Banks and nominee companies 19,440 2.22 1,792,006,710 79.39 Pension fund managers and insurance companies 122 0.01 14,514,272 0.64
Group Chief Executive’s review Operating review Corporate social responsibility Financial review Board of directors Directors’ report Corporate governance Audit Committee report Nomination Committee report Chairman's Committee report Directors’ remuneration report Independent auditors’ report
ig hl ig ht s of t he y ea r
1 UK 33% 2 Continental Europe 34% 3 Rest of world 5%
We continue to look for promising strategic opportunities, and will expand our business where we see the chance to be a market leader and grow the business profitably.
We propose a final dividend for 2003 of 15.15 pence net per share, which brings the total for the year to 24.15 pence, an increase of 5%. This will be payable on 17 May 2004 to shareholders on the register on 26 March 2004. Our policy remains that of growing the dividend by about 5% a year.
“Through strict cost control and stringent capital allocation we have run and developed our business with undisturbed continuity”
Aviva is a firm supporter of sensible corporate governance disciplines, and we already follow what has become regarded as best boardroom practice.
City throughout 2003, and the Smith report on audit committees. We are ahead of the game reporting this year as if the Code had been in effect for 2003.
Carole Piwnica and Anna Catalano, joined our board during the year, and are already making significant contributions.
March this year. I would like to thank both of them for their exceptional contributions. They will be missed for their eminent qualities and their international experience. Sir Michael
“I am pleased with the progress we are making towards the creation of a single market for financial services”
Mike Biggs decided to leave the group at 31 December. He did an excellent job, and I thank him for what he accomplished. Philip Twyman took on additional responsibility for the group finance director role from 1 January on a transitional basis. I am pleased that Andrew Moss will be joining us from Lloyd’s of London as group finance director later in the year.
In the area of corporate social responsibility, Aviva has high ambitions and is making good progress. I feel that all business operations in our group now understand our mission and are eager to do their best.
Our staff have been under pressure through several years of adversity. I know that our management recognise that ambitious efforts are needed to motivate and encourage our dedicated employees. Management has done well under demanding circumstances and will continue to address these issues.
Romania and Australia, and have significant long-term potential in India and China.
Developments in 2003 the Netherlands became operational, contributing £227 million to total sales.
• Strengthened our market position in many countries, becoming the largest life insurer in Spain after considerable growth in just a few years.
• Joint ventures in India and China both made good progress in their first full year of operation, in markets with huge long-term growth potential.
• Substantial improvement in customer service in the UK reflected in a three-star rating at the Financial Services Awards and other 2 Continental Europe
Operating profit before tax from continuing operations, including life achieved profit
TM and Norwich partnership with supermarket chain Loblaws, operational, delivering cost and service benefits to our UK business and other operations.
Rigorous cost control, disciplined underwriting and excellent customer service are at the core of our general insurance business. We aim to deliver highquality earnings from market-leading positions in personal insurance and selected commercial lines. Our sustained profitability gives us a solid platform to provide high-quality service, strengthen relationships with our customers and broaden our range of propositions. Aviva is the leading general insurer in the UK and Ireland, the second-largest in Canada,
• Greater efficiencies achieved within Morley Fund Management through increased centralisation of our international equity fund
• Aviva Canada launched its first corporate under the highly regarded President’s Choice brand.
• Call and claims processing centre in India became 2 Continental Europe
In particular, we achieved the operational targets we set ourselves at the start of the year. We improved productivity, to keep our costs in line with revenues. We continued to apply rigorous financial management to maximise returns from our valuable capital resources. We generated cashflow from our general insurance business and from our focus on capital management disciplines and costs. We committed ourselves to improving customer service by sharing best practice groupwide.
Most importantly, our combination of strong and diversified long-term savings operations and cash-generative general insurance business delivered consistent and reliable financial results.
Given the uncertain financial climate, we were pleased that our worldwide long-term savings new business sales** were £14.4 billion (2002: £14.6 billion). Sales in continental Europe improved by 5% to £6.9 billion (2002: £6.0 billion). We continue to benefit from our bancassurance distribution agreements as they develop across Europe and South East Asia, with worldwide total sales of £3.5 billion (2002: £3.0 billion). We are seeing signs that investment market conditions are improving and customer confidence is recovering in equity markets. Life achieved operating profit was £1,555 million (2002: £1,524 million).
“We achieved the operational targets we set ourselves at the start of the year”
On an after tax basis, this operating profit covers the proposed full year ordinary dividend of £545 million 1.82 times, in line with our dividend policy. The group delivered an overall profit before tax of £1,390 million
The net pre-tax benefit to the profit and loss account for the year was £65 million, which is in line with our indication at the half year.
*From continuing operations, including life achieved operating profit before amortisation of goodwill and exceptional items.
An improved return on capital employed† of 12.7% (2002: 9.7%) reflects the continued strength of our business.
Association of British Insurers As a leading insurance and investment provider, Aviva plays an active role in advising and consulting on government policy and regulatory reforms as they affect our industry in countries around the world.
I was delighted to be appointed chairman of the Association of British Insurers in July 2003. During my time in office I intend to ensure that the ABI continues to provide effective and influential leadership for the insurance industry in the UK.
We have a big task to explain the full value of the industry’s contribution to the social and economic health of the country. We need to communicate more effectively with governments, regulators and consumers on issues that concern all of us. There is also more we can do to build trust with our customers through greater openness and better service.
+8% Worldwide sales through bancassurance were up 8% at £3.5 billion.
Business strategy We continue to make excellent progress and in many countries have strengthened our market position, despite 2003 being a difficult year for long-term savings markets. Aviva’s longterm savings business including health insurance accounts for 72% of our total premiums. Our strategy is to grow this business aggressively and profitably.
We continue to see significant opportunities to develop our business. We have major positions in many markets where governments are encouraging individuals to save more for their retirement. We have established operations and are building our market position where we see good medium to longer-term growth opportunities in the large, relatively undeveloped markets of Eastern Europe and Asia. Our size, efficiency and international brand enable us to provide a choice of life insurance, pensions, savings and investment products through a variety of distribution channels to suit the needs of our customers.
Distribution We have developed a strong multidistribution capability well suited to the preferences of customers in local markets.
Our strategy is to align our distribution model to the channels that dominate local market distribution. In more developed markets, such as the UK, the Netherlands and France, we have a multi-distribution model which enables us to meet customer demand for a wider choice of products sold in a variety of ways, including advice through
independent advisers. The markets of Spain and Italy are dominated by the bancassurance channel, through which over two-thirds of new business is written. In the developing markets of Central and Eastern Europe and China, our primary method of distribution is through a direct sales force. Our distribution mix continues to evolve as these markets develop.
We reclaimed our leadership position with a market share of over 12% in the third quarter.
1 Independent advisers 2 Bancassurance 4 Partnerships with non-banking organisations 1 Independent advisers 2 Bancassurance 4 Partnerships with non-banking organisations 2003 – Worldwide new business sales by distribution channels
“Pension reforms should create further opportunities. In addition, we expect continued growth from our efficient bancassurance business.” Cesare Brugola, chief executive officer, Aviva Italy
The majority of sales through our joint venture in India with Dabur Group come from bancassurance partnerships with ABN AMRO, American Express, Lakshmi Vilas Bank and Canara Bank. We also employ a direct sales force network of 1,800 specialist financial planning advisers, and have launched an insurance broking business in partnership with Bajaj Capital, India’s premier financial planning and investment advisory company.
Bancassurance Bancassurance is an important source of new business, having grown significantly over the past three years. In some countries, such as the UK and Netherlands, it forms part of our multi-distribution mix; in others, particularly Italy and Spain, it is the dominant sales channel.
Our partners in Italy – UniCredito Italiano, Banca Popolare di Lodi, Banca delle Marche and Banche Popolari Unite, (formerly Banca Popolare Commercio e Industria) – provide 86% of our business in a market where bancassurance accounts for 76% of total sales. Aviva is one of the most efficient providers in the Italian bancassurance market, measured by expenses as a proportion of premiums.
In Spain, bancassurance contributes over 96% of our new business sales. Our partnerships already provide access to nine million customers across the country, and we see continued growth potential from our agreements with Bancaja, Unicaja, Caixa Galicia, Caja España and Caja de Granada.
We continue to develop our bancassurance partnerships with DBS in Singapore and Hong Kong. We are also a leader in the growing independent adviser sector, building upon our experience in the UK.
Our French life business launched a successful series of limited-offer products, such as Puissance 2, during 2003.
Direct sales Business generated through direct sales forces, by phone and over the internet provides a valuable stream of income in many of the countries in which we operate.
Customer service We believe that customer service is one of the key areas where we can distinguish our long-term savings offering. We recognise that recently in the UK we have not always done as well in this area as we need to. However we are committed to raising our standards, and our service improved during the year. We are developing solutions tailored to individual customer preferences, making better use of technology to improve our service through banking channels, and are driving best practice across our business by sharing expertise groupwide.
The customer service team at Aseval, our "factory" company in Spain, produces and administers products for our bancassurance operations, leading to low running costs.
Pre-tax life achieved operating profit was £1,555 million (2002: £1,524 million), driven by higher new business margins and higher operational profits from existing business, offset by the impact of anticipated lower levels of investment return on the lower asset values at the beginning of the year. The contribution to profits from new business sales amounted to £621 million (2002: £578 million).
Investment conditions have improved and consumer confidence is building. We expect a steady recovery in the UK long-term savings market through 2004. We see the market consolidating towards the larger players such as
“We have made good progress on our distribution partnership with Crédit du Nord which will significantly reinforce our distribution strengths and contribute to our business development from the fourth quarter of 2004.” Bruno Rostain, chief executive,
Norwich Union continues to play a leading role in the debate over pensions reform and product simplification. We await the results of the Government’s decision on price capping of Sandler savings products. Product pricing must be based on a realistic charging structure to be economically viable. In the appropriate circumstances, we intend to be a major player in this market.
Total sales through our joint venture with The Royal Bank of Scotland Group were £843 million (2002: £880 million), reduced with-profit bond sales being offset by encouraging sales of collective investments introduced in February 2003. Further development of our products, increased sales force capacity and technology improvements will underpin the growth of this business and enhance cost-efficiencies in 2004.
Pension sales were lower at £2.6 billion (2002: £2.7 billion), reflecting reduced individual pension sales. This was offset by good growth in our target sector of larger group and corporate schemes, with sales up 20% to £829 million. Annuities continued to perform well in a competitive market.
UK life achieved operating profit was £659 million (2002: £699 million), reflecting reduced investment returns on lower asset values at the beginning of the year of £104 million, offset by the non-recurrence of a £123 million net charge for strengthening annuity reserves in 2002.
We reduced our cost base, adjusted our product mix and realigned product commissions for IFAs. Operational efficiency measures announced in 2003 included a number of job reductions in the UK. Following a series of feasibility studies in 2003, our intention is to create about 700 call centre and administrative jobs in India during 2004.
“We are a strong, dynamic player in the Dutch insurance industry, particularly now that we have a third distribution channel through ABN AMRO Insurance” Niek Hoek, chairman, Delta Lloyd
France Aviva France, our second-largest long-term savings business with some 1.6 million customers, reported total sales of £2.0 billion (2002: £1.9 billion). This reflected underlying growth of 4% after excluding the protection business we sold to Médéric.
Irish investors had little appetite for equity-related savings products as a result of poor economic growth and stock market performance. Strong sales of group pensions were offset by lower demand for individual pension products. In line with market experience, sales of the Irish Government’s personal retirement savings account from April 2003 were slow.
Norwich Union Life aims to provide a "one-stop" telephone service for its customers and business partners. Paul Taylor (pictured) is a member of the helpdesk team in Sheffield.
Our performance also benefited from the previously low level of life and pensions business sold in the market. With low interest rates holding back sales of lower-margin traditional savings products, our emphasis moved to higher-margin protection products in response to growth in the mortgage market. Operating profit was £158 million (2002: £83 million).
Our approach in both Spain and Italy is to have a “factory” company producing and administering products for our bancassurance operations, which leads to scaleable cost advantages. The low running costs we have achieved in both countries underpin the attractive margins from our bancassurance business.
Netherlands with ABN AMRO, which under the terms of the agreement includes sales from 1 January 2003.
Intermediary and direct sales were stable, reflecting tough conditions in the Dutch life market. Significantly higher sales in Belgium saw us enter the top 10 in the life market. Sales in Germany were £163 million (2002: £154 million), reflecting difficult economic conditions which meant we were one of the first companies to reduce our profit share ratio to guarantee long-term profitability.
The continued integration of ABN AMRO insurance business into our distribution model has resulted in additional opportunities to reduce our cost base through the planned use of a shared back office for all our operations. Operating profit was £199 million (2002: £203 million).
Our joint venture life operations in India and China both made good progress in their first full year of operation. In India we began selling pension products and introduced a new, affordable life insurance product for people on lower incomes in rural areas. Total sales from our joint venture were £9 million. Our new joint venture in China produced total sales of £3 million.
Outlook We are building a successful, costeffective long-term savings business that we believe will continue to prosper in an uncertain financial climate. There are excellent opportunities to develop our strong market positions in the UK, other European and emerging markets. We will continue to achieve profitable growth by providing a range of highquality, value-for-money products and services through a choice of distribution channels, supported by high standards of customer service.
“As markets recover, our focus will be on the core investment classes where we have superior expertise” Philip Twyman, group executive director,
Morley primarily provides fund management expertise for Aviva companies and leverages this capacity through its own distribution channels in the UK and Europe. During 2003 we achieved greater efficiencies within the business through increased centralisation of our international equity fund management expertise. This included the integration of Portfolio Partners in Australia, and the move to London of our Asian equity fund management operations from Singapore and the international equity fund management operation from Dublin.
We are developing our leading position in the UK fixed income market, and our European equities team continues to deliver strong performance. We invested more than £13 billion in UK property, and have developed a number of market-leading partnership arrangements that offer investors access to specialist property sectors.
Once again, Aviva Gestion d'Actifs received leading industry awards for investment performance in France, including Corbeille de Mieux Vivre Votre Argent and the Victoire des Sicav from La Tribune/Standard & Poors.
Morley also has one of the world’s largest and most experienced teams of socially responsible investment fund managers and researchers. In addition, we recognise our responsibility as a major shareholder in the UK stock market and continue our commitment to take an active interest in the companies in which we invest, to protect the rights of shareholders.
New products launched in 2003 included a European property fund and a high-income property unit trust, both reflecting the demand for propertyrelated investment vehicles, and two hedge funds.
