1 UK Savings & Retirement is reported within UK Life in 2019. 2 In 2019 our markets are: UK Life, Aviva Investors, UK General Insurance, Canada, Europe and Asia. 3 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other Information’ section within the Annual report and accounts for further information. 4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets
(see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit.
5 Profit before tax attributable to shareholders’ profit. 6 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 7 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts. 8 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other Information’ section of the Annual report and accounts for more information.
Excel at the fundamentals: Our focus is on the core activities of our business: underwriting, claims management, investment performance and cost efficiency
Invest in sustainable growth: Our focus is on generating economic returns and long-term value for our shareholders
Read more about our strategy in the ‘Our strategy’ section. Our Performance Adjusted operating profit3 £3,184 million 2018 restated4: £3,004 million
Our stakeholders In the Strategic report we describe how the Board takes into account the interests of all our stakeholders. As an insurance company, we also understand better than most the imperative to act with urgency and conviction to help combat climate change. Although our environmental credentials are well-established, we are committed to doing more, both on our own account and in alliance with others. We have invested £6 billion in green assets since 2015 alone, including £3.8 billion in low carbon infrastructure (predominantly solar and wind power) and £2.2 billion in green and sustainable bonds. We expect this to increase significantly in the future.
In November 2019, Aviva signed up to the United Nations-convened Net Zero Asset Owners Alliance which brings together some of the world’s biggest pension funds and insurers to commit to net zero greenhouse gas emissions in their investment portfolios by 2050. We are also committed to aligning our business to the target set out in the Paris Climate Agreement of limiting global warming to 1.5oC above pre-industrial levels.
After nine years of distinguished service, including as Chair of the Risk Committee, Mike Hawker retired from the Board on 31 March 2019. Following his appointment as Chairman of the Royal Mail, Keith Williams stepped down from the Board on 23 May 2019. On 31 December 2019, Glyn Barker and Claudia Arney both retired from the Board; Glyn after eight years including a period as Senior Independent Director and Claudia to focus on her expanded nonexecutive roles elsewhere. I am extremely grateful to them all for the valuable contributions they have made to the Board and Committees of Aviva plc.
We were delighted to welcome three new Non-Executive Directors to our Board this year, all with deep knowledge and experience of the financial services industry. Patrick Flynn, previously Chief Financial Officer of both ING and HSBC Insurance joined our Board on 16 July 2019. Patrick became Audit Committee Chair on 4 November 2019. George Culmer was appointed as a Non-Executive Director of the Company on 25 September 2019, having previously been Chief Financial Officer of Lloyds Banking Group and RSA Insurance Group plc. George assumed the role of Senior Independent Director following the departure of Glyn Barker. We also announced the appointment of Amanda Blanc with effect from 2 January 2020. Amanda was previously CEO at AXA UK & Ireland, and CEO, EMEA & Global Banking Partnerships at Zurich Insurance Group.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
Our performance In 2019, we further strengthened our Solvency II capital position1 and grew Group adjusted operating profit2 by 6% to £3,184 million (2018 restated3: £3,004 million). Group adjusted operating profit2 benefited from improved performance in Canada and lower expenses and debt costs. IFRS profit before tax4 increased to £3,374 million (2018: £2,129 million), including higher Group adjusted operating profit2 and positive investment variances driven by lower interest rates and equity market gains.
Looking ahead Aviva faces the future with great optimism – accepting that it will hold challenges, and confident that our strategy and resources mean that we are well positioned to meet them and to prosper. This has been a year of evolution for us. With our new leadership now in place, we are aligned behind our strategy to create great outcomes for our customers and other stakeholders, and to deliver sustainable growth for our shareholders.
1 Includes Group centre, debt costs and other items not allocated to the markets. 2 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other Information’ section of the Annual report and accounts for more information. 3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
6 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts. 7 Constant currency.
Overview Aviva made important changes to its business and leadership in 2019 and began to build operating momentum. This is reflected in our improved results, which included: • Solvency II return on equity1,2,3 of 14.3% (2018: 12.5%); • Growth in Solvency II net asset value per share, up 31 pence to 423 pence (2018: 392 pence); • Increased Solvency II capital surplus2 and Solvency II shareholder cover ratio2,3 at £12.6 billion and 206% respectively (2018: £12.0 billion and 204% respectively); • Group adjusted operating profit4 up 6% to £3,184 million (2018 restated5: £3,004 million); and
Aviva has many positive attributes: high quality businesses, skilled and dedicated staff, a leading focus on sustainability and ESG and a large, loyal base of customers and intermediary partners. Our brand resonates with our customers and partners due to our track record of helping people to manage life’s uncertainties by saving for the future, drawing a secure income in retirement and insuring what matters most to them.
My goal is for Aviva’s portfolio of businesses to be best in class. We will achieve this through a relentless focus on the customer and commercial rigour as we execute our business plans and we will reallocate capital to maximise performance. In short, we will run Aviva better.
In 2019, our customer numbers were up 2% to 33.4 million and we improved growth in premiums and managed assets. There is much more to do, simplifying our business, reducing costs and navigating competitive markets to make Aviva a stronger, simpler and better company.
Aviva’s leadership team has been strengthened and we have assembled a diverse and talented leadership group with proven success within their respective fields. With a mixture of internal promotions and external hires, my new team brings the expertise, ambition and focus required to grow our business profitably. The new team will help shape our culture, which remains focused on providing the highest standard of service and value for customers, maintaining leadership on environmental and social issues, while at the same time fostering greater commerciality, efficiency and accountability.
Operating capital generation3 (OCG) – targeting £7.5 billion in 201922 inclusive: In 2019, Group OCG3 totalled £2.3 billion, representing approximately 30% of our four-year target.
Cash inflows3 to centre – targeting £8.5 billion to £9.0 billion in 2019-22 inclusive: Cash remittances3 were £2.6 billion in 2019, representing approximately 30% of our four-year target.
Operating expenses3 – targeting £300 million reduction in controllable costs3 by 2022: Controllable costs3 were £3,939 million in 2019 (2018: £3,968 million). Within this, we achieved net savings of £72 million7 and incurred implementation costs of £59 million. We anticipate £150 million of savings (pre implementation costs) in our 2020 results, compared with our 2018 baseline.
Deliver great customer outcomes At Aviva, delivering great customer outcomes is one of our strategic priorities. In 2019, our performance demonstrates that customers continue to choose Aviva to meet their savings, retirement and insurance needs. Across the Group, we have increased premium volumes and customer fund inflows. We have made further progress in service quality, with positive trends in net promoter scores, customer retention and resolving customer complaints.
Natural catastrophes are happening with increased frequency around the world and sustainability is now a key focus for governments, corporates and the wider community. For many years, Aviva has been at the forefront of efforts to combat climate change. The products and services we provide are crucial in helping customers to prepare for, and respond to the challenges that a changing climate brings. We are also a leader in ESG, whether actively investing our customers’ savings, or managing their retirement income. Aviva has been carbon neutral since 2006, is a signatory to the UN sustainable development goals and is committed to being a net zero asset owner by 2050. ESG matters to our customers, and it matters to Aviva.
In general insurance, net written premiums (NWP) increased 2% to £9.3 billion (2018: £9.1 billion). We have continued to gradually and deliberately shift our business mix, with NWP from commercial customers rising 7% in the UK and 17% in Canada. Our focus on providing superior service to customers and intermediaries in the
In November, we announced plans for Aviva Investors and our UK savings businesses to form a combined business segment called Investments, Savings & Retirement (IS&R). Under the leadership of Euan Munro, IS&R will bring together Aviva’s global asset management capabilities with Aviva’s leading UK workplace pension and platform operations. In addition to the growth potential of each business, their alignment enables Aviva to provide customers with unique, comprehensive solutions from accumulation of pension wealth through to drawing a secure income in retirement. The combination of an ageing society and increased private provision for retirement make this an attractive long-term growth opportunity. The £7.5 billion of net in-flows1 in savings and retirement and £2.3 billion of third party net inflows1 in Aviva Investors demonstrates that Aviva has the capability and the customer franchise to capture this growth opportunity
Looking ahead Aviva has made important structural changes and achieved good progress in pursuing our first goal of operational improvement. Our 2019 results showed evidence of our potential, with improved momentum on customer flows, assets and premiums, and a good start on delivering our financial targets.
Symbol denotes key performance indicators used as a base to determine or modify remuneration. 1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APM’s, including a reconciliation to the financial statements
‘Other Information’ section within the Annual report and accounts for further information. 4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million (2017: £93 million). There is no impact on profit before tax attributable to shareholders’ profit
We use a number of financial and non-financial metrics to help the Board and senior management assess performance against three dimensions: our strategic priorities (excel at the fundamentals, deliver great customer outcomes, invest in sustainable growth); our vision to earn our customers’ trust as the best place to meet their savings, retirement and insurance needs; and our purpose: to be with you today, for a better tomorrow. These metrics are reviewed regularly to ensure that they remain appropriate.
The KPIs to assess performance against these new targets have been included in the analysis below and in the Chief Financial Officer’s review. New KPIs are identified by the symbol .
Carbon emissions reduction Since 2010 we have reduced carbon emissions (CO2e)2 from our day-to-day operations by 66% beating our 2020 target of a 50% reduction and making strong progress to our 70% reduction by 2030 target. We are a carbon-neutral company, offsetting the remaining emissions through projects that have benefited the lives of over one million people since 2012. In 2019 we have continued to reduce our operational carbon emissions through energy efficient technology, buildings and development of onsite renewable electricity generation. We have also added £717 million in low carbon infrastructure investments over the year.
Symbol denotes key performance indicators used as a base to determine or modify remuneration. 1 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 2 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts. 3 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
‘Other Information’ section within the Annual report and accounts for further information. 4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) of the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million (2017: £93 million). There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6% (2017: 0.6%) and a reduction in the prior period operating earnings per share of 2.2 pence (2017: 1.8 pence).
Solvency II Return on equity1 Group Solvency II return on equity1 has increased by 1.8pp over the year primarily as a result of significant favourable assumption and modelling changes. See the ‘Market review’ section for further details of the performance of our markets in the year.
Solvency II debt leverage1 Solvency II debt leverage1 has reduced by 2pp to 31%. This was due to a reduction in debt and an increase in Solvency II total regulatory own funds over 2019.
2018: 33% Estimated Solvency II shareholder cover ratio1,5 We continue to maintain our strong financial position. During the year, the estimated Solvency II shareholder cover ratio1,4 has strengthened by 2pp to 206% (2018: 204%) primarily as a result of total capital generation, partly offset by the payment of the Aviva plc dividend and repayment of hybrid debt.
Combined operating ratio1 The combined operating ratio (COR)1 is a measure of general insurance profitability. The lower the COR1 is below 100%, the more profitable we are. Reported COR1 is broadly in line with 2018, with a better COR1 in Canada offset by adverse movements in our other businesses. See the ‘Market review’ section for further details of the performance of our markets in the year.
Aviva exists to help our 33 million customers make the most out of life, to plan for the future, and to know that if things go wrong we will be with them to put it right. Aviva is a leading international Savings, Retirement and Insurance business and the largest multi-line insurer in the UK, our home market. We also operate in Europe, Canada and Asia.
Our business model defines us, differentiates us and helps us meet our customer’s needs… Our businesses We have simplified our business into five new business divisions1: • Investments, Savings &
Our channels Our customers can engage with us through multiple distribution and service channels: • Digital applications • Direct to customer • Intermediaries, including tied agents and brokers • Strategic partnerships and bancassurance arrangements
Our skills We have a wide range and blend of skills: • Customer service • Underwriting • Risk management • Claims management • Digital innovation • Data Science • Asset and liability management
Insurance • Personal lines e.g. motor, home • Commercial lines • Protection • Health
Customers pay insurance premiums which we use to pay claims, protecting what matters to them. Our scale enables us to pool the risks and maintain capital strength, so we are there for our customers when they need us
…and sustainable value is created for… Shareholders We invest carefully so we can deliver sustainable, growing returns for our shareholders.
Over 2,000 Community projects supported in 2019, helping over 1.2 million people
Active governments and regulators Increasingly, governments are promoting private provision and reforms of services once funded by the State (e.g. pensions, healthcare) while regulators remain focused on customer outcomes, enforcing conduct and prudential supervision (e.g. Solvency II) as well as standardising insurance accounting (e.g. IFRS 17).
Climate change and sustainability Climate change has increased the frequency of extreme weather events. These extreme weather events have resulted in an increase in political focus, regulation and focus on the economic and social impact of climate change. At the same time, customers have become more attentive to the environmental, social and governance (ESG) aspects of their saving and investment decisions.
Increase in annual inflows to ESG funds between 2018 and 2019 53% Source: Morningstar, October 2019
‘I am committed to running Aviva better. We will excel at the basics, giving customers a simpler, faster and more convenient service. Getting these fundamentals right will result in a simpler, stronger, better Aviva, while also improving returns for shareholders.’ – Maurice Tulloch, CEO
Our purpose With you today, for a better tomorrow Our purpose is the reason Aviva exists. Our roots reach back to 1696 and since those early days, we have been there for our customers when it really matters. We are here to help them make the most of life and know that if things go wrong, we will be with them to put it right. Our purpose inspires us to do the right thing. It reflects that we are deeply invested in our customers, our communities, our people and our planet. By caring more today we will leave a legacy to be proud of.
Our vision To earn customers’ trust as the best place to save for the future, navigate retirement and insure what matters most to them. Our vision is ambitious but grounded. It is about being brilliant in our core areas of expertise and focusing where we have the strongest opportunities to make a meaningful difference.
We believe that this will lead to growth in new customers and improved retention of existing customers. We will monitor our progress through metrics including our trust and net promotor scores.
We plan to achieve our cost saving target of £300 million over the next three years. We have achieved a £72 million saving in 2019 and initiatives are in place to deliver £150 million in our 2020 results, compared with our 2018 baseline.
By adopting a rigorous investment framework, focused on value and capital return, we expect to generate increasing revenues, fund flows, capital, cash and profit.
We plan to invest £1.3 billion over the next three years in areas such as IT simplification, transformation of UK customer experience and mandated regulatory change.
When we get these priorities right, we succeed Our three strategic priorities focus our actions to deliver our strategic and financial objectives. Evidence has shown that when we focus on these priorities, we deliver value for our customers, shareholders and communities, for example: • By delivering great outcomes to our customers and their advisors we increased fund flows in our UK Advisor and Workplace Savings business, where assets under administration1 grew by 73% (FY15 – 2019)
• By excelling at the fundamentals of underwriting in our General Insurance business, our UK digital aggregator QuoteMeHappy has grown by c.1.4 million customers since inception, while remaining efficient at a low expense ratio
• By being excellent at investment performance and technical expertise in our UK Life business, we have invested sustainably in the bulk purchase annuities market, growing new business from £2.6 billion in 2018 to £4.0 billion in 2019 as measured by the present value of new business premiums1 (PVNBP).
As part of the strategy update in November 2019, we also set out new financial targets. These new targets focus on long-term economic value generation and confirm our commitment to deliver on our plan to reduce debt and maintain the progressive dividend policy and financial strength of the Group. Further information on the new financial targets can be found in the ‘Key performance indicators’ section.
Our values Our four values are at the heart of how we do business. They are how we must operate: • We Care More about our customers, our partners, our colleagues and the communities where we live and work • We look for opportunities to Kill Complexity. We want to make things simpler for our customers and for each other so that we can all focus on what matters
We expect all business divisions to deliver both cash flows and growth, however the balance will differ for each. This provides us with choices on how we allocate our capital and resources and ensures we generate the highest returns.
We are uniquely positioned to win in this business. We have a market leading brand, we are currently number one3 in UK Workplace Pensions by assets under administration4 (AuA) and as at 2019 Aviva Investors assets under management4 (AuM) was £346 billion.
Financial targets • By 2022, annual net fund flows4 of £10 billion from third party investors for Aviva Investors and £10 billion for UK Savings & Retirement.
UK Life Overview From 2020, our UK Life division incorporates three lines of business: annuities & equity release, protection & health and heritage. This division is key in generating sustainable cash flow.
‘UK Life is a fantastic business which I am incredibly proud to be leading. It has a central role to play in Aviva’s success. My clear objective for this business is to deliver dependable growth in long-term cash flows’ – Angela Darlington, CEO
Key priorities for 2020: • Expand our annuity business with capital efficient growth in bulk purchase annuities to increase long-term cash-flows • Capitalise on data analytics, scale and modelling techniques to better understand our target customers, distributors and risks, and to develop more focused pricing algorithms and services, which are attractive to new and existing customers and enhances overall performance
Financial targets (Combined Investments, Savings & Retirement and UK Life) • Solvency II return on capital4 of 9.5% and cash inflows4 to Group of £4.25-£4.75 billion (cumulative 2019 – 2022) and a special cash inflow4 to Group of £0.5 billion (UK Life, 2019).
General Insurance Overview: Our General Insurance division helps protect our customers from loss in the event of damage to their property or assets, or injury to themselves or others for which they are responsible. We offer a wide a range of products to personal and business customers, including motor, home, travel and pet insurance, commercial property, liability and specialty covers such as classic car and boiler breakdown.
We provide General Insurance at scale in the UK and Canada and have an attractive European business operating in France, Ireland, Italy and Poland. We hold the number one market position in the UK, and number two in Canada and Ireland.
1 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including reconciliation to the financial statements (where possible), can be found in the ‘Other information’ section of the Annual report and accounts.
‘We will be the best in the market at fundamentals. We will focus on speed of execution and we will simplify our business. Financial discipline in all decisions will be a core requirement. We will hold each other to account and there will be no excuses’ – Colm Holmes, CEO
• Continue to deliver the recovery in Canada, following a 5.3pp improvement to combined operating ratio1 in 2019 and expand by leveraging on our brokers and partnership with Royal Bank of Canada, which was recently extended to 2036
2022), combined operating ratio1 of 95% (2022), Solvency II return on capital1 of 14% (2022) and achieve net written premium growth of 20% (2022 vs. 2018)
Europe Life Overview: Our Europe Life division offers a range of insurance savings, investment and protection products to customers who want to make the most of their money, plan for the future and protect against the unexpected. We operate across five countries, France, Italy, Poland, Ireland and Turkey and have eight million customers.
