We operate through businesses in our Core markets of the UK, Ireland and Canada and our other International businesses, which are managed for long-term shareholder value.
Strategic report 1 Highlights 2 Chair’s statement 4 Chief Executive Officer’s report 8 The external environment 9 Our strategy 12 Our business model 14 Key performance indicators 18 Chief Financial Officer’s report 24 Our market review 24 UK & Ireland Life 27 General Insurance: UK & Ireland and Canada 32 Aviva Investors 34 Manage-for-value 37 Risk and risk management 44 Capital management 48 Responsibility 49 Section 172 (1) statement and our stakeholders 53 Our people 56 Corporate responsibility 60 Our climate-related financial disclosure
Governance 65 Chair’s Governance Letter 66 Our Board of Directors 68 Directors’ and Corporate Governance report 93 Directors’ Remuneration report
IFRS financial statements 121 Independent auditors’ report 130 Accounting policies 144 Consolidated financial statements 151 Notes to the consolidated financial statements 264 Financial statements of the Company
Foreword The Strategic report contains information about Aviva, how we create value and how we run our business. It includes our strategy, our business model, key performance indicators, overview of our businesses and our approach to risk and our responsibility to our people, our communities and the planet.
The Strategic report is only part of the Annual Report and Accounts 2020. The Strategic report was approved by the Board on 3 March 2021 and signed on its behalf by Amanda Blanc, Chief Executive Officer.
Non-Financial Information Statement Under sections 414CA and 414CB of the Companies Act 2006, Aviva is required to include, in its Strategic report, a non-financial information statement. The information required by these regulations is included in Our business model, Key performance indicators, Risk and risk management, Our people and Corporate responsibility.
A glossary explaining key terms used in this report is available on: www.aviva.com/glossary
The Company’s registered office: St Helen’s, 1 Undershaft, London, EC3P 3DQ
Our strategic priorities Our strategy is centred on putting the customer first, having a strong social purpose, focusing on where we can win, execution discipline, and ultimately creating value for our shareholders. We have three strategic priorities for the Group: Focus the portfolio: Our focus is on our Core markets in the UK, Ireland and Canada. These are our strongest businesses where we have market leading positions. In the UK we are number one in General Insurance and Workplace Pensions and in the top three for Annuities and Equity Release and in Protection and Health. In Ireland we are number two in General Insurance and in Canada we are number three for the Property and Casualty market. These markets also have extensive customer franchises and can generate attractive financial returns. Our international businesses in continental Europe and Asia are being managed for long-term shareholder value.
Financial strength: Financial strength, resilience and sustainability underpin our strategy. Our focus is on maintaining strong solvency and liquidity and reducing debt leverage. This will increase our financial flexibility and provide options for excess capital deployment.
If the pandemic has taught us anything, it is that we are ever more closely connected in this world. No-one can sensibly argue that a company can create value without looking beyond narrow shareholder interest to recognise the benefits or harms that it contributes to society more widely.
Amid the turmoil, it was also a dramatic year for Aviva. The company has a new Chair (me), a new Chief Executive (Amanda), and a new clarity in where we are heading as a business (our new strategy).
The reality is that making the best of Aviva for our people and our shareholders depends on embracing and being proud of what makes Aviva best for our customers. Where others are narrowing their focus, Aviva’s key strength and competitive advantage is its unique position to be there for people at whatever stage they are at in life. We can join up the dots to understand and serve our customers better, freeing them up to get on with the stuff that really counts. Whether it is protecting what matters most to people or helping them shape a future they dream of, we have the breadth and the expertise for whatever they need, wherever, however.
With the challenges facing us all looking ever more daunting, not least the climate crisis threatening the viability of our planet, acting in line with a clearly defined purpose will be fundamental to long term success. So, too, will be extending our track record as a front runner on environmental, social and governance (ESG) issues. And success will also depend on a strong set of values to guide our actions, so we have re-articulated what is important to our people to help shape our transformation in the months and years to come.
Colleagues Our first priority was looking after our people, so they could continue to serve our customers. Within a month we had moved all but a handful of colleagues out of the office and set everyone up to work from home. We offered flexible working to help anyone juggling caring responsibilities and have given practical support to look after everyone’s health and wellbeing, ranging from mindfulness sessions to help for those home schooling, including recycled laptops and an online maths class from our Chief Financial Officer.
Customers We recognised the financial and practical challenge of lockdown on both our individual and business customers and did what we could to help them manage. This included free breakdown cover and enhanced home insurance for NHS staff coping at the front line and deferred monthly payments for people experiencing financial difficulties. For businesses, we created advice on managing new risks and offered flexible insurance, so they were still covered even as they adapted to new ways of working.
Communities Aviva has contributed £43 million to support businesses, health services and community partners in our markets round the world. In the UK we pledged £18.5 million for the Association of British Insurers (ABI) COVID-19 support fund and £5 million to NHS Charities Together, to help fund welfare and well-being for NHS employees, volunteers and patients, and long-term mental health support for NHS workers. Aviva and the Aviva Foundation* also jointly donated £10 million, as part of Aviva’s award-winning international partnership with the British Red Cross.
Shareholders Despite turmoil in the global economy, Aviva has continued to demonstrate resilience both in terms of financial strength and performance. Nonetheless, the highly uncertain impact on the economy and clear guidance from regulators led us to announce the withdrawal of the 2019 final dividend. We recognise the importance of this dividend, particularly for individual shareholders and did not take the decision lightly. On 6 August 2020 we declared a second interim dividend for 2019 and on 26 November 2020 the board declared an interim dividend of 7.0p per share and an expected final dividend of 14.0p per share. This final dividend was confirmed on 3 March 2021. * The Aviva Foundation is administered by Charities Trust under charity registration
We value Care, looking out for each other and for our customers, just as our people have so admirably demonstrated through the pandemic. We value Commitment, keeping our promises and taking responsibility for our impact on the world. We value Community, understanding that our strength comes from our connection to each other and to those around us. Last but by no means least, we value Confidence. Because we believe that the best is still to come, for our customers, for our communities, and also for Aviva ourselves.
I am pleased to report the strong progress we have made towards our strategic priorities in the short period of time since I became CEO, but it is not lost on me that there is much to do. Aviva has significant untapped potential, and I am determined to realise it for our shareholders, our customers and our people.
Overview Being there for customers when it really matters is exactly why Aviva exists, and I am incredibly proud of how we have responded in this most dramatic of years. Our colleagues have been truly fantastic, responding quickly and ensuring that we provided excellent customer service despite the challenges.
I am pleased to report the strong progress we have made towards our strategic priorities in the short period of time since I became CEO, but it is not lost on me that there is much more to do. Aviva has significant untapped potential, and I am determined to realise it for our shareholders, our customers and our people.
The 2020 financial performance has been resilient across our Core markets of the UK, Ireland and Canada with cash remittances1 to Group of £1.4 billion. We have delivered record results for both Savings & Retirement and bulk purchase annuities, with strong growth in Commercial General Insurance. We are also making good progress in reducing our expenses though more needs to be done to reach the top quartile efficiency that we strive for.
All of which resulted in an adjusted operating profit1 of £2,492 million (2019: £2,558 million), down just 3%, despite the direct and indirect impact of COVID-19, and strong trading across key business growth areas.
In line with previously issued guidance the Board has proposed a final dividend of 14 pence per share making a total dividend for the year of 21 pence per share.
We are also announcing new financial targets that demonstrate our confidence in delivering profitable growth across our Core markets. We are targeting to deliver over £5 billion of cash remittances1 over the next three years and to grow cash remittances1 to £1.8 billion in 2023. Combined with reduced centre debt interest and other costs we will deliver strong growth in excess cashflows to fund growing returns to shareholders and sustainable investment in our business.
Our commitment to colleagues Aviva is nothing without our people. Living up to our purpose to be with you today for a better tomorrow applies to those we work with just as much as it does to our customers. In 2020, 80% of colleagues said they would recommend Aviva as a great place to work in our global employee opinion survey, the Voice of Aviva.
In 2020 we built on our existing commitment as a Living Wage employer by becoming one of the first accredited Living Hours employers in the UK, offering predictable shifts and guaranteed minimum hours to give people greater certainty and financial security.
For those with caring responsibilities we give the option of 35 hours paid leave each year and over 600 people used the scheme in 2020. For new parents, regardless of gender, we offer up to 12 months leave in the UK, including 26 weeks at full pay. 97% of new dads at Aviva have taken more than two weeks leave, with the average being five months with their new arrivals.
Strategic report Governance IFRS financial statements Other information 1. Focus the portfolio We are focusing on our strongest and most strategically advantaged businesses in the UK, Ireland and Canada including Aviva Investors. These are our Core markets, where we have market leading positions, can generate attractive returns, have a strong brand, deliver incredible customer service and where we have a clear path to win. Across these markets we are investing for growth.
We have also announced the sales of our French business, our Italian operations (including Aviva Vita announced in November), our minority shareholding in Turkey, and our entire business in Vietnam, which we expect to complete later in 2021. We are also exploring our strategic options in Poland and our other international joint ventures.
Aviva Investors continued to build on their strong heritage of responsible investing, targeting £10 billion of investments into UK infrastructure and real estate projects and engaging with the companies we invest in to promote a transition to a low-carbon future.
If we are going to prevent the most catastrophic impacts of climate change, it’s going to take bold actions and real leadership. Aviva has been leading the insurance industry for over 300 years, and we are determined to continue doing so today and tomorrow.
In March 2021, we have launched a new sustainability ambition, leveraging our existing strengths in Environmental, Social and Governance (“ESG”). We want Aviva to be recognised as a business that leads by example through products and services that are good for society as a whole and by influencing others to act.
We have set ourselves clear goals to fight climate change including becoming the first major insurance company in the world to target achieving Net Zero carbon emission status by 2040. Our ambitions also reflect our commitment to our home market as we aim to invest more in our local communities as well as £10 billion in infrastructure and real estate over the next three years to build a stronger Britain.
As we have outlined in our capital framework we intend to reduce our Solvency II debt leverage ratio1 below 30% and once we have completed the reshaping of our portfolio, we expect to deploy excess capital through investing for growth across our Core markets and returns to shareholders.
Outlook Aviva has responded incredibly well to the challenges in 2020 presented by COVID-19 and Brexit. Our Core markets have proven to be resilient and our customer service has remained high.
Our new financial targets demonstrate our confidence in our Core markets being well positioned to grow. We will continue to deliver against our capital framework and will provide updates on our plans for future deployments of excess capital as we make progress in completing our announced disposals.
Amanda Blanc Chief Executive Officer 3 March 2021 1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements
We have developed our strategy in the context of political, economic and regulatory forces as well as the broader megatrends affecting us all. We acknowledge the risks and challenges these trends present and aim to turn them into opportunities for growth.
In 2020, global GDP contracted severely -3.5% (estimation) Source: IMF World Economic Outlook Update, January 2021
Active governments and regulators Governments are increasingly promoting private provision and reforming services once funded by the state (e.g. pensions and healthcare). While regulators remain focused on customer outcomes, enforcing conduct and prudential supervision (e.g. Financial Conduct Authority pricing review) as well as standardising insurance accounting (e.g. IFRS 17), there is significant work underway to reform the UK regulatory framework following the UK’s exit from the EU.
Global population aged 65 or over in 2019 (projected to double by 2050)
Health & Wellbeing Traditional healthcare models are under strain from rising prevalence of chronic conditions, ageing populations, high costs of new treatments and the challenges posed to health systems by COVID-19 (from the disease itself, including long term effects experienced by some people, as well as mental health impacts of containment measures and delays in diagnosis and treatment of other conditions). Driven by technological advances and accelerated by COVID-19 and increased health awareness, new models are developing with a focus on prevention, early intervention and digital technology.
Estimated number of people with diabetes in the UK (diagnosed and non-diagnosed)
Assets in sustainable funds at 31 December 2020 (a record high)
Mobility Transport is shifting from private ownership towards more efficient, safer and cleaner modes: car-sharing, electric fleets, efficient public transport and self-driving vehicles. COVID-19 has also triggered significant shifts in behaviour which are likely to have a lasting impact on mobility (e.g. home working, reduced business and leisure travel).
Convenience Powered by new technologies, a new level of convenience is emerging where consumers’ personal needs are fulfilled instantly, and even anticipated. COVID-19 has significantly accelerated the existing shift to online in all sectors.
Percentage increase in the number of data breaches globally in 2019 vs. 2018 c.33% Source: Munich Re, April 2020
Our strategic priorities Our strategy is centred on putting the customer first, having a strong social purpose, focusing on where we can win, execution discipline, and ultimately creating value for our shareholders.
We have three strategic priorities for the Group: • Focus the portfolio; • Transform performance; and • Financial strength.
Focus the portfolio Our focus is on our Core markets in the UK, Ireland and Canada. These are our strongest businesses where we have market leading positions, extensive customer franchises and can generate attractive financial returns.
During 2020, we completed the disposals of a majority shareholding in Aviva Singapore, a majority shareholding in Friends Provident International Limited (FPI), and our joint ventures in Indonesia and Hong Kong. We also announced the disposals of our Italian joint venture, Aviva Vita, and our entire business in Vietnam. In 2021, we announced the disposals of our entire business in France, our joint venture in Turkey and the remaining Life and General Insurance business in Italy.
Our remaining international businesses will be managed for long term shareholder value. We will build on the good work our teams are doing to grow and optimise these businesses, but where we cannot meet our strategic objectives, we will be decisive and withdraw capital. Ultimately there may be better owners for these businesses than Aviva.
Transform performance We will transform performance across our Core markets to strengthen our competitive position and ensure we can take advantage of emerging growth opportunities. With top 3 market positions across the majority of our businesses, we are building on strong foundations. The growth opportunities we will target are driven by trends such as an ageing population, a heightened focus on health and wellbeing, and the emergence of new risks for our customers, amongst others.
Building a consistent, digitally led customer experience is critical to how we can enhance customer engagement and retention. We will do this by further developing our digital platforms to make it easier for our customers to access the full suite of Aviva products. We will also connect the rich data we collect from across our businesses to ensure we can offer our customers the right products and services at the right time.
Aligned to our strong social purpose, we have increased our sustainability ambition on tackling climate change and building a stronger Britain. As part of this ambition, we have announced our plan to be carbon Net Zero by 2040 and to invest £10 billion into UK infrastructure and real estate over the next three years. We will also ensure we maintain high standards on running our business sustainably and embed this in our governance, decision making, reporting, and stakeholder engagement.
Read more about how we are transforming performance across our Core markets in the ‘Our market review’ section of the Strategic report. Read more about our approach to sustainability in the ‘Corporate responsibility’ section of the Strategic report.
As we focus the portfolio, we expect our Solvency II shareholder cover ratio1 to remain above our target working range.
Our dividend policy will deliver a sustainable and resilient ordinary dividend, covered by the capital generation, cash remittances and growth from our Core markets in the UK, Ireland and Canada. We expect to grow our ordinary dividends per share in the low-to-mid single digits. Future growth in the dividend will be driven by the transformed performance and growth of our businesses, by lower levels of debt and from the benefits of focusing the portfolio.
Community Because we recognise the strength that comes from working as one team, collaborating and winning together for Aviva, for each other and for our customers. Aviva is built on a foundation of trust and respect. Our strength comes from our connection – to each other, to our customers and partners and to the communities around us.
Our businesses Our group portfolio is comprised of the following businesses: Core markets: • UK & Ireland Life; • General Insurance: UK & Ireland and Canada; and • Aviva Investors.
Our strengths We have unique strengths as a business that give us a significant competitive advantage: • Strong technical skills; • Diversified distribution; • Robust capital position; • Extensive customer franchise; and • Well recognised brand.
Customers pay insurance premiums which we use to pay claims, protecting what matters to them. Our scale enables us to pool the risks and maintain capital strength, so we are there for our customers when they need us.
CCuussttoommeerrss iinnvveesstt tthheeiirr ssaavviinnggss wwiitthh uuss.. For a fee, we manage and administer their investments so they can grow their savings or secure an income in the future.
Shareholders We invest carefully so we can deliver sustainable, growing returns for our shareholders.
Customers Our customers benefit from a range of solutions to meet their needs, with easy access when and how they want it.
Colleagues Our aim is for our people to achieve their potential within a diverse, collaborative and customer-focused organisation.
Our business model defines us, differentiates us and is how we meet our customers’ needs…
Insurance and Protection • Personal lines • Commercial lines • Protection • Health
We aim to assess how we serve our customers, engagement with our employees and how we generate value for our shareholders. We do so with a set of financial and non-financial metrics which enables us to assess our performance against our strategic priorities and our purpose.
These metrics include Alternative Performance Measures (APMs) which are non-GAAP measures that are not bound by the requirements of IFRS. Further guidance in respect of the APMs used by the Group to measure our performance and financial strength is included within the ‘Other Information’ section of the Annual Report and Accounts. This guidance includes definitions and, where possible, reconciliations to relevant line items or sub-totals in the financial statements. The financial commentary included in this Strategic report should be read in conjunction with this guidance.
Our relationship NPS® survey shows four years of sustained high levels of customer advocacy in a challenging marketplace. We are working hard to earn customers’ trust by making things simple for customers thereby improving customer outcomes.
Engagement is up three percentage points to 76% (2019: 73%) reflecting another solid uplift in engagement, with 80% of colleagues recommending Aviva as a great place to work. The rise was driven by stronger belief in the strategy and greater trust in senior leaders.
Since 2010 we have reduced carbon emissions (CO2e)2 from our day-to-day operations by 76% (2019: 66%) beating our 2020 target of a 50% reduction and exceeding our 70% reduction by 2030 target.
2020: 1 Comparatives have been rebased as we have reduced the number of markets covered in the survey from 9 to 7 markets as we no longer report on China and Singapore. 2 CO2e data includes emissions from our buildings, business travel, water and waste to landfill.
2020: IFRS profit for the year IFRS profit for the year measures the actual profit after tax attributable to shareholders, generated by the Group.
Basic EPS increased to 70.2p (2019: 63.8p), in line with the increase in IFRS profit for the year.
2020: Solvency II operating capital generation2 R Group Solvency II operating capital generation (OCG)2 measures the amount of capital the Group generates from operating activities.
Group Solvency II OCG2 decreased to £1.9 billion (2019: £2.3 billion) while OCG excluding the impact of capital actions, non-economic assumption changes and other non-recurring items, was stable at £1.4 billion (2019: £1.4 billion). Total Solvency II OCG2 was lower primarily as a result of changes made to our French Life model, which corrected a mis-applied rule.
