exceptional charge of £475 million (2015:£nil) relating to the impact of the change in the Ogden discount rate from 2.5% set in 2001 to minus 0.75% announced by the Lord Chancellor on 27 February 2017.
Claims and benefits paid, net of recoveries from reinsurers (10,663) (2,533) (4,454) (302) (2,343) (1,240) (415) — (35) (21,985)
Change in insurance liabilities, net of reinsurance 7,070 492 (1,093) 17 264 (12) (68) — 11 6,681 Change in investment contract provisions 943 — (1,915) 18 (702) — 328 (159) — (1,487) Change in unallocated divisible surplus 22 — 841 12 93 — 16 — — 984 Fee and commission expense (562) (1,195) (623) (57) (252) (571) (114) (26) 76 (3,324) Other expenses (1,369) (223) (205) (51) (111) (81) (250) (365) (129) (2,784) Inter-segment expenses (169) (5) (9) (6) — (4) — — (2) (195) Finance costs (214) (1) (1) — (4) (4) (3) — (391) (618)
Profit/(loss) before tax attributable to shareholders’ profits 740 140 420 139 191 142 70 81 (510) 1,413
Operating profit/(loss) before tax attributable to shareholders 1,447 414 449 141 268 214 223 106 (574) 2,688 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note 1 for further details.
Goodwill 663 1,018 — 26 199 88 51 — — 2,045 Acquired value of in-force business and intangible assets 3,152 160 86 12 619 292 1,062 9 76 5,468 Interests in, and loans to, joint ventures and associates 1,257 — 169 48 71 13 527 — — 2,085 Property and equipment 78 27 240 4 5 24 12 5 92 487 Investment property 6,504 208 2,878 — 1 — — 951 226 10,768 Loans 23,793 5 757 — 22 170 37 — — 24,784 Financial investments 173,069 4,324 68,427 3,015 24,108 4,670 11,460 574 10,188 299,835 Deferred acquisition costs 1,224 507 280 45 82 360 113 3 — 2,614 Other assets 52,754 6,175 7,716 237 1,644 1,372 1,479 961 6,967 79,305 Assets of operations classified as held for sale — — 13,028 — — — — — — 13,028
Notes to the consolidated financial statements continued 4 – Segmental information continued (a) (iv) Segmental statement of financial position as at 31 December 2015 – restated1
Liability for investment contracts 114,052 — 47,834 2 9,770 — 7,681 1,743 — 181,082 Unallocated divisible surplus 2,575 — 4,941 55 1,047 — 193 — — 8,811 Net asset value attributable to unitholders 203 — 2,863 — 413 — — — 7,936 11,415 External borrowings 1,903 — — — 49 — — — 6,818 8,770 Other liabilities, including inter-segment liabilities 12,271 (1,240) 4,066 99 715 596 565 370 1,485 18,927 Liabilities of operations classified as held for sale — — — — — — — — — —
Total equity and liabilities 387,831 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note 1 for further details.
Gross written premiums2 13,187 8,738 — — 21,925 Premiums ceded to reinsurers (1,529) (1,361) — — (2,890)
Claims and benefits paid, net of recoveries from reinsurers (16,809) (5,176) — — (21,985) Change in insurance liabilities, net of reinsurance 6,205 476 — — 6,681 Change in investment contract provisions (1,487) — — — (1,487) Change in unallocated divisible surplus 984 — — — 984 Fee and commission expense (1,098) (2,118) (23) (85) (3,324) Other expenses (1,663) (368) (367) (386) (2,784) Inter-segment expenses (190) (11) — — (201) Finance costs (202) (5) — (411) (618)
Profit/(loss) before tax 1,404 369 80 (658) 1,195 Tax attributable to policyholder returns 218 — — — 218
Net earned premiums 14,051 8,817 — — 22,868 Fee and commission income 1,234 26 300 402 1,962 15,285 8,843 300 402 24,830 Net investment income/(expense) 29,695 383 (2) 181 30,257 Inter-segment revenue — — 239 — 239 Share of profit of joint ventures and associates 213 3 — — 216 (Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates (3) (8) — — (11)
Profit/(loss) before tax attributable to shareholders’ profits 2,194 (16) 108 (1,093) 1,193 Adjusted for: Non-operating items 448 849 30 490 1,817
Net earned premiums 11,658 7,266 — — 18,924 Fee and commission income 1,161 61 274 301 1,797 12,819 7,327 274 301 20,721 Net investment income/(expense) 2,667 240 (5) (77) 2,825 Inter-segment revenue — — 201 — 201 Share of profit of joint ventures and associates 177 3 — — 180 Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates 1 1 — — 2
Goodwill 889 1,086 3 67 2,045 Acquired value of in-force business and intangible assets 4,845 571 9 43 5,468 Interests in, and loans to, joint ventures and associates 2,030 42 — 13 2,085 Property and equipment 264 109 5 109 487 Investment property 10,202 341 — 225 10,768 Loans 24,607 177 — — 24,784 Financial investments 277,889 11,699 51 10,196 299,835 Deferred acquisition costs 1,574 1,037 3 — 2,614 Other assets 61,780 8,995 835 7,695 79,305 Assets of operations classified as held for sale 13,028 — — — 13,028
Gross insurance liabilities 134,695 16,488 — — 151,183 Gross liabilities for investment contracts 197,095 — — — 197,095 Unallocated divisible surplus 9,349 — — — 9,349 Net asset value attributable to unitholders 2,934 — — 12,704 15,638 External borrowings 1,718 — — 8,577 10,295 Other liabilities, including inter-segment liabilities 19,930 1,215 371 3,298 24,814 Liabilities of operations classified as held for sale 12,494 — — — 12,494
Rent 604 590 Expenses relating to these properties (66) (52) Realised gains on disposal 56 120 Fair value (losses)/gains on investment properties (note 21) (129) 778 465 1,436 Realised gains/(losses) on loans — (10) Foreign exchange gains and losses on investments other than trading 979 176 Other investment expenses (135) (111)
Participating investment contracts (note 41) 2,914 1,270 Non-participating investment contracts 9,849 (2,957)
Investment income attributable to unitholders 96 17 Reinsurance commissions and other fee and commission expense 449 399
Gross written premiums (note 4a and 4b) Long-term: Insurance contracts 9,915 8,577 Participating investment contracts 5,833 4,610
Fee and commission income Fee income from investment contract business 1,021 922 Fund management fee income 403 342 Other fee income 330 310 Reinsurance commissions receivable 47 74 Other commission income 150 134 Net change in deferred revenue 11 15
From financial instruments designated as trading and other than trading 5,392 5,219 From AFS investments and financial instruments at amortised cost 35 49 5,427 5,268 Dividend income 2,544 2,238 Other income from investments designated as trading
Gains/(losses) arising in the year (204) 107 (Gains) recognised now realised (66) (1,264)
(270) (1,157) (204) 107 Other income from investments designated as other than trading
Share of profit after tax of joint ventures (note 18) 170 162 Share of profit after tax of associates (note 19a) 46 18 Share of profit after tax of joint ventures and associates 216 180 (Loss)/profit on disposal and remeasurement of subsidiaries, joint ventures and associates (note 3b) (11) 2
Claims and benefits paid to policyholders on general insurance and health business 6,164 5,522 25,617 23,603 Less: Claim recoveries from reinsurers
Change in investment contract provisions Investment income allocated to investment contracts 5,200 1,958 Other changes in provisions
Other net foreign exchange losses/(gains) 574 (182) Finance costs (note 7) 626 618 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note 1 for further details.
Total finance costs 626 618 8 – Long-term business economic volatility The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance management, the effects of short-term economic volatility are treated as non-operating items. The Group focuses instead on an operating profit measure that incorporates an expected return on investments supporting its long-term business, as described below.
In 2015, positive investment variances of £14 million were driven by France and Asia, partially offset by a negative variance in Italy. The positive variance in France reflected realised bond gains and equity outperformance, while the positive variance in Asia was driven by increased interest rates in Singapore, which reduced liabilities by more than asset values. The negative variance in Italy was driven by widening credit spreads. The investment variance was largely neutral in the UK, reflecting the positive variance from a reduction in equity release asset default provisions following favourable property market performance, offset by the negative impact of widening credit spreads.
The expected return on equities and properties has been calculated by reference to the 10 year mid-price swap rate for an AArated bank in the relevant currency plus a risk premium. The use of risk premium reflects management’s long-term expectations of asset return in excess of the swap yield from investing in different asset classes. The asset risk premiums are set out in the table below: All territories 2016
Interest expense on operational borrowings Amounts owed to financial institutions 39 48 Securitised mortgage loan notes at fair value 84 84
The effect of differences between actual and expected economic experience on liabilities, and changes to economic assumptions used to value liabilities, are taken outside operating profit. For many types of long-term business, including unit-linked and with-profits funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The profit impact of economic volatility on other long-term business depends on the degree of matching of assets and liabilities, and exposure to financial options and guarantees.
(c) The longer-term investment return is calculated separately for each principal non-long-term business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longer-term rate of investment return.
Notes to the consolidated financial statements continued 9 – Longer-term investment return and economic assumption changes for non-long-term business continued (d) The total assets supporting the general insurance and health business, which contribute towards the longer-term return, are: Debt securities 10,799 9,608 Equity securities 267 217 Properties 341 335 Cash and cash equivalents 1,162 969 Other1 2,032 3,008
The longer-term rates of return on equities and properties have been calculated by reference to the 10 year mid-price swap rate for an AA-rated bank in the relevant currency plus a risk premium. The underlying reference rates and risk premiums are shown in note 8.
(f) The table below shows the sensitivity of the Group’s non-long-term business operating profit before tax to changes in the longer-term rates of return: Movement in investment return for By Change in 2016 £m
(b) The longer-term investment return and short-term fluctuation are as follows: Non-long-term business 2016
Market value movements which give rise to variances between actual and longer-term investment returns are disclosed separately in short term fluctuations outside operating profit.
The impact of realised and unrealised gains and losses on Group centre investments, including the centre hedging programme which is designed to economically protect the total Group’s capital against adverse equity and foreign exchange movements, is included in short-term fluctuations on other operations.
Notes to the consolidated financial statements continued 12 – Auditors’ remuneration This note shows the total remuneration payable by the Group, excluding VAT and any overseas equivalent thereof, to our principal auditors, PricewaterhouseCoopers LLP.
Fees payable to PwC LLP and its associates for the statutory audit of the Aviva Group and Company financial statements 2.8 3.8 Fees payable to PwC LLP and its associates for other services
Other assurance services in 2016 of £8.1 million (2015: £13.3 million) mainly include fees relating to the Solvency II internal model independent validation work and balance sheet assurance which reduced during the year to £7.7 million (2015: £11.6 million). Solvency II implementation was a major project requiring substantial model validation assurance that the Company believes is most appropriately performed by the principal auditors. In view of the significance and scale of this work, the Audit Committee specifically assessed the suitability of PwC to provide this service.
The 2016 fees for other non-audit services of £1.0 million include a number of individually smaller services. Details of the Group’s process for safeguarding and supporting the independence and objectivity of the external auditors are given in the Audit Committee report.
Defined benefit schemes (note 48d) 17 13 Defined contribution schemes (note 48d) 138 123
Total staff costs 1,764 1,628 11 – Directors Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ Remuneration Report in the ‘Corporate governance’ section of this report. For the purposes of the disclosure required by Schedule 5 to the Companies Act 2006, the total aggregate emoluments of the directors in respect of 2016 was £10.5 million (2015: £11.5 million). Employer contributions to pensions for executive directors for qualifying periods were £14,168 (2015: £57,581). The aggregate net value of share awards granted to the directors in the period was £8.1 million (2015: £9.7 million). The net value has been calculated by reference to the closing middle market price of an ordinary share at the date of grant. During the year, no share options were exercised by directors (2015: no share options).
Tax compliance services 0.1 0.1 Tax advisory services 0.1 0.1 Services relating to corporate finance transactions 0.1 0.2 Other non-audit services not covered above 1.0 1.5
Fees for other assurance services comprise non-statutory assurance work which is customarily performed by the external auditor. This included the audit of the Group’s MCEV reporting in the prior year as the relevant fees were not classified as being for statutory audit. Audited MCEV reporting ceased in 2016.
Current tax For the period 930 500 Prior period adjustments 1 (68)
Deferred tax Origination and reversal of temporary differences 72 (222) Changes in tax rates or tax laws (14) (82) Write back of deferred tax assets (15) (30)
Total tax charged to income statement 974 98 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. As a result, the tax charge increased by £5 million to £98 million. See note 1 for further details.
Current tax In respect of pensions and other post-retirement obligations (25) (44) In respect of foreign exchange movements 31 (7)
In respect of pensions and other post-retirement obligations 94 (49) In respect of fair value gains on owner-occupied properties 1 — In respect of unrealised gains on investments 3 (6)
The tax charge/(credit) attributable to policyholder returns is removed from the Group’s total profit before tax in arriving at the Group’s profit before tax attributable to shareholders’ profits. As the net of tax profits attributable to with-profit and unit-linked policyholders is zero, the Group’s pre-tax profit attributable to policyholders is an amount equal and opposite to the tax charge/(credit) attributable to policyholders included in the total tax charge. The difference between the policyholder tax charge/(credit) and the impact of this item in the tax reconciliation can be explained as follows: Tax attributable to policyholder returns 640 (218) UK corporation tax at a rate of 20.00% (2015: 20.25%) in respect of the policyholder tax deduction (128) 44 Different local basis of tax of overseas profits 1 —
13 – Tax This note analyses the tax charge for the year and explains the factors that affect it.
(iii) The tax charge above, comprising current and deferred tax, can be analysed as follows: £m 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. As a result, the tax charge increased by £5million to £98 million. See note 1 for further details.
(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce the current tax expense and deferred tax expense by £10 million and £8 million (2015: £5 million and £30 million), respectively.
Long-term business technical provisions and other insurance items (147) 517 Deferred acquisition costs (12) (41) Unrealised gains/(losses) on investments 144 (847) Pensions and other post-retirement obligations 21 (4) Unused losses and tax credits 39 34 Subsidiaries, associates and joint ventures 4 4 Intangibles and additional value of in-force long-term business (99) (149) Provisions and other temporary differences 93 152
Notes to the consolidated financial statements continued 13 – Tax continued (c) Tax credited to equity Tax credited directly to equity in the year in respect of coupon payments on the direct capital instrument and tier 1 notes amounted to £17 million (2015: £15 million).
(d) Tax reconciliation The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: Shareholder £m Policyholder £m Shareholder £m Policyholder £m £m
Tax calculated at standard UK corporation tax rate of 20.00% (2015: 20.25%) 239 128 367 286 (44) 242 Reconciling items
In addition, the French government has reduced the rate of corporation tax from 34.43% to 28.92% with effect from 1 January 2020. The further reduction in the future corporation tax rates in the UK from 18% to 17%, and the reduction in France from 34.43% to 28.92% has been used in the calculation of deferred tax assets and liabilities in the UK and France for the year ended 31 December 2016. This results in a reduction in the Group’s net deferred tax liabilities of £24 million, comprising a £14 million credit in the income statement and a £10 million credit in the statement of comprehensive income.
(Loss)/profit on disposal and remeasurement of subsidiaries, joint ventures and associates (11) (16) (0.4) 2 2 0.1
Profit attributable to ordinary shareholders 618 4,051 15.3 862 3,741 23.1 Dilutive effect of share awards and options — 38 (0.2) — 39 (0.3)
15 – Dividends and appropriations This note analyses the total dividends and other appropriations we paid during the year. The table below does not include the final dividend proposed after the year end because it is not accrued in these financial statements.
(iii) The calculation of basic earnings per share uses a weighted average of 4,051 million (2015: 3,741 million) ordinary shares in issue, after deducting treasury shares. The actual number of shares in issue at 31 December 2016 was 4,062 million (2015: 4,048 million) and 4,058 million (2015: 4,042 million) excluding treasury shares.
Notes to the consolidated financial statements continued 14 – Earnings per share continued (b) Diluted earnings per share (i) Diluted earnings per share is calculated as follows: Total £m
Interest on the direct capital instrument and tier 1 notes is treated as an appropriation of retained profits and, accordingly, is accounted for when paid. Tax relief is obtained at a rate of 20.00% (2015: 20.25%).
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note 1 for further details.
Subsequent to 31 December 2016, the directors proposed a final dividend for 2016 of 15.88 pence per ordinary share (2015: 14.05 pence), amounting to £645 million (2015: £570 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 17 May 2017 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2017.
Goodwill from acquisitions and additions in 2016 primarily arose on the acquisition of RBC General Insurance Company. Goodwill from acquisitions and additions in 2015 primarily arose on the acquisition of Friends Life (£671 million) and a network of independent financial advisors in Poland (£15 million).
There is no impairment of goodwill in 2016. The total impairment of goodwill in subsidiaries, joint ventures and associates in 2015 was a charge of £22 million following management’s assessment that goodwill in subsidiaries of £13 million in Hong Kong and £9 million in Italy was impaired. Impairment tests on goodwill were conducted as described in note 16(b).
Carrying amount of intangibles with indefinite useful lives (detailed in note 17) Total £m £m
Shareholder value basis Future new business profits growth rate Future new business profits discount rate
United Kingdom general insurance and health 1 1.3 7.7 6.4 Ireland general insurance and health nil 1.3 – 2.5 6.7 6.1 Italy general insurance and health 1 – 1.2 1.3 9.0 – 11.8 6.5 – 7.8 2 The 2015 pre-tax discount rates for United Kingdom, Ireland and Italy were 8.6%, 7.6% and 9.9%-12.9%, respectively.
Spain The recoverable amount of the indefinite life intangible asset (see note 17 (b)) has been assessed using consistent assumptions with those for Spain long-term business goodwill impairment testing.
For the goodwill in the UK Life long-term business that arose on the Friends Life acquisition, the value of the business was sufficient to demonstrate goodwill recoverability on its own. As such it was not necessary to estimate the present value of expected profits from future new business.
Results of impairment testing There is no impairment of goodwill in 2016. For all cash generating units with associated goodwill, the recoverable amount exceeds the carrying value including goodwill. Furthermore, a reasonably possible change in assumptions would not cause the carrying amount to exceed its recoverable amount.
Accumulated amortisation At 1 January 2015 (363) (61) (468) — (892) Amortisation for the year (259) (237) (131) — (627) Disposals and transfers 21 — 70 (57) 34 Foreign exchange rate movements 15 — 12 — 27
Less: Assets classified as held for sale (12) — — — (12)
Impairment losses of £14 million on intangible assets with finite lives arose on capitalised software in other group activities. (c) Intangible assets with indefinite useful lives primarily comprise the value of the Union Financière de France Banque and Banco
Mare Nostrum (BMN) distribution channels in Spain, where the existing lives of the assets support this classification. Impairment testing of these intangible assets is covered in note 16(b).
Notes to the consolidated financial statements continued 18 – Interests in, and loans to, joint ventures In several businesses, Group companies and other parties jointly control certain entities. This note analyses these interests and describes the principal joint ventures in which we are involved.
1 Comprises amortisation of AVIF on insurance contracts of £1 million (2015: £2 million) and other intangibles of £7 million (2015: £6 million).
Gross amount At 1 January 2015 465 118 1,421 110 2,114 Additions and transfers 2,205 2,585 382 220 5,392 Disposals (21) — (20) — (41) Foreign exchange rate movements (18) — (49) (5) (72)
At 31 December 2015 (586) (298) (517) (57) (1,458) Amortisation for the year (255) (284) (155) — (694) Disposals 43 — 211 — 254 Foreign exchange rate movements (72) (1) (43) — (116)
Additions of intangibles with finite lives primarily relate to RBC Insurance’s distribution network and customer relationships acquired as part of the acquisition of RBC General Insurance Company and capitalised software in the UK.
Disposals primarily comprise the derecognition of exhausted assets which are fully amortised or impaired with nil carrying value.
At 1 January 90 1,406 94 1,590 87 980 73 1,140 Share of results before tax — 182 — 182 — 174 — 174 Share of tax — (4) — (4) — (4) — (4)
Additions and disposals primarily relate to the Group’s holdings in property management undertakings. The Group’s share of total comprehensive income related to joint venture entities is £164 million (2015: £148 million).
Property management undertakings — 1,146 — 1,146 — 1,097 94 1,191 Long-term business undertakings 78 338 — 416 77 288 — 365 General insurance and health undertakings 14 28 — 42 13 21 — 34
There is no impairment in the goodwill and intangible amounts within the joint ventures.
(a) Carrying amount and details of associates (i) The movements in the carrying amount comprised: Goodwill and intangibles £m Equity interests £m Total £m
Aviva Life Insurance Company India Limited Life insurance India 49.00% 26.00% SCPI Ufifrance Immobilier Property Management France 20.40% 20.40% SCPI Selectipierre 2 Property Management France 28.85% 22.16% AI UK Commercial Real Estate Debt Fund1 Property Management UK 16.20% 20.72% Encore+1 Property Management UK 7.00% 10.19%
(iii) The associates have no significant contingent liabilities to which the Group is exposed. The Group has commitments to provide funding to property management associates of £3 million (2015: £15 million).