We are setting up a ground-breaking investment administration service with JPMorgan Investor Services (JPM IS). The new service will combine Morley’s operational experience and administration platform with JPMorgan’s administration infrastructure to form a new business service provided by JPM IS. This agreement allows us to focus on our core capabilities – the manufacture and distribution of investment products to our target European markets – while JPM IS will concentrate on administration.
This prestigious high street retail property, 139-153 Grainger Street, Newcastle, was purchased by the Morley Pooled Pensions Fund in September 2003.
Sales of investment fund products in the Netherlands were up 56% at £204 million (2002: £119 million).
Sales through Norwich Union were £577 million (2002: £556 million). The operating loss of £3 million (2002: loss of £16 million) benefited from changes to commission charges.
We have £36 billion of assets under management, most of which are invested on behalf of our own operations, and recorded an operating profit of £13 million (2002: £11 million).
We take a focused approach to general insurance, with disciplined underwriting, efficient claims handling and rigorous control of costs. These strengths enable us to deliver good-quality earnings and give us a solid platform to provide high-quality service, increase access to our customers and broaden our range of propositions.
In 2003 we helped 1.6 million UK customers get An excellent combined operating ratio from their lives back to normal following an incident. continuing operations, improved for the third consecutive year.
Canada, with a 9% market share, and are among the top five in the
Netherlands and Singapore. We have a significant business in France, serving 1.2 million customers. We also have an extensive insurance network in Asia, where we operate across seven countries in addition to Singapore.
In the UK we have strong positions across the broker, corporate partner and retail direct channels. Among developments in 2003 was our new three-year partnership with ASDA to provide personal motor, home and travel insurance products to the supermarket chain’s 11 million customers. We have also announced the closure of our national broker subsidiary, Hill House Hammond (HHH), by the end of 2004, and the sale of its commercial business. Personal lines customers will be invited to transfer to Norwich Union Direct. We remain committed to the broker channel, which accounts for 59% of our sales, but this move will allow us to respond to the increasing preference of our personal lines customers to deal with us directly.
In France we operate through Aviva Assurances, which sells through a network of 910 tied agencies, and Eurofil, the second-largest direct insurance business in the French market. Our partnership with Crédit du Nord, through which we have been selling car and household insurance since September 2002, has proved a growing source of business for Eurofil.
Wildfires in British Columbia, Canada, resulted in thousands of people being evacuated from their homes in August. Aviva claims staff were mobilised to offer on-the-spot help. Marketing representative Scott Preston described the scene – including helicopters, air tankers and hundreds of firefighters – as “mind-numbing and surreal”.
Excellent general insurance operating profit from continuing operations (2002: £881 million).
Aviva Canada, which sells a broad range of traditional products through a network of independent brokers, launched its first corporate partner relationship with Loblaws, Canada’s largest supermarket chain, under the highly regarded President’s Choice brand.
“The premium discount we have introduced for drivers with penalty points-free licences is part of our effort to change and improve behaviour on our roads” Bryan Jenkins, chief executive, Hibernian
Customer offering Customer satisfaction is key to our strategy. We continue to deliver highquality service, fair prices and innovative solutions.
Our success is evident from the result of independent benchmarking in the UK, which places us in industry-leading positions in most areas of service delivery. In 2003 we helped 1.6 million UK customers get their lives back to normal following an incident. Norwich Union Insurance was named UK general insurer of the year at the Insurance Times Awards in December, and collected the service provider of the year and insurance provider of the year titles at the Insurance Age Awards in November.
Key to our strategy is increasing the range of services that we offer beyond insurance, and providing solutions that are increasingly tailored to individual customer requirements. We continue to invest in the development of innovative solutions such as digital flood mapping and Pay As You DriveTM, both of which will enable us to understand underwriting risks better and tailor prices more closely to individual circumstances. Pay As You DriveTM is currently in its trial phase, with this new approach to motor insurance being piloted with a limited number of customers prior to wider marketing. In conjunction with Norwich Union Insurance, Hibernian plans to pilot Pay As You DriveTM technology in Ireland in 2004.
Our ability to provide customers with the solutions they need is further demonstrated in the UK by the rapid growth of Norwich Union Rescue, our vehicle breakdown service, and the successful launch of Physiofast, our addon to motor policies offering fast-track physical recovery treatment. Our size enables us to pass on many benefits arising from economies of scale directly to our customers. For example, we offer car purchasing and leasing through yournucar.com and the opportunity to buy electrical goods via norwichunion.com
In France, Aviva Assurances continued to build on its competitive advantages of quality of service and proximity to the customer. We continue to make good use of internet technology, with broadband connections having been set up at each agency and a dedicated portal made available to give agents swift and easy online access.
Our standards of customer service were put to the test in Canada when we responded to the fires in British Columbia in August. We were the first insurer to have staff on the scene, and introduced temporary mobile claims offices to provide an on-the-spot service. Our Canadian staff also made great efforts to maintain normal service following a massive power cut earlier in the same month.
Our call and claims processing centre in India became operational during the year. This will deliver cost and service benefits to our UK business, while the expertise gained is being shared across the group. For example, Aviva Canada aims to use the Indian claims processing centre to support expected growth from its new corporate partnership with Loblaws. We expect to create about 1,800 jobs in India in 2004 to service our general insurance operations.
Hibernian, our market-leading general insurance operation in Ireland, reported a COR of 97% (2002: 100%).
The personal lines market remains competitive, with net premiums written of £2,987 million (2002: £2,811 million). However, we continue to increase our rates, and our focused approach to pricing and cost control means that our business remains profitable. Commercial lines performance was excellent, with net premiums written of £2,148 million (2002: £1,929 million). We have led the commercial market in achieving sustained rating increases and volume growth in our target markets. We are committed to achieving profitable growth in both personal and commercial lines.
The increased use of approved repair networks has helped us to keep costs down while ensuring a high standard of service and a quicker claims handling process for our customers. Our shared telephone-based claims platform, used not only by Eurofil but also by some Aviva Assurances agents, handled motor cases for the first time in 2003, in addition to household claims.
We introduced several health insurance schemes to help employers reduce staff absences. Sales of a new car insurance product with an innovative pricing structure were successful. A new buildings and contents product was also launched, with distinctive features including competitive premiums, simplified terms and a guarantee against under-insurance. We met our targets for improvements to margins and operational cost-effectiveness, which provides us with a sound base for future profitability.
“There is no question our new agreement with Loblaws represents an excellent growth opportunity for Aviva. This is just the beginning” Igal Mayer, president and chief executive officer, Aviva Canada £million
Concern over motor insurance costs is a major issue in Canada and has resulted in a challenging regulatory environment, with several provinces introducing rate reductions or freezes. In response, we have lobbied local government to impose limits on court awards for bodily injury claims, so that we can continue to operate profitably in these markets.
Our Canadian claims operation uses total incident management systems devised by Norwich Union in the UK to streamline processes, reduce costs by using preferred supplier networks, and improve customer service.
Outlook We have demonstrated our ability to deliver consistent earnings in a rapidly changing market. We have consistently kept our performance promises, including significant savings following the group merger in 2000 and a COR maintained at under 102%. Our new group combined operating ratio target is 100% for each of the next three years.
Through our clear strategy we are creating opportunities to broaden our earnings stream, both in our core insurance offering and through wider propositions. Our scale and trusted brand can be used, wherever we operate, to deliver sustained competitive advantage and long-term growth.
Aviva continues to develop its corporate social responsibility (CSR) programme with vigour. These activities now cover some 98% of staff worldwide and reflect our responsibilities as an insurer, employer, investor and consumer.
Besides making financial donations, Aviva encourages staff volunteering to support charities. In 2003, Aviva Australia and Morley Fund Management launched staff volunteering schemes allowing employees to take paid leave to participate in company-sponsored volunteering programmes. Commercial Union Polska has also set up a staff community volunteering scheme, which the company supports by matching volunteers with organisations and providing training. Payroll giving and matched funding provide other opportunities for staff to support charitable causes.
In the UK, Norwich Union continues to invest in UK Athletics’ grassroots development programmes, which enable children of all ages to experience athletics and help tackle the growing problem of obesity among the young. Further, Norwich Union has entered a five-year partnership with NCH, the children’s charity, which also offers volunteering opportunities to staff.
We are also keenly aware of our responsibilities as an equal opportunity employer. Our commitment was recognised in October 2003 when Aviva was ranked eighth for reporting on disability in the workplace in the Employers’ Forum on Disability global inclusion benchmark.
In connection with the movement of some operational activities to India, we have taken great care to look after the career interests of the UK staff involved. We have taken account of opportunities for local redeployment or relocation across our UK businesses, and have offered support for re-skilling and life­ long learning. In India, we have also been rigorous in our selection of partners with reputations as good corporate citizens. We work only with those who have transparent policies on recruitment, progression and procurement, and who have a demonstrable track record in gender equality and a total absence of religious discrimination.
External assessment Aviva’s CSR programme continues to be ranked favourably by specialist research agencies and investment houses.
For the second consecutive year, Innovest has placed Aviva first for CSR performance among the world’s leading insurers. We are still the only UK insurer included in both the Dow Jones Sustainability World and STOXX indices. Aviva is also a member of the FTSE4Good index series.
Working with others Aviva is keen to work with others to develop further understanding of CSR. We continue to chair the Forge group of banks and insurers in the UK, which is developing guidance on practices and behaviours that enhance public trust and the development of key CSR performance indicators for the financial services sector.
Further details A copy of the printed summary CSR report is available from the group company secretary. The full annual CSR report is available on the group website at www.aviva.com/csr
“We are delighted to be working with one of the UK's leading children's charities, NCH, to help us support, educate and build confidence in the UK's most vulnerable young people” David Czerwinski, head of sponsorship, community and event management
Aviva is included in the DJSI World and STOXX indices and is also a member of the FTSE4Good index series.
In addition we enhanced our capital position through our highly successful £1.6 billion subordinated debt issue in September. This issue was significantly oversubscribed due to high demand from investors.
Philip Twyman Group Executive Director £m £m £m £m of goodwill and exceptional items 1,555 1,524 – –
Proposed ordinary dividend per share *The wealth management result has been included within non-insurance result in all periods.
The UK insurance industry is entering a period of unprecedented change, with further developments in regulatory, solvency capital and corporate governance requirements. This is in addition to the requirement to report under International Financial Reporting Standards (“IFRS”) for financial years starting 1 January 2005 onwards.
We welcome many of these changes as we believe they will enhance corporate accountability, improve transparency and increase the prospects for stable financial markets, albeit at a significant cost. Aviva is well-advanced in its preparations for these new requirements, with strong corporate governance principles already being integral parts of the group’s operating model.
In anticipation of these changes we have invested £60 million into our global finance transformation programme during the year. The group will continue to make a significant investment in this programme over the next two years to 2005 to improve the quality and effectiveness of our global finance systems and processes.
• Achieving a combined operating ratio (COR), on general insurance business, of 102% across the underwriting cycle.
Basis of preparation The accounts have been prepared on the modified statutory basis, with supplementary information using the achieved profit basis. The main difference between the two methods is that the achieved profit basis measures the economic profit on insurance contracts at the point of sale, whereas the
modified statutory basis measures profits that can be distributed to shareholders.
The modified statutory solvency basis of reporting is required by statute. The statutory operating profit excludes amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items.
Accounting policies Other than the change in balance sheet reporting arising from adopting the ABI SORP early, there have been no significant changes in accounting policies required for the preparation of the 2003 accounts.
This profit corresponds to an improvement in the normalised post-tax return from continuing operations on opening equity capital to 12.7% (2002: 9.7%). This continues the steady increase in total return on equity capital achieved over the last four years.
(49) (57) (49) (57) Net loss on the disposal of subsidiary undertakings (6) (4) (6) (4) Exceptional costs for termination of operations (19) – (19) –
Operating profit before tax Short-term fluctuation in investment return Variation from longer-term investment return Effect of economic assumption changes Change in the equalisation provision
Profit/(loss) on ordinary activities before tax Tax Profit/(loss) on ordinary activities after tax Minority interests and preference dividends Profit/(loss) for the financial year attributable to equity shareholders Ordinary dividends Retained profit/(loss) Earnings per share attributable to equity shareholders – achieved profit basis *Pre-tax operating profit before amortisation of goodwill and exceptional items, in respect of continuing operations. The modified statutory solvency operating earnings is also stated before the amortisation of acquired additional value of in-force long-term business.
Profit and loss account – modified statutory basis (see figure 2) The group reported a profit on ordinary activities before tax on a modified statutory basis of £1,390 million (2002: £282 million loss). The improvement arose primarily as a result of the surplus of £83 million (2002: £1,184 million shortfall) in the actual investment return compared to the group’s longer-term assumptions. This arises from the
Financial review continued unrealised gains on equities held by the group’s non-life operations and reflects the partial recovery in global equity markets.
Retained profit post-ordinary dividend on a modified statutory basis improved significantly during the year to £387 million (2002: £1,070 million retained loss).
Ordinary dividends The directors establish the appropriate level for dividends with reference to the longer-term trend in business performance, keeping in mind the need to retain earnings to fund future growth. Total ordinary dividends for 2003 were £545 million (2002: £519 million) representing an increase of 5% to 24.15 pence net per share (2002: 23 pence net per share).
Annualised and loss savings savings costs account £m £m £m £m the profit Earned One-off
In 2003 we announced a series of job reductions across our UK life and general insurance operations and a total of 3,700 new jobs in India to service the Group’s UK life and general insurance businesses and our general insurance operations in Canada. In 2003, total upfront costs incurred on these initiatives were £66 million with an equivalent amount in 2004.
The realisation of the actions announced in 2003 will deliver estimated annualised gross savings of £250 million in 2005.
Net pre-tax profit and loss benefit by business unit (figure 3) Benefit to the
Expected return on shareholders’ net worth 300 324 Life achieved operating profit 1,555 1,524 *In 2003, operating assumption changes included the impact of reducing risk margins in Poland, the US and Australia in line with the directors’ views of the risks associated with this in-force portfolio. The impact of this change was £27 million. In 2002, operating assumptions included the impact of reducing risk margins in the US. The impact of this change was £13 million.
UK France Ireland Netherlands (including Belgium and Luxembourg) Other Europe Canada Other international Continuing operations
Long-term savings On an annual premium equivalent (“APE”) basis (the sum of new regular premiums and one tenth of new single premiums) total new business sales were £2,506 million (2002: £2,488 million). This reflects a fall in sales of primarily with-profit bonds in the UK and Ireland. This has been offset by continuing strong sales through our bancassurance operations, particularly in Spain and Italy, and in the Netherlands with our new agreement with ABN AMRO. Bancassurance sales accounted for 23% of life and pension sales on an APE basis in 2003.
