What makes us different? Our strategy in action and the benefits it brings to our customers
Asset management Investing for Aviva and external clients £2,665m Operating profit on IFRS basis up 20%1,2
2 2014 operating profit on an IFRS basis was restated to exclude amortisation and impairment of acquired value of in-force business which is now shown as a non-operating item.
Our plan We have a clear strategy to deliver sustainable and progressive cash flows underpinned by good potential for growth, by ensuring our people always put customers first
Our values and our people To provide the best possible service to our customers today and in the future, Aviva must disrupt, lead and transform the industry. And it is our people who will achieve this by living our values every day: Care more We care like crazy about our customers, our communities and each other
IFRS financial statements 126 Independent auditors’ report 133 Accounting policies 147 Consolidated financial statements 270 Financial statements of the
What really makes us different is our ability to offer customers a wide range of life insurance, general insurance, health insurance and investment solutions
It has been an honour to serve you, our shareholders, on the Board, first as Senior Independent Director, and then, since April 2015, as your Chairman following John McFarlane’s move to Barclays. I want to thank John particularly, as he made an immense contribution to Aviva and its recovery, and to wish him well in his new role.
2015 saw the Group move into a new phase – from turning round the business to transforming it. In 2016 I am confident that we will see the true potential of the Group emerge ever more clearly. Aviva has a clear strategy, strong values, a distinct advantage as a composite insurer, a developing reputation as a digital innovator, an outstanding management team, and an unequivocal mission to deliver much more for customers and shareholders alike.
Our customers As an insurer and asset manager we are entrusted with a tremendous responsibility by our 33 million customers. We are pledged to help people save for the future and manage the risks of everyday life. As we move progressively into the digital world, we will have more direct contact with the customer than in the more traditional, intermediated forms of business relationship. To all our customers, particularly those digital customers, an essential prerequisite of their relationship with us, as their insurer and asset manager, is that they should feel safe in
Aviva has made remarkable progress in the past three years – and has moved from turnaround to transform and grow. We are well on the way to successfully integrating Friends Life and are focused on delivering to our customers the benefits of the True Customer Composite model
A milestone year for Aviva 02 | Aviva plc Annual report and accounts 2015
The integration of Friends Life is progressing well. This will continue to be an area of focus in 2016.
I want to thank the entire Board for their significant contribution, commitment and service and I look forward to working with them during 2016 as we continue to guide the Group’s strategic transformation.
We continue to focus our decisions on creating a legacy for the long term
“You” is for young people and offers everything from life insurance to health benefits in the event of injuries like breaks, twists or sprains.
A glance at the numbers highlights the point. Not so long ago we were in 28 markets. Now we are in 16. We have grown our economic capital surplus from £3.6 billion in 2011 to £11.6 billion. At the end of 2012, our liquidity was £203 million. Now, at 29 February 2016, it is £1,341 million.
In general insurance, we have achieved a Combined Operating Ratio of 94.6%, the best in nine years, despite major weather events like the recent floods in the UK.
Clearly, the acquisition and integration of Friends Life was a big focus in 2015. The integration has gone faster and better than expected. We are well ahead of schedule in extracting the savings we expected; we have already secured run rate synergies of £168
InTervIeW – Mark WIlson, Group CHIef exeCuTIve offICer stability, strength and growth 06 | aviva plc Annual report and accounts 2015
million. We have added c.£45 billion of assets to Aviva Investors. And we expect £1.2 billion of capital benefits, £400 million of which we realised in 2015. Let me be clear, there’s still much to do, but we have changed our target and now expect to deliver the £225 million cost target by the end of 2016 – 12 months earlier than we originally said. I would describe that as a highly satisfactory result.
In terms of capital, we will continue to be rigorous in reallocating our capital and strengthening our positions in the markets where we can win. We can still do a whole lot more on that. We have announced the proposed acquisition of RBC’s General Insurance Company operations in Canada – a good example of a bolt-on acquisition in our general insurance business, bolstering our position in an attractive market.
As a composite, we are only starting to scratch the surface of our potential. What really makes us different is our ability to offer customers a wide range of life insurance, general insurance, health and investment solutions. I want customers to see Aviva as their provider of choice for more and more of their insurance and savings needs – so we improve our current average product holding per customer.
What’s your final message? To our shareholders, I say Aviva offers stability and security – and also sustainable cash flows and growth. We have made good progress on efficiency and our balance sheet is strong and resilient, but we have much further to go to unlock our full potential – and deliver consistent, reliable growth in profits and dividends. That’s a pretty enticing prospect – and we’re not there yet.
To our 29,600 people, I say thank you for your continuing dedication, achievement and service to our customers.
} Deliver Friends Life costs savings target one year early, and complete the integration
We said we would improve: } Cash remittances to Group – increased 5% to £1,507 million
} Build engagement with our customers by increasing registrations on MyAviva and extending it to other countries
} Develop more digital multi-product solutions, focused on customer needs, across more markets
} Continue to reallocate capital between business lines and countries to focus on what we do best and drive higher returns for our customers, we have: } Developed new multi-product solutions
} Increased the total number of registrations on MyAviva to 1.8 million in the UK, improved functionality and extended to France and Italy
} Continue to build a culture where we consider our customers in every decision
} Create an environment that attracts and retains talented, committed, entrepreneurial people
} Extend Community Funds to more countries, targeting 2.5 million beneficiaries and 250,000 hours of volunteering by 2020 for our people, we have: } Made good progress with the integration of Friends Life
Create legacy 1 The estimated Solvency II ratio represents the shareholder view. This ratio excludes the contribution to Group SCR and Group Own Funds of fully ring-fenced with-profits funds (£2.7 billion) and staff pension schemes in surplus (£0.7 billion) – these exclusions have no impact on Solvency II surplus. The impact from internal reinsurance arrangements between UK Life, UK and Ireland General Insurance and Aviva International Insurance Limited and the securitisation of equity release mortgages held by UK Life, effective 1 January 2016, have also been reflected in the Solvency II position.
Then the best news of all. After an operation, Ricky learnt that his cancer hadn’t spread and he wouldn’t need chemotherapy.
We’re delighted that he’s better and that, in his words, “everyone at Aviva has been brilliant.” Now the Lovelace family can look forward to the future. And they have a new addition – a little sister for Isabella, named Darla.
Overall, operating profit was £2,665 million which included a £554 million contribution from the Friends Life businesses acquired in April 2015 and an adverse foreign exchange impact of £117 million.
See pages 30 to 45 for further details of the performance of our markets in the year.
This measures growth and is the source of future cash flows in our life businesses.
VNB increased by 19% (24% on a constant currency basis) with growth in the UK, Europe and Asia. The result includes a £96 million contribution from Friends Life. In the UK, VNB increased reflecting higher margins on pension and health business and higher sales and improved margins on bulk purchase annuities, offset by lower sales of individual annuities.
3 Restated to exclude amortisation and impairment of acquired value of in-force business which is now shown as a non-operating item.
Aviva has been carbon neutral for the past ten years and this year, we agreed a new emissions reduction target of 40% by 2020 and 50% by 2030, based on a restated 2010 baseline.
CO2e data includes emissions from our buildings, business travel, outsourced data centres, water and waste to landfill.
Our 2015 survey scores remained stable and the majority of our markets are ranked at either upper quartile or market average. However, there is more to do and we are committed to putting our customers first to improve their experience.
Symbol denotes key performance indicators used as a base to determine remuneration.
See pages 30-45 for further details of the financial performance of our markets during the year.
My life, my way Customers will be much more in control, expecting to self-serve and self-solve. They will want to be able to access data and insight, and use it to guide their own decisions.
The power of communities The economic power of governments will decline further and the power of ‘communities’ of mutual interests, both virtual and local, will increase.
Winning through data Those who interpret data quickly and intuitively to inform the development of products and services that provide real value for customers will lead the way.
The age of disruption Agile companies which can make the most of new digital technologies will succeed.
Our response The True Customer Composite and Digital First elements of our Strategic Framework respond to and anticipate the rapid pace of technological change, changing customer expectations, and the potential impact on our business model.
At the same time, our customers need help navigating the increasing complexities of a world in which they need to be more self-reliant when planning for a retirement which could last much longer than previous generations. This can provide opportunities for insurers and asset managers.
As part of the Not Everywhere component of our strategy, we will continue to allocate capital selectively to our growth businesses in Poland, Turkey and Asia, as wealth continues to shift to fastergrowing developing markets.
In addition to the six long-term horizons, Aviva closely monitors two further trends which remain relevant to our industry: climate and regulation.
One impact of climate change is an increase in extreme weather events. For example in 2015 there were significant flooding events in parts of the world (including in our home market of the UK), and it was the hottest year on record globally7.
Climate change will have a significant impact on both society and our business. Some risks are changing, more complex risk management is required and greater losses can be incurred.
Regulation We continue to experience regulatory change across many of our markets, for example UK pensions market reform, auto reform in Ontario, Canada and the Financial Advisory Industry Review in Singapore.
In line with our own strategic goals, our regulators are increasingly holding us to high standards of conduct, to protect our customers.
Aviva will continue to work closely with key regulatory bodies on these and on other industry matters.
3 Association of British Insurers, A Brave New World, 2015. 4 Uber.com, usage statistics and revenue, September 2015.
Older and healthier The emergence of a generation aged 50 plus who will live longer and who are healthier. Markets will be driven increasingly by this group’s attitudes and needs.
Shifting wealth Developing markets will have a much larger share of the world’s savings and assets pool.
We’re delighted we can meet so many of our customers’ insurance and savings needs. You could say we offer all the colours of the rainbow!
She’s also a fan of our Chunyu Online Doctor, part of her critical illness cover through Aviva. This allows her to hold an online consultation with a doctor when it suits her. She finds it far quicker and more efficient than a time-consuming visit to a hospital or clinic.
Her top priority is her family, not least caring for her elderly parents. But she also has a business to run and must travel for work. So, when she’s away and her father has had some of the inevitable aches and pains of age, she can make sure he is getting the right care through the online doctor service.
Your Aviva Rainbow’s story 16 | Aviva plc Annual report and accounts 2015
ai n b o w ’s s to ry p ag e asset manaGement – Ian’s story page 46
General insurance policies protect customers from loss in the event of damage to their property or assets, or injury to themselves or others for which they are responsible.
Read more on pages 30-45 18 | aviva plc Annual report and accounts 2015
Underwriting Underwriting and pricing expertise coupled with our analytics capability allow us to underwrite risk in a way that better reflects our customers’ profiles making it more price competitive.
Customer service Our strategy is to delight our customers, providing them with simple and convenient products and services that meet their insurance, protection, health, savings, retirement and investment needs.
Multi-distribution We sell our products through multiple channels, so that customers can access our products and services in the way that they choose.
Shareholders We create value for shareholders by using our profits to reinvest and grow the business and pay out dividends.
£30.7bn 10.4% 29,600 £10.8m Paid in benefits and claims to customers in 2015 total shareholder return in 2015 employees worldwide total community investment in 2015
Our strategic framework focuses on the things that really matter and puts the customer at the heart of all we do. It provides clear direction across all our markets for how we run our business
Digital First We put Digital First. This is how we will capitalise on being a True Customer Composite. With their busy everyday lives, customers are increasingly turning to digital to make things more convenient, easier and quicker. So, if it is a choice of where we invest, it will be in Digital First across all our distribution channels – it’s how customers want to do business with us.
Our Culture 20 | Aviva plc Annual report and accounts 2015
benefits of the composite were clear (such as lower capital requirements through diversifying our risk), the operational benefits were more elusive. Very few customers held more than one Aviva product as our business was distributed almost solely through intermediaries.
If customers are not relying on intermediaries to analyse their needs and recommend a suitable package of products, they could find themselves managing multiple different products from different providers. This is not what customers tell us they want. What they want is a simple way to meet all their insurance needs.
How we’ve progressed Since its UK launch in February 2014, MyAviva (see case study above) has enabled customers to see an increasing number of their products, from car insurance to pensions, in one place. Over
True Customer Composite means offering all these products individually or in tailored combinations in a convenient, easy to understand and timely manner.
Furthermore, True Customer Composite means valuing and rewarding customers for making the choice to have a deeper, more loyal relationship with us, supported by the benefits of increased customer retention and engagement, and lower-cost administration.
In the past, although the financial the last year, we have been working hard to improve the user experience and provide additional functionality for customers. This has included pre-calculated quotes for travel insurance if not currently held by the customer, and a no claims discount online upload functionality which takes away the pain of sending us documents. As at the end of December 2015, we had a total of 1.8 million registered MyAviva customers and an average of two million logins per month.
True Customer Composite is more than MyAviva. For example, in Poland, we have created “You, Me and We”, three integrated packages of products which reflect what customers need at different stages of their lives, across life, general, accident & health insurance.
In Canada, we sold over 200,000 Ontario home and auto combined policies in 2015, which means that over 45% of our Ontario customers now have combined policies.
At the very heart of it, True Customer Composite is about making life easy for our customers. It is building propositions that are really relevant to them and will add value to their lives
Chris Wei Executive Chairman, Aviva Asia and Global Chairman, Aviva Digital
Health Essentials Everyone likes to feel protected – but not everyone can afford a comprehensive policy. So, we believe it’s good thinking to offer healthcare that doesn’t include things our customers would rather not pay for. That’s why we’ve launched Essentials in the UK, with three simple, low cost products: “Cancer”, “Child” and “Physio”. These are available digitally, so customers can easily buy the cover they need with just a few clicks.
Good thinking is a different way to demonstrate what Aviva is all about – it is not a new concept, it is what we do naturally
It aims to inspire our people to keep coming up with ideas to solve customers’ problems and informs the way we develop future services and propositions so that the customer experience is easy and intuitive. It is anticipated that by the end of 2016 we will have launched
“Good thinking” in all markets in which we have a wholly-owned brand.
As part of “Good thinking”, we will continue to develop propositions which make it simple, convenient and intuitive for customers to meet their needs across our full set of life, general insurance, accident & health insurance and asset management products. This will be underpinned by our Digital First strategy as we make the most of digital technology to improve customer experience, increase engagement and reduce cost, leading to longer and more valuable relationships with customers.
Ask it once One of the ways we can make things easier for customers is by never asking for information we already have from another product they hold with us. We’ve already reduced the range of questions we typically ask by twothirds across our combined products, as well as identifying how our broader understanding of customers can help our underwriting and pricing.
advantage of this growth. We have a trusted brand, powerful distribution networks and an existing customer base of 33 million.
MyFamily in Singapore, which have the potential to disrupt the market. We will complement these with wellness services which help our customers to manage and improve their health. Accident & Health is a key priority for
Growth potential We provide Accident & Health products to 2.5 million customers in the UK, Singapore, China, France and Poland, and have small businesses with growth potential in six other countries.
Clear strategy We will unlock value from our existing business; mainly through automation and improved supply chain management; and invest this cash to grow through: } Product innovation
Our vision is to offer a suite of innovative, simple, low cost products that are accessible and relevant to all our customers – whatever their life stage
Wellness Services which encourage and reward healthier living, whilst offering guidance on health and lifestyle.
1 Aviva’s Consumer Attitudes Survey (CAS) in 2015 reported that 56% of our customers stated health as their number one concern. 2 Accident & Health sales include life new business sales (PVNBP) and net written premiums currently reported within our life, general insurance and health business results.
gives us a strategic advantage. We put Digital First because our customers are increasingly choosing this as their preferred way to deal with us. Through digital we can support customers more quickly with their enquiries and transactions, wherever they are in the world.
Why it’s important The environment in which we operate is changing rapidly due to recent advances in technology and digital distribution. Aviva puts Digital First – this is how we will capitalise on being a True Customer Composite. We have to think Digital First across all our distribution channels – it’s how customers want to connect and do business with us.
Digital distribution Increasingly customers want to be able to self-serve: researching, buying policies and making changes online. Digital allows customers to connect with us directly, allowing us to improve customer experience, increase interaction with our customers and reduce the cost to serve them.
At the same time, good progress has been made in hiring our global digital leadership team, bringing industry-leading expertise in digital design and digital marketing from outside financial services.
Our ambition is to allow customers to access all our services and products on any device, 24/7, 365 days a year
In the UK, Fast Trade, our proposition for the SME eTrading market, won the Technology Award for Customer Experience from trade magazine Insurance Times. The new tool allows brokers to request business using automatic pre-population of customer information, making the sales process easier and more efficient.
It’s about identifying new opportunities and making sure we’re always learning and up to speed with new developments in technology.
What we plan to do next We will continue to focus on developing our digital offering to customers to support True Customer Composite propositions, including the continued development and roll-out of MyAviva and MyAgent. This is an area where there is intense competitor activity and digital is the key to unlocking the potential competitive advantage of our True Customer Composite proposition.
business units in distributing their products (with a focus on direct digital distribution through MyAviva). Our ambition is to create an outstanding experience for customers, whenever and however they contact us.
We have seen an encouraging response from customers. For example, we continue to see more customers choosing to renew online: over 40% of general insurance renewals now take place online. Customers can ‘quote and buy’ a broader range of products – from just general insurance in 2014 to retirement, investments and an expanded protection range in 2015; and we made a full composite offering available online in January 2016 with the launch of Health Essentials (see case study on page 22).
MyAviva enables our customers to have all of their insurance documentation in one place – making it easier than ever to view policies, make changes or claim.
Our Chief Capital & Investments Officer, Jason Windsor, talks about the Not Everywhere strand of Aviva’s strategy.
We believe there is an optimal balance between sufficient diversification to enable us to use our capital efficiently, and maintaining the necessary level of expertise, oversight and risk management.
We think we’ve got it about right. We are in 16 markets. We are also a British champion – the UK is our home base. We’re the largest player in the market. And as a composite we’ve got an in-built advantage which few can match.
Not Everywhere is also about capital allocation – we see it as a competitive sport. Cash is paid up to the Group, which we then reallocate to markets
How do you decide which markets to focus on? We are not trying to be all things to all people. We are not interested in planting flags or being in 100 countries or providing every product in every market. Our focus is on a select number of markets where we can have critical mass – scale or profitability or a distinctive competitive advantage.