(b) Impairment testing The recoverable amount of property management undertakings is the fair value less costs to sell of the associate, measured in accordance with the Group’s accounting policy for Investment Property (see accounting policy Q).
In certain jurisdictions the ability of joint ventures to transfer funds in the form of cash dividends or to repay loans and advances made by the Group is subject to local corporate or insurance laws and regulations and solvency requirements.
(ii) No associates are considered to be material from a Group perspective (2015: none). All investments in principal associates are held by subsidiaries. The Group’s principal associates are as follows: Proportion of ownership interest
In certain jurisdictions the ability of associates to transfer funds in the form of cash dividends or to repay loans and advances made by the Group is subject to local corporate or insurance laws and regulations and solvency requirements.
At 31 December 2015 3 360 3 267 236 869 Additions 2 3 — 14 48 67 Disposals — (77) — (13) (20) (110) Transfers from/(to) investment property (note 21) — 39 — — — 39 Fair value losses — (18) — — — (18) Foreign exchange rate movements — 34 — 2 13 49
Depreciation and impairment At 1 January 2015 — (27) (2) (540) (142) (711) Charge for the year — — — (11) (13) (24) Disposals1 — 4 — 300 2 306 Impairment charge — — — — — — Foreign exchange rate movements — — — 3 6 9
The fair value of investment properties leased to third parties under operating leases at 31 December 2016 was £10,754 million (2015: £11,149 million). Future contractual aggregate minimum lease rentals receivable under the non-cancellable portion of these leases are given in note 53(b)(i).
Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers. These values are assessed in accordance with the relevant parts of the current Royal Institute of Chartered Surveyors Appraisal and Valuation Standards in the UK, and with current local valuation practices in other countries. This assessment is in accordance with UK Valuations Standards (‘Red book’), and is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing wherein the parties had acted knowledgeably and without compulsion, on the basis of the highest and best use of asset that is physically possible, legally permissible and financially feasible. The valuation assessment adopts market-based evidence and is in line with guidance from the International Valuation Standards Committee and the requirements of IAS 16, Property, Plant and Equipment.
1 Additions in 2015 include investment property bought as part of the acquisition of Friends Life.
Level 3 Inputs to Level 3 fair values are unobservable inputs for the asset or liability. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Unobservable inputs reflect the assumptions the business unit considers that market participants would use in pricing the asset or liability. Examples are investment properties, certain private equity investments and private placements.
(b) Changes to valuation techniques There were no changes in the valuation techniques during the year compared to those described in the 2015 annual consolidated financial statements, other than in respect of certain securitised and equity release mortgages as set out in (e) below.
Financial assets Loans1 (note 23 (a)) 24,705 24,784 22,307 22,433 Financial Investments (note 26 (b)) 299,835 299,835 274,217 274,217
Fixed maturity securities 175,536 175,536 162,964 162,964 Equity securities 68,348 68,348 63,558 63,558 Other investments (including derivatives) 55,951 55,951 47,695 47,695
(d) Fair value hierarchy analysis An analysis of assets and liabilities measured at amortised cost and fair value categorised by fair value hierarchy is given below.
Transfers to/from Level 3 Transfers of assets into Level 3 of £2.7 billion included: • £0.7 billion of securitised and equity release mortgage loans valued using an internal model in place of the previous discounted cash flow model. The internal model incorporates a greater number of inputs relevant to calculating the fair value of these mortgages. As a number of these inputs have been deemed to be non-market observable and significant, the loans have been classified as Level 3 and transferred from Level 2.
22 – Fair value methodology continued The majority of the Group’s assets and liabilities measured at fair value are based on quoted market information or observable market data. Of the total assets and liabilities measured at fair value 15.8% of assets and 4.4% of liabilities are based on estimates and recorded as Level 3. Where estimates are used, these are based on a combination of independent third-party evidence and internally developed models, calibrated to market observable data where possible. Third-party valuations using significant unobservable inputs validated against Level 2 internally modelled valuations are classified as Level 3, where there is a significant difference between the third-party price and the internally modelled value. Where the difference is insignificant, the instrument would be classified as Level 2.
Financial liabilities Non-participating investment contracts-restated2 (note 41 (a)) 114,527 114,527 103,034 103,034 Net asset value attributable to unitholders 15,638 15,638 11,415 11,415 Borrowings1 (note 49 (a)) 10,926 10,295 9,091 8,770 Derivative liabilities (note 57 (b)) 6,795 6,795 3,881 3,881 1 Within the fair value total, the estimated fair value has been provided for the portion of loans and borrowings that are carried at amortised cost as disclosed in note 22 (h). 2 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note 1 for further details.
Recurring fair value measurements Investment Property (note 21) — — 10,768 10,768 — 10,768 Loans (note 23 (a)) — 360 20,923 21,283 3,501 24,784 Financial investments measured at fair value (note 26 (b))
Financial liabilities measured at fair value Non-participating investment contracts1 (note 41 (a)) 110,900 219 3,408 114,527 — 114,527 Net asset value attributable to unit holders 15,618 — 20 15,638 — 15,638 Borrowings (note 49 (a)) — — 1,110 1,110 9,185 10,295 Derivative liabilities (note 57 (b)) 401 4,794 1,600 6,795 — 6,795
Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers in line with the Group’s policy. Further details on the valuation of these properties can be found in note 20.
22 – Fair value methodology continued Transfers of liabilities out of Level 3 amounted to £0.3 billion relate to: • £0.1 billion of non-participating investment contract liabilities where the underlying assets have been transferred due to a change in the observability of the inputs; • £0.2 billion of derivative liabilities as the significant valuation input, being the credit spreads, are now determined from actively traded observable market data.
Opening balance at 1 January 2016 11,301 18,129 14,603 936 4,153 — (3,421) (22) (1,093) (527) Total net gains/(losses) recognised in the income statement1 (75) 483 586 55 161 13 (111) 2 (575) 217 Purchases 721 116 1,587 94 718 228 (184) — (302) — Issuances — 2,612 — — — — (41) — — — Disposals (1,534) (1,140) (1,528) (194) (1,144) (75) 358 — 196 — Settlements2 — — 67 — — — 21 — — 17 Transfers into Level 3 — 718 1,893 — 40 50 (40) — — (817) Transfers out of Level 3 — — (1,284) (1) (111) (15) 81 — 179 — Reclassification to held for sale (40) — (590) — (36) 666 — — — — Foreign exchange rate movements 395 5 1,113 23 220 113 (71) — (5) —
• Equity release and securitised mortgage loans including those that were valued using a discounted cash flow model held by our UK Life business amounting to £8 billion (2015: £6.7 billion) are valued using an internal model. Inputs to the model include primarily property growth rates, mortality and morbidity assumptions, cost of capital and liquidity premium which are not deemed to be market observable. The valuation reflects an immediate c.8.5% decrease to property value in light of the UK referendum vote for the UK to leave the European Union the effect of which is offset by the long-term property growth assumption of approximately 4.4% per annum.
• Non-recourse loans of £0.6 billion (2015: £0.6 billion) have been valued using internally developed discounted cash flow models incorporating a significant number of modelling assumptions and unobservable market data including a probability of default and illiquidity premium.
• Collateralised loan obligations of £0.4 billion (2015: £0.4 billion) have been valued using internally developed discounted cash flow models incorporating a significant number of modelling assumptions and unobservable market data including assumptions regarding correlation among the underlying loans, a probability of default and liquidity premium.
• Corporate debt securities held by our French business of £1.5 billion (2015: £1.5 billion) and debt securities of £1.4 billion held by our UK and Asia businesses (2015: £0.9 billion) which are not traded in an active market have been valued using third party or counterparty valuations. These prices are considered to be unobservable due to infrequent market transactions.
(v) Other investments • The following Other investments are valued based on external valuation reports received from fund managers: – Private equity investment funds amounting to £0.8 billion (2015: £1.4 billion); – Other investment funds including property funds amounting to £0.8 billion (2015: £1.0 billion); – External hedge funds held principally by businesses in the UK and France amounting to £0.5 billion (2015: £0.5 billion); and – Discretionary managed funds held in Asia amounting to £1.7 billion (2015: £1.2 billion).
(f) Valuation approach for fair value assets and liabilities classified as Level 2 Please see note 22(a) for a description of typical Level 2 inputs. Debt securities, in line with market practice, are generally valued using an independent pricing service. These valuations are determined using independent external quotations from multiple sources and are subject to a number of monitoring controls, such as monthly price variances, stale price reviews and variance analysis. Pricing services, where available, are used to obtain the thirdparty broker quotes. Where pricing services providers are used, a single valuation is obtained and applied. When prices are not available from pricing services, quotes are sourced from brokers. Over-the-counter derivatives are valued using broker quotes or models such as option pricing models, simulation models or a combination of models. The inputs for these models include a range of factors which are deemed to be observable, including current market and contractual prices for underlying instruments, period to maturity, correlations, yield curves and volatility of the underlying instruments. Unit Trusts and other investment funds included under the other investments category are valued using net asset values which are not subject to a significant adjustment for restrictions on redemption or for limited trading activity.
The principal assets classified as Level 3, and the valuation techniques applied to them, are described below.
(i) Investment property • Investment property amounting to £10.8 billion (2015: £11.3 billion) is valued in the UK at least annually by external chartered surveyors in accordance with guidance issued by The Royal Institution of Chartered Surveyors, and using estimates during the intervening period. Outside the UK, valuations are produced by external qualified professional appraisers in the countries concerned. Investment properties are valued on an income approach that is based on current rental income plus anticipated uplifts at the next rent review, lease expiry, or break option taking into consideration lease incentives and assuming no further growth in the estimated rental value of the property. The uplift and discount rates are derived from rates implied by recent market transactions on similar properties. These inputs are deemed unobservable.
22 – Fair value methodology continued Where these valuations are at a date other than balance sheet date, as in the case of some private equity funds, we make adjustments for items such as subsequent draw-downs and distributions and the fund manager’s carried interest.
Where possible, the Group tests the sensitivity of the fair values of Level 3 investments to changes in unobservable inputs to reasonable alternatives. Valuations for Level 3 investments are sourced from independent third parties when available and, where appropriate, validated against internally-modelled valuations, third-party models or broker quotes. Where third-party pricing sources are unwilling to provide a sensitivity analysis for their valuations, the Group undertakes, where feasible, sensitivity analysis on the following basis: • For third-party valuations validated against internally-modelled valuations using significant unobservable inputs, the sensitivity of the internally modelled valuation to changes in unobservable inputs to a reasonable alternative is determined. • For third-party valuations either not validated or validated against a third-party model or broker quote, the third-party valuation in its entirety is considered an unobservable input. Sensitivities are determined by flexing inputs of internal models to a reasonable alternative, including the yield, NAV multiple or other suitable valuation multiples of the financial instrument implied by the third-party valuation. For example, for a fixed income security the implied yield would be the rate of return which discounts the security’s contractual cash flows to equal the third-party valuation.
• Derivative liabilities of £1.6 billion (2015: £0.9 billion) comprising over-the-counter derivatives being primarily RPI swaps and index linked asset swaps. These swaps are valued using either discounted cash flow models. Cash flows within these models may be adjusted based on assumptions reflecting the underlying credit risk and liquidity risk and these assumptions are deemed to be non-market observable.
• £1.1 billion (2015: £0.5 billion) of securitised mortgage loan notes, presented within Borrowings, are valued using a similar technique to the related Level 3 securitised mortgage assets.
Less: Amounts classified as held for sale — (75) (75) — — —
Of the above total loans, £23,432 million (2015: £20,948 million) are due to be recovered in more than one year after the statement of financial position date.
On the basis of the methodology outlined above, the Group is able to perform sensitivity analysis for £54 billion of the Group’s Level 3 assets. For these Level 3 assets, changing unobservable valuation inputs to a reasonable alternative would result in a change in fair value by ± £2.3 billion. Of the £0.1 billion Level 3 assets for which sensitivity analysis is not provided, it is estimated that a 10% change in valuation assumptions downwards of these assets would result in a change in fair value of approximately £10 million.
Where possible, the Group tests the sensitivity of the fair values of Level 3 liabilities to changes in unobservable inputs to reasonable alternatives. Sensitivities are determined by flexing inputs of internal models to a reasonable alternative, including the yield, NAV multiple or other suitable valuation multiples of the financial instrument implied by the third-party valuation.
Assets and liabilities not carried at fair value Loans — 1,046 2,181 3,227 Borrowings 7,295 176 312 7,783
(a) Carrying amounts The carrying amounts of loans at 31 December 2016 and 2015 were as follows: At fair value through profit or loss other than trading £m
Healthcare, Infrastructure and PFI other loans of £2.5 billion (2015: £1.2 billion) are secured against the income from healthcare and educational premises.
Policy loans 881 — 881 778 — 778 Loans to banks 2,010 — 2,010 2,151 — 2,151 Non-securitised mortgage loans 8 (7) 1 6 (6) — Loans to brokers and other intermediaries 170 — 170 135 — 135 Other loans 514 — 514 290 — 290
All the shares in the ERF companies are held by independent companies, whose shares are held on trust. Although AER does not own, directly or indirectly, any of the share capital of the ERF companies or their parent companies, it has control of the securitisation companies, and they have therefore been treated as subsidiaries in the consolidated financial statements. AER has no right to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where AER is in breach of warranty or loans are substituted in order to affect a further advance.
Initiative (PFIs). • Specialised investment vehicles include Open Ended Investment Companies (OEICs), Property Limited Partnerships (PLPs), Sociétés d’Investissement a Capital Variable (SICAVs) and other investment vehicles.
(a) Interests in consolidated structured entities The Group has determined that where it has control over investment vehicles, these investments are consolidated structured entities. As at 31 December 2016 the Group has granted loans to consolidated PLPs for a total of £114 million (2015: £174 million). The purpose of these loans is to assist the consolidated PLPs to purchase or construct properties. The Group has also provided support, without having a contractual obligation to do so, to certain consolidated PLPs via letters of support amounting to £167 million (2015: £121 million). The Group has commitments to provide funding to consolidated structured entities of £10 million (2015 Restated1: £9 million).
As at the reporting date, the Group has no intentions to provide financial or other support in relation to any other investment vehicles. 1 The Group commitments to provide funding have been reduced by £44 million to reflect consolidated structured entities only.
(a) Description of current arrangements In a UK long-term business subsidiary, Aviva Equity Release UK Limited (AER), the beneficial interest in certain portfolios of lifetime mortgages has been transferred to five special purpose securitisation companies (the ERF companies), in return for initial consideration and, at later dates, deferred consideration. The deferred consideration represents receipts accrued within the ERF companies after meeting all their obligations to the note holders, loan providers and other third parties in the priority of payments. The purchases of the mortgages were funded by the issue of fixed and floating rate notes by the ERF companies.
1. Other securitisation assets/(liabilities) include £223 million (2015: £nil) of securitisation assets and £5,215 million (2015: £nil) of securitisation liabilities (loan note liabilities) with respect to Aviva ERFA 15 UK Limited which are eliminated on consolidation.
Loan notes held by third parties are as follows: Total loan notes issued, as above 1,327 1,564 Less: Loan notes held by Group companies (217) (256)
As at 31 December 2016, a summary of the Group’s interest in unconsolidated structured entities is as follows: £m
Structured debt securities1 — — 3,923 — 3,923 — — 4,260 — 4,260 Other investments and equity securities 1,146 305 51,984 — 53,435 1,191 258 43,907 — 45,356
Analysed as: Unit trust and other investment vehicles — — 50,190 — 50,190 — — 42,641 — 42,641 PLPs and property funds 1,146 305 1,186 — 2,637 1,191 258 960 — 2,409 Other (Including other funds and equity securities) — — 608 — 608 — — 306 — 306 1 Reported within ‘other debt securities’ in note 26a. 2 Loans include Healthcare, infrastructure & PFI other loans. 3 Following a review 2015 loans of £1,246 million were identified as being interests in unconsolidated structured entities.
The Group’s maximum exposure to loss related to the interests in unconsolidated structured entities is £59.8 billion. The majority of debt securities above are investment grade securities held by the UK business. In some cases, the Group may be required to absorb losses from an unconsolidated structured entity before other parties when and if Aviva’s interest is more subordinated with respect to other owners of the same security.
At 31 December 2016 the loans granted to PLPs classified as joint ventures and associates have been repaid (2015: £94 million). These loans were provided for the purpose of short-term liquidity funding. For commitments to property management joint ventures and associates, please refer to Notes 18 and 19, respectively. The Group has not provided any other financial or other support in addition to that described above as at the reporting date, and there are no intentions to provide support in relation to any other unconsolidated structured entities in the foreseeable future.
In relation to risk management, disclosures on debt securities and investment vehicles are given in note 56(b)(iii) ‘Risk management’. In relation to other guarantees and commitments that the Group provides in the course of its business, please refer to Note 52(f) ‘Contingent liabilities and other risk factors’.
Aviva’s interest in unconsolidated structured entities that it also manages at 31 December 2016 is £2.1 billion (2015: £2.3 billion) and the total funds under management relating to these investments at 31 December 2016 is £14.5 billion (2015: £15.3 billion).
Other debt securities of £12,224 million (2015: £10,765 million) include residential and commercial mortgage-backed securities, as well as other structured credit securities.
25 – Interests in structured entities continued (b) Interests in unconsolidated structured entities As part of its investment activities, the Group invests in unconsolidated structured entities. As at 31 December 2016, the Group’s total interest in unconsolidated structured entities was £59.8 billion (2015 Restated3: £50.9 billion) on the Group’s statement of financial position. The Group’s total interest in unconsolidated structured entities is classified as Interests in and loans to joint ventures and associates and financial investments held at fair value through profit or loss. The Group does not sponsor any of the unconsolidated structured entities.
(c) Other interests in unconsolidated structured entities The Group receives management fees and other fees in respect of its asset management businesses. The Group does not sponsor any of the funds or investment vehicles from which it receives fees. Management fees received for investments that the Group manages but does not have a holding in also represent an interest in unconsolidated structured entities. As these investments are not held by the Group, the investment risk is borne by the external investors and therefore the Group’s maximum exposure to loss relates to future management fees. The table below shows the assets under management of entities that the Group manages but does not have a holding in and the fees earned from those entities. The increase in total assets under management is primarily the result of an increase in total pension fund assets managed by Poland.
Convertibles and bonds with warrants attached — 180 — 180 — 158 — 158 Other — 12,224 — 12,224 — 10,765 — 10,765
Total financial investments 6,119 303,322 1,100 310,541 3,328 269,958 931 274,217 Less: assets classified as held for sale
Unrealised gains and losses on financial investments classified as at fair value through profit or loss, recognised in the income statement in the year, were a net gain of £19,452 million (2015: £9,586 million net loss). Of this net gain, £19,722 million net gain (2015: £8,429 million net loss) related to investments designated as other than trading and £270 million net loss (2015: £1,157 million net loss) related to financial investments designated as trading.
At 1 January — — (9) (9) — — (9) (9) Charge for the year taken to the income statement — — — — — — — — Write back following sale or reimbursement — — 9 9 — — — —
The Group receives collateral in order to reduce the credit risk of these arrangements, either in the form of securities or cash. See Note 58 for further discussion regarding collateral positions held by the Group.
At 31 December 2016, the Group’s total government (non-UK) debt securities stood at £52.4 billion (2015: £42.7 billion). The significant majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds.
Our direct shareholder asset exposure to government (non-UK) debt securities amounts to £11.4 billion (2015: £9.6 billion). The primary exposures, relative to total shareholder (non-UK) government debt exposure, are to Canadian (21%), French (16%), US (9%), Spanish (6%), German (5%) and Italian (5%) government debt securities.
Fixed maturity securities 168,075 16,408 (1,209) 183,274 155,247 10,864 (3,147) 162,964 Equity securities 57,268 13,214 (1,470) 69,012 60,124 7,663 (4,229) 63,558 Other investments
The total accumulated impairment provision for financial investments classified as available-for-sale included in the table above within unrealised losses and impairments was £nil million (2015: £9 million), as the previously recognised impairment on other investments of £9 million was recovered through sale during 2016.
(c) Impairment of financial investments The movements in impairment provisions on available-for-sale financial investments for the years ended 31 December 2016 and 2015 were as follows: Fixed maturity securities £m
(ii) Other arrangements In carrying on its bulk purchase annuity business, the Group’s UK Life operation is required to place certain investments in trust on behalf of the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its payment obligations in respect of policyholder benefits. At 31 December 2016, £1,777 million (2015: £1,501 million) of financial investments were restricted in this way.