Europe Life has diverse distribution and focuses on maintaining a capital efficient product mix. We hold several strong market positions, including number two in Poland, number four in Ireland and number five in Italy. We have also grown our policyholder reserves to £120 billion at 2019.
Our focus will continue to be generating sustainable growth, while actively managing the low interest rate environment. We will achieve this by: • Continuing to transform the product mix from guaranteed savings towards capital light products • Expanding and investing in our distribution channels • Focusing on the fundamentals of insurance to drive operational efficiencies, and • Leveraging expertise and technology from across the Group
‘It’s my privilege to present our strategy for the European businesses, which continues to be a significant contributor to the Aviva Group. We contribute a material portion of the group operating profits and are an important part of the wider Aviva story’ – Patrick Dixneuf, CEO
In China, our joint venture company in partnership with COFCO continues to deliver strong growth, especially in the agency and broker channels, alongside margin expansion. Our plan is to further invest and extend these competitive advantages and continue to outperform our peers in value creation and profit growth.
1 The s.172 statements of our qualifying subsidiaries will be made available on the Aviva plc website. 2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including reconciliation to the financial statements (where possible), can be found in the ‘Other information’ section of the Annual report and accounts
Our Board considers it crucial that the Company maintains a reputation for high standards of business conduct. The Board is responsible for setting, monitoring and upholding the culture, values, standards, ethics, brand and reputation of the Company to ensure that our obligations to our shareholders, employees, customers and others are met. Management drives the embedding of the desired culture throughout the organisation. The Board monitors adherence to our policies and compliance with local corporate governance requirements across the Group and is committed to acting where our businesses fail to act in the manner we expect of them.
Our culture is shaped by our clearly defined purpose – with you today, for a better tomorrow – to help ensure we do the right thing in Aviva. Throughout our business, we are proud that our people live by our core value of Care More for our customers, for each other and for the communities we serve. We value diversity and inclusivity in our workforce and beyond, and the ‘Our people’ section of this report sets out the strength of Aviva’s culture in this regard and how that underpins everything we do every day.
The Board determined that in order to progress its agreed strategic priorities, Aviva should be simplified into five operating divisions from 2020. This included the creation of a new business division; Investments, Savings & Retirement (IS&R). IS&R brings together Aviva Investors and our UK Life Savings & Retirement businesses to look after all stages of customers’ savings and retirement needs.
As a result of our strategic review, we announced in November 2019 that we will retain our businesses in Singapore and China. We agreed the sale of our stake in our Hong Kong joint venture, Blue, to our partner Hillhouse Capital Group, and we are in discussions with our partners in relation to our business in Vietnam and joint venture in Indonesia. For further information on all these decisions, see ‘Our strategy’ in this Strategic report.
Our key financial decisions made during the year, including the adoption of a progressive dividend policy, our targeted £1.5 billion debt reduction and our planned investment of c.£1.3 billion in our operating businesses in the period to 2022, were all made in line with our long-term strategic goal of sustainable value creation. A full account of our financial performance is contained in the Chief Financial Officer’s review within this Strategic Report.
• The Board closely monitors customer metrics and engages with the leadership team to understand the issues if our performance does not meet our customers’ expectations. This is also reflected at each of our subsidiary boards.
Our people Our people’s commitment to serving our customers is essential for us to deliver on our vision to earn customers’ trust as the best place to save for the future, navigate retirement, and insure what matters most to them.
• The Chairman also chairs the Evolution Council (a diverse group of high calibre leaders from across the business), involving them in discussions related to the Group strategy and incorporating their insight into their final decisions. Council meetings are attended by a number of Non-Executive Directors.
• In line with our talent management programme, talent breakfasts were held with the Board and high potential employees.
Suppliers We operate in conjunction with a wide range of suppliers to deliver services to our customers. It is vital that we build strong working relationships with our intermediaries, including around risk management and customer service.
• Our Board reviews the actions we have taken to prevent modern slavery and associated practices in any part of our supply chain and approves our Modern Slavery Statement each year.
• All supplier-related activity is managed in line with the Group Procurement and Outsourcing business standard. This ensures that supply risk is managed appropriately in relation to customer outcomes, data security, corporate responsibility, and financial, operational, contractual and brand damage caused by inadequate oversight or supplier failure.
• An important part of our culture is the promotion of high legal, ethical, environment and employee related standards within our business and also among our suppliers. Before working with any new suppliers, we provide them with our Supplier Code of Behaviour, and our interaction with them is guided by our Business Ethics Code.
Stakeholders Why are they important to Aviva? What is our approach to engaging with them? Communities We recognise the importance of contributing to our communities through volunteering, community investment, and long-term partnerships with non-governmental organisations, and as a major insurance company we are fully engaged in building resilience against the global impact of climate change.
• The Board receives regular updates on our community activities, including our strategic partnership with the British Red Cross, and our community investment directed through the Aviva Community Fund and the Aviva Foundation.
• Aviva was the first global insurer to become carbon neutral in 2006 and we continue to offset 100% of any remaining carbon emissions.
• As the subject of close and continuous supervision by our regulators, we maintain constructive and open relationships with them. We have a programme of regular meetings between the directors and our UK regulators.
• The Customer, Conduct and Reputation Committee enables continued focus in this area through its oversight of the regulatory landscape.
• The Chairman, Senior Independent Director and Executive Directors have a programme of meetings with institutional investors during the year. The Board also receives regular briefings from our corporate brokers on investors’ views.
• A shareholder newsletter is published on aviva.com every quarter and provides shareholders with publicly available information including recent Board changes, financial or strategic updates, and information about our Aviva Foundation projects.
Our people are at the heart of our business. They play an integral role in fulfilling our purpose to be with you today, for a better tomorrow. Our focus for 2019 has been on continuing to transform Aviva’s culture, making Aviva a great place to work with the people and skills we need to grow our business, and to simplify what we do and how we do it, so our people can maximise their focus on our customers.
Our strategy Our global people strategy sets out how we will accelerate the delivery of Aviva’s strategy from the inside out. We will: • Help our people to connect their work to our purpose and to our customers. • Recruit, retain and develop the very best people, focusing especially on the fundamentals of insurance. • Make our leaders accountable and empower them and their teams to act in line with our values, with an increased focus on performance.
Engaging our people In 2019 our global Voice of Aviva survey focused on • Business: Strategic Direction, Insurance Fundamentals, Leadership behaviours and • People: Colleague Engagement, Colleague Wellbeing and
Engagement remains high at 73% but is slightly down on 2018 (76%) due to a period of uncertainty and change. Although confidence in our strategy has fallen since the 2018 Voice of Aviva survey, this shift was to a ‘wait and see’ position as the 2019 survey was performed just before the new Aviva strategy was announced in November 2019. Verbatim comments reinforced this view with colleagues saying they were eagerly anticipating the new strategy and what this meant for them, as well as suggesting ways to improve customer service and how to make Aviva more commercially minded. However, colleagues also said they want more simplicity in processes and structures to help them to deliver this.
The representative bodies meet regularly with the Members of the Aviva Leadership Team throughout the year as well as the Chair of the Remuneration Committee. We believe that by doing so we encourage a culture of trust and open and honest communication that will help us ensure that our organisation is a better place to be. Following the launch of the Learning Agreement with Unite the Union in 2018, we have continued to see excellent examples of collaborative working, which has resulted in an increase in employees using the Apprenticeship Levy as well as building and fostering a culture of personal development and learning.
We are also committed to improving our ethnic diversity representation within our employee population and have launched an Ethnic Minority Leadership programme as well as sponsoring Uncovering Different Women, a report highlighting ethnic minorities in female resource groups and networks.
In November, we saw the second anniversary of our Equal Parental Leave policy. This policy has seen us as a first mover in the majority of our markets.
One of our drivers for an inclusive culture comes through our employee communities which were launched across all markets in 2018. There are six communities covering race and religion and social mobility; gender; sexuality and gender identity; caring responsibilities; age and mental and physical health. Over 6,000 employees have joined these communities so far. They act as a lobby group and conscience to the organisation and are actively sponsored by all members of the Aviva Leadership Team. Aviva does not have just one accountable executive for Diversity and Inclusion; all members are. Some of the notable contributions from the communities have been participating for the first time in Poland Pride, a series of activities marking Black History month, an event on the topic of Menopause and making sunflower lanyards available to colleagues (a discreet way for people with hidden disabilities to show they need additional support).
We have over 31,000 people working in our offices from Norwich to Singapore. Each of our colleagues brings unique knowledge and experience, attitudes and ambitions. It’s important to us that everyone is involved including those with visible and invisible disabilities. We make reasonable adjustments for our people and also for candidates who are interested in working for us. As a Disability Confident Employer; a Government scheme that supports employers to make the most out of the talents that disabled colleagues can bring to our organisation, we will interview every disabled applicant that meets the minimum criteria for the job and offer Workplace Adjustment Passports to colleagues. Our AvivAbility community is for all colleagues with an interest in disability and engages with Aviva and the wider community to build interest around the topic of Visible and Invisible disabilities to increase awareness and acceptance of all disabilities and highlight the value that these individuals bring.
Health and wellbeing We remain focussed on our employee health and wellbeing as vital to our success and growth. Our employees believe we’re getting it right, as our Voice of Aviva Survey in September 2019 saw global colleagues score 80% for “Aviva values my health and wellbeing” (rising from 74% the previous year), and for the UK specifically the score was 82%.
• We continue to offer colleagues the yearly free Headspace app – with over a million minutes of meditation since the launch of the programme. We also continue to train our leaders on mental health awareness. As a result, over 90% of leaders now feel they are comfortable having conversations about mental health with their team/peers and managers. They also know about and are comfortable signposting colleagues to the resources available to them.
• We rolled out wider financial wellbeing support including – The Mid Life MOT – visiting each of our UK locations to support the wealth, work and wellbeing of our 45+ population. The sessions booked up quickly, and voluntary attendance averaged 82%. Designed to boost confidence in wealth, work and wellbeing, and to raise awareness of where colleagues could seek support, the sessions met their goal with attendees scoring a 22% increase in confidence and a 34% increase in awareness of where to get support.
– Continued to deliver the My Retirement My Way seminar to colleagues close to retirement, with sessions booked up within a few days of being announced and oversubscribed.
At 31 December 2019, we had the following gender split: Board membership Male 6 Female1 3 Senior management Male 888 Female 402 Aviva Group employees Male 15,193 Female 15,988
Read more about our approach to responsible and sustainable business in the ‘Corporate Responsibility’ section of this report and our people strategy at www.aviva.com/about-us/our-people.
1 Independent Non-Executive Director Claudia Arney retired with effect from 31 December 2019. Amanda Blanc was appointed as an Independent Non-Executive Director with effect from 2 January 2020.
At Aviva, we know that in order to earn the trust of our customers we need to act responsibly and sustainably every day. Only then will we be able to meet our strategic priorities and live out our purpose to be: ‘with you today, for a better tomorrow.’
As a company we aim to do the right thing for the long term. We are deeply invested in our people, our customers, our communities and our planet. By caring more today, we can leave a legacy of which we can be proud.
A forward-looking approach In 2019, as part of our commitment to bring our business into line with the Paris Agreement (a United Nations-backed global treaty to limit global warming), we committed to ensuring our assets have a ‘net zero’ carbon impact by 2050. Aligned to this we are also in the process of refreshing our wider responsible and sustainable business strategy (2020-2025), based on insight from over 9,000 stakeholders across the world. We look forward to sharing more on our new strategy in 2020.
This year also marks the end of our previous five-year Corporate Responsibility (CR) strategy. We are proud to have met or beaten a number of our ambitious targets over this period, including reducing our CO₂e emissions by 66% since 2010 (target: 50% reduction), supporting 4.8 million beneficiaries through our CR programmes (target: 2.5 million) and investing over £3.8 billion in low carbon infrastructure since 2015 (target: £2.5 billion).
Putting the customer at the centre of everything we do. In order to deliver great customer outcomes, we are committed to helping our 33 million customers protect what’s important to them and save for a bright future. In 2019 we paid out £33.2 billion in benefits and claims around the world.
We know the importance of providing excellent customer service, as demonstrated through our businesses’ Net Promoter Scores®, which are our measures of customer advocacy. Seven out of nine of our businesses are at or above the market average NPS®, which quantifies the likelihood of a customer recommending Aviva.
Our more than 60 green or accessible products and services across the world enable our customers to be more environmentally responsible or give them easier access to the protection they need for themselves and their families. (More details can be found in our Corporate Responsibility Reporting Criteria 2019 on www.aviva.com/social-purpose).
This will provide lessons on how to encourage low income households to take up insurance protection against financial loss.
In Aviva Singapore, we are going beyond paying out critical illness claims and are partnering with the Singapore Red Cross to set up a pilot ‘Disability Fund’ for our customers. This fund will help them use their pay-out effectively by paying for subsidised services such as transport to and from medical appointments, rehabilitation at a day activity centre and digital home monitoring to keep people safe.
Our operational global greenhouse gas emissions data boundaries show the scope of the data we monitor and the emissions we offset. We report on Greenhouse Gas (GHG) emission sources on a carbon dioxide emissions equivalents basis (CO2e) in respect of Aviva’s Group-wide operations as required under the Companies Act 2006 (Strategic report and Directors’ reports) 2013 Regulations. We also refer to the GHG Protocol Corporate Accounting and Reporting Standard, and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2019. The table below shows the absolute operational carbon emissions: Scope 1 14,207 16,198 17,915 Scope 2 21,340 25,012 31,280 Scope 3 14,628 17,739 19,305 Absolute CO2e* 50,175 58,949 68,500 Carbon offsetting** (50,175) (58,949) (68,500) Total net emissions — — — * 2019 Assurance provided by PricewaterhouseCoopers LLP available at www.aviva.com/CRkpisandassurance2019 ** Carbon offsetting through the acquisition and surrender of emissions units on the voluntary and compliance markets.
To date globally we have achieved a 66% reduction in CO₂e against our 2010 baseline and we have committed to align our business to the 1.5°C Paris targets, as outlined in the climate-related financial disclosure section of this Strategic report.
As well as cutting our emissions every year, we have offset any remaining emissions to ensure our business impacts have been ‘carbon neutral’ since 2006. We have helped make over 1.2 million people’s lives better since 2012 through our carbon offsetting projects. This includes provision of household water filters in Laos and Cambodia, providing safe water.
In 2019 we completed the installation of an innovative solar car port at one of our UK offices – Norwich Horizon. From April until the end of October, 89% of the daytime electricity demand for the office was covered by the solar carport, with the rest coming from renewably sourced energy via the national grid. Our award-winning Smart Building Management approach in Ireland has also reduced electricity use by 3% and gas use by 25% from May to December 2019.
At the start of 2019, Aviva UK exited underwriting the standalone operational fossil fuel power market as part of its commitment to help tackle climate change. In July 2019 we became a founding signatory of the Powering Past Coal Alliance Finance Principles. Then in November we launched ‘Aviva Renewable Energy’ – an integrated package of insurance designed specifically to support large companies in the complex market of renewable energy, including onshore windfarms, solar power and battery storage. Overall, we have significantly reduced Aviva’s underwriting exposure to coal to practically zero.
Making an impact in communities Since 2015, we have invested over £67.6 million in our communities, including £16 million in 2019 (2018: £17.6 million). This has helped 4.8 million people during the last five years (1.2 million in 2019) and supported over 9,800 local community projects (2,080 in 2019). This beats our 2015-2020 target of 5,000 projects.
In 2019 we renewed our strategic partnership with the British Red Cross for a further two years. This has enabled us to continue to work together to make communities safer, stronger and more resilient in times of uncertainty and crisis. This in turn will help them to recover quicker when a disaster strikes. Projects in 2019 have included the launch of an innovative ‘forecast-based financing’ initiative. This resulted in Aviva supporting the Indonesian Red Cross in developing an early action protocol in Indonesia. Once completed, the protocol will be activated when severe flooding is forecasted, building resilience by enabling communities to act and be helped before crisis strikes and therefore reducing the impact it has on their lives. In support of this project, over 450 of our people mapped over 60,000 buildings in urban Indonesia in one week. These maps will help the Red Cross to prioritise who and what could be impacted during a disaster and determine the help they will receive ahead of time.
Good governance and business ethics We are committed to the highest standards of ethical behaviour as outlined by our Business Ethics Code. This underscores our commitment to operate responsibly and transparently. We require all our people, at every level, to read and sign-up to our Code every year (99% of our employees did so in 2019).
We have a zero-tolerance approach to acts of bribery and corruption. To manage this risk, we have a risk management framework which sets policies and standards across all markets. These policies and standards apply to everyone at Aviva and it is the responsibility of CEOs (or equivalent) to ensure that their business operates in line with them.
We continue to work with our suppliers to promote the real Living Wage and include a Living Wage clause in all appropriate contracts. We are also working with the Living Wage Foundation to pilot and implement the new Living Wage Foundation standard, ‘Living Hours’, to ensure that workers have sufficient, predictable hours, for which we won the Global Sourcing Association Award 2019 for Social Programme of the Year.
Details of the Company’s compliance with the Code can be found in the Directors’ and Corporate Governance Report in the Annual report and accounts and online at www.aviva.com/investors/corpor ate-governance. The activities of the Board Governance Committee can be found in the Governance Committee Report in the Annual report and accounts.
Within our own operations, in 2019 we: • Completed human rights due diligence in a number of key markets, reviewing their risk approach in areas including governance, employees, customers and investments. To date, 15 markets have completed an impact assessment including the UK, China, Turkey, Vietnam, Singapore, Italy and India. The assessments allow markets to prioritise the most important actions to enhance Aviva’s work on human rights.