For example, in January 2016 we announced a new general insurance partnership with the Royal Bank of Canada, Canada’s leading bank, including a 15 year distribution deal. We are one of the leading general insurers in Canada and this deal opens up a new distribution channel, complementing the strong broker partnerships that we have in this market.
However, we remain highly disciplined regarding capital allocation, and the cost to renew the agreement was far in excess of what we saw as economically viable or justifiable to our shareholders.
We already have an excellent growth franchise in Asia, with a strong network of leading local partners, and look forward to a bright future in Asia.
We look at capital allocation through three lenses: strategic, financial and execution
We aim to invest our Group capital efficiently to get the right balance of risk and return, consistent with our Investment Thesis of cash flow plus growth.
We ensure that outcomes can be delivered with a high degree of confidence and that the risks are understood and can be managed.
Imagine if 70 businesses in your community vanished overnight: livelihoods lost, lost income for suppliers, and thousands of disappointed customers.
That’s what happened in St Jacob’s, Ontario, when the much-loved St Jacob’s Farmers’ Market burnt down. Overnight, local people lost the place where they went for everything from antiques to livestock. One business owner said it “felt like losing a home – like you weren’t going to see your family anymore.”
Marcus, the Market’s President, said “one of the best decisions we made was to review our insurance with our broker regularly, which resulted in us having the right coverage to be able to recover.” This was a complex case, but John, our loss adjuster, quickly agreed a plan of action and we made a substantial advance so the resurrection of the Farmers’ Market could begin. Within a few weeks a temporary market was operating. In total, Aviva paid out around £2.7 million or just under $CAD5 million.
Now a bigger, better St Jacob’s Farmers’ Market is back as a bustling much-loved place, with a huge diversity of shops and stalls, where people can meet their friends and family. We’re proud we helped St Jacob’s Farmers’ Market to rise from the ashes – and take its place back at the heart of the community.
One of the best decisions we made was to review our insurance regularly
Andy Briggs, Chief executive Officer, UK&I Life and Chairman, Global Life Insurance what’s your strategy? We help people enjoy a secure and prosperous retirement, and look after them and their loved ones should they fall ill or die. It’s a pretty noble endeavour.
I’m keen to make the most of the True Customer Composite model. So, for example, we’re working with Aviva Investors so that a greater proportion of our funds flow to them where it is in the best interests of our customers.
We have one of the largest books of existing pensions, savings and protection customers in the UK, and manage this efficiently through rigorous capital management, automation, reducing our costs and improving customer service and retention.
We’re also benefiting from relationships built elsewhere by the Group. For example, we won a group protection contract on the strength of the existing relationship with the general insurance business.
how are you putting Digital First? We put Digital First so that our customers can deal with us online and through their mobile devices using the MyAviva portal.
I’ve been in insurance for 28 years and I’ve not seen an insurer with Aviva’s potential
the life business can be the Group’s anchor for delivering the benefits of the true Customer Composite model to our customers
Andy Briggs Chief Executive Officer, UK&I Life and Chairman, Global Life Insurance what are your highlights for 2015? Obviously, the acquisition of Friends Life. We’re well into the integration – it’s hard work, but vitally important. We’re due to deliver the savings we promised by the end of 2016, one year earlier than planned.
While the integration of Friends Life caused some disruption to the business, we have endeavoured to move as quickly as possible to reduce the uncertainty for our people. As we took forward the integration in 2015, we were able to give clarity to three quarters of our people on their futures. We now have the best of both leadership teams in place.
Solvency II has also been a big focus. I think we’ve handled its introduction well. Tom Stoddard talks more about this in the Chief Financial Officer’s report on pages 58-61.
what are your impressions of Aviva? It’s a hugely exciting time. We’ve finished the fix phase. Now we are in the transform and grow phase. We’ve got a strong balance sheet and capital strength, some great people, and a material cost and capital advantage over our peers given we are a composite insurer with scale.
} Delivered £113 million of integration run-rate synergies and ahead of our target for the year
} Launched a new Direct-to-Consumer investment platform which provides customers with digital access to easy, ready-made packages, through the MyAviva portal
} Complete the integration of Friends Life: – continue to align Aviva and Friends Life propositions – deliver the total cost savings we have promised one year early – transfer further Friends Life assets to Aviva Investors where that is in the best interests of our customers – complete the cultural transformation
we’re ahead of schedule on the integration of Friends Life, we’re growing and we’re delivering cash flow plus growth
Pensions freedom From April 2015 millions of UK pensioners no longer had to buy an annuity – but could choose what to do with their pension pot. While this presented us with challenges, we responded rapidly with a real focus on what our customers needed.
We offer customers: • Retirement solutions which help people plan, save for and enjoy a financially secure retirement including annuities, investments, income drawdown, equity release and long-term care insurance.
• Protection insurance which provides peace of mind to customers should they die or fall ill – including life insurance, critical illness cover and income protection.
Ireland has made significant progress towards becoming the provider of choice in the retirement market, winning the “Innovation in Pensions” award for the second year running at the Irish Pension Awards.
Completing the acquisition of Friends Life has allowed us to accelerate our turnaround and our ability to deliver cash flow plus growth. Strategically, this transaction secures our position in our home market, and puts us in a strong position to look after our customers’ entire insurance, savings and retirement needs.
Financial performance During the year total cash remitted to Group was £667 million, up 53% from 2014.
By the end of next year, I want us to be delivering our purpose better and for more people, to be a stronger more diversified business, with a marketleading, engaged workforce, and strong and growing cash flows.
Overview Aviva is a leading insurer in the UK and Ireland life insurance markets, with a 13%1 share of the UK life and pensions market. We offer a comprehensive range of products to individuals and companies, including pensions, retirement solutions, life insurance, and savings and investment products.
In Ireland, we continue to deliver our strategy of growing annuity and investment business, progressing towards being the provider of choice for pre and post retirement solutions.
Andy Briggs Chief Executive Officer, UK&I Life and Chairman, Global Life Insurance
are designed to benefit customers, and to help more of them to enjoy a prosperous retirement.
At the same time, our customers themselves are changing. The UK population is growing, and getting older – with people living longer and healthier lives in retirement. More people are renting, and fewer people own their own home. Customers are increasingly using mobile and digital technology to access financial services. Advances in data analytics, wearable technology and the ‘Internet of Things’ create new opportunities – but also new risks for insurers and their customers. All of this means we need to be agile in anticipating and responding to customers’ changing needs, and be innovative in our design of propositions to meet those needs.
Overall UK & Ireland Life operating profit increased to £1,432 million (2014: £1,049 million2). UK life operating profit was £1,408 million (2014: £1,025 million), including a contribution of £358 million from Friends Life following its acquisition in April 2015. Excluding Friends Life, UK profits increased 2% to £1,050 million (2014: £1,025 million), benefitting from lower operating expenses as well as improved new business profitability. In Ireland, profits were stable at £24 million (2014: £24 million).
VNB increased to £625 million (2014: £482 million). In the UK, VNB was £609 million (2014: £473 million). Excluding a £91 million contribution from Friends Life, UK VNB improved 10% to £518 million (2014: £473 million), mainly reflecting higher margins on pension and health business, together with increased sales and margins on bulk purchase annuities. This increase was partly offset by lower individual annuity sales compared to 2014, following the announcements made in the 2014 UK budget. In Ireland, VNB increased to £16 million (2014: £9 million) as a result of higher sales and improved margins on pensions and annuities, partly offset by lower protection sales.
Market context and challenges The UK is Aviva’s home base and we are a British champion. It is a mature market, but one which offers good prospects for profitable growth.
2015 has been a year of unprecedented change in the market, creating opportunities and challenges. The UK Government’s reforms have allowed people more freedom over how they take their pension fund. As a result, we have made significant improvements to our core systems for administering our customers’ pensions and how we support our customers as they decide how they wish to take advantage of these reforms.
We focus our resources on providing our customers with the appropriate support and blended solutions to best meet their needs for retirement, supported by our Retirement Centre, available online at www.aviva.co.uk and on the telephone. In this way, we support these customers at, and through, retirement with income drawdown, annuities, equity release and other investments.
Bad things will always happen – and we will be there for our customers when they do. Our aim is to build long-term relationships with customers so we are developing products and services that go beyond insurance to mitigate and prevent – whether that’s delivering risk management advice to a large corporate customer or using leak-prevention technology in customers’ homes. That’s the future of insurance.
UK & Ireland General insurance we are the leading general insurer in both the UK and Ireland, with a market share of 12%1 in the UK and 13%2 in Ireland 1 Datamonitor UK Insurance Competitor Analytics 2015 2 Irish Insurance Federation, 2015
} Made progress in delivering the benefits of the True Customer Composite model for our customers, making our first healthcare and pension sales through GI brokers
} Invested in using new technologies so that we can settle claims on the same day they are made
} Grow our business profitably in the UK and Ireland and provide new products and services in areas such as pet insurance, warranty, home services and for high net worth customers
} Expand the distribution reach of our corporate and speciality commercial lines business to maintain our existing business and provide opportunities to expand into new markets
We’ve also received many accolades, including General Insurer of the Year at the Insurance Times Awards for the second year running.
We have transformed the claims experience – many domestic claims can now be handled in a single call.
We also scored a major victory in the fight against fraudulent whiplash claims with the UK Government’s announcement that it plans to put a stop to cash compensation for minor whiplash injuries.
Customers can access our products and services in the manner that they choose through our multi-distribution network; directly from us over the phone or digitally, or via our broker, intermediary and strategic partners.
The quality of the service we provide to our customers is reflected in the number of awards we have received. Most notably, we were the Insurance Times Insurer of the Year in 2014 and 2015, and voted number one for underwriting and claims in both personal and commercial lines in the 2015 Insurance Age Sentiment Survey.
In Ireland, operating profit increased to £41 million (2014: £33 million) mainly driven by favourable weather experience, partly offset by lower prior year claims reserve releases.
UK and Ireland operating expenses reduced by 8% to £697 million (2014: £755 million) reflecting a focus on efficiency and discipline in our cost control as we pushed through the expansion of digital and automation across our business, and a reduction in headcount.
The UK and Ireland GI combined operating ratio (COR) remained stable at 95.0% (2014: 94.9%), reflecting higher claims across both personal and commercial lines, partly offset by cost savings and lower sales commissions.
The UK motor market has suffered from insurance fraud at an ever increasing rate over recent years. We welcome the UK Government’s decision to act and will continue to work with them and the industry to create and implement effective solutions.
We still have much more to do in this space, including addressing the noise-induced hearing loss epidemic of claims.
The UK’s recent large scale flood events have highlighted the need for affordable home insurance. Flood Re, an industry solution, being launched in April 2016, will help support those households with the highest flood risk. The Flood Re scheme will help people better understand their risk of flood and what they can do to reduce that risk.
Maurice tulloch Chief Executive Officer, UK&I GI and Chairman, Global GI
Our progress and future plans What we achieved in 2015 What we plan to do in 2016
} Expanded our range of product offering, including Overland Water Coverage and developed an insurance solution for ride sharing drivers
} Ultilised new technology to enhance claims management through predictive analytics and anti-fraud capabilities
} Integrate the RBC General Insurance Company business and people into Aviva Canada
} Continue to work with regulators to influence a positive outcome for customers in Ontario auto
} Continue to invest in digital so our services and propositions are better for our broker partners and customers
Overview We have an 8.4%1 market share and a top five position in all major provinces.
In 2015, 39% of sales were personal auto, 26% personal property and the remainder in commercial insurance.
Strategy Our objectives are to build on our existing service to customers and distributors, build our digital capabilities, and lead product innovation in Canada.
In January 2016, we announced the proposed acquisition of the Royal Bank of Canada General Insurance Company (RBC General Insurance) and a 15-year distribution agreement with RBC Insurance. Through this agreement, Aviva Canada will provide underwriting, pricing and claims services, and RBC Insurance customers will be able to access our full suite of general insurance products. This diversifies our distribution, giving us exposure to the direct channel in Canada.
Financial performance Canada retained its dividend within the business in anticipation of the proposed acquisition of RBC General Insurance. The £6 million cash remittance represents interest on an internal loan.
Operating profit increased by 13% to £214 million (2014: £189 million), a 22% increase on a constant currency basis driven by more benign weather compared to last year and favourable prior year development.
Operating expenses were lower at £298 million (2014: £316 million), but up 1% on a constant currency basis, reflecting growth in the business.
Market context and challenges As the industry continues to evolve, those insurers who increase their digital capabilities will lead the pack. More business will be purchased via digital channels, so the ability of companies to innovate and adopt new technologies will be crucial. The industry needs to adapt to meet customers’ evolving needs in the years ahead.
We will build our digital capabilities and lead product innovation in Canada
David McMillan, Chief executive Officer, Aviva europe and Chairman, Global health Insurance what is europe’s contribution? Europe is a big part of Aviva. We are the second largest cash contributor to the Group, remitting £431 million in 2015, and contributed over 30% of total 2015 Group operating profits.
We have continued to grow our Value of New Business (VNB), as a result of our strategic initiatives to reshape our portfolio, focus on less capital intensive products and improvements in operating efficiency.
We have turned around our general insurance businesses and this is reflected in our general insurance combined operating ratio which improved by 2.3 percentage points to 95.4%.
what’s your strategy for europe? Over the last few years, we have completed the turnaround of our mature composite businesses in France and Italy, improving margins, refocusing on capital-light products and harnessing our distribution. Our turnaround in Spain is well progressed, benefitting from an improving economic environment. In 2015, we have started to shift the emphasis towards digital and True Customer Composite, deploying MyAviva, increasing sales of protection and Accident & Health (A&H), and digitising distribution channels.
2 Operating profit has been restated to exclude amortisation and impairment of acquired value of in-force business, which is now shown as a non-operating item. 3 Excluding Eurovita and CxG. 4 On a constant currency basis.
} Launched innovative products, such as “You, Me and We” in Poland and use of telematics on motor and home in Italy
} Improved the profitability of our general insurance businesses, rebalanced new business towards the SMEs segment in France and strengthened analytics and anti-fraud capabilities in all markets
} Expand MyAviva in France, Italy and Poland to increase customer registrations, introducing a suite of additional services and features for our customers and distributors
} Diversify our distribution, through new partnerships and affinity relationships, and expand the product and service offerings with our current partners, such as AFER in France, Sabancı Group in Turkey and bank partners in Italy, Poland, Spain and Turkey
} Maintain our leadership positions in life insurance and protection in Poland, pensions in Turkey, GI in Ireland and protection in Italy
} Grow our position in accident and health through product innovation, wider distribution and digital wellness services
In 2016, we will do even more. We will build digital solutions for our distribution channels. For example, we will implement MyAgent for our sales network in Turkey and develop digitised sales tools in Poland.
You are taking responsibility for Ireland – what are the challenges and opportunities there? Aviva Ireland has undergone a turnaround over the last couple of years and we are now benefitting from the cost economies and expertise from being branched into the UK Life and General Insurance businesses.
what’s your final message? The first stage of the European turnaround is largely complete and we are now moving into a ‘transform and grow’ phase. We have good businesses and are in a strong position to grow our franchises – digital and True Customer Composite will be at the heart of this.
However we continued to make reasonable progress on a constant currency basis.
We continued to grow our Value of New Business (VNB) which was up 14%4 to £400 million, an improvement of 48% over the last three years, while maintaining our expenses at £526 million (broadly flat in constant currency, excluding disposals). Protection VNB improved by 27%4 in 2015 and now represents 49% of total VNB.
Life operating profit decreased to £766 million. Excluding disposals last year and the one-off regulatory pension
Aviva et Moi We want our customers to be able to engage with us when and where they want. The new ‘Aviva et Moi’ platform is transforming our current distribution model to adapt to our customers’ needs. It enables our customers to view all their Aviva products in a single place, choose how they want to engage with us (online, through their agents or via call centre), as well as download statements, change their personal details and have access to our products. And what’s more, we drew on our experience in developing MyAviva in the UK, so we could bring ‘Aviva et Moi’ to our French customers that much more quickly. It’s a great example of Aviva delivering what our customers want – and it’s all the better because of our international expertise and experience.
change in Poland in 2014, life operating profit grew by 6% on a constant currency basis. This increase was driven by actions to improve the efficiency of our back book and focus on a profitable mix of new business.
Cash remittances were £252 million (2014: £264 million), up 6% in constant currency. Total operating profit was £449 million (2014: £470 million), a 6% improvement in constant currency, driven by a strong performance in the life business. Operating expenses of £360 million remained broadly stable5.
The combined operating ratio improved by 1.2 percentage points to 95.7% mainly due to better weather experience compared to the prior year.
We also operate through a distribution network of around 700 multi-agents and brokers, and a growing IFA network of over 1,500 advisors.
Cash remittances improved to £45 million (2014: £32 million), representing an increase of 55% in constant currency. Total operating profit9 was £165 million (2014: £166 million), an increase of 11% in constant currency, with growth in the life business more than offsetting lower profits in general insurance. Operating expenses9 were 5 On a constant currency basis. 6 Institut national de la statistique et des études
économiques. 7 Fédération Française des Sociétés d’Assurances. 8 IVASS – Istituto per la Vigilanza sulle Assicurazioni. 9 Excludes Eurovita.
In general insurance business, the combined operating ratio of 94.3% remained broadly stable.
Operating profit reduced to £141 million (2014: £194 million), down 19%
Legislative changes in pension funds in 2014 significantly reduced the size of our pensions business in Poland, affecting our life profits in 2015. We are assessing the impacts of an asset-based levy for bank and insurance companies, introduced in February 2016.
The main distribution channel is Akbank, one of the largest privately owned banks, with over 900 branches – part of the Sabancı Group.
We are focused on diversifying our distribution model. We recently secured an exclusive distribution agreement with Odeabank, and launched a number of pilot schemes with large retail companies.
Overview We provide life and pensions products to around 1.1 million customers. We have strong bancassurance relationships, and operate a small growing retail business.