Total (excluding assets held for sale) 5,166 2,633 33,541 30,465 11,373 9,566 50,080 42,664
Australia 0.3 — 0.3 0.9 0.3 1.2 Denmark — — — 1.3 — 1.3 France 0.5 0.1 0.6 3.8 0.8 4.6 Germany 0.1 — 0.1 0.5 0.3 0.8 Ireland — — — — — — Italy 0.1 — 0.1 0.2 — 0.2 Netherlands 0.3 0.2 0.5 1.5 0.3 1.8 Spain 0.8 — 0.8 0.7 0.1 0.8 Sweden 0.2 — 0.2 0.4 0.3 0.7 Switzerland — — — 1.7 — 1.7 United Kingdom 1.4 0.5 1.9 1.7 1.0 2.7 United States 1.1 0.2 1.3 2.0 0.1 2.1 Other 0.7 0.2 0.9 1.5 0.1 1.6
Australia 0.3 — 0.3 0.8 0.3 1.1 Denmark — — — 1.3 — 1.3 France 0.5 0.1 0.6 3.2 0.7 3.9 Germany 0.1 — 0.1 0.4 0.3 0.7 Ireland — — — — — — Italy 0.1 — 0.1 0.2 — 0.2 Netherlands 0.3 0.2 0.5 1.4 0.3 1.7 Spain 0.7 — 0.7 0.6 0.1 0.7 Sweden 0.2 — 0.2 0.4 0.2 0.6 Switzerland — — — 1.7 — 1.7 United Kingdom 1.4 0.5 1.9 1.6 1.0 2.6 United States 1.1 0.2 1.3 1.8 0.1 1.9 Other 0.7 0.2 0.9 1.4 0.1 1.5
Total (excluding assets held for sale) 5.4 1.2 6.6 13.9 2.9 16.8
Assets of operations classified as held for sale — — — 1.7 0.5 2.2
Total (excluding assets held for sale) 5.5 1.2 6.7 14.5 2.8 17.3
Expected to be recovered in less than one year 9,132 6,773 Expected to be recovered in more than one year 66 102
28 – Deferred acquisition costs, other assets, prepayments and accrued income continued The balance of deferred acquisition costs for long-term business decreased over 2016 mainly due to increased amortisation as a result of projected future profits being reduced in response to an adjustment to the allocation of fixed costs between product lines in our UK Life business. The balance of deferred acquisition costs for general insurance and health business increased over 2016 mainly due to a new partnership distribution deal and increased new business sales.
Loans 1,027 83 Debt securities 27,048 24,022 Equity securities 52,571 47,394 Reinsurance assets 18,525 14,002 Cash and cash equivalents 8,874 8,705 Other1 53,083 47,386
1 Other includes unit trusts and other investment vehicles of £45,630 million (2015: £39,795 million).
(vi) The Aviva Chief Financial Officer Award 2014 Awards were granted to Tom Stoddard under the Aviva Chief Financial Officer Award 2014 (Aviva CFO Award) following his recruitment, to compensate Mr Stoddard for the loss from his previous employer, on a like for like basis. The awards are described in section (b) below and in the directors’ remuneration report. No further awards will be made under this plan.
Where amortisation of the DAC balance depends on projected profits, changes to economic conditions may lead to a movement in the DAC balance and a corresponding impact on profit. It is estimated that the movement in the DAC balance would reduce profit by £19 million (2015: £26 million) if market yields on fixed income investments were to increase by 1% and reduce profit by £1 million (2015: increase profit by £36 million) if yields were to reduce by 1%. At both 31 December 2016 and at 31 December 2015 the DAC balance has been restricted by the value of projected future profits and hence is more sensitive to changes in the value of those projected profits. Furthermore, the profile of this restriction across product lines has changed leading to a directional switch in the sensitivity year-on-year.
At the 2016 Annual General Meeting, the Company was authorised to allot up to a further maximum nominal amount of: • £674,824,642 of which, £337,412,321 can be in connection with an offer by way of a rights issue • £100 million of new ordinary shares in relation to any issue of Solvency II instruments
At 1 January 4,048,465,173 1,012 1,185 2,950,487,340 737 1,172 Shares issued under the Group’s Employee and Executive Share Option
Schemes 13,074,033 3 12 11,651,227 3 13 Shares issued in relation to the acquisition of Friends Life — — — 1,086,326,606 272 —
Notes to the consolidated financial statements continued 31 – Group’s share plans This note describes various equity compensation plans operated by the Group, and shows how the Group values the options and awards of shares in the Company. Details of other share plans where shares are acquired and held in trust for the participant from the outset are not set out here but described in the shareholder information section of page 316.
Normally exercisable 316 64,151 2016 312 849,262 2016 or 2018 310 72,440 2017 419 1,959,274 2017 or 2019 266 825,516 2017 380 5,531,260 2018 or 2020 268 1,062,962 2016 or 2018 351 13,039,022 2019 or 2021
31 – Group’s share plans continued The following table summarises information about options outstanding at 31 December 2016: Range of exercise prices
(ii) Share awards At 31 December 2016, awards issued under the Company’s executive incentive plans over ordinary shares of 25 pence each in the Company were outstanding as follows: Aviva long term incentive plan 2011 Number of shares Year of vesting
Aviva Investors deferred share award plan Number of shares Year of vesting
The vesting of awards under the ABP is subject to the attainment of performance conditions as described in the directors’ remuneration report.
• Shares which vest in 2018: – 192,829 are subject to the same performance conditions that apply to the 2015 LTIP grant – 22,222 subject to the performance conditions relating to the performance of the participant’s previous employer.
(iii) Shares to satisfy awards and options New issue shares are now generally used to satisfy all awards and options granted under plans that have received shareholder approval and where local regulations permit. Further details are given in note 32.
No performance conditions are attached to the awards under the ABP, AI DSAP, Aviva CFO Award or some of the awards under the RRSAP except as outlined below. Under the RRSAP, some shares are subject to the attainment of the same performance conditions that apply to the LTIP grants as follows. • Shares which vest in 2017: – 709,064 are subject to the same performance conditions that apply to the 2014 LTIP grant – 22,222 subject to the performance conditions relating to the performance of the participant’s previous employer.
Expected life1 2.66 years 2.85 years Expected dividend yield2 4.00% 3.20% Risk-free interest rate1 0.59% 0.56%
Notes to the consolidated financial statements continued 34 – Direct capital instrument and tier 1 notes
The direct capital instrument (the DCI) was issued on 25 November 2004. The DCI has no fixed redemption date but the Company may, at its sole option, redeem all (but not part) of the principal amount on 27 July 2020, at which date the interest rate changes to a variable rate, or on any respective coupon payment date thereafter. The variable rate will be the six month sterling deposit rate plus margin.
32 – Treasury shares The following table summarises information about treasury shares at 31 December 2016: Number £m Number £m
At the end of 2016 the fair value of Aviva plc’s preference share capital was £280 million (2015: £278 million).
Total other comprehensive income for the year 988 3 1 (36) — 956 Tax transferred to income statement — — — — — — Fair value gains transferred to retained earnings on disposals — (46) — — — (46) Transfer to profit on disposal of subsidiaries, joint ventures and associates (7) — — — — (7) Reserves credit for equity compensation plans — — — — 38 38 Shares issued under equity compensation plans — — — — (30) (30)
37 – Retained earnings This note analyses the movements in the consolidated retained earnings during the year.
1 2015 Includes Friends Life’s Step up Tier one Insurance Capital Securities (‘STICS’) issuances classified as equity instruments within non-controlling interests at the date of acquisition. 2 On 29 May 2015, notification was given that the Group would redeem the 2005 STICS issuance. At that date the instrument was reclassified as a financial liability. The instrument was redeemed on 1 July 2015, £272 million represents the fair value of instruments recognised on acquisition, made up of the £268 million outstanding principal redeemed on 1 July 2015 and £4 million amortised subsequent to the reclassification and included within finance costs in the income statement.
3 Changes in non-controlling interests in 2016 primarily relate to a newly consolidated subsidiary in Aviva France.
(10,674) 1,155 (9,519) (8,765) 1,026 (7,739) Provisions for claims incurred but not reported (2,960) 795 (2,165) (2,383) 607 (1,776)
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note 1 for further details. 2 Reinsurance assets at 31 December 2016 for General insurance and health business include the impact of the £78 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business and the remaining recoveries expected in respect of the Alberta fires in Canada. Reinsurance assets at 31 December 2015 for General insurance and health business include the impact of the £659 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business.
3 Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations are included in other line items.
Notes to the consolidated financial statements continued 38 – Non-controlling interests This note gives details of the Group’s non-controlling interests and shows the movements during the year.
Long-term business (1,925) 65 (1,860) (1,702) 38 (1,664) General insurance and health (8,749) 1,090 (7,659) (7,063) 988 (6,075)
(a) Carrying amount (i) Insurance liabilities (gross of reinsurance) at 31 December comprised: Long-term business £m
Long-term business provisions Participating 56,760 — 56,760 50,558 — 50,558 Unit-linked non-participating 16,026 — 16,026 14,768 — 14,768 Other non-participating 64,432 — 64,432 60,022 — 60,022
General insurance and health Change in insurance liabilities (note 40c(iv) and 43 c(ii))2 867 (222) 645 Less: Unwind of discount on GI reserves and other (11) 10 (1)
General insurance and health Change in insurance liabilities (note 40c(iv) and 43 c(ii)) 29 (504) (475) Less: Unwind of discount on GI reserves and other (10) 9 (1)
– The Friends Life Limited FP With-Profits Fund (FP WPF), which will formally be closed to new business during 2017 and where shareholders are entitled to 10% of the distributed profits, plus 60% of the surplus arising on pre-demutualisation non-profit and unitised business and non-investment sources of surplus on policies held by post-demutualisation policyholders. The Friends Provident demutualisation occurred in 2001.
– The Friends Life Limited With-Profits Fund (FPLAL WPF), which is closed to new business and where policyholders are entitled to 100% of the distributed profits.
– The Friends Life and Pensions Limited SGF With Profits Fund (SGF WPF), (which was deemed a with-profit fund on 1 January 2016), is closed to new business and where policyholders are entitled to 100% of the distributed profits.
Outstanding claims provisions 1,925 8,749 10,674 1,702 7,063 8,765 Provision for claims incurred but not reported — 2,960 2,960 — 2,383 2,383
Provision for unearned premiums — 4,766 4,766 — 4,048 4,048 Provision arising from liability adequacy tests2 — 13 13 — 12 12
Less: Amounts classified as held for sale (4,448) — (4,448) — — —
1 Restated following a reclassification from participating to other non-participating long-term business provisions in the UK of £3,317 million. 2 Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations are included in other line items.
Long-term business Change in long-term business provisions (note 40b(iv)) 7,164 (993) 6,171 Change in provision for outstanding claims 91 (13) 78
Total change in insurance liabilities (note 6) 8,111 (1,218) 6,893 1 Reinsurance assets at 31 December 2016 for General insurance and health business include the impact of the £78 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business.
2 Includes £475 million in the UK General Insurance business relating to the impact of the change in the Ogden discount rate.
– The RIEESA of UKLAP, which is a non-profit fund where shareholders are entitled to 100% of the distributed profits, but these cannot be distributed until the ‘lock-in’ criteria set by the Reattribution Scheme have been met. The RIEESA is used to provide capital support to NWPSF, and has been used in the past to write non-participating business.
• In other operations in Europe and Asia, a range of long-term insurance and savings products are written.
40 – Insurance liabilities continued (a) UK With-profit business For reporting periods up to and including 31 December 2015, the valuation of with-profit business was stated at the amount of the Solvency I Pillar 1, realistic value of liabilities adjusted to exclude the shareholders’ share of projected future bonuses, in accordance with FRS 27 (grandfathered under IFRS 4). The key elements of the realistic liabilities are the with-profit benefit reserve (WPBR) and the present value of the expected cost of any payments in excess of the WPBR (referred to as the cost of future policyrelated liabilities). The realistic liability for any contract is equal to the sum of the WPBR and the cost of future policy-related liabilities, which includes the value of any ‘planned enhancements’ to benefits agreed by the company.
The cost of future policy-related liabilities include: • Maturity Guarantees; • Guarantees on surrender, including no-MVR (Market Value Reduction) Guarantees and Guarantees linked to inflation; • Guaranteed Annuity Options; • GMP (Guaranteed Minimum Pension) underpin on Section 32 transfers; and • Expected payments under Mortgage Endowment Promise.
Equity returns 23.9% 22.6% Property returns 16.4% 16.0% Fixed interest yields 51.3% 30.6%
Notes to the consolidated financial statements continued 40 – Insurance liabilities continued Allowance for future mortality improvement is in line with the rates shown for non-profit business below.
For unit-linked and some unitised with-profit business, the provisions are valued by adding a prospective non-unit reserve to the bid value of units. The prospective non-unit reserve is calculated by projecting the future non-unit cash flows using prudent assumptions and on the assumption that future premiums cease, unless it is more onerous to assume that they continue. Where appropriate, allowance for persistency is based on actual experience.
Valuation discount rates for business in the non-profit funds are as follows: Valuation discount rates 2016 2015
Assurances Life conventional non-profit 0.5% to 2.6% 1.3% to 3.3% Pensions conventional non-profit 0.8% to 2.1% 1.4% to 2.7%
The principal assumptions underlying the cost of future policy-related liabilities are as follows: Future investment return A ‘risk-free’ rate equal to the spot yield on UK swaps is used for the valuation of with-profit business. The rates vary according to the outstanding term of the policy, with a typical rate as at 31 December 2016 of 1.25% (2015: 2.04%) for a policy with ten years outstanding.
Mortality Mortality assumptions for with-profit business are set with regard to recent Company experience and general industry trends. The mortality tables used in the valuation are summarised below: Mortality table used 2016 2015
Valuation discount rate assumptions are set with regard to yields on the supporting assets and the general level of long-term interest rates as measured by gilt yields. An explicit allowance for risk is included by restricting the yields for equities and properties with reference to a margin over long-term interest rates or by making an explicit deduction from the yields on corporate bonds, mortgages and deposits, based on historical default experience of each asset class. A further margin for risk is then deducted for all asset classes.
The Group only establishes loss reserves for losses that have already occurred. The Group therefore does not establish catastrophe equalisation reserves that defer a share of income in respect of certain lines of business from years in which a catastrophe does not occur to future periods in which catastrophes may occur. When calculating reserves, the Group takes into account estimated future recoveries from salvage and subrogation, and a separate asset is recorded for expected future recoveries from reinsurers after considering their collectability.
The gross outstanding claims provision before discounting was £12,196 million (2015: £9,911 million). The period of time which will elapse before the liabilities are settled has been estimated by modelling the settlement patterns of the underlying claims.
The discount rates applied to structured settlements have increased between 2015 and 2016 in order to allow for the illiquid nature of these liabilities. In 2016 the valuation of periodic payment orders (PPOs) or structured settlements also moved to a market consistent basis for inflation based on the price of index linked gilts rather than RPI. During 2016, the propensity for new bodily injury claims settled by PPO, which are reserved for on a discounted basis, has reduced.
(iv) Movements The following movements have occurred in the gross long-term business provisions during the year: Carrying amount at 1 January 125,348 98,110 Provisions in respect of new business 5,224 4,059 Expected change in existing business provisions (8,235) (8,180) Variance between actual and expected experience 4,752 428 Impact of operating assumption changes (536) (735) Impact of economic assumption changes 5,930 (2,242) Other movements 29 30 Change in liability recognised as an expense (note 40a(ii)) 7,164 (6,640) Effect of portfolio transfers, acquisitions and disposals1 — 35,099 Foreign exchange rate movements 4,761 (1,221) Other movements (55) —
Carrying amount at 31 December 137,218 125,348 1 The movement during 2015 primarily relates to Friends Life, as at the acquisition date.
The £5.9 billion impact of economic assumption changes in 2016 reflects a decrease in valuation interest rates in response to decreased interest rates and narrowing spreads, primarily in respect of immediate annuity and participating insurance contracts in the UK.
Motor 4,690 1,623 6,313 3,509 1,055 4,564 Property 1,711 57 1,768 1,339 158 1,497 Liability 1,907 1,257 3,164 1,776 1,106 2,882 Creditor 23 20 43 23 18 41 Other 418 3 421 416 46 462
The discount rate that has been applied to latent claims reserves and reinsured London Market business is based on the relevant swap curve in the relevant currency having regard to the expected settlement dates of the claims. The range of discount rates used depends on the duration of the claims and is given in the table above. The duration of the claims span over 35 years, with the average duration being between 6 and 15 years depending on the geographical region.
The best estimate of the liabilities reflects the latest available market information and studies. Many different scenarios can be derived by flexing these key assumptions and applying different combinations of the different assumptions. An upper and lower scenario can be derived by making reasonably likely changes to these assumptions, resulting in an estimate £25 million (2015: £30 million) greater than the best estimate, or £45 million (2015: £60 million) lower than the best estimate. These scenarios do not, however, constitute an upper or lower bound on these liabilities.
(b) Interest rates used to discount latent claim liabilities and structured settlements The discount rates used in determining our latent claim liabilities and structured settlements are based on the relevant swap curve in the relevant currency at the reporting date, having regard to the duration of the expected settlement of claims. The range of discount rates used is shown in section (ii) above and depends on the duration of the claim and the reporting date. The discount rates applied to structured settlements have been increased during 2016 in order to allow for the illiquid nature of these liabilities. At 31 December 2016, it is estimated that a 1% fall in the discount rates used would increase net claim reserves by approximately £220 million (2015: £60 million), excluding the offsetting effect on asset values as assets are not hypothecated across classes of business. The impact has increased during 2016 due to an increase in reserves for bodily injury claims settled by periodic payment orders (PPOs) or structured settlements as a result of an increase in the estimated future inflation rate used to value these liabilities to be consistent with market expectations. The impact of a 1% fall in interest rates across all assets and liabilities of our general insurance and health businesses is shown in note 56.
Subsequent event Lump sum payments in settlement of bodily injury claims decided by the UK courts are calculated in accordance with the Ogden Tables and discount rate. The Ogden discount rate is set by the Lord Chancellor in accordance with the Damages Act 1996 and is applied when calculating the present value of future care costs and loss of earnings for claims settlement purposes.
Carrying amount at 1 January 9,446 9,876 Impact of changes in assumptions 324 115 Claim losses and expenses incurred in the current year 6,703 5,889 Decrease in estimated claim losses and expenses incurred in prior periods (7) (463)
The assumptions used in most non-life actuarial projection techniques, including future rates of claims inflation or loss ratio assumptions, are implicit in the historical claims development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in the future, for example, to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures in order to arrive at a point estimate for the ultimate cost of claims that represents the likely outcome, from a range of possible outcomes, taking account of all the uncertainties involved. The range of possible outcomes does not, however, result in the quantification of a reserve range. The following explicit assumptions are made which could materially impact the level of booked net reserves: (a) UK mesothelioma claims The level of uncertainty associated with latent claims is considerable due to the relatively small number of claims and the long-tail nature of the liabilities. UK mesothelioma claims account for a large proportion of the Group’s latent claims. The key assumptions underlying the estimation of these claims include claim numbers, the base average cost per claim, future inflation in the average cost of claims and legal fees.
(c) Allowance for risk and uncertainty The uncertainties involved in estimating loss reserves are allowed for in the reserving process and by the estimation of explicit reserve uncertainty distributions. The reserve estimation basis for non-life claims requires all non-life businesses to calculate booked claim provisions as the best estimate of the cost of future claim payments, plus an explicit allowance for risk and uncertainty. The allowance for risk and uncertainty is calculated by each business unit in accordance with the requirements of the Group non-life reserving policy, taking into account the risks and uncertainties specific to each line of business and type of claim in that territory. The requirements of the Group non-life reserving policy also seek to ensure that the allowance for risk and uncertainty is set consistently across both business units and reporting periods.
Changes to claims development patterns can materially impact the results of actuarial projection techniques. However, allowance for the inherent uncertainty in the assumptions underlying reserving projections is automatically allowed for in the explicit allowance for risk and uncertainty included when setting booked reserves.
Notes to the consolidated financial statements continued 40 – Insurance liabilities continued (iv) Movements The following changes have occurred in the general insurance and health claims provisions during the year: £m
Ontario. • £90 million release from Europe mainly due to favourable development in France and Italy.
