Movements in the year 757 (97) 660 (203) (150) (353) Balance at 1 January 7,496 1,571 9,067 7,699 1,721 9,420 Balance at 31 December 8,253 1,474 9,727 7,496 1,571 9,067 1 On 23 June 2020, notification was given that the Group would redeem 5.9021% £500 million direct capital instrument. At that date, the instruments were reclassified as a financial liability of £499 million, representing the fair value at that date. On 27 July 2020 the instruments were redeemed in full at a cost of £500 million. The difference of £1 million between the carrying amount of £500 million and fair value of £499 million was charged to retained earnings. On 17 October 2019, notification was given that the Group would redeem the 6.875% £210 million tier 1 notes. At that date, the instruments were reclassified as a financial liability of £210 million, representing the fair value at that date. On 21 November 2019 the instruments were redeemed in full at a cost of £210 million. The difference of £21 million between the carrying amount of £231 million and fair value of £210 million was charged to retained earnings.
(f) Undrawn borrowings The Group has the following undrawn committed central borrowing facilities available to them, which are used to support the commercial paper programme: £m
Expiring within one year — — Expiring beyond one year 1,700 1,650
Expected to be settled within one year 14,361 13,856 Expected to be settled in more than one year 6,492 4,309
Deferred income 108 135 Reinsurers’ share of deferred acquisition costs 28 23 Accruals 1,346 1,197 Other liabilities 1,625 1,799
Business Interruption On 15 January 2021, the Supreme Court handed down its judgement on the appeal for the FCA Test Case on business interruption cover. Aviva was not a party to the Test Case, but fully supported the process. The Supreme Court judgement has been carefully considered and the impact on claims related to business interruption policies assessed. In Canada, we are party to a number of litigation proceedings challenging coverage under certain policies; however, we do not believe there is coverage under these policies. In the opinion of management, adequate provisions have been established for such claims based on information available at the reporting date. For further information on our general insurance risk management see note 59(f).
(c) Guarantees on long-term savings products As a normal part of their operating activities, various Group companies have given guarantees and options, including interest rate guarantees, in respect of certain long-term insurance and investment products. Note 45 gives details of these guarantees and options. In providing these guarantees and options, the Group’s capital position is sensitive to fluctuations in financial variables including foreign currency exchange rates, interest rates, property values and equity prices. Interest rate guaranteed returns, such as those available on guaranteed annuity options, are sensitive to interest rates falling below the guaranteed level. Other guarantees, such as maturity value guarantees and guarantees in relation to minimum rates of return, are sensitive to fluctuations in the investment return below the level assumed when the guarantee was made. The directors continue to believe that the existing provisions for such guarantees and options are sufficient.
Strategic report Governance IFRS financial statements Other information 55 – Contingent liabilities and other risk factors continued (d) Regulatory compliance The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates. A number of the Group’s UK subsidiaries are dual regulated (directly authorised by both the PRA (for prudential regulation) and the FCA (for conduct regulation)) while others are solo regulated (regulated solely by the FCA for both prudential and conduct regulation). Between them, the PRA and FCA have broad powers including the authority to grant, vary the terms of, or cancel a regulated firm’s authorisation; to investigate marketing and sales practices; and to require the maintenance of adequate financial resources. The Group’s regulators outside the UK typically have similar powers, but in some cases they also operate a system of ‘prior product approval’.
(e) Structured settlements The Group has purchased annuities from licensed Canadian life insurers to provide for fixed and recurring payments to claimants. As a result of these arrangements, the Group is exposed to credit risk to the extent that any of the life insurers fail to fulfil their obligations. The Group’s maximum exposure to credit risk for these types of arrangements is approximately £742 million as at 31 December 2020 (2019: £707 million). Credit risk is managed by acquiring annuities from a diverse portfolio of life insurers with proven financial stability. This risk is reduced to the extent of coverage provided by Assuris, the Canadian life insurance industry compensation plan. As at 31 December 2020, no information has come to the Group’s attention that would suggest any weakness or failure in life insurers from which it has purchased annuities and consequently no provision for credit risk is required.
(f) Other In the course of conducting insurance and investment business, various Group companies receive liability claims, and become involved in actual or threatened related litigation. In the opinion of the directors, adequate provisions have been established for such claims and no material loss will arise in this respect.
In addition, in line with standard business practice, various Group companies have given guarantees, indemnities and warranties in connection with disposals of subsidiaries and associates to parties outside the Aviva Group. In the opinion of the directors, no material unprovisioned loss will arise in respect of these guarantees, indemnities and warranties.
Notes 19 and 20 set out the commitments the Group has to its joint ventures and associates.
Strategic report Governance IFRS financial statements Other information 57 – Group capital management continued (a) Group capital continued In arriving at the shareholder position, the following adjustments are typically made to the regulatory Solvency II own funds: • The contribution to the Group’s SCR and own funds of the most material fully ring fenced with-profits funds of £2,492 million at 31 December 2020 (2019: £2,501 million) and staff pension schemes in surplus of £1,179 million at 31 December 2020 (2019: £1,181 million) are excluded. These exclusions have no impact on Solvency II surplus as these funds are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised; • A notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP resets. This presentation avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The 31 December 2020 Solvency II position includes a notional reset (£564 million increase in surplus) while the 31 December 2019 Solvency II position included a formal, rather than notional, reset of the TMTP in line with the regulatory requirement to reset the TMTP at least every two years and hence no adjustment was required; and
Estimated Solvency II regulatory own funds as at 31 December 29,262 28,347 Adjustments for: Fully ring-fenced with-profits funds (2,492) (2,501) Staff pension schemes in surplus (1,179) (1,181) Notional reset of TMTP 564 — PPE (385) — Pro forma adjustments1 — (117) Estimated Solvency II shareholder own funds at 31 December 25,770 24,548 1 The 31 December 2019 Solvency II position includes pro forma adjustments for the disposal of FPI (£111 million reduction in own funds), the disposal of Hong Kong (£6 million reduction in own funds) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£nil impact on own funds). The 31 December 2020 Solvency II position does not include proforma adjustments. Note that from 31 December 2020 no pro forma adjustments will be made for planned disposals.
The Group 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. See note 59 for more information about the Group’s risk management approach; • Retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised committed credit lines; • Manage an appropriate level of leverage to ensure an efficient capital structure; • Allocate capital rigorously to support value adding growth and return excess capital to shareholders where appropriate; and • Operate a sustainable dividend policy with a level of dividend that is resilient in times of stress and is covered by the capital and cash generated from the core markets of UK, Ireland and Canada.
Strategic report Governance IFRS financial statements Other information 58 – Statement of cash flows This note gives further detail behind the figures in the statement of cash flows. The comparative amounts in (a), (b) and (c) have been re-presented from those previously published to reclassify certain operations in Asia as discontinued operations as described in note 1.
(a) The reconciliation of profit before tax to the net cash inflow from operating activities is: Continuing operations 2020 £m
(3,863) (10,321) Fair value (gains)/losses on: (6,188) (17,956) Depreciation of property and equipment 103 93 Equity compensation plans, equity settled expense 37 62 Impairment and expensing of: Goodwill on subsidiaries 17 2 Financial investments, loans and other assets (5) 14 Acquired value of in-force business and intangibles 23 13 Non-financial assets 46 22
Total cash flow on acquisitions and additions from continuing operations (11) (19)
Strategic report Governance IFRS financial statements Other information 58 – Statement of cash flows continued (c) Cash flows in respect of the disposal of subsidiaries, joint ventures and associates comprised: £m
Continuing operations Cash proceeds from disposal of subsidiaries, joint ventures and associates 14 12 Less: Net cash and cash equivalents divested with subsidiaries (2) —
Cash at bank and in hand 6,495 6,722 Cash equivalents 10,595 13,582
Cash and cash equivalents reconciles to the statement of financial position as follows: £m
Our sustainability and financial strength are underpinned by an effective risk management process which helps us identify major risks to which we may be exposed, establish appropriate controls and take mitigating actions for the benefit of our customers and investors. The Group’s risk strategy is to invest its available capital to optimise the balance between return and risk while maintaining an appropriate level of economic (i.e. risk-based) capital and regulatory capital.
The Group’s overarching risk management and internal control system is actively responding to the challenges of the COVID-19 outbreak and remains intact. We are focused on ensuring that the control environment remains robust in the current operating environment.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued Risk environment continued Risks associated with business conduct and financial crime heightened in the year with COVID-19 becoming a pretext for phishing activity, leading to pension and investment fraud. An increase in switching, churning and exaggerated or fraudulent GI claims is expected, particularly if the economic impact is prolonged. Our controls have been effectively monitoring this situation.
In the current climate, areas of increased conduct risk have been identified across the Group in relation to the financial vulnerability of our customers, product suitability and fair value. In response, our businesses have taken action to support the needs of different customer groups and we continue to work with local regulators. Steps have been taken to support our customers and their local communities, whether that be through extension of covers, additional support to customers and charitable donations.
(a) Risk management framework For the purposes of risk identification and measurement, and aligned to Aviva’s risk policies, risks are usually grouped by risk type: credit, market, liquidity, life insurance (including long-term health), general insurance (including short-term health), asset management and operational risk. Risks falling within these types may affect a number of metrics including those relating to balance sheet strength, liquidity and profit. They may also affect the performance of the products we deliver to our customers and the service to our customers and distributors, which can be categorised as risks to our brand and reputation or as conduct risk.
To promote a consistent and rigorous approach to risk management across all businesses we have a set of risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group’s worldwide operations. The business Chief Executive Officers make an annual declaration supported by an opinion from the business Chief Risk Officers that the system of governance and internal controls was effective and fit for purpose for their business throughout the year.
The types of risks to which the Group is exposed have not changed significantly during the year and remain credit, market, liquidity, life and health insurance, general insurance, asset management and operational risks. These risks are described below.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (b) Credit risk continued Our approach to managing credit risk recognises that there is a risk of adverse financial impact resulting from fluctuations in credit quality of third parties including default, rating transition and credit spread movements. Our credit risks arise principally through exposures to debt security investments, structured asset investments, bank deposits, derivative counterparties, mortgage lending and reinsurance counterparties.
Fixed maturity securities 9.7% 34.0% 21.4% 23.2% 7.3% 4.4% 216,154 (13,317) 202,837 Reinsurance assets — 77.4% 21.0% — — 1.6% 13,356 (18) 13,338 Other investments — 0.1% 0.3% — — 99.6% 51,627 (3,490) 48,137 Loans 9.0% 10.2% 7.9% 0.4% — 72.5% 43,679 — 43,679 Total 324,816 (16,825) 307,991
At the period end, the Group held cash and cash equivalents of £12,576 million (2019: £15,344 million) that met the SPPI criteria, of which all (2019: £15,322 million) is placed with financial institutions with issuer ratings within the range of AAA to BBB. Further information on the extent to which unrated receivables, including those that meet the SPPI criteria, are past due may be found in section (ix) of this note.