2020: R Symbol denotes key performance indicators used as a base to determine or modify remuneration. 1 Group adjusted operating profit is an APM which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other Information’ section within the Annual Report and Accounts for further information. 2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements
Controllable costs1,2 decreased by 2% to £3,935 million (2019 restated2: £4,022 million). The decrease in controllable costs1,2 mainly reflects our continued focus on efficiency and lowering spend, partially offset by charitable donations made by Aviva and accelerated onerous contract costs reflecting the reduction in our UK property footprint.
Solvency II debt leverage ratio1 Solvency II debt leverage ratio1 is one of the indicators used by management to assess the Group’s financial strength.
During the year, the estimated Solvency II shareholder cover ratio1 has fallen by 4pp to 202% (2019: 206%) primarily as a result of the impact of the economic downturn, partially offset by the beneficial impact from operating capital generation and disposals.
2020: Value of new business on an adjusted Solvency II basis1 Value of new business on an adjusted Solvency II basis (VNB)1 measures growth and is the source of future cash flows in our life businesses.
2020: Combined operating ratio1 The combined operating ratio (COR)1 is a measure of general insurance profitability. A COR1 below 100% indicates profitable underwriting.
Value of new business on an adjusted Solvency II basis1 1,260 1,224 36 3%
The events of 2020 have demonstrated two things very clearly for Aviva. First, our financial strength positions us well to deal with the unexpected. Second, our people and businesses are capable of delivering resilient performance in the most challenging circumstances.
Group financial headlines Operating results Cash remittances1 Cash remittances1 during 2020 were £1.5 billion (2019: £2.6 billion including £500 million special dividend from UK Life and £172 million special remittance from Italy). The vast majority of these, £1,359 million (2019: £1,909 million including £500 million special dividend from UK Life) came from our Core markets. Remittances from Manage-for-value businesses were £127 million (2019: £613 million) due to regulatory restrictions and our cautious approach given the continuing economic and market uncertainty.
Profits Group adjusted operating profit2 of £3,161 million (2019: £3,184 million) and operating earnings per share1,3 of 60.8 pence (2019: 60.5 pence) were stable. IFRS profit for the year was £2,910 million (2019: 2,663 million) while basic earnings per share increased to 70.2p (2019: 63.8p). Adjusted operating profit2 from Core markets was resilient at £2,492 million (2019: £2,558 million).
Cost reductions Our approach to efficiency initiatives was also brought into focus as a result of COVID-19. Although some costs were reduced, for example travel, we incurred incremental expenditure including the IT spend required to allow all of our employees to work remotely. We also contributed £43 million to community support initiatives. Despite these headwinds we have delivered £180 million of cumulative savings since 2018. We remain on track to reduce controllable costs1 by £300 million by 2022 and will deliver this solely from Core markets.
Solvency II OCG1 from Core markets increased 5% to £1,948 million (2019: £1,850 million) driven by a strong performance in general insurance.
Solvency II capital At 31 December 2020, Aviva’s Solvency II shareholder surplus was £13.0 billion and Solvency II shareholder cover ratio1 was 202% (2019: £12.6 billion and 206% respectively). Solvency II net asset value per share1 was 442 pence (2019: 423 pence). Solvency II OCG1 of £1,932 million (2019: £2,259 million) and the benefits of disposals were offset by capital market movements driven mainly by the impact of the reduction in interest rates over the course of the year and the payment of dividends in the period.
‘Other Information’ section within the Annual Report and Accounts for further information. 3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other information’ section of the Annual Report and Accounts.
In UK Life and Ireland, Solvency II return on capital1 fell to 7.4% (2019: 9.1%) as result of positive but lower longevity assumption benefits compared with 2019, partially offset by increased levels of BPAs and improved longevity experience. Solvency II OCG1 increased to £1,259 million (2019: £1,248 million) benefitting from management actions taken to optimise capital and a stable new business strain despite a significant increase in BPA sales3.
Adviser platform – In a short space of time we have built up assets of £32 billion and were ranked top two6 by net flows1 in 2020 with a market share of 14% of net flows1. The complexity and flexibility of the UK pension and savings system as well as the ageing population, which includes wealthy baby boomers reaching retirement, has accelerated the need for financial advice and for platform solutions that help financial advisers to look after their clients’ assets more effectively and efficiently. This has driven growth in the adviser platform market from £400 billion in 2015 to over £750 billion in 2020 with forecast market growth to £1.3 trillion by 20257.
Annuities & Equity Release Sales3 rose 21% to £7.5 billion (2019: £6.2 billion) while value of new business (VNB)1 increased 25% to £356 million (2019: £284 million), reflecting strong growth in our BPA business partly offset by lower sales of individual annuities and equity release. Adjusted operating profit2 was 6% lower at £815 million (2019: £866 million) as growth in BPA business but lower profits in individual annuities and equity release.
Bulk Purchase Annuities – In 2020, we were ranked in the top four8 bulk purchase annuity providers with sales3 growing by 48% to £6.0 billion (2019: £4.0 billion) with the overall Annuity & Equity release book increasing AUM1 by 11% to £75 billion (2019: £67 billion). The demand from businesses and defined benefit pension fund trustees for annuities has continued to increase with the market growing from £13 billion in 2015 to greater than £30 billion in 20209. This demand has been driven by the desire of corporates to de-risk their exposure to defined benefit pension obligations through the bulk purchase of annuities from insurance companies. At £2 trillion, the total value of defined benefit pension scheme liabilities in the UK is very high and is expected to result in a high level of demand for bulk annuities estimated to be £30 billion to £50 billion per annum9 across the entire market over the next five years. Aviva’s financial strength as well as expertise to both price annuity business effectively and through Aviva Investors to invest profitably for the long-term means we are well placed to further succeed in this growing market.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts. 2 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
On top of our donations given specifically to help people cope with the impact of COVID-19 this year, we also committed £11.5 million to other local projects, making total community investment £54.5 million in 2020. Overall, this has helped 5.1 million people, from keeping them active and looking after the environment, to tackling loneliness and teaching new skills.
The Aviva Community Fund continued in France, Italy and Ireland and we officially launched the new look Aviva Community Fund in the UK. In partnership with Crowdfunder UK, this gives our people the chance to choose projects they wish to support. In Canada, Aviva’s Take Back Our Roads campaign continued to focus on improving road safety across the country.
As well as looking after our customers, our people continue to play a vital role in community activity, fully demonstrating one of Aviva’s values: Care. Everyone is entitled to paid volunteer leave and despite the restrictions put in place as a result of COVID-19, in total our people globally have given more than 29,200 volunteering hours to help others this year.
Individual Annuities – We have retained our number 11 position in the market with individual annuity sales2 of £1.0 billion (2019: £1.4 billion) as we focused on more profitable business as even lower interest rates caused by COVID-19 reduced customer demand. Following the introduction of pension freedoms in 2015 (which gave individuals greater choice in how they access their savings in retirement) the demand for individual annuities in the UK has fallen significantly, nevertheless, we expect individual annuities to remain an important option for customers when securing income in retirement.
Equity Release – In 2020 we maintained our number three3 position in equity release mortgages with sales2 of £562 million (2019: £780 million). Volumes were impacted by our ability to conduct in-person property valuations owing to lockdowns, nevertheless with £3 trillion of housing equity owned by over 55s, we expect demand for equity release mortgages to continue to grow into the future. With strong growth in property values over the last two decades, unlocking the significant value locked up in their homes is a way for many to achieve financial security in later life.
Health – While we are the number 3 player3 in health insurance, we are the only provider of scale that can offer individual and group protection products, making our health offering not only a standalone but also complementary proposition. 2020 has illustrated the importance of health and wellbeing to individuals, but also to companies and their employees. Our digital offering, where 99% of interactions with health brokers are carried out digitally, positions us well in this increasingly important market. In 2020 we increased sales1 by 1% to £513 million (2019: £507 million).
Core markets general insurance combined operating ratio (COR)5 improved by 0.9 percentage points to 96.8% (2019: 97.7%). Strong underlying performance across our Core markets was partially offset by the net negative impacts of COVID-19, which had 1.1 percentage points adverse impact on COR5, and lower benefits from weather and prior year development, which had 3.2 percentage points adverse impact on COR5 compared to 2019.
UK Personal Lines – Our personal lines business has market leading digital propositions which are driving high customer advocacy. NWP was 7% lower in 2020 at £2,232 million (2019: 2,399 million) reflecting the impact of lockdowns and disruption caused by COVID-19 on the branch networks of our distribution partners as well as rationalisation of unprofitable business lines.
UK Commercial Lines – We are the largest commercial insurer7 in the UK with 11% market share. Our digitally transacted channels continue to perform exceptionally, while a favourable underwriting environment and strong retention rates have helped us to grow NWP in 2020 by 10% to £2,008 million (2019: £1,819 million). We focus on the small or medium-sized enterprises (SME) and the fast-growing Global Corporate and Specialty (GCS) markets. We expect growth to continue as we address under-insurance amongst SMEs and innovate and invest in our GCS offering to meet client demand for protection against emerging risks. Our success has been driven by a focus on exceptional service and a reputation as a trusted partner. This was evidenced by an increase in broker trust to 95% in contrast to the wider market – a really important measure given the disruption caused by the global pandemic and the pivotal role brokers play in distributing commercial lines products in the UK.
Aviva Investors adjusted operating profit4 was 11% lower at £85 million (2019: £96 million) mainly driven by lower revenue partly offset by a reduction in controllable costs5. Aviva Investors revenues5 were impacted by lower contribution from securities lending and a reduction in origination fees reflecting lower demand for alternative strategies as risk appetites reduced in response to COVID-19.
1 ABI – 12 months to end Q320. 2 Reference to sales represents present value of new business premiums (PVNBP) which is an APM, further details can be found in the ‘Other Information’ section within the Annual Report and Accounts. 3 LaingBuisson, Health Cover UK Market Report, 16th edition. 4 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other
(where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts. 6 Aviva’s estimates based on the 2019 ABI General Insurance Premium Distribution 7 Aviva’s estimates based on the 2019 ABI General Insurance Premium Distribution 8 2019 MSA Research Results. Includes: Lloyds, excludes: ICBC, SAF, SGI and Genworth. 9 Percentages are quoted on a constant currency basis.
1 2 3 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the
‘Other Information’ section within the Annual Report and Accounts for further information. 4 Percentages are quoted on a constant currency basis. 5 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements
Sustainable or ESG investing is becoming hugely important, providing active asset managers with an opportunity to meet this growing client demand and to contribute to society as a whole. Aviva Investors has a decades-long track-record of being at the forefront of sustainable investing having launched the Stewardship range of funds, the UK’s first ethical fund range, back in 1984.
This heritage continues as evidenced by Aviva Investors being ranked 21 globally for our environmental voting track record and 52 for responsible investment by Share Action. We continue to lead in this field having launched our climate transition engagement programme with a promise to divest from companies that are non-responsive to our expectation that all companies should adopt a goal of achieving Net Zero greenhouse gas emissions by 2050.
Overview Business strategy overview Aviva is the UK’s largest insurer with a 23% share5 of the UK life and savings market. We are in a unique position to solve customer problems through each step of their lives as we are a trusted provider of a broad range of products to both individual and corporate customers covering their savings, retirement, insurance and health needs. Our strategy is to invest for growth, through which we will become the UK’s leading insurer and establish Aviva as the ‘go-to’ customer brand for all insurance, protection, savings and retirement needs for all of our customers.
Through our savings, retirement and protection businesses, we help individuals save and achieve financial peace of mind through their workplace, advisers or engaging directly with us as well as manage their savings and income up to and through retirement. We also help our corporate customers with de-risking solutions for their pension schemes and promote wellbeing and health with their workforce. Strong brand awareness and a proven track record in customer experience have allowed us to develop strong relationships with distribution partners such as independent financial advisers, employee benefit consultants, banks and estate agents as well as offering digital direct solutions to customers.
In times of uncertainty and economic volatility, our financial strength provides our customers and investors with certainty. We are well capitalised and have demonstrated resilience to stress through a period of considerable market uncertainty. We receive a significant capital efficiency advantage from the composite nature of the UK Life business and the wider Aviva Group.
Market overview The global pandemic brought about immense change for customers and institutions such as Aviva. Customer behaviours and attitudes towards insurers have evolved. We have seen an acceleration in digital adoption, rapid shifts in mobility and customer engagement, and a new focus on work/life habits. On top of these developments, trends from before the pandemic also remain relevant; in the UK, 24% of the population will be over 65 in 20 years7, 85% of investible assets is owned by over 45s7 and £3.0 trillion of housing equity is owned by over 55s7.
(where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts. 2 Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been restated to reclassify net interest expense of £65 million from UK & Ireland Life to
3 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other Information’ section within the Annual Report and Accounts for further information.
During 2020, new business was impacted by uncertainty caused by COVID-19. Average investment values were lower caused by market falls, movement restrictions prevented advisers from working and new scheme wins were deferred into 2021 due to clients seeking less volatility, with PVNBP2 decreasing by 7% to £17.6 billion (2019: £18.9 billion). Net flows2 increased 14% to £8.5 billion (2019: £7.5 billion) due to higher auto-enrolment volumes and a larger asset base compared to 2019 which offset the impact of lower new business.
The UK BPA market remains attractive to us and we will seek further opportunities as more businesses look to de-risk their pension schemes. We have improved the capital efficiency of our BPA new business by partnering with new reinsurance counterparties and leveraged our illiquid asset origination capabilities to meet our asset origination targets despite unprecedented market conditions. We utilise reinsurance to manage exposure to longevity risk emerging from higher BPA volumes. In 2020, our BPA sales grew strongly by 48% to £6.0 billion (2019: £4.0 billion), more than an eightfold increase over the last five years, reflecting our continued focus on capturing market opportunities with attractive pricing.
Our individual protection products protect our customers when they fall upon difficult times such as bereavement or serious illness. The individual protection market is highly competitive, with pressure on both volumes and margins. COVID-19 significantly disrupted individual protection sales during 2020 as the stalled housing market caused applications to fall. We saw a shift to direct channel business following implementation of movement restrictions in the first half of 2020 but this was not enough to offset the reduction in sales through channels which rely on face to face contact, such as with our estate agent partners.
Group protection new business grew compared to 2019, with PVNBP2 of £716 million (2019: £518 million) despite pausing new business sales during the first national lockdown. Volume growth was driven by group income protection.
Our Health proposition helps customers to live more healthily and support them and their families when they fall ill. We understand that customers needed us more than ever in 2020. As well as offering payment deferrals to customers who needed it the most, we recognised the restricted availability of private treatments in 2020 by pledging to refund Health policyholders if claims costs in 2020 and 2021 are lower than expected as a result of COVID-19. Health PVNBP2 grew to £513 million (2019: £507 million) year-on-year due to higher large corporate business sales.
(where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts. 3 ABI – 12 months to end Q320. 4 UK Finance data on UK mortgage lenders. 5 Lane, Clark & Peacock (LCP) pensions de-risking update, October 2020. 6 LaingBuisson, Health Cover UK Market Report, 16th edition.
• Our Post-Retirement Pension Income Product (ARF/ARMF) proposition went live in Q4 2020.
The final phase of our Integrated Product Launch Programme will focus on our Annuity, Savings & Investments and Personal Retirement Savings Account propositions.
While COVID-19 and the low interest rate environment impacted our protection and annuity contract volumes during 2020, unit-linked sales remained strong. Overall PVNBP1 decreased by 3% to £1,534 million (2019: £1,589 million).
Our focus on ‘Brilliant Basics’ continues to drive lower transactional backlogs, fewer customer complaints and improved speed to service customer queries. We have used our data analytics capability to identify and assess key customer issues across a wide range of customer data.
In Ireland we have been committed to supporting our customers and intermediaries in response to the challenges posed by COVID-19, with the introduction of premium deferrals and premium holidays for impacted customers. In addition we are committed to making it easier for intermediaries to do business with Aviva. To further support our intermediaries, the business held a series of 21 webinars, with c.22,000 attendees in total, delivering a 98.5% TNPS score.
Distribution channels With over 11 million customers we have one of the largest customer bases in the UK life and savings market. 3.5 million of our customers have registered on our MyAviva app, allowing policyholders easy access to the most important information about their policy on mobile devices. 1.8 million customers have registered on our
MyPension app generating over 13,000 daily logins, and we have seen digital engagement increase by 53% during 2020.
Our Workplace business is largely intermediated with over 26,000 clients and 3.8 million members. We are the only provider to be awarded the maximum ‘6 gold star’ rating from the Finance & Technology Research Centre for our 2020 workplace pension solutions and auto enrolment.
Our Retail business offers access to our market leading platform to both intermediated and direct customers. Working closely with our platform technology partners, we delivered a substantial upgrade to our platform software, bringing new features to benefit both advisers and customers who choose to manage their investments directly with us. We have built relationships with c.5,000 advisory firms. During the COVID-19 crisis, our distribution team have built on our already strong relationships with independent financial adviser (IFA) firms by staying in close contact with them and understanding how they’ve been dealing with the crisis, how their models and needs may change, and how we can support that.
During 2020, we successfully launched a number of initiatives to assist our customers across distribution channels. Our new IFA portal Aviva Connect provides single sign in for intermediaries across our products. We launched Digicare+, a new digital app offering a range of services to support individual and group protection customers in their day-to-day health and wellbeing, bringing differentiation and meaningful engagement.
We have been working closely with the Financial Conduct Authority (FCA) to explore the rules around guidance, and options to be able to better support our customers. Our Aviva Guidance Experts have been supporting our customers, both new and existing, to help them understand their personal retirement options. We’ve collaborated across the business to deliver social media, online signposts and targeted email campaigns in order to reach customers who might need our support.
Workplace and Platform propositions • Continue to seek capital efficient BPA opportunities to increase long term cash flow • Capitalise on our data analytics capability to bring innovative propositions to the marketplace • In Ireland we will focus on improving efficiency, optimising product profitability and the final phase of our Integrated Product Launch Programme.
Overview Business strategy overview Aviva is a leading insurer in both the UK and Ireland general insurance (GI) markets. We have consistently maintained our market share in both the UK & Ireland with market shares of 10% and 13%, respectively3.
Our strategy is to invest for growth to deliver on our ambition of being the leading insurer in the UK and Ireland as measured by premium, reputation, trust, breadth of distribution and strength of digital platform.
British Insurance Awards while we also secured a record seventh consecutive General Insurer of the Year award at the Insurance Times awards.
Market overview During 2020, we have had to deal with COVID-19, proposed and confirmed changes in regulation, and a number of weather events in the UK. These conditions have materially impacted 2020 and we can also expect a significant impact continuing into 2021.