Present value recognised in the statement of financial position 2,241 120 187 216 282 435 665 911 1,309 1,889 3,454 11,709
Net cumulative claim payments At end of accident year (4,317) (4,808) (3,650) (3,386) (3,300) (2,925) (2,905) (2,972) (2,867) (3,309) One year later (6,542) (7,165) (5,286) (5,242) (4,578) (4,166) (4,240) (4,079) (4,061) Two years later (7,052) (7,638) (5,885) (5,637) (4,963) (4,575) (4,649) (4,432) Three years later (7,356) (8,094) (6,177) (5,905) (5,263) (4,870) (4,918) Four years later (7,664) (8,356) (6,410) (6,137) (5,485) (5,110) Five years later (7,852) (8,515) (6,568) (6,278) (5,626) Six years later (7,942) (8,626) (6,657) (6,361) Seven years later (8,004) (8,682) (6,708) Eight years later (8,033) (8,714) Nine years later (8,055)
Estimate of net ultimate claims At end of accident year 8,363 9,262 7,115 6,650 6,202 5,941 5,838 5,613 5,548 6,489 One year later 8,302 9,104 7,067 6,751 6,103 5,765 5,745 5,575 5,635 Two years later 8,244 9,028 7,036 6,685 6,095 5,728 5,752 5,591 Three years later 8,249 9,007 6,978 6,644 6,077 5,683 5,733 Four years later 8,210 8,962 6,940 6,634 6,034 5,717 Five years later 8,221 8,949 6,977 6,614 6,005 Six years later 8,149 8,926 6,908 6,624 Seven years later 8,143 8,894 6,897 Eight years later 8,133 8,898 Nine years later 8,154
The loss development tables above include information on asbestos and environmental pollution claims provisions from business written before 2007. The undiscounted claim provisions, net of reinsurance, in respect of this business at 31 December 2016 were £134 million (2015: £237 million). The movement in the year reflects a reduction of £78 million due to the reinsurance contract completed by the UK General Insurance business covering a proportion of these liabilities, favourable claims development of £34 million, claim payments net of reinsurance recoveries and foreign exchange rate movements.
Carrying amount at 1 January 4,048 4,107 Premiums written during the year 9,694 8,738 Less: Premiums earned during the year (9,503) (8,613)
Changes in UPR recognised as an (income)/expense 191 125 Gross portfolio transfers and acquisitions1 124 — Foreign exchange rate movements 403 (184)
Carrying amount at 31 December 4,766 4,048 1 Relates to the acquisition of Royal Bank of Canada General Insurance Company.
The original estimates will be increased or decreased, as more information becomes known about the individual claims and overall claim frequency and severity.
Ontario. • £52 million release from Europe mainly due to favourable development in France and Italy.
Estimate of gross ultimate claims 8,380 9,202 7,256 6,926 6,265 6,002 6,067 5,865 5,930 6,947 Cumulative payments (8,278) (9,012) (7,043) (6,649) (5,864) (5,376) (5,221) (4,681) (4,285) (3,534)
Present value 737 87 170 174 239 382 608 818 1,159 1,574 3,180 9,128 Cumulative effect of foreign exchange
41 – Liability for investment contracts This note analyses our investment contract liabilities by type of product and describes how the Group calculates these liabilities and the assumptions used.
The variance between actual and expected experience in 2016 of £3.1 billion is primarily driven by favourable equity returns in the UK.
The impact of assumption changes in the analysis shows the resulting movement in the carrying value of participating investment contract liabilities. For participating business, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes do impact profit, these are included in the effect of changes in assumptions and estimates during the year shown in note 44, together with the impact of movements in related non-financial assets.
For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The variance between actual and expected experience in 2016 of £11.1 billion is primarily driven by the impact of positive equity returns in the UK.
Many investment contracts contain a discretionary participation feature in which the contract holder has a contractual right to receive additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts and are measured according to the methodology and Group practice for long-term business liabilities as described in note 40. They are not measured at fair value as there is currently no agreed definition of fair valuation for discretionary participation features under IFRS. In the absence of such a definition, it is not possible to provide a range of estimates within which a fair value is likely to fall. The IASB has deferred consideration of participating contracts to Phase II of its insurance contracts project. This is expected to be addressed in the forthcoming insurance contract standard (i.e. IFRS 17).
For non-participating investment contracts acquired in a business combination, an acquired value of in-force business asset is recognised in respect of the fair value of the investment management services component of the contracts, which is amortised on a systematic basis over the useful lifetime of the related contracts. The amount of the acquired value of in-force business asset is shown in note 17, which relates primarily to the acquisition of Friends Life in 2015.
Carrying amount at 31 December 114,531 103,034 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note 1 for further details. 2 The movement during 2015 primarily relates to the acquisition of Friends Life. The movement during 2016 relates to the disposal of a closed book of offshore bonds business.
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of nonparticipating investment contract liabilities. The impacts of assumption changes on profit are included in the effect of changes in assumptions and estimates during the year shown in note 44, which combines participating and non-participating investment contracts together with the impact of movements in related non-financial assets.
(a) UK and Ireland Life with-profit business The Group’s UK with-profit liabilities are evaluated by reference to FRS27, which was grandfathered under IFRS 4, prior to the adoption of Solvency II. Under these rules, provision for guarantees and options within realistic liabilities are measured at fair value, using market-consistent stochastic models. A stochastic approach includes measuring the time value of guarantees and options, which represents the additional cost arising from uncertainty surrounding future economic conditions.
(b) UK Life non-profit business The Group’s UK non-profit funds are evaluated by reference to statutory reserving rules, which are based on the UK regulatory requirements (grandfathered under IFRS 4), prior to the adoption of Solvency II, adjusted to remove certain regulatory reserves and margins in assumptions, notably for annuity business.
General insurance and health Outstanding claims provisions3 1,090 988 Provisions for claims incurred but not reported3 795 607 26,754 20,918 Less: Amounts classified as held for sale (411) —
2 Reinsurance assets in 2016 include the reclassification of £1,061 million of UK Life investments in certain life insurance funds from unit trusts and other investment vehicles (financial instruments) to reinsurance assets. 3 Reinsurance assets at 31 December 2016 for General insurance and health business include the impact of the £78 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business and the remaining recoveries expected in respect of the Alberta fires in Canada. Reinsurance assets at 31 December 2015 for General insurance and health business include the impact of the £659 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business.
42 – Financial guarantees and options continued (iii) Guaranteed annuity options The Group’s UK with-profit funds have written individual and group pension contracts which contain guaranteed annuity rate options (GAOs), where the policyholder has the option to take the benefits from a policy in the form of an annuity based on guaranteed conversion rates. The Group also has exposure to GAOs and similar options on deferred annuities.
Realistic liabilities for GAOs in the UK and Ireland with-profit funds were £2,456 million at 31 December 2016 (2015: £2,360 million). With the exception of the New With-Profits Sub Fund (NWPSF), movements in the realistic liabilities in the with-profit funds are offset by a corresponding movement in the unallocated divisible surplus, with no net impact on IFRS profit. In the NWPSF, following the reattribution, any surplus is owned by the Shareholders, with no policyholder interest. Realistic liabilities for GAOs in the NWPSF were £225 million at 31 December 2016 (2015: £196 million).
43 – Reinsurance assets This note details the reinsurance recoverables on our insurance and investment contract liabilities.
Of the above total, £22,919 million (2015: £16,341 million) is expected to be recovered more than one year after the statement of financial position date.
Carrying amount at 31 December 24,554 18,996 1 The other movements in 2015 include the reclassification of the UK Life staff pension scheme investments in Blackrock and Schroder life insurance funds from investments to reinsurance assets. The movement during 2016 includes the reclassification of UK Life investments in certain life insurance funds from unit trusts and other investment vehicles (financial instruments) to reinsurance assets.
2 The movement during 2015 relates to Friends Life, as at the acquisition date. The movement during 2016 relates to the recognition of a reinsurance asset following disposal of a closed book of offshore bonds business.
Incurred in prior years (214) (225) Reinsurance recoveries received in the year (409) (346)
Carrying amount at 1 January 289 250 Premiums ceded to reinsurers in the year1 668 1360 Less: Reinsurers’ share of premiums earned during the year1 (687) (1,346) Changes in reinsurance asset recognised as income (19) 14 Reinsurers’ share of portfolio transfers and acquisitions (38) 33 Foreign exchange rate movements 18 (8)
The adverse change in discount rate assumptions on general insurance and health business of £242 million arises as a result of a decrease in the real interest rates used to discount claim reserves for periodic payment orders and latent claims. Market interest rates used to discount periodic payment orders and latent claims have reduced and the estimated future inflation rate used to value periodic payment orders has been increased to be consistent with market expectations. This has, in part, been offset by a change in estimate for the interest rate used to discount periodic payment orders to allow for the illiquid nature of these liabilities.
Change in assets 5,382 (38) Effect of portfolio transfers, acquisitions and disposals2 8 12,504 Foreign exchange rate movements 168 (38)
Incurred in current year 433 301 Incurred in prior years1 109 527
Carrying amount at 31 December 1,885 1,595 1 The change in reinsurance assets for 2016 includes the impact of the £78 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business. The change in reinsurance assets for 2015 includes the impact of the £659 million reinsurance asset relating to an outwards reinsurance contract completed by the UK General Insurance business
2 The movement during 2015 relates to the acquisition of Friends Life.
Where the aggregate amount of participating assets is less than the participating liabilities within a fund then the shortfall may be held as negative UDS, subject to recoverability testing as part of the liability adequacy requirements of IFRS 4. There are no negative UDS balances at the participating fund-level within each life entity in the current and comparative periods with the exception of one fund in UK Life with a negative UDS of £16 million (2015: a negative UDS of £22 million). This negative UDS balance was tested for recoverability and considered to be recoverable by comparing the excess of IFRS participating liabilities over the adjusted Solvency II best estimate liabilities for the relevant contracts. The Solvency II best estimate liabilities were adjusted where Solvency II does not represent a best estimate of shareholders’ interests consistent with the impairment test for goodwill for long term business (see note 16) and for AVIF on insurance contracts (see note 17).
Amounts classified as held for sale include £3 million of deferred tax assets (2015: £nil) and £1 million of deferred tax liabilities (2015: £nil).
Long-term business technical provisions and other insurance items 1,852 1,415 Deferred acquisition costs (195) (197) Unrealised gains on investments (3,157) (2,571) Pensions and other post-retirement obligations (456) (354) Unused losses and tax credits 203 247 Subsidiaries, associates and joint ventures (20) (16) Intangibles and additional value of in-force long-term business (795) (814) Provisions and other temporary differences 337 337
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note 1 for further details. 2 The movement during 2016 relates mainly to the acquisition of RBC General Insurance Company.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. In countries where there is a history of tax losses, deferred tax assets are only recognised in excess of deferred tax liabilities if there is convincing evidence that future taxable profits will be available. Where this is the case, the directors have relied on business plans supporting future profits.
The Group has unrecognised gross tax losses (excluding capital losses) and other temporary differences of £796 million (2015: £562 million) to carry forward against future taxable income of the necessary category in the companies concerned. Of these, trading losses of £86 million will expire within the next 20 years. The remaining losses have no expiry date.
In addition, the Group has unrecognised gross capital losses of £503 million (2015: £509 million). These have no expiry date. There are no temporary differences in respect of unremitted overseas retained earnings for which deferred tax liabilities have not been recognised at 31 December 2016 (2015: £nil). Finance (No 2) Act 2015 introduced legislation reducing the rate of corporation tax from 20% at 1 April 2016 to 19% from 1 April 2017 and to 18% from 1 April 2020. These reduced rates were used in the calculation of the UK’s deferred tax assets and liabilities as at 31 December 2015. Finance Act 2016, which received Royal Assent on 15 September 2016, reduced the corporation tax rate to 17% from 1 April 2020.
1 A review of the 2015 movement in unallocated divisible surplus identified inconsistencies in the presentational approach taken for each participating fund across the Group. As a result, the 2015 analysis has been restated to present the movement in participating fund assets and liabilities consistently on a gross basis for all funds. The 2015 “Change in participating fund assets” has decreased by £690 million, “Change in participating fund liabilities” increased by £677 million and the “Other movements” of £13 million have been allocated between the change in participating fund assets and liabilities lines. There is no impact on the carrying amount of unallocated divisible surplus at 1 January 2015 and 31 December 2015.
The amount of UDS has increased to £10.2 billion at 31 December 2016 (2015: £8.8 billion) including amounts classified as held for sale, and £9.3 billion excluding amounts classified as held for sale. The increase is predominantly due to the weakening of sterling against the euro.
46 – Tax assets and liabilities This note analyses the tax assets and liabilities that appear in the statement of financial position and explains the movements in these balances in the year.
Total IAS 19 obligations to main staff pension schemes (note 48(a)) 843 686 Deficits in other staff pension schemes 56 46
At 1 January 166 518 684 97 348 445 Additional provisions 60 143 203 382 112 494 Unused amounts reversed (2) (126) (128) (7) (130) (137) Change in the discounted amount arising from passage of time 2 — 2 1 1 2
Surpluses included in other assets (note 28) 3,190 — — 3,190 2,523 — — 2,523 Deficits included in provisions (note 47) (518) (238) (87) (843) (422) (189) (75) (686)
Notes to the consolidated financial statements continued 48 – Pension obligations continued (ii) Other schemes Future accruals for the Irish and Canadian defined benefit schemes ceased with effect from 30 April 2013 and 31 December 2011 respectively. The Irish scheme is regulated by the Pensions Authority in Ireland. The main Canadian plan is a Registered Pension Plan in Canada and as such is registered with the Canada Revenue Agency and Financial Services Commission of Ontario and is required to comply with the Income Tax of Canada and the various provincial Pension Acts within Canada.
(i) Movements in the scheme deficits and surpluses Movements in the pension schemes’ surpluses and deficits comprise: Fair Value of Scheme
Net IAS 19 surplus in the schemes at 1 January 16,161 (14,324) 1,837 Past service costs – amendments — (1) (1) Administrative expenses1 — (13) (13)
Remeasurements: Actual return on these assets 4,044 — 4,044 Less: Interest income on scheme assets (590) — (590)
Net IAS 19 surplus in the schemes at 31 December 19,694 (17,347) 2,347 1 Administrative expenses are expensed as incurred. 2 Net interest income of £102 million has been credited to investment income and net interest expense of £29 million has been charged to finance costs (see note 7).
The increase in the surplus during the period is primarily due to remeasurements recognised in other comprehensive income which reflect increased asset values mainly driven by a reduction in interest rates in the UK partly offset by an increase in the defined benefit obligation following a decrease in the UK discount rate.
47 – Provisions continued (b) Movements on restructuring and other provisions
48 – Pension obligations (a) Introduction The Group operates a number of defined benefit and defined contribution pension schemes. The material defined benefit schemes are in the UK, Ireland, and Canada with the main UK scheme being the largest. The assets and liabilities of these defined benefit schemes as at 31 December 2016 are shown below.
Total fair value of scheme assets (see b(ii) below) 18,803 610 281 19,694 15,445 484 232 16,161 Present value of defined benefit obligation (16,131) (848) (368) (17,347) (13,344) (673) (307) (14,324)
This note gives full IAS 19, Employee Benefits, disclosures for the above material schemes. The smaller ones, while still measured under IAS 19, are included as one total within Provisions (see note 47). Similarly, while the charges to the income statement for the main schemes are shown in section (b)(i) below, the total charges for all pension schemes are disclosed in section (d) below.
Number 1 Following a review of membership data, total members for 2015 have been restated. This has no impact on the net IAS 19 position for the UK schemes.
The present value of unfunded post-retirement benefit obligations included in the table above is £126 million at 31 December 2016 (2015: £111 million).
Total IAS 19 fair value of scheme assets 15,882 3,812 19,694 9,131 7,030 16,161 1 Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repos. At 31 December 2016, repos of £4,666 million (2015: £nil) are included within cash and other assets. 2 As at 31 December 2016, the FPPS’s cash and other balances includes an insurance policy of £633 million (2015: £546 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated from the
Inflation rate1 3.3%/2.2% 3.15%/2.05% 1.7% 1.6% 2.0% 2.5% General salary increases2 5.1% 4.95% 3.2% 3.1% 2.5% 3.0% Pension increases3 3.3%/2.2% 3.15%/2.05% 0.4% 0.4% 1.25% 1.25% Deferred pension increases3 3.3%/2.2% 3.15%/2.05% 1.7% 1.6% — — Discount rate4 2.5%/
Acquisitions – net deficit 1,070 (1,633) (563) Employer contributions 240 — 240 Plan participant contributions 3 (3) — Benefits paid (656) 656 — Administrative expenses paid from scheme assets1 (15) 15 — Foreign exchange rate movements (54) 79 25
(ii) Scheme assets Scheme assets are stated at their fair values at 31 December 2016.
Total fair value of scheme assets 19,436 610 281 20,327 15,991 484 232 16,707 Less: consolidation elimination for non-transferable Group
Notes to the consolidated financial statements continued 48 – Pension obligations continued Total scheme assets are analysed by those that have a quoted market price in active market and other as follows: Total Quoted £m
Equities 71 — 71 70 — 70 Property — 338 338 — 384 384 Pooled investment vehicles 189 3,540 3,729 291 2,852 3,143 Derivatives 70 17 87 6 90 96 Cash and other1 714 (3,723) (3,009) 532 719 1,251
Total fair value of scheme assets 15,882 4,445 20,327 9,131 7,576 16,707 Less: consolidation elimination for non-transferable Group insurance policy2 — (633) (633) — (546) (546)
Ireland 89% PNA00 with allowance for future improvements 61 88.2 91.5 91.0 94.3 (27.2) (30.5) (30.0) (33.3)
Impact on present value of defined benefit obligation at 31 December 2016 (3,225) 4,362 3,344 (2,601) 606 Impact on present value of defined benefit obligation at 31 December 2015 (2,398) 3,112 2,592 (2,064) 396 1 The effect of assuming all members in the schemes were one year younger.
The assumptions above are based on commonly used mortality tables. The tables make allowance for observed variations in such factors as age, gender, pension amount, salary and postcode-based lifestyle group, and have been adjusted to reflect recent research into mortality experience. However, the extent of future improvements in longevity is subject to considerable uncertainty and judgement is required in setting this assumption. In ASPS, which is the most material to the Group, the allowance for mortality improvement is per the actuarial professions’ CMI 2015 model (2015: CMI 2013 model), with assumed long-term rates of improvement of 1.75% p.a. for males (2015: 1.75% p.a.), and 1.50% p.a. for females (2015: 1.50% p.a.).
Interest rate and inflation risks are managed using a combination of liability-matching assets and swaps. Exposure to equity risk has been reducing over time and credit risk is managed within risk appetite. Currency risk is relatively small and is largely hedged. The other principal risk is longevity risk. This risk has reduced due to the Aviva Staff Pension Scheme entering into a longevity swap in 2014 covering approximately £5 billion of pensioner in payment scheme liabilities.
Total employer contributions for all schemes in 2017 are currently expected to be £0.2 billion.
(ii) The contractual maturity dates of undiscounted cash flows for these borrowings are: 2016 2015
Principal £m Interest £m Total £m Principal £m Interest £m Total £m
All the above borrowings are stated at amortised cost, except for the loan notes issued in connection with the UK lifetime mortgage business of £1,110 million (2015: £1,308 million). These loan notes are carried at fair value, their values are modelled on risk-adjusted cash flows for defaults discounted at a risk-free rate plus a market-determined liquidity premium, and are therefore classified as ‘Level 3’ in the fair value hierarchy. These have been designated at fair value through profit and loss in order to present the relevant mortgages, borrowings and derivative financial instruments at fair value, since they are managed as a portfolio on a fair value basis. This presentation provides more relevant information and eliminates any accounting mismatch.
49 – Borrowings Our borrowings are either core structural borrowings or operational borrowings. This note shows the carrying values and contractual maturity amounts of each type, and explains their main features and movements during the year.
(d) Description and features (i) Subordinated debt A description of each of the subordinated notes is set out in the table below: Notional amount Issue date Redemption date Callable at par at option of the Company from In the event the Company does not call the notes, the coupon will reset at each applicable reset date to £700 million 14 Nov 2001 14 Nov 2036 16 Nov 2026 5 year Benchmark Gilt + 2.85% £800 million 29 Sep 2003 Undated 29 Sep 2022 5 year Benchmark Gilt + 2.40% £600 million 20 May 2008 20 May 2058 20 May 2038 3 month LIBOR + 3.26% €500 million 20 May 2008 22 May 2038 22 May 2018 3 month Euribor + 3.35% £162 million 21 May 2009 21 May 2021 N/A N/A £500 million 21 April 2011 21 April 2022 N/A N/A £450 million 26 May 2011 3 June 2041 3 June 2021 6 Month LIBOR + 4.136% $400 million 22 November 2011 1 December 2041 1 December 2016 8.25% (fixed) $575 million 8 November 2012 Undated 8 November 2018 6 year USD mid-swaps + 6.828% €650 million 5 July 2013 5 July 2043 5 July 2023 5 year EUR mid-swaps + 5.13% €700 million 3 July 2014 3 July 2044 3 July 2024 5 year EUR mid-swaps + 3.48% £400 million 4 June 2015 4 June 2050 4 December 2030 3 month Euribor + 4.022% €900 million 4 June 2015 4 December 2045 4 December 2025 3 month Euribor + 3.55% C$450 million 9 May 2016 10 May 2021 N/A N/A £400 million 12 September 2016 12 September 2049 12 September 2029 3 month LIBOR + 4.721%
Subordinated notes issued by the Company rank below its senior obligations and ahead of its preference shares and ordinary share capital. The dated subordinated notes rank ahead of the undated subordinated notes. The fair value of notes at 31 December 2016 was £7,731 million (2015: £6,810 million), calculated with reference to quoted prices.