We use loan to value, interest and debt service cover, and diversity and quality of the tenant base metrics to internally monitor our exposures to mortgage loans. We use credit quality, based on dynamic market measures, and collateralisation rules to manage our stock lending activities.
(iv) Credit concentration risk The long-term and general insurance businesses are generally not individually exposed to significant concentrations of credit risk due to the regulations applicable in most markets and the Group’s credit policy and limits framework, which limit investments in individual assets and asset classes. Credit concentrations are monitored as part of the regular credit monitoring process and are reported to the Group Asset Liability Committee (ALCO). With the exception of government bonds, the largest aggregated counterparty exposure within shareholder assets is to the Swiss Reinsurance Company Ltd (including subsidiaries), representing approximately 2.1% of the total shareholder assets.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (b) Credit risk continued (ix) Impairment of financial assets In assessing whether financial assets carried at amortised cost or classified as available for sale are impaired, due consideration is given to the factors outlined in accounting policies (T) and (V). The following table provides information regarding the carrying value of financial assets subject to impairment testing that have been impaired and the ageing of those assets that are past due but not impaired. The table excludes assets carried at fair value through profit or loss and held for sale.
Fixed maturity securities 1,573 — — 6 — — 1,579 Reinsurance assets 9,478 — — — — — 9,478 Other investments 1 — — — — — 1 Loans 13,840 — — — — — 13,840 Receivables and other financial assets 9,326 18 — 8 — — 9,352
Fixed maturity securities 1,455 — — 6 — — 1,461 Reinsurance assets 8,361 — — — — — 8,361 Other investments 2 — — — — — 2 Loans 10,260 — — — — — 10,260 Receivables and other financial assets 8,911 51 14 10 9 — 8,995
Where assets have been classed as ‘past due and impaired’, an analysis is made of the risk of default and a decision is made whether to seek to mitigate the risk. There were no material financial assets included in the tables that would have been past due or impaired had the terms not been renegotiated.
(c) Market risk Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, inflation, foreign currency exchange rates, equity and property prices. Market risk arises in business units due to fluctuations in both the value of liabilities and the value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of investment assets owned directly by the shareholders. We actively seek some market risks as part of our investment and product strategy. However, we have limited appetite for interest rate risk as we do not believe it is adequately rewarded.
As at 31 December 2020, no material derivative contracts had been entered into to mitigate the effects of changes in property prices. Exposure to property risk on equity release mortgages from sustained underperformance in the UK House Price Index (HPI) is mitigated by capping loan to value on origination at low levels and regularly monitoring the performance of the mortgage portfolio.
(iii) Interest rate risk Interest rate risk arises primarily from the Group’s investments in long-term debt and fixed income securities and their movement relative to the value placed on the insurance liabilities. A number of policyholder product features have an influence on the Group’s interest rate risk. The major features include guaranteed surrender values, guaranteed annuity options, and minimum surrender and maturity values. Details of material guarantees and options are given in note 45.
The low interest rate environment in a number of markets around the world has resulted in our current investment yields being lower than the overall current portfolio yield, primarily in our investments in fixed income securities. We anticipate that interest rates may remain below historical averages for an extended period of time and that financial markets may continue to have periods of high volatility. Investing activity will continue to decrease the portfolio yield as long as market yields remain below the current portfolio level. We expect the decline in portfolio yield will result in lower net investment income in future periods.
Other product lines of the Group, such as protection, are not significantly sensitive to interest rate or market movements. For unit-linked business, the shareholder margins emerging are typically a mixture of annual management fees and risk/expense charges. Risk and expense margins will be largely unaffected by low interest rates. Annual management fees may increase in the short term as the move towards low interest rates increases the value of unit funds. However, in the medium term, unit funds will grow at a lower rate which will reduce fund charges. For the UK annuities business, interest rate exposure is mitigated by closely matching the duration of liabilities with assets of the same duration.
The Group operates internationally and as a result is exposed to foreign currency exchange risk arising from fluctuations in exchange rates of various currencies. Approximately 50% (2019: 58%) of the Group’s premium income arises in currencies other than sterling and the Group’s net assets are denominated in a variety of currencies, of which the largest are sterling, euro and Canadian dollars. The Group does not hedge foreign currency revenues as these are substantially retained locally to support the growth of the Group’s business and meet local regulatory and market requirements. However, the Group does use foreign currency forward contracts to hedge planned dividends from its subsidiaries.
Net assets at 31 December 2020 16,438 2,374 635 1,113 20,560 Net assets at 31 December 2019 16,036 819 397 1,433 18,685
Net assets at 31 December 2020 (237) 237 (64) 64 Net assets at 31 December 2019 (82) 82 (40) 40
(d) Liquidity risk Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid assets such as commercial mortgages and infrastructure loans. The Group seeks to ensure that it maintains sufficient financial resources to meet its obligations as they fall due through the application of a Group liquidity risk policy and business standard and through the development of its liquidity risk management plan. At Group and business unit level, there is a liquidity risk appetite which requires that sufficient liquid resources be maintained to cover net outflows in a stress scenario. In addition to the existing liquid resources and expected inflows, the Group maintains significant undrawn committed borrowing facilities (£1,700 million) from a range of leading international banks to further mitigate this risk.
(i) Analysis of maturity of insurance and investment contract liabilities For non-linked insurance business, the following table shows the gross liability at 31 December 2020 and 2019 analysed by remaining duration. The total liability is split by remaining duration in proportion to the cash-flows expected to arise during that period, as permitted under IFRS 4, Insurance Contracts.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (d) Liquidity risk continued (i) Analysis of maturity of insurance and investment contract liabilities continued
Long-term business Insurance contracts – non-linked 116,352 8,433 26,288 43,385 38,246 Investment contracts – non-linked 78,024 4,348 17,555 32,203 23,918 Linked business 178,932 8,187 27,420 58,411 84,914 General insurance and health 17,596 7,413 7,260 2,325 598 Total contract liabilities 390,904 28,381 78,523 136,324 147,676
Long-term business Insurance contracts – non-linked 111,731 8,811 27,184 41,728 34,008 Investment contracts – non-linked 74,641 5,978 19,532 28,313 20,818 Linked business 177,448 16,226 26,002 58,601 76,619 General insurance and health 16,656 7,136 6,665 2,258 597
Fixed maturity securities 202,837 50,488 45,917 106,432 — Equity securities 100,404 — — — 100,404 Other investments 48,137 39,681 126 7,469 861 Loans 43,679 14,049 4,339 25,290 1 Cash and cash equivalents 16,900 16,900 — — — 411,957 121,118 50,382 139,191 101,266
Fixed maturity securities 198,832 42,644 47,983 106,981 1,224 Equity securities 99,570 — — — 99,570 Other investments 45,016 38,817 25 5,365 809 Loans 38,579 9,641 4,643 24,293 2 Cash and cash equivalents 19,524 19,524 — — —
The assumption and management of life and health insurance risks is governed by the Group-wide business standards covering underwriting, pricing, product design and management, in-force management, claims handling, and reinsurance. The individual life and health insurance risks are managed as follows: • Mortality and morbidity risks are mitigated by use of reinsurance. The Group allows businesses to select reinsurers, from those approved by the Group, based on local factors, but retains oversight of the overall exposures and monitors that the aggregation of risk ceded is within credit risk appetite.
Examples of each type of embedded derivative affecting the Group are: • Options: call, put, surrender and maturity options, guaranteed annuity options, options to cease premium payment, options for withdrawals free of market value adjustment, annuity options, and guaranteed insurability options. • Guarantees: embedded floor (guaranteed return), maturity guarantee, guaranteed death benefit, and guaranteed minimum rate of annuity payment; and • Other: indexed interest or principal payments, maturity value, loyalty bonus.
• Travel Insurance: We are potentially exposed to claims due to travel cancellation, disruption and sickness where this is insured by the Group, primarily in the UK. We are only exposed to losses after recoveries have been made from travel providers (e.g. tour operators or airlines) and agents. Travel disruption is not part of our Aviva UK Direct cover and was removed as a policy option on 9 March but is included as standard in the majority of the added value accounts with our banking partners. COVID-19 wording has been clarified to eliminate ambiguity, pricing adjusted to ensure risk is appropriately priced and further reinsurance cover has been purchased. These costs are offset by reduced claims frequency as a result of the current low levels of international travel, and are also partially mitigated through profit commission and future pricing agreements with distribution partners.
• Other: There have also been impacts in other product lines as a result of reduced economic activity, for example there has been a reduction in claims frequency and a change in the severity of claims on motor lines. Private health insurance claims were also lower than expected levels in 2020 as a result of the disruption caused by the COVID-19 pandemic, and in the UK we provided a fair value pledge to policyholders to recognise the ongoing uncertainty around the ability to access treatment.
The Group cedes much of its worldwide catastrophe risk to third-party reinsurers through excess of loss and aggregate excess of loss structures. The Group purchases a Group-wide catastrophe reinsurance programme to protect against catastrophe losses up to a 1 in 250 year return period. The total Group potential retained loss from its most concentrated catastrophe exposure peril (Northern Europe Windstorm) is approximately £150 million on a per occurrence basis and £175 million on an annual aggregate basis. Any losses above these levels are covered by the group-wide catastrophe reinsurance programme to a level in excess of a 1 in 250 year return period. In addition the Group purchases a number of GI business line specific reinsurance programmes with various retention levels to protect both capital and earnings, and has reinsured 100% of its latent exposures to its historic UK employers’ liability and public liability business written prior to 31 December 2000. The Group’s property reinsurance programme and several of its smaller specialty programmes no longer provide coverage for pandemic catastrophes following the 1 January 2021 renewal in line with the rest of the market.
Strategic report Governance IFRS financial statements Other information 59 – Risk management continued (g) Asset management risk Aviva is directly exposed to the risks associated with operating an asset management business through its ownership of Aviva Investors. The underlying risk profile of our asset management risk is derived from investment performance, specialist investment professionals and leadership, product development capabilities, fund liquidity, margin, client retention, regulatory developments, fiduciary and contractual responsibilities. Funds invested in illiquid assets such as commercial property are particularly exposed to liquidity risk. The risk profile is regularly monitored.
A client relationship team is in place to manage client retention risk, while all new asset management products undergo a review and approval process at each stage of the product development process, including approvals from legal, compliance and risk functions. Investment performance against client objectives relative to agreed benchmarks is monitored as part of our investment performance and risk management process, and subject to further independent oversight and challenge by a specialist risk team, reporting directly to the Aviva Investors’ Chief Risk Officer.