We have two main measures for performance in sales – volumes (as measured by APE) and contribution (being the total economic value added based on sales volumes).
New business contribution amounted to £621 million (see figure 4) for the year with strong growth in Spain and the Netherlands offsetting a fall in the UK which is largely attributed to lower volumes. Lower new business contribution in both France and Ireland reflected the changes in business mix.
In the UK, we have continued to focus on strict pricing disciplines particularly for annuities and pensions. The beneficial impact on margins (see figure 5) of pricing and cost control initiatives were offset by the impact of changes in economic assumptions resulting in a lower UK new business margin. Strengthened new business margins in Spain reflected our focus on sales of higher margin protection products in the second half of 2003. Margins in the Netherlands benefited from our new joint venture with ABN AMRO.
Long-term savings: modified statutory operating profit On a modified statutory basis, the profit from long-term business operations before tax was £1,138 million (2002: £1,022 million). The increase is largely attributed to an improvement in the results from our European business, principally France, Poland and Spain benefiting from the recovery in economic market conditions and the outcome of normal year end reserving reviews. Offsetting this was a fall in the UK result driven by lower annual and final bonus rates to our with-profit policyholders.
General Insurance Worldwide general insurance net premium income, from continuing operations, increased to £8,524 million (2002: £7,805 million) reflecting strong rating actions particularly in our commercial lines.
Although market conditions have remained favourable, the achievement of 100% (2002: 102%) COR (see figure 7) at a group level is an excellent result. The results include the benefit of favourable weather-related claims in the year and although this was partially offset by a small increase in UK subsidence costs, we saw a net benefit of £40 million.
The COR in Canada was impacted by £70 million charged in the first half of 2003 relating to the prior year adjustment to claims case reserves in our Canadian subsidiary, Pilot. Excluding this item, the Canada COR was 101%.
Financial review continued There is naturally a degree of uncertainty around the ultimate settlement costs of claims. Claims reserves are calculated within a range of possible outcomes. Our actuarial analysis suggests that our claims reserves across the Group are now extremely strong, which in the UK enables us to raise the net retention on our UK catastrophe reinsurance program by at least £50 million.
Fund management: operating profit Our UK fund management business comprises Morley Fund Management, a retail and institutional business, a retail investment operation operating as Norwich Union and our new collective investments business with RBSG. The combined UK operations reported a loss of £6 million (2002: loss of £12 million). Morley’s combined UK operations reported a profit of £3 million (2002: £4 million), while our UK retail business
Corporate costs (see figure 9) Corporate costs were lower in the year at £160 million (2002: £218 million) due to costs arising from bonus plans and staff share schemes being allocated to business operations with effect from 1 January 2003.
Prudential regulation One of the most significant changes in the regulatory environment will be the introduction of the Financial Services Authority’s (“FSA”) Prudential Sourcebook (PSB) which defines the approach for risk-based regulation. The group is a leading participant in the industry’s dialogue with the FSA to ensure these reforms meet the requirements of the industry.
Key to the new regime will be the introduction of Enhanced Capital Requirements (ECR). This is likely to increase the levels of capital required to support our UK general insurance businesses and consequently the capital requirement of the Aviva group. Given Aviva’s strong capital position it is well placed to respond to these requirements.
Further proposals outline new requirements regarding realistic solvency for UK life insurers. These proposals are further advanced than those for general insurance and we are confident that NU Life’s realistic solvency position is robust under the proposed rules.
International Financial Reporting Standards (IFRS) The European Union requires all European listed groups to prepare their consolidated financial statements using standards issued by the International Accounting Standards Board (“IASB”) with effect from 1 January 2005.
The Aviva group’s consolidated accounts for 2005 will therefore be prepared under IFRS, rather than UK GAAP. Comparative figures will be required for 2004, together with reconciliations of income and shareholders’ equity to the previously-reported UK GAAP figures.
Capital management Shareholders’ funds on an achieved basis have increased to £11,165 million (2002: £9,668 million) largely reflecting the strong operational performance and the benefit of the euro appreciation. This corresponds to a net asset value per ordinary share of 502 pence (2002: 433 pence per share) after adding back the equalisation provision of £364 million (2002: £314 million).
Capital employed (see figure 11) The group maintains an efficient capital structure from a combination of equity shareholders’ funds, preference capital, subordinated debt and borrowings, consistent with the group’s risk profile and the regulatory and market requirements of its business. The group presents its capital disclosures on an achieved profit basis as this is the basis on which we measure our performance against key performance indicators.
The group’s capital has been allocated such that the capital employed by trading operations is some £5.6 billion (2002: £5.7 billion) greater than the capital provided by its shareholders and its subordinated debtholders. The group is therefore able to earn enhanced returns on its equity capital.
At 31 December 2003, total capital employed in our long-term savings operations was higher, predominantly reflecting an increase in the future value of in-force business. The total capital employed in our general insurance businesses increased due to the impact of stronger equity markets on the asset base and the beneficial impact of foreign exchange rate movements.
The group also has a number of internal debt arrangements in place. These have allowed the assets supporting technical liabilities to be invested into the pool of central capital for use across the group. They have also enabled the shareholders to deploy cash from some parts of the business to others in order to fund growth. Although intra-group loans in nature, they are counted as part of the capital base for the purpose of capital management. All internal loans have been negotiated on a basis that satisfies arm’s length criteria and all interest payments have been made when due. Internal debt increased in 2003 as a result of the formalisation of intra group arrangements, offset by the use of corporate assets to satisfy the final instalment of the Berkshire Hathaway premium of £0.5 billion in early January.
The ratio of the group’s external debt to shareholders’ funds was 12% (2002: 18%). Interest cover, measuring the extent to which external interest costs are covered by achieved operating profit, was 19 times (2002: 14 times).
This reflects strong operating results, following cost reductions and improved operational efficiency.
At this time there is no single measure of capital strength and resilience so we report on the mandatory measures as well as our own risk-based measures.
EU Group’s Directive Aviva group had an estimated excess regulatory capital, as measured on the new EU Group’s Directive, of some £2.4 billion at 31 December 2003 (2002: £0.7 billion) including the benefit of £1.6 billion of subordinated debt issued in 2003. This measure represents the excess of the aggregate value of regulatory capital employed in our business over the aggregate minimum solvency requirements imposed by local regulators excluding the surplus held in the group’s UK and Irish life funds.
General insurance – regulatory basis Our principal UK general insurance regulated subsidiaries are CGU International Insurance plc (CGUII) and Norwich Union Insurance (NUI). CGUII is the parent company of the majority of the group’s overseas life and general insurance subsidiaries.
General insurance – realistic basis Capital requirements for the Group’s worldwide general insurance businesses are assessed using risk based capital techniques and results were published for the first time in 2002. Calculations have been reviewed to reflect recent trends including increasing strength of the general insurance business balance sheets and improving stability and continuing reductions achieved in the combined operating ratios, producing a revised risk based capital requirement of 34% of net written premiums (2002: 36%).
With-profit funds - realistic basis We measure our realistic strength by the value of the orphan estate. The estate provides a level of capital that is available to absorb any unexpected short-term impact from adverse experience. It provides a level of investment freedom to improve policyholder returns and enables the operation of the with-profit business and associated features of guarantees and smoothing.
Results below have been calculated in line with the key principles of CP 195, for CGNU, CULAC and for the realistic orphan estate of NUL&P. This makes appropriate allowance for all realistic liabilities of the with-profits fund, including provision for future bonus, the fair value of guarantees, options and provisions on a market consistent basis and the cost of shareholder transfers and tax associated with future bonus. The estimated value of these is £4.9 billion.
Non-profit funds – statutory basis The FAR for NUL&P includes implicit items for non-profit business only. The realistic orphan estate is quoted before any Risk Capital Margin (RCM). The FSA is currently consulting on proposals for an appropriate RCM for with-profit business. Based on current guidelines the RCM is more than 2.5 times covered by the orphan estate in aggregate.
Opening Normalised equity after-tax capital Return on Return on return restated capital1 capital1
1,346 10,411 12.9 9.9 Minority interests (131) (743) 17.6 12.7 Preference capital (17) (200) 8.5 8.5 Total continuing operations 1,198 9,468 12.7 9.7 Discontinued operations – Australia and New Zealand – – – 20.2 Equity shareholders’ funds 1,198 9,468 12.7 10.1 1. The return on capital is calculated as the after tax return on opening equity capital, based on operating profit, including life achieved profit, before amortisation of goodwill and exceptional items.
Financial risks Details of the group’s processes for managing financial risks are provided below.
The group’s net assets and, to a more limited extent its solvency, are exposed to movements in exchange rates. The group’s FX policy is to manage these exposures by aligning the deployment of capital by currency, with the group’s capital requirement by currency. Limits are set to control the extent to which the deployment of capital is not aligned fully with the group’s capital requirement, for each major currency. Currency borrowings and derivatives are used to ensure that exposures are managed within the limits that have been set.
Reinsurance is actively used to limit insurance risk and capital requirements in the inherently volatile general insurance business and in particular is a key tool in managing our catastrophe exposure. The group maintains a reinsurance retention of £250 million for a single catastrophic event covering more than one country in Europe. This cover protects the net retentions of our individual business units which have their own reinsurance programmes in place.
Conclusion Overall, Aviva has sound financial management policies and systems managed by committed and professional people. Three years of very difficult markets have tested them to the full. This report illustrates how well we have passed these tests and shows why we need to continue to invest in our systems and professional people.
2. Richard Harvey FIA (53) Group Chief Executive Appointed group chief executive in April 2001. Joined Norwich Union in 1992, holding senior positions in New Zealand and the United Kingdom before joining the Norwich Union board in 1995 and becoming group chief executive of Norwich Union in 1998. Chairman of the Association of British Insurers. Member of the nomination committee.
5. Guillermo de la Dehesa (62) Independent non-executive director Appointed to the board in May 2000. Joined the board of Norwich Union as a non-executive director in 1999. Currently non-executive chairman of Aviva’s operations in Spain, non-executive vice-chairman of Goldman Sachs Europe (banking) and a director of Campofrio (consumer), Unión Eléctrica Fenosa (utility), Bank Santander Central Hispano (banking) and Telepizza (consumer). Former chief executive and director of Banco Pastor (banking). A former deputy governor of the International Monetary Fund and the World Bank and a former deputy general manager of the Bank of Spain and former Secretary of State of Finance in Spain. Member of the audit and nomination committees.
7. Carole Piwnica LLM (46) Independent non-executive director Appointed to the board in May 2003. Currently non-executive vice-chairman, governmental affairs, Tate & Lyle plc (agriculture/industrial) and non-executive director of SA Spadel NV (mineral water). A former chairman of Amylum Group (agriculture/industrial). A member of the New York and Paris bars, practicing law in Europe and the United States specialising in mergers and acquisitions, and EU regulatory matters. Member of the audit committee.
8. Philip Scott FIA (50) Executive director Appointed to the board in May 2000. Joined Norwich Union in 1973, held a number of senior positions and was appointed to the board of Norwich Union in 1993. Former chief executive and executive chairman of Norwich Union Life (Aviva’s life assurance and long-term savings business in the United Kingdom). Currently responsible for the group’s continental European and international life assurance and longterm savings business.
9. Patrick Snowball (53) Executive director Appointed to the board in March 2001 as chief executive of Norwich Union Insurance (Aviva’s general insurance operation in the United Kingdom). Previously a director of Norwich Union, appointed in October 1999, having joined that company in 1989. Currently responsible for the group’s worldwide general insurance operations and the provision of shared services across the United Kingdom.
11. Philip Twyman FIA, FIAA (59) Executive director Appointed to the board in June 1998. Joined the board of General Accident in 1996 as executive director responsible for finance, life and investment operations. Currently the director responsible for Aviva’s finance and fund management operations. Mr Twyman will retire in March 2004.
13. André Villeneuve (59) Independent non-executive director Appointed to the board in 1996. Non-executive chairman of Euronext Liffe (financial services), a non-executive director of United Technologies Corporation (aerospace) and a director of the Institut Francais de Relations Internationales. A former executive chairman of Instinet Corporation (securities broker), a former executive director of Reuters plc (media) and a former chairman of Promethee. Member of the remuneration and nomination committees.
Directors’ report Corporate governance 62 Reconciliation of Group operating profit to profit on ordinary activities 44 Audit Committee report before tax 46 46
Nomination Committee report Chairman's Committee report 63 Consolidated statement of total recognised gains and losses 47 Directors’ remuneration report 63 Reconciliation of movements in 55 56
Independent auditors’ report Accounting policies consolidated shareholders’ funds 64 Consolidated Group balance sheet 59 Consolidated profit and loss account 66 Consolidated cash flow statement Technical account – long-term business 67 Company balance sheet 68 Notes to the accounts 60 Consolidated profit and loss account 101 Five year review 61 Technical account – general business Consolidated profit and loss account 102 Alternative method of reporting long-term business
The directors submit their report and accounts for Aviva plc, together with the consolidated accounts of the Aviva Group of companies, for the year ended 31 December 2003.
Principal activities Aviva plc is the holding company of the Aviva Group of companies, which transacts life assurance (other than industrial life) and long-term savings business, fund management and all classes of general insurance through its subsidiaries, associates and branches in the United Kingdom, continental Europe and Ireland, North America, Asia, Australia and other countries throughout the world.
Results The Group results for the year are shown in the Consolidated profit and loss account on pages 59 to 61.
Authority to purchase own shares At the Annual General Meeting held on 7 May 2003, members renewed the Company’s authority to make market purchases of up to 225 million ordinary shares, up to 100 million 83⁄4% preference shares and up to 100 million 83⁄8% preference shares. This authority was not used during the year and at the forthcoming Annual General Meeting shareholders will be asked to renew these authorities for another year. Details are contained in the Notice of Meeting.
Sir Michael Partridge retired at the Annual General Meeting on 7 May 2003 and Tony Wyand retired from the Board on 31 July 2003 and from service on 30 November 2003 upon reaching his normal retirement age. Mike Biggs resigned as a director on 31 December 2003.
Directors’ interests Details of directors’ interests in the shares of the Company are set out in the Remuneration report on page 54.
Substantial shareholdings As at 24 February 2004, the Company’s register of substantial shareholdings maintained in accordance with the provisions of Section 211 of the Companies Act 1985 showed that the holdings exceeding the 3% disclosure threshold were those of Barclays Plc which held 91,056,515 ordinary shares, representing an interest of 4.03%, Legal & General Group Plc which held 83,729,729 ordinary shares, representing an interest of 3.70% and Fidelity Investments which held 74,856,224 ordinary shares, representing an interest of 3.32% of the issued ordinary share capital of the Company.