We also work with trusted partners to enhance our approach. This includes the Slave Free Alliance, whose insights we use to both improve our strategic approach to modern slavery, and to train our staff across different markets on human rights and modern slavery issues. These workshops have ensured our people understand the complexities of modern slavery and human trafficking, help them to spot the signs of it, and teach them how to respond in the event that a case is identified. We also continue our work with the UN Global Compact as part of the UK Working Group on modern slavery.
Finally, we use our influence and connections to bring others together and enhance the industry’s wider understanding of, and impact on human rights. For example, we worked with the World Benchmarking Alliance (WBA) in 2019 to organise and host the official launch of the third Corporate Human Rights Benchmark (CHRB) 2019 rankings, in our role as funder and founding member.
Towards a more sustainable future Aviva is not just an insurer but an investor in the economy, investing in buildings, infrastructure projects and companies around the world to help our customers save for their future. We do this, in part, through Aviva Investors (AI), our global asset management company with a heritage in responsible investing dating back to the early 1970s.
During 2019 Aviva Investors enhanced their responsible investment processes and embarked on a global, company-wide initiative to fully embed them across all asset classes. We have reached some important milestones. These include: • Establishing a new responsible investment philosophy, setting out our responsible investment commitments as a business. • Agreeing and implementing specific ESG integration policies for each of our investment functions: Credit, Equities, Multi-Asset and Macro, Real Assets and Solutions.
• Developing a framework for new products and solutions that meet the specific needs and values of our clients including building a Sustainable Outcomes Funds Range linked to the United Nations Sustainable Development Goals (SDGs). We have already launched the first two products in the range – the Sustainable Income and Growth Fund and the Climate Transition European Equities Fund – and will develop several more in the next three years.
• Working with Aviva UK Life to design funds for customers who want more bespoke solutions. For example, in July 2019 Aviva UK launched the ‘Stewardship lifestyle strategy’ – a workplace pension default investment strategy, marking the first time an investment strategy has been solely based on the Aviva Investors Stewardship Funds. These funds were also then launched onto Aviva UK’s Adviser Platform, providing a new ethical and ESG option for pension customers.
We also continue to play our role as a responsible asset owner engaging with the companies, projects and assets we own on issues such as climate change, human rights and diversity. For example, Aviva Investors worked with other investors on a resolution encouraging the oil and gas company British Petroleum to do more to show how its strategy is consistent with meeting the Paris Agreement – which passed with 96% support at its AGM.
We believe in the need to encourage change not just with the companies we invest in, but in our industry and economy as a whole. In September 2019, Maurice Tulloch, Global CEO, attended the UN General Assembly in New York to demonstrate our commitment to be a company that makes a difference. We know that an unsustainable planet creates huge risks for our business and our customers – so we engage with governments and policymakers to try and fix the financial system and make sure more money goes towards building a sustainable future. At the event he talked about the need for a Marshall Plan for the planet, an ambitious plan to change the financial system for the better.
Corporate Responsibility (CR) key performance indicators (including 2017-2019 figures) and the accompanying limited assurance statement by PwC can be found in Aviva’s Environmental, Social and Governance Data sheet on www.aviva.com/social-purpose. Our CR Summary 2019 will be released later in 2020. More details of our internal diversity, inclusion and wellbeing approach can be found in the ‘Our people’ section of this Strategic report.
Chief Financial Officer’s review Key financial metrics A summary of the financial metrics used to measure our performance, including key performance indicators and alternative performance measures (APMs) where appropriate, is shown below. Further guidance in respect of the APMs used by the Group is included in the ‘Other information’ section of the Annual report and accounts.
As set out in the ‘Our strategy’ section, in November 2019 we announced new financial targets focused on economic value. We also announced that we have simplified our operating model into five new business divisions from 2020. The ‘Market review’ section sets out the main changes relating to the new divisions and summarises the performance of our markets during 2019 on the basis on which they were managed during the year.
We also further strengthened our financial position. Our Solvency II capital surplus6 rose to £12.6 billion (2018: £12.0 billion), with an increase in the cover ratio2,6 to 206% (2018: 204%). As planned, we reduced debt by £0.2 billion in 2019, leading to a reduction in our leverage ratio2 to 31% (2018: 33%). Cash remittances2 of £2.6 billion (2018: £3.1 billion) were again very strong. At the end of February 2020, our centre liquidity was £2.4 billion (February 2019: £1.6 billion).
Reflecting our operational momentum and strong financial fundamentals, the Board of Directors has declared a final dividend of 21.4 pence per share, resulting in a 3% increase in the full year dividend per share to 30.9 pence (2018: 30.0 pence).
Economic returns At our capital markets day in November 2019, we outlined our intention to increase Aviva’s focus on economic performance in our financial communication. This reflects the importance of economic metrics in how we manage the business: the allocation of capital and other resources across the Group and the trading decisions we make each day. Economic returns ultimately support a sustainable dividend and our ability to invest to grow the company.
In 2019, Aviva generated Solvency II operating own funds2,6 of £2.3 billion (2018: £2.0 billion) resulting in RoE2,5,6 of 14.3% (2018: 12.5%). Solvency II operating capital generation (OCG)2 was £2.3 billion (2018: £3.2 billion).
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
2 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6% and a reduction in the prior period operating earnings per share of 2.2 pence.
4 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other information’ section of the Annual report and accounts. 5 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other information’ section of the Annual report and accounts for more information. 6 Constant currency.
General Insurance General Insurance results improved in 2019, with own funds generation3,5 increasing to £628 million (2018: £532 million) and return on capital3,5 of 14.0% (2018: 11.7%). The improvement in results was principally driven by a recovery in profitability in Canada where pricing and underwriting actions we took in response to industry-wide challenges in the auto insurance market helped drive a 5.3 percentage point improvement in the combined operating ratio (COR)3 to 97.8% (2018 restated2: 103.1%). We are continuing to aim for a 96% or better COR3 in Canada in 2020. In the UK, reported COR3 in 2019 has been affected by higher costs following its incorporation of UK Digital during the year. Adjusting for these changes, our UK COR3 was up 0.6 percentage points to 97.9%, with solid results in commercial lines offset by weaker performance in personal lines. In Europe we maintained attractive profitability with a COR3 of 95.7% (2018 restated2: 93.5%) despite adverse large loss experience. Weather had a favourable impact on our COR3 of 1.0 percentage point relative to long-term average (2018: 0.1% unfavourable) while prior year reserve development (PYD) had a favourable 1.7% impact (2018: 2.3% favourable).
Europe Life In Europe Life, we have balanced long-term franchise value with the requirement to actively manage the current environment of very low, and in some cases, negative government bond yields. Own funds generation3,5 increased to £574 million (2018: £384 million) and included assumption changes of £181 million spread across our France, Italy and Ireland businesses. This in turn gave rise to an improvement in return on capital to 10.3% (2018: 6.9%). New business volumes (PVNBP)3 rose 9% to £13.8 billion (2018: £12.6 billion) demonstrating the strength of our distribution networks and customer appetite for our products. Strong volume growth was achieved in France (+32%) and Poland (+28%). However, the own funds contribution from new business declined to £167 million (2018: £253 million) due to low yields. We will continue to address the challenges from low yields through proactive balance sheet management and a constructive approach to distribution and product mix management.
Operating expenses3 Total operating expenses3 were £4,119 million (2018: £4,138 million) with reductions in controllable costs3 partly offset by an increase in levies and premium taxes to £180 million (2018: £170 million). Controllable costs fell to £3,939 million (2018: £3,968 million).
Savings of £72 million6 were mainly derived from our lean group centre initiative and reduced project spend, although we reinvested some of these savings in other areas including IT modernisation and proposition development. Implementation costs associated with the cost reduction programme and our spend on IFRS 17 was £59 million.
2 The estimated Solvency II position represents the shareholder view. Please refer to note 58 and the ‘Other information’ section of the Annual report and accounts for more information. 3 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
All of our principal operating entities are well capitalised and operating within their respective normal working ranges. In France, we added approximately 70 percentage points of solvency cover in the second half of 2019, including a 20 percentage point benefit from PPE1, following changes to regulations. This, combined with our active management of capital, including the purchase of interest rate and other hedges, gives us headroom to manage volatility from falling bond yields.
Solvency II net asset value (NAV)2 per share rose 31 pence to 423 pence (2018: 392 pence). During 2019, we redeemed £0.2 billion of hybrid capital as part of our overall £1.5 billion debt reduction target. Together with the increase in Solvency II own funds2,3, this has led to a reduction in our leverage ratio3 to 31% (2018: 33%).
Dividend Aviva has a progressive dividend policy, which means we aim to maintain or grow the dividend. In light of our 2019 performance and continued strength of our capital and liquidity, the Board has declared a final dividend of 21.40 pence per share (2018: 20.75 pence), bringing the full year dividend for 2019 to 30.9 pence (2018: 30.0 pence).
We have set out our targets to improve returns, reduce debt leverage3 and enhance sustainable capital generation while continuing to invest wisely to grow the company. We are committed to achieving these targets, and furthermore, we expect to make progress in 2020, with an increase in underlying OCG.
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 Fundscape advised platforms, 9 months to Q319. 5 Aviva individual protection claims report spring 2019. 6 Swiss Re Group Watch 2018. 7 Health & Insurance Protection Awards 2019.
We are the largest UK corporate pensions provider2, servicing over 26,000 schemes and 3.5 million customers, including 23%1 of the workplace pensions market. We offer pensions, protection, and bulk purchase annuity propositions to both large and small companies, as well as health, wellness and employee benefits, creating a differentiated proposition. During 2019 we won ‘Defined Contribution Provider of the Year’ and ‘Pensions Communication Initiative of the Year’ at the Professional Pensions UK Pension Awards.
We are an emerging leader in the adviser platform market, currently servicing over 12,000 IFAs and over 260,000 customers. Our platform continues to grow with assets under administration3 up 28% in 2019 to £29 billion and net fund flows3 continue to be positive at £3.5 billion. In 2019 we have outgrown the market, ranked second4 for net fund flows3 and are a top 10 player4 by assets under administration3.
3 Includes workplace, platform, individual personal pensions and heritage pensions. 4 Legacy represents products no longer actively marketed, including with-profits and bonds. 5 Other life represents changes in assumptions and modelling, non-recurring items and non-product specific overheads. 6 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit.
New business Present value of new business premiums (PVNBP)1 27,570 23,946 Value of new business on an adjusted
Solvency II return on capital1 and Solvency II operating capital generation1 (OCG) UK Life (including UK Savings & Retirement) Solvency II return on capital1 reduced by 1.6pp to 9.3% (2018: 10.9%) and Solvency II own funds generation decreased to £1,244 million (2018: £1,552 million).
UK Life Solvency II operating capital generation (OCG)1 has reduced to £1,170 million (2018: £1,821 million). This is mainly due to the absence of transitional benefits on new business together with adverse experience variances and a reduction in assumption changes and management actions. These have been partially offset by lower new business strain which has significantly reduced due to reinsurance actions. The impacts of longevity assumption changes are broadly comparable in 2018 and 2019, but 2019 includes adverse impacts from persistency and other non-economic assumption changes. 2018 also included positive impacts from modelling changes and additional equity volatility hedging that did not reoccur in 2019.
Cash Cash remitted to Group1 by UK Life was £1,387 million (2018: £2,152 million), including a £500 million special remittance following recent longevity developments. 2018 included £1,250 million of special remittances, £750 million due to positive longevity developments and management actions and the final Friends Life integration remittance of £500 million.
Long-term savings3 211 187 Annuities & equity release 866 777 Protection 166 221 Legacy4 274 316 Health 35 38 Other5 303 347
The decrease in adjusted operating profit2 is more than offset by a favourable movement in economic variances leading to an increase in profit before tax attributable to shareholders’ profit of £2,253 million (2018: £1,436 million).
Positive net fund flows1 of £3.5 billion (2018: £3.9 billion) along with market movements have resulted in platform managed assets1 growing 28% to £29.1 billion (2018: £22.6 billion).
Annuities & equity release Annuities & equity release adjusted operating profit2 increased to £866 million (2018 restated6: £777 million). Within this, new business adjusted operating profit2 increased to £506 million (2018: £363 million) as BPA volumes increased 55% to £4.0 billion (2018: £2.6 billion), including the partial buy-in of the Aviva staff pension scheme (£1.7 billion). Volumes in Individual annuities were 5% lower as we took a selective approach to trading to focus on margins. Existing business adjusted operating profit2 fell by £54 million to £360 million (2018 restated6: £414 million) as there has been no repeat of either the in-year favourable longevity experience in 2018 or the £24 million benefit seen in 2018 from asset mix optimisation.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
2 Please refer to note 48 ‘Effect of changes in assumptions and estimates during the year’ within the Annual report and accounts 3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit.
Legacy Legacy contributed adjusted operating profit1 of £274 million (2018 restated4: £316 million). 2019 fee income was impacted by lower asset values at the start of the year following weak investment markets towards the end of 2018. The fall in profits was broadly in line with the impact of expected net outflows.
Health UK Health adjusted operating profit1 decreased by 8% to £35 million (2018: £38 million).
Other Other adjusted operating profit1 is £303 million (2018 restated4: £347 million). During 2019, there was a net benefit from assumption changes of £574 million2. Within this, continued net positive longevity and mortality developments, including adopting CMI 2018, gave a benefit of £751 million which was partly offset by updates to persistency (£126 million charge) and other assumptions. A benefit to reflect changes to our unitised with profit reserving approach (£167 million) was largely offset by a number of other modelling changes. We have recognised a £175 million provision to allow for certain pension policyholders who may not have been adequately informed of switching options available to them. More detail is included in the ‘market context and challenges’ section.
Long-term savings 18,884 16,829 141 111 0.7% 0.7% Annuities & equity release 6,182 4,784 284 196 4.6% 4.1% Protection 1,875 1,799 126 140 6.7% 7.8% Health and Other 629 534 41 34 6.5% 6.4%
Long-term savings VNB3 increased 27% to £141 million (2018: £111 million) as a result of growth in workplace pensions VNB1. Platform VNB1 has been impacted by lower volumes driven by uncertain investment markets.
• We have received encouraging scores from a newly introduced Net Trust Index, showing we are above benchmark for consumer trust in our sector. We will continue working to improve consumer perception and trust levels.
• We constantly work to improve our customer service, taking learnings from dissatisfaction and analysing the root cause of complaints in order to improve our performance. In 2019 complaint volumes have fallen 21% compared to 2018.
Products and solutions • We have launched a new corporate mental health cover option,
• In 2019 we wrote over £4.0 billion of bulk purchase annuities, which included a £1.7 billion partial buy-in transaction with the Aviva Staff Pension Scheme, insuring the defined benefit pension liabilities and removing the investment and longevity risk of these members from the schemes.
• We recognise the practical, financial and emotional costs many people in mid-life are facing in caring for relatives both young and old. To help support these employees we have introduced a carers’ policy which provides up to 70 hours of additional annual leave for our people with caring responsibilities and are piloting a partnership with ‘SuperCarers1’ to help our people navigate the care landscape.
Market context and challenges • In 2019, we recognised a £175 million provision after determining that past communications to a specific sub-set of pension policyholders may not have adequately informed them of switching options into with-profits funds that were available to them. The issue is restricted to a product acquired by Aviva through the purchase of Friends Life. It does not affect any other part of our business.
• The individual annuity market was particularly competitive during 2019. With bond yields tightening over the first half of the year, and the open market only growing by 2%2, trading was difficult for Aviva and all of our competitors. With our disciplined approach to capital allocation, Aviva took a selective approach to trading to focus on margins.
• The highly competitive environment in the individual protection market continued into 2019 making for difficult trading conditions and the need to balance volume and margin. A focus on quality of business through Distributor Value Management and underwriting risk cost alongside enhancing pricing sophistication still allowed volume growth quarter on quarter throughout the year as we competed for quality share, but saw margin reductions against previous years.
• The Group Protection market continued to be highly price competitive in 2019. Despite the price competition, Aviva delivered strong trading results, especially in the first half of the year, whilst maintaining capital allocation and pricing discipline. Aviva’s claims experience was weaker than expected, particularly across Group Life and Group Critical Illness products.
• In April 2019 auto-enrolment minimum contributions increased from 3% to 5%, supporting better retirement prospects for all UK workers. The ‘secondary market’, where businesses look to potentially change their workplace pension provider, continues to thrive as employers and employees increasingly recognise the value of a well-run pension scheme. In a recent survey pensions came second3 in a poll of workplace benefits employees were most interested in, just behind annual leave.
• Many investors are cautious about short-term market movements and we have seen a growth in the popularity of funds which aim to address this need. The Aviva Smooth Managed Fund is designed to deliver growth over the medium to long term using a ‘smoothing’ process to shelter individuals from some of the impact of adverse market movements.
• In July we launched the ‘Stewardship lifestyle strategy’, a workplace pension default investment strategy that incorporates ethical and environmental, social and governance (ESG) considerations. The launch comes a year ahead of a significant ESG-related milestone in the UK in 2021 that means financial advisers will need to be more proactive with customers in relation to ESG considerations by asking them about their preferences. The funds have also been launched on the Adviser platform.
2 This is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
4 Fund management adjusted operating profit excludes £nil (2018: £1 million) of profit relating to the Aviva Investors Pensions Limited business. 5 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 1(b) in the Annual report and accounts). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit.
In a world of low interest rates and Solvency II, we aim to provide the solutions for investors to achieve the returns they need.
During 2019, our investment capabilities have delivered consistently improving investment performance across all asset classes. The expansion in our distribution capability in the US led to significant new business wins, creating a more diversified client base across a broader range of products.
Net flows and assets under management2 Assets under management2 (AUM) represents all assets managed by Aviva Investors. These comprise Aviva (internal) assets which are included within the Group’s statement of financial position and those belonging to external clients outside the Aviva Group which are therefore not included in the Group’s statement of financial position. These assets under management2 exclude those funds that are managed by third parties. Assets under administration2 comprise assets managed by third parties on platforms administered by Aviva Investors.