COVID-19 has resulted in an increased level of inherent operational risk through new practices including enforced remote working, staff absences for sickness and childcare, market volatility and through our outsourcing arrangements. Additional risks relating to extensive working from home; include cyber, data loss and occupational health. We have adapted and strengthened our processes and controls to ensure operational risks remain at an acceptable level. Since the onset of the pandemic the Group has remained operationally resilient, with key activities such as cash payments and transaction processing being maintained, IT systems remaining operational, and employees including frontline customer facing staff being supported to ensure that that we are there to support our customers when they need us most.
Aviva has not seen a material increase in the volume of cyber incidents/attacks as a result of COVID-19 but has seen external threat actors exploiting the COVID-19 pandemic within such attacks e.g. phishing, texts and phone calls. In response to this Aviva has put in place a programme of communications to ensure Aviva employees are aware of such scams, published safe homeworking guides and run online training for our employees and their families. Support has also been given to our customers, including the launch of an online reporting facility to help combat fraud.
On 26 October 2020 the FCA published the outcome of its investigation into Aviva’s announcement on preference shares made in March 2018. The FCA found that Aviva contravened certain provisions of the Listing Rules and the Disclosure and Transparency Rules by failing to take reasonable care to ensure that information in the announcement was not misleading and did not omit anything likely to affect the import of the information in the announcement. We have accepted the FCA decision and lessons have been learned.
Interest rate and investment return The impact of a change in market interest rates by a 1% increase or decrease. The test allows consistently for similar changes to investment returns and movements in the market value of backing fixed interest securities.
Insurance participating 10 (375) (80) (20) (40) (65) 20 (5) Insurance non-participating (965) 1,215 (735) (115) 100 (215) (155) (1,020) Investment participating (60) 75 — (20) 20 (50) — — Investment non-participating (5) 5 — 5 (10) (5) — — Assets backing life shareholders’ funds (145) 180 (45) (25) 25 — — — Total (1,165) 1,100 (860) (175) 95 (335) (135) (1,025)
Insurance participating 10 (375) (80) (20) (40) (65) 20 (5) Insurance non-participating (965) 1,215 (735) (115) 100 (215) (155) (1,020) Investment participating (60) 75 — (20) 20 (50) — — Investment non-participating (5) 5 — 5 (10) (5) — — Assets backing life shareholders’ funds (195) 220 (50) (25) 25 — — — Total (1,215) 1,140 (865) (175) 95 (335) (135) (1,025)
Insurance participating — 5 (10) (65) 60 (50) 10 (5) Insurance non-participating (985) 1,265 (800) (120) 105 (240) (145) (955) Investment participating (85) 55 (5) (5) 5 (25) — — Investment non-participating — 5 — 5 (5) (5) — — Assets backing life shareholders’ funds (190) 205 (30) (30) 30 — — —
Gross of reinsurance (380) 445 (110) 100 (100) (145) (325) Net of reinsurance (435) 490 (110) 100 (100) (145) (305)
Fund management and non-insurance business sensitivities as at 31 December 2020 31 December 2020 Impact on profit before tax £m Interest rates
A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, a change in the underlying assumptions may not have any impact on the liabilities, whereas assets held at market value in the statement of financial position will be affected. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and equity where explicit assumptions are made regarding interest (discount) rates or future inflation.
Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that only represent the Group’s view of possible near-term market changes that cannot be predicted with any certainty, and the assumption that all interest rates move in an identical fashion.
60 – Derivative financial instruments and hedging This note gives details of the various financial instruments the Group uses to mitigate risk.
Net investment hedges To reduce its exposure to foreign currency risk, the Group has designated a portion of its euro denominated debt as hedge instruments to hedge a net investment in its European subsidiaries. The carrying value of the debt at 31 December 2020 was £2,460 million (2019: £2,331 million) and its fair value at that date was £2,732 million (2019: £2,604 million).
Foreign exchange losses of £129 million (2019: gains of £138 million) on translation of the debt to sterling at the statement of financial position date in respect of the effective portion have been recognised in the hedging instruments reserve in shareholders’ equity.
On 23 February 2021 the Group announced it had approved the sale of Aviva France to Aéma Groupe. The net investment hedge was deemed to be prospectively ineffective and was discontinued at this date. The hedge has been fully effective during the year.
(b) Derivatives not qualifying for hedge accounting Certain derivatives either do not qualify for hedge accounting under IAS 39 or the option to designate them as hedge instruments has not been taken. These are referred to below as non-hedge derivatives.
Strategic report Governance IFRS financial statements Other information 60 – Derivative financial instruments and hedging continued (b) Derivatives not qualifying for hedge accounting continued (i) The Group’s non-hedge derivatives are as follows: Contract/ notional amount £m
Forwards 51,342 1,359 (394) 54,269 1,094 (438) Interest rate and currency swaps 9,338 488 (464) 6,937 141 (316)
Within 1 year 1,261 1,098 Between 1 and 2 years 639 593 Between 2 and 3 years 550 448 Between 3 and 4 years 493 434 Between 4 and 5 years 386 358 After 5 years 4,495 3,996
61 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar arrangements (a) Offsetting arrangements Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously.
Derivative transactions requiring Aviva or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit default swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities. The derivative assets and liabilities in the table below are made up of the contracts described in detail in note 60.
Strategic report Governance IFRS financial statements Other information 61 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar arrangements continued (a) Offsetting arrangements continued Aviva participates in a number of stock lending and repurchase arrangements. In some of these arrangements cash is exchanged by Aviva for securities and a related receivable is recognised within ‘Loans to banks’ in note 25. These arrangements are reflected in the tables below. In instances where the collateral is recognised on the statement of financial position, the obligation for its return is included within ‘Payables and other financial liabilities’ in note 53.
Financial assets Derivative financial assets 6,570 — 6,570 (4,646) (999) (164) 761 Loans to banks and repurchase arrangements1 8,830 — 8,830 — (300) (6,845) 1,685
Amounts receivable related to securities lending and reverse-repurchase arrangements totalling £12,330 million (2019: £8,830 million) are recognised within ‘Loans to banks’ in note 25.
Other financial liabilities presented above represent liabilities related to repurchase arrangements recognised within ‘Obligations for repayment of cash collateral received’ in note 53.
(b) Collateral In the tables above, the amounts of assets or liabilities presented in the consolidated statement of financial position are offset first by financial instruments that have the right of offset under master netting or similar arrangements with any remaining amount reduced by the amount of cash and securities collateral. The actual amount of collateral may be greater than amounts presented in the tables above in the case of over collateralisation.
The total amount of collateral received which the Group is permitted to sell or repledge in the absence of default, excluding collateral related to balances recognised within ‘Loans to banks’ disclosed in note 25, was £19,550 million (2019: £20,984 million), all of which other than £7,505 million (2019: £7,567 million) is related to securities lending arrangements. Collateral of £1,633 million (2019: £1,547 million) has been received related to balances recognised within ‘Loans to banks’ in note 25. The value of collateral that was actually sold or repledged in the absence of default was £nil (2019: £nil).
The level of collateral held is monitored regularly, with further collateral obtained where this is considered necessary to manage the Group’s risk exposure.
Strategic report Governance IFRS financial statements Other information 62 – Related party transactions This note gives details of the transactions between Group companies and related parties which comprise our joint ventures, associates and staff pension schemes.
During the prior period, the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited (AVLAP), a Group company. At inception, the buy-in insured approximately 4,300 deferred and 1,500 current pensioner liabilities. A premium of £1,665 million was paid by the scheme to AVLAP, with AVLAP recognising gross insurance liabilities of £1,334 million. The difference between the premium and the gross liabilities implied a profit of £331 million, which did not include costs incurred by the Group associated with the transaction, and was driven primarily by differences between the measurement bases used to calculate the premium and the accounting value of the associated gross liabilities. The ASPS recognised a plan asset of £1,126 million, with the difference between the plan asset recognised and the premium paid being recognised as an actuarial loss through Other Comprehensive Income.
During the current period, the ASPS completed a further bulk annuity buy-in transaction with AVLAP. A premium of £873 million was paid by the scheme to AVLAP, with AVLAP recognising gross liabilities of £737 million. The difference between the premium and the gross liabilities implies a profit of £136 million, which does not include costs incurred by the Group associated with the transaction, and is driven primarily by differences between the measurement bases used to calculate the premium and the accounting value of the associated gross liabilities. The ASPS recognised a plan asset of £579 million, with the difference between the plan asset recognised and the premium paid being recognised as an actuarial loss through Other Comprehensive Income. As at 31 December 2020, AVLAP recognised technical provisions of £2,147 million (2019: £1,243 million) in relation to buy-in transactions with the ASPS which have been included within the Group’s gross insurance liabilities, and the ASPS held a transferable plan asset of £1,858 million (2019: £1,144 million) which does not eliminate on consolidation.
Salary and other short-term benefits 10.7 12.3 Other long-term benefits — 3.2 Post-employment benefits 1.4 1.3 Equity compensation plans 12.8 12.7 Termination benefits 0.6 1.0 Total 25.5 30.5
Information concerning individual directors’ emoluments, interests and transactions is given in the Directors’ Remuneration report.
Strategic report Governance IFRS financial statements Other information 63 – Organisational structure The following chart shows, in simplified form, the organisational structure of the Group as at 31 December 2020. Aviva plc is the holding company of the Group.
A complete list of the Group’s related undertakings comprising of subsidiaries, joint ventures, associates and other significant holdings is contained within note 64.
* Incorporated in England and Wales ** Incorporated in People’s Republic of China. *** Incorporated in Scotland
Ireland Aviva Life and Pensions Ireland Designated Activity Company Aviva Insurance Ireland Designated Activity Company
Strategic report Governance IFRS financial statements Other information 63 – Organisational structure continued Italy Aviva Italia Holdings S.p.A and its principal subsidiaries: Aviva S.p.A (50.0%) Aviva Italia S.p.A (100%) Aviva Life S.p.A(100%) Aviva Life Vita S.p.A1 (80%)
Lithuania Uždaroji akcinė gyvybės draudimo ir pensijų bendrovė "Aviva Lietuva" (100%)
64 – Related Undertakings The Companies Act 2006 requires disclosure of certain information about the Group’s related undertakings which is set out in this note. Related undertakings comprise subsidiaries, joint ventures, associates and other significant holdings. Significant holdings are where the Group either has a shareholding greater than or equal to 20% of the nominal value of any share class, or a book value greater than 20% of the Group’s assets.
Avenue Louise 326 Boite 30, 1050 Ixelles, Belgium Parnasse Square Invest Ordinary 99 Bermuda
Aviva Warranty Services Inc. Common Shares 100 Bay-Mill Specialty Insurance Adjusters Inc.