Operating profit14 of £92 million (2014: £101 million) was up 2% in constant currency with lower operating expenses reflecting ongoing focus on efficiency.
Market context and challenges We have seen the Spanish insurance market recover with improved lending conditions, and expect this to benefit our credit linked insurance product sales.
Chris wei, executive Chairman, Asia & FPI and Global Chairman, Aviva Digital.
Each requires a different approach – but with the seam of Aviva’s strategy running throughout. So we’re a composite where appropriate – and Digital First where that’s appropriate.
We will deliver Aviva’s strengths across life, health, general insurance and asset management, to make the most of the depth of our partnerships.
why should customers choose Aviva? The British brand is very strong – and it really helps that Aviva is its national champion of insurance. But that’s not enough. We’re different because we’re embedding our capabilities in digital and analytics across the business – and are transforming our customers’ experience.
what are the highlights for 2015? We’ve brought some great ideas to our customers – such as digitising our group employment benefit claims in Singapore – which has transformed our customers’ experience and improves efficiency. In China, our Digital Wellness Platform has been well received by customers. In Indonesia – one of the world’s fastest growing insurance markets – the first year of our joint venture, Astra-Aviva Life, has gone well.
Asia we have wholly-owned subsidiaries in Singapore and hong Kong, affinity joint ventures in China, Indonesia and India, and bancassurance joint ventures in taiwan and vietnam. through the acquisition of Friends Life, our presence also covers Friends Provident International Limited (FPI), which has branches in Singapore, hong Kong and the United Arab emirates
} Grew our business in Indonesia with Annual Premium Equivalent of £6 million and an overall bancassurance market ranking of 122, following its launch in November 2014
} Our financial advisers in Singapore strengthened their market leading position in Protection with VNB up 20%
} In Singapore, we digitised our group employment benefit claims processes and opened our Digital Garage
} Further embrace the True Customer Composite model by delivering Aviva’s strengths in Life and Health, plus Aviva Investors and general insurance, tailored to different markets
} Make the most of Group digital solutions and capabilities to deliver seamless customer and distributor experiences while improving efficiency
Astra-Aviva Life We are Not Everywhere – only in markets where we can win. That’s certainly true of our joint venture with Astra, a hugely respected household name and one of the largest companies in Indonesia – one of the world’s fastest growing insurance markets. We can offer Astra’s 10 million customers high quality products – and Astra benefits from our insurance expertise. The early signs are excellent. That’s good for Aviva, good for Astra and, most importantly, good for our customers.
what are the risks and challenges? Our partnership with DBS in Singapore has come to an end – but we were always clear we weren’t going to overpay. That’s a challenge – but it’s also a great opportunity for us to rethink our business and deepen our relationship with customers by investing in platforms and direct digital channels.
It’s also a volatile time in Asian markets. But all the work we’ve done as a Group on capital management and product design bodes well for us.
what’s your final message? We’re not following conventional norms on how insurance businesses are grown, but are going to provide solutions, service and propositions in new ways. I’m confident we’re going to carry on doing well for our shareholders and customers.
Financial performance In 2015, cash remittances remained broadly stable at £21 million.
1 Excludes South Korea. 2 AAJI, on an APE basis, as at Q3 2015.
The creation of our AIMS range of products was a critical first step towards achieving our goals. The early success of our multi-strategy AIMS range of funds demonstrates that we are meeting the needs of our customers to achieve better outcomes with their investments.
how does being a true Customer Composite help? We are integral to the True Customer Composite model. Our ability to provide outcome-oriented investment solutions is a real competitive advantage for the Group.
} We signed a strategic partnership with Virtus to give us access to the US retail market
} The AIMS Target Return and Target Income funds respectively delivered returns of 4.54% and 6.29% in 2015, compared to a 1.37% drop in the FTSE 100 over the same period
Market context and challenges After a sustained period of positive returns in most asset classes, volatility has returned in recent months, with fears of a China slowdown and the slump in commodity prices adding to fears over the global economy. This has caused steep drops in many benchmark indices, and with negligible rates available on low risk assets, such as government bonds, the task of delivering the returns investors expect has become more difficult.
Ultimately, the key challenge for any asset manager is how to stand out from the crowd in a highly competitive market. We operate in an uncertain world – and this means asset managers must deliver solutions that can perform in all market conditions. That is a challenge – but also an opportunity.
Being a good ancestor Being a responsible business is just good business. So we’ve committed to invest £500 million each year for five years in renewable energy and energy efficiency – with an annual carbon reduction target of 100,000 tonnes. 90% of our investments are already covered by environmental, social and governance factors – ESG. Now we’re further embedding climate risk in our decisions. We’re going to be even more active as shareholders – encouraging companies to look long term and low carbon. Simple steps for good returns today – and tomorrow.
tell us about your Digital First strategy? Digital First sets us apart. We want all our clients to be able to invest through us with confidence, by anticipating their needs and being easy to do business with – so digital is critical.
Financial performance Cash remitted to Group during the year increased by 50% to £24 million, primarily reflecting a higher remittance by Aviva Investors France.
Operating expenses were £345 million (2014: £298 million), including £11 million expenses from FLI. Excluding FLI, operating expenses increased by £36 million to £334 million, primarily due to investment to support the business.
Assets under management increased by £44 billion to £290 billion, driven by acquisitions. Our flagship AIMS fund range has achieved net external inflows of £1 billion during the year and had £3 billion assets under management at the end of 2015.
Your Aviva Ian’s story 46 | Aviva plc Annual report and accounts 2015
At Aviva, we put our customers at the heart of everything we do. That’s certainly true at Aviva Investors, where our flagship fund range, AIMS, continues to deliver positive returns in volatile investment markets.
It’s a great match. Virtus can draw on Aviva’s knowhow in investing across different markets and asset classes in order to deliver the outcomes customers want.
The goal is to deliver a return of 5% per annum above the federal funds target rate (gross of fees), on average, over rolling three-year periods, with a volatility target of less than half that of global equities, over the same rolling three-year periods.
That’s a technical way of saying its absolute focus is on achieving the right outcome for customers, regardless of the prevailing stock market environment.
Our ambition To succeed in transforming and growing the business, delivering our strategy, and living our values, we must continue to transform our culture.
Turnaround to transformation During Aviva’s turnaround phase we focused our people on alignment, achievement, potential and collaboration, increasing engagement with our strategy and providing clarity on what we expected from them.
We have also continued to focus on engaging with our people, with local and group wide activities to illustrate how their work supports our strategy and values. This has included a programme of discussions within all teams to see how their goals and local plans support the group strategy, and using technology to reach and engage with our global teams, through live interviews, in which senior leaders answer questions posed by colleagues around the world. At the end of 2015, 82% of employees felt they could make a personal connection to our strategy and purpose (up 7 percentage points on 2014).
We want our people to fulfill their potential and do the best work of their lives – providing truly excellent service to our customers and helping Aviva achieve outstanding performance
Helping our people do the best work of their lives 48 | Aviva plc Annual report and accounts 2015
Listening to Our People We use the Voice of Aviva survey as the main formal tool to understand our people’s engagement, one of our key measures of progress, and listen to their insight and feedback.
We are continuing to build a truly inclusive workplace for our lesbian, gay, bisexual and transgender (LGBT) employees. We are the only insurer in Stonewall’s ranking of the UK’s most LGBT friendly workplaces – although we
I am extremely proud to work for Aviva. I believe in our strategy and see that the customer is at the heart of what we do
We care like crazy about our customers, our communities and each other.
We strive to create a sustainable future for our customers and each other.
Leading@Aviva Some courses can feel like you’ve just ticked a box. Not Leading@Aviva! It’s about helping our leaders to inspire our people to do the best work of their lives. We’ve had great feedback: one participant said he’d learned “some really practical advice around performance and development”, while another said “I came away feeling very motivated and empowered “. That’s great for them, for their teams, and ultimately for our customers too.
Our people who felt they could make a personal connection with our strategy
We are committed to ensuring we provide full and fair consideration for job applications from people with disabilities, as well as supporting any of our people who become disabled while working for Aviva. For example, we adapt the working
Stonewall Top 100, and continue to lead the way in the insurance industry. We certainly can’t be complacent and we will never rest in making Aviva a great place to work for LGBT people
A little more conversation We want our people to have a real connection with our strategy – and how they help to deliver it. Our Week of Conversations is a great way of doing that, as well as celebrating our successes. It is part of a whole programme of town halls, films, roadshows and market stalls, all designed to create an open two-way conversation. One of our people in France said that “this kind of discussion is important … it allows us to understand what impact our daily work has on the company’s results. Thank you – let’s do it again!”
It’s Alive! For Aviva to succeed, our people must be able to hold open, two-way conversations – especially with our leaders. That’s where Aviva Live comes in! We film members of the senior team being quizzed before a live audience and stream to Aviva sites around the world. The questions are searching – and all come from our people. One colleague described Aviva Live as “good, light-hearted in places, but also honest and frank”. That’s the culture we want.
We are evolving our culture so we are absolutely focused on the role we play in our customers’ lives and letting our values guide every decision we make
In 2016 we will build on our investment in young people who want to learn while they earn, rather than attend university full- time, by launching an apprenticeship scheme, approved by the UK Government, which will be rolled out across different parts of Aviva, including our general insurance, life and digital businesses. This will be aimed at creating opportunities for 16-18 year olds, but also for applicants of all ages and backgrounds who wish to return to work.
• Combining our existing deep technical expertise with the skills we need to create new, market-leading digital products, services and experiences for our customers.
• Developing talented people so that, through purposeful moves across products, markets and geographies, they have the agility, knowledge and collaborative skills to help Aviva make the most of the composite model.
• Rewarding and recognising outperformance, but balance this against the risks we take, and identify and learn from any mistakes we make.
1 Claudia Arney was appointed to the Board on 8 February 2016.
At Aviva we focus on tackling the most important issues of our time with bright ideas, for our customers, their communities and the world
We live in a time of complex global challenges. Changing customer needs, ageing populations, climate change and the power of communities will increasingly affect our customers’ lives and, in turn, our business performance. We also know that some of the biggest problems facing the world today are some of the least understood. That is why we are using Good thinking in our new strategy to simplify and tackle the most important issues of our time. We are focusing on: • Good thinking for you today – protecting the people and things you love and strengthening your local community through the Aviva Community Fund
• Good thinking for your future – acting now for tomorrow by helping you live well for longer, tackling climate change and supporting the United Nations’ Sustainable Development Goals
• Good thinking for our industry – championing responsible investment and challenging our industry to work better for everyone.
Corporate responsibility is integral to our business, it supports the delivery of our strategy and aligns with our values
Doing the right thing for our customers Trust is vital when it comes to building strong and healthy relationships with all of our stakeholders. We are committed to communicating with our customers in a simple, clear and helpful way. Complaints and feedback are taken seriously and investigated thoroughly. This commitment is reflected in our customer business standard.
} Became the first insurer to achieve the Carbon Trust Supply Chain Standard, in recognition of work to measure, manage and reduce carbon emissions outside own direct operational control
} Published research on the risk of climate change to global assets
} Replicate the Aviva Community Fund in more markets, targeting 2.5m beneficiaries and 250,000 hours of volunteering by 2020
} Collaborate with the UN and others to build global capability around sustainable finance
} Continue progress towards our £2.5 billion target in low carbon infrastructure investment by 2020
Backing the causes you care about Our online Community Fund invites the public to nominate and vote for inspirational projects in their local communities. The Fund has been a great success for Aviva Canada and Poland so we’ve replicated it in the UK, France, Italy and Hong Kong. It’s already making a big difference – in the UK we made 430 awards from £1,000 to £25,000, supporting projects from community safety to young people befriending dementia sufferers. One winner, Purple Patch Arts, said “it’s amazing. It’s going to allow us to do so much”. We’re in business to create legacy, for our customers and communities – so we’ll be launching the Community Fund in more countries in the future.
Strengthening our local communities Aviva has a long history of investing in communities. Following its success in Canada and Poland, we launched the Aviva Community Fund in the UK, France, Italy, and Hong Kong in 2015.
Our employees play a big role in supporting local communities. All Aviva employees are entitled to paid
Increase in community investment 2 Micro-insurance promotes financial inclusion by providing affordable protection for those on a low-income. 3 2014 data excludes Friends Life employees.
Tackling climate change Aviva has a long-term commitment to tackle climate change but in December 2015 this commitment featured even more prominently given the critical importance of the United Nations Framework Convention on Climate Change (UNFCCC) negotiations in Paris.
In July 2015 we published a report commissioned from the Economist Intelligence Unit which quantified the value of investments at risk from climate change. We launched this report, as well as Aviva’s strategic response to climate change, at an event with a keynote
Human rights Respect for human rights is embedded in the way we do business. In 2015 we updated our group-wide Human Rights policy in accordance with the UN Guiding Principles on Business and Human Rights (including the ILO Principles). Our new policy sets out our global commitment in the following areas: 2030. This year we have achieved a 39% reduction against the restated 2010 baseline. We were the first carbon neutral insurer worldwide in 2006. We also continue to offset any remaining carbon emissions and our offsetting projects have benefitted over 800,000 people since 2012 through improved health and livelihoods (e.g. through the provision of clean cookstoves in Kenya).
Our carbon footprint Each year we publish group performance data for our greenhouse gas emissions, waste and water consumption. Our carbon footprint boundaries identify the scope of the data we monitor and the emissions we offset. We report on Greenhouse Gas (GHG) emission sources
Employees We promote fair reward, diversity and inclusion, equal opportunities, the freedom of association and other human rights through our interactions with our employees. We provide a secure, safe and healthy environment for all employees.
Due diligence We conduct human rights due diligence processes periodically to ensure that we are not complicit in human rights abuses in the countries in which we operate.
speech by the UK Secretary of State for Energy & Climate Change.
COP 21 Summit in Paris One of our values is to create legacy and unchecked climate change would create a catastrophic legacy. The December 2015 UN Paris Climate Change negotiations were vital in securing a sustainable future for our business and the communities we serve. Unchecked climate change equals risks too great to insure and limited returns on investments. The ambitious agreement reached at Paris is significant, with international commitment to “limit temperature rise to well below 2 degrees” and in addition “to pursue efforts to limit to 1.5 degrees”. We think the Paris Conclusions are a good outcome. Now it’s time to deliver.
Suppliers We have a robust due diligence process which enables us to evaluate, select and ask suppliers to disclose their human rights policies as part of our selection criteria. In the UK, we were an early adopter in achieving accreditation by the Living Wage Foundation and we ensure that suppliers pay at least the Living Wage to employees subcontracted to Aviva.
Aviva has really helped me to grow as a person and develop my skills
Creating legacy at the United Nations The United Nations’ Sustainable Development Goals really chimed with us – creating the legacy of an end to extreme poverty, and tackling injustice and inequality and climate change. We’ve been at the forefront of the debate – and our Group Chief Executive Officer, Mark Wilson, addressed the UN General Assembly in New York, at the launch of the Goals. He talked about the central role of business and the financial markets if we’re to succeed. We are also founding partners of Project Everyone, which aims to get the debate into every home in the world.
Prevention is protection The best form of protection is prevention. We can’t stop bad weather, but we can help to minimise its impact. We recently helped sponsor the free British Red Cross emergency app. It helps you keep an eye on the risks of severe weather or other emergencies affecting you, your friends and family through alerts and practical advice, as well as handy tools such as a strobe light to attract attention if you are in difficulty. We want to improve our communities’ resilience to severe weather – this is a practical way of doing exactly that.
We follow the GHG Protocol Corporate Accounting and Reporting Standard, and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2015. We do not have responsibility for any emission sources that are not included in our business operations.
Aviva Investors signed the Montreal Carbon Pledge in 2015, one of the largest asset managers at the time to do so.
We are in the top 10% for our sector in the Dow Jones Sustainability Index and FTSE4Good.
Michael also said “I have motor insurance, income protection and property
Under the new Solvency II capital rules, we ended the year with an estimated £9.7 billion surplus1, which translates to a 180% cover ratio1, at the top end of our working range. Our transition to Solvency II has avoided surprises and sudden changes. Aviva strengthened the methodology of its economic capital models over the course of the year, resulting in what we believe to be a conservatively stated cover ratio under both our economic capital model (181%)2 and the new rules (180%)1.
Life in April 2015. IFRS net asset value per share (NAV) increased 14% to 389p at year end, largely as a result of this acquisition. We are ahead of schedule on the integration, and expect to realise the £225 million of run-rate synergies by the end of 2016 – a year ahead of schedule.
In 2015, operating profit3,4 increased 20% to £2,665 million, with a significant contribution from Friends Life. Operating earnings per share3,4 (EPS) increased 2% to 49.2p, after the dilutive impact of issuing shares to fund the Friends Life acquisition. Weighted average shares outstanding for the year were 3,741 million, up 27% from 2,943 million in 2014.
Operating profit3,4 after integration and restructuring costs was up 10% from £2,073 million to £2,286 million. Integration and restructuring costs were much higher in 2015, at £379 million reflecting the Friends Life acquisition, Solvency II costs and other restructuring, primarily in the UK. IFRS profit after tax, after economic variances and the expense of amortising acquired value of in-force (AVIF), was down 38% to £1,079 million from £1,738 million.
Based on our overall stronger capital, cash flow and liquidity position this year, we increased the shareholder total dividend by 15% to 20.8p, following last year’s 21% increase to 18.1p.
Balance Sheet In addition to transitioning to Solvency II at year end, during 2015 we took a number of steps to reduce risk and free up under-utilised capital, further improving our balance sheet.
In UK Life, we sold £2.2 billion of non-core commercial mortgages. As a result, the average mortgage loan-to-value ratio in our portfolio decreased 24 points from 85% a year ago to 61% at 31 December 2015. In UK general insurance we transferred out £0.7 billion of latent exposures by purchasing an adverse development cover. We also undertook additional equity and credit risk hedging activity
1 The estimated Solvency II ratio represents the shareholder view. This ratio excludes the contribution to Group SCR and Group Own Funds of fully ring-fenced with-profits funds (£2.7 billion) and staff pension schemes in surplus (£0.7 billion) – these exclusions have no impact on Solvency II surplus. The impact from internal reinsurance arrangements between UK Life, UK and Ireland General Insurance and Aviva International Insurance Limited and the securitisation of equity release mortgages held by UK Life, effective 1 January 2016, have also been reflected in the Solvency II position.