Corporate governance The Company’s statement on corporate governance is set out on pages 41 to 43.
Group employees The Group is committed to continuing communication and dialogue with employees. It believes there is a strong link between informed, motivated staff and operational effectiveness. News from business units and the Group is provided using a variety of media. For example, employees across the Group can listen to regular Aviva Radio newscasts on major developments. Arena, the Group-wide intranet, provides a daily source of information on strategic and operational issues. Local intranets provide a route for staff publicly to raise issues of interest and concern. These approaches all contribute to a better quality of dialogue. However, the fundamental communication and feedback tool remains face-to-face briefings. Staff report regularly in surveys that this is how they prefer to hear key messages.
In addition, employees are encouraged to say how they view the Company and their employment through confidential staff opinion surveys. Results are fed back to staff and action plans are put in place to address concerns. Through their participation, staff help to shape future employment developments. Regular discussions also take place with the staff representative bodies, where appropriate.
The Group’s operations in the United Kingdom have established employee career and recognition frameworks, which draw together Aviva values, competencies, and performance management systems. These are linked to appropriate rewards and benefits. At the 2001 Annual General Meeting, shareholders approved the establishment of an All Employee Share Ownership Plan as a way for employees to participate further in the Group’s fortunes through share ownership. The Group operates two elements of the plan in the United Kingdom. The partnership element allows eligible employees to purchase Aviva shares at the prevailing market price from their pre­ tax income. The second element enables staff to receive free shares, at the Board’s discretion, based on the performance of the Company’s operations in the United Kingdom. The Group also operates a savings related share option scheme, which provides employees with an opportunity to save over a fixed period and acquire share options at a discount.
Respecting the guidelines issued by the Association of British Insurers, the governance of Aviva’s CSR programme is subject to both a regular schedule and continual review. High level progress is reviewed internally throughout the year by a CSR Steering Group which includes senior executives from the Group’s principal businesses. The Board examines progress and plans annually. The Group’s businesses undertake a self assessment of their performance annually which is subject to an external assurance review every year.
Charitable donations Aviva has continued to support community initiatives and charitable causes worldwide and the total Group commitment during the year was £4.6 million (2002: £5.9 million).
In 2003, the Group’s community investment in the United Kingdom, as measured using the Business in the Community’s benchmarking template, totalled £3.2 million (2002: £4.9 million) of which £1.3 million (2002: £2.3 million) was direct donations to charitable organisations. The Company’s policy regarding charitable giving in the United Kingdom is to support local charities and community organisations particularly in the areas of the country in which the Group has major operations. In addition, it provides a significant level of support to a small number of national charities. During 2003, these included Cruse Bereavement Care, The Princess Royal Trust for Carers, Breakthrough Breast Cancer, The Lymphoma Association and Multiple Sclerosis.
Political donations No political donations were made in the United Kingdom or elsewhere during the year (2002: £nil). It is the Company’s policy not to make donations to political organisations or for political causes, and it has no intention of changing this policy.
At the 2003 Annual General Meeting, shareholders passed a resolution authorising the Board to make expenditure, up to an aggregate limit of £100,000, on activities which fall under the Political Parties, Elections and Referendums Act (PPER). This piece of legislation introduced a very broad definition of EU political expenditure in the European Union, such that some of the activities undertaken throughout the Group’s businesses in the EU could now fall within that definition.
There is a requirement for companies to seek shareholders’ approval for expenditure falling under the PPER and therefore, at the forthcoming Annual General Meeting, shareholders will be asked to renew the authority to permit political expenditure, as defined by the PPER, up to £100,000 per annum. The Board does not believe that the Group has made any EU political expenditure in the past year. However, in view of the broad definitions contained in the PPER, it is seeking to renew the authority so as to avoid any inadvertent breaches of the legislation. Further clarification on this issue can be found in the Notice of Meeting for the Annual General Meeting which accompanies this report.
Auditor In accordance with Section 385 of the Companies Act 1985, a resolution is to be proposed at the Annual General Meeting for the reappointment of Ernst & Young LLP as auditor of the Company.
Against the above background Aviva announced in May 2003 the appointment of two new independent non-executive directors. Anna Catalano has a background in marketing and brand development and is a Mandarin speaker with experience of managing operations in China, a country where the Group has a new and expanding life assurance business. Carole Piwnica is a non-executive director of Tate & Lyle plc and a member of the New York and Paris bars and practices law in the United States and Europe specialising in mergers and acquisitions, and EU regulatory matters. These new directors bring additional diversity to the Board in terms of skill, international perspective and age. In accordance with the Company’s articles of association Anna Catalano and Carole Piwnica will stand for election by shareholders at the Annual General Meeting.
Philip Scott and Patrick Snowball, being respectively the executive directors responsible for the Group’s continental European and international life assurance and long-term savings business, and the Group’s worldwide general insurance operations, will also retire at the Annual General Meeting and offer themselves for re-election.
To ensure that the non-executive directors are able to exercise an independence of judgement, the Nomination Committee undertakes an annual review of directors’ interests in which all potential or perceived conflicts and issues relevant to their independence and commitment are considered. Based on the December 2003 review, the Board has agreed that all of the current non-executive directors are independent of management and free from any relationship or circumstances that could affect, or appear to affect, the exercise of their independent judgement. The Board is also satisfied that the non-executive directors are able to devote sufficient time to their duties to the Company.
The principal commitments of the directors are summarised in the biographical details on pages 36 and 37. Pehr Gyllenhammar resigned as a senior adviser to Lazard Freres in July 2003 and was appointed Vice Chairman, Europe at Rothschild in September 2003. This change has had no effect on his time commitment to the Company.
Directors are fully briefed in advance of Board and committee meetings on all matters to be discussed and, at Board meetings, directors receive regular reports on the Group’s financial position, key areas of the Group’s business operations and other material issues.
The Company has an established formal performance review process to assess how well the Board, its committees and directors are performing. The process is conducted over a two year period. Directors complete, in confidence, a detailed questionnaire in which they assess Board and committees’ processes and their effectiveness and suggest areas where such may be improved. The completed questionnaires are returned to the Group Company Secretary who prepares a report for the Chairman and feedback for the Board. The following year interviews take place between each individual director and the Chairman in which a range of issues, including their own and other directors’ performance are discussed. The conclusions of the process are fed back to the Board. As part of this process the Chairman leaves the Board meeting whilst the directors, under the chairmanship of the senior independent non-executive director, discuss the performance of the Chairman. The next review is due to be undertaken in Spring 2004 when the Board will also consider its current practice in line with the Combined Code.
Relations with shareholders The Company places considerable importance on communication with shareholders and engages with them on a wide range of issues. As and when considered appropriate, the Company seeks the views of major investors, particularly on remuneration issues, both directly and through consultation with the Association of British Insurers. The Company’s Investor Relations Department is dedicated to facilitating communication with institutional investors. The Group has an ongoing programme of dialogue and meetings between the executive directors and its major institutional shareholders, where a wide range of relevant issues including strategy, performance, management and governance are discussed within the constraints of the information already known to the market. During the year, the Chairman met with a number of major shareholders. For 2004, arrangements have been made, in accordance with the best practice recommendations set out in the revised Combined Code, for the senior independent non-executive director to attend meetings with shareholders in order to gain a fuller understanding of shareholders’ issues and to make the other members of the Board aware of these.
Morley operates a Corporate Governance and Voting Policy in respect of the voting rights it holds in United Kingdom companies and always votes its shares in line with that policy unless clients instruct otherwise. The policy also extends to cover social, environmental and ethical issues. Details of how Morley’s voting discretion has been used on any particular issue are available to clients upon request. In addition, Morley engages with the management of the companies in which it invests on contentious matters, and its policy is applied flexibly after careful consideration of all relevant information.
The directors are responsible for maintaining proper accounting records which are intended to disclose with reasonable accuracy at any time the financial position of the Company and the Group. They are also ultimately responsible for the systems of internal control maintained by the Group for safeguarding the assets of the Company and the Group and for the prevention and detection of fraud and other irregularities. Further details of the systems of internal controls maintained by the Group are more fully described in the report of the Audit Committee on page 44.
This report provides details of the role of the Audit Committee and the work it has undertaken during the year.
The purpose of the Committee is to assist the Board in discharging its responsibilities for the integrity of the Company’s financial announcements, the assessment of the effectiveness of the systems of risk management, internal control and regulatory compliance and to oversee the objectivity and effectiveness of the internal and external auditors. A copy of the Committee’s terms of reference is available from the Group Company Secretary and can be viewed on the Company’s website.
The Committee met on four occasions during the year and all members attended each meeting.
The Group Finance Director, Group Business Risk Director (Head of Internal Audit), Group Company Secretary and external auditor normally attend, by invitation, all meetings of the Committee. Other senior members of management are also invited to attend meetings in order to present reports to the Committee as necessary. In undertaking its duties, the Committee has access to the services of the Group Business Risk Director and the Group Company Secretary and their resources, as well as access to external professional advice.
With effect from 2004, the Committee will, in line with the recommendations contained in the revised Combined Code, undertake an annual review covering the effectiveness of both the internal audit function and the external audit process.
During the year, the Committee, acting on behalf of the Board, has reviewed the effectiveness of the framework for the Group’s systems of internal control and has received regular reports on the status of major finance systems development projects. In the Board’s view, the information received was sufficient to enable it to review the effectiveness of the Group’s systems of internal control in accordance with the Guidance on Internal Control (the Turnbull Guidance). The principal features of the control framework are as follows: Control environment The Group has an established governance framework. The key features of the control environment within the framework include: the terms of reference for the Board and each of its committees; a clear organisational structure, with documented delegation of authority from the Board to executive management; a Group policy framework, which sets out risk management and control standards for the Group’s operations worldwide; and defined procedures for the approval of major transactions and capital allocation. The Group is also preparing for future changes to the regulatory regime impacting on governance. In particular, the Group has an established plan in place to implement the Prudential Sourcebook, which is the Financial Services Authority’s new risk-based framework for integrating and embedding risk and capital management.
Control procedures and monitoring systems The Group has a well-developed system of planning and monitoring, which incorporates Board approval of a rolling three year Group Plan. Performance against the Plan is subsequently monitored and reported to the Board each time it meets. This report also includes reports on risk, audit, compliance, solvency and liquidity. Performance is also reported formally through the publication of Group results, and accounting policies are applied consistently throughout the Group. Operational management report frequently to the executive directors and the Board receives regular representations from management responsible for each principal business operation.
This report was reviewed and approved by the Board on 24 February 2004.
The Committee comprises the following directors, appointed by the Board: Pehr Gyllenhammar (Chairman) Guillermo de la Dehesa Richard Harvey Elizabeth Vallance André Villeneuve* *Appointed a member of the Committee in September 2003.
In 2003 the Committee met on six occasions and all the members recorded a full attendance other than Guillermo de la Dehesa and Richard Harvey who were absent from three, and one, meeting respectively.
This report provides details of the role of the Chairman’s Committee and the work it has undertaken during the year.
The Remuneration Committee The Remuneration Committee comprises the following independent non-executive directors, appointed by the Board: George Paul (Chairman)
The Committee considers all aspects of remuneration paid to the Group’s senior executives, and makes recommendations to the Board on the remuneration policy, strategy and framework for this group of employees. The remuneration policy is reviewed by the Committee on a regular basis to ensure that it remains appropriate within the market and for the achievement of its objectives. Within the scope of the policy, which is approved by the Board, the Committee determines the level of remuneration paid to each of the executive directors and the Chairman. The Committee also exercises discretion on behalf of the Board in relation to the operation of the Group’s various share schemes and incentive plans. A copy of the Committee’s terms of reference is available from the Group Company Secretary and can be viewed on the Company’s website.
Executive directors The Company’s remuneration policy seeks to provide remuneration packages appropriate for each particular market in which the Company operates, which attract and retain high calibre employees and encourage and reward superior performance in a manner which is consistent with the interests of shareholders. The policy is aimed at ensuring senior executives are rewarded fairly for their individual and collective contributions to the Company’s performance.
The Board’s philosophy is that the senior executives’ own interests should be aligned with those of the Company’s shareholders. It therefore believes that, whilst paying a competitive basic salary a substantial proportion of the targeted total remuneration package should be closely linked to the performance of the business and delivered in the form of shares. The policy seeks to provide an appropriate balance between the delivery of the annual business plan and the long-term profitable growth of the Company. The Board believes that the executive directors should build and maintain a personal stake in the equity of the Company and to this end, each director is required to defer 50%, and is encouraged through share matching to defer 100%, of their annual bonus into shares and is further required to retain these for three years. The share interests of the directors are set out on page 54.
The Committee continues to review and develop the remuneration policy in order to reflect market conditions and changes in best practice. No material changes have been made to the remuneration policy or packages during the year and none are planned in 2004. However, from 1 April 2004 those members of the defined benefit section of the Aviva Staff Pension Scheme, including the executive directors, who currently do not make a contribution will be required to contribute 2.5% pa of their gross pensionable salary, increasing to 5% pa from 1 April 2005. As mentioned above, a review of the senior executives’ remuneration practice will be undertaken in 2004, with any proposed changes taking effect from 1 April 2005. The review will include a response to the Government’s proposals on pension reform and the effect of those changes on the pension arrangements for the Group’s United Kingdom based senior executives.
It is the Company’s policy to set the fees paid to its non-executive directors at the median level for international companies of similar size and complexity. Non-executive directors receive a basic annual fee in respect of their Board and Board committee duties, with a further fee being paid to those directors (other than the Chairman and Deputy Chairman) who have the additional responsibility of chairing meetings of Board committees. These fees are reviewed, but not necessarily increased, annually and are set by the Board to attract individuals with the broad range of skills and experience appropriate for a major international company.
The basic fee payable to each non-executive director was increased from £38,000 pa to £42,000 pa from July 2003 and that payable to the chairman of the Audit Committee from £15,000 pa to £25,000 pa. The fee paid to the Chairman was increased from £275,000 pa to £300,000 pa from July 2003 and no increase was made to the Deputy Chairman’s fee of £160,000 which includes acting as chairman of the Remuneration Committee and as the senior independent non-executive director.