Revenue2 Revenue2 decreased by 9% to £542 million (2018: £597 million) driven by the effect of the 2018 disposals of an indirect real estate multimanager business and our interest in the management of a panEuropean commercial property fund, reduced internal client demand for originating assets, higher margin external outflows and run-off of the legacy Aviva client book of business.
Profit Adjusted operating profit3,4 decreased by £51 million to £96 million (2018 restated5: £147 million) mainly due to the reduction in revenue described above. Cost control by the business helped mitigate the impact on profitability.
Profit before tax attributable to shareholders’ profit has reduced to £91 million (2018: £170 million) mainly due to the lower adjusted operating profit3,4. In 2018 there was also a £27 million one off gain on disposal relating to the Real Estate Multi-Manager business and the disposal of our interest in the pan-European commercial property fund.
Controllable costs2 Controllable costs2 in Aviva Investors were £446 million (2018: £450 million). The decrease includes £11 million cost savings partly offset by £7 million of non-recurring restructuring costs.
Operational and customer highlights • Positive net sales across our credit and real assets businesses in the second half of 2019 were very encouraging, with net positive external client flows of circa £2.3 billion at year end. However, redemptions from certain high margin funds in the first part of 2019 resulted in lower revenue for the year.
• Our key focus is on enhancing investment returns for our clients. With 84% of total AUM1 ahead of benchmark as at 31 December, we have beaten our target objective of 70%, demonstrating the incremental value that we have achieved for our investors. We have also seen a significant improvement on the internal book of business, with 85% of AUM1 ahead of benchmark as at the end of 2019, compared to 31% at the end of 2018.
• We have also continued to see a strong long-term investment performance, with over 66% of our funds beating the benchmark over a five year period.
• We consistently integrated the environmental, social thinking and governance (ESG) investment processes across all our asset classes, with launches of several new ESG funds, such as Sustainable Income and Growth and Climate Transition European Equity Fund.
• We completed our Equity team build out in 2019, ensuring that we have the right expertise to deliver our global multi-asset and equity propositions.
• We launched the Credit Business Strategy, with continued focus on growth in the US and Canada, with $3.6 billion raised in US Investment Grade Credit in 2019.
• In Real Assets, we reshaped the team bringing investment, fund management and asset management together, and continued to focus on strengthening our capability.
Market context and challenges • During the year our business has delivered improved investment performance despite the uncertainties arising from Brexit, the UK domestic political situation and trade pressure between the US and China.
Overview Aviva’s General Insurance business operates at scale in the UK and Canada and we have a European business that operates in France, Ireland, Poland and Italy.
From 2020, all of our general insurance businesses will be reported together as a General Insurance division. For further details of our strategy and key priorities for this division, refer to the ‘Our strategy’ section.
The overall results of our General Insurance business are as follows: £m £m
The following sections provide additional details and performance analysis of our UK and Canada general insurance businesses. For detail on the Europe and Asia general insurance businesses, refer to the Europe and Asia ‘Market review’ sections.
UK GI Overview Aviva is a leading insurer in the UK general insurance market with £4.2 billion of net written premiums in 2019, equating to a c.11% market share.
Our capabilities in distribution, underwriting and digital are clear differentiators. During the year we integrated the majority of our UK digital business into UK GI.
During 2019, as part of our strategy to simplify our business, we aligned our UK digital business with UK General Insurance and UK Life. It has had a significant effect on a number of UK GI’s headline metrics this year which is explained in the analysis below.
Underwriting result 86 221 Long-term investment return 166 161 Other (2) 1
Profit before tax was 30% lower at £288 million (2018: £413 million). In addition to the reduction in adjusted operating profit2 described above, there was a £235 million adverse movement due to the change in the Ogden discount rate (2019: £45 million strengthening; 2018: £190 million release) which is described in more detail below. This was mostly offset by a £251 million favourable movement in short term fluctuations in investment performance and the impact of changes in economic assumptions on insurance liabilities (2019: £74 million gain; 2018: £177 million loss) driven by lower interest rates, tightening credit spreads and gains in equity markets.
UK Personal lines NWP reduced 4% to £2,399 million (2018: £2,494 million) as we maintained our pricing discipline in Motor and targeted reductions in poor performing segments, combined with the continued run-off of the Creditor book. Home premiums were broadly stable. UK Commercial lines NWP increased 7% to £1,819 million (2018: £1,699 million) driven by a combination of volume and above inflation rate increases. There was an 8% increase in Commercial non-motor NWP to £1,264 million (2018: £1,167 million) with solid growth in SME and Global Corporate Specialty (GCS), while Commercial motor NWP increased 4% to £555 million (2018: £532 million).
COR3 Overall, UK GI COR3 was 97.9% (2018 restated1: 94.6%). Excluding the 2.7pp effect of the alignment of UK digital, COR3 was 0.6pp higher at 95.2% (2018: 94.6%) for the reasons described in relation to adjusted operating profit above.
Operational and customer highlights Our operational and customer highlights in 2019 included: • Our transactional Net Promoter Scores (TNPS) in Property Claims are strong and consistently lead the market. • In underwriting, we introduced our ‘Ask it Never’ approach, reducing the number of questions we ask our customers from over 100 to just five.
• We launched our simple digital online underwriting tool at Barclays in November 2019 which we believe offers a blueprint for the future of integrating insurance into banking digital ecosystems.
• Our investment in digital and claims management has enabled customers to start and complete their claim online. 40% of people now notify their claims online.
• Global Corporate Specialty lines continues to grow and retention has increased to 89%. We are a leading property investors underwriter in the London market.
• Our UK Commercial business has been a key growth segment for us over the last few years, growing in the high single digits every year and in 2019 wrote over £1.8 billion in NWP. We are a leading player in the UK SME market.
Information’ and ‘Other Information’ within the Annual report and accounts for further information. 3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
Market context and challenges • The Commercial business is actively pursuing attractive growth opportunities in the market, with a focus on growing our heartland commercial book, supporting UK business with overseas risks and leveraging our strong regional distribution network to provide a full suite of products, including specialty lines to our existing customers. Growth and profitability are expected to continue at existing levels, supported by a hardening rating environment across the majority of our product lines.
• In GCS, the market has seen an increasing frequency of large property losses, natural catastrophes and adverse prior year development from non-UK casualty and financial lines. These conditions will be supportive of a sustained rate hardening, and we are well placed to take advantage.
• We have created a single Personal lines business and taken a number of actions to improve the underlying performance of the book. Our plan is to reduce controllable costs3. We see a positive rating environment in motor and home and will drive growth in channels and products where we believe there is profit opportunity.
Canada Overview We are the second largest general insurance provider in the market place, providing a range of Personal and Commercial lines products to over 2.4 million customers with a 10% market share1. Our business is primarily intermediated, sold through a network of just over 900 independent broker partners and, following our acquisition of RBC General Insurance (RBC GI) in 2016, RBC insurance agents.
During 2019, adjusted operating profit2,4 of £191 million (2018 restated4: £27 million) improved due to the extensive profit remediation plan put in place towards the end of 2017 with actions around pricing, indemnity management and risk selection.
In 2019, the underwriting result was a profit of £65 million (2018 restated4: loss of £90 million), mainly driven by premium rate increases, lower claims frequency and severity in our personal lines business, better weather conditions compared to the long-term average and favourable prior year reserve development, partly offset by higher commission. Long-term investment return improved 11% due to higher yields on short-duration securities and actions to optimise returns within our fixed income portfolio.
Cash Cash remittances1 during the year increased to £156 million (2018: £28 million), reflecting our improved underwriting performance.
Controllable costs1 Controllable costs1 were 1% higher in constant currency at £402 million (2018: £391 million), reflecting increased investment in claims personnel and processes, investment in our pricing capabilities and the Global Corporate and Specialty business and continued investment in our IT infrastructure, mostly offset by lower real estate and other operating expenses.
Operational and customer highlights • In addition to improved profitability in our Personal lines business, we invested in our claims capability, which delivered significant synergies. Greater capacity and improved processes led to more claims handled by Aviva staff and better customer and financial outcomes. In Commercial lines, our focus continued to be more efficient processing for small policies, improved risk selection in our core and middle market business and growth in our Global Corporate and Specialty division, which has been able to provide capacity in a significantly hardening market. These actions, along with a focus on efficiency, has resulted in significant progress towards our sub-96% target combined operating ratio1 by the end of 2020.
• Extended the RBC distribution partnership by a further 5 years to 2036.
• In the second half of 2019, we undertook a national launch of a commercial digital solution which provides c.50% of SME quotes making the process more efficient for our customers and partners.
Market context and challenges • During 2019, there were significant changes to the provincial regulatory landscape in Canada impacting the auto insurance industry.
• In Ontario, the Financial Services Regulatory Authority was launched in June 2019 with a streamlining of the auto rate regulation process announced as a priority for 2019-20.
3 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits reconcile to the corresponding amounts for Europe of France, Poland and Italy, Ireland and Other in note 5 – ‘Segmental information’ within the Annual report and accounts.
We have over 10 million customers and operate a life and general insurance model across all our European businesses except for Turkey where we offer life and savings products.
From 2020, our European general insurance businesses will be presented as part of our General Insurance division. The Europe general insurance businesses will be managed day to day by the CEOs in each country. Our life and health businesses will form the Europe Life division. Further details of our strategic priorities for these divisions are set out in the ‘Our Strategy’ section.
France 473 510 Poland 194 198 Italy, Ireland and Other 314 300 981 1,008 Profit before tax France 410 426 Poland 198 178 Italy, Ireland and Other 352 304 960 908
Overall adjusted operating profit2,3 in Europe was down by 1% to £981 million (2018 restated1: £1,008 million). Europe Life adjusted operating profit2,3 increased to £827 million (2018 restated1: £807 million) driven by increased revenue, improved product mix and focus on expense efficiencies. Adjusted operating profit2,3 from Europe General Insurance business was down 23% to £154 million (2018 restated1: £201 million) due to weather costs and higher large losses and lower favourable prior year reserve releases compared to 2018.
Profit before tax attributable to shareholders’ profits3 has increased to £960 million (2018: £908 million) as the benefit from positive investment variances (2018: negative variances) was partly offset by the reduction in operating profit. The 2018 profit before tax included gains from disposals in Italy and Spain and the write-off of negative goodwill arising on the acquisition of Friends First in Ireland.
• In Poland we are the number two7 life insurer in the market with one of the largest life tied agent salesforces and two key bancassurance partnerships with Santander and ING. The market in Poland has stagnated in recent years as insurers have moved away from single premium investment products and there has been an increased level of regulatory intervention in the market. Our Polish business is efficient, has very strong brand recognition, and through innovation in product development and digitisation we are in a strong position to outperform the market.
• In Ireland we are now number four8 in the life market as a result of the acquisition of Friends First and continue to benefit from positive demographics and a strong macroeconomic environment with high GDP and low unemployment. The positive economic backdrop was muted for much of 2019 by concerns over a hard Brexit outcome but, once this risk dissipated, sales volumes have been encouraging. Aviva’s Life business in Ireland is entirely distributed through intermediaries. The main challenge we face is improving the operational efficiency of the business and rationalising our product offering to improve margins.
• In Turkey we have a life insurance business through our joint venture with Sabanci. We are number one in the market for pensions and the number three private auto-enrolment provider and we offer protection products through both bancassurance and retail channels including a direct sales force. Our business has responded well to the political instability and financial volatility in recent periods and we have seen strong growth in protection premiums during 2019.
Excluding the impact of disposals, the adjusted operating profit2 of our life and health businesses grew by 6% to £827 million (2018 restated1: £792 million). Dealing with each of the markets in turn: • In France, adjusted operating profit2 reduced by 2% to £408 million
• In Poland, adjusted operating profit2 was flat in constant currency terms at £174 million (2018 restated1: £177 million), with lower fee income on assets under management as a result of weak equity markets towards the end of 2018 offset by a more favourable mix of new business, and an improved result on protection business.
Controllable costs3 Controllable costs3 for Europe Life reduced by 2% to £548 million (2018: £568 million). Excluding disposals, controllable costs3 were down 3% to £548 million (2018: £562 million) mainly due to a reduction in project spend in France partly offset by increased marketing and IT spend in Italy.
2 La Fédération Française de l’Assurance 3 Associazione Nazionale fra le Imprese Assicuratrici
Operational and customer highlights • In France we experienced strong inflows into with-profit funds as customers sought more stable returns in response to market volatility and record low interest rates. In response we undertook various commercial initiatives during the second half of the year to re-balance our new business inflows towards unit-linked products. These included targeted marketing campaigns and mix capping with some distributors. In parallel we undertook capital management actions to reduce the immediate pressure on our balance sheet resulting from low (and negative in early September) interest rates. These included interest rate hedging activities, further optimisation of our asset mix, and changes to our internal model. During the final quarter of 2019 we initiated the Savings Business Model Change programme to provide even greater focus on addressing the changes necessary to adapt and transform our business in the medium term.
• We are also actively participating in several smaller acquisition opportunities as part of our strategy to expand our owned distribution network.
• In Italy, our Hybrid product offers customers a combination of attractive yields, stable performance with a partial capital guarantee together with protection and health riders. During the year we have consolidated on the success of the product and introduced further innovations in the structure of the product with an auto-switch with-profit to unit-linked mechanism. Commercial initiatives with our distributors allowed us to significantly reduce the mix of more capital-intensive standalone with-profit new business to 29% (2018: 48%). Whilst the pressure on our balance sheet from higher Italian government bond spreads eased during the year, we undertook further de-risking activities to reduce the sensitivity of our balance sheet.
• Our Polish business has experienced growth despite contraction of the life insurance market. Growth has been supported by the launch of our new Twoje Życie (Your Life) protection product into our direct channels, the redesign of our CPI offering in the bancassurance channel, and the strengthening of our distribution relationships with Santander and ING. In the pension market, auto-enrolment commenced during the year and we have written nearly 400 contracts with companies employing 250+ employees since July (over 70,000 employees are covered). The MyAviva platform is very well embedded in Poland and 2019 has seen us reach over 400,000 active customers (a 71% increase), introduce 21 new functionalities, and hit 29,000 monthly transactions (an 86% increase).
• In Turkey, we continued our market leadership in pensions and increased our market share in protection. While customer persistency actions played a key role in maintaining our pension leadership, we have increased our market share in protection driven by strong growth in our market leading “return of premium” endowment product and our new credit linked product, further assisted by a general market recovery in the second half of 2019. The new credit linked protection product is a very customer focused proposition and has positioned us favourably against our competition. We have increased our customer engagement through a new mobile app which has had nearly 500,000 downloads and enabled our customers to better manage their funds and offers a fully digitised sales process; providing an improved customer experience and driving process efficiency.
Europe GI Overview, market context and challenges • In France we are number 121 in the market and offer a full range of general insurance products with strength in distribution through our sizeable agent and broker networks and particular expertise in the construction sector. We have recognised an opportunity for profitable growth in SME commercial lines of business where the market is under-penetrated by our larger competitors and we have invested in our capabilities in this area during 2019.
• In Italy we dropped to number 182 in the market after the Avipop disposal in 2018. We offer general insurance across motor and nonmotor lines of business. In the Italian market motor is the primary line of business representing nearly half of gross written premium in 2018 but has seen declining or flat premiums over the last five years with rising competition, customer churn, and loss ratios. Our response has been twofold: firstly in 2018 we took profitability actions on our motor book that reduced volumes but resulted in improvements in underlying loss ratios and a strong base from which to rebuild our book; secondly we have shifted our strategic focus to invest for growth in the under-penetrated but profitable SME commercial market, and in the growing non-motor personal lines segments, with expanded distribution through multi-agents and brokers.
• In Poland we are number ten4 in the market and provide general insurance distributed through a direct sales network, brokers and two key bancassurance partnerships with Santander and ING. The market is showing another year of strong growth. We have chosen to focus our growth strategy more on the commercial market due to price competition in personal lines.
France 65 92 Poland 20 21 Italy (excl. Avipop) 22 30 Ireland 47 56
• In Poland, adjusted operating profit2 was £20 million (2018: £21 million) with net earned premiums in line with 2018.
• In Ireland, adjusted operating profit2 reduced to £47 million (2018: £56 million) driven by a soft market in personal lines with earned premiums 2% lower than 2018, and higher expenses (driven largely by the impact of the new motor levy of 2% applied to all motor policies since December 2018), partly offset by lower large losses and more benign weather than 2018.
France 1,166 1,118 97.2% 94.6% Poland 112 106 85.9% 87.0% Italy (excl. Avipop) 319 317 97.7% 95.2% Ireland 420 430 92.6% 91.5%
COR3 COR3 has increased by 2.2pp to 95.7% (2018 restated1: 93.5%) for the reasons described in the profit section above.
Cash Cash remitted to the Group3 was £180 million (2018: £147 million) which includes a £65 million special remittance from the disposal of Avipop in Italy in 2018.
Controllable costs3 Controllable costs3 were up 8% to £288 million (2018: £271 million) excluding the disposal of Avipop, which includes investment in underwriting platforms in Italy.
• Our Polish business has experienced growth, particularly SME focused commercial lines business where net written premiums grew by 60% assisted by the launch of new propositions including general third-party liability. We also continue to build on the strength of our distribution relationship with our bancassurance partners and further digitised the sales and claims processes including self-claims in personal accident and the reporting of motor third party liability claims online.
1 Swiss Re Institute sigma No 3/2019 publication 2 2018 Insurance statistics published by Monetary Authority of Singapore 3 During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note 2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated. There is no impact on profit before tax attributable to shareholders’ profit. Following the change in the definition of Group adjusted operating profit, COR has also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated.
4 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 – ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information.
5 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
All of our markets provide access to a combined population of over 3 billion people1, with relatively low insurance penetration compared to more developed Western markets. We currently provide life and health insurance solutions to over 5 million customers across our markets in Asia.