Elite Insurance Company Common Shares 100 Insurance Agent Service Inc. Common Shares 100 National Home Warranty Group Inc. Common Shares 100 Nautimax Ltd. Common Shares 100 OIS Ontario Insurance Service Limited
China 12F, 15F Block A, 27F Block B Landgent Centre, 20 East Third Ring Middle Road, Beijing, China, 100022, China Aviva-Cofco Life Insurance Co. Ltd Ordinary 50 Units 1805-1807, 18th Floor, Block H Office Building, Phoenix Land Plaza, No. A5 Yard, Shuguangxili, Chaoyang District, Beijing, China Aviva-COFCO Yi Li Asset Management Co Ltd
Company Name Share Class1 % held 13 Rue du Moulin Bailly, 92270, Bois Colombes, France Agents 3A Ordinary 50 AVIVA ASSURANCES, Société Anonyme d’Assurances Incendie, Accidents et Risques Divers 14 Rue Roquépine, 75008, France AFER Actions Amérique FCP 100 AFER Actions Euro ISR FCP 100 AFER Actions Monde FCP 100 AFER Diversifie Durable FCP 100 AFER Inflation Monde FCP 100 AFER Marchés Emergents FCP 100 AFER Oblig Monde Entreprises FCP 100 AFER Patrimoine FCP 100 Afer-Flore FCP 97 Afer-Sfer SICAV 100 AI Inflation Euro HD FCP 50 Aviva Actions Convex FPS 100 AVIVA Actions Croissance FCP 100 Aviva Actions Euro ISR FCP 100 Aviva Actions Europe ISR FCP 100 Aviva Actions France FCP 100 Aviva Amérique FCP 100 Aviva Asie FCP 100 Aviva Conviction Opportunites FCP 100 Aviva Conviction Patrimoine FCP 100 Aviva Croissance Durable ISR FCP 100 Aviva Flex FCP 100 AVIVA Flexible Emergents A FCP 100 Aviva Flexible Emergents I FCP 100 Aviva France Opportunités FCP 99.99 Aviva Grandes Marques ISR FCP 90 Aviva Interoblig FCP 100 Aviva Investors Actions Euro FCP 95 Aviva Investors Alpha Yield FCP 94 Aviva Investors Britannia SICAV 100 Aviva Investors Conviction FCP 98 Aviva Investors Crédit Europe FCP 69 Aviva Investors Euro Aggregate FCP 76 Aviva Investors Euro Crédit 1-3 Hedged Duration
AVIVA Investors Euro Credit Bonds FCP 100 Aviva Investors Euro Credit Bonds 1-
Aviva Investors Inflation Euro FCP 44 Aviva Investors Japon ISR FCP 100 Aviva Investors Portefeuille FCP 100 Aviva Investors Reference Diversifié FCP 100 Aviva Investors Sélection FCP 100 Aviva Investors Small & Mid Caps Euro A
SPEKTRUM Ordinary 100 WINDOW Ordinary 75 3 Boulevard Saint Martin, 75003 Paris, France Aviva Impact Investing France Ordinary 95 Kroknet S. a. r. l. Ordinary 90 32 Avenue d’Iena, 5016 Paris, France CGP Entrepreneurs Ordinary 75 Myria Asset Management Ordinary 75 UFF Actions France A FCP 100 UFF Allocation Optimum FCP 97 UFF Cap Diversifié FCP 48 UFF Croissance PME A FCP 100 UFF Emergence A FCP 99 UFF Euro Valeur ISR A FCP 100 UFF Europe Opportunités A FCP 99 UFF Global Foncières A FCP 100 UFF Global Obligations A FCP 96 UFF Global Réactif A FCP 94 UFF Grandes Marques ISR A FCP 98 UFF Sélection Alpha A FCP 99 UFF Sélection Premium A FCP 98 Ufifrance Gestion Ordinary 75 Ufifrance Patrimoine Ordinary 75 Union Financière de France Banque Ordinary 75 36, Rue de Naples, 75008, Paris, France UFIFRANCE Immobilier SCPI 20 37 Avenue des Champs Elysées, 75008, Paris, France Bellatrix SICAV 100 Bételgeuse SICAV 93 Sirius SICAV 99 Société Française de Gestion et d’Investissement 7 Rue Auber, 75009 Paris, France Vip Conseils Ordinary 34 70 Avenue de l’Europe, 92270, Bois-Colombes, France AVIVA DÉVELOPPEMENT VIE Ordinary 100 Aviva Epargne Retraite Ordinary 100 Aviva France Ventures Ordinary 100 Aviva Investissements Ordinary 100 Aviva Retraite Professionnelle Ordinary 100 AVIVA VIE, Société Anonyme d’Assurances Vie et de Capitalisation
Epargne Actuelle Ordinary 100 NEWCO 5 Ordinary 100 NEWCO 6 Ordinary 100 SCI PESARO Ordinary 79 Societe Civile Immobiliere Charles Hermite
ZELMIS Ordinary 100 80 Avenue de l’Europe, 92270, Bois-Colombes, France Aviva France Ordinary 100 Aviva Solutions Ordinary 100 Croissance Pierre II Ordinary 100
Selectipierre – Société Civile Ordinary 95 Societe Concessionaire des Immeubles de la Pepiniere
Victoire Immo 1- Société Civile Ordinary 100 Voltaire S.A.S Ordinary 100 9 Rue de Téhéran, F-75008 Paris, France Pierrevenus Ordinary 74 91-93 Boulevard Pasteur, 75015 Paris, France SCI Campus Rimbaud St Denis Ordinary 30 SCI Campus Medicis St Denis Ordinary 30 Germany
Speditionstrasse 23, 40221, Düsseldorf, Germany Projektgesellschaft Hafenspitze Ordinary 94 Thurn-und-Taxis-Platz 6, 60313, Frankfurt am Main, Germany Reschop Carré Hattingen GmbH Ordinary 95 Reschop Carré Marketing GmbH Ordinary 100 Warburg Invest KAG mbh Ferdinandstraße 75 20095 Hamburg Germany Warburg – Multi-Smart-Beta Aktien Europa
PO Box 155 Mill Court, La Charroterie, St Peter Port, GY1 4ET, Guernsey Paragon Insurance Company Guernsey Limited
A-47 (L.G.F), Hauz Khas, New Delhi, Delhi, India Sesame Group India Private Limited Ordinary 100 Pune Office Addresses 103/P3, Pentagon, Magarpatta City, Hadapsar, Pune – 411013, India A.G.S. Customer Services (India) Private Limited
Ireland 1 Custom House Plaza, IFSC, Dublin 1, DO1 V9X5, Ireland Blackrock Emerging markets Bond Hard Currency Fam Fund
Vontobel Global Equity FAM Fd OEIC 35 1st Floor, 2 Ballsbridge Park, Ballsbridge, Dublin 4, Ireland BlackRock Index Selection Fund Market Advantage Strategy
Unit Trust 29 3rd Floor, 2 Harbourmaster Place, IFSC, Dublin 1, DO1 X5P3, Ireland KBI Institutional Dividend Plus Eurozone Equity Fund EUR B
State Street IUT Balanced Fund S30 IUT 31 Charlotte House, Charlemont St., Dublin 2, Ireland Mercer Diversified Retirement Fund OEIC 29 Mercer Multi Asset Defensive Fund OEIC 29 Mercer Multi Asset Growth Fund OEIC 35 Mercer Multi Asset Moderate Growth Fund
Aviva Investors Liquidity Funds plc Aviva Investors Sterling Government Liquidity Fund
Jersey 22 Grenville Street, St. Helier, JE4 8PX, Jersey Axa Sun Life Private Equity Unit Trust 100 Slas Axa Private Equity Private Equity Fund 100 3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey Crieff Road Limited Ordinary 100 FF UK Select Limited Ordinary 100 Gaspé House, 66-72 Esplanade, St Helier, JE1 3PB, Jersey Aviva Investors Jersey Unit Trusts Management Limited 11-12 Hanover Square Unit Trust Fund 50 130 Fenchurch Street Unit Trust Fund 100 20 Gracechurch Unit Trust Fund 25 20 Station Road Unit Trust Fund 100 30 Station Road Unit Trust Fund 100 30-31 Golden Square Unit Trust Fund 50 40 Spring Gardens Unit Trust Fund 100 50-60 Station Road Unit Trust Fund 100 Barratt House Unit Trust Fund 50 Bermondsey Yards Unit Trust Fund 100 New Broad Street House Unit Trust
Irongate House Unit Trust Fund 50 Pegasus House and Nuffield House Unit Trust
Quantum Unit Trust Fund 50 Southgate Unit Trust Fund 50 The Designer Retail Outlet Centres Unit Trust
The Designer Retail Outlet Centres (York) Unit Trust 1 Fitzroy Place Jersey Unit Trust Fund 50 2 Fitzroy Place Jersey Unit Trust Fund 50 COW Real Estate Investment Unit Trust
Lvovo g. 25, Vilnius, LT-09320, Lithuania Uždaroji akcinė gyvybės draudimo ir pensijų bendrovė "Aviva Lietuva" (Joint Stock Limited Life Insurance and Pension Company Aviva Lietuva)
Luxembourg 14, Porte de France, Esch-sur-Alzette, L4360, Luxembourg Aviva Investors Cells Fund Alternative Investment 40 Aviva Investors Perpetual Capital Alternative Investment 53 15 Avenue JF Kennedy, L1616, Luxembourg Tir Europe Forestry Fund 2 Alternative Investment 23 15 Boulevard Raiffeisen, L2411, Luxembourg Negentropy – Debt Select Fund Alternative Investment 32 16 Avenue de la Gare, L1610, Luxembourg AFRP Sarl Ordinary 100 AIEREF Holding 1 Equity 100 AIEREF Holding 2 Capital 100 Aviva Investors Alternative Income Solutions General Partner S.à r.l.