Through a series of non-cash and cash actions, we reduced the balance of the intercompany loan between our main UK general insurance legal entity, Aviva Insurance Limited, and the Group, from £2.8 billion as at the end of February 2015 down to £1.5 billion as at the end of February 2016, below our target of £2.2 billion. Further reductions are possible, but none are planned or considered necessary at this point.
Our external debt leverage improved slightly from 28% to 27% on an S&P basis. It remains under the 30% threshold commensurate with an AA rating, which continues to be our target for debt leverage.
Liquidity at the centre is £1.3 billion as at the end of February 2016 (February 2015: £1.1 billion) and within our risk appetite. We took steps during the year to further develop our internal reinsurance company, domiciled in the UK, to enhance our future capital and liquidity management.
Efficiency gains We hit our operating expense ratio target of 50% in 2015, a year earlier than expected. On a constant currency basis and excluding Friends Life, operating expenses reduced by 1%. In our business segments, our expense ratios improved in general insurance to 13.9% (FY14: 14.8%) and in health to 14.5% (FY14: 15.7%). However, the impact of the Friends Life acquisition increased the life insurance expense ratio3 for the life segment to 32.2% (FY14: 29.7%). We expect to achieve more efficiency gains in UK Life over the next few years. Operating expenses have increased in Aviva Investors and Asia as we have funded growth 3 Operating profit has been restated to exclude amortisation and impairment of acquired value of in-force business, which is now shown as a non-operating item. There is no impact on the result or the total equity for any period presented as a result of this restatement.
It all adds up Do you know a polygon from a dodecahedron? How many milligrams in a gram? That’s what 7 to 9 year olds are being taught in the UK. We’re helping them through Aviva Tackling Numbers; it uses rugby to make learning about numbers fun, exciting and rewarding. It is run by the 12 Aviva Premiership Rugby clubs and integrates classroom maths with practical, number-based rugby games. After taking part in the programme an extra 20% of children described themselves as “really confident in maths”. See how Aviva Tackling Numbers really adds up at www.aviva. co.uk/tacklingnumbers.
Having achieved an overall operating expense ratio of 50%, we are shifting our focus more toward improving the segmental expense ratios across all our businesses. The overall Group ratio will be in part a function of our business mix. General insurance, health insurance and fund management tend to raise the overall Group ratio, so as we reallocate resources to those businesses, the overall Group expense ratio may rise. But so should profits and capital generation. We continue to believe that there is more room to rationalise our property, IT, overhead and other costs, especially in the UK and the Group centre.
Dividend policy Our commitment is to deliver on the Aviva investment thesis of cash flow plus growth. After rebasing the shareholder dividend in 2013, we have increased it by 21% and 15% over the last two years. This rate of increase exceeds our return on equity and our rate of reinvestment in the business, so we expect dividend increases to moderate in the future.
In 2014 our dividend cover was 2.7x3 and our payout ratio was 37.5%. In 2015 we improved this to a payout ratio of 42.3% with a cover ratio of 2.4x. As we reduce spending on Solvency II costs, integration and other restructuring costs in hiGhliGhTS
Solvency ii ratio1 60 | Aviva plc Annual report and accounts 2015
The acquisition of Friends Life has had a significant effect5 on all our metrics this year, including NAV. We issued 1,086 million shares for a consideration of £5,975 million, increasing NAV by 55 pence per share. Further details, including details of the amount of goodwill, acquired value of in-force business (AVIF) and other intangible assets arising on the transaction, can be found in note 3 of the financial statements.
Non-operating profit items were a charge of £1,275 million (2014: £68 million profit). The adverse movement includes higher integration and restructuring costs of £379 million (2014: £140 million) and AVIF and intangible asset amortisation charges of £653 million (2014: £130 million). It also includes a charge of £53 million relating to a UK reinsurance transaction (which provides significant protection against claims volatility), lower profits from disposal of subsidiaries and negative investment variances (2014: positive variances). Further details can be found in the “Reconciliation of group operating profit to profit for the year” in the financial statements.
Operating profit 2,665 66p Non-operating items (1,275) (30)p Tax and non-controlling interests (472) (12)p Profit for the year 918 24p
This cover ratio target is neither a floor nor a ceiling. Rather, it indicates a balance between yield and growth over time, seeking to pay out approximately 50% of operating EPS as a current dividend. Accordingly, once we reach our target coverage ratio, dividend growth will more closely align to our growth of operating EPS and economic surplus generation.
Aviva plans on delivering stable, secure dividend growth for many years to come. Our capital generation may be uneven over time, and we may extract capital from businesses or product lines that do not make the cut under our “Not Everywhere” focus on excellence. In that case, we will consider a range of options including reinvesting in our business and additional distributions to shareholders. The potential for additional distributions will also depend on economic conditions, our view of markets, and having excess capital and liquidity. We are not there yet.
Future Earnings Growth We now have strong businesses backed by a stronger balance sheet. In 2016, our focus will be on Solvency II optimisation and increasing operating profit after integration and restructuring costs.
Based on our current positioning, and subject to all the usual caveats about weather and economic conditions, we would normally expect Aviva’s operating EPS to average in the mid-single digit growth rates annually. In 2016 operating EPS will suffer the dilutive impact of a full year of shares outstanding from the Friends Life acquisition, which closed 10 April 2015.
To deliver earnings growth and increase economic surplus generation, management will prioritise (1) additional expense efficiencies in all our markets, (2) business mix shift to less capital intensive products, (3) realising volume and margin benefits from our True Customer Composite and Digital strategies, (4) reallocating capital, (5) Solvency II optimisation, and (6) growth in Aviva Investors and our growth markets of Poland, Turkey and Asia. We are not satisfied with normal results, and will keep repositioning Aviva to outperform.
Thomas D. Stoddard Chief Financial Officer 5 For the avoidance of doubt, 2015 numbers include Friends Life from 10 April 2015, the acquisition completion date. 2014 numbers are Aviva stand-alone as previously reported (i.e. do not include Friends Life).
As a True Customer Composite, we have chosen to accept the risks inherent in our core business lines of life, accident & health, general insurance and asset management
Our business is about protecting our customers from the impact of risk.
We receive premiums which we invest in order to maximise risk-adjusted returns, so that we can fulfil our promises to customers whilst providing a return to our shareholders. In doing so, we accept the inherent risks set out below, with a preference for those risks we believe we are capable of managing to generate a return: Inherent risks to our chosen lines of business
We like credit risk because we believe we have the expertise to manage it. As an insurer, our long-dated, relatively illiquid liabilities enable us to earn superior investment returns by allowing us to invest in higher-yielding, but less liquid, assets such as commercial mortgages.
We take measured amounts of life, health and general insurance risks, in line with our core skills in underwriting and pricing.
Uncertain returns on our investments as a result of credit risk (actual defaults and market expectation of defaults) and market risks (resulting from fluctuations in asset values, including equity prices, property prices, foreign exchange, inflation and interest rates) affect our ability to fund our promises to customers and other creditors, as well as pay a return to our shareholders.
Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form.
Asset management risk is the risk of customers redeeming funds, not investing with us, or switching funds, resulting in reduced fee income. We manage funds on behalf of our customers so they do not have to manage the credit, market and operational risks which otherwise they would have to manage themselves.
We believe a strong system of risk management is essential in ensuring that our business runs smoothly, supports good decision making and helps to deliver our strategic aims
Conduct risk Management This is about delivering good outcomes for our customers at each stage of the product lifecycle: the design and development of our products, the sales process, servicing policies and handling claims. Failure to do so undermines our reputation and as a result our ability to attract new customers. As part of our conduct risk management framework, we have been developing more granular and relevant conduct risk management information, insights from which have resulted in changes to product terms and conditions as well as improving key customer related processes.
Risk mitigation The risks we have a preference for are managed principally through: • extensive use of data, financial models and analysis at point of risk selection (i.e. investment or underwriting)
To help ensure our risk exposures are within appetite, specific risk mitigation actions taken in 2015 included: • Renewal of catastrophe reinsurance programme
• Reinsurance of our exposure, currently estimated at £0.7 billion, to future claims arising from historic UK employers’ liability business which may take a number of years to emerge
• Hedging activity, including use of interest rate swaps, to match our cashflow to our annuity portfolio more effectively, as well as continuation of our equity, credit and foreign exchange risk hedging programmes
• Investment in our Security Transformation programme to improve our residual risk position for cyber security
Current and emerging risks and causal factors We also manage and monitor risks and causal factors which may impact our current and longer term profitability and viability, in particular our ability to write profitable new business. We take account of these risks and possible causal factors when developing our long-term business strategy and contingency plans. We may take short-term tactical risk mitigation actions as these risks become proximate, and, if appropriate, engage with governments and regulators to help inform the development of public policy, as set out on the following page.
of major UK businesses had a cyber breach of security in the last year1
As risks or causal factors become more proximate, we may take short-term tactical risk mitigation actions. For example, uncertainty over the outcome of the UK General Election in May 2015 and Greece’s Eurozone membership were factors behind temporary increases in equity hedges taken out in April 2015.
In developing our business strategy we consider trends in risks which, without adapting our business model, could make it obsolete. For example: }New technologies: Failing to understand and react to the impact of new technology and its effect on customer behaviour and how we distribute products, could potentially undermine our competitive position } Prolonged low interest rates: If current low interest rates continue for a prolonged period it will adversely affect the ‘spread’ we can earn between the returns we can offer customers and the return we earn on our investments, as well as the attractiveness of the returns we can offer to new customers }Cyber and data loss: Increasing threat of cyber criminals requires ongoing improvement in our IT security and data encryption.
Chairman’s governance letter 68 Board of directors 70 Group executive 74 Directors’ and corporate governance report 76 Directors’ remuneration report 102
I am pleased to present this year’s directors’ and corporate governance report, which is my first as Chairman
Good governance helps to deliver value for customers and shareholders and to manage the inherent risks of the business prudently
In 2015, we have strengthened governance within the Group by codifying the principles for subsidiary governance and issuing specific guidance for individual legal entities. This has supported effective decision-making by providing clarity on the relationship between Aviva plc, as ultimate shareholder and subsidiary boards. These principles also articulate our governance expectations at every level in our corporate structure.
Board changes and succession planning There were several changes to the composition of the Board in 2015 which are detailed in the directors’ and corporate governance report in this report. During the year, the Nomination Committee discussed matters relating to Board composition, succession and talent planning at executive level and this is an area that will continue to be part of its agenda during 2016. In addition to those changes made in 2015, on 8 February 2016 we were pleased to announce the appointment of Claudia Arney to the Board as an Independent NonExecutive Director. Our Board and executive team have a wide and diverse range of skills as indicated in the charts opposite. Gender diversity is considered as one aspect of those discussions: we have made progress towards achieving our target of 25% female representation on the Board, and we remain committed to improving this position further when the appropriate opportunity arises. The Nomination Committee report contains further information on our approach.
Effectiveness and evaluation As Chairman it is my role to provide leadership to ensure that it is possible to make high-quality decisions and ensure the operation of an effective Board. I am supported by all the directors but particularly by Sir Malcolm Williamson, the Senior Independent Director, who meets independently with the other directors and with the Company’s major shareholders when required. This report contains an interview with Sir Malcolm who reflects on his impressions of Aviva since joining the Board in April 2015. During 2015, the Board and each committee conducted its annual evaluation of its own performance. This was externally facilitated and the findings provided a clear agenda for us to continue to improve as a Board, including the opportunity to focus on succession
planning and on the quantity and quality of information being presented to the Board. Further detail on the results of the Board evaluation can be found in this report.
The directors’ and corporate governance report and the directors’ remuneration report have been prepared in order to provide shareholders with a comprehensive understanding of how the Board and its committees operate within Aviva’s governance framework. The reports demonstrate how we meet the requirements of the Code and other guidance and how we structure ourselves to meet the changing regulatory environment and deliver value for customers and shareholders.
At Aviva we believe that diverse leadership in terms of experience, skills, tenure and gender is important. The charts below illustrate our diversity at both Board and senior management level. Figures are correct as of 9 March 2016
Board of Directors We have a strong, experienced and diverse Board with a good balance of skills
Appointment date: 14 January 2013 8 May 2013 as Senior Independent Director 29 April 2015 as Chairman
Sir Adrian has significant experience of the financial services industry, government affairs and regulatory matters. He has previously been the chairman of a number of companies across a variety of sectors including Friends Provident plc, Anglian Water Group Ltd, British Energy Group plc, Michael Page International plc, UK Green Investment Bank plc, 3i Group plc and Cross London Rail Links Ltd.
External Appointments: Sir Adrian is currently chairman of The Manchester Airports Group plc and The Point of Care Foundation (charity) and nonexecutive director of Cellmark Holdings AB (forest products).
Appointment date: 1 December 2012 1 January 2013 as Chief Executive Officer
Skills and Experience: Mark has extensive experience of leading major international insurance companies and has an excellent track record as a focused and inspirational business leader.
Under his leadership, Aviva has emerged with a strong financial position and a clear strategy to fully maximise the potential of the business. In 2015 Mark led the £6 billion acquisition by Aviva of the Friends Life Group and the subsequent integration which is progressing ahead of schedule.
Mark continues to lead campaigns on issues of importance to Aviva’s customers and has emerged as a major commentator in debates about the role of business in society.
Previously, Mark worked for 14 years in Asia, including as chief executive officer of AIA Group, based in Hong Kong. He repositioned AIA into the leading pan-Asian insurance company, creating a stronger and significantly more valuable independent entity, leading to the largest initial public offering in the corporate history of Hong Kong.
He has more than 25 years of operational and executive experience across life assurance and general insurance, both in the UK and overseas. He has extensive knowledge of the UK regulated environment combined with experience in capital and risk management. At Friends Life he led the transformation of the three acquired businesses and brings his strategic and business skills, experience of organisational change, and knowledge of the Friends Life business, to the Board.
External Appointments: Andy is deputy chair of the board of the Association of British Insurers (ABI) and represents the ABI at the Financial Conduct Authority Practitioner Panel. He is also a member of the NSPCC’s fundraising committee.
Skills and Experience: Claudia has a wide range of experience as both an executive and non-executive director across a number of sectors including financial services, digital and government.
Previously Claudia was deputy chairman and senior independent director of Telecity plc, chairman of the Public Data Group and a nonexecutive director of Which?, Doctors.net.uk, Transport for London and Partnerships UK. In her executive career, Claudia was group managing director of Emap and was responsible for transforming the predominantly print trade publishing business into a digital data and information business.
External Appointments: Currently Claudia is a nonexecutive director of Derwent London plc (commercial real estate), Halfords Group plc and the Premier League. She is also a member of the Advisory Board of the Shareholder Executive.
External Appointments: Currently Glyn is chairman of Interserve plc (support services and construction), Irwin Mitchell (law firm) and Transocean Partners LLC (offshore drilling); non-executive director of Transocean Ltd and Berkeley Group Holdings plc (construction); and a trustee of English National Opera.
HeadingBoard of directors: Biographies continued 72 | Aviva plc Annual report and accounts 2015
Skills and Experience: Patricia brings a broad range of experience and skills to the Board, gained over more than 30 years across financial services and other regulated industries in the United States, Europe and Australia.
She was previously group executive, wholesale banking and finance at National Australia Bank Ltd and has worked in senior roles with JP Morgan Chase and BNP Paribas.
External Appointments: Patricia is currently chair of the Commonwealth Superannuation Corporation and a non-executive director of Macquarie Group Ltd and Macquarie Bank Ltd. She is an ambassador for the Australian Indigenous Education Foundation.
Belén has held non-executive positions at Ageas (insurance), Acerinox (stainless steel manufacturing conglomerate) and Banesto (banking).
External Appointments: Michael is currently a nonexecutive director of Macquarie Group Ltd, Macquarie Bank Ltd and Washington H Soul Pattinson Pty and Company Ltd (investment).
Skills and Experience: Michael has extensive experience of implementing transformation programmes and also brings an in-depth understanding of the financial services sector.
He has had a number of managing partner roles at Ernst & Young, culminating in being managing partner, Global Actuarial Practice.
External Appointments: Bob is currently a non-executive director of Assurant, Inc (US specialty insurance), a director of Resolution Life Holdings, Inc. and is a trustee emeritus of the board of trustees of the US Actuarial Foundation.
External Appointments: Scott is currently a non-executive director of Santander UK plc.
External Appointments: Kirstine is a board member of the English National Ballet, ENB Productions Ltd and English National Ballet Enterprises Ltd.
Joined Aviva in 2013 Nick is responsible for the transformation programme across the Group, which includes driving the integration and cost synergies associated with the Friends Life integration. Nick has a strong international background in consumer banking, insurance and transformation projects over a 40 year career.
Joined Aviva in 2015 Sarah is responsible for the leadership of Aviva’s people and communication strategy. Sarah has significant international experience, particularly in transformation and change across a number of industries. She was most recently global human resources director for a division of Thomson Reuters.
Joined Aviva in 2014 Monique has led the transformation of Aviva’s information security capability, and established a three year programme to simplify Aviva’s IT estate, whilst continuing to deliver a high-volume of change to support the business. Monique previously worked as chief technology officer at Capital One and had responsibility for defining and driving their technology strategy.
Aviva UK & Ireland General Insurance and Chairman Global General Insurance
Joined Aviva in 2010 Jason is responsible for the Group’s strategy, capital and insurance investments, which includes capital management and allocation, asset liability management, treasury, reinsurance and mergers & acquisitions. He was previously managing director in the Financial Institutions Group at Morgan Stanley, with management responsibility for the European asset management sector.
Joined Aviva in 2014 Chris is responsible for the strategic growth of Aviva’s Asian businesses and overall leadership of Aviva’s digital product transformation. Prior to joining Aviva, Chris was group chief executive officer and executive director of Great Eastern Holdings Ltd.