In the Small Medium Enterprises (SME) sector, the impact of COVID-19 has significantly affected SME performance and businesses have had to close or adapt their models and change their risk profiles as a response to the pandemic. The sector is continuing to suffer from significant levels of underinsurance, and we are proactively utilising our Commercial Intelligence Tool to identify gaps in coverage to support our brokers and customers.
3 Aviva’s estimates based on the 2019 ABI General Insurance Premium Distribution.
We recognise shifts in mobility, with personal transport shifting from private ownership to more efficient, safer and cleaner models like sharing, electric fleets and, in time, self-driving vehicles. Commercial transport, where these changes are likely to be seen first, will see similar trends. COVID-19 may have put some of these changes on relative pause but, longer term, permanent reductions in commuting will further contribute to shifts in models. At Aviva we are well placed as these changes develop, given our strengths both in personal car and commercial fleet insurance.
Commercial lines In the UK, we offer Commercial lines insurance to a wide range of businesses, from micro through small and mid-market to large, multinational corporates. In Ireland, we provide commercial cover to all sized businesses.
In a year dominated by COVID-19, we have grown our Commercial lines business 10% by maintaining positive broker and client sentiment throughout the year. We have grown SME business by 4% and Global Corporate Specialty (GCS) by 16%. This growth has been supported by new client acquisitions, a strong rate environment in corporate and specialty and an acceleration of our digital capabilities within SME.
We have enhanced our propositions, provided innovative solutions for our customers, extended our product range and invested in our Digital Cyber product ahead of the launch in the first half of 2021. We have introduced new products such as a single vehicle mini-fleet product for our SME customers, a full suite of financial lines coverage for our regional clients and an enhancement of our Regional Cyber product to provide comprehensive solutions for businesses. To enhance our proposition for our multinational clients, we have harmonised our client relationship management model and we have also expanded our claims service management model to additionally support our mid-market customers.
• Maximising new business and renewal outcomes by effectively delivering a whole account underwriting approach.
• Launched our back to business campaign to provide information and guidance for our intermediaries and clients on a range of topics ranging from market support, to underinsurance and the impact of a hardening market.
More than 50% of Personal lines direct customers hold more than one GI product with us. Our Commercial lines customers hold more than three products with us on average, and our retention rates remain over 80%. This demonstrates our customers’ satisfaction with our products and services, which is reinforced by our upper quartile RNPS (Relationship Net Promotor Score), which is 17 points ahead of the competitor benchmark. In Ireland, our Customer Trust score increased by 1% and is 4pp ahead of competitor benchmark.
In the second half of the year, our UK business launched the Aviva brand on price comparison websites for motor and home insurance. This allows customers a greater choice of distribution channels to use when buying an Aviva insurance product and has improved our growth in the final quarter of the year.
In support of our banking partners and our digital agenda, we have deployed our “Ask-It-Never” underwriting approach with two of our four major banking partners this year. Ask-It-Never delivers datadriven frictionless experiences for customers, reducing application time for new business by half.
• Deliver on growth targets. Continue to deliver strong growth in our Commercial book, which is key to our UK strategy to increase our market share. Return to growth in our Personal lines business. Expand our Commercial product offering in Ireland.
• Continue to support the wellbeing of our people and develop capabilities in line with our business growth strategy.
The shift in consumer behaviours to digital has accelerated the growing need for digital capabilities and increased the pace of technological change among carriers and brokers. Additionally, the physical distancing initiatives and increase in remote working over the past year has led to a reduction in auto claims frequency, which will continue to drive increased government and regulatory pressure and impact pricing. The Canadian personal motor market is highly regulated and commoditised.
Weather-related catastrophe events continue to rise in frequency and severity, impacting our models and risk exposure concentration.
Operational highlights Products Our Personal insurance portfolio ($CAD3.6 billion, 65% of overall business mix) is largely made up of mass market propositions, particularly in regulated lines/geographies.
This year, we continued to make good progress against our data science, pricing sophistication and claims agendas, while our future focus is on digitising the proposition and service experience in order to deliver value and compete on price.
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts.
3 Canadian Property & Casualty market position source: Swiss Re, sigma No. 4/2020 from the Insurance Information Institute (www.iii.org). 4 Canadian market share source: 2019 MSA Research Results. Includes: Lloyds, excludes: ICBC, SAF, SGI and Genworth.
Personal lines Our personal insurance business is made up of Retail and Group Home and Auto, High Net Worth proposition as well as Lifestyle products. In 2021, our personal insurance growth is projected to be in line with the market (i.e. low single digit) with opportunistic growth anticipated in our Direct channel (due to changing consumer buying trends) as well as in our less commoditised specialty lines, where we have market leading expertise. However, we remain cautious as COVID-19 relief measures are expected to offset any organic customer growth.
Customers Our claims TNPS performance (Auto +61, Property +54) remains strong due to internal efforts and our claims transformation programme. We have seen continuous improvement in our claims process, where cycle time has reduced significantly compared to 2019 and we are focused on quick settlements, automation and digitising key customer touchpoints.
Overall complaint volumes for 2020 are down 17% compared to 2019. In 2021, we will continue to investigate the top complaints drivers and work to address root causes of these issues. A focus on ease of doing business through understanding what customers and partners need from us, and delivering against those needs in a single interaction, has maintained a First Contact Resolution ratio of 88%.
Historically we have primarily sold our personal and commercial insurance propositions through intermediaries. The acquisition of RBC General Insurance in 2016 included a 15-year strategic distribution agreement between RBC and Aviva. The RBC Insurance Agency, a distributor for RBC home and auto insurance solutions underwritten by Aviva, now makes up approximately 23% of our overall personal insurance business.
• Modernising our systems and infrastructure to deliver change at pace.
• Enhance our service experience to make it easy for customers and distributors to engage with, buy and sell Aviva and RBC.
1 RBC market position/share based on market capitalisation and brand rank source: 2020 ADV ratings .
Overview Business strategy overview Aviva Investors manages £366 billion of assets across a number of international markets, with £292 billion managed on behalf of Aviva.
Market overview For active managers, advantaged access to distribution, scale and operating efficiency have become increasingly important to compete profitably. Managers are also increasingly focusing on ESG opportunities.
United Nations’ Principles for Responsible Investment (PRI) ratings which covers over $100 trillion in AUM1; • Multiple international awards including the International Corporate Governance Network (ICGN) Global Stewardship Award 2019, and the Global Investment Group (GIG) Investment Excellence Award 2019 ESG Manager of the Year; and
• A recognised leadership position in promoting sustainability disclosures with involvement in initiatives such as the Task Force on Climate-Related Financial Disclosures (TCFD) and Continuous Data Protection (CDP).
For our Aviva clients, significant inflows of £5.1 billion from the Core business, primarily on the Adviser channel, Workplace and annuities in the UK, were offset by £6.5 billion outflows from the run-off in assets for the existing back book.
We continued to experience strong momentum in our Liquidity business, with £5.5 billion of net liquidity fund inflows and 80 new client accounts.
Customers Our investment performance was not immune from the market turbulence, and at the end of December 2020 55% of our funds were ahead of benchmark over one year.
Our ongoing focus on ESG creates easy ways for our customers to do good, leading by example and influencing others to act, thereby playing an active role in the fight against climate change, creating a stronger economy and society as well as generating enhanced shareholder value over the long-term.
Distribution channels Our Aviva client distribution channels mainly comprise: • Savings & Retirement, where we develop ESG-focused propositions to meet the long-term savings needs of Aviva’s defined contribution pension and savings customers; and
With 58 distribution agreements, our diversified client base is made up of over 300 institutional clients, over 90,000 retail investors and over 3,500 professional investors such as IFAs, discretionary fund managers, charities and institutions.
Our international businesses in continental Europe and Asia will be managed for long-term shareholder value. We will build on the good work our teams are doing to grow and optimise their businesses, but where we cannot meet our strategic objectives, we will be decisive and withdraw capital. Ultimately, there may be better owners for these businesses than Aviva.
France Overview In France, the life market is dominated by mutuals and banks. Aviva France is ranked 3rd amongst the traditional insurers.
Our business offers a full range of savings, investment, protection and health insurance products with strength in distribution with Epargne Actuelle our 100% owned life broker, Union Financiere de France (UFF) the number 2 financial adviser network, tied agents and independent brokers, and partnering with Association Française d’Épargne et de Retraite (AFER), through France’s number one savers’ association.
For the life business, our focus in the market is on balancing the demand amongst French savers for low volatility guaranteed products alongside the pressure this places on return on capital in the current negative interest rate market environment.
The French general insurance market grew by +2.5% to €50.5 billion to the end of September 20203, with premiums split between 3 main categories; mutual without intermediaries (c.23%), bancassurers (c.15%) and other traditional insurers (c.62%). In the personal lines (mainly motor), competition is intense, with well-established mutuals and traditional players facing increasing competition from bancassurers and from small to midsize players aiming to maintain their market shares. While the pure Direct only captures c.2% of distribution so far, full multichannel distribution (direct and physical) is becoming increasingly relevant in individual.
Motor and Home premiums increased by respectively 2.3% and 3.2% in the French market at the end of November 2020, a slower growth rate compared to 2019.
In the context of the COVID-19 crisis, General Insurance new business and claims saw a decrease of 20% in Motor claims frequency at the end of November 2020. A return to a second nationwide lockdown (although less severe than the first lockdown) and the strong economic downturn this caused (GDP expected at c.(8)% in 2020 compared to 2019), translates into an uncertain mid-term outlook in the general insurance market, with an intensification of price competition on personal lines and an increased underwriting pressure on the commercial lines, in a context where the interest rate environment weighs on financial performance.
In 2020, new business declined 22% overall, due to the COVID-19 crisis, in line with the French market. Unit-linked sales remained high at €2.6 billion (PVNBP1 basis), above market trend, demonstrating our focus on shifting new business toward capital-light savings and Pension business, which was helped by the success of our product offers (structured/ISR/Real Estate unit-linked products) and targeted marketing campaigns.
In General Insurance, Aviva showed stronger than market commercial performance, recording a 4.5% increase in premiums (excluding Health) collected at the end of 2020. In 2020, retention rates increased to 89.5% (+1.2pp). We have limited exposure to business interruption losses in France, this was limited to c£5 million at 31 December 2020.
(where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts. 2 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental
Information’ and ‘Other Information’ section within the Annual Report and Accounts for further information. 3 Source: Fédération Française de l’Assurance
Customers The implementation of our General Insurance strategic proposition continues with a key milestone achieved in the launch of ‘Client Unique’ – a multi-channel project: one client, one product, one price, any channel; an innovative proposition allowing retail customers to choose the combination of channels that works for them. In 2020, Aviva France successfully launched the home product on a client unique basis.
From a General Insurance broker perspective, we continue our dynamic of profitable growth and strengthening our partnerships with brokers highlighted by a 22% increase in premiums at the end of 2020.
Key priorities for 2021 In the context of the COVID-19 pandemic and associated economic downturn, Aviva France executes a commercial strategy focused on profitable growth based on: • Completing the disposal of Aviva France in the second half of 20211; • Pension business, where we are already in top three for the new individual pension product; • Continued effort on Life savings business transformation; • Customer retention; and • 2021 pricing strategy.
Italy Overview In Italy we are the 10th largest Life business, 3rd in long-term care (LTC), market leader in CQP and CQS2 (credit protection of salary and pension backed loans) and 16th General Insurance provider3.
Our life product catalogue is comprised of hybrid, savings and protection, LTC and pension products distributed mainly through bancassurance agreements and financial advisor networks. We continuously innovate our product catalogue launching new products able to meet clients’ and distributors’ expectations while optimising the capital charge generated by the market volatility.
In general insurance, we launched a new Guidewire based underwriting platform offering a simple and flexible range of products and we have been commended by the industry for our innovative implementation. In parallel, we commenced a review and renewal of our entire product catalogue, which will be finalised next year, and intend to extend the use of the new platform across more of our distribution channels so that all our customers and distribution partners can benefit from its simplicity. Our General Insurance business continues with the implementation of Aviva Plus, a new digital platform, powered by Guidewire, for both the distributors and to enhance the direct sale. Moreover, Aviva Plus will permit more efficiency and costs saving, thanks to the decommissioning of old platforms, and better analytics.
Customers Our customer base has gone up by 2% year on year, thanks to the new distributors we have started working with.
We have received strong customer feedback during the year and we are above the market average on both customer satisfaction score and retail net promoter score. The TNPS on motor and home claims demonstrate that our General Insurance claims teams are able to provide a full positive customer experience even during the COVID-19 pandemic.
Sella, member of Banca Sella Group; • Extended the partnership with UBI, due to expire at the end of 2020, until June 2021; • Renewed the distribution agreement which expired in September 2019, with the other bancassurance partner, Unicredit, until July 2021; and
In 2020 we have supported all our distributors to withstand the COVID-19 crisis and have accelerated our digitisation roadmap. To guarantee the business continuity and support our partners, we have put in place a series of actions to digitise and simplify the sales process for bancassurance partners and agents.
Operational highlights Products Aviva Poland offers a wide range of insurance and investment solutions such as life cover for individuals and groups, general insurance for retail and commercial clients, and pension schemes as well as investments through unit trusts.
In the pension market, auto-enrolment recommenced, and we have written more than 5,100 contracts with companies employing almost half a million employees (of which nearly 150,000 have joined the pension scheme already).
Customers In 2020 we have implemented a series of operational improvements and immediately responded to customer expectations regarding the COVID-19 pandemic which have resulted in improved customer experience metrics (TNPS) from +23 at the end of 2019 to +32 at the end of 2020.
High and stable TNPS results on the key customer touchpoints in 2020 were maintained: +69pp after policy purchase and +51pp after claim.
We have also improved the user experience on digital touchpoints, resulting in rising TNPS result for MyAviva by 2pp and Aviva website by 36pp.
Our General Insurance distribution mainly comprises direct for personal offer and brokers as the dominant channel for commercial lines.
Key priorities for 2021 We have three priorities that will ensure successful strategy execution in 2021: • Distribution development – investment in tied agent network modernisation through technology, new structure and recruitment, and deepened relationships with Santander and ING, as well as new partnerships; • Development of Aviva brand supported by customer excellence and digitisation to optimise front and back end solutions and customer experience across all channels; and
• Growth across corporate business to double the size of corporate business in life and General Insurance commercial lines.
India In India, we have a life insurance business through our joint venture with Dabur Invest. Corp. The business is a provider of savings, protection and retirement products through bancassurance, retail agency channels and a direct sales force.
Looking forward, these risks may be magnified or dampened by current and emerging external trends (including those set out in “the external environment” section) which may impact our current and longer-term profitability and viability, in particular our ability to write profitable new business.
This includes the risk of failing to adapt our business model to take advantage of these trends. The ‘Principal risk trends and causal factors’ table in this section describes these trends, their impact, future outlook and how we manage these risks.
Risks from our operations and other business risks • Operational risk is the risk of direct or indirect loss, arising from inadequate or failed internal processes, people and systems, or external events including changes in the regulatory environment.
Principal risk types The types of risk to which the Group is exposed have not changed significantly over the year and are described in the table below. All of the risks below, and in particular operational risks, may have an adverse impact on our brand and reputation. The impact of COVID-19 on these risk types has been considered further as a spotlight in this section.
We take a balanced approach to credit and believe we have the expertise to manage it and the structural investment advantages conferred to insurers with long-dated, relatively illiquid liabilities that enables us to earn superior investment returns.
• Risk appetites set to limit overall level of credit risk • Credit limit framework imposes limits on credit concentration by issuer, sector and type of instrument • Investment restrictions on certain sovereign and corporate exposures • Credit risk hedging programme • Specific asset de-risking
We take measured amounts of life insurance risk provided we have the appropriate core skills in underwriting and pricing.
• Maintaining committed borrowing facilities from banks • Asset liability matching methodology develops optimal asset portfolio maturity structures in our businesses to ensure cash flows are sufficient to meet liabilities
• Product development and review process • Investment performance and risk management oversight and review process • Propositions based on customer needs • Client relationship teams managing client retention risk 1 Top three risks ranked by diversified Solvency II Solvency Capital Requirement 2 Not quantifiable in terms of economic capital
• On-going investment in simplifying our technology estate to improve the resilience and reliability of our systems and in IT security to protect ours and our customers’ data
Spotlight: COVID-19 – Risk management in action The COVID-19 pandemic has impacted all the geographic markets in which we operate and all the major risk types inherent to our business. Prior to and during the COVID-19 pandemic we have taken active risk management actions to protect our capital position, ensure continuous service to our customers and manage our risk exposures, as set out below: Risk Type Risk mitigation
Operational risk Impacted by government lockdown measures to reduce the COVID-19 virus spread
Financial crime – Programme of employee and customer communication and guidance undertaken in response to use of COVID-19 as a pretext for phishing activity, leading to pension and investment fraud, as well as exaggerated and fraudulent claims.
Asset management risk Impacted by financial market response to COVID-19 pandemic and in particular the commercial property sector
Trading and liquidity management actions were taken within our funds, to ensure continued and uninterrupted service to our customers. However, due to the adverse impact of COVID-19 on the UK commercial property sectors, and in particular the difficulty in being able to assign values to our commercial property portfolios, we temporarily suspended our unit-linked property funds to redemptions for six months in March 2020.
Changes in public policy – any change in public policy (government or regulatory) could influence the demand for, and profitability of, our products. In some markets there are (or could be in the future) restrictions and controls on premium rates, rating factors and charges.
Aviva continues to develop our data science capabilities to both inform and enable improvements in the customer journey, our understanding of how customers interact with us and our underwriting disciplines. Our Data Charter, now implemented across the Group, sets out our public commitment to use data responsibly and securely. Our new Group Data Strategy will provide a renewed focus to ensuring that Aviva derives increased value from the data we hold for our customers in a secure and ethical way across the Group.
Data mastery and the effective use of ‘Big Data’ through artificial intelligence and advanced analytics has and will continue to be a critical driver of competitive advantage for insurers. However, this will be subject to increasing regulatory scrutiny to ensure this is being done so in an ethical, transparent and secure way. The competitive threat to traditional insurers will continue to persist with the potential for big technology companies and low cost innovative digital start-ups to enter the insurance market, where previously underwriting capability, risk selection and required capital have proven to be a sufficient barrier to entry.
Climate change – potentially resulting in higher than expected weatherrelated claims (including business continuity claims), inaccurate pricing of general insurance risk, reputational impact from not being seen as a responsible steward/investor, as well as adversely impacting economic growth and investment markets.
Aviva considers climate change to be one of the most material long-term risks to our business model. Global average temperatures over the last five years have been the hottest on record. Despite the UNFCCC Paris agreement, the current trend of increasing CO2e emissions is expected to continue, in the absence of radical action by governments, with global temperatures likely to exceed pre-industrial levels by at least 2oC and weather events (floods, droughts, windstorms) increasing in frequency and severity. Disclosure of potential impacts against various climate scenarios and time horizons will continue to become increasingly common for all companies.