Bank overdrafts amount to £69 million (2015: £113 million) in life business operations and £489 million (2015: £393 million) in general insurance business and other operations.
All payables and other financial liabilities are carried at cost, which approximates to fair value, except for derivative liabilities, which are carried at their fair values.
(e) Movements during the year Movements in borrowings during the year were: Core Structural £m Operational £m Total £m
New borrowings drawn down, excluding commercial paper, net of expenses 1,372 148 1,520 1,045 22 1,067 Repayment of borrowings, excluding commercial paper (320) (56) (376) (833) (161) (994) Movement in commercial paper1 42 — 42 (3) — (3)
Deferred income 131 175 Reinsurers’ share of deferred acquisition costs 14 18 Accruals 1,144 1,159 Other liabilities 1,431 1,450
Expected to be settled within one year 2,015 2,277 Expected to be settled in more than one year 705 525 52 – Contingent liabilities and other risk factors This note sets out the main areas of uncertainty over the calculation of our liabilities.
Contractual obligations for future repairs and maintenance on investment properties are £nil (2015: £nil). Notes 18 and 19 set out the commitments the Group has to its joint ventures and associates.
Previously, the Group used a risk based capital model to assess economic capital requirements for a number of years. This risk based capital model formed the foundation of the Group’s Solvency II partial internal model application and supported the transition to the new capital regime. The Solvency II partial internal model application was approved in December 2015. Refer to note 54(b) for further details on Solvency II.
Capital is a primary consideration across a wide range of business activities, including product development, pricing, business planning, merger and acquisition transactions and asset & liability management. A Capital Management Standard, applicable group-wide, sets out minimum standards and guidelines over responsibility for capital management including considerations for capital management decisions and requirements for management information, capital monitoring, reporting, forecasting, planning and overall governance. 1 Own Funds is capital available to cover the Solvency Capital Requirement (SCR) and Minimum Capital Requirement (MCR) under Solvency II.
(d) Regulatory compliance The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates. A number of the Group’s UK subsidiaries are ‘dual regulated’ (directly authorised by both the PRA (for prudential regulation) and the FCA (for conduct regulation) whilst others are solo regulated (regulated solely by the FCA for both prudential and conduct regulation). Between them, the PRA and FCA have broad powers including the authority to grant, vary the terms of, or cancel a regulated firm’s authorisation; to investigate marketing and sales practices; and to require the maintenance of adequate financial resources. The Group’s regulators outside the UK typically have similar powers, but in some cases they also operate a system of ‘prior product approval’.
(e) Structured settlements The Company has purchased annuities from licensed Canadian life insurers to provide for fixed and recurring payments to claimants. As a result of these arrangements, the Company is exposed to credit risk to the extent that any of the life insurers fail to fulfill their obligations. The Company’s maximum exposure to credit risk for these types of arrangements is approximately CAD$1,181 million as at 31 December 2016 (2015: CAD$1,212 million). Credit risk is managed by acquiring annuities from a diverse portfolio of life insurers with proven financial stability. This risk is reduced to the extent of coverage provided by Assuris, the Canadian life insurance industry compensation plan. As at 31 December 2016, no information has come to the Company’s attention that would suggest any weakness or failure in life insurers from which it has purchased annuities and consequently no provision for credit risk is required.
There are a number of charges registered over the assets of Group companies in favour of other Group companies or third parties. In addition, certain of the Company’s assets are charged in favour of certain of its subsidiaries as security for intra-Group loans.
Investment property 46 71 Property and equipment 37 61 Other investment vehicles1 202 202 1 Represents commitments for further investment in certain private equity vehicles. Such commitments do not expose the Group to the risk of future losses in excess of its investment.
Management also consider a capital employed metric prepared on an IFRS basis in managing capital and measuring business unit performance. The total capital employed comprises of similar items to Own Funds but measured in accordance with IFRS and includes senior debt. In particular, analysis of return on equity calculated based on the capital employed has been used as one of the inputs to Management’s decision making process for capital allocation purposes.
Equity shareholders’ funds 16,803 15,802 Non-controlling interests 1,425 1,145 Direct capital instrument & tier 1 notes 1,123 1,123 Preference shares 200 200 Subordinated debt2 7,213 6,427 Senior debt 1,364 485
The increase in the capital employed is primarily driven by the increase in the equity shareholders’ funds and new issuances of subordinated debt and senior debt.
(b) Regulatory basis Solvency II, the new Europe-wide prudential regulatory framework, came into force on 1 January 2016. This new regime puts in place a consistent solvency framework for insurers across Europe. This capital regime requires insurers to calculate regulatory capital adequacy at both individual regulated subsidiaries and an aggregate Group level. Non-EEA entities have been included in Group solvency in line with Solvency II requirements. Other financial sector entities (including fund management) are included at their proportional share of the capital requirement according to the relevant sectoral values.
Notes to the consolidated financial statements continued 55 – Statement of cash flows This note gives further detail behind the figures in the statement of cash flows.
Profit before tax 1,833 1,195 Adjustments for: Share of profits of joint ventures and associates (216) (180) Dividends received from joint ventures and associates 66 45 (Profit)/loss on sale of: Investment property (56) (120) Property and equipment — (1) Subsidiaries, joint ventures and associates 11 (2) Investments (1,525) (3,404)
(1,570) (3,527) Fair value (gains)/losses on: (19,300) 8,797 Depreciation of property and equipment 25 24 Equity compensation plans, equity settled expense 38 40 Impairment and expensing of: Goodwill on subsidiaries — 22 Financial investments, loans and other assets — 7 Acquired value of in-force business and intangibles 14 18 Non-financial assets — —
Premium/discount on debt securities 648 104 Premium/discount on borrowings (50) (44) Premium/discount on non-participating investment contracts 284 237 Financial instruments 25 12 Acquired value of in-force business and intangibles 410 390 1,317 699 Change in unallocated divisible surplus 381 (984) Interest expense on borrowings 593 588 Net finance income on pension schemes (73) (80) Foreign currency exchange gains (405) (358)
Changes in working capital (Increase)/decrease in reinsurance assets (4,736) 180 (Increase) in deferred acquisition costs (96) (139) Increase/(decrease) in insurance liabilities and investment contracts 22,434 (7,950) Decrease/(increase) in other assets 3,643 (1,156) 21,245 (9,065) Net sales/(purchases) of operating assets Net purchases of investment property (722) (929) Net proceeds on sale of investment property 1,460 1,953 Net sales of financial investments 708 6,932 1,446 7,956
Total cash generated from operating activities 5,394 5,197 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. The restatement has not resulted in a change to total cash generated from operating activities. See note 1 for further details.
Cash consideration for subsidiaries, joint ventures and associates acquired and additions 458 97 Less: Cash and cash equivalents acquired with subsidiaries (26) (7,880)
55 – Statement of cash flows continued (c) Cash flows in respect of the disposal of subsidiaries, joint ventures and associates comprised: Cash proceeds from disposal of subsidiaries, joint ventures and associates 94 6 Less: Net cash and cash equivalents divested with subsidiaries (52) (9)
(d) Cash and cash equivalents in the statement of cash flows at 31 December comprised: Cash at bank and in hand 5,049 4,496 Cash equivalents 33,914 29,180
Cash and cash equivalents reconciles to the statement of financial position as follows: Cash and cash equivalents (excluding bank overdrafts) 38,963 33,676 Less: Assets classified as held for sale (255) —
Roles and responsibilities for risk management in Aviva are based around the ‘three lines of defence model’ where ownership for risk is taken at all levels in the Group. Line management in the business is accountable for risk management, including the implementation of the risk management framework and embedding of the risk culture. The risk function is accountable for quantitative and qualitative oversight and challenge of the IMMMR process and for developing the risk management framework. Internal Audit provides an independent assessment of the risk framework and internal control processes.
Economic capital risk appetites are also set for each risk type, calculated on the basis of the Solvency II solvency capital requirement (SCR). The Group’s position against risk appetite is monitored and reported to the Board on a regular basis. Long-term sustainability depends upon the protection of franchise value and good customer relationships. As such, Aviva has a risk preference that we will not accept risks that materially impair the reputation of the Group and requires that customers are always treated with integrity. The oversight of risk and risk management at the Group level is supported by the Asset Liability Committee (ALCO), which focuses on business and financial risks, and the Operational Risk Committee (ORC) which focuses on operational and reputational risks. Similar committee structures with equivalent terms of reference exist in the business units.
Debt securities 11.4% 34.1% 19.0% 24.2% 5.9% 5.4% 183,274 (7,738) 175,536 Reinsurance assets 0.0% 92.0% 6.3% 0.1% 0.0% 1.6% 26,754 (411) 26,343 Other investments 0.0% 0.2% 0.5% 0.0% 0.0% 99.3% 58,255 (2,304) 55,951 Loans 0.0% 8.0% 0.0% 0.1% 0.0% 91.9% 24,859 (75) 24,784
(iv) Loans The Group loan portfolio principally comprises: • Policy loans which are generally collateralised by a lien or charge over the underlying policy; • Loans and advances to banks which primarily relate to loans of cash collateral received in stock lending transactions. These loans are fully collateralised by other securities; • Healthcare, infrastructure and PFI loans secured against healthcare, education, social housing and emergency services related premises; and • Mortgage loans collateralised by property assets.
Notes to the consolidated financial statements continued 56 – Risk management continued We use loan to value; interest and debt service cover; and diversity and quality of the tenant base metrics to internally monitor our exposures to mortgage loans. We use credit quality, based on dynamic market measures, and collateralisation rules to manage our stock lending activities. Policy loans are loans and advances made to policyholders, and are collateralised by the underlying policies.
(v) Credit concentration risk The long-term and general insurance businesses are generally not individually exposed to significant concentrations of credit risk due to the regulations applicable in most markets and the Group credit policy and limits framework, which limit investments in individual assets and asset classes. Credit concentrations are monitored as part of the regular credit monitoring process and are reported to Group ALCO. With the exception of government bonds the largest aggregated counterparty exposure within shareholder assets (i.e. excluding potential exposures arising from reinsurance of unit-linked funds) is to the Swiss Reinsurance Company Limited (including subsidiaries), representing approximately 2.5% of the total shareholder assets.
(viii) Derivative credit exposures The Group is exposed to counterparty credit risk through derivative trades. This risk is generally mitigated through holding collateral for most trades. Residual exposures are captured within the Group’s credit management framework.
Debt securities 1,092 — — — — — 1,092 Reinsurance assets 8,388 — — — — — 8,388 Other investments 1 — — — — — 1 Loans 3,501 — — — — — 3,501 Receivables and other financial assets 7,717 61 7 8 1 — 7,794
As at 31 December 2016 AAA AA A BBB Below BBB Not rated
As at 31 December 2015 AAA AA A BBB Below BBB Not rated
The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure. The Group’s maximum exposure to credit risk of financial assets, without taking collateral or these hedges into account, is represented by the carrying value of the financial instruments in the statement of financial position. These comprise debt securities, reinsurance assets, derivative assets, loans and receivables. The carrying values of these assets are disclosed in the relevant notes: financial investments (note 26), reinsurance assets (note 43), loans (note 23) and receivables (note 27). The collateral in place for these credit exposures is disclosed in note 58; Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements.
(iii) Other investments Other investments (including assets of operations classified as held for sale) include unit trusts and other investment vehicles; derivative financial instruments, representing positions to mitigate the impact of adverse market movements; and other assets includes deposits with credit institutions and minority holdings in property management undertakings.
(vi) Reinsurance credit exposures The Group is exposed to concentrations of risk with individual reinsurers due to the nature of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures, by limiting the reinsurers that may be used and applying strict limits to each reinsurer. Reinsurance exposures are aggregated with other exposures to ensure that the overall risk is within appetite. The Group Capital and Group Risk teams have an active monitoring role with escalation to the Chief Financial Officer (CFO), Chief Risk Officer (CRO), Group ALCO and the Board Risk Committee as appropriate.
(x) Impairment of financial assets In assessing whether financial assets carried at amortised cost or classified as available for sale are impaired, due consideration is given to the factors outlined in accounting policies (T) and (V). The following table provides information regarding the carrying value of financial assets subject to impairment testing that have been impaired and the ageing of those assets that are past due but not impaired. The table excludes assets carried at fair value through profit or loss and held for sale.
(c) Market risk Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, foreign currency exchange rates, equity and property prices. Market risk arises in business units due to fluctuations in both the value of liabilities and the value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of investment assets owned directly by the shareholders. We actively seek some market risks as part of our investment and product strategy. However, we have limited appetite for interest rate risk as we do not believe it is adequately rewarded.
56 – Risk management continued Excluded from the tables above are financial and reinsurance assets carried at fair value through profit or loss that are not subject to impairment testing, as follows: £182.2 billion of debt securities (2015: £162.0 billion), £58.3 billion of other investments (2015: £47.7 billion), £21.3 billion of loans (2015: £19.1 billion) and £18.4 billion of reinsurance assets (2015: £14.0 billion).
Equity risk is also managed using a variety of derivative instruments, including futures and options. Businesses actively model the performance of equities through the use of risk models, in particular to understand the impact of equity performance on guarantees, options and bonus rates. An equity hedging strategy remains in place to help control the Group’s overall direct and indirect exposure to equities. At 31 December 2016 the Group continues to hold a series of macro equity hedges to reduce the overall shareholder equity risk exposure.
Exposure to interest rate risk is monitored through several measures that include duration, economic capital modelling, sensitivity testing and stress and scenario testing. The impact of exposure to sustained low interest rates is considered within our scenario testing.
Details of material guarantees and options are given in note 42. In addition, the following table summarises the weighted average minimum guaranteed crediting rates and weighted average book value yields on assets as at 31 December 2016 for our Italian and French participating contracts, where the Group’s key exposure to sustained low interest rates arises.
Sensitivity to changes in interest rates is given in section ‘(j) risk and capital management’ below.
56 – Risk management continued The Group operates internationally and as a result is exposed to foreign currency exchange risk arising from fluctuations in exchange rates of various currencies. Approximately 63% of the Group’s premium income arises in currencies other than sterling and the Group’s net assets are denominated in a variety of currencies, of which the largest are sterling, euro and Canadian dollars. The Group does not hedge foreign currency revenues as these are substantially retained locally to support the growth of the Group’s business and meet local regulatory and market requirements. However, the Group does use foreign currency forward contracts to hedge planned dividends from its subsidiaries.
Capital 31 December 2016 15,813 923 627 2,188 19,551 Capital 31 December 2015 (restated)1 14,371 2,011 979 909 18,270 1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in equity at 31 December 2015 of £38 million. See note 1 for further details.
A 10% change in sterling to euro/Canada$ (CAD$) period-end foreign exchange rates would have had the following impact on total equity.
Impact on profit before tax 31 December 2016 (55) 67 (15) (9) Impact on profit before tax 31 December 2015 8 23 25 (46)
(ii) Analysis of maturity of financial assets The following table provides an analysis, by maturity date of the principal, of the carrying value of financial assets which are available to fund the repayment of liabilities as they crystallise. This table excludes assets held for sale.
The impact of these is reflected in the economic capital model and managed as part of the asset liability framework. Further disclosure on financial guarantees and options embedded in contracts and their inclusion in insurance and investment contract liabilities is provided in note 42.
Aviva has a preference for general insurance risk in measured amounts for explicit reward, in line with our core skills in underwriting and pricing. The majority of the general insurance business underwritten by the Group continues to be short tail in nature such as motor, household and commercial property insurances. The Group’s underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. General insurance risk is managed primarily at business unit level with oversight at the Group level. Claims reserving is undertaken by local actuaries in the various general insurance businesses and is also subject to periodic external reviews. Reserving processes are further detailed in note 40 ‘insurance liabilities’, including information on the adverse impact on reserves following the announcement on 27 February 2017 of the change in the Ogden discount rate used to calculate lump sum payments in settlement of bodily injury claims. The vast majority of the Group’s general insurance business is managed and priced in the same country as the domicile of the customer.
Reinsurance strategy Significant reinsurance purchases are reviewed annually at both business unit and Group level to verify that the levels of protection being bought reflect any developments in exposure and the risk appetite of the Group. The basis of these purchases is underpinned by analysis of economic capital, earnings and capital volatility, cash flow and liquidity and the Group’s franchise value. Detailed actuarial analysis is used to calculate the Group’s extreme risk profile and then design cost and capital efficient reinsurance programmes to mitigate these risks to within agreed appetites. For businesses writing general insurance we analyse the natural catastrophe exposure using our own internal probabilistic catastrophe model which is benchmarked against external catastrophe models widely used by the rest of the (re)insurance industry.
Embedded derivatives The Group is exposed to the risk of changes in policyholder behavior due to the exercise of options, guarantees and other product features embedded in its long-term savings products. These product features offer policyholders varying degrees of guaranteed benefits at maturity or on early surrender, along with options to convert their benefits into different products on pre-agreed terms. The extent of the impact of these embedded derivatives differs considerably between business units and exposes Aviva to changes in policyholder behaviour in the exercise of options as well as market risk.
(ii) Life insurance and investment contracts The nature of long-term business is such that a number of assumptions are made in compiling these financial statements. Assumptions are made about investment returns, expenses, mortality rates and persistency in connection with the in-force policies for each business unit. Assumptions are best estimates based on historic and expected experience of the business. A number of the key assumptions for the Group’s central scenario are disclosed elsewhere in these statements.
Long-term business Sensitivities as at 31 December 2016 2016 Impact on profit before tax (£m)
Insurance participating (50) 30 (10) (130) 65 (30) (5) (15) Insurance non-participating (190) 20 (775) (35) 10 (190) (90) (920) Investment participating (10) 5 (5) — — (5) — — Investment non-participating 10 (15) — 50 (70) (65) — — Assets backing life shareholders’ funds (115) 190 10 (85) 85 — — —
Insurance participating (50) 30 (10) (130) 65 (30) (5) (15) Insurance non-participating (190) 20 (775) (35) 10 (190) (90) (920) Investment participating (10) 5 (5) — — (5) — — Investment non-participating 10 (15) — 50 (70) (65) — — Assets backing life shareholders’ funds (155) 230 5 (85) 85 — — —
Insurance participating 30 (65) (30) (135) 130 (25) (10) (50) Insurance non-participating (75) 80 (495) 25 (25) (155) (115) (725) Investment participating 5 (5) — — — (5) — — Investment non-participating (20) 20 (5) 35 (35) (20) — — Assets backing life shareholders’ funds (140) 85 (65) 40 (40) — — —
Changes in sensitivities between 2016 and 2015 reflect underlying movements in market interest rates, portfolio growth, changes to asset mix and the relative durations of assets and liabilities, asset liability management actions, as well as a transfer in the UK of non-participating insurance business from a with-profit fund to a non-profit fund and changes to the level of DAC in the UK. The sensitivities to economic and demographic movements relate mainly to business in the UK.
Sensitivities as at 31 December 2015 2015 Impact on profit before tax (£m)
56 – Risk management continued (i) Brand and reputation risk We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, media speculation and negative publicity, disclosure of confidential client information, inadequate services, whether or not founded, could impact our brands or reputation. Any of our brands or our reputation could also be affected if products or services recommended by us (or any of our intermediaries) do not perform as expected (whether or not the expectations are founded) or customers’ expectations for the product change. We seek to reduce this risk to as low a level as commercially sensible.
(j) Risk and capital management. (i) Sensitivity test analysis The Group uses a number of sensitivity tests to understand the volatility of earnings, the volatility of its capital requirements, and to manage its capital more efficiently. Sensitivities to economic and operating experience are regularly produced on the Group’s key financial performance metrics to inform the Group’s decision making and planning processes, and as part of the framework for identifying and quantifying the risks to which each of its business units, and the Group as a whole, are exposed.
Notes to the consolidated financial statements continued 56 – Risk management continued Sensitivities as at 31 December 2015 2015 Impact on profit before tax (£m)
56 – Risk management continued Fund management and non-insurance business sensitivities as at 31 December 2016 2016 Impact on profit before tax (£m)
Notes to the consolidated financial statements continued 57 – Derivative financial instruments and hedging continued (ii) Cash flow hedges The Group did not enter into any new cash flow hedges during the year. The cash flow hedge that the Group entered into in 2015 to hedge the currency exposure related to the acquisition of additional shares in Aviva Life Insurance Company India was terminated in the first half of 2016 upon the completion of the transaction. Consequently, associated gains amounting to £2 million previously recognised in shareholders’ equity have been reclassified into the income statement.
57 – Derivative financial instruments and hedging This note gives details of the various financial instruments we use to mitigate risk.
(iii) Fair value hedges There were no fair value hedges designated in the year.
Aviva mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in ISDA master netting agreements for each of the legal entities to facilitate Aviva’s right to offset credit risk exposure. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aviva or its counterparty.