Across Asia, we operate a multi-distribution channel strategy which includes tied-agency, financial advisers, bancassurance, affinity partnerships, telemarketing and direct sales force. Our core strategy is to leverage strong partnerships and our distribution capability to grow long term value. We continue to place emphasis on earning customers’ trust and delivering great customer outcomes. Investment in enhancing Asia’s distribution and analytics capabilities continued throughout 2019.
Our FPI business and our business in Hong Kong are classified as held for sale at 31 December 2019.
Adjusted operating profit3,4 Life & Health 276 263 General Insurance (1) (2)
Singapore general insurance reported an adjusted operating loss of £1 million (2018: £2 million loss).
Profit before tax attributable to shareholders’ profit decreased by 3% to £87 million (2018: £90 million), with the increase in operating profit more than offset by the effect of an impairment charge related to our associate in India and a £28 million remeasurement loss in relation to FPI.
Total (excl. FPI & Hong Kong) 2,704 2,208 210 194 FPI 351 448 (1) (2) Hong Kong 2 — (3) (3)
Net written premiums (NWP) and combined operating ratio (COR)1 Singapore general insurance net written premiums were flat at £13 million (2018: £13 million). Our general insurance combined operating ratio1 improved by 10.2pp to 112.8% (2018: 122.1%) as a result of a change in mix away from motor to travel and commercial lines.
In China, we continued to have an excellent relationship with our partner COFCO and in 2019 our joint venture continued to focus on its core agency channel, growing operating profit by 18% as the market recovered following a period of regulatory tightening in 2018.
• In July 2019, we were awarded the contract to provide insurance cover to the Singapore government’s Public Officers Group Insurance Scheme (POGIS).
1 From 1 January 2020 the Committee has become Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts
How we manage risk Rigorous and consistent risk management is embedded across the Group through our Risk Management Framework, comprising our systems of governance, risk management processes and risk appetite framework.
Types of risk inherent to our business model Risks customers transfer to us • Life and health insurance risk includes longevity risk (annuity customers living longer than we expect), mortality risk (customers with life protection), critical illness risk, expense risk (the amount it costs us to administer policies) and persistency risk (customers lapsing or surrendering their policies).
• General insurance risk is the risk arising from loss events (fire, flooding, windstorms, accidents etc).
Risks arising from our investments • Credit risks (actual defaults and market expectation of defaults)
• Liquidity risk is the risk of not being able to make payments when they become due because there are insufficient assets in cash form.
General insurance risk • Catastrophe • Reserving (latent and non-latent) • Underwriting • Expenses
• Use of reinsurance to reduce the financial impact of a catastrophe and manage earnings volatility
• Maintaining committed borrowing facilities (£1.65 billion at 31 December 2019) from banks
Risks specific to asset management should generally be reduced to as low a level as is commercially sensible, on the basis that taking on these risks will rarely provide us with an upside.
Risk type Risk preference Mitigation Operational risk • Conduct • Legal & regulatory • People • Process • Data security • Technology • Brand and
During 2019, interest rates reached record lows in many eurozone economies, requiring further management action in our businesses in France and Italy. We expect rates to remain at low levels for some time to come and we continue to manage our key exposures, specifically in Italy, France and Asia. While asset returns had a strong run, a number of economists have warned we are approaching the end of this credit cycle. In addition, there continues to be significant geopolitical risks that will have knock on impacts to economies and financial markets, including Brexit and the threat of both trade wars and actual wars.
In preparing for the end of the transition period on 31 December 2020 under the UKEU withdrawal agreement, we have already taken the operational measures necessary to ensure continuous service to our customers. This includes addressing the loss of our ability to passport business into the EU through insurance portfolio transfers to our business in Ireland and expansion of our business in Luxembourg to serve our EEA asset management clients and funds, and amending contractual terms for data sharing to allow continued uninterrupted flow of personal data between our EU businesses and the UK. We have contingency plans to restructure our businesses in case the UK is not considered Solvency II equivalent and restrictions to asset management delegation rights as a non-EU manager.
Our data science capabilities facilitate market leading innovation in the use of data analytics to significantly improve the customer journey, improve our understanding of how customers interact with us, and improve underwriting margins. Our Data Charter sets out our public commitment to use data responsibly and securely. Considerable work is going into modernising our legacy infrastructure.
The competitive threat to traditional insurers is likely to increase with the potential for big technology companies and low cost innovative digital start-ups to enter the insurance market, where previously underwriting capability, risk selection and required capital have proven to be a sufficient barrier to entry.
We are actively engaged in public policy debate on the risks and impacts of climate change to our business and customers. We use reinsurance to reduce the financial impact of catastrophic weather events. In the UK, our flood mapping analytics helps us identify properties most at risk and improve our risk selection. Our responsible investment strategy ensures climate change, as well as other environmental and social issues are integrated into our investment decisions. You can read more about the physical, transition and liability risks we face as an asset owner, insurer and asset manager in our ‘Climate-related financial disclosure’.
Cyber crime – criminals may attempt to access our IT systems to steal or utilise company and customer data, or plant malware viruses, in order to access customer or company funds, and/or damage our reputation and brand.
Aviva has invested significantly in Cyber security introducing additional automated controls to protect our data and critical IT services. This investment has enhanced our ability to identify, detect and prevent Cyberattacks and we regularly test ourselves through our own ‘white hat’ hackers to test our Cyber defences and crisis management protocols. Aviva encourages a Cyber aware culture by regularly undertaking activities such as employee phishing exercises, computer-based training and more regular communications about specific Cyber threats.
In 2019 there continued to be high profile cyber security incidents for corporates in the UK and elsewhere and Cyber threat is expected to persist in 2020 from multiple sources, including cyber criminals and rogue states, with increasing levels of sophistication and industrialisation anticipated. Aviva continuously monitors the external threat environment to ensure that our Cyber investment remains appropriate to mitigate the continued and changing nature of the cyber threat.
Key trends and movement Risk management Outlook Medical advances and healthier lifestyles – these contribute to an increase in life expectancy of our annuity customers and thus future payments over their lifetime may be higher than we currently expect.
Changes in customer behaviour – will impact how customers wish to interact with us and the product offering they expect, including the exercise of options embedded in contracts already sold by us.
Our businesses are required to identify business critical outsourced functions (internal and external) and for each to have exit and termination plans, and business continuity and disaster recovery plans in place in the event of supplier failure, which are reviewed annually. We also carry out supplier financial stability reviews at least annually.
We expect regulatory scrutiny of outsourcing arrangements to remain following financial difficulties faced by some providers, as well as customer service issues following the migration of our third party provided IT platform in the UK.
Notwithstanding our robust capital and liquidity position and the operational and financial actions that we are taking, a deterioration in the situation, and the consequent impacts on financial markets, our insurance exposures and our operations, would have adverse implications for our businesses.
Overview Group capital is represented by Solvency II own funds. The Group manages capital in conjunction with its solvency capital requirements (SCR), and seeks to, on a consistent basis: • Maintain sufficient, but not excessive, financial strength in accordance with risk appetite, to support new business growth and satisfy the requirements of our regulators and other stakeholders giving both our customers and shareholders assurance of our financial strength
• Manage an appropriate level of leverage to ensure an efficient capital structure • Allocate capital rigorously to support value adding growth and repatriate excess capital where appropriate • Operate a sustainable dividend policy with reference to factors including growth in cash flow and capital generation
Group Solvency II surplus at 1 January 23,551 (11,569) 11,982 Operating capital generation 2,257 2 2,259 Non-operating capital generation 178 (362) (184) Dividends (1,222) — (1,222) Share buy-back — — — Hybrid debt repayments (210) — (210) Acquired/divested business (6) 19 13 Estimated Solvency II surplus at 31 December 24,548 (11,910) 12,638
Solvency II own funds One of the objectives of capital management is to maintain an efficient capital structure using a combination of equity shareholders’ funds, preference share capital, subordinated debt and borrowings, in a manner consistent with our risk profile and the regulatory and market requirements of our business. The table below provides a summary of the Group’s regulatory Solvency II own funds by Tier: Regulatory view 2019 £m
Unrestricted Tier 1 20,377 19,312 Restricted Tier 1 1,839 2,096 Tier 2 5,794 5,811 Tier 31 337 348
• Tier 2 capital consists of dated subordinated debt. The features of Tier 2 capital include subordination, a minimum duration of 10 years with no contractual opportunity to redeem within 5 years, absence of redemption incentives and mandatory costs and encumbrances
• Tier 3 capital consists of subordinated debt and net deferred tax assets after taking into account the ability to offset assets against deferred tax liabilities. The features of Tier 3 capital include subordination and a minimum duration of 5 years
Capital and liquidity risk appetite The Group’s economic capital risk appetite is set in terms of our Solvency II shareholder cover ratio1. Our Solvency II cover ratio1 working range is 160%-180%.
Our businesses are capitalised based on their regulatory minimum levels with further prudent volatility buffers specific to each entity. Market local capital appetites and working ranges are reviewed regularly by local boards. Our Group cash remittance policy is that business units should pay down to the bottom of their respective working ranges based on up-to-date assessments of their capital positions. This is consistent with our preference to hold excess capital at centre to improve fungibility and underpins the upstreaming of excess business unit capital via additional remittances seen in recent years.
When making capital allocation decisions in addition to EVA we consider other key metrics including cash remittances1, OCG1 and Group adjusted operating profit1.
1 Prudential Regulation Authority’s (PRA) Supervisory Statement – ‘Enhancing bank’s and insurers’ approaches to managing the financial risks from climate change’ 2 From 1 January 2020 the Committee has become Customer, Conduct and Reputation Committee. Further details are available in the Governance Report in the Annual Report and Accounts 3 The 1.5C target was set as an aspiration by the global Paris climate change deal in 2015 to limit the damage wreaked by acute events such as extreme weather and chronic events such as sea level rise. 4 Reduce the carbon emissions of our investment portfolio to net-zero 5 T-risk is a model using research inputs from in-house as well as academia, consultants, civil society, peers to rate the 159 GICS (Global Industry Classification System) sub-industries on their risk exposure to both physical and decarbonisation risks through their value chain
The Board Risk Committee and Board Governance Committee2 oversee our management of climate-related risks and opportunities. The Board Risk Committee2 met six times in 2019 to review, manage and monitor all aspects of risk management, including climaterelated risks and opportunities. The Board Governance Committee2 met four times in 2019 to oversee how Aviva meets its corporate and societal obligations.
In 2019, we updated our risk policies and business planning process to ensure the assessment of climate-related risks and opportunities is integrated into our overall strategy, decision-making, risk management and reporting frameworks. Local markets have also responded to local regulations (e.g. Article 173 in France and the PRA’s climate change Insurance Stress Test). In 2019 papers considering the impact of climate change on our business have been presented to Board committees across the group (e.g. the outcomes of the PRA’s climate change Insurance Stress Test were presented to the UK Life and UK GI Risk Committees).
As part of our regular Board training programme, Aviva’s climaterelated risks and opportunities are presented to the Board. This training equips the Board to give appropriate direction to the company and ensure actions are taken to identify, measure, manage, monitor and report these risks and opportunities.
Aviva is a trusted climate leader. We commit to aligning our business to the 1.5°C Paris target3 and to be a net zero asset owner by4 2050. Our businesses will seek to develop and offer further climate-friendly products. We also commit to further cutting our operational carbon impact, as well as using our influence to help tackle climate change. This strategy is aligned to our Company Purpose ‘With you today, for a better tomorrow’ and will be implemented as part of the Group Business Strategy.
Insurance – We seek to grasp opportunities to support the transition to a low carbon economy and promote activities that will secure a better future for our customers and wider society. We develop ‘climate conscious’ products across Aviva, which reward customers for environmentally responsible actions, provide an element of adaptation/resilience or additional cover for those customers at risk of the extreme weather impacts of climate change. For example, we offer products and services that support customers’ choices such as bespoke electric vehicle policies (France), reduce premiums for customers who opt to use public transport (France), support the sharing economy (Canada), cover solar panels on residential insurance policies without charging an additional premium (UK GI). Last year, Aviva confirmed we would stop underwriting fossil fuel power generation worldwide and has recently launched its whole lifecycle insurance for renewable energy companies. We continue to reduce the environmental impact of our claims process and implement changes which benefit the customer and minimise the amount of waste to landfill or recycling.
Operations – Our operations have been carbon neutral since 2006, through reducing our emissions year-on-year and offsetting any remaining emissions. Our ambition over time is that our business operations should have positive climate impact. We have already reduced our emissions by 66%1 since 2010 and have a long-term reduction target of 70% by 2030. We are committed to using 100% renewable electricity by 2025 (via our RE100 commitment2). In 2019, we commissioned a ‘first of its kind in the UK’ solar carport installation for our Norwich office, which with the right weather conditions removes our reliance on the National Grid and feeds surplus electricity back into the grid. In 2019 our carport produced 40 GWh of electricity, of which 3.8 GWh was exported to the grid. We have identified two further locations for the installation of solar carports which will come on-stream in 2020. We have planning permission for a wind turbine at our Perth office, which through the combination of the existing solar array, new solar carport and battery storage will take the location off-grid.
We encourage policymakers and regulators to change the financial system so markets reward sustainable investments and sustainable businesses. Aviva’s CEO spoke about climate at the UN High-level Dialogue Financing for Development Forum, which was convened by the UN General Assembly in September 2019. He highlighted the need for strategic asset allocation for governments and the private sector, the need for free public league tables e.g. the World Benchmarking Alliance, the need for subsidies to be in the right places and the responsibility of financial advisors to have to ask customers for their views on how their money is invested. We launched our report “A Marshall Plan for the Planet”, which develops these ideas, during the UN General Assembly.
Given its materiality and proximity, we are acting now to mitigate and manage the impacts of climate change both today and in the future. Through these actions, Aviva continues to build resilience to climaterelated transition, physical and liability risks. Aviva has developed models and tools to assess the potential impact on our business of the four Intergovernmental Panel on Climate Change (IPCC) scenarios. Each IPCC scenario describes a potential trajectory for future levels of greenhouse gases and other air pollutants. These can be mapped to likely temperature rises: 1.5°C (aggressive mitigation), 2°C (strong mitigation), 3°C (some mitigation) and 4°C (business as usual).
Aviva calculates a Climate Value-at-Risk (Climate VaR) for each IPCC scenario to assess the climate-related risks and opportunities over the next 15 years with the ability to look at shorter time periods (three to five years) where appropriate. A range of different financial indicators are used to assess the impact on our investments and insurance liabilities. These impacts are aggregated to determine the overall impact across all scenarios by assigning relative likelihoods or probabilities to each scenario. Climate VaR includes the financial impact of transition risks and opportunities. This covers the projected costs of policy action related to limiting greenhouse gas emissions as well as projected profits from green revenues arising from developing new technologies and patents. In addition, it captures the financial impact of physical risks from extreme weather (e.g. flood, windstorm and wildfires) as well as chronic effects (e.g. the impact of rising sea levels and temperature), although we recognise that the most extreme physical effects will only be felt in the second half of the century. Our UK Life and UK GI businesses have also participated in the PRA’s 2019 Insurance Stress Test. This included a climate stress test covering both physical and transition risk. Aviva also recognises that there is a growing trend in climaterelated litigation and has assessed its potential exposure accordingly.
1 Scope 1- All direct emissions from the activities of an organisation or under their control, including fuel combustion onsite such as gas boilers, fleet vehicles and air-conditioning leaks
• We use Notre-Dame University’s Notre Dame-Global Adaptation Index (ND-GAIN) to measure and monitor our sovereign holdings exposure to climate change. ND-GAIN measures a country’s vulnerability to climate change and its readiness by considering: economic, governance and social readiness.
We are working closely with peers, academics, professional bodies, regulators, governments and international agencies to further develop our tools and approaches. For example, we are a member of the United Nations Environment Programme Finance Initiative insurance pilot and the PRA-FCA Climate Financial Risk Forum as well as the UN Net Zero Asset Owners Alliance.
Board Changes On 21 January 2020, I announced my intention to retire as Chairman of the Company during 2020 once a successor has been appointed. Having led the Board for five years and through the appointment of our new Chief Executive Officer (Group CEO) it feels that now is the right time for a new Group Chairman. This is an exciting time for Aviva, we have a refreshed purpose and strategy, a new senior management team and an experienced Board. The succession planning process to find the new Chairman is advancing and, in the meantime, I remain committed to this great organisation which I am confident will deliver for all its stakeholders.
As we reported last year, the process to select our Group CEO was a thorough and competitive process and the Board unanimously agreed that Maurice Tulloch was the right choice for the role. As we progressed through 2019, we continued to refresh the Board. Andy Briggs and Tom Stoddard stepped down from the Board as Chief Executive Officer, UK Insurance and Group Chief Financial Officer respectively, and we wish them every future success. After a period as Interim Group Chief Financial Officer, Jason Windsor, formerly Chief Financial Officer (CFO) of Aviva UK Insurance, was appointed permanently to the role and joined the Board of Directors on 26 September 2019.
There were also several changes amongst our Non-Executive Directors this year. After nine years of distinguished service, including as Chair of the Risk Committee, Mike Hawker retired from the Board on 31 March 2019 and, following his appointment as Chairman of Royal Mail, Keith Williams stepped down from the Board on 23 May 2019. On 31 December 2019, Glyn Barker and Claudia Arney both retired from the Board. Glyn retired after eight years and having assisted with the Board refreshment process, and Claudia to focus on her expanded non-executive roles elsewhere. I am extremely grateful to them all for the valuable contributions they have made to the Board and Committees of Aviva plc.
During the year the Board introduced a new governance framework, which reflects how the Aviva plc Board, through the CEO and Aviva’s leadership team, delivers key customer, shareholder and broader stakeholder outcomes and how this is oversighted through the organisation. The governance framework incorporates the legal and regulatory flow of accountability, prescribed delegations of authority and the supporting ancillary frameworks, policies and standards involved in the management of our business, including the three lines of defence model which assesses the effectiveness of controls and enables risks to be managed.