Hexagone S.à r.l. Ordinary 100 MPS L014 S.à r.l. Ordinary 100 Sapphire Ile de France 1 S.à.r.l. Ordinary 100 Sapphire Ile de France 2 S.à r.l. Ordinary 100 Victor Hugo 1 S.à r.l. Ordinary 100 Aviva Investors Alternative Income Solutions SCSp
2, Boulevard Konrad Adenauer, L1115 Luxembourg Xtrackers II Eurozone Government Bond 15-30 UCITS ETF
Tikehau Residential I Alternative Investment 25 Tikehau Senior Loan III Alternative Investment 25 5, Rue Heienhaff, L1736 Senningerberg, Luxembourg
Robeco QI Global Multi-Factor Bonds 6 Rue Eugene Ruppert, L2453, Luxembourg Riverrock Brownfield Infra Fund I Alternative Investment 40 6H Rue de Trèves, L2633 Senningerberg, Luxembourg Archmore Infrastructure Equity III Alternative Investment 22 Malta
Schiphol Boulevard 269, 1118 BH, Schipol, Netherlands DIF Infrastructure III Private Equity Fund 100 EIF USPF IV Blocker Fund Unit Trust 100 Poland
Aviva Investors Fio Obligacji kat Z UCITS 67 Aviva Investors Fio Polskich Akcji kat Z
Aviva Sfio – Aviva Oszczędnościowy Non UCITS (AIF) 67 Aviva Sfio Subfundusz Aviva Globalnych Strategii
Expander Advisors Sp. z o.o. Ordinary 90 Life Plus Sp. z o.o. Ordinary 90 Santander Aviva Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna
Living in Retirement Limited Ordinary 47 Tenet & You Limited Ordinary 47 Tenet Business Solutions Limited Ordinary 47 Tenet Client Services Limited Ordinary 47 Tenet Compliance Services Limited Ordinary 47 Tenet Financial Services Limited Ordinary/
Tenet Group Limited Ordinary 47 Tenet Limited Ordinary 47 TenetConnect Limited Ordinary 47 TenetLime Limited Ordinary 47 TenetConnect Services Limited Ordinary 47 5 Old Broad Street, London EC2N 1AD, United Kingdom Architas Multi-Manager Diversified Protector 70
AXA Rosenberg Global Fund OEIC 90 AXA Rosenberg Japan Fund OEIC 94 8 Surrey Street, Norwich, Norfolk, NR1 3NG, United Kingdom Aviva Central Services UK Limited Ordinary 100 Aviva Consumer Products UK Limited
RAC Pension Trustees Limited Ordinary 100 Solus (London) Limited Ordinary 100 Synergy Sunrise (Broadlands) Limited 57-59 St James’s Street, London SW1A 1LD, United Kingdom Artemis UK Special Situations Fund Unit Trust 25 Wellington Row, York, YO90 1WR, United Kingdom Aviva (Peak No.2) UK Limited Ordinary 100 Aviva Administration Limited Ordinary 100 Aviva Client Nominees UK Limited Ordinary 100 Aviva Equity Release UK Limited Ordinary 100 Aviva ERFA 15 UK Limited Ordinary 100 Aviva Life & Pensions UK Limited Ordinary 100 Aviva Life Holdings UK Limited Ordinary 100 Aviva Life Investments International (General Partner) Limited
Aviva Life Services UK Limited Ordinary 100 Aviva Pension Trustees UK Limited Ordinary 100 Aviva Savings Limited Ordinary 100 Aviva Trustees UK Limited Ordinary 100
Norton Energy SLS Limited Ordinary 100 TGHC Limited Ordinary 100 c/o Harper MacLeod LLp, The Cadoro, 45 Gordon Street, Glasgow, G1 3PE, United Kingdom Brockloch Rig Windfarm Limited Ordinary 49 Crystal Rig III Limited Ordinary 49 c/o James Fletcher, Mainstay, Whittington Hall, Whittington Road, Worcester, England, WR5 2ZX, United Kingdom Aviva Investors GR SPV1 Limited Ordinary 100 Aviva Investors GR SPV2 Limited Ordinary 100 Aviva Investors GR SPV3 Limited Ordinary 100 Aviva Investors GR SPV 4 Limited Ordinary 100 Aviva Investors GR SPV 5 Limited Ordinary 100 Aviva Investors GR SPV 6 Limited Ordinary 100 Aviva Investors GR SPV 7 Limited Ordinary 100 Aviva Investors GR SPV 8 Limited Ordinary 100 Aviva Investors GR SPV 9 Limited Ordinary 100 Aviva Investors GR SPV10 Limited Ordinary 100 Aviva Investors GR SPV 11 Limited Ordinary 100 Aviva Investors GR SPV 12 Limited Ordinary 100 Aviva Investors GR SPV 13 Limited Ordinary 100 Aviva Investors GR SPV 14 Limited Ordinary 100 Aviva Investors GR SPV 15 Limited Ordinary 100 Aviva Investors GR SPV16 Limited Ordinary 100 Aviva Investors GR SPV17 Limited Ordinary 100 Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, United Kingdom Baillie Gifford International Fund OEIC 20 Baillie Gifford UK Equity Core Fund OEIC 20 Centrium 1, Griffiths Way, St Albans , Hertfordshire , AL1 2RD, United Kingdom Opal (UK) Holdings Limited Ordinary 29 Opal Information Systems Limited Ordinary 29 Outsourced Professional Administration Limited
Synergy Financial Products Limited Ordinary 29 East Farmhouse, Cams Hall Estate, Fareham, PO16 8UT, United Kingdom IQUO Limited Ordinary 67 Exchange House, Primrose Street, London EC2A 2HS, United Kingdom BMO Diversified Growth Fund SICAV 86 BMO Emerging Markets Equity Fund OEIC 43 BMO European Growth & Income Fund
Liontrust UK Ethical Fund OEIC 54 Melrose House , 42 Dingwall Road, Croydon, CR0 2NE, United Kingdom Cannock Consortium LLP Ordinary 43 Cannock Designer Outlet (GP Holdings) Limited
Friends Life Limited Ordinary 100 Friends Life WL Limited Ordinary 100 Friends Provident Investment Holdings Limited
Premier Mortgage Service Limited Ordinary 100 Sesame Bankhall Group Limited Ordinary 100 Sesame Bankhall Valuation Services Limited
Sesame Limited Ordinary 100 Sesame Regulatory Services Limited Ordinary 100 Sesame Services Limited Ordinary 100 Suntrust Limited Ordinary 100 Undershaft FAL Limited Ordinary 100 Undershaft FPLLA Limited Ordinary 100 Undershaft SLPM Limited Ordinary 100 Wealth Limited Ordinary 100 Samuel House, 6 St. Albans Street, 4th floor, London, SW1Y 4SQ, United Kingdom Acre Platforms Limited Ordinary 40 Shakespeare House, 42 Newmarket Road, Cambridge, CB5 8EP, United Kingdom Hillswood Management Limited Ordinary 24 St Helen’s, 1 Undershaft, London, EC3P 3DQ, United Kingdom 10-11 GNS Limited Ordinary 100 11-12 Hanover Square Nominee 1 Limited 11-12 Hanover Square Nominee 2 Limited 130 Fenchurch Street General Partner Limited 130 Fenchurch Street Nominee 1 Limited 130 Fenchurch Street Nominee 2 Limited 1-5 Lowndes Square Management Company Limited 20 Gracechurch (General Partner) Limited 20 Lowndes Square Management Company Limited 2015 Sunbeam Limited Ordinary 100 2-10 Mortimer Street (GP No 1) Limited 2-10 Mortimer Street GP Limited Ordinary 50 30 Station Road Nominee 1 Limited Ordinary 100 30 Station Road Nominee 2 Limited Ordinary 100 30-31 Golden Square Nominee 1 Limited 30-31 Golden Square Nominee 2 Limited 41-42 Lowndes Square Management Company Limited 43 Lowndes Square Management Company Limited
Aviva Brands Limited Ordinary 100 Aviva Commercial Finance Limited Ordinary 100 Aviva Company Secretarial Services Limited
Aviva Investors Holdings Limited Ordinary 100 Aviva Investors Infrastructure GP Limited
Aviva Investors Investment Funds ICVC Aviva Investors International Index Tracking Fund
Aviva Investors Investment Funds ICVC Aviva Investors Managed High Income Fund
Aviva Investors Investment Funds ICVC Aviva Investors UK Index Tracking Fund
Aviva Investors Manager of Manager ICVC (ICVC2) Aviva Investors Japan Equity MoM 1 Fund
Aviva Investors Manager of Manager ICVC (ICVC2) Aviva Investors UK Equity MoM 1 Fund
Aviva Investors Manager of Manager ICVC (ICVC2) Aviva Investors UK Opportunities Fund
Aviva Investors Passive Funds ACS AI 60 40 Global Equity Index Fund
Aviva Investors Passive Funds ACS AI Developed Asia Pacific Ex Japan Equity Index Fund
Aviva Investors Passive Funds ACS AI Developed European Ex UK Equity Index Fund
Aviva Investors Passive Funds ACS AI Developed Overseas Government Bond (Ex UK) Index Fund
Aviva Investors Passive Funds ACS AI Non-Gilt Bond Over 15 years Index Fund
Aviva Investors Passive Funds ACS AI UK Gilts All Stocks Index Fund
Aviva Investors Portfolio Funds ICVC Aviva Investors Multi-Manager 4085 % Shares Fund
Biomass UK No.1 LLP Member Capital 75 Biomass UK No.2 Limited Ordinary
Cara Renewables Limited Ordinary 100 CGU International Holdings BV Ordinary 100 Chesterford Park (General Partner) Limited
Fitzroy Place Residential Limited Ordinary 50 Free Solar (Stage 2) Limited Ordinary 100 Gobafoss General Partner Limited Ordinary 100 Gobafoss Partnership Nominee No 1 Ltd
Mayfair Healthcare Holdings Limited Ordinary 100 Medium Scale Wind No.1 Limited Ordinary 100 Minnygap Energy Limited Ordinary 100 Mortimer Street Associated Co 1 Limited
Mortimer Street Nominee 1 Limited Ordinary 50 Mortimer Street Nominee 2 Limited Ordinary 50 Mortimer Street Nominee 3 Limited Ordinary 50 New Broad Street House Nominee 1 Limited
NU Offices for Redcar Limited Ordinary 100 NU Schools for Redbridge Limited Ordinary 100 NU Technology and Learning Centres (Hackney) Limited
Protricity Ltd Ordinary 100 Quarryvale One Limited Ordinary 100 RDF Energy No.1 Limited Ordinary 57 Renewable Clean Energy 3 Limited Ordinary 100
Solar Clean Energy Limited Ordinary 100 Southgate General Partner Limited Ordinary 50 Southgate LP (Nominee 1) Limited Ordinary 50 Southgate LP (Nominee 2) Limited Ordinary 50 Spire Energy Ltd Ordinary 100 Station Road General Partner LLP LLP 100 Stonebridge Cross Management Limited
SUE GP LLP LLP 50 SUE GP Nominee Limited Ordinary 50 Sunrise Renewables (Hull) Limited Ordinary 75 The Designer Retail Outlet Centres (Mansfield) General Partner Limited
Station Road Cambridge LP Fund 55% 1 Fitzroy Place Limited Partnership Fund 50% 11-12 Hanover Square LP Fund 50% 130 Fenchurch Street LP Fund 100% 2 Fitzroy Place Limited Partnership Fund 50% 20 Gracechurch Limited Partnership Fund 50% 20 Station Road LP Fund 50% 30 Station Road LP Fund 50% 30-31 Golden Square Limited Partnership 50-60 Station Road LP Fund 50% Aviva Investors EBC Limited Partnership
Igloo Regeneration Partnership LP Fund 50% Igloo Regeneration Property Unit Trust
Irongate House LP Fund 50% New Broad Street House LP Fund 50% Norwich Union Public Private Partnership Fund
Southgate Limited Partnership Fund 50% The Designer Retail Outlet Centres (Mansfield) Limited Partnership
Mipec Tower, 229 Tay Son, Dong Da, Ha Noi, Vietnam Aviva Vietnam Life Insurance Company Limited
AEP Feed Fund V Unit Trust 100 1 Investment Company with Variable Capital (‘ICVC’) Fond Common de Placement (‘FCP’) Open Ended Investment Fund (‘OEIC’) Société d ‘Investment à Capital Variable (‘SICAV’) Undertaking for Collective Investment in Transferrable Securities (‘UCITS’) Irish Collective Asset Management Vehicle (‘ICAV’) Authorised Contractual Scheme (‘ACS’) Organisme de Placement Collectif Immobilier (‘OPCI’) Sociétés Civiles de Placement Immobilier (‘SCPI’) 2 Please see accounting policies (D) Consolidation principles, for further details on Joint Ventures and the factors on which joint management is based.