In other arrangements, securities are exchanged for other securities. The collateral received must be in a readily realisable form such as listed securities and is held in segregated accounts. Transfer of title always occurs for the collateral received. In many instances, however, no market risk or economic benefit is exchanged and these transactions are not recognised on the statement of financial position in accordance with our accounting policies, and accordingly not included in the tables below.
Derivative assets are recognised as ‘Derivative financial instruments’ in note 26(a), while fair value liabilities are recognised as ‘Derivative liabilities’ in note 50. £752 million (2015: £504 million) of derivative assets and £860 million (2015: £687 million) of derivative liabilities are not subject to master netting agreements and are therefore excluded from the table above.
Amounts receivable related to securities lending and reverse-repurchase arrangements totalling £2,579 million (2015: £2,723 million) are recognised within ‘Loans to banks’ in note 23(a).
(b) Collateral In the tables above, the amounts of assets or liabilities presented in the consolidated statement of financial position are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables above in the case of over collateralisation. The total amount of collateral received which the Group is permitted to sell or repledge in the absence of default was £22,559 million (2015: £22,424 million), all of which other than £5,764 million (2015: £2,588 million) is related to securities lending arrangements. Collateral of £2,764 million (2015: £2,915 million) has been received related to balances recognised within ‘Loans to banks’ (refer to note 23). The value of collateral that was actually sold or repledged in the absence of default was £nil (2015: £nil).
Notes to the consolidated financial statements continued 58 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar arrangements (a) Offsetting arrangements Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
Derivative transactions requiring Aviva or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit default swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities. The derivative assets and liabilities in the table below are made up of the contracts described in detail in note 57.
Financial assets Derivative financial assets 3,660 (836) 2,824 (1,793) (640) (243) 148 Loans to banks and repurchase arrangements 2,723 — 2,723 — — (2,723) —
59 – Related party transactions This note gives details of the transactions between Group companies and related parties which comprise our joint ventures, associates and staff pension schemes.
Our UK fund management companies manage most of the assets held by the Group’s main UK staff pension scheme, for which they charge fees based on the level of funds under management. The main UK scheme holds investments in Groupmanaged funds and insurance policies with other group companies, as explained in note 48(b)(ii). As at 31 December 2016, the Friends Provident Pension Scheme (‘FPPS’), acquired in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of £633 million (2015: £546 million) issued by a group company, which eliminates on consolidation.
Canada Aviva Canada Inc. and its principal subsidiaries: Aviva Insurance Company of Canada Aviva General Insurance Company (Note 3) Elite Insurance Company Pilot Insurance Company Scottish & York Insurance Co. Limited S&Y Insurance Company Traders General Insurance Company
Hong Kong1 Aviva Life Insurance Company Limited 1 Refer to Note 3(d) for further details in respect of Antarius and Aviva Hong Kong
Associates 4 (3) — — 9 (7) — — Joint ventures 46 — — 2 27 — — 192 Employee pension schemes 16 — — 5 13 — — 3
France Aviva France SA (99.99%) and its principal subsidiaries: Antarius S.A. (50%)1 Aviva Assurances S.A. (99.9%) Aviva Investors France S.A. (99.9%) Aviva Vie SA (99.9%) Aviva Epargne Retraite (99.9%) Union Financière de France Banque (Banking) (74.3%)
Spain Aviva Vida y Pensiones, SA de seguros y reaseguros Caja Espana Vida, Compania de Seguros y Reaseguros (50%) Caja Granada Vida, de Seguros y Reaseguros, S.A. (25%) Unicorp Vida, Compania de Seguros y Reaseguros (50%) Caja Murcia Vida y Pensiones, de Seguros y Reaseguros S.A. (50%)
Name of undertaking Country of incorporation Registered address Share class % held
Aviva-COFCO Life Insurance Company Ltd2 China 12/F,Block A,Landgent Centre, 20 East Third Ring Middle Road, Beijing, 100022 Ordinary shares
ORN Capital Management (Bermuda) Ltd. Ordinary Shares 100 Canon’s Court, 22 Victoria Street, Hamilton, HM12
Aviva Investors Canada Inc. Common Shares 100 2206 Eglinton Avenue East, Scarborough On M1L 4S8 9543864 Canada Inc. Common Shares 100 Aviva Canada Inc. Class A, Class B, Common, &
Aviva Agency Services Inc. Common A Shares 100 600 Cochrane Drive, Suite 205, Markham On L3R 5K3
Westmount Guarantee Services Inc. Common A Shares 33 480 University Avenue, Suite 800, Toronto On M5G 1V2
Cayman Islands 115 East 57th Street, Suite 1019,New York NY 10022
Belmont Global Trend Fund Ltd Mutual Fund 22 c/o Maricorp Services Ltd PO Box 2075GT George Town, Grand Cayman Cayman Islands
China Units 1805-1807, 18th Floor, Block H Office Building, , Phoenix Land Plaza, No. A5 Yard, Shuguangxili, Chaoyang District, Beijing
Lithuania Uždaroji akcin gyvyb s draudimo ir pensij bendrov ‘Aviva Lietuva’
Poland Aviva Powszechne Towarzystwo Emerytalne Aviva BZ WBK S.A. (81%) Aviva Towarzystwo Ubezpieczen na Zycie SA (90%) Aviva Towarzystwo Ubezpieczen Ogolnych SA (90%)
United Kingdom The Group has interests in several property limited partnerships. Further details are provided in notes 18, 19 and 25 to the financial statements.
Notes to the consolidated financial statements continued 61 – Related Undertakings The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note. Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of the Group’s assets.
The Group’s related undertakings along with the country of incorporation, the registered address, the classes of shares held and the effective percentage of equity owned at 31 December 2016 are disclosed below.
Aviva General Insurance Company Common Shares 100 Aviva Insurance Company of Canada Common Shares 100 Aviva Warranty Services Inc. Common Shares 100 Elite Insurance Company Common Shares 100 Insurance Agent Service Inc. Common Shares 100 National Home Warranty Group Inc. Common Shares 100 Ois Ontario Insurance Service Limited Common Shares 100 Pilot Insurance Company Common Shares 100 S&Y Insurance Company Common Shares 100 Scottish & York Insurance Co. Limited Common Shares 100 Traders General Insurance Company Common Shares 100 Wayfarer Insurance Brokers Limited Common Shares 100 100, 10325 Bonaventure Drive S.E., Calgary T2J 7E4
Riga Office East S.R.O. Ordinary Shares 7 1 Praha, Olivova 2069/4, PSC 110 00 Sachsenfonds Asset Management Czech S.R.O.
SCPI Logipierre 1 Ordinary Shares 44 SCPI Sélectipierre 2 Ordinary Shares 29 47, Rue du Faubourg Saint-Honoré, 75008, Paris
Aviva Sélection FCP 100 L’Antenne FCP 99 UFF Context High Yield Long Terme FCP 91 Diapason 1 FCP 86 153, Boulevard Haussmann, 75008, Paris
Sapphire Actipark S.C.I. Ordinary Shares 100 Sapphire Ile De France Sci Ordinary Shares 100 Sapphire Lyon S.C.I. Ordinary Shares 100 4 Rue Marivaux,75002, Paris 7-13 Boulevard Paul Emile Victor S.A.R.L Ordinary Shares 7 French Core + Two S.A.R.L Ordinary Shares 7 SAS Core + Metz Ordinary Shares 7 SAS Core + Tour Franklin Ordinary Shares 7 SAS Core + Tour Franklin 2 Ordinary Shares 7 SCI Aix En Provence Ordinary Shares 7 SCI Bondy Nord Ordinary Shares 7 SCI Buchelay 78 Ordinary Shares 7 SCI Cormontreuil Ordinary Shares 7 62 Rue de la Chaussee d’Antin, 75009, Paris
France Santé Courtgae Ordinary Shares 100 JMVF Ordinary Shares 100 PG Finances Ordinary Shares 100 80 Avenue De L’Europe, 92270 BoisColombes
Epargne Actuelle Ordinary Shares 100 Innov’Now Ordinary Shares 100 SCI Pesaro Ordinary Shares 90 Société Civile Immobilière Carpe Diem Ordinary Shares 50 Societe Civile Immobiliere Charles Hermite Ordinary Shares 100 Societe Civile Immobiliere Montaigne Ordinary Shares 100 12 Place Des Etats-Unis, 92545, Montrouge Cedex
Company name Share Class % held 32 Avenue D’Iena, 75016 Paris CGP Entrepreneurs Ordinary Shares 74 Ufifrance Gestion Ordinary Shares 74 Ufifrance Patrimoine Ordinary Shares 74 Union Financière De France Banque Ordinary Shares 74 Myria Asset Management Ordinary Shares 74 24-26 Rue De La Pépinière, 75008, Paris AFER Immo Ordinary Shares 100 AFER Immo 2 Ordinary Shares 100 Aviva Commerce Europe Ordinary 100 Aviva Patrimoine Immobilier Ordinary Shares 100 Logiprime Europe Ordinary A Shares 100 Primofin Ordinary 99 Primotel Europe Ordinary Shares 99 SCI Aviva Immo Selection Ordinary Shares 100 SCI La Coupole Des Halles Ordinary Shares 100 Société Civile Immobilière Thomas Edison Ordinary Shares 50 37 Avenue Des Champs Elysées, 75008, Paris
Ordinary B Shares 57 41 Rue Capitaine Guynemer , 92400, Courbevoie
Reschop Carré Hattingen GmbH Ordinary Shares 95 Reschop Carré Marketing GmbH Ordinary Shares 100 Max-Planck-Strasse, 3,85609 Aschheim-Dornach
Axa Property Trust Limited Ordinary Shares 24 F&C Commercial Property Trust Limited Ordinary Shares 21 Po Box 25, Regency Court, Glategny Esplanade, St Peter Port, GY1 3AP, Guernsey
Axiom Obligat J C. FCP 100 128, Boulevard Raspail, 75006, Paris UFF Oblicontext 2021 A FCP 99 UFF Pétrocontext FCP 100 UFF Obligations 3-5 A FCP 87 UFF Oblicont 2023 A C. FCP 98 9, Rue Jadin, 75017, Paris Opci Résidial Property Fund 35 18, Place de la Madeleine, 75008, Paris Icamap Investors FPS Mutual Fund 50 24 – 26, rue de la Pepiniere, 75008, Paris
SCI Campus Medicis St Denis Ordinary Shares 30 SCI Campus Rimbaud St Denis Ordinary Shares 30
Logipierre 1 Ordinary Shares 44 Selectipierre 2 Ordinary Shares 29 13, Avenue Lebrun, 92188, Antony Cedex
Asf German Retail GmbH & Co. Kg Ordinary Shares 98 German Retail I GmbH Ordinary Shares 98 German Retail Ii GmbH Ordinary Shares 98 German Retail Investment Properties SARL Ordinary Shares 98 German Retail Iv GmbH Ordinary Shares 98 German Retail Ix GmbH Ordinary Shares 98 German Retail V GmbH Ordinary Shares 98 German Retail Vii GmbH Ordinary Shares 98 German Retail Viii GmbH Ordinary Shares 98 Sachsenfonds Asset Management GmbH Ordinary Shares 100 Peter-Muller Strasse 10, 40468, Dusseldorf
PO Box 287, 4th Floor, West Wing, Trafalgar Court, Admiral Park, St Peter Port, GY1 3RL
CGU Project Services Private Limited Rs.10 Shares 100 A-47 (L.G.F), Hauz Khas, New Delhi Sesame Group India Private Limited Ordinary Shares 100
Legg Mason Martin Currie Global Resources Fund 75 St. Stephen’s Green, Dublin
Aviva Investors Sterling Liquidity Fund ICVC 34 Aviva Investors Sterling Strategic Liquidity Fund
Anna Livia Properties Limited Ordinary Shares 100 Ga Life Property Ireland Limited Ordinary Shares 100 Georges Court, 54-62 Townsend Street, Dublin 2
Royal Court, Castletown, IM9 1RA Friends Provident International Limited Ordinary B Shares,
Axa Sun Life Private Equity (No1) LP Limited Partnership 100 19-21 Broad Street, St Helier, Jersey, Channel Islands, JE1 3PB
Pioneer Fund Solutions Conservative SICAV 27 18, Rue Eugene Ruppert, L-2453 Ab SICAV I Emerging Markets Equity Portfolio 37/A Avenue JF Kennedy, L-1855 UBI SICAV Euro Fixed Income SICAV 22 UBI SICAV Euro Fixed Income Cl I SICAV 22 UBI SICAV Short Term Eur SICAV Cl I SICAV 21 3, Rue des Labours, 1912 Haspa Trendkonzept FCP 20 1c, Rue Gabriel Lippmann, L—5365 Munsbach
Patriarch Classic B&W Global Freestyle FCP 23 2 Boulevard de la Foire, L-1528 Luxembourg
Coral Student Portfolio SICAV 23 Pramerica Pan-European Real Estate Fund Mutual Fund 72 28-32, Place de la gare, L-1616 Ver Capital Credit Partners Iv SICAV – SIF SICAV 20 2 Rue du Fort Bourbon, L-1249 AFRP S.À R.L. Ordinary Shares 100 AIEREF Holding 1 S.A.R.L Equity Shares 45 AIEREF Holding 2 S.A.R.L Equity Shares 100 Aviva Investors Alternative Income Solutions General Partner S.À R.L.
Aviva Investors Global Convertibles Fund SICAV 74 Aviva Investors Global Emerging Markets Index Fund
Aviva Investors Strategic Multi Asset Fund SICAV 100 Aviva Investors UK Equity Focus Fund SICAV 90 Aviva Investors US Equity Income Fund SICAV 83 CB Building Kirchberg S.À R.L. Ordinary Shares 100 Centaurus Cer (Aviva Investors) SARL Ordinary Shares 100 Encore + FCP 7 Encore + Bedburg S.À R.L. Ordinary Shares 7 Encore + Bergkirchen S.À.R.L. Ordinary Shares 7 Encore + Gravity S.À R.L. Ordinary Shares 7 Encore + Rheinfelden S.À R.L. Ordinary Shares 7 Encore Plus Lombardia Sàrl Ordinary Shares 7 Encore Plus Lux Co Diamants Ii S.À R.L. Ordinary Shares 7 Encore Plus Lux Co Franklin Ii S.À R.L. Ordinary Shares 7 Encore Plus Lux Co Ile De La Jatte Ii S.À.R.L.
Jupiter Global Fund – Jupiter New Europe SICAV 50 6, Route de Treves, L-2633 Senningerberg
India Pune Office Addresses 103/P3, Pentagon, Magarpatta City, Hadapsar, Pune – 411013
Ireland 22 Sir John Rogerson’s Quay Legal & General Multi-Index Euro ICAV ICAV 34 Guild House, Guild Steet, IFRS, Dublin 1
FPPE – Private Equity Ordinary Shares 100 25-28 North Wall Quay, Dublin 1 Aviva Investors Sterling Liquidity Fund OEIC 42 Central Quay, Riverside IV4, Sir John Rogerson’s Quay, Dublin 2
Designer Retail Outlet Centres Unit Trust Unit Trust 97 Southgate Unit Trust Unit Trust 50 Airport Property Unit Trust2 Unit Trust 50 Apia Regional Offices Fund Unit Trust2 Unit Trust 25 Quantum Property Unit Trust2 Unit Trust 50 Serviced Offices UK Unit Trust2 Unit Trust 50
Lithuania Lvovo G. 25, Vilnius, Lt-09320 Uždaroji Akcin Gyvyb s Draudimo Ir Pensij Bendrov “Aviva Lietuva” (Joint Stock Limited Life Insurance And Pension Company Aviva Lietuva)
Hexagone FCP 100 Hexagone S.À R.L. Ordinary Shares 100 Sapphire Actipark 1 S.À R.L. Ordinary Shares 100 Sapphire Actipark 2 S.À R.L. Ordinary Shares 100 Sapphire Ile De France 1 S.À.R.L. Ordinary Shares 100 Sapphire Ile De France 2 S.À R.L. Ordinary Shares 100 Sapphire Lyon 1 S.À R.L. Ordinary Shares 100 Sapphire Lyon 2 S.À R.L. Ordinary Shares 100 Vh German Mandate Ordinary Shares 100 Victor Hugo 1 S.À R.L. Ordinary Shares 100 Victor Hugo 2 S.À R.L. Ordinary Shares 100 6 Route de Treves Senningerberg, L-
Aviva Investors Polish Retail S.À R.L. Ordinary Shares 100 19 Rue du Fort Bourbon, L-1249 Lend Lease Retail Partners Ordinary Shares 26 4 Rue du Fort Bourbon, L-1249 Vitus Ordinary Shares rl 100 47 Avenue John F Kennedy Goodman European Business Park Fund (Lux) S.Àr.L.
Ordinary Shares 100 6 Rue du Fort Bourbon, L-1249 German Retail Iii GmbH Ordinary Shares 98 German Retail Investment Property Fund FCP-SIF
Ordinary Shares 100 49 Avenue J.F. Kennedy, L-1855 F&C Portfolios Fund - F&C Diversified Growth
Ul. Burakowska 5/7, 01-066, Warszawa Berkley Investments S.A. Ordinary A Shares 90 Taśmowa 7, 02-677, Warsaw Porowneo.Pl Sp. Z O.O. Ordinary Shares 75
Professional Advisory Holdings Ltd. Ordinary A Shares 93 Professional Investment Advisory Services Pte Ltd
South Africa Mazars House, Rialto Road, Grand Moorings Precinct, Century City, 7441
Aviva Retorno Absoluto Fi Mutual Fund 37 Aviva Corto Plazo Fi Mutual Fund 48 Aviva Espabolsa Fi Mutual Fund 61 Aviva Eurobolsa Fi Mutual Fund 82 Aviva Fonvalor Euro Fi Mutual Fund 74 Aviva Renta Fija Fi Mutual Fund 85 Aviva Renta Variable Zona No Euro Fi Mutual Fund 55 Pº Castellana 31, 28046, Madrid Fcr Altamar Global Secondaries Ix Fcr Private Equity Fund 39 Fund Fcr Altamar Infrastructure Income Fcr Private Equity Fund 26 28-30 Ronda General Mittre, 08017, Barcelona
Sri Lanka 216 De Saram Place, Colombo 10 A.G.S Lanka (Private) Limited 6 Pence Shares 100
Ordinary Shares 100 13F, No.456 Section 4, Xin Yi Road, Taipei 110
Aberdeen UK Tracker Trust Plc OEIC 23 Aberdeen Multi-Asset Fund OEIC 45 Fair Lorna House, Buckingham Road, Singleborough Milton Keynes MK17 0RB
Axa Rosenberg Asia Pacific Ex Japan OEIC 92 Axa Rosenberg Japan OEIC 93 Axa Rosenberg Global OEIC 92 Axa Ethical Distribution Fund OEIC 35
CF Bentley Sterling Income Fund OEIC 29 CF Bentley Global Growth OEIC 27 31 Gresham Street, London, Schroder Qep US Core Fund Unit Trust 31 St Helen’s, 1 Undershaft, London, EC3P,3DQ
20 Gracechurch (General Partner) Limited General Partner 100 Alternative Use Group Plc Ordinary Shares 100 Aviva Investors Asia Pacific Property Fund OEIC 79 Aviva Investors Cash Fund OEIC 63 Aviva Investors Commercial Assets GP Limited
Aviva Investors European Property Fund OEIC 73 Aviva Investors Ground Rent GP Limited Ordinary Shares 100 Aviva Investors Ground Rent Holdco Limited
Aviva Investors High Yield Bond Fund OEIC 36 Aviva Investors Infrastructure GP Limited Ordinary Shares 100 Aviva Investors Infrastructure Income Limited Partnership
Aviva Investors Multi-Asset I Fund OEIC 45 Aviva Investors Multi-Asset Ii Fund OEIC 43 Aviva Investors Multi-Asset Iii Fund OEIC 52 Aviva Investors Multi-Asset Iv Fund OEIC 45 Aviva Investors Multi-Asset V Fund OEIC 43 Aviva Investors Multi-Manager 20-60% Shares Fund
F&C European Growth & Income Fund SICAV 100 Enhanced Loan Investment Strategy Ordinary Shares 100 48 Avenue John F. Kennedy, L – 1855 Enhanced Loan Investment Strategy Direct Holdings S.A.R.L
Expander Advisors Sp. Z O.O. Ordinary Shares 90 Pl. Andersa 5, 61-894 Poznań Bz Wbk-Aviva Towarzystwo Ubezpieczeń Na Życie Spółka Akcyjna2
Wroclaw Bc Sp. Z.O.O Ordinary Shares 100 Zelanza, 28/30 00832 Warsaw
Encore+ Futura Sp. Z O.O. Ordinary Shares 7 Ul.Inflancka 4B, 00-189, Warsaw Aviva Investors Poland Towarzystwo Funduszy Inwestycyjnych S.A.