The Board is responsible to shareholders for promoting the long-term success of the Company and, in particular, for setting the Group’s strategic aims, monitoring management’s performance against those strategic aims, setting the Group’s risk appetite, ensuring the Group is adequately resourced, and that effective controls are in place. The Board, supported by the Governance Committee, also sets the values and supports the culture of the Group.
Corporate governance – 18% Review and approve all financial results announcements, the annual report and accounts and significant shareholder communications. Receive regular reports from each committee and updates on proposed changes to legislation and regulatory matters.
People, Board effectiveness and succession planning – 5% Ensure adequate succession planning including changes to the composition of the Board and its committees, and undertaking the annual effectiveness review.
Financial reporting and controls, capital structure and dividend policy – 19% Review the financial results and forecasts; reports on performance against the financial plan; competitor results and treasury activities.
 Approved the 2016-2018 Group Plan and received presentations and reports from business units in respect of strategy execution and performance against Plan
 The Board received regular reports from the Group Chief Executive Officer which contained updates on the Group’s financial performance; discussions of any proposed corporate transactions; changes in senior management; regulatory developments; and the control environment, together with progress against the Group Plan and the Group’s strategy
 The Board ensured that governance structures remained appropriate for the businesses and the markets in which we operate around the world, while supporting the overall strategy and culture. The Board supported the development of the Subsidiary Governance Principles
 The Board agreed the Aviva content of the prospectus and circular that was sent to shareholders in connection with the acquisition of Friends Life
 As part of its annual work plan, the Board reviewed the financial performance of the Company and approved all financial results announcements, the annual report and accounts and dividend payments
 The Board considered the Group capital and liquidity requirements arising from the Company’s strategy and Group Plan
 Succession planning was a focus for the Board in 2015 and further details are provided in the Nomination Committee report  The Board undertook an external evaluation of its effectiveness and the effectiveness of each committee and the individual directors during 2015. Further details are included later in this report
Significant transactions and expenditure – 10% Consider, review and approve updates on transactions and expenditure.
On 29 April 2015, the date of the 2015 Annual General Meeting (AGM), Sir Adrian Montague CBE, who was the Company’s Senior Independent Director, was appointed as Chairman of the Board in place of John McFarlane who retired on the same date. As explained in the Company’s 2014 annual report, and given the well developed succession plan that had been put in place for this position the Board decided not to use an external search consultancy or open advertising for this appointment.
Board independence Each NED must be able to devote sufficient time to the role in order to discharge his or her responsibilities effectively.
The Board, having considered the matter carefully, is of the opinion that all of the current NEDs remain independent and free from any relationship or circumstances that could affect, or appear to affect, their independent judgement. Scott Wheway has served on the Board since his appointment in December 2007 and Mike Hawker since his appointment in January 2010, and accordingly in early 2016 their performance, including their independence, was the subject of a particularly rigorous review pursuant to the requirements of the Code. The Board remains satisfied that they remain independent and that they continue to make valuable contributions in their various roles. Scott will remain on the Board until the end of 2016 at which point he will retire.
Over half of the Board members, excluding the Chairman, are independent NEDs. Biographical details including a summary of the skills and experience the directors bring to the Board are set out in their biographies on pages 70 to 73 and in the Company’s 2016 Notice of Annual General Meeting.
Board diversity The diversity charts, that are contained within the governance letter earlier in this report, show that Aviva has a strong Board with a range of different skills. One of the benefits arising from the Friends Life acquisition was the opportunity to invite Sir Malcolm Williamson and Andy Briggs to join the Board. Both have a wide range of industry experience which is now benefiting the enlarged Group. In addition, the Group has benefitted from appointing three new NEDs, who were formerly on the Board of Friends Life, to the UK Life subsidiary boards which retains valuable knowledge and experience within the Group.
The role of the Board and role profiles for the Chairman, SID, Group CEO and NEDs can be found on the Company’s website at www.aviva.com/roles.
I’ve been particularly impressed by the drive, technical expertise and strength of the workforce across the Company, and not least in the management team and amongst my Board colleagues, as well as the robustness of the governance arrangements. The new Subsidiary Governance Principles help support this and bring further clarity to our structure.
What do you think you have brought to the Aviva Board and as Aviva’s Senior Independent Director? I bring considerable experience of the insurance sector, particularly life insurance. As its former Chairman, I specifically bring a detailed knowledge of the Friends Life business, which is also the case for Andy Briggs. I think this continuity is essential with any type of transaction and the subsequent integration of the business and the issues it faces. I am pleased my former Friends Life non-executive directors, Belinda Richards, Mel Carvill and David Allvey remain on the UK Life boards to support this. I also believe I add an independence of judgement and challenge to Board discussions which is vital to being an effective SID.
Aviva has highlighted the importance of a comprehensive induction process for all. Have you found this valuable? I have always believed that a good induction process is essential not just at Board level. Throughout the organisation there has been a big drive to improve this and recent efforts to recruit and develop new talent, for example through the new programmes for graduates, make this even more important.
3 Andy Briggs was appointed as a director on 29 April 2015. 4 Glyn Barker was unable to participate in one ad hoc Board call due to a prior engagement which could not be altered. 5 Gay Huey Evans retired as a director of the Company and as a member of the Nomination, Remuneration and Risk Committees on 29 April 2015. 6 Belén Romana García was appointed as a NED and as a member of the Nomination, Governance and Risk Committees on 26 June 2015. 7 Michael Hawker was unable to attend two meetings of the Audit Committee due to having prior engagements which could not be altered. 8 Michael Mire was appointed as a member of the Remuneration Committee on 14 May 2015. 9 Bob Stein was appointed as a member of the Audit Committee on 14 May 2015. 10 Scott Wheway stepped down from the Audit Committee and was appointed as a member of the Risk Committee on 14 May 2015. 11 Sir Malcolm Williamson was appointed as the Company’s SID on 29 April 2015 and as a member of the Audit, Governance, Nomination and Remuneration Committees
Board and Committee evaluation and effectiveness The effectiveness of the Board is vital to the success of the Group and the Company undertakes a rigorous evaluation process each year in order to assess how well the Board, its committees, the directors and the Chairman are performing. The aim is to continually improve the Board’s effectiveness and the Group’s overall performance. The Board’s focus over the past year has been spent on a number of issues, notably the Friends Life acquisition, the Chairman’s succession and SII readiness. Due to these major events it was felt best practice to bring forward to early 2015 our plan to hold an external evaluation. Our normal cycle would have been to hold this in 2016; the last such external review being held in 2013. The 2015 evaluation was conducted by Independent Board Evaluation, a specialist consultancy which undertakes no other business for the Company.
Company’s new Chairman following the 2015 AGM. Board members were united in welcoming Sir Adrian as the Company’s new Chairman and felt positive about the year ahead. The evaluation also recognised that following the Friends Life acquisition, the new Board would be a very visible role model to the business in terms of integration and should show a positive example by adapting quickly and embracing the ‘best of both’ principle.
 In addition to the structure of agendas, the content and makeup of Board and committee packs was reviewed and a new reporting approach is being implemented with the aim of improving the quality of information presented at meetings and creating more time for discussion and decision-making. This will remain a focus in 2016 3BImprovements in committee collaboration  Committee collaboration was discussed in the output of the 2014 effectiveness review, and in 2015, the Board has continued to successfully strengthen the relationship between each Board committee  During 2015 the collaboration between the Board and the boards of subsidiary companies continued. NED attendance at subsidiary board meetings is an example of this together with the Subsidiary Independent Non-Executive Directors’ conference which furthers the collaboration between directors. Further details on the conference can be found in the Risk Committee report
 The Nomination Committee will continue to review the Board skills matrix during 2016 to enable the Board to enhance its support of the transformation of the business. The Nomination Committee report sets out further information on our succession planning process 5BCommitment to Board diversity  The evaluation suggested further focus on improving the representation of female NEDs on the Board was required. The appointments that have been made during the year result in 23% female representation. The Nomination Committee will retain its focus on diversity in 2016 as part of its approach to succession planning 6BStrengthening the Board’s connection to the Business  The evaluation identified that the Board’s engagement with the business had improved. The new Board appointees completed their induction programmes which included business unit visits and in 2016 the Board will continue this trend and place further emphasis on discussing areas such as customer experience and product design 7BWork to broaden the remit of the Governance Committee was continued during 2015  The changes to the remit of the Governance Committee that had been implemented in 2014, for example adding the oversight of customer outcomes, were identified as being very positive. In 2015 the Committee scope was further broadened to cover UKD, as set out in the case study at the beginning of this report
During the year, directors attended a number of internal training sessions, including sessions on various aspects of SII, the Senior Insurance Managers Regime (SIMR), Pillar 3 reporting, remuneration developments and matters affecting our IT architecture and related technical platforms. In addition the Board attended in-depth sessions on Aviva France, Aviva Asia, UK and Ireland General Insurance and our digital business. Training sessions have been built into the Board’s and committees’ annual plans for 2016.
During 2015, 11 Board meetings were held, of which, nine were scheduled Board meetings and two were additional Board meetings called at short notice. In addition the Board delegated responsibility for certain items, such as giving final approval to proposals broadly agreed by the full Board, to specially created committees of the Board which met six times during 2015.
The Chairman and the NEDs met several times in the absence of the Executive Directors and the NEDs met in the absence of the Chairman, including one meeting chaired by the SID to appraise John McFarlane’s performance as Chairman.
Directors’ and corporate governance report continued that Board and committee members received information and papers in a timely manner. Members of senior management regularly attend Board meetings to present items of business.
It is the Board’s practice to visit different business units whenever it can and during 2015, one Board meeting was held in Poland and one in York. This gave the Board the opportunity to meet the senior management teams and to also gain a deeper understanding of the operations of each of the businesses. During 2016, it is planned that the Board will visit the Group’s business in Asia.
Conflicts of interest In accordance with the Companies Act 2006, the Company’s articles of association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits or conditions as it thinks fit. The decision to authorise a conflict of interest can only be made by non-conflicted directors (those who have no interest in the matter being considered) and in making such a decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success for the benefit of its shareholders as a whole. The Board’s procedure is to regularly review and approve actual and potential conflicts of interest as they arise. This procedure operated effectively during the year.
Board Priorities for 2016 2015 was a transformational year for the Company. The Board made good progress against its objectives, including the Friends Life integration, UK Life strategy, continued oversight of conduct risk, True Customer Composite, digital and the proposed acquisition of RBC General Insurance Company by Aviva Canada. This was in addition to the annual cycle of matters dealt with including risk management, financial reporting and strategic planning. Some of these areas will remain a focus for the Board during 2016, together with SII as this is embedded into the business. As part of the 2016-2018 Plan, the Board anticipates that IT, the digital strategy and use of ‘MyAviva’ will each be areas of focus during 2016 as the Group builds on the progress in these areas achieved to date. The Audit, Governance and Risk Committees will continue to carefully consider the risks associated with each area of the business and also the quality of the Group’s cyber security. The Board will continue to provide oversight and challenge to management in its execution of the 2016-2018 Plan. As in previous years, this and future strategic priorities will be a focus of the Board Strategy day in June. The Board has taken positive steps in the last few years to embed the purpose and values throughout the organisation and has feedback from employees through our annual, all employee survey, ‘Voice of Aviva’ and this is an area the Board will remain close to during 2016. The Governance and Nomination Committees will continue the focus they began during 2015 in connection with succession planning and talent development both at Board and senior management level throughout the Group to ensure the right people are in place across the business to deliver on the strategic plans.
A robust assessment was also conducted of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity.
First line Management are responsible for the application of the RMF, for implementing and monitoring the operation of the system of internal control and for providing assurance to the Audit, Governance and Risk Committees and the Board.
The Group Executive members and each business unit chief executive officer are responsible for the implementation of Group strategies, plans and policies, the monitoring of operational and financial performance, the assessment and control of financial, business and operational risks and the maintenance and ongoing development of a robust control framework and environment in their areas of responsibility. Chaired by the Chief Risk Officer (CRO), the Asset Liability Committee (ALCO) assists the CFO with the discharge of his responsibilities in relation to management of the Group’s balance sheet within risk appetite and provides financial and insurance risk management oversight.
Second line The Risk function is accountable for the quantitative and qualitative oversight and challenge of the identification, measurement, monitoring and reporting of principal risks and for developing the RMF.
The Audit, Governance and Risk Committees report regularly to the Board on their activities and make recommendations and escalate significant risk exposures to the Board as appropriate. They ensure that mitigating actions are taken when risks are, or are expected to move, out of appetite.
The effectiveness assessment also draws on the regular cycle of assurance activity carried out during the year, as well as the results of the certification process. The results of the certification process and details of key failings or weaknesses are reported to the Audit Committee and the Board annually to enable them to carry out an effectiveness assessment.
The committee reports refer to a number of areas where control issues have been identified and describes the mitigating actions to address them.
In my role as Chairman, I am pleased to present the Nomination Committee’s report for the year ended 31 December 2015
The Committee’s purpose is to ensure that the succession planning process and any appointments made bring a balance of skills, knowledge, experience and diversity to the Board
What is the main function of the Nomination Committee? The Committee has overall responsibility for succession planning and leading the process for new appointments to the Board and the senior executive team. Its purpose is to ensure that the succession planning process and any appointments made bring a balance of skills, knowledge, experience and diversity to the Board and senior management of the Company.
The other appointments to the Board made during the year were that of Sir Malcolm Williamson as our Senior Independent Director, Andy Briggs as an Executive Director and Belén Romana García as an Independent Non-Executive Director (NED). Sir Malcolm’s and Andy’s appointments were made against the backdrop of the successful completion of the acquisition of Friends Life, and Aviva is now benefiting from the industry wide experience that they both bring to the Board. With the addition of Belén, who has strong financial and European regulatory experience, there is a good balance of skills, knowledge, experience and diversity on the Board.
Directors’ and corporate governance report continued 86 | Aviva plc Annual report and accounts 2015
Will you appoint more women to the Board? Aviva continues to have an aspiration to increase female representation on the Board and the Committee acknowledges that the Board is currently just below its policy of 25% female representation, at 23%. We are committed to improving this position as soon as is reasonably possible and have made good progress in the diversity balance at senior management level as shown in the charts earlier in my governance letter.
What are the steps you take to identify and appoint new directors? The process is rigorous and transparent. The Committee identifies the skills and experience that it would like to have at both Board and executive level and these qualities are recorded into a skills matrix. The steps we took to identify Belén Romana García, whom we appointed to the Board in June 2015, were broadly as follows.
Do you think it is important to have a Board evaluation each year? The assessment of the Board and its committees through an annual evaluation has now become a part of the normal governance cycle and we do consider it to be a very useful process. We plan our evaluation on the basis that at least every three years we will conduct an external evaluation. External evaluations were held in both 2013 and in 2015 as we felt that it was beneficial to bring forward our external evaluation given the Board changes and the Friends Life acquisition last year. For our evaluation in 2016, we have engaged with the external facilitator we used in both 2013 and 2015 to help us design the questionnaire that we will use for our internal evaluation to ensure that we have a level of consistency and build on the themes of previous reviews. We welcome the opportunity to assess what we do and to look at how effectively we operate. It is also useful to review the commitment of individual directors to ensure that they have enough time and energy available to devote to the job. I am satisfied that all our directors do so.
As part of this ongoing process the Committee will consider the skills and experience of the Board, taking into account all relevant aspects of diversity, to ensure that there remains a good balance on the Board which supports the Group’s values and culture. As set out earlier in the report, Scott Wheway is due to retire from the Board on 31 December 2016 and the composition of the Board will continue to be reviewed.
The Committee will also review the outcomes of the 2016 effectiveness review in respect of its performance, agree any actions and monitor these going forward.
Sir Adrian Montague CBE Chairman of the Nomination Committee 9 March 2016
Angela Darlington – Succession Planning in Action Following the Friends Life acquisition and the appointment of John Lister as Chief Financial Officer of the enlarged UK Life business, Angela was appointed as Chief Risk Officer and as a member of the Group Executive in June 2015. Angela has had a 15 year career with Aviva in a wide variety of leadership roles, most notably as UK Life Chief Actuary and UK Life Chief Risk Officer. Angela’s career at Aviva is a great example of how we support development and provide our best people with the opportunities to progress their careers across the Group.
Angela is a visible role model at Aviva and a good example of succession planning in action.
 The Board appointments of Sir Adrian Montague (as Chairman), Sir Malcolm Williamson and Andy Briggs were agreed with effect from 29 April 2015. The Committee concluded that the appointments would be beneficial and complement the composition of the Board given their knowledge and experience
 The Committee also engaged in an extensive search and interview process with the intention of appointing another NED to the Board. Belén Romana García was subsequently appointed as a NED on 26 June 2015. In addition, Claudia Arney was appointed as a NED on 8 February 2016
 As part of the year-end review, the Committee reviewed the independence of each NED including each director’s actual, potential or perceived conflicts of interest
 The Committee concluded that each NED was independent in character and judgement and that there were no circumstances that were likely to affect their judgement
Evaluation and annual assessment – 10% Review the results of the annual Board performance evaluation process.
Assess the independence of each of the NEDs and to make recommendations regarding the directors’ actual or potential conflicts of interest.
Succession planning – 39% Monitor succession plans for the appointment of executive directors and NEDs to the Board and senior executives below Board level.
Ensure that on appointment a director has sufficient time to undertake the role.
Board pipeline – 33% Identify and nominate suitable candidates for appointment to the Board, including chairmanship of the Board and its committees, against a specification for the role and capabilities required for the position.
During the year, market conditions generally have offered some challenges and the acquisition and integration of the Friends Life business, ensuring our readiness for Solvency II (SII) and the evolving cyber risk environment have all required close attention.
We also monitor potential changes to the prudential regulations applicable to the Group and how the Group is responding to them. In recent years this has been a significant activity due to the preparations for SII and as a result of Aviva’s designation as a Global Systemically Important Insurer, and this will continue during 2016.