In 2020 there continued to be high profile cyber security incidents for corporates in the UK and elsewhere. Cyber threat is expected to persist in 2021 with increasing levels of sophistication and industrialisation anticipated. Aviva continuously monitors the external threat environment to ensure that our cyber investment remains appropriate to mitigate the continued and changing nature of the cyber threat.
There is considerable uncertainty as to whether the improvements in life expectancy that have been experienced over the last 40 years will continue into the future. In particular, there is likely to be a reduced level of improvement from the two key drivers of recent improvements, smoking cessation (as you can only give up smoking once) and the use of statins in the treatment of cardiovascular disease (where the most significant benefit from use in higher risk groups has now been seen). Also, despite continued medical advances emerging, dietary changes, increasing obesity and strains on public health services have begun to slow the historical trend, leading in the UK to some significant industry-wide longevity reserve releases in recent years. In the longer term this may even result in a reversal in the trend of increasing life expectancy.
We listen to our customers to ensure we meet their savings, retirement and insurance needs. We also seek to improve the way we serve our customers by simplifying our interactions with them, resolving queries at their first point of contact where appropriate and enhancing our digital capabilities.
The financial impact of a recession will be felt across our customer demographic. This could include rising unemployment as government support packages end or retiree drawdown due to low interest rates and falling markets. These pressures will inevitably cause changes in customer behaviours and we maintain an agile approach with our strategy, plans, and in particular product development. We also expect regulatory scrutiny to increase to ensure we continue to serve and treat our existing customers fairly particularly those who are vulnerable.
Our businesses are required to identify business critical outsourced functions (internal and external) and for each to have exit and termination plans and business continuity and disaster recovery plans in place in the event of supplier failure, which are reviewed annually. We also carry out supplier financial stability reviews at least annually. Specific focus areas have been on contingency and exit planning.
Pandemic – in an increasingly globalised world, new or mutations of existing bacteria or viruses may be difficult for stretched healthcare systems to contain, disrupting national economies and affecting our operations and the health and mortality of our customers.
We expect the current COVID-19 pandemic to continue until an effective vaccine is fully rolled-out in 2021 or failing that the virus becomes endemic with the long-term impact on mortality and morbidity dependent on the extent natural immunity develops in the general population and the efficacy of new healthcare treatments.
Going forward, trends such as global climate change, urbanisation, antimicrobial resistance and intensive livestock production are likely to increase the risk of future pandemics, while reductions in migration and international travel as a result of COVID-19 are likely to be temporary making the containment of future pandemics more challenging. We expect the experience and learnings from the current COVID-19 will improve the effectiveness of the public healthcare response to any future pandemics.
Overview Group capital is represented by Solvency II own funds. The Group manages capital in conjunction with its solvency capital requirements (SCR) and in line with a new dividend policy and capital framework announced in November 2020.
shareholder cover ratio1 of 160%-180% and excess centre cash, we will consider additional returns to shareholders.
Capital and liquidity risk appetite The Group seeks to retain financial flexibility by maintaining strong liquidity, access to a range of capital markets and significant unutilised committed credit lines. The Group’s economic capital risk appetite is set in terms of our Solvency II shareholder cover ratio1. Our Solvency II shareholder cover ratio1 working range is 160%-180%.
Our businesses are capitalised based on their regulatory minimum levels with further prudent volatility buffers specific to each entity. Market local capital appetites and working ranges are reviewed regularly by local boards. During 2020 we took a relatively cautious approach to cash remittances1 in the wake of the challenges the COVID-19 pandemic presents for businesses, households and customers, the uncertain impact on the global economy, and regulatory restrictions in certain markets.
When making capital allocation decisions in addition to EVA we consider other key metrics including cash remittances1, Solvency II operating capital generation (OCG)1 and Group adjusted operating profit2.
Capital and cash Group Solvency position The Group Solvency II position disclosed is based on a ‘shareholder view’. The shareholder view is considered by management to be more representative of the shareholders’ risk exposure and the Group’s ability to cover the SCR with eligible own funds and aligns with management’s approach to dynamically manage its capital position. In arriving at the shareholder position, a number of adjustments are typically made to the regulatory Solvency II position.
The Group Solvency II capital position is summarised in the table below: Own funds 2020 £m £m £m
Estimated Solvency II regulatory surplus as at 31 December1 29,262 (16,441) 12,821 28,347 (15,517) 12,830 Adjustments for: Fully ring-fenced with-profit funds (2,492) 2,492 — (2,501) 2,501 — Staff pension schemes in surplus (1,179) 1,179 — (1,181) 1,181 — PPE1 (385) — (385) — — — Notional reset of the transitional measure on technical provisions (TMTP) 564 — 564 — — — Pro forma adjustments2 — — — (117) (75) (192)
Estimated Solvency II shareholder surplus at 31 December 25,770 (12,770) 13,000 24,548 (11,910) 12,638
Group Solvency II surplus at 1 January 24,548 (11,910) 12,638 Opening restatements4 78 (202) (124) Operating capital generation 1,691 241 1,932 Non-operating capital generation (741) (963) (1,704) Dividends5 (549) — (549) Hybrid debt repayments 257 — 257 Acquisitions and disposals 486 64 550 Estimated Solvency II surplus at 31 December 25,770 (12,770) 13,000
The increase in surplus since 31 December 2019 is mainly due to the beneficial impacts from Solvency II OCG3, impact from disposals of subsidiaries (primarily Singapore) partially offset by the impact of the economic downturn and interim dividends in respect of the 2019 and 2020 financial years.
Solvency II OCG3 decreased to £1,932 million (2019: £2,259 million). Total Solvency II OCG3 was impacted by changes made to our French life model which corrected a misapplied rule, and also benefited from a lower contribution from management actions of £518 million (2019: £826 million) which included positive assumption changes as well as diversification benefits in Group centre and other.
Solvency II RoE1 is used by the Group to assess performance and growth, as we look to deliver long-term value for our shareholders. It is a more relevant measure of performance than IFRS return on equity1 as it is an economic value measure, the basis on which we manage Group capital. Solvency II operating own funds generation1 and return on capital/equity1 by division is summarised in the table below: Operating own funds generation1 £m
UK & Ireland Life 1,057 7.4% 1,247 9.1% UK & Ireland General Insurance2 329 13.1% 333 14.3% Canada 287 19.9% 203 15.3% Aviva Investors 67 13.7% 70 13.7% Manage-for-value 497 6.2% 850 11.4% Group centre, debt costs and Other2 (250) n/a (162) n/a TToottaall SSoollvveennccyy IIII rreettuurrnn oonn ccaappiittaall11 1,987 8.1% 2,541 10.8%
Senior and subordinated debt (296) (284) TToottaall SSoollvveennccyy IIII ooppeerraattiinngg oowwnn ffuunnddss ggeenneerraattiioonn11 1,691 2,257
Direct Capital Instruments, Tier 1 notes and preference shares (65) (72) TToottaall SSoollvveennccyy IIII rreettuurrnn oonn eeqquuiittyy11 1,626 9.8% 2,185 14.3%
Solvency II RoE1 was 9.8% (2019: 14.3%) and Solvency II operating own funds generation1 was £1,691 million (2019: £2,257 million), lower primarily owing to changes to modelling in our French life business which corrected a mis-applied rule, and significantly lower benefit from longevity assumption changes in UK Life. Excluding the impact of capital actions, non-economic assumption changes and other non-recurring items, Solvency II RoE1 increased to 9.8% (2019: 8.1%) and Solvency II operating own funds generation increased to £1,685 million (2019: £1,313 million) driven by underlying improvements in UK Life, due to BPA new business, and in our UK and Canada General Insurance businesses.
Cash remittances1 from our Core markets in 2020 are lower than 2019 as 2019 included a special remittance of £500 million from UK & Ireland Life which was not repeated in 2020. In addition we have chosen to retain cash in the subsidiaries to maintain balance sheet strength given the unprecedented economic and market uncertainty related to COVID-19. Cash remittances1 from our Manage-for-value markets are lower mainly driven by regulatory restrictions related to COVID-19 and a 2019 special remittance from Italy of £172 million which is not repeated in 2020. Other includes excess cash remitted to Group on the winding down of Aviva Re.
(where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts. 2 For UK General Insurance only, capital held for internal risk appetite purposes is used instead of opening shareholder Solvency II own funds to ensure consistency in measuring performance across markets. This is only applicable to UK General Insurance Solvency II return on capital and not to the aggregated Group Solvency II return on capital and Solvency II return on equity measures, with the reversal of the impact included in Group centre costs and Other opening own funds.
Sensitivity analysis As part of the Group’s internal capital management process, we regularly monitor the Group’s sensitivity to economic and non-economic scenarios. The table below shows the absolute change in Solvency II shareholder cover ratio1 under each sensitivity, e.g. a 2pp positive impact would result in a Solvency II shareholder cover ratio1 of 204%.
Impact on Solvency II shareholder cover ratio1 50 bps increase in interest rate 9pp 100 bps increase in interest rate 15pp 50 bps decrease in interest rate (11)pp 100 bps increase in corporate bond spread2,3 3pp 50 bps decrease in corporate bond spread2,3 (3)pp Credit downgrade on annuity portfolio4 (6)pp 25% increase in market value of equity 3pp 25% decrease in market value of equity (5)pp 20% decrease in value of commercial property5 (11)pp 20% decrease in value of residential property5 (7)pp 10% increase in lapse rates (2)pp 5% increase in mortality/morbidity rates – life assurance (2)pp 5% decrease in mortality rates – annuity business (16)pp
Note that the sensitivity analysis does not take into consideration that the Group’s assets and liabilities are actively managed. Additionally, the Solvency II position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s financial risk management strategy aims to manage the exposure to market fluctuations. As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocations, adjusting bonuses credited to policyholders and taking other protective action.
Solvency II regulatory own funds and Solvency II debt leverage ratio1 One of the objectives of capital management is to maintain an efficient capital structure using a combination of equity shareholders’ funds, preference share capital, subordinated debt and borrowings, in a manner consistent with our risk profile and the regulatory and market requirements of our business. The table below provides a summary of the Group’s regulatory Solvency II own funds by Tier and Solvency II debt leverage ratio1: Regulatory view 2020 £m
Total regulatory own funds7 29,262 28,347 Solvency II debt leverage ratio1 31% 31%
(where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts. 2 The corporate bond spread sensitivity is applied such that even though movements vary by rating and duration consistent with the approach in the solvency capital requirement, the weighted average spread movement equals the headline sensitivity. Fundamental spreads remain unchanged. This methodology differs to the prior period. The 31 December 2019 corporate bond spread sensitivities have not been restated for the change in approach. 3 A modelling refinement was implemented to the corporate bond credit sensitivities in the UK following a review of the 31 December 2019 methodology. 4 An immediate full letter downgrade on 20% of the annuity portfolio credit assets (e.g. from AAA to AA, from AA to A). The 31 December 2020 downgrade sensitivity now includes infrastructure (except Private Finance Initiatives). 5 The property sensitivities are in addition to reduced property growth assumed over the next 5 years in the base solvency position. 6 Tier 3 regulatory own funds at 31 December 2020 consists of £259 million subordinated debt (2019: £259 million) plus £96 million net deferred tax assets (2019: £78 million). 7 Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At 31 December 2019 PPE was included in the France local regulatory own funds but was excluded from the estimated Group regulatory own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE is included in the estimated Group regulatory own funds at 31 December 2020.
This section of our report explains how we take our responsibilities seriously: Our customers • Our purpose, ‘with you today, for a better tomorrow,’ captures the reason we exist as a business. Understanding what’s important to our 31.6 million customers, serving them well and treating them fairly is key to our long-term success. See Section 172 (1) statement and our stakeholders
Our Board is also focused on the wider social context within which our businesses operate, including those issues related to climate change which are of fundamental importance to the planet’s wellbeing. A detailed explanation of how Aviva continues to manage the impact of its business on communities and the environment is outlined in the ‘Corporate responsibility’ and ‘Our climate-related financial disclosure’ section of the Strategic report.
Key strategic decisions in 2020 For each matter that comes before the Board, the Board considers the likely consequences of any decision in the long term, identifies stakeholders who may be affected, and carefully considers their interests and any potential impact as part of the decision-making process.
1 The s.172 statements of our qualifying subsidiaries will be made available on the Aviva plc website.
Customers Understanding what’s important to our 31.6 million customers is key to our longterm success.
• The Customer, Conduct and Reputation Committee (CCRC) receives regular reporting on customer outcomes and customer-related strategic initiatives.
• The CCRC closely monitors customer metrics and engages with the leadership team if our performance does not meet our customers’ expectations.
• For further information on how we engage with our customers, please see the reports from each of our business divisions in the ‘Our market review’ section of this Strategic report.
• The Chair also is chair- of the Evolution Council (a diverse group of high calibre leaders from across the business), involving them in discussions related to the Group’s strategy and incorporating their insight into the Board’s decisionmaking. Council meetings are attended by several Non-Executive directors and the Non-Executive directors may also attend meetings of Your Forum, our fully elected employee forum representing UK employees.
• We believe these methods of engagement with Aviva employees are effective in building and maintaining trust and communication and they allow for openness, honesty and transparency within the business. They also act as a platform for Aviva employees to influence change in relation to matters that affect them.
• We are committed to recruiting, training and retaining the best talent we can find and we are proud to be a pioneer in some areas of employee benefits, including providing six months paid parental leave for all UK employees.
• During 2020 the Board ensured that our people’s safety was at the heart of decision-making. Our people received regular communications through our leaders and colleagues were consistently provided with guidance and support. This included making sure that the capabilities were in place to allow our people to work from home. Internal surveys for employees were issued to ensure that the Board received feedback from employees as to whether they felt supported and well informed.
• The Group Chief Executive Officer is a member of the 30% Club, a business-led organisation committed to accelerating progress towards better gender balance at all levels of the organisation. Further information on our approach can be found in the ‘Our people’ section of this Strategic report.
• Our directors maintain oversight of the management of our most important suppliers and our operating subsidiary boards review and report on their performance.
• All supplier-related activity is managed in line with the Group Procurement and Outsourcing business standard. This ensures that supply risk is managed appropriately in relation to customer outcomes, data security, corporate responsibility, and financial, operational, contractual issues.
• Aviva was the first international insurer to become operationally carbon neutral in 2006 and we continue to offset 100% of any remaining operational carbon emissions. Being carbon neutral means taking part in a carbon offset programme which allows us to invest in environmental projects around the world that reduce the same amount of carbon that we produce through our buildings and other operations. We are now taking our ambition a step further and have set out our goal to becoming a Net Zero company across our operations, supply chain and investments, as part of our commitment to the UN Net Zero Asset Owners Alliance.
• On 26 October 2020 the FCA published the outcome of its investigation into Aviva’s announcement on preference shares in March 2018. Aviva released its response the same day accepting the FCA finding. Aviva had earlier recognised the uncertainty created for preference shareholders by the March 2018 announcement, and on 31 July 2018, set up a discretionary goodwill scheme for impacted preference shareholders.
• The Board worked closely with the regulators and other supervisory bodies in the wake of the unprecedented challenges presented by COVID-19.
Shareholders Our retail and institutional shareholders are the owners of the Company.
• The Board meets with shareholders at the Annual General Meeting (AGM) which provides an opportunity, predominantly for our retail shareholders, to engage directly with the Board. Due to the restrictions associated with the COVID-19 pandemic, it was not possible to hold our usual AGM arrangements, but we filmed an event with the Chair and Group Chief Executive Officer answering questions submitted by shareholders to ensure our engagement with shareholders continued as far as possible in the circumstances.
• The Chair and Executive Directors have a programme of meetings with institutional investors during the year. The Board also receives regular briefings from our corporate brokers on investors’ views.
Impact of COVID-19 In March, we began closing offices across the globe. We took measures to protect our people and the operational resilience of the business so we could continue to provide great service to our customers. This included expanding home working by increasing remote working capacity, building additional laptops, and launching new collaboration tools like Microsoft Teams. By April, around 97% of colleagues globally were working from home.
With colleagues safely at home, and customer needs continuing to be met, our focus shifted to supporting colleagues and taking the opportunity to work smarter. This included: • Regular updates clarifying any changes or Government announcements for our employees and confirming our response. • Increasing the frequency of leadership communications. • Continuing to pay colleagues who had to reduce their hours when schools or childcare were unavailable. • Providing physical equipment at home to anyone who needed it. • Introducing a smart working policy to articulate ways of working remotely that supports employees, customers and Aviva. • Supporting mental wellbeing through a range of apps, virtual classes and support forums. • Online content and training courses supporting leaders in remote leadership approaches.
The organisation will focus on two key areas as a result of the 2020 survey. Firstly, providing greater clarity on the implications of the organisational strategy on market and function’s priorities to give colleagues clear direction and accelerate their performance. And secondly, clarifying expectations around supporting and managing performance so colleagues understand what and how they are expected to deliver and their progress against that.
Another influence on engagement is colleagues feeling listened to and involved in decisions. We continue to take our responsibility to consult very seriously. We have positive and constructive relationships with trade unions in all our markets, as well as allemployee representative bodies (for example, Your Forum in the UK). Bodies like Your Forum and the Evolution Council, hosted by the Chair, remain a key way of recognising that we all have a part to play in contributing to the debate on issues and opportunities impacting our people and our organisation.
We are determined to keep challenging ourselves to do more to build a workplace – and society – that works for all.
It’s important to us that all our colleagues at Aviva are involved, including those with visible and invisible disabilities. We make reasonable adjustments for our people and for candidates who are interested in working for us. As a Disability Confident Employer, we will interview every disabled applicant who meets the minimum criteria for the job and offer Workplace Adjustment Passports to colleagues.
In the Voice of Aviva, employees were asked ‘if they can be themselves at work’; 84% responded positively, up 2 points from 2019. Diversity and Inclusion is woven into everything at Aviva, from inclusive policies to customer propositions, supported by our engaged leadership helping to drive the changes that are needed.
We’ve made considerable efforts in Diversity and Inclusion (D&I), which is promoted through our six Global Employee Resource Groups, known as the Aviva Communities, each sponsored by members of the Aviva Group Executive Committee. These cover race, religion and social mobility; gender; sexuality and gender identity; caring responsibilities; age and mental and physical health. The Communities work collectively so that we have an intersectional approach to D&I. This was recognised through a number of awards in 2020 including placing #45 (the only insurer in the UK) in the Stonewall Workplace Equality Index, and appearing on the Sunday Times Top 50 Employers for Women.