Our Strategy The Board, together with the new Group CEO, reviewed the Group strategy in 2019. On 20 November 2019 we announced our refreshed purpose, vision and strategy. The strategy is designed to optimise our offering to our customers and to improve efficiencies by simplifying Aviva into five operating divisions: Investments, Savings and Retirement; UK Life; General Insurance; Europe Life; and Asia Life. We reaffirmed our commitment to our progressive dividend policy and we also set out a series of new financial metrics to allow investors to better measure our performance in relation to capital, cash and operating profit. The Board is committed to supporting the Group CEO and his team in executing on the strategy and in running a more commercially focused business.
Culture The Board continues to focus on enhancing its understanding of the culture within the organisation. This includes broadening the measures which the Board uses to assess and drive the requisite culture. We are placing emphasis on four measures: accountability; psychological safety; diversity of thought; and customer focus. These measures are intended to provide both historic data as well as leading indicators. Evidence shows us that these specific cultural traits have a positive impact on workforce productivity and performance.
Tenure >10 years — — — 5-10 years 3 — 5 4 years 1 — 1 3 years — — — 2 years — 1 — 1 year — — 4 <1 year 3 1 4
Age 1 Individual directors may fall into one or more categories
The Code rightly continues to stress the importance of diversity in the composition of an effective Board. I continue to be committed to bringing diversity in its widest sense to the Board including gender, ethnicity, diversity of thought, tenure, age, experience, skills, and geographic, educational, social and professional background. I am very pleased that the Board has met its target for women to represent a minimum of 33% of our Board by 2020.
The Group Executive Committee was reconstituted as the Aviva Leadership Team (ALT) during 2019 and expanded to 14 members by the first quarter of 2020. As at the date of this report, females represented 35% of the ALT and our ambition remains to drive female representation on the ALT higher. The Board continues to monitor the pipeline of talent for both the Board and ALT with diversity in mind, aligned of course with our skills matrix, to ensure that we continue to develop a high performing and diverse top team. I am proud to continue to support the FTSE 100 30% Club and will continue to keep the diversity agenda at the forefront of the Board’s mind.
Maurice Tulloch ■ Position: Group Chief Executive Officer (CEO) Nationality: British/Canadian Committee Membership: N/A Tenure: 2 years 9 months. Appointed to the Board as an Executive Director in June 2017 and as CEO in March 2019. Skills and Experience: Maurice has more than 25 years’ experience within Aviva and knows the business inside out having led businesses in the UK and internationally. Maurice has a deep understanding of insurance and customer needs and his focus on the fundamentals and customer experience make him well qualified to re-energise Aviva and deliver long-term growth for shareholders. He most recently held the role of CEO of International Insurance and had responsibility for Aviva’s life insurance and general insurance operations internationally, together with the Global Corporate and Speciality business. External Appointments: Non-Executive Director of Pool Reinsurance Company Ltd, a member of the Insurance Development Forum and the Board of the Geneva Association.
Patricia Cross ▲ Position: Independent Non-Executive Director Nationality: Australian Committee Membership: Remuneration Committee (Chair), Audit Committee, Nomination Committee2
Belén Romana García ▲ Position: Independent Non-Executive Director Nationality: Spanish Committee Membership: Risk Committee (Chair), Audit Committee, Governance Committee2, Nomination Committee1
Tenure: 4 years 8 months. Appointed to the Board in June 2015. Skills and Experience: Belén has extensive governmental and regulatory experience and brings a detailed knowledge of the financial services industry and regulations to the Board. Belén has held senior positions at the Spanish Treasury and represented the Spanish government at the Organisation for Economic Co-operation and Development. Belén’s experience as both an executive and a non-executive in the financial services sector, and in international policy making and regulation provide a valuable perspective to the Board and in her role as Chair of the Risk Committee. External Appointments: Independent Non-Executive Director of Banco Santander and a member of the advisory board of the Foundation Rafael del Pino (non-profit organisation) and Co-Chair of the Global Board of Trustees of the Digital Future Society.
Kirstine Cooper ◆ Position: Group General Counsel and Company Secretary Nationality: British Committee Membership: N/A Tenure: 9 years 3 months. Appointed as Company Secretary in December 2010 and a member of the Aviva Leadership Team in May 2012. Skills and Experience: Kirstine has over 25 years’ experience at Aviva and is a trusted advisor to the Board. As a qualified solicitor Kirstine is able to execute the role of Company Secretary by advising the Board on governance issues and the regulatory environment. Kirstine established the legal and secretarial function as a global team and is responsible for the provision of legal services to the Group. She also leads the team on public policy and corporate responsibility. During March 2016 to March 2017, Kirstine was the Commissioner on the Cabinet Office’s Dormant Assets Commission which was tasked with identifying new pools of dormant assets and working with industry to encourage the contribution of these assets to good causes. External Appointments: Trustee of the Royal Opera House and NonExecutive Director of HM Land Registry. Kirstine is also Insurance and pension champion for an expanded Dormant Assets scheme.
The UK Corporate Governance Code As a UK Premium Listed company, Aviva’s governance framework is based on the 2018 UK Corporate Governance Code (the Code). The Code is publicly available at www.frc.org.uk. Details of how we have applied and complied with the Code during 2019 are set out in this report and the Directors’ Remuneration report. The Strategic report also discloses information on how we have complied with the reporting requirements set out in the Companies (Miscellaneous Reporting) Regulations 2018 (the Regulations) on our engagement with our employees, suppliers, customers and other stakeholders. Also, in line with the Regulations, further information on how the directors have performed their Companies Act 2006 Section 172 duties is contained in the Strategic report.
Changes to the Board There were several Board changes during 2019. Following an extensive and rigorous process which included a number of highly talented external and internal candidates, the Board unanimously agreed to appoint Maurice Tulloch as Group CEO on 4 March 2019. The Board believes that Maurice Tulloch’s deep knowledge of Aviva’s domestic and international businesses, combined with his vision for delivering enhanced shareholder returns through a relentless focus on the customer experience, make him uniquely well qualified to guide Aviva through the next phases in our development.
Four of our Non-Executive Directors retired from the Board during the year. In line with Provision 10 of the Code, Michael Hawker stepped down as a Non-Executive Director and as Chair of the Risk Committee after nine years’ service on 31 March 2019. Belén Romana García was appointed Chair of the Risk Committee following Michael’s retirement. Keith Williams retired from the Board at the conclusion of the Annual General Meeting on 23 May 2019 after being appointed Chair of Royal Mail Group plc. On 31 December 2019, and after eight years’ service including two years as Senior Independent Director, Glyn Barker retired from the Board. Claudia Arney also retired on the same date in order to focus on her other non-executive directorships. We would like to thank them all for their significant contributions to Aviva.
On 21 January 2020 we announced that Sir Adrian Montague will retire as Chairman during 2020. He was appointed to the Board of Aviva in January 2013 and became Senior Independent Director in May 2013, and Chairman in April 2015.
The succession planning process to find the new Chairman is ongoing.
The Board As at the date of this report the Board is comprised of the NonExecutive Chairman, two Executive Directors and six independent Non-Executive Directors (NEDs). Details of the role of the Board and its committees are described in this report. The duties of the Board and of each of its committees are set out in the respective Terms of Reference. Our committees’ Terms of Reference can be found on the Company’s website at www.aviva.com/committees and are also available on request from the Group Company Secretary. The Terms of Reference list both matters that are specifically reserved for decision by our Board and those matters that must be reported to it. The Board delegates clearly defined responsibilities to its committees and reports from the Audit, Governance, Nomination and Risk Committees are contained in this report. A report from the Remuneration Committee is included in the Directors’ Remuneration report.
Board diversity and inclusion At Aviva, diversity encompasses a very wide range of factors, including but not limited to: gender; ethnicity; disability; sexual orientation; social background; and diversity of thought. Supporting and embracing diversity and inclusion, and valuing difference, are integral parts of our culture. The ways in which we seek to put into practice these values are set out in our Board Diversity and Inclusion Statement, which supports our Nomination Committee’s approach to succession planning. This is closely linked to our Group-wide Global Inclusion and Diversity Strategy (Diversity Strategy), which sets out how we implement our policies to increase diversity and inclusion throughout the Group. Board diversity is monitored by the Nomination Committee which reviews the balance of skills, knowledge, experience and diversity of the Board and leads on www.frc.org.uk www.aviva.com/committees
Strategic report Governance IFRS financial statements Other information succession planning for appointments to the Board and the senior executive team. Our Board skills matrix supports this approach enabling us to map the range of diversity of skills, knowledge and experience of the Board and link these to our strategy.
We have been committed to our target of having 33% of women on the Board by 2020, and we are pleased to have achieved this. We recognise that as a Board we have further to travel to reach our shared ambition that our Board composition should be fully reflective of the diversity of the customers we seek to serve, and we remain firmly committed to reaching that goal. Inclusion at Aviva is imperative not only because it’s the right thing to do, but also because it will help us deliver the outcomes that our shareholders and other stakeholders expect us to achieve. Further detail can be found in the Nomination Committee report.
Board activities during 2019 Strategy and business plans • Approved the revised strategic plans and purpose for the Aviva
Group, which were announced during our Capital Markets Day on 20 November 2019
• Approved the proposed cost reduction plans to support the business to move towards better cost efficiency and a lean group centre
• Held an annual dedicated two-day offsite strategy session in June 2019, supplemented by further specific strategy sessions, to oversee the development and implementation of the Group’s strategy
• Assessed the Group’s capital and liquidity requirements, arising from the Group’s strategy and Group Plan
• Following recommendations from the Nomination Committee, approved the appointment of the three Non-Executive Directors to the Board during 2019
• Reviewed the succession plan of the Board and approved the new Board succession planning process
Board appointments Our Non-Executive Directors played a principal role in the process to appoint Maurice Tulloch as Group CEO, and Jason Windsor as Group CFO, and in the appointment of three Non-Executive Directors during the year through their membership of the Nomination Committee. In line with our succession planning processes, and led by the Nomination Committee, we undertake a formal, rigorous and transparent search process for each appointment, considering the current balance of skills, experience and diversity amongst our directors. Each appointment is made subject to receipt of the requisite regulatory approvals. Furthermore, the continuation of each Board appointment is also subject to the annual board effectiveness review to confirm that each director’s performance continues to be satisfactory. In accordance with the Code and our articles of association, all serving directors must retire and those who wish to continue in office must stand for election or re-election by our shareholders at each Annual General Meeting (AGM). All directors were re-elected in 2019 except Keith Williams who retired from the Board at the conclusion of the AGM.
Board and committee structure The Board is collectively responsible for promoting the long-term, sustainable success of the Company through delivering excellent outcomes for our customers, seeking to generate value for shareholders whilst fulfilling our responsibilities to our stakeholders and contributing positively to the societies in which we operate. One of the Board’s key roles is to determine our shared purpose and to set and uphold the Group’s values, standards and ethics which combine together to create our corporate culture. We recognise that there is a clear link between our culture and our conduct, both with regards to our customers and to the way in which governance operates in the Group, and our policies, processes and behaviours in relation to these issues are closely monitored by the Board. The Board is also responsible for setting the Group’s risk appetite and monitoring the operation of our controls framework. It also seeks to maintain an appropriate dialogue with shareholders on strategy and remuneration.
In order to ensure there is a clear division of responsibilities between the running of the Board and the running of the business, the Board has identified certain ‘reserved matters’ for its approval. In relation to all other matters, unless they are specifically reserved for shareholder approval in a general meeting, the Board delegates responsibility for these to our Group CEO, who then delegates responsibility for specific operations to members of the Aviva Leadership Team (ALT), comprised of our most senior managers from across the business.
Assists the Board in its oversight of Board composition; Board and senior executive succession; talent development; diversity and inclusion initiatives; operation of the Group governance framework; Aviva’s subsidiary governance principles; and the regulatory control environment.
Assists the Board in its oversight of customer, conduct and reputation issues including operational risks related to customer and business conduct; the Group’s customer strategy and customer conduct obligations; oversight of the Group’s brand; reputational risk profile; data governance and data privacy; and corporate responsibility.
The Senior Independent Director (SID) reviewed the time commitment of the Chairman. During the period to 4 March 2019, the Chairman increased his time commitment to allow him to perform the role of Executive Chairman. He was supported in this by the Chairman’s Committee, composed of the Executive Directors at the time, Maurice Tulloch, Andy Briggs and Tom Stoddard, who advised on the strategic, performance and risk and control aspects of the management of the Group. The role of SID was also enhanced during this time to allow for the monitoring and management of any potential conflicts arising from Sir Adrian’s role as Executive Chairman.
The Board continues to monitor and note any potential conflicts of interest that each Director may have and recommends to the Board whether these should be authorised and whether conditions should be attached to any such authorisation. The directors are regularly reminded of their continuing obligations in relation to conflicts and are required annually to review and confirm their external interests, which helps to determine whether they can continue to be considered independent.
The unusually high number of meetings of the Nomination Committee included eight ad hoc meetings which were called to consider specific matters in relation to the appointment processes for the Executive and Non-Executive Directors who joined the Board during the year. If any Directors are unable to attend a meeting, they can communicate their opinions and comments on the matters to be considered via the Chairman of the Board or the relevant committee chairman.
The Board visits different markets each year and during 2019 held a Board meeting at our Irish office. This gave the Board the opportunity to meet the senior management team locally and to gain a deeper understanding of the operations and performance of the business. In June 2019, the Board held its annual two-day strategy meeting offsite in the UK to review progress against our strategic plan and to consider how it should be further developed to ensure we deliver on our commitments to our shareholders and our stakeholders. Following the meeting a refresh to the Group strategy was announced on 20 November 2019.
Chairman and the NEDs. 2 Sir Adrian Montague acted as Executive Chairman in the period to 4 March 2019 when Maurice Tulloch was appointed as Group Chief Executive Officer. Following this, Sir Adrian reverted to his previous position as Non-Executive
Board priorities During 2019, the Board continued to make progress on delivering sustainable and growing financial returns for our shareholders and overseeing prudent capital management. We put in place a progressive dividend policy which is aligned to the Solvency II Return on Equity14 target of 12% by 2022 which we announced as part of our Capital Markets Day in November 2019, and continued our programme of debt deleveraging including the redemption of the £210 million Step-Up Tier 1 Insurance Capital Securities (STICS) perpetual subordinated loan notes during the year.
We will seek to ensure that we successfully implement our simplified operating model and maintain our careful control of operating costs. The Board will closely monitor and drive enhancements in our risk and control environment and will continue to assess and respond to changes in the external political and economic environment; including those related to the UK’s decision to leave the European Union (EU). The Board will seek to ensure that as a business, we maintain our focus on managing operational resilience and potential risks around our IT estate. We will closely review our progress towards meeting the financial targets outlined in our strategic update in November 2019 which will support our progressive dividend strategy and our goal of driving higher returns for our stakeholders.
Culture will remain a key area, and we will continue to engage with our stakeholders and integrate their interests and concerns into our decision-making processes. Succession planning and the continued development of the talent pipeline will remain an area of focus for both the Board and the Nomination and Governance Committee.
The Board skills matrix was utilised to focus NED recruitment on specific Board skills requirements, including insurance, finance and accounting experience. We have successfully recruited three NEDs with very deep experience in these areas.
The interests of our stakeholders are central to the way we operate as a company, and the Board reviewed the ways in which we engage with them to ensure that they facilitate dialogue and that the interests of our stakeholders are considered in our decision making.
In-depth monitoring of the establishment and operation of prudent and effective controls in order to assess and manage risks associated with the Group’s operations is delegated to the Risk, Governance and Audit Committees which report regularly to the Board. However, the Board retains ultimate responsibility for the Group’s systems of internal control and risk management and has reviewed their effectiveness for the year. The frameworks for risk management and internal control play a key role in the management of risks that may impact the fulfilment of the Board’s objectives. They are designed to identify and manage, rather than eliminate, the risk of the Group failing to achieve its business objectives and can only provide reasonable and not absolute assurance against material misstatement and loss. The frameworks are regularly reviewed and were in place for the financial year under review and up to the date of this report. They help ensure the Group complies with the Financial Reporting Council’s (FRC) guidance on Risk Management, Internal Controls and Related Financial and Business Reporting.
A robust assessment was conducted by the Board of the emerging and principal risks facing the Company, including those that could impact the Group’s business model, future performance, solvency and liquidity. In 2019 the Risk Committee reviewed a number of emerging risk scenarios and the management actions and mitigation to address them. These included the decision for the UK to leave the European Union (regular updates), UK political risk, US-China trade war, the credit cycle, systemic cloud risk, harmonisation of European conduct regulation, pension tax relief, risks posed by climate change and other emerging risks and sources of market uncertainty. The Company’s approach to risk and risk management together with the principal risks that face the Group are explained within the Risk and risk management section of this report.
Risk management framework The Risk Management Framework (RMF) is designed to identify, measure, manage, monitor and report the principal risks to the achievement of the Group’s business objectives and is embedded throughout the Group. It is codified through risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements and controls for the Group’s worldwide operations. Further detail is set out in note 60.
In 2019, the Group continued to focus on its operational resilience by completing major control improvements in a number of areas, including disaster recovery capability and the strengthening of its cyber security controls, through continued investment in the Group’s IT estate. More broadly the Group seeks to continue to monitor and further enhance its control frameworks across the business, including change management, financial crime prevention and data privacy. Further information can be found in the Audit and Risk Committee reports.
First line – management monitoring The Aviva Leadership Team and each market Chief Executive Officer are responsible for the application of the RMF, for implementing and monitoring the operation of the system of internal control and for providing assurance to the Audit, Governance and Risk Committees and the Board.
The Actuarial function is accountable for the Group wide actuarial methodology, reporting to the relevant governing body on the adequacy of reserves and the appropriateness of the Solvency II internal model, as well as underwriting and reinsurance arrangements. The Compliance function supports and advises the business on the identification, measurement and management of its regulatory, financial crime and conduct risks. It is accountable for maintaining the compliance standards and framework within which the Group operates and monitoring and reporting on its compliance risk profile.