Strategic report Governance IFRS financial statements Other information 65 – Subsequent events • For details of subsequent events relating to disposals see note 4(f). • For details of subsequent events relating to borrowings see note 52(g).
(Loss)/profit for the year before tax (559) 956 Tax credit D 116 92 (Loss)/profit for the year after tax (443) 1,048
Items that will not be reclassified to income statement Remeasurement of pension scheme H (1) (1)
Statement of changes in equity For the year ended 31 December 2020
Balance at 31 December 980 200 1,239 44 6,438 120 3,910 500 13,431 2 On 17 October 2019, notification was given that the Group would redeem the 6.875% £230 million tier 1 notes and the instrument was reclassified as a financial liability. See note 37 for further information.
Equity Ordinary share capital 33 982 980 Preference share capital 36 200 200 Called up capital 1,182 1,180 Share premium 33(b) 1,242 1,239 Capital redemption reserve 33(b) 44 44 Merger reserve H 6,438 6,438 Equity compensation reserve H 106 120 Retained earnings H 3,235 3,910 Direct capital instrument 37,L — 500
Liabilities Non-current liabilities Borrowings J 7,195 6,534 Payables and other financial liabilities K 12,430 12,675 Pension deficits and other provisions I 48 47 19,673 19,256 Current liabilities Borrowings J 366 238 Payables and other financial liabilities K 4,456 4,344 Other liabilities 100 89
Statement of cash flows For the year ended 31 December 2020
Cash flows from investing activities Dividends received from joint venture — 5 Net disposal of financial investments 2 — Net cash from investing activities 2 5
Cash flows from financing activities Proceeds from issue of ordinary shares 3 27 Treasury shares purchased for employee trusts (2) (9) New borrowings drawn down, net of expenses 967 505 Repayment of borrowings1 (862) (696) Net repayment of borrowings 105 (191) Interest paid on borrowings (330) (316) Preference dividends paid (17) (17) Ordinary dividends paid (236) (1,184) Forfeited dividend income 2 4 Coupon payments on direct capital instrument and tier 1 notes (27) (43) Funding provided from subsidiaries 632 1,807 Other2 (15) (5)
Net increase in cash and cash equivalents 117 78 Cash and cash equivalents at 1 January 74 15 Exchange gains on cash and cash equivalents — (19)
Cash and cash equivalents at 31 December 191 74 1 2020 includes redemption of the £500 million DCI. 2019 includes redemption of 6.875% £210 million tier 1 notes. 2 2020 includes a £2 million (2019: £5 million) donation of forfeited dividend income to a charitable foundation and £13 million (2019: £nil) in respect of payments relating to equity compensation plans.
Equity compensation plans (see (ii) below) 15 19 Other operating costs 236 175 Net foreign exchange losses — 1 Total 251 195
(ii) Equity compensation plans All transactions in the Group’s equity compensation plans, which involve options and awards for ordinary shares of the Company, are included in other operating costs. Full disclosure of these plans is given in the Group consolidated financial statements, note 34. The cost of such options and awards is borne by all participating businesses and, where relevant, the Company bears an appropriate charge. As the majority of the charge to the Company relates to directors’ options and awards, for which full disclosure is made in the directors’ remuneration report, no further disclosure is given here.
Deferred tax Origination and reversal of temporary differences 1 — Total deferred tax 1 —
Adjustment to tax charge in respect of prior years (9) (2) Non-assessable dividend income (20) (303) Losses surrendered intra-group for nil value 25 31 Tax on interest amounts charged direct to equity (5) —
E – Investments in subsidiaries and joint venture (i) Subsidiaries At 31 December 2020, the Company has two wholly owned subsidiaries, both incorporated in the UK. These are General Accident plc (GA) and Aviva Group Holdings Limited (AGH). AGH is an intermediate holding company, while GA has preference shares listed on the London Stock Exchange. At 31 December 2020, the Company’s investments in subsidiaries have a cost of £31,788 million (2019: £31,788 million). The principal subsidiaries of the Aviva Group at 31 December 2020 are set out in note 63 to the Group consolidated financial statements.
(ii) Joint venture At 31 December 2020, the Company’s investment in the joint venture, Aviva-COFCO Life Insurance Co. Limited has a cost of £123 million (2019: £123 million).
Assets for prior years’ tax settled by Group Relief of £94 million (2019: £106 million) are included within Receivables and other financial assets (note F), of which £94 million are recoverable in less than one year.
Balance at 1 January 2019 6,438 120 4,026 Arising in the year: Profit for the year — — 1,048 Remeasurement of pension scheme — — (1) Forfeited dividend income2 — — 4 Dividends and appropriations — — (1,244) Reserves credit for equity compensation plans — 62 — Issue of share capital under equity compensation plans — (62) 55 Reclassification of tier 1 notes to financial liabilities3 (note L) — — 14 Aggregate tax effect — — 8
Balance at 31 December 2019 6,438 120 3,910 Arising in the year: Loss for the year — — (443) Remeasurement of pension scheme — — (1) Forfeited dividend income2 — — 2 Dividends and appropriations — — (280) Reserves credit for equity compensation plans — 37 — Issue of share capital under equity compensation plans — (51) 46 Reclassification of DCI to financial liabilities4 (note L) — — 1 Aggregate tax effect — — — Balance at 31 December 2020 6,438 106 3,235 1 See notes 34(d) and 38 for further details of balances included in the equity compensation reserve. 2 The Company has commenced a shareholder forfeiture programme, where the shares of shareholders who Aviva has lost contact with over the last 12 years will be forfeited and sold on. Any associated unclaimed dividends will be reclaimed by the Company. After covering administration costs, the majority of the money will be put into a charitable foundation. 3 On 17 October 2019, notification was given that the Group would redeem the 6.875% £230 million tier 1 notes and the instrument was reclassified as a financial liability. See note 37 for further information. 4 On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI and the instrument was reclassified as a financial liability. See note 37 for further information.
Subordinated debt 6,341 5,482 Senior notes 1,112 1,052 Commercial paper 108 238
Further details of these borrowings and undrawn committed facilities can be found in the Group consolidated financial statements, note 52, with details of the fair value hierarchy in relation to these borrowings in note 24.
Loans due to subsidiaries O(ii) 12,430 12,675 Amount due to subsidiaries O(iii) 4,456 4,344
N – Risk management Risk management in the context of the Group is considered in the Group consolidated financial statements, note 59.
Financial liabilities owed by the Company as at the balance sheet date are largely in respect of borrowings (details of which are provided in note J and the Group consolidated financial statements, note 52) and loans owed to subsidiaries. Loans owed to subsidiaries were within agreed credit terms as at the balance sheet date.
N – Risk management continued Interest rate risk continued All of the Company’s long-term external borrowings are at fixed rates of interest and are therefore not exposed to changes in these rates. However, for short term commercial paper, the Company is affected by changes in these rates to the extent the redemption of these borrowings is funded by the issuance of new commercial paper or other borrowings. Further details of the Company’s borrowings are provided in note J and the Group consolidated financial statements, note 52.
The effect of a 100 basis point increase/decrease in interest rates on floating rate loans due to and from subsidiaries and on refinancing short term commercial paper as it matures would be a decrease/increase in profit before tax of £114 million (2019: decrease/increase of £104 million). The net asset value of the Company’s financial resources is not materially affected by fluctuations in interest rates.
Maturity analysis of external borrowings and amounts due to and by subsidiaries are provided in notes J and F respectively.
Loans to and from subsidiaries are made on normal arm’s-length commercial terms. From January 2021, as a result of LIBOR being abolished, loans previously accruing interest at specific basis points above LIBOR will now be set at a fixed rate for 5 years or up to maturity. The maturity analysis of the related party loans is as follows: (i) Loans owed by subsidiaries
On 1 January 2013, Aviva International Holdings Limited, an indirect subsidiary, transferred an unsecured loan with the Company of €250 million to Aviva Group Holdings Limited, its direct subsidiary. The loan, originally entered into on 7 May 2003, accrues interest at a fixed rate of 5.5% with settlement to be paid at maturity in May 2033. As at the statement of financial position date, the total amount drawn down on the facility was £224 million (2019: £212 million).
On 23 December 2014, the Company provided an unsecured revolving credit facility of £2,000 million to Aviva Group Holdings Limited, its subsidiary, with an initial maturity date of 3 September 2018 which was subsequently extended to 31 December 2023. The facility accrues interest at 75 basis points above 6 month LIBOR. As at the statement of financial position date, the total amount drawn down on the facility was £849 million (2019: £1,563 million).
EURIBOR with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn was £555 million (2019: £661 million).
O – Related party transactions continued (i) Loans owed by subsidiaries continued • An unsecured loan of €900 million with a maturity date of 4 December 2025. The loan accrues interest at a fixed rate of 1.74% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was £805 million (2019: £762 million).
On 21 November 2016, the Company provided an unsecured loan of €500 million to Aviva Group Holdings Limited, its subsidiary, with a maturity date of 27 October 2023. The loan accrues interest at a fixed rate of 1.75% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn was £448 million (2019: £424 million).
The interest paid on these loans is £158 million (2019: £212 million). See note C.
On 14 December 2017, the Company renewed its facility with GA plc, its subsidiary, of £9,990 million and the Board approved the extension of the maturity of the loan by five years from 31 December 2017 to 31 December 2022. The other terms of the loan will remain unchanged, including the rate of interest payable by the Company to GA plc (65 basis points above 3 month LIBOR and in the event that the LIBOR rate is less than zero, the rate shall be deemed to be zero). As at 31 December 2020, the loan balance outstanding was £9,530 million (2019: £9,630 million). This loan is secured against the ordinary share capital of Aviva Group Holdings Limited. The loan agreement also includes a penalty interest charge of 1% above the interest rate if any amounts payable under the loan agreement remain outstanding.