Al Hadi Sharia Compliant Fund Mutual Fund 82 Al Mokdam Sharia Compliant Fund Mutual Fund 83 Al Shamekh Fund Mutual Fund 88 Al Shuja’a Sharia Compliant Fund Mutual Fund 94
Aviva Investors Asia Pte. Limited Ordinary Shares 100 4 Shenton Way, # 01 – 01 Sgx Centre 2, 068807
Aviva Ltd Ordinary Shares 100 6 Temasek Boulevard, #29-00, Suntec Tower 4, 038986
Switzerland Stockerstrasse, 38 8002 , Zurich Aviva Investors Schweiz GmbH Interest Shares 100
Alliance Trust Sustainable FutureICVC – Absolute Growth Fund 80 George Street, Edinburgh, EH2 3BU F&C European Capital Partners LP Limited Partnership 30 North British Properties (Scotland) Limited Ordinary Shares 100 Bow Bells House 1 Bread Street London EC4M 9HH
Architas Multi-Manager Diversified Protector 80 6 Chesterfield Gardens, Mayfair, London, W1J 5BQ.
IFSL Tilney Bestinvest Global Defensive Portfolio 29 Queen Anne’s Gate, London SW1H 9BU
Aviva Investors Corporate Bond Fund OEIC 93 Aviva Investors Ebc GP Limited Ordinary Shares 100 Aviva Investors Ebc Limited Partnership Limited Partnership 100 Aviva Investors Energy Centre No.1 GP Limited
Hillswood Management Limited Ordinary Shares 24 Lime Property Fund (General Partner) Limited
Lime Property Fund (Nominee) Limited Ordinary Shares 100 Matthew Parker Street (Nominee No 1) Limited
Medium Scale Wind No.1 Limited Ordinary Shares 100 Metropath Limited Ordinary Shares 100 Netnerve Limited Ordinary Shares 100 New Oxford Street (General Partner) Limited
Ordinary A Shares, Ordinary B Shares 20 Lowndes Square Management Company Limited
Company name Share Class % held 6-10 Lowndes Square Management Company Limited
The Gobafoss Partnership Limited Partnership 100 The Square Brighton Limited Ordinary Shares 100 Tyne Assets (No 2) Limited Ordinary Shares 100 Tyne Assets Limited Ordinary Shares 100 Vanwall 2 Management Company Limited Ordinary Shares 100 Wood Lane (Stadium) Limited Ordinary Shares 100 Boston Biomass Limited Ordinary Shares 100 Aviva Investors Asia Pacific Ex Japan Fund ACS 100 Aviva Investors Balanced Life Fund ACS 100 Aviva Investors Balanced Pension Fund ACS 100 Aviva Investors Sterling Corporate Bond Fund
Aviva Investors Global Equity Fund ACS 100 Aviva Investors Japan Equity Fund ACS 100 Aviva Investors Money Market VNAV Fund ACS 100 Aviva Investors North American Equity Fund
Aviva Investors UK Equity Fund ACS 100 Aviva Investors UK Equity Income Fund ACS 100 Aviva Investors US Large Cap Equity Fund ACS 100 11-12 Hanover Square LP2 Limited Partnership 50 11-12 Hanover Square Nominee 1 Limited2 Ordinary Shares 50 11-12 Hanover Square Nominee 2 Limited2 Ordinary Shares 50 130 Fenchurch Street LP2 Limited Partnership 50 130 Fenchurch Street Nominee 1 Limited2 Ordinary Shares 50 130 Fenchurch Street Nominee 2 Limited2 Ordinary Shares 50 30 Warwick Street LP2 Limited Partnership 50 30 Warwick Street Nominee 1 Limited2 Ordinary Shares 50 30 Warwick Street Nominee 2 Limited2 Ordinary Shares 50 30-31 Golden Square LP2 Limited Partnership 50 30-31 Golden Square Nominee 1 Limited2 Ordinary Shares 50 30-31 Golden Square Nominee 2 Limited2 Ordinary Shares 50 400 Caledonian Road Management Company Limited2
Airport Property H1 Limited2 Ordinary Shares 50 Airport Property Partnership2 Limited Partnership 50 Ascot Real Estate Investments GP LLP2 Limited Partnership 50 Aviva Investors Pip Solar Pv Limited Partnership2
Igloo Regeneration Property Unit Trust3 Unit Trust 50 Irongate House LP3 Limited Partnership 50 Irongate House Nominee 1 Limited2 Ordinary Shares 50 Irongate House Nominee 2 Limited2 Ordinary Shares 50 New Broad Street House LP2 Limited Partnership 50 New Broad Street House Nominee 1 Limited2
CGU International Holdings Bv Ordinary €0.45 Shares 100 Sue GP LLP2 Ordinary Shares 50 Unitair General Partner Limited2 Ordinary Shares 50 Unitair Limited Partnership2 Ordinary Shares 50 W Nine LP2 Limited Partnership 50 W Nine Nominee 1 Limited2 Ordinary Shares 50 W Nine Nominee 2 Limited2 Ordinary Shares 50 The Designer Retail Outlet Centres (Livingston) General Partner Limited2 3
Fitzroy Place GP 2 Limited2 Ordinary Shares 50 Fitzroy Place Management Co Limited2 Ordinary Shares 50 Fitzroy Place Residential Limited2 Ordinary Shares 50 Igloo Regeneration (General Partner) Limited2
Igloo Regeneration Developments LP2 Limited Partnership 50 Igloo Regeneration Partnership2 Limited Partnership 40 Mortimer Street Associated Co 1 Limited2 Ordinary Shares 50 Mortimer Street Associated Co 2 Limited2 Ordinary Shares 50 Mortimer Street Nominee 1 Limited2 Ordinary Shares 50 Mortimer Street Nominee 2 Limited2 Ordinary Shares 50 Mortimer Street Nominee 3 Limited2 Ordinary Shares 50 Serviced Offices UK (Services) Limited2 Ordinary Shares 50 Serviced Offices UK GP Limited2 3 Ordinary Shares 50 Serviced Offices UK Limited Partnership2 Limited Partnership 50 Sue Developments Limited Partnership2 Limited Partnership 50 Sue GP Nominee Limited2 Ordinary Shares 50 24 Birch Street, Wolverhampton, WV1 4HY
Aviva Investors Strategic Bond Fund OEIC 34 Aviva Investors UK Cresd GP Limited Ordinary Shares 100 Aviva Investors UK Equity Fund OEIC 26 Aviva Investors UK Equity Income Fund OEIC 56 Aviva Investors UK Equity Mom 1 Fund OEIC 83 Aviva Investors UK Growth Fund OEIC 36 Aviva Investors UK Index Tracking Fund OEIC 72 Aviva Investors UK Lt Red GP Limited Ordinary Shares 100 Aviva Investors UK Opportunities Fund OEIC 99 Aviva Investors UK Real Estate Recovery (General Partner) Limited
Nuppp (GP) Limited Ordinary Shares 100 Nuppp Nominees Limited Ordinary Shares 100 Paddington Central Iii GP Ltd Ordinary Shares 100 Paddington Central Iii Limited Partnership Limited Partnership 100 Property Management Company (Croydon) Ltd
The Welsh Insurance Corporation Limited Ordinary Shares 100 The Yorkshire Insurance Company Limited Ordinary Shares 100 Undershaft (No.4) Limited Ordinary Shares 100 Undershaft Limited Ordinary Shares 100 RHP (Retirement Housing Partnership) Limited Partnership 100 Se11 Pep Limited Ordinary Shares 100 Solar Clean Energy Limited Ordinary Shares 100 Southgate General Partner Limited Ordinary A Shares 50 Southgate Limited Partnership Limited Partnership 50 Southgate LP (Nominee 1) Limited Ordinary Shares 50 Southgate LP (Nominee 2) Limited Ordinary Shares 50 Sunrise Renewables (Barry) Limited Ordinary Shares 100 Swan Valley Management Limited Ordinary Shares 100 The Designer Retail Outlet Centres (Mansfield) General Partner Limited
Devon Nominees (No. 1) Limited2 Limited Partnership 50 Devon Nominees (No. 2) Limited2 Ordinary Shares 50 Devon Nominees (No. 3) Limited2 Ordinary Shares 50 Electric Avenue Limited2 Ordinary Shares 50 Bmg (Livingston) General Partner Limited2 3 Ordinary Shares 50 Bmg (Mansfield) General Partner Limited2 3 Ordinary Shares 50 Bmg (York) General Partner Limited2 3 Ordinary Shares 50 Cardiff Bay GP Limited2 3 Ordinary Shares 100 Cardiff Bay Limited Partnership2 3 Limited Partnership 100 Igloo Regeneration (Butcher Street) Limited2
Igloo Regeneration (Nominee) Limited2 Ordinary Shares 50 Igloo Regeneration Developments (General Partner) Limited2
Quantum Property Partnership2 Limited Partnership 50 Redan Power Limited2 Ordinary Shares 50 Renewable Clean Energy 2 Limited2 Ordinary Shares 50 Renewable Clean Energy 3 Limited2 Ordinary Shares 50 Rugby Radio Station (General Partner) Limited2
Mill Nu Properties Limited Ordinary A Shares 100 Norwich Union (Mall GP) Limited Ordinary Shares 100 NU College For Canterbury Limited Ordinary Shares 100 NU Developments (Brighton) Limited Ordinary Shares 100 NU Local Care Centres (Bradford) Limited Ordinary Shares 100 NU Local Care Centres (Chichester No.1) Limited
Aviva Investors GR SPV 10 Limited Ordinary Shares 100 Aviva Investors GR SPV 11 Limited Ordinary Shares 100 Aviva Investors GR SPV 12 Limited Ordinary Shares 100 Aviva Investors GR SPV 13 Limited Ordinary Shares 100 Aviva Investors GR SPV 14 Limited Ordinary Shares 100 Aviva Investors GR SPV 15 Limited Ordinary Shares 100 Aviva Investors GR SPV 4 Limited Ordinary Shares 100 Aviva Investors GR SPV 5 Limited Ordinary Shares 100 Aviva Investors GR SPV 6 Limited Ordinary Shares 100 Aviva Investors GR SPV 7 Limited Ordinary Shares 100 Aviva Investors GR SPV 8 Limited Ordinary Shares 100 Aviva Investors GR SPV 9 Limited Ordinary Shares 100 Aviva Investors GR SPV1 Limited Ordinary Shares 100 Aviva Investors GR SPV16 Limited Ordinary Shares 100 Aviva Investors GR SPV2 Limited Ordinary Shares 100 Aviva Investors GR SPV3 Limited Ordinary Shares 100 c/o Scottish Canals Canal House, 1 Applecross Street, Glasgow, G4 9SP
Friends Provident Life Assurance Limited Ordinary Shares 100 Friends’ Provident Managed Pension Funds Limited
Wealth Limited Ordinary Shares 100 Aviva Management Services UK Limited Ordinary Shares 100 Bankhall Support Services Limited Ordinary Shares 100 The Green, Easter Park, Benyon Road, Reading, Berkshire, England, RG7 2PQ
Sunrise Renewables (Hull) Limited Ordinary Shares 100 8 Surrey Street, Norwich, Norfolk, NR1 3NG
Aviva Pension Trustees UK Limited Ordinary Shares 100 Aviva Wrap UK Limited Ordinary Shares 100 Cgnu Life Assurance Limited Ordinary Shares 100 Lancashire And Yorkshire Reversionary Interest Company Limited /The
Aspire Financial Management Limited Ordinary Shares 47 Living In Retirement Limited Ordinary Shares 47 Sinfonia Asset Management Limited Ordinary Shares 47 Tenet Business Solutions Limited Ordinary Shares 47 Tenet Client Services Limited Ordinary Shares 47 Tenet Group Limited Ordinary B Shares 47 Tenet Limited Ordinary Shares 47 Tenet Valuation Services Ltd Ordinary A Shares 47 Tenetconnect Limited Ordinary Shares 47 Tenetfinancial Solutions Limited Ordinary Shares 47 Tenetlime Limited Ordinary Shares 47 Tenetselect Limited Ordinary Shares 47 Tenetconnect Services Limited Ordinary Shares 47 The Employee Benefits Corporation Limited
Ballard Investment Company Limited Ordinary Shares 25 Swan Court Waterman’S Business Park, Kingsbury Crescent, Staines, Surrey, TW18 3BA
Winslade Investments Inc. Common Stock Wpv Shares 100 c/o National Corporate Research Limtited, 615 S Dupont Hwy, Dover, DE 19901
Freetricity Southeast Limited Ordinary Shares 100 Beaufort Court , Egg Farm Lane, Kings Langley, Hertfordshire, WD4 8LR
Bigg Regeneration Partnership2 Limited Partnership 25 Carillion House, 84 Salop Street, Wolverhampton, WV3 0SR
Carillion-Igloo Limited2 Ordinary Shares 25 Carillion-Igloo Limited Partnership2 Limited Partnership 25 Carillion-Igloo Nominees Limited2 Ordinary Shares 25 Fairweathers, 7 Chalfont Court, Chalfont Way, Lower Earley, Berkshire, RG6 5SY
Friends Sl Nominees Limited Ordinary Shares 100 Friends Slolac Limited Ordinary Shares 100 Friends Slua Limited Ordinary Shares 100 Friends Slus Limited Ordinary A Shares 100 Gateway Specialist Advice Services Limited Ordinary Shares 100 Hengrove Park Bristol (Phase I) Management Company Limited
Herax Nominees (No. 1) Limited Ordinary Shares 100 Herax Nominees (No. 2) Limited Ordinary Shares 100 Ifa Exchange Limited Ordinary Shares 100 Ifa Network Limited Ordinary Shares 100 Journey Financial Advice Limited Ordinary Shares 100 London And Manchester Group Limited Ordinary Shares 100 London Capital Holdings Limited Ordinary Shares 100 Nbp Developments Limited Ordinary Shares 100 North British Properties Limited Ordinary Shares 100 Optimum Investment Solutions Limited Ordinary Shares 100 Point One Limited Ordinary Shares 100 Portfolio Member Services Limited Ordinary Shares 100 Premier Mortgage Service Limited Ordinary Shares 100 Regional Properties Limited Ordinary Shares 100 Sb Loan Adminstration Limited Ordinary Shares 100 Sb Mortgage Network Limited Ordinary Shares 100 Sesame Bankhall Group Limited Ordinary Shares 100 Sesame Bankhall Valuation Services Limited
Anesco Mid Devon Limited Ordinary Shares 100 Anesco South West Limited Ordinary Shares 100 Free Solar (Stage 1) Limited Ordinary Shares 100 New Energy Residential Solar Limited Ordinary Shares 100 Norton Energy Sls Limited Ordinary Shares 100 Tghc Limited Ordinary Shares 100 Wakefield House , 67 Bewsey Street, Warrington , England, WA2 7JQ
Aviva Central Services UK Limited Ordinary Shares 100 Aviva Consumer Products UK Limited Ordinary Shares 100 Aviva Health UK Limited Ordinary Shares 100 Aviva Insurance UK Limited Ordinary Shares 100 Aviva UKGI Investments Limited Ordinary Shares 100 Gresham Insurance Company Limited Ordinary Shares 100 Healthcare Purchasing Alliance Limited2 Ordinary A Shares 50 London And Edinburgh Insurance Company Limited
Synergy Financial Products Limited Ordinary Shares 29 201 Bishopsgate, London, EC2M 3AE Optimum Investment Management Limited
Exeter Properties Inc. Common Stock Wpv Shares 95 Vietnam 10th Floor, Handi Resco Building, No. 521 Kim Ma, Ba Dinh, Hanoi
Income Dividends received from subsidiaries I 2,510 1,250 Interest receivable from group companies I 56 57 Net investment income 28 —
Direct capital instrument and fixed rate tier 1 notes Total equity Note £m £m £m £m £m £m £m £m £m
Statement of comprehensive income For the year ended 31 December 2016
Items that will not be reclassified to income statement Remeasurements of pension schemes E (6) —
Statement of changes in equity For the year ended 31 December 2016
Equity Ordinary share capital 30 1,015 1,012 Preference share capital 33 200 200 Called up capital 1,215 1,212 Share premium 30b 1,197 1,185 Merger reserve E 6,438 6,438 Investment valuation reserve E 9,121 10,863 Equity compensation reserve E 78 70 Retained earnings E 3,747 3,124 Direct capital instrument and tier 1 notes 34, D 1,116 1,116
Liabilities Non-current liabilities Borrowings F 6,638 5,202 Loans owed to subsidiaries I 13,098 10,256 Deferred tax liabilities C 4 3 Provisions 47 40 19,787 15,501 Current liabilities Borrowings F 642 485 Loans owed to subsidiaries I 156 — Other amounts owed to subsidiaries I 4,042 3,962 Other creditors 139 125
Cash and cash equivalents at 1 January 188 33 Exchange gains on cash and cash equivalents 51 3
Cash flows from investing activities Sale/(purchase) of financial investments 29 (5)
Cash flows from financing activities Funding provided from subsidiaries 11 721 New borrowings drawn down, net of expenses 3,378 2,027 Repayment of borrowings (2,285) (1,554) Net drawdown of borrowings 1,093 473 Preference dividend paid (17) (17) Ordinary dividend paid (871) (635) Interest paid on direct capital instrument and tier 1 notes (85) (72) Interest paid on borrowings (330) (328) Treasury shares purchased for employee trusts — (1) Proceeds from issue of ordinary shares 13 16
B – Operating expenses (i) Operating expenses Operating expenses comprise: Staff costs and other employee related expenditure (see below) 97 82 Other operating costs 127 201 Net foreign exchange losses/(gains) 379 (59)
(ii) Staff costs Total staff costs were: Wages and salaries 57 49 Social security costs 8 7 Defined contribution schemes 8 8 Equity compensation plans (see (iii) below) 19 16 Termination benefits 5 2
C – Tax (i) Tax credited to the income statement The total tax credit comprises: Current tax For this year (131) (129) Prior year adjustments (1) 1
(ii) Tax credited to other comprehensive income Tax credited directly to other comprehensive income is £1 million (2015: £nil). This comprises deferred tax credited on the remeasurement of the pension scheme.
(vi) Current tax assets Current tax assets recoverable in more than one year are £135 million (2015: £130 million).
At 31 December 2016, the Company has two wholly owned subsidiaries, both incorporated in the UK. These are General Accident plc and Aviva Group Holdings Limited. Aviva Group Holdings Limited is an intermediate holding company, while General Accident plc has preference shares listed on the London Stock Exchange. The principal subsidiaries of the Aviva Group at 31 December 2016 are set out in note 60 to the Group consolidated financial statements.
(ii) Joint venture At 31 December 2016, the Company’s investment in the joint venture, Aviva-COFCO Life Insurance Co. Limited has a fair value of £511 million (2015: £322 million).
Tax calculated at standard UK corporation tax rate of 20% (2015: 20.25%) 293 114 Adjustment to tax charge in respect of prior years (1) 1 Non-assessable dividend income (502) (253) Disallowable expenses 8 10 Movement in unprovided deferred tax — (8) Different local basis of tax on overseas profits 1 1 Change in future local statutory tax rates 6 20 Losses surrendered intra-group for nil value 100 —
Interest rate risk Loans to and from subsidiaries are at either fixed or floating rates of interest, with the latter being exposed to fluctuations in these rates. The choice of rates is designed to match the characteristics of financial investments (which are also exposed to interest rate fluctuations) held in both the Company and the relevant subsidiary, to mitigate as far as possible each company’s net exposure.
The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in Euros. However, most of these borrowings have been on-lent to a subsidiary which holds investments in Euros, generating the net investment hedge described in the Group consolidated financial statements, note 57(a).
The fair value of the subordinated debt at 31 December 2016 was £6,376 million (2015: £5,504 million), calculated with reference to quoted prices. The fair value of the senior debt at 31 December 2016 was £720 million (2015: £nil), calculated with reference to quoted prices. The fair value of the commercial paper is considered to be the same as its carrying value. Further details of these borrowings and undrawn committed facilities can be found in the Group consolidated financial statements, note 49, with details of the fair value hierarchy in relation to these borrowings in note 22.
All the Company’s long term external borrowings are at fixed rates of interest and are therefore not exposed to changes in these rates. However, for short term commercial paper, the Company is affected by changes in these rates to the extent the redemption of these borrowings is funded by the issuance of new commercial paper or other borrowings. Further details of the Company’s borrowings are provided in note F and the Group consolidated financial statements, note 49.
The effect of a 100 basis point increase/decrease in interest rates on floating rate loans due to and from subsidiaries and on refinancing short term commercial paper as it matures would be a decrease/increase in profit before tax of £108 million (2015: decrease/increase of £106 million). The net asset value of the Company’s financial resources is not materially affected by fluctuations in interest rates.
Principal Interest Total Principal Interest Total Maturity analysis of contractual undiscounted cash flows: £m £m £m £m £m £m
Other related party balances comprise dividends and interest receivable and payable, as well as intercompany balances for fees and other transactions in the normal course of business.