Cash/deferred bonus *For the purposes of this diagram, the following assumptions have been made: At “Target” performance – the annual bonus is 35% of basic pay and the executive director chooses to defer the whole of his bonus, which is matched. The Return on Capital Employed (ROCE) performance condition on the long-term incentive plan is met in full and the Company’s Total Shareholder Return (TSR) position is median, resulting in the vesting of 50% of the shares awarded. The share price growth during the three-year performance/deferral period averages 5% per year.
At “Stretch” performance – the annual bonus is the maximum 50% of basic pay and the executive director chooses to defer the whole of his bonus, which is matched. The ROCE performance condition on the long-term incentive plan is met in full and the Company’s TSR position is upper decile, resulting in the vesting of 100% of the shares awarded. The share price growth during the three-year performance/deferral period averages 10% per year.
When reviewing basic salaries the Committee takes into account both market data and each senior executive’s performance. The Company’s policy is to set basic salaries for competent performance at the median level. Salaries are targeted towards the upper quartile for those executives who display sustained superior performance.
A fundamental part of the annual bonus plan is the requirement that a stated proportion of any cash bonus awarded under the plan be taken in the form of shares through the Deferred Bonus Plan. Executive directors are required to defer 50%, and may elect to defer up to 100%, of their cash bonus. In respect of bonuses deferred, participants are granted an award of shares of equal value to the amount of cash bonus deferred and this is matched on a “one for one“ basis with a further award of shares. The shares granted under the plan are held in trust and vest automatically after three years. Upon vesting the particpants are entitled to receive additional shares representing the dividends paid on the shares during the deferral period.
If a participant leaves service during the deferral period for reasons of ill-health, retirement or redundancy, the matching shares are released in full at the end of the deferral period. In all other cases, the matching shares normally lapse.
Long-term incentives The Aviva Long Term Incentive Plan is a discretionary share plan. It is the Committee’s policy to make an annual award of shares to executive directors with a value equal to 100% of their basic salary as at 31 December of the previous year.
Achievement of median TSR performance within the comparator group triggers the vesting of 20% of the shares, which rises to 70% if the Company’s performance is in the upper decile of the comparator group. Recognising the Company’s position as one of the largest providers of life and pension products in Europe, the comparator group for the TSR part of the plan comprises 19 European financial services companies, namely – Abbey, AEGON, Allianz, AXA, Barclays, CNP Assurances, Ergo, Fortis, HBOS, HSBC, ING, Legal & General, Lloyds TSB, Prudential, Royal Bank of Scotland, Royal & Sun Alliance, Skandia, Swiss Life and Zurich.
The other 30% of the award vests if the Company achieves a given return in excess of inflation on the ROCE over the three-year performance period. Awards under this performance condition will begin to vest if the cumulative ROCE over the performance period is 24% in excess of the rate of inflation, with the full 30% vesting if the ROCE is 30%, or higher.
If the performance targets have not been met at all at the end of the three year performance period they will be retested at the end of five years, the ROCE performance condition being adjusted accordingly (i.e. the cumulative ROCE would need to be at least 40% in excess of the rate of inflation over the extended performance period for any awards under that part of the plan to vest).
The following graph compares the TSR performance of the Company with the TSR of the FTSE 100 index. The period covered is the four years since the beginning of 2000, the year in which CGU and Norwich Union merged to form Aviva. The graph also includes the median TSR of the companies in the comparator group which is included as it is the group with which performance is measured for the purposes of the Long Term Incentive Plan.
In addition to the benefits described above, senior executives are entitled to the benefit of a company car allowance and private medical insurance.
The Company operates a number of Inland Revenue approved allemployee share plans in the United Kingdom. Senior executives are entitled to participate in these plans on the same basis as other eligible employees. These include the Free Share element of the Aviva All-Employee Share Ownership Plan (AESOP). Under this plan, eligible employees can receive up to a maximum of £3,000 pa in the form of shares from the profits of the Company, free of tax, subject to a retention period. The Partnership element of the AESOP allows participants to invest up to £125 per month out of their gross salary in the Company’s shares.
In respect of the early termination of a service contract, the Company would, depending upon the circumstances, either seek to make a payment in respect of damages less an amount for appropriate mitigation, or would invoke a provision in the service contract allowing it to terminate the contract by making a payment of one year’s basic salary in lieu of notice.
Under the Company’s discretionary redundancy arrangements, which apply to United Kingdom based employees, an executive director may, depending on his length of service, receive an ex gratia payment of up to one year’s basic salary should he leave employment on the grounds of redundancy. No special arrangements would apply should there be a change in the control of the Company.
During the year, the Committee reviewed the terms of the service contracts and except in a few areas, the current contracts comply with much of what has come to be regarded as best practice. In respect of appointments made following the review, the contracts include provisions to allow the Company to phase any termination payments over a 12 month period and include a specific requirement for employees to mitigate their losses. It is the Company’s policy to notify to the market the terms offered to executive directors upon appointment.
This section of the report on pages 50 to 54 (which has been subject to audit) sets out the remuneration paid to the directors during the year to 31 December 2003.
The remuneration payable, in respect of 2003 to directors who held office for any part of the financial year, including amounts paid to them as directors of subsidiary undertakings, was as follows: Basic salary Bonuses1 Benefits2 Incentive plans3
Executive directors Mike Biggs5 459 437 191 163 84 147 – 257 734 1,004 Richard Harvey 718 691 312 258 67 70 – 402 1,097 1,421 Philip Scott 459 437 183 163 43 136 – 262 685 998 Patrick Snowball 420 376 212 145 21 17 – 207 653 745 Philip Twyman 466 451 192 178 53 16 – 143 711 788 Tony Wyand*7 285 476 124 181 13 21 – 195 422 873
Anna Catalano** 27 – – – – – – – 27 – Guillermo de la Dehesa 64 68 – – – – – – 64 68 Wim Dik 40 38 – – – – – – 40 38 Sir Michael Partridge* 13 38 – – – – – – 13 38 George Paul 160 160 – – – – – – 160 160 Carole Piwnica** 27 – – – – – – – 27 – Derek Stevens 70 63 – – – – – – 70 63 Elizabeth Vallance 40 38 – – – – – – 40 38 André Villeneuve 40 38 – – – – – – 40 38 *To the date of ceasing to be a director: Sir Michael Partridge – 7 May 2003; Tony Wyand – 31 July 2003.
(1) “Bonuses” include amounts earned under the Annual Bonus Plan (including amounts deferred under the Aviva Deferred Bonus Plan) in respect of performance in 2003, and the value of shares granted under the free share part of the Aviva All-Employee Share Ownership Plan in respect of 2003 performance.
(4) Non-executive directors. The benefits disclosed for Pehr Gyllenhammar refer to a car allowance. The fee for George Paul reflects his duties as Deputy Chairman, which includes chairing the Remuneration Committee and acting as the senior independent non-executive director. The fee for Derek Stevens includes an additional amount for serving as the Chairman of the Board’s Audit Committee and of the trustee of the Aviva Staff Pension Scheme. The fee for Guillermo de la Dehesa includes an amount for serving as the non-executive Chairman of the Group’s operations in Spain. No non-executive director accrued retirement benefits during the year.
(5) No compensation for loss of office was made to any director, or former director, during the year and no compensation for such will be paid to Mr Biggs who resigned with effect from 31 December 2003.
(6) For the purposes of the disclosure required by Schedule 6 of the Companies Act 1985 the total aggregate emoluments of the directors in respect of 2003 was £5.1 million (2002: £6.6 million).
(7) Mr Wyand was the only executive director to serve on the board of an external company in a personal capacity during the year. He was a director of Grosvenor Estate Limited and during the year to his retirement from the Board on 31 July 2003 he received fees totalling £17,500.
Pension benefits During the year, each of the executive directors accumulated pension benefits under the defined benefits section of the Aviva Staff Pension Scheme, the Group’s pension scheme for its United Kingdom employees.
in pension Increase Transfer value of previous Increase Pension Increase 2003 column at Transfer value Transfer value of transfer
Age at accumulated in pension (net of 31 December of pension of pension value 31 December 2003 2003 inflation) 2003 2003 2002 2003
Mike Biggs Richard Harvey Philip Scott Patrick Snowball Philip Twyman Tony Wyand vi va p lc
Payments to former directors Mr Wyand retired from the Board on 31 July 2003 and served as an employee until 30 November 2003 when he retired at his normal retirement age. Between retiring from the Board and leaving service his remuneration including salary, bonuses and benefits was £241,711. Mr Wyand has agreed to serve as a consultant following his retirement and to join the boards of the Group’s operations in Spain, Italy and France. The terms of the consultancy arrangement are that the Company will pay a per diem rate for approximately 40 days per year, subject to a maximum payment of £120,000 pa. This agreement took effect from 1 January 2004.
Philip Twyman – Savings related options 1996 39,714 – – – 39,714 553.9 Aug 1999 – Aug 2006 1997 36,637 – – – 36,637 766.4 Aug 2000 – Aug 2007 1998 36,107 – – – 36,107 853.0 Dec 2001 – Dec 2008 1999 36,866 – – – 36,866 919.0 Aug 2002 – Aug 2009 2000 41,666 – – 37,083 4,583 960.0 Sep 2003 – Sep 2010
– Bonus Plan options 1999 3,824 – – – 3,824 966.5 July 2002 – July 2009 2000 4,259 – – – 4,259 875.0 Mar 2003 – Mar 2010
Closed plans “Executive options” are those granted to former CGU directors under the CGNU Executive Share Option Scheme, or predecessor schemes. Options, granted on various dates from 1994 to 2000, are normally exercisable between the third and tenth anniversaries of their date of grant. No options have been granted to executive directors under these schemes since 2000.
“Bonus Plan options” are the options granted in 1999 and 2000 under the CGU Deferred Bonus Plan. Participants who deferred their annual cash bonus and instead received an award of shares also received a matching award over an equivalent number of options. These options, which are not subject to performance conditions, are normally exercisable between the third and tenth anniversary of their grant.
The mid-market price of an ordinary share in the Company on 31 December 2003 was 490 pence, and the mid-market prices during the year ranged from 335 pence to 591 pence. No director exercised any options during the year and therefore no gains on such were made.
Share awards Details of the performance conditions relating to these awards are set out in the notes below: Market price Market price At At at date at date 1 January granted vesting 2003 during year during year during year 2003 granted vested
Richard Harvey Aviva Long Term Incentive Plan – 2000 107,988 – – – 107,988 960.0 – March 2005 – 2001 69,270 – – – 69,270 949.5 – March 2004 – 2002 86,814 – – – 86,814 739.0 – March 2005 – 2003 – 175,000 – – 175,000 379.5 – March 2006 Aviva Deferred Bonus Plan – 2001 50,530 – – – 50,530 949.5 – May 2004 – 2002 72,924 – – – 72,924 739.0 – March 2005 – 2003 – 127,750 – – 127,750 379.5 – March 2006
Philip Scott Aviva Long Term Incentive Plan – 2000 34,453 – – – 34,453 960.0 – March 2005 – 2001 38,541 – – – 38,541 949.5 – March 2004 – 2002 54,177 – – – 54,177 739.0 – March 2005 – 2003 – 111,250 – – 111,250 379.5 – March 2006 Aviva Deferred Bonus Plan – 2001 35,458 – – – 35,458 949.5 – May 2004 – 2002 44,424 – – – 44,424 739.0 – March 2005 – 2003 – 80,100 – – 80,100 379.5 – March 2006
Patrick Snowball Aviva Long Term Incentive Plan – 2000 24,682 – – – 24,682 960.0 – March 2005 – 2001 36,458 – – – 36,458 949.5 – March 2004 – 2002 45,691 – – – 45,691 739.0 – March 2005 – 2003 – 96,250 – – 96,250 379.5 – March 2006 Aviva Deferred Bonus Plan – 2001 16,888 – – – 16,888 949.5 – May 2004 – 2002 36,552 – – – 36,552 739.0 – March 2005 – 2003 – 35,612 – – 35,612 379.5 – March 2006
The interests held by each person who was a director at the end of the financial year in the ordinary shares of 25 pence each in the Company is shown below. The table also summarises the interests in shares held through the Company’s various share and incentive schemes. Details of the options, deferred bonus awards and long-term incentive awards are shown on pages 52 and 53.
**Awards held by Mike Biggs under the Long Term Incentive Plan lapsed on 1 January 2004 following his resignation taking effect on 31 December 2003. Based on the performance of Mr Biggs during his notice period, the Committee exercised its discretion to allow him to retain the benefits of his matched awards which will vest at the end of their deferral period.
(1) “Shares” are the directors’ interests in the ordinary shares of the Company. All the interests disclosed are beneficial interests. The table includes shares purchased by directors under the partnership element of the Company’s All Employee Share Ownership Plan (AESOP) and shares granted under the free share element of the AESOP and the employee profit sharing scheme.
(4) “Options” are options over shares granted under the CGNU Executive Share Option Scheme, CGU Deferred Bonus Plan or Save As You Earn share scheme. The exercise of some of these options is subject to the attainment of performance conditions.
Richard Harvey 62 George Paul 34 Philip Scott 45 Patrick Snowball 45
We have audited the Group’s accounts for the year ended 31 December 2003 which comprise the Accounting policies, the Consolidated profit and loss account, Reconciliation of Group operating profit to profit on ordinary activities before taxation, Consolidated statement of total recognised gains and losses, Reconciliation of movements in consolidated shareholders’ funds, Consolidated Group balance sheet, Consolidated cash flow statement and Company balance sheet, and the related notes 1 to 50. These accounts have been prepared on the basis of the accounting policies set out therein. We have also audited the information in the Directors’ remuneration report that is described as having been audited.
Our responsibility is to audit the accounts and the part of the Directors’ remuneration report to be audited in accordance with relevant legal and regulatory requirements, United Kingdom Auditing Standards and the Listing Rules of the Financial Services Authority.
Opinion In our opinion, the accounts give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2003 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985.
The profit and loss account for the year reflects all income, expenditure, and investment gains and losses, except certain items which are taken directly to reserves after tax. The items taken directly to reserves include exchange gains and losses on the net investment in foreign enterprises (except for certain items dealt with in the fund for future appropriations).
General business outstanding claims provisions are based on the estimated ultimate cost of all claims incurred but not settled at the balance sheet date, whether reported or not, together with related claims handling costs and a reduction for the expected value of salvage and other recoveries. Significant delays are experienced in the notification and settlement of certain general insurance claims, particularly in respect of liability business, including environmental and pollution exposures, the ultimate cost of which cannot be known with certainty at the balance sheet date. Provisions for certain claims are discounted using rates having regard to the returns generated by the assets supporting the liabilities. Any estimate represents a point within a range of possible outcomes. Further details of estimating techniques are given in note 39a.