We are particularly focused on two of our D&I priorities, gender and ethnicity: Gender • At the end of 2020, Aviva had 33% female senior leadership (32%
2019). We will continue improving senior female representation through initiatives such as Equal Parental Leave, targeted female development programmes and diverse short lists.
• Aviva is committed to educating all in the organisation. Notable initiatives include development of Anti-Racism Training and the introduction of Reverse Mentoring with black employees and the senior executive.
• Aviva met the requirements of the Parker Report with the appointment of an ethnically diverse member of the board.
• Aviva has published it’s #BlackLivesMatter action plan on its website.
We quickly adapted the face to face elements of our wellbeing programme. For example, in the UK, colleagues now have access to a virtual class timetable, with over 30 free classes a week covering everything from mindfulness, deep relaxation, stretch and tone to high impact aerobics. Similarly, our seminars and talks on wellbeing topics became virtual events, with all talks recorded so colleagues can watch at a time to suit them. We created virtual challenges to help colleagues feel part of something bigger and give them a reason to focus on their wellbeing. Colleagues in Singapore even had care packages sent to their homes to replace wellbeing benefits in the office.
The pandemic hasn’t been our only focus, our wellbeing programmes have continued to evolve. In the UK for example, we have added the following support: • Domestic abuse policy and support – we’ve created training and guidance for our leaders and colleagues as well as a policy to highlight our support for any colleagues who are suffering domestic abuse.
• Menopause support – we’ve made a support app available to all colleagues, providing specialist consultation and ongoing live chat support. We also have online training which highlights the impact menopause symptoms can have in the workplace and what adjustments can be made to support menopausal colleagues. These services are combined with our intranet hub of information and virtual menopause support group.
Our plans for 2021 We are committed to transforming the performance of Aviva. That starts with supporting the performance of each and every colleague. In 2021, we will continue to build on the best of our culture, learn from the COVID-19 pandemic, enable agile and productive ways of working, and equip colleagues to support our customers now and in the future.
At 31 December 2020, we had the following gender split: Board membership Male 6
The average number of employees during 2020, in our continuing businesses, was 29,079 (2019: 30,189).
All this is built on the basics of being a responsible business: understanding our customers’ needs, serving them well and treating them fairly, protecting people’s data, acting ethically, reporting openly and ensuring we and the companies we do business with respect human rights.
More about our responsible and sustainable business approach, and the indicators we use to track our progress, can be found on www.aviva.com/sustainability.
As part of this approach we continue to manage the impact of our business on the environment. Our Corporate Responsibility, Environment and Climate Change business standard focuses on the most material operational and core business environmental and climate impacts.
Our operational global greenhouse gas emissions data boundaries show the scope of the data we monitor and the emissions we offset. We report on Greenhouse Gas (GHG) emission sources on a carbon dioxide emissions equivalents basis (CO₂e) in respect of Aviva’s Group-wide operations, as required under the Companies Act 2006 (Strategic report and Directors’ reports) 2013 Regulations. We also refer to the GHG Protocol Corporate Accounting and Reporting Standard, and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2019.
In 2020, Aviva, with support from the Scottish Government, launched one of the UK’s largest combined solar carports and energy storage facilities at its Perth office.
In addition, in 2020 Aviva has invested £11.7 billion in green assets. This includes £7.2 billion in low-carbon infrastructure, such as wind farms and solar panels, £3.2 billion in green and sustainable bonds and £1.3 billion in specific climate funds.
From a wider environmental perspective, we remain committed to reducing water use and waste levels across our offices. Having achieved zero-use of single-use plastics in all but one of our markets last year, given the need for hygienic practices with the onset of COVID-19, a small volume of single-use plastic has been reintroduced. This will be removed as soon as it is safe to do so.
More details of our environmental KPI data and our independent assurance process can be found at: www.aviva.com/CRkpisandassurance2020.
Total scope 1 & 2 location-based (tCO2e) 29,583 16,655 35,547 21,323 41,210 24,644 Scope 3 (tCO2e) 5,081 1,910 14,628 6,516 17,739 8,761
In 2020, we offered more than 100 green or accessible products and services across the world to enable our customers to be more environmentally responsible or give them easier access to the protection they need for themselves and their families. More details can be found in our Corporate Responsibility Reporting Criteria 2020 on www.aviva.com/social-purpose.
Demonstrating the alignment of our climate action priority with our desire to develop products that do good, in October 2020 Aviva UK set a Net Zero carbon emissions target for its own auto-enrolment default pension funds. This is aligned to the Paris Agreement and the UK Government’s own Net Zero target. Aviva is committed to making progress towards the Net Zero target as quickly as possible and has announced it is exploring the feasibility of an earlier target. In March 2021, Aviva announced its plan to become a Net Zero carbon emissions company by 2040, which will help shape the review of these funds.
Globally as a business in 2020 we committed £43 million to charitable partners to support customers and communities to face the impact of the COVID-19 pandemic.
Aviva and the Aviva Foundation1 jointly donated £10 million as part of Aviva’s award-winning partnership with the British Red Cross, enabling all our Aviva markets to connect with Red Cross National Societies and support their COVID-19 response projects locally. Our flagship action saw us invest to create a Hardship Fund in the UK to provide financial aid to 13,000 families and individuals most in need through strategic partnerships across the UK, including those specifically supporting Black, Asian and minority ethnic (BAME) communities. Research has found BAME communities have been disproportionately affected by COVID-19 and you can learn more about the Hardship Fund at: emergencies/uk/coronavirus-cash-grants-support-people-withdignity.
Aviva Canada’s Take Back Our Roads campaign, focused on improving road safety across the country, continued in 2020 with highlights including collaborating with the City of Toronto to carry out an analysis of heavy trucks involved in serious injuries and fatalities over the past five years, identifying trends and helping to shape interventions to address safety in and around construction sites. A number of school-zone improvement projects are underway.
1 The Aviva Foundation is administered by Charities Trust under charity registration number 327489
Good governance, risk management and business ethics We are committed to the highest standards of ethical behaviour as outlined by the Aviva Business Ethics Code 2020. This underscores our commitment to operate responsibly and transparently. We require all our people, at every level, to read and sign-up to our Code every year (99% of our employees did so in 2020).
The Financial Crime Business Standard, and supporting Minimum Compliance Standards, guide our risk-based financial crime programmes. These seek to prevent, detect and report financial crime, including any instances of bribery and corruption, while complying fully with relevant legislation and regulation. We use riskbased training to ensure employees and others acting on Aviva’s behalf know what is expected of them and how they should manage bribery and corruption risks.
We conduct due diligence when recruiting and engaging external partners. At the end of 2020, 99% of our UK, Canada and Ireland registered suppliers have agreed to abide by our Third Party Business Code of Behaviour (or provided a satisfactory reason why they didn’t do so, for example, because they have their own existing code of behaviour). Our Third Party Business Code of Behaviour outlines the way in which we commit to behave in our dealings with each other and includes guidance on financial crime laws and regulations.
The CCRC oversees our responsible and sustainable business strategy and the policies that underpin it. Aviva plc is subject to the UK Corporate Governance Code (the Code), which we aim to comply with fully. Kirstine Cooper, Group General Counsel and Company
Within our own operations, in 2020 we have continued work on the country-wide human rights impact assessments conducted in 2019, which looked at assessing our markets’ risk approach in areas including governance, employees, customers and investments. We have analysed the results of these assessments and created action plans and feedback sessions with all markets. To date, all markets in which Aviva operates have been involved in this work. The assessments showed key areas to focus on to enhance Aviva’s work on human rights, which included the need to create further Groupwide training on Business and Human Rights and Modern Slavery, to be delivered up to executive level. This training was subsequently developed with our partner the Slave Free Alliance to educate our staff about our commitment to human rights as well as understand the part we all play to tackle modern slavery.
We have also continued to engage key suppliers on the topic of human rights and conducted modern slavery threat assessments on a range of key suppliers which were selected based on their potential modern slavery risks. In 2020 we have completed 17 assessments, including checks conducted remotely or via self-administered questionnaires due to the travel limitations imposed by COVID-19.
No cases of modern slavery were discovered at Aviva both in our operations and supply chain, however corrective action plans were issued to all the suppliers to support and improve their capability.
We do this, in part, through Aviva Investors (AI), our global asset management company with a heritage in responsible investing dating back to the early 1970s. We invest responsibly with Environmental, Social and Governance (ESG) considerations a central pillar of our investment process because we believe it can minimise risk and allows us to spot opportunities for our customers. This process includes areas like climate change, biodiversity, human rights, plastics and gender diversity. Demonstrating the depth of our ESG work, AI received the highest grade in the United Nations Principles of Responsible Investment’s (UN PRI’s) 2020 annual assessment of A+ for our ESG strategy, governance and active ownership (i.e. engagement and voting).
• Working with Aviva France and Aviva UK Life to design funds and solutions for customers looking to integrate ESG considerations further into their investment proposition, including the AVSD 2.0 (Aviva Vie Solutions Durables) project in France.
Corporate Responsibility (CR) key performance indicators and the accompanying limited assurance statement by PwC can be found in Aviva’s Environmental, Social and Governance Summary on www.aviva.com/sustainability. More details of our internal diversity, inclusion and wellbeing approach can be found in the ‘Our people’ section of this Strategic report.
As a leading savings, retirement and insurance business, our sustainability and financial strength is underpinned by an effective risk management framework. Our business is directly impacted by the effects of the climate crisis. We believe unmitigated climaterelated risks present a systemic threat to societal and financial stability and to our business, over the coming decades.
This disclosure reflects Aviva’s 2020 response to the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). It sets out how Aviva incorporates climaterelated risks and opportunities into governance, strategy, risk management, metrics and targets and how we are responding to customer expectations and regulatory requirements. These pages, along with the expanded report, are available at www.aviva.com/TCFD.
Governance Aviva has a strong system of governance, with effective and robust controls. In 2020, we continued to ensure appropriate governance is in place in line with the PRA’s Supervisory Statement 3/191. The UK and material regulated entities’ Chief Risk Officers (CROs) are responsible for ensuring climate-related risks and opportunities are identified, measured, monitored and managed through our risk management framework and in line with our risk appetite.
The Group CRO is responsible for overseeing, at Group level, the embedding of this framework. A Group-wide climate-related risks and opportunities project supports the CROs in meeting regulatory expectations. The Group CRO is the executive sponsor of the project.
The Risk Committee and the Customer, Conduct and Reputation Committee (CCRC) oversee our management of climate-related risks and opportunities. In 2020, the Risk Committee met eleven times to review, manage and monitor all aspects of risk management, including climate-related risks and opportunities. The CCRC met five times to oversee how Aviva meets its corporate and societal obligations. Papers considering the impact of climate change on our business were presented to Board committees across Aviva (e.g. a paper was presented to the Risk Committee to highlight the ways in which climate change may affect our business and to invite the committee’s views on the actions taken and planned).
In addition, Aviva’s climate risk preference was reviewed and approved by the relevant Group and local governance to allow the consideration of climate-related risks and opportunities through our risk management framework.
We also continued developing the skills of our Boards and our people in this area. As part of our regular Board and senior management training programme, Aviva’s climate-related risks and opportunities, new climate change plan and Board responsibilities were presented to the Group and local Boards as relevant. This training equips our Boards to give appropriate direction to the company and ensures challenge, guidance and support are given to the executives so that actions are taken to identify, measure, monitor, manage and report these risks and opportunities. A detailed training plan is being put in place which envisages at least annual training to all relevant employees across the organisation, with more in-depth training to those who hold direct responsibilities to identify, measure, monitor, manage and report climate-related risks and opportunities.
In 2021, Environmental, Social and Governance (ESG) metrics including climate will be added to other risk metrics considered in determining senior management remuneration.
Strategy Our new climate change plan resets the scope and level of our climate ambition to create a broader, joined-up approach covering all material areas of our business including investments, insurance, operations, accountability and leadership.
Aviva is a trusted climate leader. We commit to aligning our business to the 1.5°C Paris target2 and plan to be a Net Zero company3 by 2040. Our businesses will seek to develop and offer further climate conscious products. We are targeting Net Zero by 2030 for our operations and supply chain, as well as using our influence to help tackle climate change. This climate change plan is aligned to our Company Purpose ‘With you today, for a better tomorrow’ and our Group Business Strategy.
Investments – There are three ways in which Aviva is involved in investments i.e. as an asset owner, a long-term savings and pensions provider and as an asset manager. We seek to align our investments with a pathway towards Net Zero carbon emissions and ensure consistency with the 1.5°C Paris target. We are setting targets for how we will transition our portfolios and will publish updates on our progress. We signed up to key global commitments such as the United Nations-convened Net Zero Asset Owner Alliance. We target a reduction in the carbon footprint of our investments by 25% by 2025 and by 60% by 2030, and we aim to transition all assets4 to Net Zero by 2040. We are also planning further investments in green assets5 by 2025.
We use our influence as a shareholder and an investor to engage with and encourage companies to transition to a low carbon economy. We limit our exposure to carbon intensive sectors and companies and divest from highly carbon-intensive fossil fuel companies where we consider they are not making sufficient progress towards the engagement goals set.
We believe the highest emission fuels are not part of a low carbon future. We will therefore not be investing in or insuring coal (generation or mining). By the end of 2022, we will have divested all companies making more than 5% of their revenue from thermal coal unless they have signed up to Science Based Targets6 or the funding is for ring-fenced green project finance. This applies to all shareholder funds and policyholder funds where possible. We will divest the equities, put the bonds into run-off and put the companies on our Stoplist.
1 The PRA Supervisory Statement – ‘Enhancing bank’s and insurers’ approaches to managing the financial risks from climate change’. 2 The 1.5°C target was set by the global Paris climate change deal in 2015 to limit the damage wreaked by acute events such as extreme weather and chronic events such as sea level rise. 3 ‘Net Zero company’ target covers all material ‘Scopes 1, 2 and 3’ carbon emissions (including investment, operations, supply chain); we are also developing a methodology for Net Zero underwriting. 4 Scope of our target will be core markets, all main asset classes (credit, equities, direct real estate, and sovereigns when methodology developed this year; including both active and passive funds), and shareholder assets and those policyholder assets where we have decision making control and we have carbon emissions data. 5 Low carbon infrastructure debt & equity; such as Solar photovoltaics (PV), offshore & onshore wind, new energy centres reducing users’ demand for energy, waste to energy, green hydrogen generation, battery storage, low carbon public transport & electric vehicle charging infrastructure and energy efficient buildings. Green bonds that meet Climate Bonds Initiative’s requirements, Social bonds and Sustainability bonds, Green loans and specific climate-related funds (such as the Climate Transition fund range). To determine the scope of our green assets, we have used “our and our customers assets” this includes all shareholder, with-profits and unit linked assets but excludes external mandates not on Aviva’s balance sheet.
6 Science Based Targets Initiative is a collaboration between United Nations Global Compact, CDP (a global disclosure system), World Resources Institute and Worldwide Fund for Nature. It supports companies to set emission reduction targets in line with the decarbonisation required to limit global temperature increases to 1.5°C.
AI aims to support the drive to make the changes needed to keep global temperature rise to 1.5°C through its management of our investments and active ownership as set out in the AI Corporate Governance and Voting Policy2. This will seek to reflect emerging best practice pathways at a country and industry level. AI also integrates sustainability risk and wider considerations of ESG factors into the investment process and launched a new Engage & Divest approach in February 2021. We believe this will deliver long-term sustainable and superior investment outcomes for customers while adhering to their mandate.
AI is building out a Climate Transition Fund range that helps investors support the transition to a low carbon economy across all core asset classes. In 2020, AI launched the second Equity Climate Transition Fund. Both the European and Global funds will take a long-term, high conviction investment approach, targeting global companies that derive material revenues from goods and services addressing climate change mitigation and adaptation as well as investing in those companies aligning their business models to a low carbon economy. AI Corporate Governance and Corporate Responsibility Voting Policy expects companies to report climate-related risks, strategy, policies and performance against the TCFD recommendations.
The Aviva Master Trust Trustees have made ‘My Future Focus’ – combining actively managed funds where ESG is integrated into the investment process and passive funds with an ESG tilt – their standard default solution. In Italy we have several sustainable investments and a series of SRI unit linked products available. Further, in October 2020 we announced a Net Zero target for our UK auto-enrolment default pension funds.
We continue to develop climate conscious products and services, which reward customers for environmentally responsible actions, provide some element of adaptation/resilience or additional cover where possible for those customers at risk of extreme weather impacts. For example, Aviva France has bespoke electric vehicle (EV) policies and reduced premiums for customers who use public transport. In the UK, solar panels on residential roofs attract no additional premium. In Canada, our partnership with Lyft makes it easier for customers to choose car share journeys and we offer endorsements to cover domestic solar panels and wind turbines.
In the UK we seek to proactively communicate with as many customers as possible before extreme weather events. In the UK and Canada, where appropriate we work with customers to help them become more resilient (e.g. offering coverage to install risk mitigation devices after a claim and to ‘build back better’). In Canada, we were also the first insurer to announce comprehensive water coverage on property policies.
At the end of 2019 we took another important step in our commitment by launching a specialist renewable energy proposition providing insurance solutions for the full lifecycle of renewable energy risks worldwide. Through this product we currently insure the largest windfarms in the USA and Africa.
Following this success, in 2020 we installed a solar carport array at our Perth office. It’s the biggest combination of solar, energy storage and EV charging points in the UK. The Perth ‘low-carbon hub’ features a 1.1MW solar carport, integrated with 1.8MWh of Tesla battery energy storage and 50 EV charging points, forming the cornerstone of Aviva’s ambitious drive to take the office off grid by providing 26% of the site’s annual energy.
We welcome the increased regulatory focus on this area and are eager to see much wider reporting in line with the TCFD recommendations. At the 2021 Annual General Meeting, we are providing the opportunity for our own shareholders to vote on this disclosure.
We continue to provide strong and vocal support for capital market reform, to mobilise the trillions of pounds required to transition to a low carbon economy and correct existing market failures with respect to climate change. We continue to work with policymakers and regulators encouraging them to change the financial system, so that markets reward sustainable investments and sustainable businesses, advocating for an economic recovery driven by emission reduction and climate adaptation while also integrating biodiversity impacts and associated mitigation strategies. In line with Aviva’s Marshall Plan for the Planet we are proposing that a new institutional mechanism – the International Platform for Climate Finance – be created at Glasgow COP262.
As an employer, an active member of our local communities and with a significant customer base, we can amplify individual efforts to create a joint legacy that we can all be proud of (e.g. EV charging points for employees, car sharing support and the use of low carbon public transport for commuting), partnering with others to provide climate resilient community projects.