What have been some of the highlights from the year? During the year the Committee spent time on the following areas: • strengthening the capital and liquidity position of the Group ensuring the effective implementation of the new SII framework (an undertaking which has seen the Company spend in excess of £400m), and understanding the transferability of capital and seeking to address the potential liquidity traps that the new regime creates • reviewing the asset portfolio for its positioning to perform in the current low growth, low interest rate and volatile market environment • ensuring that the strategy is sensible in light of the evolutionary changes occurring to our businesses through changing customer preferences and regulatory change
• reviewing that our systems are fit for purpose to manage our business in the evolving digital world.
The Committee holds regular private sessions with the CRO and the CAO to enable them to raise any matters of concern to them without any other members of management present. The Group Company Secretary acted as the secretary to the Committee.
What action during the year has the Committee taken to review the Friends Life acquisition? The majority of the Committee’s work in reviewing the risks associated with the transaction itself was actually carried out in 2014. Following the completion of the acquisition, the integration risks and the risks in the former Friends Life business were all included in the business as usual risk reporting that we received and discussed with management.
How does the Committee report to the Board and how does it plan its work schedule? The work of the Committee follows an agreed annual work plan, which evolves throughout the year in response to the changing macro-economic, business and regulatory environment and changes in the Company’s strategy.
The Group Company Secretary and the CRO assisted me in planning the Committee’s work, and ensured that the
How do you ensure that risk is appropriately managed across the various committees ? We ensure that there is cross-membership between the committees and this was reviewed during 2015 to ensure that risk issues continue to be appropriately considered in the decisions of each committee. The appointments to the Risk Committee made in May 2015 have increased the cross-membership between the Audit, Governance, Remuneration and Risk Committees.
What are the Committee’s priorities in 2016? Given the volatile and weak performance of the financial markets at the start of 2016, the Committee will be monitoring the positioning and performance of the Group’s investment portfolio and its hedging policy closely. This will link in with contingency planning work considering the impact of various scenarios on our investments, business and operations, including for example UK exit from the European Union (EU). In addition, against the backdrop of an ever changing cyber threat environment, our continued drive for efficiency and the Group’s strategic ambitions with respect to digital, the Committee will continue to focus on the quality of the Group’s cyber security, its disaster recovery plans, the simplification of our IT estate and the development of our digital business.
 The Committee received a report from the risk function on the performance of business units against the risk and control objectives approved by the Committee. The Committee debated an update to the Group’s liquidity risk appetite and proposed new SII capital risk appetites and recommended these to the Board
 The Committee also reviewed proposals to materially increase the use of an internal composite reinsurer to enhance capital transferability and efficiency and a number of strategic transactions including the reinsurance of a block of the UK General Insurance latent reserves
 The Committee carried out a series of deep reviews of the key internal model components, reviewed proposed model changes, received independent internal model validation reports, reviewed and recommended approval of the partial internal model application and received reports on the application of the standard formula for those businesses not covered by the internal model
 The Committee conducted deeper thematic reviews into cyber security, broader IT risks, derivatives usage, outsourcing arrangements and general insurance exposure accumulation management
 The Committee received regular updates from the Group’s Asset and Liability Committee and Operational Risk Committee  The Committee monitored certain Major Control Improvement Topics identified by management namely, IT security, disaster recovery in
Regulatory, Governance and Internal Audit – 19% Review developments in the prudential regulatory environment, the Group’s external risk and capital disclosures and the assessment of the internal control environment as it relates to risk.
External Factors – 12% Review the external risk environment (for example macroeconomic and cyber risk), the impact on the Company’s risk profile and how those risks are being managed and mitigated with a particular focus on the impact on the Group’s asset portfolio and disaster recovery planning.
Risk Appetite, Risk Management and Risk Reporting – 14% Review and robustly assess the design and the effectiveness of the risk management framework and any proposed changes to it including recommending updated risk appetites to the Board.
As Chairman of the Committee, I am pleased to present the Audit Committee’s report for the year ended 31 December 2015 The challenges of adopting Solvency II (SII) were a major focus area during the year in readiness for implementation on 1 January 2016. The Committee also continued to focus on the control environment and developing and strengthening the internal control framework, including the integration of the Friends Life entities following their acquisition in April 2015.
The Committee acts independently of management and works closely with the Governance, Remuneration and Risk Committees. There is cross-membership between each committee which provides better understanding and more efficient communication of the work of each committee. Details of the Committee’s responsibilities are shown later in the report.
• significant issues such as the valuation of life insurance contract liabilities for the UK life business (UK Life). Areas of focus were the annuitant mortality, credit and expense assumptions. In addition the Committee considered the valuation of non-life insurance contract liabilities for the general insurance business, valuation of hard to value investments and the valuation of finite intangible assets and goodwill in relation to the Friends Life acquisition
What has the Committee done to assess the impact of the acquisition of Friends Life on the financial reports and control environment of the Group? Following the successful completion of the Friends Life acquisition in April 2015, the Committee has spent time considering the alignment and adoption of the Group’s Market Consistent Embedded Value (MCEV) and International Financial Reporting Standards (IFRS) accounting policies and methodologies, the restructuring provisions and the key issues and judgements which resulted from the acquisition. The Committee received reports on the Friends Life acquisition from Internal Audit in July and November which focused on the impact of the acquisition on the overall control environment of the Group and closely monitored the integration plan that was put in place.
Following the review in respect of 2015, a recommendation was made to the Board, which confirmed that I, as Chairman of the Audit Committee, fulfilled each of the requirements and that Patricia Cross, Michael Hawker and Bob Stein met the US requirements to be an audit committee financial expert.
How does the Committee monitor the control environment across the Group? The Committee receives quarterly updates on the effectiveness of the Financial Reporting Control Framework (FRCF). During the year these have included updates on the progress to align financial reporting controls processes within the heritage-Friends Life businesses with the FRCF methodology. In addition, it receives regular updates on progress to embed the new approach to managing operational risks and controls (formerly Integrated Assurance Implementation) and reports on the Group’s MCITs.
Regular reports are provided to the Committee through the Group’s malpractice reporting service on issues of malpractice that have been raised and the Committee was satisfied that none of the reports received in 2015 made allegations of financial malpractice.
How does the Committee satisfy itself that the External Auditor remains independent, effective and objective? PricewaterhouseCoopers LLP (PwC) was appointed as the Group’s External Auditor (Auditor) in 2012 following a formal tender process. The external audit contract will be put out to tender at least every ten years.
The Committee conducts an annual review of the Auditor through completion of a questionnaire by the Committee, senior management across the Group and members of the Group’s finance community. The questionnaire seeks opinions on the importance of certain criteria and the performance of the Auditor against those criteria. The Committee concluded that PwC continued to perform effectively and is recommended for re-appointment.
The Company has an External Auditor Business Standard in place which is aimed at safeguarding and supporting the independence and objectivity of the Auditor Standard. This Standard is in full compliance with all UK, US and International Federation of Accountants rules and takes into account the Auditing Practices Board Ethical Standards for Auditors.
The Standard distinguishes between (i) those services where an independent view is required and services that should be performed by the Auditor (such as statutory and non-statutory audit and assurance work); (ii) prohibited services where the independence of the Auditor could be threatened and the Auditor must not be used; and (iii) other non-audit services where the Auditor may be used which include non-recurring internal controls and risk management reviews (excluding outsourcing of internal audit work), advice on financial reporting and regulatory matters, due diligence on acquisitions and disposals project assurance and advice, tax compliance services and employee tax services. In 2015 the Group paid PwC £19.3 million (2014: £14.7 million) for audit and audit-related assurance services1, with the overall increase due to the fee for the audit of the acquired Friends Life subsidiaries, including the acquisition balance sheet. In addition, PwC were paid £15.2 million (2014: £11.5 million) for other services, giving a total fee to PwC of £34.5 million (2014: £26.2 million). This included £11.6 million relating to SII implementation assurance fees. SII implementation is a major project requiring substantial model validation assurance that the Company believes is most appropriately performed by the principal Auditor. In view of the significance and scale of this work, the Committee specifically assessed the suitability of PwC to provide this service. In line with the Standard, the Committee satisfied itself that for all nonaudit engagements, robust controls were in place to ensure that PwC’s objectivity and independence was safeguarded, and concluded that it was in the interests of the Company to purchase these services from PwC due to their specific expertise. Further details are provided in note 12 of the financial statements.
What are the Committee’s main priorities for 2016? During 2016 the Committee will continue to focus on the following issues: • the appropriateness of the significant issues and judgements and the methodology and assumptions used in relation to the Group’s financial statements
• developments in the market around the LTVS to ensure the Company’s approach remains appropriate for 2017
• the performance of the Chief Audit Officer (CAO) and the Internal Audit function and the appropriateness of the remuneration of the CAO
• the impact of the revised model used to value equity release mortgage loans held by the UK Life Annuity business
 The Committee monitored the impact of the acquisition of Friends Life on the Group’s MCEV and IFRS Consolidated Financial Statements, including the adoption of the Group’s accounting policies and methodologies
 The Committee considered the implications of preparing for SII on the Company’s Financial Statements and the suitability of PwC to perform the model validation assurance
 A formal response was submitted to the regulator in relation to the Prudential Regulatory Authority (PRA) consultation on implementing audit committee requirements under the revised Statutory Audit Directive in the European Union
 The Committee reviewed the effectiveness of the External Auditor and was satisfied that the services provided by the External Auditor remained effective, objective and fit for purpose
 The Committee reviewed and approved the Internal Audit Charter and Business Standard  The Committee concluded that the Internal Audit function was performing well, was sufficiently resourced and had demonstrated continued improvement  The Committee reviewed and agreed that the CAO’s independence had been maintained and was satisfied that his annual performance related bonus was unconnected to the Group’s financial performance
Internal Audit – 16% Approve and monitor the application of the Internal Audit Charter and Business Standard.
Financial Statements and accounting policies – 32% Review the significant issues and judgements of management, and the methodology and assumptions used in relation to the Group’s financial statements and formal announcements on the Group’s financial performance.
Review the Group’s going concern assumptions and the assumptions for the LTVS.
We believe that effective and accountable subsidiary boards are critical to ensuring best practice corporate governance throughout the Group
The Committee’s remit also includes employee talent management and development programmes to create a sustainable future workforce. The Committee receives a summary of the 2015 Voice of Aviva employee survey results, further details on this can be found in the ‘Our People and Communities’ section of the Strategic Report.
Directors’ and corporate governance report continued 96 | Aviva plc Annual report and accounts 2015
Governance structure We take our responsibilities as a business very seriously – and that includes having robust oversight arrangements so that decisions are debated, challenged and the business is held to account. That means better decisions – and better products and services for our customers.
The Principles cover a range of topics including strategy and planning, remuneration, shareholder interaction with Aviva plc and governance accountability. They are designed to provide clarity and co-operation, and help support better business decisions – which provides better results for shareholders and customers. The Principles were reviewed externally, by the chairs of the subsidiary boards and the independent directors of the audit, conduct and risk committees. The Committee sponsored this process and will spend time in 2016 ensuring the Principles are embedded throughout the Group.
The development of talent is critical to delivering the Group’s strategy. In 2015, the Committee actively supported progress in this area, including the creation and launch of a new international general management programme for graduates, with the aim of attracting and developing future talent into the Company.
What are the Committee’s priorities in 2016? The Committee will retain its focus on the areas outlined earlier in the report with continued attention on the treatment of customers. The Committee will, in addition, focus on embedding its oversight of the governance structure of the UK Digital business; monitoring the application of the Subsidiary Governance Principles; providing guidance and oversight in the area of talent development and building an internal pipeline for senior leadership roles. Furthermore, the Committee will retain its oversight of the Group’s relationship with the Financial Conduct Authority and other regulatory bodies and monitor the implementation of the Senior Insurance Managers Regime.
Corporate Responsibility  The Committee received reports from management during the year on the Aviva Community Fund, the Group’s low carbon investment strategy, the Group’s health and safety compliance and the Group’s Human Rights Policy  CR strategy and particularly the link to the brand strategy were regularly reviewed during the year  The Committee reviewed and approved the Aviva Investors’ Voting Policy and Stewardship Statement  For the 2015 reporting year, independent assurance on the Group’s CR reporting was provided by PricewaterhouseCoopers
 The Committee has continued to monitor progress regarding embedding Aviva’s values and the engagement of employees and has considered regular reports on talent development and the Group’s diversity and inclusion strategy. In monitoring employee engagement the Committee reviewed the results of the annual Voice of Aviva survey prior to discussion at the Board
Regulatory and Financial Crime  Received regular regulatory updates from the Group Compliance Officer  The Committee was responsible for oversight of the Group’s relationship and interaction with the Financial Conduct Authority and has monitored preparations to implement the Senior Insurance Managers’ Regime  Reviewed regular reports on the Group’s financial crime prevention procedures and controls and any associated actions and the effectiveness of the anti-bribery controls
People – 13% Review and approve the Business Ethics Code and the Group’s policies on diversity, employees, suppliers and the communities in which it operates to ensure these are in line with the Group’s ethical values.
Review the key themes and management of action plans from the annual employee survey.
Work with the Risk Committee in respect of the impact of any material conduct and reputation risks on the Group’s capital and liquidity position.
Review the Group’s Environment and Climate Change Business Standard and monitor compliance with the CR strategy.
Governance – 30% Shape the corporate governance principles, culture and ethical values of the Group in line with the Group’s strategic priorities.
Oversee subsidiary governance throughout the Group including UK Digital and review any legal or litigation risks for the Group and the associated action plans.
• The proposed acquisition of the RBC General Insurance Company since the end of the year
The management report required under Disclosure and Transparency Rule 4.1.5R comprises the strategic report, shareholder information (which includes the risks relating to our business), and details of material acquisitions and disposals made by the Group during the year which are included in note 3. This directors’ and corporate governance report fulfils the requirements of the corporate governance statement under Disclosure and Transparency Rule 7.2.1.
Our Policy on Hedging The hedging policy can be found in note 58 and details of likely future developments are set out in the strategic report.
2016 Annual general meeting (AGM) Details are provided in the shareholder services section on page 351.
Dividends Dividends for ordinary shareholders of Aviva plc are as follows: • Paid interim dividend of 6.75 pence per ordinary share (2014: 5.85 pence)
• Total cost of ordinary dividends paid in 2015 was £635 million (2014: £449 million)
Subject to shareholder approval at the 2016 AGM, the final dividend for 2015 will become due and payable on 17 May 2016 to all holders of ordinary shares on the Register of Members at the close of business on 8 April 2016 (approximately five business days later for holders of the Company’s American Depositary Receipts). Further details on the company’s dividend policy is set out on pages 320 to 321 and details of any dividend waivers are disclosed in note 32.
• issued preference share capital totalled 200,000,000 shares of £1 each
Further details on the ordinary share capital of the Company are shown in Note 30.
Rights and obligations attaching to the Company’s ordinary shares and preference shares Rights and obligations together with the powers of the Company’s directors are set out in the Company’s articles of association, copies of which can be obtained from Companies House and the Company’s website at www.aviva.com/articles, or by writing to the Group Company Secretary. The powers of the Company’s directors are subject to relevant legislation and, in certain circumstances (including in relation to the issue or buying back by the Company of its shares), are subject to authority being given to the directors by shareholders in general meeting.
Significant agreements – change of control There are a number of agreements that take effect, alter or terminate upon a change of control of the Company following a takeover bid, such as commercial contracts and joint venture agreements. None are considered to be significant in terms of their potential impact on the business of the Group as a whole. All of the Company’s employee share incentive plans contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions and pro rata reduction as may be applicable under the rules of the employee share incentive plans.
The rules regarding the appointment and replacement of directors are contained in the Company’s articles of association (the articles). Under the Company’s articles, the Board can appoint additional directors or appoint a director to fill a casual vacancy. The new director must retire at the first AGM following their appointment and can only continue as a director if they are elected by shareholders at the AGM.
Financial instruments Group companies use financial instruments to manage certain types of risks, including those relating to credit, foreign currency exchange, cash flow, liquidity, interest rates, and equity and property prices. Details of the objectives and management of these instruments are contained in the risk and capital management section, the shareholder information section and in note 57 on risk management.
Political donations At the 2015 AGM, shareholders passed a resolution, on a precautionary basis, to authorise the Company and its subsidiaries to make political donations and/or incur political expenditure (as such terms are defined in sections 362 to 379 of the Companies Act 2006), in each case in amounts not exceeding £100,000 in aggregate. As the authority granted will expire at the 2016 AGM, renewal of this authority will be sought at this year’s AGM. Further details are available in the Notice of AGM. It is not the policy of the Company to make donations to European Union (EU) political organisations or to incur any other political expenditure. However, definitions of political donations and political expenditure used in the Companies Act 2006 are broad in nature and this authority is sought to ensure that any activities undertaken throughout the Group, which could otherwise be construed to fall within these provisions, can be undertaken without inadvertently infringing the rules. During the year, Aviva Canada Inc. spent a total of CA$5,650 (£2,757 based on the exchange rate as at 31 December 2015) on tickets to attend events hosted by Canadian Members of Provincial Parliament. Attendance at these events enabled representatives from Aviva Canada to engage with local parties in relation to certain issues including Ontario auto reforms, a review of the Ontario regulator and the introduction of a new auto product. No other political expenditure was incurred by the Aviva Group during 2015.
Disclosure of information to the auditor In accordance with section 418 of the Companies Act 2006, the directors in office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s External Auditor, PricewaterhouseCoopers (PwC), is unaware and each director has taken all reasonable steps that ought to have been taken as a director to be aware of any relevant audit information and to establish that PwC is aware of that information.
Against this background, the directors have assessed the prospects of the Group in accordance with provision C.2.2 of the 2014 UK Corporate Governance Code, with reference to the Group’s current position and prospects, its strategy, risk appetite, and the potential impact of the principal risks and how these are managed (as detailed on pages 62-65 of the Strategic Report as well as note 57 of the IFRS financial statements).