F – Investment income and unrealised investment gains or losses Investment income consists of interest, dividends and rents receivable for the year, together with realised investment gains and losses. Interest includes the interest rate differential on forward foreign exchange contracts. Realised investment gains and losses represent the difference between the net sale proceeds and the cost of acquisition. Unrealised investment gains and losses represent the difference between the carrying value at the year end and the carrying value at the previous year end or purchase value during the year.
The balance on the long-term business technical account is computed net of the total tax attributable to that business. In order to present the profit on long-term business operations on a pre-tax basis, this net figure is grossed up at the long-term effective rate of tax borne by shareholders in respect of the underlying business. This shareholder tax add-back is included in the tax charge on the profit on ordinary activities in the non-technical account.
No provision is made for tax that might arise if profits retained by overseas subsidiary and associated undertakings were remitted to the United Kingdom, unless a binding agreement exists for the relevant undertaking to distribute those earnings in future.
J – Goodwill Goodwill arising on the acquisition of subsidiary undertakings is carried on the balance sheet as a separate intangible asset. Goodwill arising on the acquisition of associated undertakings is included within their carrying value. All goodwill is amortised on a straight-line basis over its useful economic life, and its carrying value is reviewed regularly for indications of impairment. On subsequent disposal of the underlying investment, any goodwill not yet amortised will be taken to the profit and loss account when calculating the profit or loss on disposal.
Goodwill arising before 1 January 1998 was eliminated against reserves and has not been reinstated. Goodwill previously written off to reserves will be taken back through the profit and loss account when calculating the profit or loss on any disposal of the underlying investment.
M – Consolidation of subsidiary undertakings The results of all material subsidiary undertakings are consolidated using audited accounts prepared to 31 December, either from 1 January or the effective date of acquisition. In the Company balance sheet, subsidiary undertakings are stated at current value which, for this purpose, is embedded value for life operations and net asset value for other entities.
The full embedded value of the long-term business and further details of the methodology and assumptions are included as supplementary information on pages 102 to 110.
Within the long-term business provision, explicit allowance is made for vested bonuses, including those added following the most recent fund valuation. The allowance for future bonuses depends on the methodology and is explained in note 38. The provisions held for linked business and unitised with-profits business are the unit liabilities together with certain non-unit provisions.
R – Subordinated debt and debenture loans Subordinated debt and borrowings issued at a discount are included in the balance sheets at their proceeds, net of other expenses, together with amortised discount to the balance sheet date. The discount, amortised on a compound basis, and expenses are charged to loan interest in the profit and loss account over the term of the relevant instrument.
V – Share-based compensation The Group offers share award and option plans over the Company’s ordinary shares for certain employees, including a Save As You Earn plan (“SAYE plan”), details of which are given in the Directors’ remuneration report on pages 47 to 54. Compensation costs for non-SAYE plans are based as a minimum on the market price of the shares at the time of grant, less any amounts paid or payable by employees in respect of the awards. These costs are charged to the profit and loss account over the periods during which the share awards or options are earned. Shares purchased by the employee share trusts to fund these awards are held in the balance sheet at cost and shown as a deduction from shareholders’ funds.
Until June 2003, for the SAYE plan, shares were issued to a qualifying share ownership trust, with the excess of the market price subscribed at the date of transfer by the trust over the nominal value being recorded in the Company’s share premium account. The difference between the market price at the date of transfer to the trust and exercise price payable by employees was charged to the Company’s profit and loss account or, in the consolidated Group accounts, directly to the profit and loss account reserve. After June 2003, shares are allotted directly to the employee to satisfy the obligations arising. In accordance with Urgent Issues Task Force Abstract 17 revised 2003 “Employee Share Schemes”, the Company has taken advantage of the exemptions contained therein in respect of such schemes and no charge is made to the profit and loss account for the discount to market value at which the options are granted.
28,077 Gross premiums written – continuing operations (6a) 19,373 18,330 (863) Outward reinsurance premiums (595) (457)
27,214 Written and earned premiums, net of reinsurance (B & 6a) 18,778 17,873 10,245 Unrealised gains on investments (F & 7a) 7,069 –
Change in long-term business provision (P) (5,229) Gross amount (3,608) (3,685)
(12,850) Change in technical provision for linked business, net of reinsurance (P) (8,866) 190
(3,012) Net operating expenses (9) (2,078) (2,061) (397) Investment expenses and charges (7a) (274) (270)
Balance on the long-term business technical account – continuing operations (G)
1,032 Balance on the long-term business technical account 712 610 403 Tax credit attributable to balance on the long-term business technical account (I & 14a) 278 260 1,435 Profit from long-term business operations before tax 990 870
The table below provides a reconciliation between the analysis used in the narrative sections of this Report and the profit from long-term business operations above.
Amortisation of goodwill on associated undertakings (19) (included within investment income) (7a & 21c) (13) (13)
The accounting policies (identified alphabetically) on pages 56 to 58 and notes (identified numerically) on pages 68 to 100 are an integral part of these accounts. The auditors’ report is on page 55.
(71) Change in the equalisation provision (T & 40) (49) (57)
Underwriting result longer-term investment return Total £m £m £m £m £m £m
1,032 Balance on long-term business technical account 712 610 403 Tax credit attributable to balance on the long-term business technical account (I & 14a) 278 260 1,435 Profit from long-term business operations before tax 990 870 1,337 Balance on general business technical account 923 963
Allocated investment return transferred from/(to) the long-term 187 business technical account (F & 7b) 129 (59)
Allocated investment return transferred to the general business (1,506) technical account (F & 7b) (1,039) (1,182)
(105) Loss from other operations (3b) (72) (115) Other charges: (232) – corporate costs (10) (160) (218) (127) – amortisation of goodwill (18) (88) (122)
Operating profit before tax based on longer-term investment return before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items: Continuing operations Modified statutory life profit (4a) 1,138 1,022 Health business (4a) 61 61 Fund management (4a) 10 5 General insurance (4a) 911 881 Non-insurance operations (3b) (64) (99) Corporate costs (10) (160) (218) Unallocated interest charges (7a) (406) (434)
Operating profit before tax based on longer-term investment return after amortisation of goodwill and amortisation of acquired additional value of in-force long-term business (4b) 1,252 1,022
308 212 (1,243) (71) Change in the equalisation provision (40) (49) (57) (9) Net loss on the disposal of subsidiary undertakings (17c) (6) (4)
(4,699) Total recognised gains and losses since last annual report (2,554)
Shareholders’ funds at 1 January As previously reported 11,752 Prior year adjustments (3a & 3b) (5,278)
Reinsurers’ share of technical provisions 484 Provision for unearned premiums (B)
Prepayments and accrued income 2,326 Accrued interest and rent 4,060 Deferred acquisition costs (D & 29) 1,347 Other prepayments and accrued income 7,733 5,413 4,931
(1) Shares held by employee trusts (33) (1) (1) 3,947 Merger reserve (34) 2,763 2,853 2,760 Profit and loss account (A & 34) 1,932 1,126 790 Minority interests – equity 553 400 369 – non-equity (42j) 258 258
cc ou nt s an d no te s 10,522 Total capital and reserves 7,365 6,494 4,020 Subordinated debt (R & 36) 2,814 1,190
Other creditors including tax and social security (43) Loans from associated undertakings
Consolidated cash flow statement For the year ended 31 December 2003
Capital expenditure Purchases of tangible fixed assets Sales of tangible fixed assets Net purchases of tangible fixed assets
Acquisitions and disposals Net disposals of subsidiary and associated undertakings** (47b)
Represented by: Capital and reserves Ordinary share capital (31) 564 564 Preference share capital (32a) 200 200
The euro rates employed in this report are an average rate of 11 = £0.69 (2002: E1 = £0.63) and a closing rate of 11 = £0.70 (2002: E1 = £0.65).
“Discontinued operations” disclosures in 2002 relate to the disposal of the general insurance businesses in Australia and New Zealand. The results of all other operations are described as “Continuing operations”. The Group’s consolidated profit and loss account incorporates the following financial information in respect of the Australia and New Zealand general insurance businesses: Abridged statement of operating and investment gains 2003 2002 £m £m
Net premiums written – 692 Change in the provision for unearned premiums – (38)
Earned premiums, net of reinsurance – 654 Allocated investment return transferred from the non-technical account – 71 Claims incurred, net of reinsurance – (452) Other charges – (195)
Balance on the general business technical account Underwriting result – 7 Longer-term investment return – 71
Profit on ordinary activities before tax – 36 Tax on profit on ordinary activities – (6)
The effects of implementing this change are that equity shareholders’ funds at 31 December 2003 have been reduced by £4,611 million (2002: reduced by £3,832 million; 2001: reduced by £5,268 million) and minority interests have been reduced by £133 million (2002: reduced by £85 million; 2001: reduced by £81 million).
The effects of implementing this change are that equity shareholders’ funds at 31 December 2003 have been reduced by £1 million (2002: reduced by £1 million; 2001: reduced by £10 million).
(ii) The Group’s wealth management result was previously shown separately but is now shown as part of the result from non-insurance operations. The result reclassified in 2003 is nil (2002: loss of £30 million).
(a) Operating profit by business (i) Operating profit in respect of long-term business before amortisation of acquired additional value of in-force long-term business and amortisation of goodwill on associates
United Kingdom 1,133 1,072 Europe (excluding UK) 621 415 International 64 109
Notes to the accounts continued 4 – Geographical segmental information continued
(c) Net assets by business and geographical segment Long-term business General insurance and health business £m £m £m £m £m £m
Life and pensions: United Kingdom – Group companies 5,336 6,237 534 607 5,870 6,844 Europe (excluding UK) France 1,950 1,814 46 42 1,996 1,856 Ireland 188 267 62 76 250 343 Italy 1,399 1,089 54 44 1,453 1,133 Netherlands (including Belgium and Luxembourg) 850 709 139 87 989 796 Poland – life 24 22 17 24 41 46
Investment sales: United Kingdom 664 543 16 13 680 556 Europe (excluding UK) Netherlands 204 119 – – 204 119 Poland 109 16 1 – 110 16 Other Europe 49 70 – – 49 70 International 98 267 – – 98 267
Total long-term savings (including share of associates) 13,252 13,509 1,181 1,137 14,433 14,646 *The figures for associates comprise the Group’s 49.99% share of our associate RBS Life Investments Limited.
**The 2003 figures for International include the Group’s 26% share of our associate company in India (Aviva Life Insurance Pvt. Limited) and the Group’s 50% share of our joint venture in China (Aviva COFCO Life Insurance Company Limited).
A vi va p lc Premiums before reinsurance Premiums after reinsurance
Total premiums written and investment sales – continuing operations 31,184 29,469 29,766 27,933 General insurance business premiums – discontinued operations – 783 – 692
United Kingdom* 9,346 9,379 8,942 9,099 Europe (excluding UK) France 2,331 2,131 2,300 2,081 Ireland 464 486 442 469 Italy 1,681 1,402 1,662 1,382 Netherlands (including Belgium and Luxembourg) 1,758 1,311 1,722 1,300 Poland 705 732 703 730 Spain 1,658 1,502 1,641 1,489 Other Europe 674 605 616 548 International 1,031 1,097 1,007 1,074
Total long-term business premiums, including share of associates and joint ventures Less: share of premiums from associates and joint ventures**
Total Group long-term business premiums 19,373 18,330 18,778 17,873 *Included within the 2003 premium income before and after reinsurance are transfers of institutional business into Morley Pooled Pensions of £1,247 million (2002: £34 million)
which, since they are institutional in nature, are excluded from new business sales in note 5.
**The figures for associates and joint ventures comprise the Group’s 49.99% share of our associate in the United Kingdom (RBS Life Investments Limited), our 26% associate in India (Aviva Life Insurance Company India Pty Limited) and our 50% joint venture in China (Aviva COFCO Life Insurance Company Limited).
United Kingdom 270 264 270 264 Europe (excluding UK) France 134 107 134 107 Netherlands 665 560 662 557
(v) Premium income by destination does not differ materially from premium income by geographical origin, as most risks are located in the countries where the policies were written.
Notes to the accounts continued 6 – Premiums written and sales of investment products continued
Total general business premiums written before reinsurance 10,395 10,579 7 – Analysis of investment return
Amortisation of acquired additional value of in-force long-term business (note 21b)
Income from land and buildings Income from other investments Realised investment (losses)/gains
Investment return before unrealised gains/(losses) 7,190 4,545 573 597 Unrealised investment gains/(losses) 7,069 (8,833) 143 (1,017)
(iv) The principal assumptions underlying the calculation of the longer-term investment return are: Equities
United Kingdom 8.1% 8.1% 6.6% 6.6% France 7.5% 7.5% 6.5% 6.5% Ireland 8.7% 8.7% 6.7% 6.7% Netherlands 8.4% 8.4% 6.5% 6.5% Canada 9.3% 9.3% 7.3% 7.3%
Actual return attributable to shareholders: Long-term business* 625 581 Non-long-term business 5,431 6,692
*Figures represent non-with-profits business only, where a longer-term rate of return is used.
(d) The table below shows the sensitivity of Group operating profit before tax to changes in the longer-term rates of return: By 2003 2002 By Change inMovement in investment return for £m £m
Bonuses allocated in anticipation of a bonus declaration, included in claims paid 332 508 Reversionary and similar policyholder bonuses, included in the movement in the long-term business provision 2,372 2,346 9 – Net operating expenses
Acquisition costs 1,453 1,494 2,404 2,379 3,857 3,873 Changes in deferred acquisition costs (79) (144) (70) (30) (149) (174) Administrative expenses 739 737 509 483 1,248 1,220
The average number of persons employed by the Group during the year was: 2003 2002
United Kingdom 37,185 38,662 Europe (excluding UK) 17,801 18,555 International 5,754 9,709
The analysis of total staff costs was: 2003 2002 £m £m
Wages and salaries 1,447 1,473 Social security costs 213 198 Pension costs (note 45d) 116 117
The total remuneration payable by the Group, excluding VAT and any overseas equivalent thereof, to its principal auditor, Ernst &Young LLP, in respect of the audit of these accounts is shown below, together with fees payable in respect of other work.
In addition to the above amounts payable to principal auditors, fees for audit services of £2.2 million (2002: £1.5 million) were payable to other firms. The total fees payable for audit services were therefore £11.9 million (2002: £8.8 million).
Further assurance services included advice on accounting matters, reporting on internal controls and corporate governance matters, and due diligence work.
The auditor’s remuneration in respect of the parent company was £12,000 (2002: £11,000).