We calculate a Climate Value-at-Risk (Climate VaR) for each scenario to assess the climate-related risks and opportunities under different emission projections and associated temperature pathways. A range of different financial indicators are used to assess the impact on our investments and insurance liabilities. These impacts are aggregated to determine the overall impact across all scenarios by assigning relative likelihoods to each scenario.
We also use a variety of other metrics to identify, measure, monitor, manage and report alignment with global or national targets on climate change mitigation and the potential financial impact on our business. While recognising the limitations of the Climate VaR and other metrics used (e.g. scope of coverage, data availability and extended time horizons as well as the uncertainty associated with some of the underlying assumptions), we believe they are still valuable in supporting our governance, strategy and risk management.
Green Assets – We track our green, low carbon and transition assets. The previous definition of our green assets4 has been expanded this year to include low carbon real estate and specific climate-related funds as well as explicitly excluding external mandates.
Of the £11.7 billion in green assets, £7.2 billion are in low carbon infrastructure (including £3.4 billion low carbon real estate), £3.2 billion in green and sustainable bonds and £1.3 billion in specific climate-related funds.
Weighted average carbon footprint (tCO2e/$m sales) of Aviva’s shareholder funds’ credit and equity investments as at 31 December 2020 compared to 2019. Source: Aviva/MSCI2.
Notre Dame University’s Global Adaptation Index (ND-GAIN) – We use ND-GAIN to measure and monitor our sovereign holdings’ exposure to climate change. ND-GAIN measures a country’s vulnerability to climate change and its readiness to adapt to, and mitigate, its effects by considering economic, governance and social readiness. Aviva is predominantly exposed to sovereigns from developed markets. We have no significant exposure to countries highly vulnerable to the physical effects of climate change and our exposure to moderately exposed countries is captured as part of our risk management and monitoring of sovereign risk. We also have no material exposure to sovereigns whose credit quality is reliant on oil and gas production.
1 Low carbon infrastructure debt as at 30 September 2020, low carbon infrastructure equity as at 31 December 2020, green bonds as at 30 September 2020, UK direct low carbon real estate as at 3 December 2020, French direct low carbon real estate as at 4 December 2020, climate specific funds as at 31 December 2020, AAO as at 31 December 2020. 2 Data has been taken from Aviva’s internal risk system used to monitor credit risk limits and as a source for Solvency II disclosures. Certain information ©2021 MSCI ESG Research LLC. Reproduced by permission. Although Aviva
Credit Equities Credit + Equities £11.7 billion in Green Assets Specific Climaterelated Funds
On 6 July 2020 the Board appointed Amanda Blanc as Group CEO following Maurice Tulloch’s decision to step down from the Board. Maurice first joined Aviva in 1992, and was appointed to the Board in 2017, before becoming Group CEO in March 2019. I would like to thank both Sir Adrian and Maurice for their contribution to Aviva over the years.
Diversity and Inclusion The Board is committed to having a diverse and inclusive membership which provides a range of perspectives and insights and the challenge needed to support good decision making. I am pleased that the Board meets the Parker Review target to have at least one director from an ethnic minority background and that women make up 40% of the current Board. More information on diversity is set out in the Directors’
and Corporate Governance report and the Nomination and Governance Committee report.
Culture The Board assesses and monitors the Group culture. To support the Board, a culture diagnostic has been developed, to provide the Board with broader data on our culture. The culture diagnostic combines employee sentiment with other employee and customer data to focus on four cultural characteristics: customer focus; accountability; safe to speak up and diversity of thought. This culture diagnostic is in addition to our ‘Voice of Aviva’ employee survey and provides insight on progress on culture measures and comparison to our peers. Action plans have been developed from the culture data and the Board tracks progress against these actions.
Following the outcome, a committee of the Board instructed Allen & Overy LLP to conduct a review of the remuneration decisions that had previously been taken in light of the preference shares matter. The review concluded that the adjustments the Remuneration Committee decided to apply to the relevant executive directors' variable remuneration, which we announced in 2019, were reasonable in the circumstances and that these adjustments were applied after careful and thorough consideration by the Committee. The review also confirmed that, taking into account the FCA’s decision, there was no basis for further adjustments to be made to either the executive or non-executive directors. Further detail is provided in the Directors’ Remuneration report.
Key: ■ Executive ▲ Non-Executive ◆ Group General Counsel and Company Secretary
George Culmer ▲ Position: Chair Nationality: British Committee Membership: Nomination and Governance Committee (Chair) Tenure: 1 year 6 months. Appointed to the Board as a Non-Executive Director on 25 September 2019, as Senior Independent Director on 1 January 2020 and as Chair on 27 May 2020 Skills and Experience: George brings significant board-level exposure with 15 years experience as a FTSE 100 Chief Financial Officer, and a deep understanding of insurance and wider financial services. George was previously Chief Financial Officer of Lloyds Banking Group plc and joined its board on 16 May 2012. He was previously a director and Chief Financial Officer of RSA Insurance Group plc; Head of Capital Management of Zurich Financial Services and Chief Financial Officer of its UK operations. George has a keen insight into the challenges that affect the insurance industry, Aviva’s businesses, and the implications for shareholders, which makes him well placed to lead the Board in driving the strategy, culture and values of the Group. External Appointments: Non-Executive Director of Rolls Royce plc.
Patrick Flynn ▲ Position: Senior Independent Director Nationality: Irish Committee Membership: Audit Committee (Chair), Nomination and Governance Committee, Remuneration Committee, Risk Committee Tenure: 1 year 8 months. Appointed to the Board as a Non-Executive Director on 16 July 2019 and as Senior Independent Director on 7 September 2020 Skills and Experience: Patrick is an experienced finance executive and has significant experience of retail financial and insurance services. Patrick was previously Chief Financial Officer of ING, the Netherlands’ largest financial services group, and was recognised for playing a key role in the transformation of the group to a wellcapitalised and focused financial services provider with a significant retail offering. Prior to that, Patrick was Chief Financial Officer of HSBC Insurance and served as a Non-Executive Director of the boards of two listed former ING insurance companies, and this experience thoroughly equips Patrick to chair the Audit Committee and to support the Chair as Senior Independent Director. External Appointments: Non-Executive Director of NatWest Group plc.
Tenure: 5 years 9 months. Appointed to the Board in June 2015 Skills and Experience: Belén has extensive governmental and regulatory experience and brings a detailed knowledge of the financial services industry and regulations to the Board. Belén has held senior positions at the Spanish Treasury and represented the Spanish government at the Organisation for Economic Co-operation and Development. Belén’s experience as both an executive and a non-executive in the financial services sector, and in international policy making and regulation provide a valuable perspective to the Board and in her role as Chair of the Risk Committee. External Appointments: Independent Non-Executive Director of Banco Santander and Bolsas y Mercados Españoles and a member of the advisory board of the Foundation Rafael del Pino (non-profit organisation) and TribalData and Co-Chair of the Global Board of Trustees of the Digital Future Society.
Michael Mire ▲ Position: Independent Non-Executive Director Nationality: British Committee Membership: Customer, Conduct and Reputation Committee, Nomination and Governance Committee, Remuneration Committee, Risk Committee Tenure: 7 years 6 months. Appointed to the Board in September 2013 Skills and Experience: Michael has a detailed understanding of the financial services sector and a wealth of experience in business transformation and developing strategies for retail and financial services companies. Michael was a senior partner at McKinsey & Company where he worked for more than 30 years, and alongside his governmental experience, he brings a unique perspective and insight to the Board. External Appointments: Chairman of HM Land Registry, NonExecutive Director of the Department of Health and Social Care, and Senior Adviser to Lazard.
Mohit Joshi ▲ Position: Independent Non-Executive Director Nationality: British Committee Membership: Nomination and Governance Committee, Risk Committee Tenure: 3 months. Appointed to the Board in December 2020 Skills and Experience: Mohit is a President of Infosys, a global leader in next-generation digital services and consulting. He heads the Financial Services, Healthcare and Life Sciences business verticals for the company and is the Chairperson for EdgeVerve, its Software subsidiary. Mohit joined Infosys in 2000 after an initial career in banking and has over 24 years of professional experience working across the US, India, Mexico, and Europe. Mohit is an established business leader in technology and transformation and this expertise adds significantly to the skills and expertise of the board. External Appointments: President of the Infosys Financial Services, Insurance, Healthcare and Life Sciences business and Chairperson for EdgeVerve, its software subsidiary.
The UK Corporate Governance Code As a UK Premium Listed company, Aviva’s governance framework is based on the 2018 UK Corporate Governance Code (the Code). The Code is publicly available at www.frc.org.uk. Details of how we have applied the principles of and complied with the provisions of the Code during 2020 are set out in this report and the Directors’ Remuneration report. The Board can confirm that the Company was compliant with the Code throughout the financial year under review, other than for a short period between the appointment of a new Senior Independent Director and when George Culmer, the previous Senior Independent Director, became Chair.
He heads the Financial Services, Healthcare and Life Sciences business verticals for the company and is the Chairperson for EdgeVerve, its software subsidiary. Mohit joined Infosys in 2000 after an initial career in banking and has over 24 years of professional experience working across the US, India, Mexico, and Europe.
Patrick Flynn was appointed as Senior Independent Director on 7 September 2020. In the period between George Culmer becoming Chair, and the formal appointment of Patrick as Senior Independent Director, Patrick was available to act as an intermediary between the Board members or shareholders, and Chair as required. Patrick has extensive insurance experience, most recently as the Chief Financial Officer of ING, the Netherland's largest financial services group. He is also a Non-Executive Director of NatWest Group plc. Patrick is Chair of the Audit Committee and is a member of the Risk, Remuneration and Nomination and Governance Committees.
We are pleased to have met the Parker Review Committee’s target for all FTSE 100 boards to have at least one director from an ethnic minority background by 2021, making up 10% of the Board, in addition to continuing to maintain our target of ensuring that women make up at least 33% of the Board with women currently representing 40% of the Board. Inclusion at Aviva is imperative not only because it’s the right thing to do, but also because it will help us deliver the outcomes that our shareholders and other stakeholders expect us to achieve. Further detail can be found in the Nomination and Governance Committee report.
Experience and Skills1 Insurance 7 2 10 Asset Management 7 1 6 Finance 7 2 10 People 5 2 3 Risk 4 2 7 Legal & Regulatory 6 2 7 Customer 4 2 5 Technology, Digital & Operations 5 1 2 Strategy 7 2 7
International Experience1 Europe 8 2 13 Asia Pacific 3 1 6 The Americas 3 1 3 Middle East & Africa 0 1 4
Age 30-39 — — 0 40-49 1 1 8 50-59 3 1 5 60+ 4 — 1 1 Individual directors may fall into one or more categories
• Held an annual dedicated strategy session in June 2020, supplemented by further specific strategy sessions, to oversee the development and implementation of the Group’s strategy
• Oversaw the provision of extensive support for our people through the period of restrictions, focusing on wellbeing and mental health support, as well as practical assistance for working at home
• Approved contributions to Aviva’s communities totalling £43 million to support community partners
• Discussed and approved changes to the Board committee structure, and the designation of the Customer, Conduct and Reputation Committee as a sub-committee of the Risk Committee
Significant transactions and expenditure • Approved financial matters in line with the Group Funding Plan, including capital injections where required into regulated subsidiaries, the sale of a majority shareholding in Aviva Singapore, the entire shareholdings in Aviva Indonesia, Aviva Vietnam and Aviva Vita and the issuance of C$450 4.000% million Dated Tier 2 Fixed Rate Notes due October 2030
• Reviewed and quantified the impact of COVID-19 on claims expenses in our life and general insurance businesses
• Approved the full year results and Annual Report and Accounts, and the Half-Year Report
Board appointments Our Non-Executive Directors played a principal role in the process to appoint George Culmer as Non-Executive Chair and Amanda Blanc as Group CEO, and in the appointment of three Non-Executive Directors through their membership of the Nomination and Governance Committee. MWM Consulting (MWM) undertook the search and selection processes for the Board Chair, Non-Executive Directors and Group CEO but had no other connections with the Company or any individual director. In line with our succession planning processes, and led by the Nomination and Governance Committee, we undertake a formal, rigorous and transparent search process for each appointment, considering the current balance of skills, experience and diversity amongst our directors. Each appointment is made subject to receipt of the requisite regulatory approvals. Furthermore, the continuation of each Board appointment is also subject to the annual board effectiveness review to confirm that each director’s performance continues to be satisfactory. In accordance with the Code and our articles of association, all serving directors must retire and those who wish to continue in office must stand for election or re-election by our shareholders at each Annual General Meeting (AGM). All directors in office at the time of the 2020 AGM were elected or re-elected in 2020.
During 2020 certain amendments were made to the structure and defined responsibilities of our suite of Board committees. To further align with our strategic priority to transform customer experiences and provide excellent value for money, the Customer, Conduct and Reputation Committee was designated as a sub-committee of the Risk Committee. This is also aligned to our purpose to ensure our actions in every part of the business are fully focused on consistently earning customers’ trust as the best place to save, retire and insure.
Risk Committee Assists the Board in its oversight of risk by assessing the effectiveness of the Group’s Risk Management Framework, risk strategy, risk appetite and risk profile; the methodology used in determining the Group’s capital requirements and stress testing these requirements; assessing the adequacy of the Group’s system of non-financial reporting controls; ensuring due diligence appraisals are carried out on strategic or significant transactions; and monitoring cyber strategy and compliance with prudential regulatory requirements. Oversight of conduct risk topics through the alignment with the Customer, Conduct and Reputation Committee reporting into the Risk Committee.
Audit Committee Assists the Board in its oversight of financial reporting by assessing the integrity of the Company’s financial statements and related announcements; monitoring the adequacy of controls over financial reporting; monitoring the Group’s whistleblowing provisions; and monitoring the independence and performance of the Internal Audit function and the External Auditors.
Remuneration Committee Assists the Board in its oversight of remuneration by reviewing the Group Remuneration Policy; the Directors’ Remuneration Policy; recommending remuneration packages for the Non-Executive Chair and ExCo; and remuneration approaches for the remuneration of regulated employees. Works with the Board Risk Committee to ensure that risk management is considered in setting the Remuneration Policy and promoting a risk awareness culture through the alignment of incentive and rewards with risk management.
Board independence During the year the Nomination and Governance Committee assessed the independence of the Non-Executive Directors to ensure that they are able to properly fulfil their roles on the Board and provide constructive challenge to the Executive Directors. The independence criteria set out in the Code were taken into account as part of the selection process for the three Non-Executive Directors who joined Aviva during 2020 and 2021.
During 2020, the Committee determined that all Non-Executive Directors were free from any relationship or circumstances that could affect, or appear to affect, their independent judgement. In line with the Code, over half of our Board members, excluding the Chair, are independent Non-Executive Directors.
According to the Board’s policy, Executive Directors may hold one external directorship, subject to obtaining the prior consent of the Board. Amanda Blanc is Chair of the Welsh Professional Rugby Board. No other appointments are held.
Conflicts of interest In accordance with the Companies Act 2006, the Company’s Articles of Association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits or conditions as are necessary. The decision to authorise a conflict of interest can only be made by non-conflicted directors (those who have no interest in the matter being considered) and in making such a decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success for the benefit of its shareholders as a whole. The Board continues to monitor and note any potential conflicts of interest that each Director may have and recommends to the Board whether these should be authorised and whether conditions should be attached to any such authorisation. The directors are regularly reminded of their continuing obligations in relation to conflicts and are required annually to review and confirm their external interests, which helps to determine whether they can continue to be considered independent.
Role profiles Consistent with the Code and the Senior Managers and Certification Regime (SMCR), role profiles for the Non-Executive Chair, SID, Group CEO and Non-Executive Directors are all available at www.aviva.com/about-us/roles.
The Non-Executive Chair is tasked with leadership of the Board, setting its agenda and ensuring its effectiveness, and enabling the constructive challenge of the performance and strategic plans of the Executive Directors by the Non-Executive Directors. The Chair also plays a key role in working with the Board to establish our culture, purpose and values. The Group CEO is the senior executive of the Company and has overall accountability for the development and execution of the Group’s overall strategy in line with the policies and objectives agreed by the Board.
Induction, training and development A commitment to support the continuing development of all employees is a central part of Aviva’s culture. Our directors are highly supportive of this and are committed to their own ongoing professional development. During 2020, the directors participated in internal training sessions on subjects including our risk appetite, climate change and directors’ duties. Further training sessions have been incorporated into the Board and Committee plans for 2021. The Board also receives regular briefings on a range of strategically important matters to ensure they are informed of developments in these areas.
Board priorities during 2020 The impact of the COVID-19 pandemic was the key focus for the Board during 2020. As a consequence, the Board met remotely and more frequently, initially weekly, to understand and consider how the pandemic was affecting our business operations, our risk and control environment and the markets in which we operate. The Board monitored the move of our people to homeworking, the operational challenges that presented, the financial markets’ response to the pandemic and the impact of those market moves on Aviva.
While 2020 was a challenging year operationally, the Board continued to focus on our strategy and how we deliver sustainable, long-term growth for our shareholders. Following the appointment of Amanda Blanc as Group CEO, we have reset our strategy to focus on our three core markets − the UK, Ireland and Canada – and we are focused on transforming our performance and ensuring our financial strength. The Board played a key role in providing challenge and input into the new strategy to ensure that the strategy promotes the long-term sustainable success of the Company, generates value for shareholders and contributes to wider society. The pandemic will not last forever, and the Board has continued to set aside time to look to the future and not just focus on the challenges of today, and our strategy will support Aviva in the challenges we face in the years ahead.
Lintstock is an independent provider of Board evaluations and has no other connection with Aviva or any individual director. The questionnaires covered a variety of areas including board composition, strategic and operational oversight, risk management and internal controls, and culture. The Board considered the final report and the recommendations which were shared with each committee, and an action plan for areas of focus was agreed. The 2019 Board evaluations and 2020 actions are outlined in the table below.
A framework has been implemented that reinforces the engagement of the Board’s Non-Executive Directors with the chairs of subsidiary boards. The chairs of key subsidiary entities have become standing attendees at Board meetings further enhancing the flow of information between the Board and subsidiaries. The Group’s Subsidiary Governance Principles were also enhanced to include greater focus on items for escalation from the subsidiary boards to the Aviva plc Board.
A robust assessment was conducted by the Board of the emerging and principal risks facing the Company, including those that could impact the Group’s business model, future performance, solvency and liquidity.