Income earned relates to dividends. The related parties’ receivables are not secured and no guarantees were received in respect thereof. The receivables will be settled in accordance with normal credit terms.
Key management The directors and key management of the Company are considered to be the same as for the Group. Information on both the Company and Group key management compensation can be found in note 62.
P – Subsequent events For details of subsequent events relating to borrowings please see note 52(g).
In addition, the 2019 comparative amounts have been re-presented from those previously published to reclassify the amounts relating to Aviva Singapore, Friends Provident International Limited (FPI), Hong Kong, Indonesia and Vietnam as discontinued operations. Where relevant, these discontinued operations are presented as ‘Managefor -value’ markets.
At 30 June 2020, we removed the operating expenses APM, having disclosed this metric alongside controllable costs at 31 December 2019. The controllable costs metric aligns to our capital markets day target announced in November 2019 and excludes premium based taxes, fees and levies that vary directly with premium volumes. Therefore, controllable costs is considered more representative of operational expenses that are controllable by management and is considered more useful and relevant than the operating expenses metric.
Further details on APMs derived from IFRS measures and APMs derived from Solvency II measures are provided in the following sections. A further section describes Other APMs.
APMs derived from IFRS measures A number of APMs relating to IFRS are utilised to measure and monitor the Group’s performance. Definitions and additional information, including reconciliations to the relevant amounts in the IFRS Financial Statements and, where appropriate, commentary on the material reconciling items are included within this section.
Group adjusted operating profit# Group adjusted operating profit is an APM that supports decision making and internal performance management of the Group’s operating segments that incorporates an expected return on investments supporting the life and non-life insurance businesses. The Group considers this measure meaningful to stakeholders as it enhances the understanding of the Group’s operating performance over time by separately identifying non-operating items. The various items excluded from Group adjusted operating profit, but included in IFRS profit before tax, are: Investment variances, economic assumption changes and shortterm fluctuation in return on investments Group adjusted operating profit for the life insurance business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with allowance for the corresponding expected movements in liabilities. The expected rate of return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return and asset classification.
For fixed interest securities classified as fair value through profit or loss, the expected investment returns are based on average prospective yields for the actual assets held less an adjustment for credit risk. Where such securities are classified as available for sale the expected return comprises interest or dividend payments and amortisation of the premium or discount at purchase. The expected return on equities and properties is calculated by reference to the opening 10-year swap rate in the relevant currency plus an appropriate risk margin.
The exclusion of short-term investment variances from this APM reflects the long-term nature of much of our business. The Group adjusted operating profit which is used in managing the performance of our operating segments excludes the impact of economic variances, to provide a comparable measure year on year.
Other items These items are, in the directors’ view, required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group’s financial performance. Other items in 2020 comprise: • A charge of £16 million relating to costs on contracts that have become onerous following the disposals of FPI, Singapore, Indonesia and Hong Kong. This was disclosed outside of Group adjusted operating profit as the onerous contracts arise as a result of disposal transactions which we consider to be strategic in nature; and
• A charge of £2 million relating to the negative goodwill which arose on the acquisition of Friends First in 2018, which was excluded from Group adjusted operating profit for consistency with the treatment of impairment of goodwill.
Aviva Investors 85 96 CCoorree mmaarrkkeettss 2,492 2,558 Manage-for-value 999 899 Other Group activities (22) (21)
Corporate centre (250) (183) Group debt costs and other interest (370) (320) Group adjusted operating profit before tax attributable to shareholders’ profits from continuing operations 2,849 2,933
Group adjusted operating profit before tax attributable to shareholders’ profits from discontinued operations 312 251
Foreign exchange gains/(losses) 49 (45) Commission income 21 20 Other 12 5
Commission and Expenses – Health & Other Non GI 252 259
Claims, commission, and expense ratios Financial measures of the performance of our general insurance business which are calculated as incurred claims, earned commissions or earned expenses expressed as a percentage of net earned premiums, which can be derived from the COR table above.
Operating earnings per share (EPS)# Operating EPS is calculated based on the Group adjusted operating profit attributable to ordinary shareholders net of tax, deducting non-controlling interests, preference dividends and direct capital instrument and tier 1 note coupons divided by the weighted average number of ordinary shares in issue, after deducting treasury shares. Operating EPS is considered meaningful to stakeholders because it enhances the understanding of the Group’s operating performance over time by adjusting for the effects of non-operating items. A reconciliation between operating EPS and basic EPS can be found in note 15.
Controllable costs Controllable costs is a useful measure of the controllable operational overheads associated with maintaining our businesses. These predominantly consist of staff costs, central costs, property and IT related costs and other expenses. Controllable costs also include indirect acquisition costs, such as underwriting overheads, and claims handling costs. These are considered to be controllable by the operating segments.
Controllable costs exclude impairment of goodwill, associates and joint ventures; amortisation and impairment of other intangible assets acquired in business combinations; and amortisation and impairment of acquired value of in-force business. These items relate to merger, acquisition and disposal activity which we view as strategic in nature, hence they are excluded from controllable costs which is principally used to manage the performance of our operating segments.
Controllable costs exclude costs in relation to product governance and mis-selling. These costs represent compensation and redress payments made to policyholders and are excluded from controllable costs because they have characteristics of claims payments. In 2019 these costs included a £175 million provision in our UK Life business relating to past communications to a specific sub-set of pension policyholders that may not have adequately informed them of switching options into with-profits funds that were available to them.
Controllable costs exclude premium based taxes, fees and levies that vary directly with premiums. These costs are by their nature a direct cost incurred as a result of generating premium income, and therefore not a controllable operational overhead.
Continuing operations Other expenses (IFRS income statement) 3,037 3,057 Add: other acquisition costs 1,028 947 Add: claims handling costs1 366 422 Less: impairment of goodwill, associates and joint ventures and other amounts expensed (17) (2) Less: amortisation and impairment of intangibles acquired in business combinations (71) (76) Less: amortisation and impairment of acquired value of in-force business (214) (280) Less: foreign exchange (losses)/gains (109) 109 Less: product governance and mis-selling costs2 (50) (225) Less: premium based income taxes, fees and levies (192) (180) Add: other costs — 57
Controllable costs from continuing operations 3,778 3,829 Controllable costs from discontinued operations 157 193
Equity attributable to shareholders of Aviva plc at 31 December1 (£m) 19,354 17,008
Number of shares in issue at 31 December (in millions) 3,928 3,921
IFRS NAV per share 493p 434p 1 Excluding preference shares of £200 million (2019: £200 million).
Consistent with previous years, Aviva Investors AUA comprises AUM plus £40 billion (2019: £36 billion) of assets managed by third parties on platforms administered by Aviva Investors.
Total AUM4 535 510 1 Includes assets classified as held for sale. 2 AUM managed on behalf of third parties cannot be directly reconciled to the financial statements. 3 UK Platform relates to the assets under management in the UK long-term savings business. 4 Includes AUM of £366 billion (2019: £346 billion) managed by Aviva Investors.
Net flows Net flows is one of the measures of growth used by management and is a component of the movement in the life and platform business AUM during the period. It is the difference between the inflows (being IFRS net written premiums plus deposits received under investment contracts) and outflows (being IFRS net paid claims plus redemptions and surrenders under investment contracts). It excludes market and other movements.
Revaluation of subordinated liabilities (795) (716) Other accounting differences (69) (99) Net deferred tax (1,191) (1,220)
A number of key performance measures relating to Solvency II are utilised to measure and monitor the Group’s performance and financial strength: • Solvency II shareholder cover ratio# • Value of new business on an adjusted Solvency II basis (VNB) • Solvency II operating capital generation (OCG)# • Solvency II operating own funds generation • Solvency II return on capital • Solvency II return on equity (RoE)# • Solvency II net asset value (NAV) per share • Solvency II debt leverage ratio
• A notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP resets. This presentation avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The 31 December 2020 position includes a notional reset while the 31 December 2019 position included a formal, rather than notional, reset of the TMTP in line with the regulatory requirement to reset the TMTP at least every two years.
• In a change to previous practice, pro forma adjustments are no longer made for planned acquisitions and disposals. This change in approach is considered more relevant because prior to completion there is uncertainty in relation to the progression and final terms of such transactions. Comparative amounts have not been restated for this change as the impacts were not material at 31 December 2019.
Estimated Solvency II regulatory surplus 28,347 (15,517) 12,830 Adjustments for: Fully ring-fenced with-profit funds (2,501) 2,501 — Staff pension schemes in surplus (1,181) 1,181 — Notional reset of TMTP — — — Pro forma adjustments1 (117) (75) (192)
Solvency II; • include businesses which are not within the scope of Solvency II
• reflect a gross of tax and non-controlling interests basis, and other differences as set out in the footnote to the table below.
Solvency II contract boundary restrictions – increments/renewals on in-force business 113 — 96 209
Tax and Other1 (125) — (209) (334) Solvency II own funds impact of new business (net of tax and non-
Solvency II contract boundary restrictions – new business (83) — (181) (264)
Solvency II contract boundary restrictions – increments/renewals on in-force business 97 — 99 196
Tax and Other1 (103) — (236) (339) Solvency II own funds impact of new business (net of tax and non1 Other includes the impact of ‘look through profits’ in service companies (where not included in Solvency II) of £(69) million (2019: £(78) million), the reduction in value when moving to a net of non-controlling interests basis of £(37) million (2019: £(57) million), the difference between locally applicable capital requirements for the smaller Asian markets (Indonesia, Vietnam, Hong Kong) and the value of new business on an adjusted Solvency II basis of £(47) million (2019: £(37) million), and the assumed take up of tax-free lump sum payments at retirement (not included in Solvency II Own Funds) on BPAs of £(4) million (2019: £nil)
VNB is calculated using economic assumptions as at the point of sale, taken as those appropriate to the start of each quarter. For contracts that are repriced more frequently, weekly or monthly economic assumptions have been used. The economic assumptions follow Solvency II rules for risk-free rates, volatility adjustment and matching adjustment.
Matching Adjustment (MA) The matching adjustment is an addition to the rate used to discount Solvency II best-estimate liabilities, to reflect the return on the matching assets used. An MA is applied to certain obligations based on the expected allocation of assets backing new business at each year-end date. This allocation may be different to the MA applied at the portfolio level. Aviva applies an MA to certain obligations in UK Life, using methodology which is set out in the Solvency and Financial Condition Report (SFCR).
The matching adjustment used for 2020 UK new business (where applicable) was 98 bps (2019: 95 bps).
Present value of new business premiums (PVNBP) PVNBP measures sales in the Group’s life insurance business. PVNBP is derived from the present value of new regular premiums expected to be received over the term of the new contracts plus 100% of single premiums from new business written in the financial period and is expressed at the point of sale. The discounted value of regular premiums is calculated using the same methodology as for VNB. PVNBP also includes any changes to existing contracts which were not anticipated at the outset of the contract that generate additional shareholder risk and associated premium income of the nature of a new policy.