(b) Long-term business Tax (charged)/credited in the long-term business technical account comprises: Current tax UK corporation tax (212) (382) Overseas tax (105) (77) Prior year adjustments
Deferred tax Origination and reversal of timing differences (129) 676 Decrease in discount (35) (51) Prior year adjustments (7) –
Total tax (charged)/credited in the long-term business technical account (534) 163
(c) Factors affecting current tax charge for the year The tax assessed in the non-technical account is lower (2002: higher) than the standard UK corporation tax rate, because of the following factors: Non-long-term business
Unrealised losses on investments – – – 29 – 29 Provisions and other timing differences 10 165 79 90 89 255 Losses 50 50 267 17 317 67
The deferred tax assets above are principally in respect of corporate entities and which would be recoverable in the event that these entities generate taxable profits in the future.
(e) Balance sheet (i) The discounted net (provision)/asset for deferred tax, comprises: Long-term business Non-long-term business
Discounted net (provision)/asset for deferred tax (334) (382) 15 139 (319) (243)
(iii) The net (provision)/asset for deferred tax is disclosed in the accounts as follows: Long-term business Non-long-term business
Irish shareholders who are due to be paid a dividend denominated in euros will receive a payment at the exchange rate prevailing on 24 February 2004.
Net of tax, Net of tax, minorities and minorities and preference preference Before tax dividends Per share Before tax dividends Per share £m £m p £m £m p
Operating profit – continuing operations – discontinued operations 1,490 991 44.0 1,296 856 38.0 Adjusted for the following items: – Amortisation of goodwill (note 18 & 21b) (103) (103) (4.6) (135) (135) (6.0) – Amortisation of acquired additional value of in-force long-term business (135) (98) (4.4) (139) (100) (4.4) – Exceptional costs for termination of operations (note 17d) (19) (16) (0.7) – – – – Short-term fluctuation in investment return 212 198 8.9 (1,243) (1,071) (47.5) – Change in the equalisation provision (note 40) (49) (34) (1.5) (57) (40) (1.8) – Net loss on the disposal of
Earnings per share has been calculated based on the operating profit before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items, after tax attributable to equity shareholders for continuing operations and for total operations, as well as on the profit attributable to equity shareholders. The directors believe the former two earnings per share figures provide a better indication of operating performance.
The calculation of basic earnings per share uses a weighted average of 2,251 million (2002: 2,254 million) ordinary shares in issue, after deducting shares owned by the employee share trusts as required by FRS14 “Earnings per share”. The actual number of shares in issue at 31 December 2003 was 2,257 million (2002: 2,257 million).
Notes to the accounts continued 16 – Earnings per share continued
Weighted average Weighted average Total number of shares Per share Total number of shares Per share
Profit/(loss) attributable to equity shareholders 932 2,251 41.4 (551) 2,254 (24.4) Dilutive effect of share awards and options – 8 (0.1) – 4 –
(b) Goodwill on acquisitions The identifiable assets and liabilities acquired of DL ABN AMRO, the only material acquisition in 2003 giving rise to goodwill, were as set out below: Fair value adjustments
Assets Total investments 2,645 – – 2,645 Additional value of in-force long-term business – – 36 36 Other assets 256 (15) – 241
(c) Disposals The net loss on the disposal of subsidiary undertakings comprises: General insurance businesses: UK – (20) France – 6 Australia and New Zealand – (66) Spain – 94
(d) Exceptional costs for termination of operations During 2003, the Group incurred costs on the closure of its general insurance operations in Belgium. These exceptional costs relate to termination activities, including redundancy costs and closure provisions.
(e) The Company’s subsidiary undertakings Movements in the Company’s shares in subsidiary undertakings are set out below: Current value: £m £m
Cost: At 1 January 1,390 (48) 1,342 1,340 Additions (note 17a) 140 – 140 Disposals (9) – (9) (67) Foreign exchange rate movements 32 (5) 27 (7)
Amortisation: At 1 January 311 (9) 302 199 Charge in the year 91 (3) 88 122 Disposals (9) – (9) (19) Foreign exchange rate movements 15 (1) 14 –
Long leaseholds – over 50 years 1,535 1,692 20 12 1,555 1,704 Short leaseholds – under 50 years 16 29 20 57 36 86
The cost of land and buildings at 31 December 2003 was £7,452 million (2002: £7,741 million). The carrying value of land and buildings occupied by the Group for its own activities was £405 million (2002: £355 million).
(a) As part of their investment strategy, the UK long-term business policyholder funds have invested in a number of property limited partnerships (“PLPs”) through a mix of capital and loans. The PLPs are managed by general partners (“GPs”), in which the UK long-term business shareholder companies hold equity stakes and which themselves hold nominal stakes in the PLPs.
Share of result for the year after tax 36 29 Unrealised investment gains after tax 52 72 Dividends received (33) (27) Additions 33 707
Movements in investments in joint ventures 88 781 Balance at 1 January 781 –
(c) The principal joint ventures included above are as follows: (i) Property management undertakings
(a) Investments in participating interests included in the consolidated balance sheet comprise: Long-term business Non-long-term business
Share of result for the year after tax 20 6 26 Foreign exchange rate movements 9 12 21 Realised investment losses after tax – (6) (6) Unrealised investment gains after tax – 3 3 Dividends received – (5) (5) Net assets acquired 6 11 17 Goodwill acquired (note 21c) – 37 37 Amortisation of goodwill (note 7a) (13) (2) (15) Amortisation of acquired additional value of in-force long-term business (note 7a) (24) – (24) Disposals – (47) (47)
On 28 January 2003 and 12 March 2003 respectively, the Group disposed of its holdings in Norwich Winterthur Holdings Limited and Global Aerospace Underwriting Managers Limited.
All investments in associated undertakings are held by subsidiary undertakings and are included in the accounts using year ended 31 December 2003 figures. Société Foncière Lyonnaise (“SFL”) is listed on Euronext Paris, on the “Première Marché”, and its total value, based on mid-market prices at 31 December 2003, is £867 million (2002: £682 million). All other associated undertakings are not listed. The Group’s shareholding in SFL would reduce to 26.31% if all convertible bonds previously issued by SFL are converted to ordinary shares.
Notes to the accounts continued 21 – Investments in associated undertakings and other participating interests continued
(c) The carrying value of goodwill on associated undertakings comprises the following: Long-term business Non-long-term business
Amortisation: At 1 January 26 13 – – 26 13 Charge in the year (note 7a) 13 13 2 – 15 13
(a) The tables below show the carrying value and cost of these financial investments as at the dates indicated. All investments are held at current value unless otherwise indicated.
Participation in investment pools 7 – 7 7 – 7 Loans secured by mortgages: Own mortgages 9,485 1,396 10,881 9,058 1,412 10,470 Securitised mortgages (note 23) 2,237 912 3,149 2,237 912 3,149 Less: Non-recourse funding (note 23) (2,237) (906) (3,143) (2,237) (906) (3,143)
Debt securities and other fixed income securities: At current value 23,084 7,737 30,821 21,871 7,562 29,433 At amortised cost 42,721 – 42,721 42,201 – 42,201
Loans secured on policies 997 – 997 996 – 996 Other loans 337 23 360 383 9 392
(b) Listed investments included in the carrying value above are: 2003 2002 £m £m
The redemption value of investments held at the year end was £997 million more (2002: £74 million less) than the amortised cost.
(e) Included within other financial investments are shareholdings held on a long-term basis in the issued share capital of Société Générale, a banking company incorporated in France, Münchener Rückversicherungs-Gesellschaft, a reinsurance company incorporated in Germany, The Royal Bank of Scotland Group, a banking company incorporated in Scotland and UniCredito Italiano, a banking company incorporated in Italy. The market values of these holdings at 31 December 2003 were £233 million, £403 million, £854 million and £536 million, respectively (2002: £595 million, £372 million, £956 million and £188 million, respectively) and represented 1.1%, 2.6%, 1.8% and 2.8% (2002: 3.8%, 2.8%, 2.2% and 1.2%) of the respective issued share capitals of these companies. Of these holdings, the long-term business operations owned £231 million (2002: £355 million) of the Société Générale shares, £232 million (2002: £211 million) of the Münchener Rückversicherungs-Gesellschaft shares, £808 million (2002: £911 million) of The Royal Bank of Scotland Group shares and £279 million (2002: £104 million) of the UniCredito Italiano shares.
(f) At 31 December 2003, the Group held equity index futures, forwards and options to buy a notional total of £2,528 million (2002: £1,480 million) and to sell a notional total of £2,397 million (2002: £1,832 million) for long-term business operations. These contracts have a net positive fair value of £337 million (2002: £331 million). No adjustment has been made to the classification of existing investments to reflect the effect of the future settlement of these transactions.
In 1998 and 2003, the Group purchased several swap options from European banks, to cover its possible future exposure to interest rates related to guaranteed annuities sold by subsidiaries in the United Kingdom. At 31 December 2003, the exposure hedged by these options was £3,147 million (2002: £2,550 million) and the contracts had a fair market value of £190 million (2002: £167 million). These options have varying expiry dates up to 2028.
Included within other financial investments are £164 million (2002: £295 million) of debt securities and other fixed income securities which have been sold under stock repurchase arrangements. The obligations arising under these arrangements are included in other creditors (see note 43).
Other financial investments include loans secured by mortgages, subject to non-recourse finance arrangements, in a UK long-term business subsidiary and in a Dutch subsidiary. Details of the relevant transactions are as follows: (a) In a United Kingdom long-term business subsidiary, Norwich Union Equity Release Limited (“NUER”), the beneficial interest in three portfolios of equity release mortgages has been transferred to three special purpose securitisation companies, Equity Release Funding (No. 1)
No gain or loss was recognised on the transfer to ERF1 and ERF3, and a gain of £5.2 million was recognised on the transfer to ERF2.
The ultimate effective holding company of each of the ERF companies is Equity Release Funding Holdings Limited, whose shares are held on trust. NUER does not own, directly or indirectly, any of the share capital of the ERF companies or their parent company. NUER has no right to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where NUER is in breach of warranty or loans are substituted in order to effect a further advance.
NUER has indemnified the ERF companies for any losses they may suffer should its customers set off any shortfall in their annuities purchased from another Aviva Group company against amounts they owe to the ERF companies, and any shortfall due to negative equity not insured elsewhere. NUER’s liability under these indemnities, estimated as £6 million (2002: £5 million), is included in other creditors in the consolidated balance sheet, whilst the linked liabilities figure has been reduced by the same amount to show the Group’s net interest in these securitisations.
NUER receives payments from the ERF companies in respect of fees for loan administration and cash handling purposes. Income of £3 million (2002: £2 million) has been included in investment income, relating to the securitisation of the mortgage portfolios.
(b) In a Dutch subsidiary, Delta Lloyd Levensverzekering NV (“DLL”), the principal benefits of four portfolios of mortgage loans have been transferred to four special purpose securitisation companies, Arena 2000-1 BV, Arena 2001-1 BV, Arena 2002-1 BV and Arena 2003-1 BV, (“the Arena companies”), which were funded primarily through the issue of fixed rate notes. No gains or losses were recognised on these transfers.
All the shares in the Arena companies are held by independent trustees, respectively Stichting Security Trustee Arena 2000-1 BV, Stichting Security Trustee Arena 2001-1 BV, Stichting Security Trustee Arena 2002-1 BV and Stichting Security Trustee Arena 2003-1 BV. DLL does not own, directly or indirectly, any of the share capital of the Arena companies or their parent companies. DLL has no right, nor any obligation, to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where DLL is in breach of warranty.
Movements in the acquired additional value of in-force long-term business comprise: 2003 £m
The amortisation charge for the year appears under the heading “Other technical charges” in the long-term business technical account on page 59. This is grossed up for attributable tax in the reconciliations on pages 59 and 62.
(b) The cost of assets held to cover linked liabilities is £37,150 million (2002: £28,047 million).
Amounts owed by policyholders 1,990 1,748 Amounts owed by intermediaries 1,437 1,451
Depreciation: At 1 January 20 297 188 505 Charge for the year 6 59 31 96 On disposals (12) (40) (8) (60) Foreign exchange rate movements – 7 7 14
(a) The authorised share capital of the Company at 31 December 2003 was: 2003 2002 £m £m 3,000,000,000 (2002: 3,000,000,000) ordinary shares of 25 pence each 750 750
(b) At 31 December 2003, options to subscribe for ordinary shares of 25 pence each in the Company were outstanding as follows: p pShare Option Scheme Aviva Savings Related Option price Number Normally Option price Number Normally of shares exercisable of shares exercisable
Norwich Union Savings Related Option price Number Normally pShare Option Scheme of shares exercisable
At 1 January 2,256,737,144 564 1,094 Shares issued under the Group’s Employee and Executive Share Option Schemes 545,357 – 2
Authorised 200,000,000 cumulative irredeemable preference shares of £1 each 200 200
The fair value of these shares at 31 December 2003 was £224 million (2002: £213 million).
Cost debited to shareholders’ funds At 1 January Additions Distributed in year
These shares are owned by employee share trusts in the Company and a subsidiary undertaking to satisfy awards under the Group’s Long Term Incentive Plan, Executive Share Option Plans and Deferred Bonus Plans. The shares are purchased in the market and carried at cost. Further details of the shares held can be found in note 31b. Further details of the features of the plans can be found in the Directors’ remuneration report on pages 48 and 49.
The cumulative amount in the profit and loss account reserve relating to net unrealised gains is £161 million (2002: £136 million).
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the Company has not been included in these accounts.
A description of each of the above subordinated notes is set out in the table below: Callable at par at option of the In the event the Company does not call the notes, Redemption date Company from the coupon will reset at each applicable reset date to Notional amount Issue date £700 million 14 Nov 2001 14 Nov 2036 16 Nov 2026 5 year Benchmark Gilt + 2.85% 1800 million 14 Nov 2001 14 Nov 2021 14 Nov 2011 3 month Euribor + 2.12% 1650 million 29 Sep 2003 2 Oct 2023 2 Oct 2013 3 month Euribor + 2.08% 1500 million 29 Sep 2003 Undated 29 Sep 2015 3 month Euribor + 2.35% £800 million 29 Sep 2003 Undated 29 Sep 2022 5 year Benchmark Gilt + 2.40%
(a) The Group underwrites long-term business in a number of countries as follows: (i) In the United Kingdom mainly in
(iii) In the Netherlands, where the balance of profits, after providing appropriate returns for policyholders, accrues for the benefit of the shareholders. The bases for determining returns for policyholders are complex, but are consistent with methods and criteria followed generally in the Netherlands. In addition, a substantial number of policies provide benefits which are determined by investment performance, subject to certain guarantees, and shareholders’ profits are derived largely from management fees.