During 2020 the Aviva Group has continued its focus on operational resilience by completing its annual programme of disaster recovery testing, including those applications hosted in the Cloud, the strengthening of its cyber security controls and regular programme of Red Team testing. Aviva’s successful response to the COVID-19 pandemic has also been used to inform the Group’s preparation for the forthcoming Operational Resilience regulation for which enhancements to Aviva’s Operational Risk Management Framework have been made (going live in 2021), alongside the categorisation and resilience prioritisation of its important business services. Further analysis and testing of Aviva’s most important business services will take place during 2021. Further information can be found in the Audit and Risk Committee reports.
The Actuarial function is accountable for the Group-wide actuarial methodology, reporting to the relevant governing body on the adequacy of reserves and the appropriateness of the Solvency II internal model, as well as underwriting and reinsurance arrangements. The Compliance function supports and advises the business on the identification, measurement and management of its regulatory, financial crime and conduct risks. It is accountable for maintaining the compliance standards and framework within which the Group operates and monitoring and reporting on its compliance risk profile.
Any material risks not previously identified, control weaknesses or non-compliance with the Group’s risk policies or local delegations of authority must be highlighted as part of this process. This is supplemented by investigations carried out at Group level and a Group CEO and CRO declaration for Aviva plc.
The effectiveness assessment also draws on the regular cycle of assurance activity conducted during the year, as well as the results of the annual assessment process. During 2020, this has been supported by the application of the Group’s Operational Risk & Control Management (ORCM) framework.
2021 AGM The 2021 AGM will be held on Thursday 6 May 2021 and the Notice of AGM and related papers will, unless otherwise noted, be sent to shareholders at least 20 working days before the meeting. The AGM provides a valuable opportunity for the Board to communicate with private shareholders. Shareholders are invited to ask questions related to the business of the meeting at the AGM and a presentation will be given on the Group’s performance. Further details on the AGM are provided in the Shareholder Services section of this report.
Due to the restrictions associated with the COVID-19 pandemic, it was not possible to hold our usual AGM arrangements for the 2020 AGM, but we filmed an event with the Chair and Group CEO answering questions submitted by shareholders to ensure our engagement with shareholders continued as far as possible in the circumstances.
Committee focus during 2020 I am pleased to present the Nomination and Governance Committee (the Committee) report for the year ended 31 December 2020.
Committee Purpose The main purpose of the Committee is the oversight of the balance of skills, knowledge, experience and diversity on the Board to enable it to identify and respond appropriately to current and future opportunities and challenges. To assist in identifying and nominating candidates for the Board, the Committee monitors the succession plans for the Executive and Non-Executive Directors. The Committee also oversees talent development for the wider Group and diversity and inclusion initiatives. During the year, the Board and Committee’s remit and responsibilities were reviewed. With effect from 1 January 2020 the Committee changed its name to the Nomination and Governance Committee and expanded its responsibilities to include oversight of governance and organisational change.
More information on the Board and Committee’s structure can be found in the Directors’ and Corporate Governance report.
Board and executive succession planning The 2018 UK Corporate Governance Code (the Code) places an emphasis on succession planning and the Committee has built on its existing processes to strengthen its focus in this area.
Patrick Flynn was appointed as SID on 7 September 2020. Patrick has been a member of the Board and the Committee since July 2019 and brings significant experience of both retail financial and insurance services. I had previously served as SID from 1 January 2020 until my appointment as Chair.
During the year, the Committee reviewed the Board skills matrix and capability gaps identified and agreed on the areas of experience which would be beneficial to the composition of the Board. With the appointment of Amanda Blanc as Group CEO, and my appointment as Chair, the Board required replenishment. MWM was engaged to undertake an extensive external search based on the role specifications agreed by the Committee. The Committee considered the role profiles of the shortlisted candidates, met the candidates with the most alignment to the specification and recommended the appointment of Mohit Joshi, Jim McConville and Pippa Lambert to the Board. Jim and Mohit were appointed to the Board on 1 December 2020 and Jim has assumed the role of Chair of the Customer, Conduct and Reputation Committee. Jim and Mohit bring significant experience in retail financial services and operational and IT transformation to the Board. Pippa was appointed to the Board on 1 January 2021 and has significant experience in global financial services, people strategies and transformation programmes.
Executive Directors The Committee conducted the process for the recruitment of a new Group CEO, leading to the appointment of Amanda Blanc on 6 July 2020. The Committee approved the search brief and engaged MWM to identify suitable candidates. The brief included finding candidates with deep insurance experience, a track record of running large global organisations, outstanding leadership qualities, a customer focused approach and alignment to the Company’s culture and values. Amanda Blanc expressed an interest in being considered for the role and recused herself from the Committee discussions on the CEO appointment process. A diverse longlist of candidates was reviewed by the Committee and the Chair met the internal and external candidates on the resulting shortlist. The successful candidate met with the FCA and the PRA. The Remuneration Committee led on the development of an appropriate remuneration package for the role and approved the final package to be offered to the successful candidate. Both the Remuneration and Nomination and Governance Committees were mindful of shareholder views when considering the remuneration package for the role. Having considered her skills, experience and personal attributes the Committee unanimously agreed to recommend Amanda Blanc as Group CEO. Amanda was formerly an Independent Non-Executive Director of the Company and was first appointed to the Board on 2 January 2020.
MWM undertook the search and selection processes for the Board Chair, Non-Executive Directors and Group CEO but had no other connections with the Company or any individual directors.
The Committee considers the development plans designed to prepare successors for ExCo roles and internal talent development and developing a pipeline of potential future leaders has continued to receive Committee focus during the year, despite the unexpected challenges of COVID-19, with programmes being adapted and redesigned for virtual delivery.
As a global business Aviva recognises the importance of reflecting the diversity of the customers we serve in the composition of our Board and the senior management of the markets we operate in.
During 2020, the Committee focused on the implementation and embedding of the Group Governance Framework for the oversight of the Group’s subsidiaries and updates continued to be received and approved by the Committee relating to the Subsidiary Governance Principles, the effectiveness of the Company’s subsidiary boards and the Group Conflicts of Interest policy.
George Culmer Chair of the Nomination and Governance Committee 3 March 2021
• Reviewed and made recommendations to the Board in respect of each director’s actual, potential or perceived conflicts of interests
Board and Executive Director level, against a specification for the role and the capabilities required. Considered the succession plans for each Executive Committee member, including talent development below the ExCo level
• Reviewed talent development throughout the Group to ensure there is a sufficient and diverse pipeline of talent available to execute the Company’s current and future strategy
Governance • Monitored the Group’s compliance with the 2018 UK Corporate
Framework for the oversight of the Group’s subsidiaries • Reviewed and made recommendations to the Board for revisions to the Subsidiary Governance Principles to enhance the effectiveness of the Company’s subsidiary boards
• Reviewed and made recommendations to the Board for revisions to the Group Conflicts of Interest policy to further articulate requirements for the management of conflicts for both board Directors and employees
• Reviewed and where appropriate approved changes to the composition of the material subsidiary boards
• Discussed the outcomes of the 2020 subsidiary board effectiveness reviews
• Considered succession planning for material subsidiary boards around the Group
Committee focus during 2020 I am pleased to present the Risk Committee (the Committee) report for the year ended 31 December 2020.
The Company’s approach to risk and risk management together with detail on the principal risks that face the Group are explained within the Risk and risk management section of this report.
The Committee works with the Remuneration Committee to ensure that risk management and risk culture is properly considered in setting the Remuneration Policy.
In regard to cyber resilience, the Committee requested regular updates on the people, education, training and cultural aspects of the cyber programme to support the overall cyber risk and control environment. The Committee recognised that progress had been made, including an improvement in cyber resilience maturity.
During 2020, the Committee encouraged the development of the enterprise risk dashboard, specifically to include categorisation of risks across our different markets, risk appetites and focus on regular updates on key developments. This aligned to the financial risk appetite chart requested by the Committee, with the inclusion of updates on the operational risk and control environment and route to Green plans. During the most critical first wave of the COVID-19 period the dashboard was refreshed every two weeks to consider current and emerging risks on a regular basis.
The Committee requested horizontal deep dives, which included change management and the governance of the global change portfolio and material change programmes for 2020. The Committee welcomed the enhanced reporting and requested that further change updates were provided throughout the year with enhanced risk reporting against each completed and in-flight programme, a clearer risk landscape in respect of change and a risk assessment of first line programme success measures and objectives.
In addition, I will continue to ensure a strong dialogue between the Group Risk Committee and our equivalent subsidiary level committees and the new reporting structure of the CCRC into the Committee.
Committee activities during 2020 Risk appetite, risk management and risk reporting • Reviewed reports from the Group Chief Risk Officer (Group CRO), which included updates on significant risks facing the Group, the Group’s capital and liquidity position, the control environment, emerging risks and the Company’s risk profile, and operational, regulatory and conduct risks
• Received regular updates on the global COVID-19 pandemic and associated developing risks
• Reviewed and recommended for Board approval the Group’s Solvency II (SII) capital and liquidity risk appetites
Group capital and liquidity, financial plan and stress testing • Approved the 2020 Group Capital and Liquidity Plan and subsequent updates • Reviewed capital and liquidity projections including the Group’s SII
shareholder cover ratio1 and liquidity cover ratio • Reviewed updates on credit risk and the Company’s credit exposure and reviewed mitigating actions • Reviewed the development of the Company’s strategy from a risk perspective • Approved the Systemic Risk Plan, the Recovery Plan and the
• Monitored the risk for cyber security, the progress against cyber risks and reviewed the results of simulated security attacks against the Group
Supervisory Report and approved its submission to the regulator • Received updates on the disaster recovery, IT security, IT
• Reviewed the Company’s reporting on Climate Related Financial Disclosures requirements
I am pleased to present the Audit Committee (the Committee) report for the year ended 31 December 2020.
Committee focus during 2020 During the year the Committee closely monitored the impact of COVID-19 on the Finance and Internal Audit functions, the financial control environment and on the Group financial results.
The Committee also discussed the merits of more regular reporting to update the market on Group performance, and following the agreements of the Board, supported the process to move to quarterly operating updates. The Committee dedicated a substantial amount of time to reviewing the Group’s half and full year financial statements, supported by detailed reviews of the judgements applied in preparation of the financial statements, including Life and General Insurance technical provisions given the COVID-19 pandemic. This included the review of technical provision models, particularly in France following the misapplication of regulatory rules.
Committee membership George Culmer retired from the Committee when he became Chair with effect from 27 May 2020. Jim McConville was appointed to the Committee on 1 December 2020 and brings significant experience of financial services. The members of the Committee as at 31 December 2020 are shown in the following table. Details of their experience, qualifications and attendance at Committee meetings, together with the number of Committee meetings held during the year are shown in the ‘Our Board of Directors’ section and the Directors’ and Corporate Governance report.
Committee member requirements The Committee annually reviews how its members meet the experience and expertise criteria set out in the 2018 UK Corporate Governance Code (the Code) and the FCA Disclosure Guidance and Transparency Rules (DTRs). I as Committee Chair, Belén Romana García and Jim McConville, fulfilled both the Code and the DTR requirements for financial expertise and experience. The Committee as a whole has competence relevant to the insurance and broader financial services industry.
The 2020 External Audit Effectiveness review was undertaken through completion of a questionnaire by the Committee, subsidiary company audit committees, senior management, and members of the Group’s finance teams. The review focused on the effectiveness of the audit team, expertise and resources and interaction with audit committees. Overall feedback was positive and where opportunities for improvement were identified, PwC was asked to take account of that feedback in the planning for future audit activity. The Committee concluded that the Auditor continued to perform effectively and is recommended to shareholders for reappointment at the 2021 AGM. The Company has complied with the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 for the year ended 31 December 2020.
The Committee also conducts an annual review of the Internal Audit function to assess its effectiveness and to satisfy itself that the quality, experience and expertise of the Internal Audit function is appropriate for the business. This is carried out by reviewing reports issued by Internal Audit and the output of an annual stakeholder effectiveness survey. This formal process is supplemented by regular private discussions with executive management, the Internal Auditor and the Auditor. The Committee concluded that for 2020 the function performed well and remained effective.
2021 priorities In 2021, in addition to carrying out its principal function, the Committee will continue to monitor the impact of COVID-19 on key internal functions and any impact on reported financial results. The Committee will also monitor changes in the external audit environment following the Brydon, Kingman and Competition and Market Authority reviews of audit in the UK. The Committee will continue to support the development of the ORCM framework in relation to internal controls over financial reporting and monitor the implementation of the new IFRS 17 standard, ahead of its scheduled introduction from 1 January 2023.
Group Life and General Insurance operations particularly in the context of the COVID-19 pandemic
• Reviewed the findings from France actuarial model review undertaken by Ernst & Young and group-wide actuarial model assurance performed by PwC
• Reviewed the Group Chief Financial Officer’s reports which included: IFRS and SII key assumptions and judgements; accounting developments including the new IFRS; and overview of internal control and risk management over financial reporting
• Assessed that the Annual report was considered fair, balanced and understandable particularly in the context of the transparency of disclosures during the COVID-19 pandemic and the importance to shareholders of understanding the Group’s position
• Refreshed the External Auditor Business Standard • Held private meetings with the Auditor without management present to provide an appropriate forum for issues to be raised • Reviewed reports from the Auditor regarding: the 2020 Audit Plan and progress against plan and reports on the review and audit of the 2020 half and full year results, respectively, including key assumptions used and outcomes of the work performed and ‘Agreed upon Procedures’ in respect of the Quarter 1 and Quarter 3 operating performance updates.
• Agreed to defer the external audit tender by two years.
Internal controls, including financial reporting control framework and financial reporting developments • Received quarterly updates on the effectiveness of the FRCF and rectification of controls • Reviewed management’s assessment of the effectiveness of the risk management and control environment • Reviewed the Internal Audit function report to ensure adequacy of the systems of internal control and risk management
Key matters considered during 2020 The significant matters that the Committee considered during the year are set out in the table below.
The Committee reviews IFRS and Solvency II (SII) technical provisions and the impact of those technical provisions on IFRS Shareholders’ Net assets and SII surplus used for the quarterly operating updates, and 2020 Half Year and Full Year financial statements. The Committee reviews the underlying assumptions as these involve complex judgements and changes can have a significant impact on reported results.
Review of controls associated with the SII and IFRS Life reserving process. The Committee reviewed the sign-off procedures and control framework for movements in IFRS reporting and SII results.
Estimates and judgements for IFRS and SII reporting bases. The Committee challenged and recommended approval of IFRS judgements including those in respect of goodwill and intangible asset impairment reviews, assets classified as held for sale and the valuation assumptions for certain mark to model assets and liabilities.
Impact of exit from the European Union. The Committee reviewed the size and continuation of the allowance in our assumptions for future property prices and rental income in relation to our commercial and equity release mortgages, for the possible adverse impact including but not limited to the ultimate arrangements regarding the UK’s exit from the European Union (EU). The Committee reviewed the allowance introduced following the EU referendum in 2016, and subsequent release of the allowance in the context of broader long-term assumption setting.
Alternative Performance Measures (APMs). The Committee reviewed and approved the clarification and treatment of certain items within the Group’s Alternative Performance Measures (APMs) to further improve the transparency and consistency of reporting of APMs.
Review of internal controls. The Committee reviewed reports on the effectiveness of the internal controls over financial reporting to gain assurance that these remained in tolerance with no control weaknesses which could have a material impact on the financial results. The Committee met with individual business unit leaders to reinforce the importance of further improving performance of the internal control environment within the business units and provide challenge where progress was considered to be insufficient.
External Audit The Committee has responsibility for monitoring the External Auditor PricewaterhouseCoopers LLP’s (PwC) independence and objectivity and the effectiveness of the external audit process.
Audit related and non-audit services. The Committee monitors the External Auditor Business Standard to ensure no firm, other than PwC undertakes audit and audit-related services other than in exceptional circumstances. The Committee also monitors non-audit services (including audit-related and other assurance services) provided by PwC.
The UK Corporate Governance Code requires the Board to assess the Company’s current position and principal risks and state whether it has a reasonable expectation the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment. The Committee supports the Board in making that assessment.
The Committee continued to monitor preparedness of the implementation of new IFRS standards, but most significantly in respect of IFRS 17. It is expected that IFRS 17 will have a significant impact on the measurement and disclosure of insurance contracts. The Committee continues to regularly assess the impact on the financial reporting process, the operation of new internal financial tools to be used for financial forecasting and planning purposes, and the calculation of insurance liabilities under the new standard. The Committee monitored updates on the planning and implementation activities for IFRS 17 including development of a series of ‘dry runs’ ahead of the effective date of 1 January 2023.
The Committee received updates on the impact of the COVID-19 pandemic on Aviva’s businesses and the implications on Aviva’s reserves and capital requirements. In addition, the Committee reviewed disclosures made for the impact of COVID-19 pandemic on Aviva’s financial performance in its publication of quarterly operating updates and half-year and full year financial statements.
The Committee monitored the impact of COVID-19 on the control environment and for the performance of control assurance activity. The Committee continued to engage with the regulator to seek clarification on the balance sheet disclosures, including treating COVID-19 as a “major development” as per SII Directive.
Committee focus during 2020 I am pleased to present the Customer, Conduct and Reputation Committee (the Committee) report for the year ended 31 December 2020.
During the year, the Committee considered and monitored a range of matters including the treatment of our customers during COVID-19 (including vulnerable customers) and, the progress of our corporate responsibility strategy.
Committee membership I joined the Board on 1 December 2020 and assumed the role of Chair of the Committee. George Culmer was the interim Committee Chair from 6 July 2020, following Amanda Blanc’s appointment as CEO. The members of the Committee as at 31 December 2020 are shown in the table below. Details of their experience, qualifications and attendance at Committee meetings during the year are shown within the Directors’ and Corporate Governance report. On 1 January 2021, Pippa Lambert also joined the Committee.
The Committee also monitored how the Group co-ordinated a response across international markets and engaged the workforce. Internally, there was regular communication with leaders and colleagues to provide guidance and support, and internal surveys for employees to provide feedback to ensure that employees felt supported and well informed.
Customers During 2020, the Committee had oversight of the customer strategy and operations. This included the creation of an enhanced customer dashboard to provide the Committee with a greater overview of key customer metrics, data and insights. The customer team worked across the business to create a monitoring framework that balanced commercial and customer outcomes and further enhanced putting the customer at the heart of the business. As part of the roll out of the new framework, governance, reporting and escalation mechanisms would continue to be reviewed and further improvements made where necessary. A set of Customer Principles was developed and designed to enhance great customer outcomes, with a focus on the most frequent customer journeys so that related simplification and improvement activities benefitted the greatest number of customers.
The Committee continued to emphasise the importance of further developing a proactive approach to conduct topics in order to support action to prevent instances of customer detriment occurring.
Data During 2020 the Committee continued to review the development and delivery of data governance particularly in respect of customer data and records management within the Group. The Group Data Operations team worked with each business unit to review and enhance oversight and reporting arrangements.