The table below presents a reconciliation of sales to IFRS net written premiums.
Solvency II OCG is a key component of the movement in Solvency II shareholder surplus. The tables below provide an analysis of the change in Solvency II shareholder surplus.
Opening restatements1 58 6 64 Operating capital generation 2,257 2 2,259 Non-operating capital generation 120 (368) (248) Dividends2 (1,222) — (1,222) Share buy-back — — — Hybrid debt repayments (210) — (210) Acquisitions and disposals (6) 19 13 Estimated Solvency II shareholder surplus
Solvency II future surplus emergence Solvency II future surplus emergence is a projection of the capital generation from existing long-term in-force life business. The projection is a static analysis as at a point in time and hence it does not include the potential impact of future new business or the potential impact of active management of the business (for example, active management of market, demographic and expense risk through investment, hedging, risk transfer, operational risk and expense management), which may affect the actual amount of Solvency II OCG earned from existing business in future periods.
For business subject to short contract boundaries under Solvency II, allowance has been made for the impact of renewal premiums as and when they are expected to occur.
The projected surplus, which is primarily expected to arise from the release of risk margin (including transitional measures) and solvency capital requirement as the business runs off over time, is expected to emerge through Solvency II OCG in future years. The calculation approach is consistent with prior periods.
The cash flows are real-world cash flows, i.e. they are based on best estimate non-economic assumptions used in the Solvency II valuation and real-world investment returns rather than risk-free. The expected investment returns are consistent with the methodology used in the Group adjusted operating profit.
Unrestricted tier 1 shareholder own funds represents the highest quality tier of capital and includes instruments with principal loss absorbing features such as permanence, subordination, undated, absence of redemption incentives, mandatory costs and encumbrances.
Unrestricted regulatory tier 1 own funds 20,850 20,377 Restricted Tier 1 1,317 1,839 Tier 2 6,740 5,794 Tier 31 355 337
Unrestricted regulatory tier 1 own funds 20,850 20,377 Adjustments for: Fully ring-fenced with-profit funds (2,492) (2,501) Staff pension schemes in surplus (1,179) (1,181) Notional reset of TMTP 564 — PPE2 (385) — Pro forma adjustments1 — (117) Unrestricted shareholder tier 1 own funds 17,358 16,578 1 The 31 December 2019 Solvency II position includes two pro forma adjustments that relate to the disposal of
Solvency II operating own funds generation 1,691 2,257 Less: preference share dividends (38) (38) Less: DCI and tier 1 note coupons (27) (34) 1,626 2,185 Opening unrestricted shareholder tier 1 own funds 16,578 15,296
Less: Senior debt (12) — — Less: Subordinated debt (284) (6,942) —
Less: Management actions and other1 (6) — — Solvency II return on equity
(excluding management actions) 1,620 16,578 9.8% 1 Other includes the impact of capital actions, non-economic assumption changes and other non-recurring items. 2 For UK general insurance only, capital held for internal risk appetite purposes is used instead of opening shareholder Solvency II own funds to ensure consistency in measuring performance across markets. This is only applicable to UK general insurance Solvency II return on capital and not to the aggregated Group Solvency II return on capital and Solvency II return on equity measures, with the reversal of the impact included in Group centre costs and Other opening own funds.
3 Preference shares includes £21 million of dividends and £250 million of capital in respect of General Accident plc.
UK & Ireland Life 1,247 13,733 9.1% UK & Ireland General Insurance2 333 2,326 14.3% Canada 203 1,330 15.3% Aviva Investors 70 509 13.7% Manage-for-value markets 850 7,453 11.4% Group centre costs and Other2 (162) (1,800) N/A Solvency II return on capital at
Direct capital instrument and Tier 1 notes (34) (731) — Preference shares3 (38) (450) — Net deferred tax assets — (95) —
Solvency II return on equity at 31 December 2,185 15,296 14.3%
1 Other includes the impact of capital actions, non-economic assumption changes and other non-recurring items.
Solvency II net asset value (NAV) per share Solvency II NAV per share is used to monitor the value generated by the Group in terms of the equity shareholders’ face value per share investment. This is calculated as the closing unrestricted tier 1 Solvency II shareholder own funds, divided by the actual number of shares in issue as at the balance sheet date. Consistent with Solvency II RoE, it is an economic value measure used by the Group to assess growth.
The Solvency II NAV per share is shown below: Unrestricted tier 1 shareholder Solvency II own funds (£m) 17,358 16,578 Number of shares in issue at 31 December (in millions) 3,928 3,921
Solvency II regulatory debt 8,316 7,892 Senior notes 1,112 1,052 Commercial paper 108 238
A reconciliation from IFRS subordinated debt to Solvency II regulatory debt is provided below: £m
Core markets 1,359 1,909 Manage-for-value markets1 127 613 Other 14 75
4 UK & Ireland General Insurance cash remittances include £74 million (2019: £83 million) received in February 2021 in respect of 2020 activity.
5 Canada General Insurance cash remittances include £115 million (2019: £141 million) received in February 2021 in respect of 2020 activity.
Excess centre cash flow This represents the cash remitted by business units to the Group centre less central operating expenses and debt financing costs. Excess centre cash flow is a measure of the cash available to pay dividends, reduce debt or invest back into our business. Excess centre cash flow does not include cash movements such as disposal proceeds or capital injections.
Spread margin The spread margin represents the return made on the Group’s annuity and other non-linked business, based on the expected investment return, less amounts credited to policyholders. The expected investment returns assumed within the spread margin are consistent with the returns used for Group adjusted operating profit. The spread margin is a useful indicator of the expected investment return arising on this business.
Underwriting margin The underwriting margin represents the release of reserves held to cover claims, surrenders and administrative expenses less the cost of actual claims and surrenders in the period.
Unit-linked margin The unit-linked margin represents the annual management charges on unit-linked business. This is an indicator of the return arising on this business.
Aviva Investors revenue Aviva Investors revenue represents segmental profit before tax excluding controllable expenses. It is a useful measure of the revenue earned from fund management activities, adjusted for fee and commission expenses.
Quarter three market update** 25 November 2021 * Please note that the ADR local payment date will be approximately four business days after the proposed dividend date for ordinary shares. ** These dates are provisional and subject to change
Annual General Meeting (AGM) The 2021 AGM will be held at St Helen’s, 1 Undershaft, London EC3P 3DQ, on Thursday, 6 May 2021, at 2pm, with facilities to attend electronically.
American Depositary Receipts (ADRs) – Contact: For any queries regarding Aviva ADRs, please contact Citibank Shareholder Services (Citibank): • By telephone: 1 877 248 4237 (1 877-CITI-ADR)
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This announcement contains, and we may make other verbal or written ‘forward-looking statements’ with respect to certain of Aviva’s plans and current goals and expectations relating to future financial condition, performance, results, strategic initiatives and objectives. Statements containing the words ‘believes’, ‘intends’, ‘expects’, ‘projects’, ‘plans’, ‘will’, ‘seeks’, ‘aims’, ‘may’, ‘could’, ‘outlook’, ‘likely’, ‘target’, ‘goal’, ‘guidance’, ‘trends’, ‘future’, ‘estimates’, ‘potential’ and ‘anticipates’, and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. Aviva believes factors that could cause actual results to differ materially from those indicated in forward-looking statements in the announcement include, but are not limited to: the impact of ongoing difficult conditions in the global financial markets and the economy generally; the impact of simplifying our operating structure and activities; the impact of various local and international political, regulatory and economic conditions; market developments and government actions (including those arising from the evolving relationship between the UK and the EU); the effect of credit spread volatility on the net unrealised value of the investment portfolio; the effect of losses due to defaults by counterparties, including potential sovereign debt defaults or restructurings, on the value of our investments; changes in interest rates that may cause policyholders to surrender their contracts, reduce the value of our portfolio and impact our asset and liability matching; the impact of changes in short or long-term inflation; the impact of changes in equity or property prices on our investment portfolio; fluctuations in currency exchange rates; the effect of market fluctuations on the value of options and guarantees embedded in some of our life insurance products and the value of the assets backing their reserves; the amount of allowances and impairments taken on our investments; the effect of adverse capital and credit market conditions on our ability to meet liquidity needs and our access to capital; changes in, or restrictions on, our ability to initiate capital management initiatives; changes in or inaccuracy of assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical downturn of the insurance industry; the impact of natural and man-made catastrophic events (including the impact of COVID-19) on our business activities and results of operations; the transitional and physical risks associated with climate change; our reliance on information and technology and third-party service providers for our operations and systems; the inability of reinsurers to meet obligations or unavailability of reinsurance coverage; increased competition in the UK and in other countries where we have significant operations; regulatory approval of extension of use of the Group’s internal model for calculation of regulatory capital under the UK’s version of Solvency II rules; the impact of actual experience differing from estimates used in valuing and amortising deferred acquisition costs (DAC) and acquired value of in-force business (AVIF); the impact of recognising an impairment of our goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment securities; the effect of legal proceedings and regulatory investigations; the impact of operational risks, including inadequate or failed internal and external processes, systems and human error or from external events (including cyber attack); risks associated with arrangements with third parties, including joint ventures; our reliance on third-party distribution channels to deliver our products; funding risks associated with our participation in defined benefit staff pension schemes; the failure to attract or retain the necessary key personnel; the effect of systems errors or regulatory changes on the calculation of unit prices or deduction of charges for our unit-linked products that may require retrospective compensation to our customers; the effect of fluctuations in share price as a result of general market conditions or otherwise; the effect of simplifying our operating structure and activities; the effect of a decline in any of our ratings by rating agencies on our standing among customers, broker-dealers, agents, wholesalers and other distributors of our products and services; changes to our brand and reputation; changes in government regulations or tax laws in jurisdictions where we conduct business, including decreased demand for annuities in the UK due to changes in UK law; the inability to protect our intellectual property; the effect of undisclosed liabilities, execution and separation issues and other risks associated with our disposals; and the timing/regulatory approval impact and other uncertainties, such as diversion of management attention and other resources, relating to announced and future disposals and relating to future acquisitions, combinations or disposals within relevant industries; the policies, decisions and actions of government or regulatory authorities in the UK, the EU, the US, Canada or elsewhere, including the implementation of key legislation and regulation. For a more detailed description of these risks, uncertainties and other factors, please see the ‘Risk and risk management’ section of the Strategic report.
This report has been prepared for, and only for, the members of the Company, as a body, and no other persons. The Company, its directors, employees, agents or advisers do not accept or assume responsibility to any other person to who this document is shown or into whose hands it may come, and any such responsibility or liability is expressly disclaimed.
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