• an extensive verification process is undertaken to ensure factual accuracy
• an advanced draft is considered and reviewed by the Disclosure Committee
• the final draft is reviewed by the Audit Committee prior to consideration by the Board
• our Board members also receive drafts of the Annual report and accounts in sufficient time to facilitate their review and input. This includes the opportunity to discuss the draft Annual report and accounts with both management and the External Auditor and where appropriate challenging the disclosures as appropriate
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with IFRSs as adopted by the EU. In preparing these financial statements, the directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently • make judgements and accounting estimates that are reasonable and prudent
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business
The directors consider that the Annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and the Company’s position and performance, business model and strategy.
Each of the directors, whose names and functions are listed on pages 70 to 73 in the directors’ and corporate governance report confirm that, to the best of their knowledge: the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and the strategic report and the directors’ and corporate governance report in this annual report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. By order of the Board on 9 March 2016.
Independent directors must form the majority of the board of directors. A director cannot qualify as independent unless the Board affirmatively determines that the director has no material relationship with the company. NYSE rules prescribe a list of specific factors and tests that US-listed companies must use for determining independence.
Non-management directors of each listed company must meet at regularly scheduled executive sessions without management and, if that group includes directors who are not independent, listed companies should at least once a year schedule an executive session including only independent directors.
The Company is required to have a Nomination Committee but not a Corporate Governance Committee. A majority of the members of the Nomination Committee should be independent NEDs. The Board is required to undertake a formal and rigorous annual appraisal of its own performance, externally facilitated at least every three years.
The Company is required to have a Remuneration Committee and under the Companies Act 2006 is required to obtain shareholder approval of the remuneration policy for Executive Directors. The Committee should be comprised of independent NEDs.
US companies are required to have an audit committee comprised of independent directors and that one member must meet the requirements to be an Audit Committee financial expert. The Audit Committee should also cover risk matters.
Companies are required to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.
Shareholder approval is necessary for certain equitycompensation plans and ‘significant changes’ thereto, subject to certain exceptions. The Code does not provide a detailed definition or explanation of what are considered to be ‘significant changes’.
Dear shareholder, on behalf of the Remuneration Committee, I am pleased to present the Directors’ Remuneration Report (DRR) for the year ended 31 December 2015 After a thorough review of our remuneration framework, we received strong levels of shareholder support for both our Policy Report and Annual Report on Remuneration at last year’s Annual General Meeting (AGM).
We believe that ongoing engagement with all relevant stakeholders is fundamental to ensure that our remuneration framework remains fit for purpose, and delivers outcomes that are appropriate in the context of Group and individual performance. We are committed to being open and transparent on all remuneration related decisions, and therefore we continued to engage with shareholders and other key stakeholders following last year’s AGM.
Andy had long-term awards granted by FLG which vested as a result of the acquisition, for services provided to FLG. These awards were disclosed in FLG’s acquisition documents and the payments were approved by the FLG Remuneration Committee on acquisition. Details of these awards can be found on page 111.
Performance against non-financial measures (customer, employee and risk) has also been taken into account, together with personal performance. Further information is provided on page 108.
When determining bonus payouts, the Committee also took into account the wider performance of Aviva, together with the experience of our shareholders to ensure that the payments are a fair reflection of performance achieved during the year.
The Committee awarded a bonus of 91% of maximum to the Group CEO in light of the strong financial performance and the progress on our strategic objectives achieved during the year. The CFO received an award of 87% of maximum and the CEO UK Life received a pro-rated award of 90% of maximum. The Committee recognised the critical role that all three EDs have played in the integration of FLG. The integration is ahead of schedule and at the end of 2015, we have delivered £168 million of run-rate savings and we expect to achieve the targeted £225 million of synergies one year earlier than our original plan.
To provide longer-term alignment with our shareholders, two-thirds of these awards will be deferred into shares for three years under the Annual Bonus Plan (ABP).
Application of Policy in 2016 No significant changes are proposed for the 2016 financial year, and we continue to take a market leading approach in terms of the time period over which pay is earned and delivered.
The EDs’ salaries have been reviewed by the Committee and an increase of 3% will be made to the Group CEO’s salary effective from 1 April 2016; his first increase since he was appointed in 2013. Increases of 3% will also be applied to the salaries of the CFO and CEO UK Life. All increases are in line with the general increase applied across our UK-based employee population.
2016 Bonus In line with our stated Group strategy, our progress in developing our digital capabilities and interfaces will be foundational for our future profit growth, and our ambition to provide a world class customer experience. For 2016, 25% of the annual bonus scorecard will therefore be linked to our progress on the expansion of a digital interface with our customers. The remaining 75% will continue to be based on the financial performance of the Group as set out on pages 117. Nonfinancial modifiers, risk, conduct and individual performance will also be considered when determining payments.
2016 LTIP In 2016, awards under the LTIP will be 300% of salary for the Group CEO and 225% of salary for the Group CFO and CEO UK Life. These awards will vest subject to Aviva’s ROE and relative TSR performance over a three year period to 31 December 2018. Any shares vesting based on long-term performance to this date will be subject to an additional two year holding period.
• Create Legacy - perhaps this is the value that resonates the most strongly with the Remuneration Committee. We want to create a Remuneration ecosystem that we can all be proud of, the Board, the executives, our staff and all of our stakeholders.
Incentivise achievement of Aviva’s annual business plan and longer term sustainable growth of the business.
Application of Policy in 2016 Group CEO: £1,009,400 CFO: £695,250 CEO UK Life: £712,631
(£1,783,600) CFO: 87% of maximum (£877,500) CEO UK Life: 90% of maximum
Application of Policy in 2016 Award opportunities will be fully in line with the Policy  Payments will be determined after taking into consideration a scorecard based on a split of 75% on Group financial performance, and 25% on the expansion of a digital interface with our customers. Performance against non-financial modifiers and individual performance will also be taken into account
Malus and clawback provisions apply to all awards granted from 2015
Remuneration in respect of 2015  2013 LTIP award vested at 53.0% of maximum based on: – Cumulative three-year ROE of 39.7% resulting in vesting of 32.3% – Aviva ranked between 6 and 7 in terms of TSR against a group of international insurers, vs. median rank of 7.5, resulting in 20.7% vesting
Given the timing of appointment, the CEO is the only ED to receive shares in respect of this grant
Consideration by the Committee of matters relating to directors’ remuneration The Committee met five times during 2015. Details of attendance at Committee meetings are shown on page 80.
The Committee received assistance in considering executive remuneration from the Group Chairman, the Group CEO, the Group Chief People Officer, the Group Reward Director, the Chief Accounting Officer, the Chief Capital & Investments Officer, the CEO – Aviva Investors, the Remuneration Committee Chairman of Aviva Investors and the Chief Audit Officer. These people attended meetings by invitation during the year. No person was present during any discussion relating to their own remuneration.
During the year, the Committee received advice on executive remuneration matters from Deloitte LLP who were appointed by the Committee. They are a member of the Remuneration Consultants’ Group and adhere to its Code of Conduct. The Group received advice on remuneration matters, taxation and other consulting services (including advice in relation to SII) during the year.
In addition, the effectiveness review highlighted some areas for further consideration by the Committee: • there should be an on-going focus on the link between the remuneration framework and the strategic objectives of the Group. This includes taking into account non-financial and strategic measures of performance, as well as financial measures, to ensure that the right culture and behaviours are encouraged. Conduct and risk outcomes are both key considerations in the assessment of performance and the determination of bonus outcomes. A formal process for making risk adjustments at individual and business unit level was implemented for the 2015 annual bonus
• the review recognised there had been a focus on the alignment of remuneration and risk, with the introduction of more formal input from Group Risk. In addition, the implementation of SII across the Group has contributed to an improvement in how risk is taken into account in remuneration related decisions, and that this would continue to be a key area of focus for the Committee in 2016.
 The Committee received regular updates and briefings from management and the external advisor on regulatory issues  The Committee considered and approved the implementation of malus and clawback provisions on incentive plans
 The Committee reviewed and approved the performance achieved for 2012 LTIP awards
Approve the Aviva Investors' reward strategy, including any changes to the strategy.
Governance, regulatory issues and reporting policy – 29% Work with the Risk Committee to ensure that risk and risk appetite are considered in setting the Remuneration Policy and reflected appropriately in pay outcomes.
Obtain information about remuneration in other companies to act as one of many reference points considered.
Share plans, performance testing and targets operations – 27% Recommend to the Board the establishment of any employee share plans and exercise all the Board’s powers in relation to the operation of all employee share and incentive plans.
Single total figures of remuneration for 2015 – Executive Directors (audited information) The table below sets out the total remuneration for 2015 and 2014 for each of our EDs.
Buyout award – CFO Award 20143 — — 1,000 — — — 1,000 —
We have provided an indication of performance against the performance measures for 2015 in table 2. As set out in this table, the bonuses reflect a year of strong financial performance for the Group, with performance against all financial measures (with the exception of cash remittances) exceeding target.
As initiated last year, the assessment of performance against financial targets for Annual Bonus outcomes has included a Quality of Earnings “checkpoint” step – i.e. to provide further assurance that the performance reflects sustainable value for shareholders. (Equivalent considerations are applied in assessing the ROE performance for the LTIP, i.e. to ensure that LTIP outcomes are consistent with the experience of shareholders). Shareholders approved increased “at target” and maximum annual bonus opportunities for the CEO as part of the Remuneration Policy adopted at the 2015 AGM. In proposing the changes, we undertook that we would not “pay more for the same performance” and 2015 annual bonus outcomes reported here have been achieved against appropriately challenging hurdles.
New Executive Director Remuneration in relation to employment with Aviva Andy Briggs joined the Group as an employee on 13 April 2015, and was appointed to the Board as an ED on 29 April 2015. His remuneration is in line with the approved Policy with details for 2015 provided below: • Basic salary - £691,875 p.a. • Benefits in line with our approved Policy, including a cash car allowance, pension contribution and the provision of Private Medical
Directors’ remuneration report continued 108 | Aviva plc Annual report and accounts 2015 2 Assessment of 2015 ED performance and impact on bonus (audited information) Group Financial Performance
Against RNPS, upper quartile performance has been maintained in our key markets, including the UK. The decision was taken, during the year, to coordinate our approach on APH to our progress in implementing our Digital strategy. A system of monitoring and assessment known as Conduct Management Information has been established for reporting and monitoring on conduct issues across the Group.
Risk & Controls Aviva’s reward strategy includes specific risk and control objectives for senior management and Directors. The aim is to help drive and reward effective risk management and a robust control environment across the Group.
Mark Wilson – CEO Tom Stoddard – CFO Andy Briggs – CEO UK Life1
The Aviva Group had a strong year under Mark Wilson’s leadership. • The financial results for 2015 exceeded target on all metrics, except for cash remittances (primarily due to the retention of the dividend from the Canadian business to fund the acquisition of RBC General Insurance in that market).
• The CEO was at the forefront of the Group's digital ambitions, driving the establishment of the Digital Garage operations in London and Singapore, and continuing to provide a strong strategic lead to Aviva.
• The acquisition of FLG was another major achievement and the progress with its integration has made the Group stronger as regards capital and liquidity.
UK General Insurance latent risks; • Launching Aviva Ventures, which made its first startup investment during the year; • Ranking highest in UK insurance sector for
• UK Life has been a key partner in the development of a scalable Digital Direct strategy across the UK, along with the General insurance business and the newly formed UK Digital Board within Aviva.
Bonus award : £1,783,600 Bonus as a % of basic salary: 182% Bonus as a % of max opportunity: 91%
Bonus award : £877,500 Bonus as a % of basic salary: 130% Bonus as a % of max opportunity: 87%
IFRS Profit Before Tax1 (25% weighting) £1,832m £2,129m £1,919m 13.8% 9.2%
The Committee are satisfied that the targets are no less challenging in the context of the enlarged Group, and shareholders were supportive during the consultation process.
Given the timing of the appointment dates of our EDs, Mark is the only ED who will receive shares under the 2013 LTIP award. As indicated in the table below, 53.0% of the award will vest in April 2016.
Share awards made during the financial year (audited information) Share awards granted to EDs during the year are set out in the table below.
As disclosed last year, Tom joined Aviva in April 2014. Share dealing restrictions applied during 2014 because of the FLG acquisition and as a result it was not possible to make share awards during the 2014 financial year, therefore awards were based on the following share prices: • A share price of 509.00 pence was used to calculate the CFO award, being the average of the middle-market closing price of an
Aviva ordinary share on the three consecutive business days immediately preceding the date of the main grant, on 24 March 2014.
Between 24.5% and 30% Pro rata between 10% and 50% on a straight line basis
ROE is calculated as the IFRS profit after tax and non-controlling interest, excluding the impact of investment variances pension scheme income/charge and economic assumption changes, over average IFRS equity (excluding pension scheme net surplus/deficit) attributable to the ordinary shareholders of the Company.
TSR targets for awards made in 2015 Relative TSR determines the vesting of the other 50% of the LTIP award. Historically, FLG were a constituent of our TSR comparator group, however they de-listed in April 2015 and so will be excluded for awards from 2015. NN Group will be included in the comparator group going forward and it is considered an appropriate company for inclusion given its size, importance of life insurance within its portfolio and its mix of strong home position and multi-market presence.
Performance for the 2015 grant will therefore be assessed against the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, MetLife, NN Group, Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial.
Between median and upper quintile Pro-rata between 10% and 50% on a straight line basis
Russell Walls retired from the Board with effect from 8 May 2013. • Russell was appointed as Chairman and Non-Executive Director (NED) of Aviva Insurance Limited on 1 May 2013 and subsequently resigned on 13 April 2015 • He was appointed as a NED of Aviva Italia Holdings S.p.A on 4 December 2014 and on 30 April 2015 was appointed as Chairman • On 13 April 2015 Russell was also appointed as Chairman of Aviva Annuity UK Limited, Aviva Life Holdings UK Limited, Aviva Life
The acquisition of FLG triggered payments under the plan rules. The payments to participants were based on the offer price and achievement of a threshold level of performance (i.e. percentage of absolute total return to shareholders) and so were strongly aligned to shareholder value created. Under the terms of the FLG LTIP, Andy is due to receive a total of £5.3 million under the plan (50% paid in September 2015, with the remaining 50% to be paid in September 2016). Prior to Aviva’s acquisition of FLG, the FLG Remuneration Committee determined that payments under the plan would be in cash as permitted under the rules, and in line with the original plan design.
Directors’ remuneration report continued 112 | Aviva plc Annual report and accounts 2015
3 Scott Wheway acts as non-executive chairman to Aviva Insurance Limited and was appointed on 13 April 2015. The emoluments he received in respect of this directorship for the 2015 financial year was £75,654.
10 Aviva plc seven-year TSR performance against the FTSE 100 Index and the median of the Comparator Group
11 Historical Group CEO remuneration outcomes Group CEO 2009 2010 2011 2012 2013 2014 2015
Notes 1 Operating profit has been restated to exclude amortisation and impairment of acquired value of in-force business, which is now shown as a non-operating item. 2 Operating profit before tax attributable to shareholders’ profits for continuing operations after integration and restructuring costs. 3 The total cost of ordinary dividends paid to shareholders. 4 There were no share buybacks in 2014 or 2015. 5 Total staff costs from continuing operations includes wages and salaries, social security costs, post-retirement obligations, profit sharing and incentive plans, equity compensation plans and termination benefits. The average number of employees in continuing operations was 26,937 (2014) and 30,007 (2015).
External Board appointments Tom Stoddard is a Trustee of Trout Unlimited (a non-profit conservation organisation). Andy Briggs is a Director of the Association of British Insurers.
Executive directors’ share ownership requirements The Company requires the Group CEO to build a shareholding in the Company equivalent to 300% of basic salary and each ED to build a shareholding in the Company equivalent to 150% of basic salary. • The EDs are required to retain 50% of the net shares released from deferred annual bonuses and LTIPs until the shareholding requirement is met • Shareholding requirement needs to be built up over a five-year period • Unvested share awards, including shares held in connection with bonus deferrals, are not taken into account in applying this test 13 Executive Directors – share ownership requirements Shares held Options held
Notes 1 Shares ‘Owned outright’ are the directors’ beneficial holdings in the ordinary shares of the Company. This information includes holdings of any connected persons. 2 Shares ‘Unvested and subject to performance conditions’ are awards granted under the Aviva LTIP which vest only if the performance conditions are achieved. 3 Shares ‘Unvested and subject to continued employment’ are awards arising through the ABP and CFO award in the case of Tom. Under this plan, some of the earned bonuses are paid in the form of conditional shares and deferred for three years. The transfer of the shares to the director at the end of the period is not subject to the attainment of performance conditions but the shares can be forfeited if the ED leaves service before the end of the period.
Notes 1 This information includes holdings of any connected persons. 2 Bob Stein’s holding includes 2,000 ADRs (representing 4,000 ordinary shares). 3 John McFarlane and Gay Huey Evans stepped down from the Board at the 2015 AGM. Shares held are as at 29 April 2015 being the date the former NEDs stepped down from the Board.
Savings-related options 20147 3,615 — — — 3,615 — 419.00 — Dec 19 - May 20
Notes 1 The aggregate net value of share awards granted to the directors in the period was £9.7 million (2014: £3.6 million). The net value has been calculated by reference to the closing middle-market price of an ordinary share of the Company at the date of grant. 2 The information given in this column is at 31 December 2015 or the date on which a director ceased to be a director of the Company. 3 The actual price used to calculate the ABP and LTIP awards is based on a three day average closing middle-market price of an ordinary share of the Company, prior to grant date. These were in 2013: 299.00 pence, 2014: 489.00 pence and 2015: 564.00 pence. The actual price used to calculate the CFO Award is based on a three day average closing middle-market price of an ordinary share of the Company, prior to employment start date, which was 509.00 pence.
4 For the 2013 and 2014 LTIP grant, the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Friends Life Group, Legal & General, Met Life, Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial. For the 2015 LTIP grant, the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, MetLife, NN Group, Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial.