The principal committees that oversee risk management are as follows The Risk Committee The Governance Committee The Audit Committee Assists the Board in its oversight of risk and risk management across the Group and makes recommendations on risk appetite to the Board. Reviews the effectiveness of the risk management framework, and the methodology in determining the Group’s capital and liquidity requirements.
Ensures that risk management is properly considered in setting remuneration policy.
Board oversight of risk management The Board’s delegated responsibilities regarding oversight of risk management and the approach to internal controls are set out on the previous pages. There are good working relationships between the Board committees, and they provide regular reports to the Board on their activities and escalate significant matters where appropriate. The responsibilities and activities of each Board committee are set out in the committee reports.
Assessment of effectiveness of risk management Each business unit Chief Executive Officer and Chief Risk Officer is required to make a declaration that the Group’s governance, and system of internal controls are effective and are fit for purpose for their business and that they are kept under review through the year.
The effectiveness assessment also draws on the regular cycle of assurance activity conducted during the year, as well as the results of the annual assessment process. During 2019, this has been supported by the application of the Group’s Operational Risk & Control Management framework. The details of key failings or weaknesses are reported to the Risk and Audit Committee and the Board on a regular basis and are summarised annually to enable them to carry out an effectiveness assessment.
Committee focus during 2019 I am pleased to present the Nomination Committee’s (the Committee) report for the year ended 31 December 2019.
During the year, the Committee led the selection process for the appointment of Maurice Tulloch as the Group Chief Executive Officer (Group CEO) on 4 March 2019, and the appointment of Jason Windsor as the Group Chief Financial Officer (Group CFO) on 26 September 2019.
Executive Directors The Committee led the process for the recruitment of a new Group CEO following the departure of Mark Wilson in October 2018. The Committee approved the search brief and engaged Spencer Stuart to identify suitable candidates. The brief included finding candidates with strong insurance experience, a track record of running large global organisations, outstanding leadership qualities, a customer focused approach, and alignment to the Company’s culture and values. A diverse shortlist of internal and external candidates was interviewed by the Chairman, the Senior Independent Director and the chairs of the Board Audit, Risk, Governance and Remuneration Committees. The preferred candidates met with all Non-Executive Directors and the successful candidate met with the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA). The Remuneration Committee led on the development of an appropriate remuneration package for the role and approved the final package to be offered to the successful candidate. Both the Remuneration and Nomination Committees were mindful of shareholder views when considering the remuneration package for the role. Having considered all the skills, experience and personal attributes of the preferred candidates, the Committee unanimously agreed to recommend Maurice Tulloch as Group CEO. The Board appointed Maurice as Group CEO on 4 March 2019. Maurice was formerly Chief Executive Officer International Insurance. The appointment of Maurice as Group CEO reflected a strong internal succession planning process and demonstrated our focus on people development and readiness for future roles.
On 30 June 2019, Tom Stoddard stepped down as Group CFO and as an Executive Director of Aviva plc. The Committee was involved in the appointment of the new Group CFO and engaged Spencer Stuart to carry out an extensive external search and to benchmark internal candidates for the role. A shortlist of highly capable and diverse internal and external candidates was produced and considered against the role profile previously agreed by the Committee. Interviews were held with the shortlisted candidates and the NonExecutive Directors, following which the Committee unanimously agreed to recommend Jason Windsor’s appointment to the role. The Board appointed Jason Windsor as Group CFO and Executive Director of Aviva plc from 26 September 2019. Jason Windsor was Aviva’s interim Chief Financial Officer from 1 July 2019 and was previously Chief Financial Officer of Aviva UK Insurance. He has a deep understanding of Aviva and the markets we operate in and was considered the right candidate for the role in line with our executive succession plans.
During the year, Spencer Stuart had no other connection with the Company or any individual director.
During the year, the Committee reviewed the Board skills matrix and capability gaps identified and agreed the areas of experience which would be beneficial to the composition of the Board. Spencer Stuart was engaged to undertake an extensive external search based on the specification agreed by the Committee. The Committee considered the role profiles of the shortlisted candidates, met the candidates with the most alignment to the specification and recommended the appointment of Patrick Flynn, George Culmer and Amanda Blanc to the Board. Patrick Flynn was appointed to the Board on 16 July 2019 and became Chair of the Audit Committee on 4 November 2019. Patrick brings significant experience of both retail financial and insurance services. George Culmer joined the Board on 25 September 2019, bringing extensive insurance and banking experience. He was appointed as the Senior Independent Director with effect from 1 January 2020. Amanda Blanc joined the Board as a Non-Executive Director and Chair of the Governance Committee on 2 January 2020. Amanda brings strong knowledge of the UK and European insurance industry and a detailed understanding of business and customers.
The Committee also considers the development plans designed to prepare successors for ALT roles. Internal talent development and developing a pipeline of potential future leaders has continued to receive Committee focus during the year.
The Committee also considers the initiatives to enhance, strengthen and diversify the talent pipeline across the wider Group and members of the Committee remain involved in various initiatives, including an ongoing programme of talent breakfasts where high potential employees meet with the Board.
In May 2017, the Board adopted a Diversity and Inclusion statement which supports the Committee in its approach to succession planning. The Board’s Diversity and Inclusion statement, which is in line with the overall Group Diversity and Inclusion strategy, is available on the Company’s website at www.aviva.com/corporategovernance
Conflicts of interest and independence During 2019, the Committee reviewed the balance of skills, experience and independence of the Board. The Committee conducted a review of individual director conflict authorisations as recorded in the Conflicts of Interest register. The register is maintained by the Group Company Secretary and sets out any actual or potential conflict of interest situations which a director has disclosed to the Board in line with their statutory duties. In order to form a view surrounding director independence when reviewing the conflicts of interest authorisations, consideration was also given to other external appointments held by each director.
The Committee also considered the cross-directorships of Keith Williams and Claudia Arney who were both directors on the Board of Halfords plc. The Committee was satisfied that the cross directorships did not impact the independence of either Claudia Arney or Keith Williams or their ability to carry out their role as directors of the Company. Claudia Arney stepped down from the board of Halfords plc on 1 March 2019.
• Led the search process for the new Group CEO, Group CFO and the three Non-Executive Directors appointed during 2019
Board and executive level, against a specification for the role and capabilities required for the position and the composition of the Board
• Considered plans for succession for each Aviva Leadership Team member, including talent development below the ALT level
Talent pipeline • Reviewed the career and development plans for the ALT to ensure that there is an adequate talent pool of potential Executive Directors
During the year, the Committee focused on strengthening the risk culture and control environment, with particular attention given to operational and IT risks. The Committee also focused on the changing macroeconomic and political environment, including preparations for the UK to leave the European Union (EU), the risks posed by the low interest rate environment, cyber threats, climate change and ongoing regulatory change.
The Company’s overall risk profile has remained stable throughout 2019 and the Committee continued to review and oversee the strengthening of the Group’s operational risk profile and control environment.
George Culmer 25/09/2019 <1 1 Chair. 2 Claudia Arney retired from the Committee on 31 December 2019 3 Glyn Barker retired from the Committee on 31 December 2019
Committee purpose The main purpose of the Committee is to assist the Board in its oversight of risk within the Group, with a focus on reviewing the Group’s risk appetite and risk profile in relation to capital, liquidity and franchise value and reviewing the effectiveness of the Group’s risk management framework. The Committee reviews the methodology used in determining the Group’s capital requirements and associated stress testing and ensures that due diligence appraisals are carried out on strategic or significant transactions. In addition to the risks inherent in the Group’s investment portfolio, the Committee reviews the Group’s operational risks, including significant changes to the regulatory framework. The Committee works with the Remuneration Committee to ensure that risk management and risk culture is properly considered in setting the Remuneration Policy. During 2019 the Committee supported the development of the new primary risk and control metric included in the Company’s Annual Bonus Plan and further details on this can be found in the Directors’ Remuneration report.
Finally, on 11 February 2020 we welcomed Jan-Hendrick Erasmus as the new Group Chief Risk Officer. The Committee will work closely with Jan-Hendrick on his on-boarding and objectives which will be closely aligned to the priorities for the Committee.
• Approved the Group’s SII capital risk tolerances by risk type
shareholder cover ratio and liquidity cover ratio • Reviewed updates on credit risk and the Company’s credit exposure and reviewed mitigating actions • Reviewed the development of the Company’s strategy from a risk perspective • Approved the Systemic Risk Plan, the Recovery Plan and the Liquidity
• Received quarterly reports from the Group Chief Audit Officer on internal audit which included progress on improving the control environment
• Approved the refresh of Solvency II related Group Business Standards • Reviewed and approved the annual objectives and performance of the
During 2019, the Audit Committee dedicated substantial time to reviewing the Aviva Group financial statements at both half and full year. In both cases, the financial statements were supported by detailed reports with judgements applied in preparation of the financial statements, including Life and GI technical provisions and reserves. The Committee also spent time considering the merits of more frequent financial reporting.
The Committee also focused on the Company’s financial reporting, our system of internal controls over financial reporting, and the performance of the internal and external auditors. The potential impact of new International Financial Reporting Standards (IFRSs), particularly the new insurance accounting standard (IFRS 17) on the Company’s financial operations and financial reporting remained under close review by the Committee and the Committee also commenced a project for the tender of the external audit.
George Culmer 25/09/2019 <1 1 Chair 2 Glyn Barker retired from the Committee on 31 December 2019.
Committee member requirements The Committee annually reviews how its members meet the experience and expertise criteria set out in the 2018 UK Corporate Governance Code (the Code) and the FCA Disclosure Guidance and Transparency Rules (DTRs). Following the review undertaken for 2019, a recommendation was made to the Board that I as Committee Chair, – Belén Romana García and George Culmer, fulfilled the Code requirements for recent and relevant financial experience and the DTR requirements for competence in accounting and auditing and Patricia Cross confirmed that she also met the Code requirement for recent and relevant financial experience. The Committee as a whole has competence relevant to both the insurance and financial services industry.
Committee purpose The primary purpose of the Committee is to make sure we follow a robust process to ensure our half and full year financial statements are suitable for publication. The Committee supports the Board in carrying out its responsibilities in relation to accounting policies, and internal controls and the financial reporting framework. The Committee monitors the adequacy and effectiveness of our system of control over financial reporting and the effectiveness, performance, objectivity and independence of our internal and external auditors. The Committee also monitors our whistleblowing arrangements. The Audit Committee responsibilities are set out in its Terms of Reference.
Internal controls The Committee continued to challenge and drive the ongoing implementation of the Operational Risk and Control Management framework (ORCM) to ensure ORCM is embedded across the Group and to support a risk aware culture. From 1 January 2020 the Committee’s Terms of Reference were updated to clarify that the Committee will oversee internal controls over financial reporting. The Risk Committee Terms of Reference were updated at the same time to clarify that the other internal controls are overseen by the Risk Committee. The Committee reviewed the internal controls over financial management to gain assurance that these remained in tolerance with no control weaknesses which could have a material impact on the full year 2019 financial results.
IFRS 16 and IFRS 17 Prepared for the implementation of new IFRSs, but most significantly IFRS 16 (the new leasing standard adopted on 1 January 2019) and IFRS 17, the new insurance accounting standard issued by the International Accounting Standards Board (IASB) due to take effect on 1 January 2022. In particular, the Committee reviewed the transition approach to be taken by the Group on the adoption of IFRS 16. Implementation of the standard has resulted in an additional c.£0.5 billion of assets and liabilities relating to the Group’s owner-occupied property portfolio being recognised on the statement of financial position for the first time. In respect of IFRS17, the Committee considered the impact of the proposed requirement to calculate a ‘Contractual Service Margin’ (CSM), whereby the profits earned from a policy will be spread over its full life, and a new CSM liability to be held on the balance sheet representing ‘unearned profits’. While the impact of adopting IFRS 17 has yet to be fully assessed, particularly as the standard has not yet been finalised, it is expected that IFRS 17 will have a significant impact on the measurement and disclosure of insurance contracts. The Committee continues to regularly assess the impact on financial reporting, the operation of new internal financial tools to be used for financial forecasting and planning purposes, and the cost of implementing the new IFRS 17 standard.
Reviewed and challenged the principles underpinning the Statement for 2019 and concluded that the Company and its subsidiaries will be able to continue in operation and meet their liabilities as they become due. The Committee continues to consider it appropriate that the Statement covers a three-year period.
Financial transformation The Committee reviewed and challenged management’s plans for the simplification of the Group’s internal finance functions. The primary objective of this activity is to simplify and consolidate finance systems and operations to a unified model and underlying IT systems, driving simplicity and lower cost.
Performance measures At the Capital Markets Day on 20 November 2019 new financial metrics were announced which align with our strategic priorities. The Committee has reviewed those economic value metrics based on SII which will be used to manage the business and measure future performance.
An annual review of the Auditor was undertaken through completion of a questionnaire by the Committee, subsidiary company audit committees, senior management, and members of the Group’s finance team. The review focused on the effectiveness of the audit team, expertise and resources and interaction with audit committees. Feedback on interaction with the Auditor from audit committees across the Group was positive. Where opportunities for improvement were identified, the finance function engaged with the Auditor to include that feedback into the planning for future audit activity. The Committee concluded that the Auditor continued to perform effectively and is recommended to shareholders for reappointment at the 2020 AGM.
The Company has complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the year ended 31 December 2019.
The Company has an External Auditor Business Standard (Standard) in place which is aimed at safeguarding and supporting the independence and objectivity of the Auditor. The Standard is compliant with all UK and International Federation of Accountants rules and takes into account the FRC’s Revised Ethical Standard 2016 and the EU Audit Directive (2014/56/EU).
In line with the Standard, the Committee satisfied itself that for all non-audit engagements, robust controls were in place through a quarterly review process for audit related and non-audit services provided, to ensure that PwC’s objectivity and independence was safeguarded, and concluded that it was in the interests of the Company to purchase these services from PwC due to their specific expertise. Further details are provided in note 13 of the financial statements.
The Committee also receives quarterly control reports from the Internal Audit function and reviews and challenges management on the actions being taken to improve the quality of the overall control environment and the risk control culture across the Group. The quarterly reports include an assessment of control environment metrics including: any risks that are reported to be outside of tolerance; the plans to return these to tolerance; the status of internal audit opinions that are rated as unsatisfactory or where major improvement is needed; key issues identified and emerging trends and themes for the Committee to focus on in the future.
The Committee reviews and approves the Internal Audit Plan and budget and satisfied itself that the Internal Audit function had the appropriate resources to discharge its remit. The Committee also conducts an annual review of the Internal Audit Function to assess its effectiveness and to satisfy itself that the quality, experience and expertise of the Internal Audit function is appropriate for the business. This is carried out by reviewing reports issued by Internal Audit and the output of an annual stakeholder effectiveness survey. This formal process is supplemented by regular private discussions with executive management, the Internal Auditor, and the Auditor. In 2019, the Internal Audit function also undertook an EQA review, and the Committee assessed the outcome of this review. The EQA results highlighted the strength of the Internal Audit function, and action plans were developed to address areas of improvement identified, with progress against that plan reported to the Committee. The Committee concluded that for 2019 the function performed well and remained effective.
For the financial year under review, the Company met the relevant provisions of the Code relating to internal controls, and the FRC’s 2014 ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’.
Whistleblowing The Committee Chair is the whistleblowers’ champion for the Group and has responsibility to oversee the integrity, independence and effectiveness of the Group’s policies in relation to whistleblowing. The Committee as a whole is responsible for establishing and overseeing the effectiveness of controls put in place in accordance with regulatory requirements in respect of whistleblowing. The Audit Committee and Board receives updates from the Committee Chair as the whistleblowers’ champion. Aviva’s whistleblowing programme ‘Speak Up’ is available to employees across the Group. The Committee receives reports on the number of cases reported to the Speak Up service, the proportion of reports that are designated as instances of whistleblowing, the number of substantiated cases and summaries of the action taken. The Committee continues to look for opportunities to further enhance the Speak Up service.
Committee effectiveness review The Committee undertakes a rigorous review of its effectiveness annually. More information can be found in the ‘Our Board of Directors’ and Corporate Governance report’.
2020 priorities In 2020, in addition to carrying out its principal function, the Committee will continue to monitor the implementation of the new IFRS 17 standard, ahead of its scheduled introduction from 1 January 2022. The Committee also intends to complete the external audit tender process while also considering changes in the external audit environment following the Brydon, Kingman and Competition and Market Authority reviews of the audit market. The Committee will consider the changes in segmental reporting following the announcements made at the Capital Markets Day on the revised structure of the Aviva Group and will continue to support the development of the ORCM framework in relation to internal controls over financial reporting.
• Reviewed and challenged the going concern assumptions for 2019 and the principles underpinning the Longer-Term Viability Statement
• Assessed that the Annual report was considered fair, balanced and understandable
• Refreshed the External Auditor Business Standard • Held private meetings with the Auditor without management present to provide an appropriate forum for issues to be raised • Reviewed reports from the Auditor regarding: the 2019 Audit Plan and progress against plan and reports on the audit of the 2019 half and full year results including key assumptions used and outcomes of the audit
Business Standard • Reviewed and approved our Internal Audit Plan • Assessed the independence of the CAO • Assessed the effectiveness of the Internal Audit function • Held private meetings with the CAO without management present • Reviewed the objectives of the CAO
Internal controls, including financial reporting control framework and financial reporting developments • Received quarterly updates on the effectiveness of our ORCM FRCF
The Committee reviewed the scope and outcomes from a governance review of the UK businesses and monitored implementation of the recommendation from the review of the governance framework across the Group.
With effect from 1 January 2020 the Committee’s remit was refocused to provide greater clarity on the role of the Committee in overseeing customer and conduct topics. As a result, the Committee changed its name to the Customer, Conduct and Reputation Committee (CCRC). This report sets out the Committee purpose and activities during 2019 prior to becoming the CCRC.
Bonus Plan. Further details on these enhancements are provided in the Directors’ Remuneration report.