The Company incurred expenses in the year of £222,096 (2015: £212,750) representing audit fees paid by the Company on behalf of subsidiaries. The Company did not recharge subsidiaries for these expenses.
J – Subsequent events There are no subsequent events to report.
During the year, sterling weakened against the euro, Canadian dollar and Polish zloty which has benefitted the overall results and performance. See IFRS financial statements – note 2 – Exchange rates. In addition, the Group undertook the following actions which impacted the overall results and performance: • In 2016, the Group completed a number of acquisitions and disposals. See ‘IFRS Financial statements – note 3 – Subsidiaries’ for further details: – On 1 July 2016, the Group completed the acquisition of RBC
General Insurance Company (RBC) in Canada. – The Group also completed the acquisition of an additional 23% share in Aviva Life Insurance Company India Limited, and the disposal of its Irish private medical insurance business.
We expect the underwriting cycle to continue in the future but to be less pronounced than in the past. Capital markets are imposing financial discipline by being increasingly more demanding about performance from insurance companies before extending new capital. Such discipline, together with the increased concentration of competitors within the market, and the adoption of more advanced pricing methods, is expected to make the underwriting cycle less pronounced in the future.
• The Group continued to undertake restructuring and transformation activity to align our business operations with our strategy. Integration and restructuring costs decreased to £212 million (2015: £379 million), as a result of lower integration spend relating to the Friends Life acquisition and lower Solvency II project costs. This was partly offset by costs related to the RBC acquisition.
Technological change Our industry is not immune to the rapid pace of technological change, which shows no sign of letting up. Customer expectations, including distribution preferences, are changing rapidly in some of our markets and can be expected to do the same in the others. Digital remains crucial to our future success. By putting Digital First, a key element of our Group strategy, we can support customers more quickly with their enquiries and transactions, wherever they are in the world.
2016 saw continued volatility in global economic activity, leading to subdued global growth overall. Advanced economies continued their modest recovery, while emerging markets were stable, ending the decline of the previous five years.
During 2016, the UK personal motor market saw prices continue to rise, in part reflecting current levels of claims inflation. Challenging market conditions remain in other UK classes of business as insurers seek opportunities to gain share in segments with better margin, putting pressure on rates and extent of cover.
Activity in 2016 On 1 July 2016, the Group completed the acquisition of RBC
Non-GAAP measures Sales The total sales of the Group consist of long-term insurance and savings new business sales and general insurance and health net written premiums (excluding long-term health business).
PVNBP is not a substitute for net written premiums as determined in accordance with IFRS. Our definition of sales may differ from similar measures used by other companies, and may change over time.
Further details can be found in the section ‘IFRS Financial statements – note 3 – Subsidiaries’.
Activity in 2015 On 10 April 2015, the Group completed the acquisition of 100% of the outstanding shares of Friends Life Group Limited (‘Friends Life’) through an all share exchange. 1,086,326,606 Group shares were issued for a consideration of £5,975 million. During 2015 the Group also completed other minor acquisitions, undertook a further sale of shares in our Turkey Life business, and sold some small reinsurance operations in Asia.
In the UK, we have major long-term insurance and savings businesses and general insurance and health businesses; in Europe we have long-term insurance and savings businesses in all countries in which we operate, large general insurance businesses in France, Ireland and Italy, and smaller general insurance operations in several other countries and a health business in France; in Canada we have a leading general insurance operation; in Asia we predominantly have long-term insurance and savings businesses. Our fund management businesses operate across Europe, Asia, North America and the UK.
Long-term insurance and savings business For most of our life insurance businesses, such as those in the UK and France, operating earnings are generated principally from our in-force books of business. Our in-force books consist of business written in prior years and on which we continue to generate profits for shareholders. Under IFRS, certain costs incurred in acquiring new business must be expensed, thereby typically giving rise to a loss in the period of acquisition, although the degree of this effect will depend on the pricing structure of product offerings. In certain higher growth markets, current year sales have a more significant effect on current year operating earnings.
Risk cover business includes term assurance, or term life insurance business. Annuity business includes immediate annuities purchased for individuals or on a bulk purchase basis for groups of people. The risk of investing policy assets in this business is borne entirely by the shareholders. Operating earnings arise when premiums, and investment return earned
Other operations Other operations include our operations other than insurance and fund management, including Group Centre expenses.
The remainder of the financial performance section focuses on the activity of the Group’s continuing operations.
• Non-covered business or investment sales: – These include retail sales of mutual fund type products. – There is no insurance risk borne by the Group therefore, under IFRS, these are treated as deposits and an investment management fee income is earned on the funds deposited.
Sales is a non-GAAP financial measure and financial performance indicator that we report to our key decision makers in the businesses in order to help assess the value of new business from our customers and compare performance across the markets in which we operate.
For our long-term insurance and savings business, we believe that sales is an important measure of underlying performance and a better measure for new business than IFRS net written premiums. We consider that the use of sales over IFRS net written premiums provides a: • Consistent treatment of long-term insurance and investment contracts: IFRS net written premiums do not include deposits received on non-participating investment contracts. Long-term insurance contracts and participating investment contracts both contain a deposit component, which are included in IFRS net written premiums, in addition to an insurance risk component. Therefore, to assess the revenue generated on a consistent basis between types of contracts, we evaluate the present value of new business sales of long-term insurance and investment products on the basis of total premiums and deposits collected, including sales of mutual fund type products such as unit trusts and open ended investment companies (OEICs).
General insurance and health sales General insurance and health (excluding long-term health business) sales are defined as IFRS net written premiums, which are premiums written during the year net of amounts reinsured with third parties. For sales reporting, we use the GAAP measure for this business.
Total sales The table below presents our consolidated sales for the three years ended 31 December 2016, 2015 and 2014, as well as the reconciliation of sales to net written premiums in IFRS.
Total sales 46,449 40,632 34,859 Less: Effect of capitalisation factor on regular premium long-term business (10,493) (10,357) (7,314) Share of long-term new business sales from JVs and associates (552) (427) (473) Annualisation impact of regular premium longterm business3 (264) (251) (214) Deposits taken on non-participating investment contracts and equity release contracts (7,834) (6,560) (5,641) Retail sales of mutual fund type products
3 £200 million has been reclassified from ‘Annualisation impact of regular premium long-term business’ to ‘IFRS gross written premiums from existing long-term business’ in UK Life for 2015.
4 Outward reinsurance premium ceded represents £107 million (2015: £712 million) relating to an outwards reinsurance contract completed by the UK General Insurance business
• Share of long-term new business sales from joint ventures and associates Total long-term new business sales include our share of sales from joint ventures and associates. Under IFRS reporting, premiums from these sales are excluded from our consolidated accounts, with only our share of profits or losses from such businesses being brought into the income statement separately.
• Retail sales of mutual fund type products (investment sales) Investment sales included in the total sales number represent the cash inflows received from customers to invest in mutual fund type products such as unit trusts and OEICs. We earn fees on the investment and management of these funds which are recorded separately in the IFRS income statement as ‘fees and commissions received’ and are not included in statutory premiums.
Operating profit for long-term insurance and savings business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the period, with consistent allowance for the corresponding expected movements in liabilities. The expected rate of return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return and asset classification. For fixed interest securities classified as fair value through profit or loss, the expected investment returns are based on average prospective yields for the actual assets held less an adjustment for credit risks. Where such securities are classified as available for sale the expected return comprises interest or dividend payments and amortisation of the premium or discount at purchase. The expected return on equities and properties is calculated by reference to the opening 10-year swap rate in the relevant currency plus an appropriate risk margin. Operating profit includes the effect of variances in experience for non-economic items, such as mortality, persistency and expenses, and the effect of changes in non-economic assumptions. Changes due to economic items, such as market value movement and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed as nonoperating items.
(investment sales) (7,292) (6,437) (4,977) Add: IFRS gross written premiums from existing long-term business3 4,867 4,676 4,787 Less: long-term insurance and savings business premiums ceded to reinsurers (1,696) (1,529) (971) Less: Outward reinsurance premium relating to general insurance business4 (107) (712) —
Analysed as: Long-term insurance and savings net written premiums 14,051 11,658 11,756 General insurance and health net written 1 Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non-profit fund during the second half of 2016 in the UK.
• Effect of capitalisation factor on regular premium longterm business PVNBP is derived from the single and regular premiums of the products sold during the financial period and is expressed at the point of sale. The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts. It includes any changes to existing contracts, which were not anticipated at the outset of the contract, that generates additional shareholder risk and associated premium income of the nature of a new policy. The discounted value of regular premiums is calculated using the same market consistent embedded value methodology as for VNB on an MCEV basis.
Year ended 31 December 2015 Total sales increased to £40,632 million (2014: £34,859 million) for the reasons set out in the market performance sections below.
United Kingdom & Ireland Life 1,579 1,447 1,087 United Kingdom & Ireland GI 443 414 492 France 481 449 470 Poland 146 141 195 Italy, Spain and Other 318 268 304 Canada 270 214 191 Asia 201 223 78 Aviva Investors 160 106 63 Other Group activities (588) (574) (642)
Operating profit before tax attributable to shareholders’ profit 3,010 2,688 2,238
Year ended 31 December 2015 Operating profit before tax increased by £450 million to £2,688 million (2014: £2,238 million1) for the reasons set out in the market performance section below.
Amortisation and impairment of intangibles was a charge of £175 million (2015: £155 million charge) and amortisation and impairment of acquired value of in-force business (AVIF) was a charge of £540 million (2015: £498 million).
The total charge for impairment of goodwill, associates and joint ventures and other amounts expensed for the year was £22 million (2014: £24 million).
Year ended 31 December 2015 Net written premiums were £19,035 million (2014: £20,056 million) which included a reinsurance premium ceded of £712 million relating to an outwards reinsurance contract completed by the UK General Insurance business. Excluding this, net written premiums decreased by £309 million, or 2%, to £19,747 million (2014: £20,056 million).
General insurance and health premiums were £7,377 million (2014: £8,300 million). Excluding the outwards reinsurance premium described above, premiums decreased by £210 million, or 3%, to £8,090 million (2014: £8,300 million). Higher sales in the UK were more than offset by lower premiums in Europe and Canada mainly due to adverse foreign exchange.
Year ended 31 December 2015 Net investment income from continuing operations was £2,825 million (2014: £21,889 million). Compared to 2014, unrealised gains were significantly lower in 2015 reflecting market movements, including lower fixed income security market values arising from higher risk-free interest rates.
General insurance and health claims increased by £580 million, or 11% to £5,756 million (2015: £5,176 million) mainly due to the acquisition of RBC in Canada, and weather events in France.
Change in insurance liabilities in 2016 was a debit of £6,893 million (2015: £6,681 million credit), resulting mainly from changes in economic and non-economic assumptions on longterm business. This also includes the £475 million impact of the change in the Ogden discount rate.
Economic assumption changes of £242 million adverse (2015: £100 million adverse) arise as a result of a decrease in the real interest rates used to discount claim reserves for periodic payment orders (PPOs) and latent claims.
The total charge for impairment of goodwill, associates and joint ventures and other amounts expensed for the year was £nil (2015: £22 million).
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates was £2 million (2014: £174 million). See ‘IFRS Financial Statements – note 3 – Subsidiaries’ for further details.
General insurance and health premiums were £9,027 million (2015: £7,377 million). Excluding the outwards reinsurance premium described above, premiums increased by £1,044 million, or 13%, to £9,134 million (2015: £8,090 million), with higher sales in the UK due to new partnerships, an increase in Canada due to the acquisition of RBC and foreign exchange benefits arising from the weakening sterling.
Other income Year ended 31 December 2016 Other income, which consists of fee and commission income, share of profit after tax of joint ventures and associates, and loss on disposal and remeasurement of subsidiaries, joint ventures and associates, increased by £188 million, or 9%, to £2,167 million in 2016 (2015: £1,979 million). Fee and commission income increased by £165 million, or 9% to £1,962 million (2015: £1,797 million), mainly due to an additional quarter of the acquired Friends Life businesses. Loss on disposal and remeasurement of subsidiaries, joint ventures and associates was £11 million (2015: £2 million profit) and the share of profits from joint ventures and associates was £216 million (2015: £180 million).
See ‘IFRS Financial Statements – note 6 – Details of expenses’ for further details.
Short-term fluctuations on non-long term business were £518 million negative (2015: £84 million negative). The adverse movement in short-term fluctuations during 2016 compared with 2015 was mainly due to foreign exchange losses on Group Centre holdings, including Group external borrowings.
Other items, a charge of £498 million (2015: £53 million charge), includes an exceptional charge of £475 million (2015: £nil) relating to the change in the Ogden discount rate from 2.5% set in 2001 to minus 0.75% announced by the Lord Chancellor on 27 February 2017. Refer to IFRS financial statements – note 40(c)(iii) – Financial Liabilities for further details. Other items also includes £23 million relating to the loss upon the completion of an outwards reinsurance contract, written in 2015 by UK General Insurance business, which provides significant protection against claims volatility from mesothelioma, industrial deafness and other long tail risks.
Short-term fluctuations on non-long term business were £84 million negative (2014: £261 million positive). The adverse movement in short-term fluctuations during 2015 compared with 2014 was mainly due to an increase in risk-free rates reducing fixed income security market values.
Premiums written net of reinsurance 23,078 19,035 20,056 Net change in provision for unearned
Expenses Claims and benefits paid, net of recoveries from reinsurers (23,782) (21,985) (19,474) Change in insurance liabilities, net of reinsurance (6,893) 6,681 (5,570) Change in investment contract provisions (14,039) (1,487) (6,518) Change in unallocated divisible surplus (381) 984 (3,364) Fee and commission expense (3,885) (3,324) (3,364) Other expenses (3,853) (2,784) (1,979) Finance costs (626) (618) (540)
Year ended 31 December 2015 Profit before tax attributable to shareholders was £1,413 million1 (2014: £2,306 million1) mainly due to the reasons set out in the sections ‘net written premiums’, ‘net investment income’, ‘other income’ and ‘expenses’ above. It also includes a credit of £218 million (2014: £382 million charge) in relation to tax attributable to policyholders’ returns. See ‘IFRS Financial Statements – note 13 – Tax’ for further details.
Pensions 11,562 8,950 5,803 Annuities2 2,074 2,945 1,948 Bonds 133 139 174 Protection 1,779 1,586 1,103 Equity release 637 699 696 Others 1,907 1,917 2,285
Year ended 31 December 2016 On a PVNBP basis, sales in the UK long-term insurance and savings business increased by £1,856 million to £18,092 million (2015: £16,236 million). This included an additional quarter from Friends Life following the acquisition in April 2015. Excluding this, growth in sales of group pensions, individual annuities and protection products were partly offset by lower volumes of bulk purchase annuities. On a PVNBP basis, sales in Ireland increased 26%, 12% on a constant currency basis, to £709 million (2015: £561 million), mainly reflecting higher sales of pensions. UK and Ireland IFRS net written premiums were down 2% to £3,942 million (2015: £4,042 million) due to lower bulk purchase annuity sales.
Year ended 31 December 2015 On a PVNBP basis, sales in the UK long-term insurance and savings business increased by £4,227 million to £16,236 million (2014: £12,009 million). This included a contribution from Friends Life of £4,477 million following the acquisition in April 2015. Excluding Friends Life, UK long-term insurance and savings business decreased by £250 million, or 2%, to £11,759 million (2014: £12,009 million). Within this, growth in sales of pensions and bulk purchase annuities was more than offset by lower sales of individual annuities following the pension reforms announced in March 2014 together with the impact of the transfer of the retail fund management business to Aviva Investors in 2014. In Ireland, sales increased 29% to £561 million (2014: £435 million) mainly reflecting higher sales of pensions and annuities. UK and Ireland IFRS net written premiums were up 15% to £4,042 million (2014: £3,515 million) mainly due to the post acquisition contribution from Friends Life. Overall UK & Ireland Life operating profit1 increased to £1,455 million (2014: £1,074 million1). UK life operating profit was £1,431 million1 (2014: £1,050 million1), including a contribution of £358 million from Friends Life following its acquisition in April 2015. Excluding Friends Life, UK profits increased 2% to £1,096 million1 (2014: £1,075 million1), benefitting from lower operating expenses as well as improved new business profitability. In Ireland, operating profit was stable at £24 million (2014: £24 million). In UK Health, operating profit was up £10 million to £21 million (2014: £11 million) due to lower expenses and the benefit of pricing actions. Operating profit from other operations resulted in a £29 million loss (2014: £4 million loss) reflecting continued investment into the UK Life Platform business. IFRS profit before tax attributable to shareholders’ profits decreased to £740 million1 (2014: £1,005 million1). This includes higher operating profits which increased for the reasons set out above. It also includes a higher amortisation of acquired value of in-force business charge of £350 million (2014: £10 million charge) following the acquisition of Friends Life, higher
Total Sales1 4,357 4,051 4,028 IFRS net written premiums United Kingdom 3,823 2,972 3,663 Ireland 427 367 365
Lower integration and restructuring costs of £15 million (2015: £26 million), favourable short-term investment variances of £79 million (2015: £84 million adverse), and a £23 million loss (2015: £53 million loss) arising from the completion of the outwards reinsurance contract written in 2015 were offset by higher adverse economic assumption changes of £229 million (2015: £98 million adverse).
United Kingdom and Ireland UK & Ireland life The table below presents sales, net written premiums, operating profit and profit before tax attributable to shareholders’ profits from our UK and Ireland long-term businesses for the three years ended 31 December 2016, 2015 and 2014.
Overall UK & Ireland Life operating profit increased to £1,555 million (2015: £1,455 million1). UK life operating profit was £1,523 million (2015: £1,431 million1), up £92 million benefitting from an additional quarter of Friends Life, realisation of integration synergies and the growth in sales mentioned above, partly offset by the decreased sales in bulk purchase annuities and continued investment in digital. In Ireland, operating profit was up £8 million to £32 million (2015: £24 million) as we continue to grow our market share. In UK Health, operating profit was up £10 million to £31 million (2015: £21 million) due to increased sales in corporate excess products and lower claims costs. Operating profit from other operations resulted in a £7 million loss (2015: £29 million loss) with higher expenses in the platform business offset by profit in our financial advisors business. IFRS profit before tax attributable to shareholders’ profits increased to £1,637 million (2015: £740 million1). This includes higher operating profits which increased for the reasons set out above. It also includes positive investment return variances of £503 million (2015: £nil), reflecting lower interest rates and narrowing corporate bond spreads, lower integration and restructuring costs of £119 million (2015: £215 million) and positive short-term fluctuation in return on investments backing non-long-term business of £135 million (2015: £53 million negative). Amortisation and impairment of acquired value of inforce business and intangibles was £458 million (2015: £434 million).
Financial and operating performance continued integration and restructuring costs of £215 million (2014: £28 million) and a higher amortisation of intangibles charge of £84 million (2014: £31 million charge).
General insurance and health business 440 409 488 Other operations 3 5 4
Operating profit before tax from general insurance and health business was up 8% to £440 million (2015: £409 million).
In Ireland, general insurance and health operating profit increased to £41 million (2014: £33 million) mainly driven by favourable weather experience partly offset by lower prior year claims reserve releases.
Sales Long-term insurance and savings business 5,525 4,821 4,633 General insurance and health net written
Profit before tax attributable to shareholders’ profits decreased to £325 million (2015: £420 million), including operating profits discussed above, adverse investment variances of £84 million (2015: £15 million favourable) and lower integration and restructuring costs of £8 million (2015: £19 million).
Profit before tax attributable to shareholders’ profits decreased to £420 million (2014: £462 million), which includes the lower operating profits discussed above, lower favourable investment variances of £15 million (2014: £41 million favourable) and higher integration and restructuring costs of £19 million (2014: £15 million) partially offset by a lower amortisation and impairment of AVIF charge of £5 million (2014: £18 million).
Year ended 31 December 2015 The weakening of the zloty affected all metrics from a Group perspective. Life and pensions sales on a PVNBP basis were down 22% to £448 million (2014: £573 million). Excluding the one-off benefit in 2014 from regulatory pension change in Lithuania, PVNBP was broadly stable. General insurance net written premiums were £66 million (2014: £57 million) with increases mainly in personal lines. Total net written premiums decreased 1% to £477 million (2014: £482 million).
In Spain, life sales increased by £316 million, or 51% (33% on a constant currency basis), to £938 million (2015: £622 million) mainly reflecting mix improvements within protection business and sales of unit-linked products in the second half of the year.
Total operating profit increased by £50 million, or 19%, to £318 million (2015: £268 million). Within this, life operating profit in Italy increased to £170 million (2015: £139 million), up 8% on a constant currency basis, reflecting portfolio growth and margin improvements across all products. In Spain, life operating profit increased to £107 million (2015: £92 million), 2% higher on a constant currency basis mainly due to the improved protection margin.
IFRS net written premiums decreased £757 million, or 22%, to £2,687 million (2014: £3,444 million) mainly reflecting 2014 disposals in Italy, Spain and Turkey.