5 The performance periods for these awards begin at the commencement of the financial year in which the award is granted. 6 Any unexercised options will lapse at the end of the exercise period. 7 Options are not subject to performance conditions (the savings related options being granted under the SAYE plan). The option price was fixed by reference to a three day average closing middle-market price of an ordinary share of the Company, prior to grant date, with a discount of 20% as permitted under the SAYE plan. 8 The shares compromised in these vested awards include shares issued in lieu of dividends accrued during the deferral period.
Details of options granted to EDs under these plans are included in table 15. More information around HMRC tax advantaged plans can be found in note 31.
Dilution Awards granted under the Aviva all employee share plans are currently met by issuing new shares as agreed by the Board. Shares are still held in employee trusts, details of which are set out in note 32.
Governance Regulatory remuneration code The Financial Conduct Authority’s (FCA) remuneration code applies to Aviva Investors and two small ‘firms’ (as defined by the FCA) within the UK & Ireland Life business. From 1 January 2014 the majority of these firms are subject to the Capital Requirements Directive IV (CRD IV) and the Remuneration Code (SYSC 19A), having previously been subject to the Capital Requirements Directive III (which remains the active regulatory directive for two BIPRU ‘firms’). Additionally, there are three Aviva Investors ‘firms’ subject to the Alternative Investment Fund Management Directive (AIFMD). The FCA remuneration requirements of AIFMD take effect in the first full performance year following registration i.e. January – December 2015. Remuneration Code requirements include an annual disclosure. For Aviva Investors this can be found in the Chapter 4 of the Pillar 3 Disclosure which can be found at www.avivainvestors.com/about_us/our_corporate_governance/index.htm and for the UK & Ireland Life firms at www.aviva.com/media/news/item/fsa-remuneration-code-disclosure-17350/.
Statement of voting at AGM The result of the shareholder vote at the Company’s 2015 AGM in respect of the 2014 DRR is set out in the table below.
Basic salaries The basic salary for the Group CEO £1,009,400 per annum. The basic salary for the CFO £695,250 per annum. The basic salary for the CEO UK Life £712,631 per annum.
Annual bonus The maximum annual bonus opportunity will be in line with the levels set out in the Policy section of this report (i.e. 200% of salary for the Group CEO and 150% of salary for other EDs). As discussed in the Chairman’s letter, from 2016, a target is being introduced linked to our strategic progress on expanding our digital interface with our customers. The performance measures and weightings for the 2016 bonus will therefore be as follows: • IFRS Adjusted Earnings per Share (EPS) (22.50%) • Cash Remittance (18.75%) • Economic Surplus generation (11.25%) • VNB (15.00%) • COR (7.50%) • Progress on strategy – Digital (25.00%)
For the financial element, a quality of earnings assessment will be undertaken by the Remuneration Committee to provide assurance that bonus payouts appropriately reflect the shareholder experience.
Notes 1 Inclusive of Board membership fee and any committee membership fees.
This section sets out Aviva’s remuneration Policy for directors, in accordance with the requirements of the Companies Act 2006 (as amended) and the Large & Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
Alignment of Group strategy with executive remuneration The Committee considers alignment between Group strategy and the remuneration of its EDs is critical. Our Remuneration Policy provides market competitive remuneration, and incentivises EDs to achieve both the annual business plan and the longer-term strategic objectives of the Group. Significant levels of deferral and an aggregate shareholding requirement align EDs’ interests with those of shareholders and aid retention of key personnel. As well as rewarding the achievement of objectives, variable remuneration can be zero if performance thresholds are not met.
Table 18 below provides an overview of our Remuneration Policy for EDs. For an overview of the Remuneration Policy for NEDs see table 20.
Annual bonus To incentivise EDs to achieve the annual business plan.
Additional shares are awarded at vesting in lieu of dividends paid on the deferred shares.
The Committee retains discretion to amend annual bonus pay-outs for a range of factors, including financial, market and other considerations. The Committee will exercise its discretion to reduce otherwise unreasonable reward outcomes. If extraordinary circumstances were to arise where the Committee felt an adjustment upwards is warranted, it would consult with major stakeholders before making any adjustment. Any exceptional adjustment would not exceed the stated maximum.
Performance is assessed against a range of relevant financial, employee, customer and risk targets designed to incentivise the achievement of our strategy, as well as individual strategic objectives as set by the Committee. Although financial performance is the major factor in considering overall expenditure on bonuses, performance against non-financial measures including behaviours in line with our values will also be taken into consideration.
G o vern an ce 18 Remuneration Policy for Executive Directors – overview
The Committee has discretion to amend vesting levels to prevent unreasonable outcomes, which it may use taking into account a range of factors, including the management of risk and good governance and, in all cases, the experience of shareholders.
EDs are eligible to participate in a defined contribution plan up to the annual limit. Any amounts above the annual or lifetime limits are paid in cash.
Dependent on location and family size, benefits are market related and time bound. They are not compensation for performing the role but to defray costs of a relocation or residence outside the home country.
The clawback period runs for two years from the date of vesting (or from the date of payment in the case of annual bonus awards).
Change in control In the event of a change in control, unless a new award is granted in exchange for an existing award, or if there is a significant corporate event like a demerger, awards under the LTIP would normally vest to the extent that the performance conditions have been satisfied as at the date of the change in control, and unless the Committee decides otherwise, would be pro-rated to reflect the time between the start of the performance period and the change in control. Awards under the ABP would normally vest on the date of the change in control and may vest if there is a significant corporate event.
Consistency of executive Remuneration Policy across the Group The Remuneration Policy for our EDs is designed as part of the remuneration philosophy and principles that underpin remuneration for the wider Group. Remuneration arrangements for employees below the EDs take account of the seniority and nature of the role, individual performance and local market practice. The components and levels of remuneration for different employees may therefore differ from the Policy for EDs. Any such elements are reviewed against market practice and approved in line with internal guidelines and frameworks.
The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out above where the terms of the payment were agreed (i) before the Policy came into effect or (ii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes “payments” includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted.
On hiring a new NED, the Committee would align the remuneration package with the Remuneration Policy for NEDs, outlined in table 20, including fees and travel benefits.
Illustration of the Policy The charts below illustrate how much EDs could earn under different performance scenarios in one financial year: • Minimum – basic salary, pension or cash in lieu of pension and benefits, no bonus and no vesting of the LTIP • Target – basic salary, pension or cash in lieu of pension, benefits, and: – A bonus of 100% and an LTIP of 300% of basic salary (with notional LTIP vesting at 50% of maximum) for the Group CEO; – A bonus of 100% and an LTIP of 225% of basic salary (with notional LTIP vesting at 50% of maximum) for the CFO; and – A bonus of 100% and an LTIP of 225% of basic salary (with notional LTIP vesting at 50% of maximum) for the CEO UK Life. • Maximum – basic salary, pension or cash in lieu of pension, benefits, and: – A bonus of 200% and an LTIP of 300% of basic salary (with notional LTIP vesting at maximum) for the Group CEO; – A bonus of 150% and an LTIP of 225% of basic salary (with notional LTIP vesting at maximum) for the CFO; and – A bonus of 150% and an LTIP of 225% of basic salary (with notional LTIP vesting at maximum) for the CEO UK Life.
This therefore excludes the relocation assistance for Tom, in connection with his relocation to the UK. Actual figures may vary in future years. • The value of the LTIP and deferred element of the annual bonus assumes a constant share price and does not include additional shares awarded in lieu of dividends, that may have been accrued during the vesting period. • LTIP as awarded in 2016.
Employment contracts and letters of appointment ED employment contracts and NED letters of appointment are available for inspection at the Company’s registered office during normal hours of business, and at the place of the Company’s 2016 AGM from 10.45am on 4 May 2016 until the close of the meeting.
The key employment terms and conditions of the current EDs, and those who served during the year, as stipulated in their employment contracts, are set out in the table 19 below.
Notice period By the ED By the Company 6 months. 12 months, rolling. No notice or payment in lieu of notice to be paid where the Company terminates for cause.
Date current contract commenced: Policy on payment for loss of office There are no pre-determined ED special provisions for compensation for loss of office. The Committee has the ability to exercise its discretion on the final amount actually paid. Any compensation would be based on basic salary, pension entitlement and other contractual benefits during the notice period, or a payment made in lieu of notice, depending on whether the notice is worked.
In the case of LTIPs, where the Committee determines EDs to be good leavers, vesting is normally based on the extent to which performance conditions have been met at the end of the relevant performance period, and the proportion of the award that vests is pro-rated for the time from the date of grant to final date of service (unless the Committee decides otherwise). Any decision not to apply this would only be made in exceptional circumstances, and would be fully disclosed. It is not the practice to allow such treatment.
Consideration of wider employee pay and shareholder views When determining the Remuneration Policy and arrangements for our EDs, the Committee considers: • Pay and employment conditions elsewhere in the Group to ensure that pay structures are suitably aligned and that levels of remuneration remain appropriate. The Committee reviews levels of basic salary increases for other employees and executives based in the UK. It reviews changes in overall bonus pool funding and long-term incentive grants. The Committee does not directly consult with employees on pay issues but it does consider feedback from sources including the employee opinion survey. The Committee also takes into account information provided by the people function and external advisers
To provide the Chairman with suitable travel arrangements for him to discharge his duties effectively.
Period In line with the requirement of the UK Corporate Governance Code, all NEDs, including the Chairman, are subject to annual re-election by shareholders at each AGM.
Expenses Reimbursement of travel and other expenses reasonably incurred in the performance of their duties.
Appointment dates Director Committee appointments Date of last appointment on letter of appointment1
Key Audit Committee member Remuneration Committee member Governance Committee member Risk Committee member Nomination Committee member Denotes chair of committee
Income statement 270 Statement of comprehensive income 270 Statement of changes in equity 271 Statement of financial position 272 Statement of cash flows 273 Notes to the Company’s financial
Report on the financial statements Our opinion In our opinion, Aviva plc’s Consolidated financial statements and parent company financial statements (the ‘financial statements’): • Give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2015 and of the
The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK and Ireland)’).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
• We assessed the results of the experience investigations carried out by UK Life (including Friends Life) management for the annuity business to determine whether they provided support for the assumptions used by management.
Based on the work performed and the evidence obtained, we considered the assumptions used for annuitant mortality to be reasonable.
• We tested the methodology and credit risk pricing models used for commercial mortgages by management to derive the assumptions with reference to relevant rules and actuarial guidance, and by applying our industry knowledge and experience.
Expense Assumptions Future maintenance expenses and expense inflation assumptions are used in the measurement of insurance and participating investment contract liabilities and any associated reinsurance assets. The assumptions used require significant judgement.
• We tested the methodology used by management to derive the assumptions with reference to relevant rules and actuarial guidance and by applying our industry knowledge and experience.
Based on the work performed, we considered the allowance for expense risk to be appropriate.
Valuation of non-life insurance contract liabilities Refer to page 91 (Audit Committee Report), page 139 (Accounting policies) and page 205 (notes)
• Our actuarial specialist team members performed independent re-projections on selected classes of business, particularly focusing on the largest and most uncertain reserves. For these classes we compared our re-projected claims reserves to those booked by management, and sought to understand any significant differences.
Based on the work performed, we considered the methodology and assumptions used by management to be appropriate.
For these hard to value investments we assessed both the methodology and assumptions used by management in the calculation of the year end values as well as testing the governance controls that the Directors have in place to monitor these processes. The testing included performing the following procedures: • Evaluated the methodology and assumptions in particular, yield curves, discounted cash flows, property growth rates and liquidity premium used within the valuation models.
• Compared the assumptions used against appropriate benchmarks and investigated significant differences.
• Tested the operation of data integrity and change management controls for the models.
For the finite lived intangible assets and goodwill we performed the following procedures: • Tested the acquisition balance sheet prepared by management in accordance with the requirements of IFRS 3 Business Combinations to: - Check the recording at fair value of the Friends Life
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at each of the markets by us, as the Group audit team, or auditors of the markets within PwC UK or from other PwC network firms operating under our instructions. Work was performed by local engagement teams in the following markets; UK Life, Friends Life, UK General Insurance, Canada, France Life, Aviva Investors UK, Spain, Italy, Poland, Singapore Life and Friends Provident International.
Where the work was performed by auditors of the markets, we determined the level of involvement we needed as the Group audit team to have in the audit work at those markets to be able to conclude whether sufficient audit evidence had been obtained as a basis for our opinion on the financial statements as a whole. The Group audit team kept in regular communication with reporting market audit teams including visits to teams based in Aviva operating locations at Bristol, York and Norwich in the United Kingdom, France, Canada, Italy, Spain, Poland and Singapore, regular phone calls, discussions and written instructions, where appropriate.
Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality £114 million (2014: £102 million). How we determined it 5% of Operating profit before tax and after the deduction of integration and restructuring costs.
Going concern Under the Listing Rules we are required to review the Directors’ statement, set out on pages 99 to 100, in relation to going concern. We have nothing to report having performed our review. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to.
ISAs (UK & Ireland) reporting Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: • Information in the Annual Report is: - materially inconsistent with the information in the audited financial statements; or - apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and parent company acquired in the course of performing our audit; or - otherwise misleading.
• The statement given by the Directors on page 100, in accordance with provision C.1.1 of the UK Corporate Governance Code
Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report.
Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility.
Directors’ remuneration Directors’ remuneration report – Companies Act 2006 opinion In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Directors’ Responsibilities Statement set out on page 100, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Marcus Hine (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 9 March 2016 a The maintenance and integrity of the Aviva plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. b Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Aviva plc (the ‘Company’), a public limited company incorporated and domiciled in the United Kingdom (UK), together with its subsidiaries (collectively, the ‘Group’ or ‘Aviva’) transacts life assurance and long-term savings business, fund management and most classes of general insurance and health business through its subsidiaries, joint ventures, associates and branches in the UK, Ireland, continental Europe, Canada, Asia and other countries throughout the world.
(A) Basis of preparation The consolidated financial statements and those of the Company have been prepared and approved by the directors in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU), and those parts of the Companies Act 2006 applicable to those reporting under IFRS. In addition to fulfilling their legal obligation to comply with IFRS as adopted by the EU, the Group and the Company have also complied with IFRS as issued by the IASB applicable at 31 December 2015. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, investment property, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
New standards, interpretations and amendments to published standards that have been adopted by the Group The Group has adopted the following amendments to standards which became effective for the annual reporting period beginning on 1 January 2015.
These narrow scope amendments simplify accounting for defined benefit plans that require contributions from employees or third parties. The adoption of the amendments has no impact on the Group’s consolidated financial statements as the Group does not have defined benefit plans that require employees or third parties to contribute to the cost of the plan.
Standards, interpretations and amendments to published standards that are not yet effective and have not been adopted early by the Group The following new standards, amendments to existing standards have been issued, are not yet effective and have not been adopted early by the Group: (i) Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation
The adoption of these amendments is not expected to have a significant impact for the Group’s consolidated financial statements as the Group does not apply revenuebased depreciation or amortisation. These amendments are effective for annual reporting periods beginning on or after 1 January 2016 and have been endorsed by the EU.
These narrow scope amendments clarify the application of the requirements for investment entities to measure subsidiaries at fair value instead of consolidating them. There are no implications for the Group’s consolidated financial statements as the Group does not meet the definition of an investment entity. These amendments are effective for annual reporting periods beginning on or after 1 January 2016 and have not yet been endorsed by the EU.
(iv) Amendments to IAS 1 – Disclosure Initiative These amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The amendments form part of the IASB’s Disclosure Initiative, which explores how financial statement disclosures can be improved. The adoption of these amendments will have no impact on the Group’s profit or loss or equity. The amendments are effective for annual reporting periods beginning on or after 1 January 2016 and have been endorsed by the EU.
The amendments are effective for annual reporting periods beginning on or after 1 January 2016 and have been endorsed by the EU.
(vii) IFRS 9, Financial Instruments In July 2014, the IASB published IFRS 9 Financial
(x) Narrow scope amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses
The Audit Committee reviews the reasonableness of judgements and assumptions applied and the appropriateness of significant accounting policies. Details of significant issues considered by the Committee in the year are included within the Audit Committee Report on page 94.
These major areas of judgement on policy application are summarised below: Item Critical accounting judgement Accounting policy
Classification of investments including the application of the fair value option
Principal assumptions will include those in respect of mortality, morbidity, persistency, expense, valuation interest rates, credit default allowances on corporate bonds and valuation of guarantees
AVIF is recognised, amortised and tested for impairment by reference to the present value of estimated future profits. Other acquired intangible assets are recognised and tested for impairment using an income approach method. Significant estimates include forecast cash flows and discount rates
Where quoted market prices are not available, valuation techniques are used to value financial investments, derivatives and investment property.
Item Critical accounting assumptions Accounting policy Note financial instruments and investment property
Factors considered when assessing whether there is objective evidence of impairment include industry risk factors, financial condition, credit rating and whether there has been a significant or prolonged decline in fair value
(D) Consolidation principles Subsidiaries Subsidiaries are those entities over which the Group has control. The Group controls an investee if and only if the Group has all of the following: • power over the investee, • exposure, or rights, to variable returns from its involvement with the investee, and • the ability to use its power over the investee to affect its returns.
The Group is required to use the acquisition method of accounting for business combinations. Under this method, the cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the
Accounting for the PUTs and PLPs as subsidiaries, joint ventures, associates or other financial investments depends on whether the Group is deemed to have control or joint control over the PUTs and PLPs’ shareholdings in the GPs and the terms of each partnership agreement are considered along with other factors that determine control, as outlined above. Where the Group exerts control over a PUT or a PLP, it has been treated as a subsidiary and its results, assets and liabilities have been consolidated. Where the partnership is managed by an agreement such that there is joint control between the parties, notwithstanding that the Group’s partnership share in the PLP (including its indirect stake via the relevant PUT and GP) may be lower or higher than 50%, such PUTs and PLPs have been classified as joint ventures. Where the Group has significant influence over the PUT or PLP, as defined in the following section, the PUT or PLP is classified as an associate. Where the Group holds non-controlling interests in PLPs, with no significant influence or control over their associated GPs, the relevant investments are carried at fair value through profit or loss within financial investments.