Reputation The Committee monitored developments in the Group’s reputation and reputational risk position. Key areas of focus included the response to the COVID-19 pandemic and the treatment of our customers, particularly those in vulnerable categories. The Committee also monitored the response to our announcements on strategy and in changes to the composition of the Board.
The Committee oversaw the establishment of a Conduct Governance and Reporting shared service team, which would strengthen best practice amongst the Group. The Committee considered and approved the refresh of the Conduct Risk Policy, which had been substantially updated to provide a framework which monitored both customer, regulatory and market exposures, as well as the key drivers of conduct risk. The Committee is overseeing the implementation and embedding of the framework across the Group.
The Committee reviewed and contributed to the corporate responsibility strategy for 2020-25, the ‘Better Tomorrow Plan’ which had been developed through feedback from Aviva’s stakeholders and across the business. Climate change consistently emerged as one of the most important issues in the feedback and the greatest threat to our customers, the planet and our business. Aviva has a long history of action in this area through disclosure; policy influence; environmental, social and governance (ESG) engagement and reducing our operational impact, and the Better Tomorrow Plan builds on these achievements.
The Committee also continued to monitor and support our community investment and the activities of the Aviva Foundation, which was established to distribute the proceeds of our share forfeiture programme to good causes.
Aviva is committed to behaving as a responsible corporate citizen and the Committee sets the guidance, direction and policies for the Group’s corporate responsibility agenda to identify the most important sustainability issues for customers, the business and our wider stakeholders. Further information on our integrated responsibility and sustainable business approach can be found on the Company’s website at: www.aviva.com/social-purpose.
Regulatory and financial crime • Regularly reviewed updates from the Group Compliance and
The directors submit their Annual Report and Accounts for Aviva plc, together with the consolidated financial statements of the Aviva group of companies, for the year ended 31 December 2020.
The Directors’ report required under the Companies Act 2006 comprises this Directors’ and Corporate Governance report, the Directors’ Remuneration report and the following disclosures in the Strategic report: • Corporate responsibility – Disclosure of our energy consumption and greenhouse gas emissions in line with the Streamlined Energy and Reporting (SECR) framework
• Our people – Engaging with our people – details of employee engagement
The management report required under Disclosure Guidance and Transparency Rule 4.1.5R comprises the Strategic report (which includes the principal risks relating to our business) and details of material acquisitions and disposals made by the Group during the year which are included in note 4 and certain other disclosures referred to in this Directors’ and Corporate Governance report. This Directors’ and Corporate Governance report, together with the Directors’ Remuneration Report, fulfils the requirements of the corporate governance statement under Disclosure Guidance and Transparency Rule 7.2.1.
(2019: nil pence) • Total ordinary dividend of 21 pence per ordinary share
(2019: 15.5 pence) • Total cost of ordinary dividends paid in 2020 was £236 million
Interim dividends are typically paid in September, subject to declaration by the Board. A final dividend is typically proposed by the Company’s Board after the end of the relevant year and generally paid in May. The following table shows certain information regarding the dividends that we paid on ordinary shares.
Final dividend per share (cents)1 2020 7.00 7.75 14.00 – 1 Euro dividend rate per share 2 Interim dividend in respect of 2019 paid in September 2019, second interim in respect of 2019 paid in
Distributable reserves Under UK company law, dividends can only be paid if a company has distributable reserves sufficient to cover the dividend. At 31 December 2020, Aviva plc itself had sufficient distributable reserves to support the paid and proposed dividends during the period. In UK Life, our largest operating subsidiary, distributable reserves, which could be paid to Aviva plc via its intermediate holding company, are based on the updated Companies Act 2006 (Distributions of Insurance Companies) Regulations 2016 which uses an adjusted Solvency II Own Funds measure in determining profits available for distribution. While the UK insurance regulatory laws applicable to UK Life and our other UK subsidiaries impose no statutory restrictions on an insurer’s ability to declare a dividend, the rules require maintenance of each insurance company’s solvency margin, which might impact their ability to pay dividends to the parent company. Our other life insurance, general insurance, and fund management subsidiaries’ ability to pay dividends and make loans to the parent company is similarly restricted by local corporate or insurance laws and regulations. In all jurisdictions, when paying dividends, the relevant subsidiary must take into account its capital position and must set the level of dividend to maintain sufficient capital to meet minimum solvency requirements and any additional target capital expected by local regulators. We do not believe that the legal and regulatory restrictions constitute a material limitation on the ability of our businesses to meet their obligations or to pay dividends to the parent company, Aviva plc.
Further details on the ordinary share capital of the Company are shown in note 33.
Rights and obligations attaching to the Company’s ordinary shares and preference shares Rights and obligations attaching to the Company’s shares together with the powers of the Company’s directors are set out in the Company’s Articles of Association (the Articles), copies of which can be obtained from Companies House and the Company’s website at www.aviva.com/articles, or by writing to the Group Company Secretary. The powers of the Company’s directors are subject to relevant legislation and, in certain circumstances (including in relation to the issue or buying back by the Company of its shares), are subject to authority being given to the directors by shareholders at a general meeting. At the 2021 AGM, shareholders will be asked to renew the directors’ authority to allot new securities. Details are contained in the Notice of 2021 Annual General Meeting (Notice of AGM).
Authority to purchase own shares At the Company’s 2020 AGM, shareholders renewed the Company’s authorities to make market purchases of up to 392 million ordinary shares, up to 100 million 8¾% preference shares and up to 100 million 8⅜% preference shares. The authority was not used and no shares were purchased during 2020. At the 2021 AGM, shareholders will be asked to renew the authorities to buy Aviva shares for another year and the resolution will once again propose a maximum aggregate number of ordinary shares which the Company can purchase of less than 10% of the issued ordinary share capital. Details are contained in the Notice of AGM available at www.aviva.com/agm. The Company held no treasury shares during the year or up to the date of this report.
Political donations Aviva did not make any political donations during 2020.
Disclosure of information to the auditor In accordance with section 418 of the Companies Act 2006, the directors in office at the date of approval of this Annual Report and Accounts confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s External Auditor, PricewaterhouseCoopers (PwC), is unaware and each director has taken all steps that ought to have been taken as a director in order to make themselves aware of any relevant audit information and to establish that PwC is aware of that information.
Annual general meeting The 2021 AGM of the Company will be held on Thursday 6 May 2021 at St Helen’s, 1 Undershaft, London EC3P 3DQ at 2pm. The Notice of AGM convening the meeting describes the business to be conducted thereat. Any proxy voting instruction, whether provided online, by post or via CREST or Proximity voting, must be received by our Registrar, Computershare Investor Services PLC, by no later than 2pm on Tuesday 4 May 2021. Further details can be found in the shareholder information section of the Notice of AGM.
Going concern and longer-term viability A detailed going concern and longer-term viability review has been undertaken as part of the 2020 reporting process. The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report, along with the Group’s approach to risk and risk management. In addition, the ‘Financial statements’ sections include notes on the Group’s borrowings (note 52); its contingent liabilities and other risk factors (note 55); its capital management (note 57); management of its risks including market, credit and liquidity risk (note 59); and derivative financial instruments (note 60).
In response to the COVID-19 pandemic, the Group has reduced exposure to equity and interest rate risk, credit spread and counterparty default risk across all our major markets and actions are being taken to further reduce the sensitivity to economic shocks. In the event of major new risks emerging, the Group has a number of management actions available to maintain or restore key capital, liquidity and solvency metrics to within the Group’s approved risk appetites over the planning period.
Going concern After making enquiries, the directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for a period of at least 12 months from the date of approval of the financial statements. For this reason, they continue to adopt, and to consider appropriate, the going concern basis in preparing the financial statements.
Fair, balanced and understandable To support the directors’ statement below that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, the Board considered the process followed to draft the Annual Report and Accounts: • Each section of the Annual Report and Accounts is prepared by a member of management with appropriate knowledge, seniority and experience. Each preparer receives guidance on the requirement for content included in the Annual Report and Accounts to be fair, balanced and understandable
• Board members receive drafts of the Annual Report and Accounts for their review and input. This includes the opportunity to discuss the drafts with both management and the External Auditor, challenging the disclosures where appropriate.
Directors’ responsibilities The directors are responsible for preparing the Annual Report and Accounts, the Directors’ Remuneration report and the financial statements in accordance with applicable law and regulations.
No 1606/2002 as it applies in the European Union (EU) have been followed, subject to any material departures disclosed and explained in the financial statements
Shareholders will be asked to vote on two remuneration resolutions at the 2021 Annual General Meeting (AGM): • The Directors Remuneration Policy (Policy), which outlines the remuneration framework that will apply to our Executive Directors (ED), Non-Executive Directors (NED), and the Chair of the Board following approval; and
In addition, we are proposing some minor amendments to other elements of the Policy to ensure continued alignment with corporate governance best practice in areas including pension, post-cessation shareholding requirements and malus and clawback provisions.
Annual bonus The annual bonus is intended to align reward outcomes with the achievement of key annual goals, enacted by cascading the scorecard down into the business. While the review suggested on the whole the bonus framework works effectively, it highlighted that the assessment process is overcomplicated, with potential for overlap in some areas.
To provide a clearer, more transparent and simpler structure, we are proposing the removal of non-financial modifiers and, where appropriate, incorporating them into the metrics to ensure their impact is retained. Specifically: • Employee engagement – A highly engaged workforce is one that is more productive, accountable and motivated to deliver for our customers and we aim for our people to achieve their potential within a diverse, collaborative and customer-focused organisation. Therefore we are introducing employee engagement as a primary metric to reflect our focus in this area; • Customer trust – Customers are at the heart of everything we do at Aviva and we are retaining Relationship Net Promoter Score (RNPS) and Transactional Net Promoter Score (TNPS) as primary metrics. The Committee is satisfied with the removal of the customer trust modifier to reduce duplication; and
• Risk and controls – The introduction of percentage Risks Inside Tolerance (RIT) as a primary metric for 2020, reinforced the fundamental importance of controlling, measuring and assessing our risk performance across the business. However, the Committee views the risk modifier as complicated and duplicative. It is proposed to remove the modifier and instead to measure RIT and risk and controls quality, together with an additional assessment to give a fuller picture of how we are performing across our risk profile. The Committee is comfortable with this since it retains overall discretion to adjust outcomes should they not align with underlying performance or wider business circumstances.
In terms of the financial metrics, the overall weighting will remain at 70%. We are taking the opportunity to move from Solvency II operating capital generation (SII OCG)1 to Solvency II operating own funds generation (SII OFG)1. The latter more directly captures the value created in a period, providing closer alignment to our growth strategy, and is also the numerator in our Solvency II return on equity (SII RoE)1 measure, creating alignment across incentive plans. The other metrics, annual cash remittances and Group adjusted operating profit, remain unchanged, although we are adjusting some weightings to retain an appropriate balance between growth and cash/capital measures.
Long Term Incentive Plan (LTIP) The LTIP is intended to (i) incentivise and reward senior executives for delivering Aviva’s long-term objectives, (ii) align them with the interests of shareholders, and (iii) encourage a focus on value growth. The current metrics of SII RoE1 (with a SII shareholder cover ratio1) and relative Total Shareholder Return (TSR) measured against a group of key peers remain key measures of our long-term success and are therefore being retained.
To complement these metrics, we are proposing two changes to ensure that the LTIP supports delivery of our strategy. The first change is the inclusion of a new long-term cumulative cash remittance metric to the financial element of the LTIP. The focus on longer-term sustainable cash generation becomes fundamentally important as we execute on our strategic priorities to focus the portfolio and transform performance. This has been reflected in shareholder feedback, which has emphasised the importance of delivering on our long-term dividend ambitions whilst balancing short term cash delivery and investment in the business to drive sustainable growth. Cumulative cash remittances are established performance measures for the Group and have been targeted externally on a cumulative basis for a number of years. It is therefore proposed, that the existing SII RoE1 financial measure be balanced by the inclusion of cumulative cash remittances1.
• Creating a diverse, inclusive organisation is a fundamental part of living up to our purpose to ensure we represent the communities we serve and make decisions that reflect their needs
To recognise the importance of getting our approach right in these areas, for 2021 we are proposing to focus 10% of the LTIP on an ESG agenda. This will be split across three metrics: • % reduction in CO2 intensity of shareholders’ assets • % of women in senior leadership roles in UK, Ireland and Canada • % of ethnic minority employees in senior leadership roles in the UK
Other changes Additionally, we are proposing minor changes to the Policy to ensure continued alignment with best practice and to incorporate actions the Committee took last year.
• Pension – Formalise the current practice whereby ED provision is aligned with that available to the majority of the UK workforce
• Malus and clawback provisions – Strengthen the provisions to bring them into line with those in our internal policy 2020 Company performance Whilst COVID-19 has disrupted a large portion of the industry, our results demonstrate the fundamental resilience of our businesses and demonstrate our disciplined and effective response during a period of extreme uncertainty. We are proud of the hard work and commitment of our colleagues during this unprecedented period, helping ensure that we continue to provide our customers with outstanding service and support.
Our initial response to the pandemic was one of prudence, suspending dividend payments and withdrawing senior management salary increases in April 2020. Dividend payments were subsequently re-instated in August and we are proud to say no UK Aviva colleagues were furloughed or made redundant as a result of the pandemic during the year.
2020 Annual bonus The Committee carefully considered Group, business unit and individual performance during 2020 and decided that the bonus scorecard should be capped at 100% to reflect shareholder experience during the year and wider societal factors caused by COVID-19.
The Committee conducted an extensive analysis of the quality of earnings, noting recommendations by the Audit Committee and the Risk Committee, and: • Approved management’s proposal to cap the mechanical outcome of RIT to ‘on target’ (a 9.75% reduction) as it was a more balanced view of risk resolution across 2020. This adjusted the bonus scorecard from 116.55% to 106.8%
• Made upward adjustments to the scorecard of 5% for employee engagement and 5% for customer trust to recognise strong achievements under challenging conditions
• Made a 5% downward adjustment to the scorecard for risk and controls. This recognised that while significant improvements had been made over the course of 2020, further work is required
Since being appointed Group CEO in July 2020, Amanda Blanc has shown strong, decisive leadership and driven numerous significant actions in a short space of time. We have made a good start on the new strategy and there are clear signs that we are heading in the right direction. Jason Windsor steered the Group through the economic challenges of 2020 taking early and proactive action and provided critical support to the new Group CEO and Chair. Table 8 provides further detail on individual performance.
• LTIP – No discretion regarding the vesting outcome was exercised
Appointment of new Group Chief Executive Officer Amanda was initially appointed as a NED to the Aviva plc Board in January 2020 and subsequently appointed as Group CEO in July. She brings her extensive insurance industry knowledge gained from a long and successful career in the insurance sector.
• For 2021, an award under the LTIP of 300% of basic salary • Amanda is also subject to a shareholding requirement of 300% of salary, which will continue for two years post-cessation
The Committee works hard to ensure alignment with shareholder interests, and over the last year has dealt with a number of time critical matters, including changes to the Board. I want to thank all Committee members, past and present, for their dedication and active participation.
Remuneration in 2021 Salary Although 2021 salary budgets were increased by 1.5% for junior colleagues, this did not apply to Aviva senior management. Amanda and Jason, therefore, did not receive salary increases in 2021.
2021 Annual bonus and 2021-23 LTIP Award opportunities for 2021 are unchanged: Annual bonus
Proposed changes to the performance metrics and assessment process for both plans are outlined above. A graphical summary and further details are shown in table 25. These changes will ensure that the framework remains fit for purpose and best-placed to drive performance against our key financial and non-financial goals.
The Committee also takes into account a wide range of other factors, including legal and regulatory requirements, shareholder guidance and best practice, and also the views and experiences of our wider stakeholders, including our colleagues. The following sections provide further context.
How does the proposed Policy align with Aviva’s strategic priorities? The Committee firmly believes that performance measures used in the Policy should be linked to the Group’s Key Performance Indicators (KPIs) and other strategic priorities.
Annual Bonus & LTIP metric aims The annual bonus metrics are comprised of a balanced set of financial and non-financial measures aligned to the key annual goals supporting our strategy. The financial metrics underpin our dividend, measure the value created in the period as well as our profitability, and the non-financial metrics complement the delivery of broader strategic goals.
The LTIP metrics support delivery of sustained performance and value growth, aligned to our strategic priorities and the interest of shareholders. The financial metrics measure longer term value creation, and underpin our sustainable dividend policy.
The Committee’s view is that the framework at Aviva is well-aligned with these areas.
Simplicity • We operate a simple remuneration framework, comprising fixed pay elements, along with short- and long-term variable elements
• Both plans also incorporate robust performance targets, malus and clawback provisions, and overarching Committee discretion to adjust formulaic outcomes, providing shareholders with comfort that any risk events are appropriately reflected in remuneration outcomes
Proportionality • There is clear alignment between the performance of the Company and the rewards available to EDs
Alignment to culture • We are committed to effective stakeholder and colleague engagement • As part of this, the Committee regularly reviews data relating to pay and broader employment conditions in the workforce, and takes these into account when considering executive remuneration
• We regularly review our salary ranges to maintain competitiveness to market rates, and we move everyone who may be below a band to at least the minimum of that range each year
• Our competitive pension scheme provides an employer contribution of 14% of salary (subject to the level of colleague contribution)
• We ensure that colleagues can share in the success of the business, where appropriate, through performance-based variable remuneration
• UK colleagues are eligible to participate in our Aviva Savings Related Share Option Scheme 2020 (SAYE) and All Employee Share Ownership Plan (AESOP) offerings with similar plans operating for many of our overseas colleagues. We are proud of the participation rates in these plans, with over 60% participating in the SAYE and over 70% in the AESOP
• #backtobest, a wellbeing campaign where colleagues can earn points for doing things that are good for them, like being active or meditating
We will continue to help and support our colleagues, and ensure that they feel valued, motivated, and rewarded over the course of 2021 and beyond.
• Pension – The Policy formalises the current position whereby ED provision is aligned with that available to the majority of the UK workforce (14% of salary)
• Shareholding requirements – To promote alignment we are increasing the CFO’s shareholding requirement from 200% to 225% of salary (the CEO’s requirement is unchanged at 300%)
• Post-employment shareholding requirements – From 2021, EDs will have to hold their full shareholding requirement for two years following departure
• Post-activity restrictions – Retirees are subject to post-activity restrictions which mean LTIP and deferred bonus awards can be reduced or recovered if certain employment is taken elsewhere
Table 1 below provides an overview of the Policy for EDs. For an overview of the Policy for NEDs, see table 3.
Table 1 Key aspects of the Remuneration Policy for Executive Directors