The identification and fair treatment of vulnerable customers was also an area of focus for the Committee. The Committee conducted ‘deep dives’ into customer complaints and carried out an assessment of the UKI Complaint Risk controls to understand the key root causes of complaints. The Committee also increased the focus on standardised monitoring of customer complaints across all international markets.
The Committee recognised that data incidents remained a significant threat to the Company’s business and reputation and therefore emphasised the importance of an effective Data Strategy, and focus remains on further developing this Strategy and improving the quality and robustness of the Company’s data privacy processes and framework.
Conduct and compliance The Committee continued to pay close attention to Aviva’s conduct risk agenda, conduct risk profile, compliance obligations and the wider regulatory landscape. The Committee reviewed the Group’s regulatory risk profile and conduct risk data analytics capability. The Committee considered and approved updates to the Conduct Risk Policy and its application across the Group.
In addition to UK conduct risks, the Committee also reviewed conduct and compliance risks across our markets and received a deep dive on conduct risk in our Turkish and French businesses.
Governance The Committee focused on changes in the internal governance of the Group, particularly governance within our subsidiary businesses. The Committee continued to receive updates and approved changes to the subsidiary governance principles and subsidiary succession management framework to provide a consistent governance framework across the Group. The governance around managing multi-disciplined projects was also strengthened to provide a consistent approach to major change projects.
The Committee reviewed Aviva’s reporting on modern slavery and received updates on the Aviva Foundation, which had been established to distribute the proceeds of the Company’s share forfeiture programme. The Foundation has committed over £3.7 million to projects that support our communities and vulnerable customers. This included funding a pilot to provide a counselling package to vulnerable home insurance customers’ experiencing trauma following a serious event such as flooding; and funding a national programme to help people over 50 increase their employability skills and to promote, among businesses, the benefits of being an age friendly employer. The Foundation also supported the World Benchmarking Alliance which aims to challenge businesses to do more to achieve the UN Sustainable Development Goals.
Aviva is committed to behaving as a responsible corporate citizen and the Committee sets the guidance, direction and policies for the Group’s corporate responsibility agenda to identify the most important sustainability issues for customers, the business and our wider stakeholders. Further information on our integrated responsibility and sustainable business approach can be found on the Company’s website at www.aviva.com/social-purpose
Culture, diversity and inclusion The Committee reviewed the outcomes of the employee Voice of Aviva engagement survey, which provided insights into employee concerns and the culture of the Group. The Committee also received updates on Global Inclusion and the evolution of the working culture to actively embrace all individuals and build an agile and diverse workforce. The Committee recognised that shifting demographics were making it ever more important to understand and reflect the diversity of the markets Aviva operated in. During 2019, the Committee prioritised two dimensions of diversity, gender and ethnicity, and progress is being made in both areas, evidenced by the success of both internal interventions and external recognition.
The Committee will also focus on overseeing Aviva’s reputation, our conduct risk profile and corporate responsibility agenda.
Committee activities during 2019 Customer and risk • Focused on the customer agenda and received regular updates and monitored progress on customer metrics relating to customer complaints and the conduct agenda, sales, retention and claims experience
• Discussed the outcomes of the 2019 subsidiary board effectiveness reviews
• Reviewed the outcomes of the governance review and monitored implementation of the recommendations to the governance framework
Regulatory and financial crime • Regularly reviewed updates from the Group Compliance Oversight
Director • Reviewed potential financial crime risks and any actions required in response • Monitored the implementation of the data governance and data privacy framework • Monitored the Group’s relationship and interaction with regulatory bodies and actions taken in respect of regulatory developments • Reviewed and challenged management’s explanations and actions in response to issues/events www.aviva.com/social-purpose
The Directors’ report required under the Companies Act 2006 comprises this Directors’ and Corporate Governance report, the Directors’ Remuneration report and the following disclosures in the Strategic report: • Corporate responsibility – Disclosure of our greenhouse gas emissions • Our people – Inclusive diversity – details of our employment policies • Our people – Engaging with our people – details of employee engagement • Our business relationships – suppliers, customers and others • Our strategy – Delivering on a clear plan of action • Important events since the financial year end • Future developments
Details of significant post balance sheet events that have occurred after 31 December 2019 are disclosed in note 66.
Related party transactions Related party transactions are disclosed in note 63 which is incorporated into this report by reference.
Dividend policy For the full year dividend for 2019 the Board of Directors has proposed a 3% increase to 30.9 pence per share. Aviva has adopted a progressive dividend policy. This means that, under ordinary circumstances, the Board of Directors would aim to at least maintain the current annual ordinary dividend per share, while seeking to grow the dividend per share over time based on the Board of Directors’ periodic assessment of the Group’s financial performance and future outlook. Moderating the rate of dividend per share growth will enhance our flexibility to repay debt and invest in business improvement.
Under UK company law, we may only pay dividends if the Company has ‘distributable profits’ available. ‘Distributable profits’ are accumulated realised profits/(losses) not previously distributed or capitalised, less accumulated unrealised losses not previously written off based on IFRS. Even if distributable profits are available, we pay dividends only if the amount of our net assets is not less than the aggregate of our called-up share capital and non distributable reserves and the payment of the dividend does not reduce the amount of our net assets to less than that aggregate.
The Company pays cash dividends in pounds sterling and euros, although the articles of association permit payment of dividends on ordinary shares in any currency and in forms other than cash, such as ordinary shares.
Details of the Company’s share capital and shares under option at 31 December 2019 and shares issued during the year are given in notes 33 to 36. The calculation of earnings per share is included in note 15.
Restrictions on transfer of securities With the exception of restrictions under the Company’s employee share incentive plans, while the shares are subject to the plan rules, there are no restrictions on the voting rights attaching to the Company’s ordinary shares or the transfer of securities in the Company.
Authority to purchase own shares At the Company’s 2019 AGM, shareholders renewed the Company’s authorities to make market purchases of up to 391 million ordinary shares, up to 100 million 8¾% preference shares and up to 100 million 8⅜% preference shares. The authority was not used and no shares were purchased during 2019. At the 2020 AGM, shareholders will be asked to renew the authorities to buy Aviva shares for another year and the resolution will once again propose a maximum aggregate number of ordinary shares which the Company can purchase of less than 10% of the issued ordinary share capital. Details are contained in the Notice of AGM available at www.aviva.com/agm. The Company held no treasury shares during the year or up to the date of this report.
The Company has also executed deeds of indemnity for the benefit of each director of the Company, and each person who was a director of the Company during the year, in respect of liabilities that may attach to them in their capacity as directors of the Company or of associated companies. The Articles allow such indemnities to be granted. These indemnities are qualifying third-party indemnity provisions as defined by section 234 of the Companies Act 2006. These indemnities are currently in force. Details of directors’ remuneration, service contracts, employment contracts and interests in the shares of the Company are set out in the Directors’ Remuneration report.
The Company has also granted indemnities by way of a deed poll to the directors of the Group’s subsidiary companies, including former directors who retired during the year and directors appointed during the year, which is a ‘qualifying third party indemnity’ for the purposes of the applicable sections 309A to 309C of the Companies Act 1985. The deed poll indemnity was in force throughout the year and remains in force.
Financial instruments Group companies use financial instruments to manage certain types of risks, including those relating to credit, foreign currency exchange, cash flow, liquidity, interest rates, and equity and property prices. Details of the objectives and management of these instruments are contained in the ‘Risk and risk management’ section and in note 60 on risk management.
Against this background, the directors have assessed the prospects of the Group in accordance with Provision 31 of the 2018 UK Corporate Governance Code, with reference to the Group’s current position and prospects, its strategy, risk appetite, and the potential impact of the principal risks and how these are managed (as detailed in the ‘Risk and risk management’ section of the Strategic report as well as note 60 of the IFRS financial statements).
The Group’s stress and scenario testing considers the Group’s capacity to respond to a series of relevant financial, insurance (e.g., catastrophe) or operational shocks should future circumstances or events differ from the current assumptions in the business plan. The Group addresses the impacts of contingent management actions designed to maintain or restore key capital, liquidity and solvency metrics to within the Group’s approved risk appetites over the planning period.
Fair, balanced and understandable To support the directors’ statement below that the Annual report and accounts, taken as a whole, is fair, balanced and understandable, the Board considered the process followed to draft the Annual report and accounts: • Each section of the Annual report and accounts is prepared by a member of management with appropriate knowledge, seniority and experience. Each preparer receives guidance on the requirement for content included in the Annual report and accounts to be fair, balanced and understandable
Directors’ responsibilities The directors are responsible for preparing the Annual report and accounts, the Directors’ Remuneration report and the financial statements in accordance with applicable law and regulations.
Each of the current directors whose names and functions are detailed in the ‘Our Board of Directors’ section and in the Directors’ and Corporate Governance report confirm that, to the best of their knowledge: the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the Strategic report and the Directors’ and Corporate Governance report in this Annual report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
Listing Rules requirements For the purposes of Listing Rule (LR) 9.8.4C R, the information required to be disclosed by LR 9.8.4 R can be found in the following locations: Section in LR 9.8.4C R Topic
On behalf of the Remuneration Committee (the Committee), I am pleased to present the Directors’ Remuneration report (DRR), for the year ended 31 December 2019.
Company performance As described in our strategic report, 2019 has been a year of significant change to our business and in our leadership team, and we began to build operating momentum. We made progress relative to our financial targets including a strong start in pursuit of the five key financial objectives that we are targeting for 2022. Our Solvency II return on equity1 (SII RoE) was 14.3%, Group adjusted operating profit2 increased 6% to £3.2 billion and our capital position remains strong. We delivered higher sales and customer flows across the Group and costs have begun to decline. Despite this progress, we recognise that our share price continues to underperform versus our peers and the broader market.
In assessing the individual performance of the EDs, the Committee noted the EDs contributions in establishing the strategic direction for the Group, leading the simplification agenda, building an experienced Aviva Leadership Team (ALT) and turning our new strategy into clear financial targets as announced at the Capital Markets Day in November 2019.
2017-19 LTIP As a result of our three-year performance over the 2017-19 period, the 2017 LTIP vested at 50% of maximum. This reflects strong performance against the adjusted IFRS return on equity1 (IFRS RoE) performance condition. The relative Total Shareholder Return (TSR) condition lapsed. No discretion regarding the vesting outcome of the 2017 LTIP was exercised by the Committee.
Appointment of new Chief Financial Officer (CFO) As announced on 26 September 2019, the Board appointed Jason as our new Group CFO. The Committee gave careful consideration to the remuneration package for Jason, taking into account the terms of our Remuneration Policy (the Policy), Jason’s current remuneration arrangements, and shareholder expectations.
Jason’s remuneration consists of: • A salary of £675,000 per annum • Our standard benefits package for EDs, including private family medical insurance, life insurance, and reasonable travel benefits • Pension contribution of 14% of salary which is aligned with the rate available to the majority of our UK workforce • A maximum annual bonus opportunity of 150% of salary, with onethird of any bonus earned paid in cash after the year end, and twothirds deferred into shares which will vest in equal annual tranches over three years
• Jason is also subject to a shareholding requirement of 200% of salary, which will continue for two years post-cessation
Both were eligible to receive an annual bonus in respect of 2019, prorated to reflect the period prior to being placed on garden leave. The annual bonus was calculated in the same manner as for the continuing EDs.
Revised Corporate Governance Code The UK Corporate Governance Code (the Code) came into effect from 1 January 2019. As outlined in last year’s report, several areas were already aligned with the new provisions with further enhancements made over the course of 2019. These included: • Implementation of post-cessation shareholding guidelines: EDs are now required to hold shares for a further two years following their departure from the Group. For 2020, a transitional arrangement applies where any leaver will be required to hold the lower of their current holding at cessation or 50% of the current (within employment) guideline. From 1 January 2021, the postcessation guideline will be the same level as the current (within employment) guideline. Reflecting the Committee’s view of its importance, this has also been extended to the ALT.
Shareholder consultation On behalf of the Committee, I sought the views of a number of our shareholders and key proxy voting agencies towards the end of 2019. Following the financial and strategic plans which were presented at the Capital Markets Day in November, we wanted to consult with shareholders to get their view on several changes to the incentive measures to ensure continued alignment with this new direction. I am pleased to say that the overall feedback we received was positive, and I would like to thank shareholders for their time and input.
Annual Bonus The current split of financial (70%) and non-financial (30%) metrics will be retained. However, we have refined the metrics to place greater emphasis on key areas of focus (capital generation, delivering great customer outcomes and a strong risk and control environment) in line with the Group’s strategy.
Separately, the Risk and Controls modifier, covering a range of quantitative and qualitative measures, and sitting outside the scorecard, will remain. The other two non-financial modifiers will be Employee Engagement and Customer Trust.
2020 LTIP The Group’s three financial priorities are to improve our Return on Capital1, deliver a progressive dividend and further deleverage our debt profile. Achieving these will require management to focus on Cash Remittances1 to the Group, OCG1, Group adjusted Operating Profit3 and delivering improved customer outcomes.
Awards will be 300% for the Group CEO and 225% for the CFO of basic salary.
Committee changes during the year Claudia Arney and Glyn Barker stepped down from the Board and the Committee at the end of 2019 and I would like to thank them for their hard work and commitment during their tenures. George Culmer joined the Committee in January 2020 and brings significant financial services and accounting experience gained from a long and successful career in banking and insurance. The Committee works hard to ensure alignment with shareholder interests, and over the last year has dealt with a number of time critical matters, including changes to the Board. I want to thank all Committee members, past and present, for their dedication and active participation on this Committee.
2020 focus areas The Committee intends to perform a detailed review of the remuneration framework for EDs and senior leadership team ahead of the next vote on the Policy at the 2021 Annual General Meeting (AGM). We look forward to engaging with shareholders during the course of developing the Policy to get their views and inputs on remuneration framework at Aviva.
I look forward to meeting with shareholders at the 2020 AGM.
Patricia Cross Chair of the Remuneration Committee 4 March 2020 www.aviva.com/gpgr
Committee membership The members of the Committee are shown below. There were no changes during 2019.
The Committee met ten times during 2019, of which four were scheduled meetings and six were additional meetings outside of the normal timetable. Details of attendance at Committee meetings are shown on page 63.
The Group Chairman attended all meetings of the Committee. The Group General Counsel and Company Secretary acted as secretary to the Committee. The Chair of the Committee reported to subsequent meetings of the Board on the Committee’s work and the Board received a copy of the agenda and the minutes of each Committee meeting.
During the year, the Committee received advice on executive remuneration matters from Deloitte LLP. Deloitte LLP were approved as advisers to the Committee in 2012 following a competitive tender process. The Committee regularly reviews and satisfies itself that the advice received from Deloitte LLP is independent and objective. The Committee notes they are a member of the Remuneration Consultants Group and adhere to its Code of Conduct. During the year, Deloitte LLP also provided advice to the Group on taxation, financial due diligence, risk, compliance and other consulting advisory services (including technology transformation and cyber). Tapestry Compliance Limited, appointed by the Company, provided advice on share incentive plan related matters, including on senior executive remuneration matters and views on shareholder perspectives.
During the year, Deloitte LLP were paid fees totalling £192,300 and Tapestry Compliance Limited were paid fees totalling £62,730 for their advice to the Committee on these matters. Fees were charged on a time plus expenses basis.
Committee performance and effectiveness During 2019, the Committee undertook an evaluation of its effectiveness, alongside the exercise undertaken by the Board. Further details on how this has been carried out and the actions arising are contained in the Directors and Corporate Governance report.
Committee activities during 2019 Governance, regulatory issues and reporting policy • Reviewed and approved the Committee’s Terms of Reference • Reviewed updates from external advisers on the regulatory environment and on benchmarking the company’s remuneration policies and practices against industry best practice
• Approved our Employment Shareholding Policy, setting out our post-employment holding requirements in line with the 2018 Code
• Approved the list of in scope staff in respect of the different regulatory regimes to which the Company is subject
• Reviewed engagement with investors on 2019 ABP targets, including customer and trust metrics as strategic progress measures
Scheme 2019 (SAYE) and the Aviva Ireland Save as You Earn Scheme, the Ireland Profit Share Scheme, and the invitation terms for eligible employees
• Reviewed and approved the Aviva Investors Long Term Participation Plan and the Deferred Plan rules
The Committee believes that our remuneration framework is clear and transparent and aligned with our culture. We operate a simple incentive framework of an annual bonus and LTIP. Award levels are capped with pay-out linked to performance against a limited number of measures that are aligned to our strategy. Stretching but fair targets are set. This ensures that potential reward outcomes are clear and aligned with the performance achieved, with the Committee having the discretion to adjust outcomes where this is not considered to be the case.
Pay levels are set taking into account internal and external reference points to ensure that pay is competitive while remaining equitable within the Company. A number of additional factors are in place to mitigate reputational and other risks, including malus and clawback provisions, unfettered discretion, a two-year holding period on LTIP awards, and both within and post-employment shareholding guidelines.
UK HMRC tax-advantaged SAYE plan, and for Andy only the UK HMRC tax-advantaged share incentive plan, the All Employee Share Ownership Plan (AESOP), in which they participate on the same basis as all eligible employees. All numbers disclosed include the tax charged on the benefits, where applicable. As disclosed on appointment and in last year’s report Maurice was provided with assistance with relocation from Canada to the UK, of an amount up to £250,000 exclusive of tax, payable against receipted costs incurred within a period of 24 months from date of appointment. During 2019, £139,000 of this allowance was used reflecting temporary accommodation, ongoing residential accommodation and flights between Canada and the UK. This is shown as £246,000 in the table above, grossed-up for tax. Other benefits include: Private medical insurance (£17,000), taxable travel and subsistence (£59,000,of which £50,000 is the grossed-up tax value of flights), accompanied travel (£32,000), car benefits (£40,000) and advisor fees (£40,000) in relation to tax assistance. Benefits for Tom and Andy include a small amount relating to the correction of an under deduction of NIC in relation to pension cash allowance.