(b) Group practice The long-term business provision is calculated separately for each of the Group’s life operations. The provisions for overseas subsidiaries have generally been included on the basis of local regulatory requirements, mainly using the net premium method, modified where necessary to reflect the requirements of the Companies Act.
The principal assumptions in the United Kingdom, France and the Netherlands are: (i) United Kingdom The net premium method is used for most contracts except term assurances in the Norwich Union Life & Pensions and Norwich Union Linked Life funds, business in the “with-profit” funds of CGNU Life and Commercial Union Life, and non-profit deferred annuity and with-profit business in the Provident Mutual Fund.
For term assurances in the Norwich Union Life & Pensions and Norwich Union Linked Life funds, business in the “with-profit” funds of CGNU Life and Commercial Union Life, and non-profit deferred annuity and with-profit business in the Provident Mutual Fund, the provisions are valued using the gross premium method. All contracts are assumed to continue for the contractual term and, for consistency with the discount rates, no future regular bonuses are assumed to be added to with-profit business.
For unitised with-profit business, the provisions are valued initially by determining the lower of the current non-guaranteed surrender value and the bid value of units. This result is then compared with a prospective valuation and the higher result is taken. The prospective valuation projects future benefits on the assumption that future premiums cease and regular bonuses are decreased to the guaranteed rate or nil, at a rate consistent with policyholder reasonable expectations. Allowance for persistency is based on actual experience and takes into account the likelihood of a significantly greater lapse experience on those occasions on which the life company guarantees not to apply a Market Value Reduction charge.
The changes in the valuation discount rates since 2002 reflect the changes in the yields on the supporting assets.
Assurances Life conventional with-profit 3.3% to 3.8% 3.2% to 3.5% Life conventional non-profit 3.3% to 4.0% 3.2% to 4.0% Life unitised with-profit 3.7% to 4.0% 3.6% to 3.8% Pensions conventional with-profit 4.2% to 4.8% 4.0% to 4.5% Pensions conventional non-profit 4.2% to 5.8% 4.0% to 5.3% Pensions unitised with-profit 4.3% to 4.8% 4.5% to 5.0%
Annuities in payment Conventional annuity 5.0% to 5.5% 4.8% to 5.3% With-profit annuity 1.5% 0.5% to 0.8%
Annuities in payment General annuity business IMA80/IFA80 adjusted plus allowance for future mortality improvement* Pensions business PMA80/PFA80 adjusted plus allowance for future mortality improvement*
*Allowance for future mortality improvements reflect the “medium cohort” projection from the CMIB working paper published in December 2002, adjusted for females and for a higher rate of improvement at very old ages.
(ii) France The majority of provisions arise from a single premium savings product and are based on the accumulated fund value, adjusted to maintain consistency with the value of the assets backing the policyholder liabilities. The net premium method is used for prospective valuations, in accordance with local regulation, where the valuation assumptions depend on the date of issue of the contract. The valuation discount rate also depends on the original duration of the contract and mortality rates are based on industry tables. There have been no changes in the assumptions since 2002.
Claims on certain classes of business are discounted as follows: Netherlands Permanent health and injury 3.25% 3.5% 11 years 12 years
Movements in provisions for other risks and charges were: Pensions and similar obligations (note 14e(iii)) Other £m £m £m £m
At 1 January 2003 67 465 294 826 Foreign exchange rate movements on opening provisions 4 (5) 11 10 Movement during the year: Additional provisions made in the year 42 Amounts utilised (79) Amounts released unutilised (10) Total movement 7 74 (47) 34
Long-term business – – 148 85 – – 148 85 General business – – 11 11 – – 11 11 Other 476 431 141 169 1,132 1,453 1,749 2,053 Non-long-term business 476 431 152 180 1,132 1,453 1,760 2,064
“Other” comprises borrowings by holding companies within the Group that are not allocated to operating companies. The amounts shown above are net of related derivative contracts.
The 2.5% subordinated perpetual loan notes were issued by a Dutch subsidiary undertaking to finance the acquisition of NUTS OHRA Beheer BV in 1999. These loan notes have a face value of 1489.9 million and their fair value is estimated at 1176.7 million (2002: E172.4 million) which is based on the future cash flows in perpetuity discounted back at a market rate of interest. The rate of interest paid on the notes will be gradually increased over the next six years to a maximum of 2.76%. The loan notes are convertible into ordinary shares in Delta Lloyd NV, should there be a public offering of those shares.
(c) Amounts due to credit institutions Long-term business General business Other vi va p lc
The interest charge for the year on the above borrowings was: 47 67
All commercial paper is repayable within one year and is issued in a number of different currencies, primarily sterling, euros and US dollars. Part of this has been converted into a sterling liability through the use of financial instruments in the Company and a subsidiary undertaking.
(e) The Company’s loans comprise: 2003 2002 £m £m 9.5% guaranteed bonds 2016 198 198 8.625% guaranteed bonds 2005 199 199 Bank loans 75 75 Commercial paper 1,097 1,433
(g) After taking into account the various interest rate and currency swaps entered into by the Group, the currency and interest rate exposure of the non-long-term business borrowings of the Group was: Floating rate borrowings Fixed rate borrowings Total
(i) The difference between the carrying value and the fair value of the non-long-term business fixed rate borrowings and the related swaps is as follows: Carrying value Fair value Carrying value Fair value 2003 2003 2002 2002 £m £m £m £m
Non-long-term business fixed rate borrowings 549 614 529 624 Currency swaps (59) (91) (86) (133)
(j) The General Accident preference shares, included in minority interests at their par value of £250 million together with an £8 million accrual for dividends, are listed on the London Stock Exchange. Their fair value at 31 December 2003 was £292 million (2002: £267 million), based on their quoted market price.
Banking liabilities (note 30b) Proposed final ordinary dividend (note 15) United Kingdom and overseas tax Bank overdrafts
Bank overdrafts arise substantially from unpresented cheques and amount to £77 million (2002: £61 million) in long-term business operations and £137 million (2002: £287 million) in general business and other operations. The “other” totals include the obligation to repay £164 million (2002: £295 million) received under stock repurchase arrangements entered into in the United Kingdom and the Netherlands.
(a) The Group operates a large number of pension schemes around the world, whose members receive benefits on either a defined benefit basis or a defined contribution basis. The only material defined benefit schemes are in the United Kingdom, the Netherlands, Canada and Ireland and, of these, the United Kingdom scheme is by far the largest. The assets of the main United Kingdom, Irish and Canadian schemes are held in separate trustee-administered funds and, in the Netherlands, the main scheme is held in a separate foundation which invests in the life funds of the Group. An actuarial report has been submitted for each of the defined benefit schemes within the last three years, using appropriate methods for the respective countries on local funding bases. The substantial falls in stock markets worldwide over the last few years have affected the funding position of the schemes. In the United Kingdom scheme, the employing companies have agreed to pay additional contributions.
(c) In the United Kingdom, the Group operates one main pension scheme, the Aviva Staff Pension Scheme. New entrants join the defined contribution section of the scheme, as the defined benefit section is generally closed to most new employees.
The employing companies’ contributions to the defined benefit section of the scheme throughout 2003 were 25% of employees’ pensionable salaries and, for members of the defined contribution section, were 8% of pensionable salaries together with further contributions up to 4% where members contribute and the cost of the death-in-service benefits. The employers’ contribution rate for 2004 for members of the defined benefit section have been maintained at 25% of pensionable salaries together with an additional payment of £50 million, while the contribution rates for members of the defined contribution section are the same as for 2003.
In the Netherlands, Canada and Ireland, regular actuarial valuations of the main schemes are made in accordance with local funding and/or accounting standards. Total pension costs for the schemes in these countries have been taken as equal to the locally determined accounting costs or contributions paid to the plans as, at a Group level, these are not considered to be materially different from charges calculated under a detailed application of SSAP24.
(d) The pension costs of the Group’s defined benefit and defined contribution schemes were: 2003 2002 £m £m
There were no significant contributions outstanding or prepaid as at either 31 December 2003 or 2002.
The expected rates of return on the schemes’ assets are: Ireland
Expected return on pension scheme assets Interest charge on pension scheme liabilities
Total charge that would be made to profit on ordinary activities before tax in respect of these schemes under FRS17 131 55
Expected return on pension scheme assets less actual return (479) 1,139 Experience losses/(gains) arising on scheme liabilities 106 (131) Changes in assumptions underlying the present value of the scheme liabilities 587 41 Loss on acquisitions and scheme transfer 5 – Increase in recoverable surplus – (17)
Actuarial loss that would be recognised in the statement of total recognised gains and losses under FRS17 219 1,032
(iv) The following disclosures of experience gains and losses will be built up over time to give a five year history: 2003 2002
Total amount that would be recognised in the statement of total recognised gains and losses under FRS 17 Amount of loss 219 1,032 Percentage of the present value of scheme liabilities 3.3% 18.7%
(v) The assets and liabilities of the schemes, attributable to defined benefit members, at 31 December 2003 were: UK Netherlands Canada
Deficit in the schemes (713) (588) (100) (47) (17) (16) (8) (3) (838) (654) Related deferred tax asset 214 176 34 16 6 6 1 – 255 198
(Deficit)/surplus in the schemes at 1 January (654) 334 £m £m
Total assets included in the balance sheet 208,680 181,005 Additional value of internally-generated in-force long-term business 4,744 3,917 Third party funds under management
Profit/(loss) on ordinary activities before tax, excluding the results of joint ventures and associated undertakings 1,385 (283) Add back: Exceptional costs for termination of operations 19 –
Balance at 31 December Share capital External borrowings (note 42 and note 36) Non-recourse funding (note 22)
Share capital is represented by: Ordinary share capital (note 31a) Preference share capital (note 32a) Share premium account (note 31c) Merger reserve in respect of share capital
(Decrease)/increase in cash holdings (164) 719 Foreign exchange rate movements 29 16
(f) Movements in opening and closing non-long-term portfolio investments were: 2003 2002 £m £m
Net purchases/(sales) of investments Net investments acquired/(divested) with subsidiary undertakings Changes in market values and foreign exchange rate movements Investments sold for non-cash consideration Changes in non recourse funding
(g) Non-long-term portfolio investments included in the consolidated balance sheet comprised: 2003 2002 Changes in year £m £m £m
Land and buildings (note 19) 637 668 (31) Other participating interests (note 21a) 30 47 (17) Other financial investments (note 22a) 14,972 12,073 2,899 Deposits with ceding undertakings 41 18 23 Banking (note 30a) 1,141 977 164 48 – Contingent liabilities and other risk factors
(b) Asbestos, pollution and social environmental hazards In the course of conducting insurance business, various companies within the Aviva Group receive general insurance liability claims, and become involved in actual or threatened litigation arising therefrom, including claims in respect of pollution and other environmental hazards. Amongst these are claims in respect of asbestos production and handling in various jurisdictions, including the United Kingdom, Australia, Canada and South Africa. Given the significant delays that are experienced in the notification of these claims, the potential number of incidents which they cover and the uncertainties associated with establishing liability and the availability of reinsurance, the ultimate cost cannot be determined with certainty. However, the Group’s exposure to such liabilities is not significant and, on the basis of current information and having regard to the level of provisions made for general insurance claims, the directors consider that any costs arising are not likely to have a material impact on the financial position of the Group.
Notes to the accounts continued 48 – Contingent liabilities and other risk factors continued
(g) Other The Company and several of its subsidiaries have guaranteed the overdrafts and borrowings of certain subsidiary and associated undertakings. In the opinion of the directors, no material loss will arise in respect of these guarantees and indemnities.
In addition, in line with standard business practice, various Group companies have given guarantees, indemnities and warranties in connection with disposals in recent years of subsidiary and associated undertakings to parties outside the Aviva Group. In the opinion of the directors, no material loss will arise in respect of these guarantees, indemnities and warranties.
Consolidated profit and loss account Life assurance (achieved profit basis) 1,555 1,524 1,665 1,533 1,455 Health 61 61 70 68 24 Fund management and non-insurance operations (d) (54) (94) (63) (60) 87 General insurance 911 881 876 330 444 Corporate costs and unallocated interest charges (566) (652) (613) (546) (402)
Discontinued operations – 78 48 (472) 216 Amortisation of goodwill and acquired value of in-force long-term business (238) (274) (151) (121) (56) Financial Services Compensation Scheme levy – – (31) – – Integration costs – – (59) (425) (163)
Pence per ordinary share Net asset value per statutory accounts (a) (e) 297p 264p 290p 324p 436p Net asset value on an achieved profit basis (a) 502p 433p 524p 591p 699p Market price (London) (a) 490p 443p 845p 1082p 998p Earnings per share attributable to equity shareholders (b): MSSB operating profit before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items, after tax, attributable to equity shareholders in respect of continuing operations 44.0p 34.8p 40.8p 24.6p 38.5p
(a) The net asset value and market price (London) are as at 31 December. The market price for 1999 is for CGU plc. The net asset value is calculated based on equity shareholders’ funds, adding back the equalisation provision.
(c) Figures for 1999 are based on the weighted average dividends per share of CGU plc and Norwich Union plc.
A lte rn at iv e m et ho d of r ep or tin g Alternative method of reporting long-term business
Summarised consolidated profit and loss account – achieved profit basis For the year ended 31 December 2003
(232) Corporate costs (160) (218) (588) Unallocated interest charges (406) (434)
Discontinued operations – Australia and New Zealand general insurance operations – 78 2,764 Operating profit – before tax, amortisation of goodwill and exceptional items 1,907 1,798 (149) Amortisation of goodwill (103) (135)
Reconciliation of movements in consolidated shareholders’ funds – achieved profit basis For the year ended 31 December 2003
15,950 Shareholders’ funds at the end of the year 11,165 9,668 **Restated for the effect of a change in accounting policy in respect of the treatment of shares held by employee trusts as a deduction from shareholders’ capital.
Liabilities of the long-term business Liabilities of the general insurance business
Achieved profit basis total capital, reserves and subordinated debt 14,923 11,601 *Restated for the effect of a change in accounting policy in respect of the treatment of shares held by employee trusts as a deduction from shareholders’ capital.
(1) The analysis between the Group’s and the minority interest share of the additional value of internally-generated in-force long-term business is as follows: Movement in 2003 2002 the year £m £m £m
(2) Analysis of net assets on an achieved profit basis is made up as follows: Long-term business net assets on an achieved profit basis 12,373 10,379
Comprises: Embedded value of life operations 12,155 10,148 RBSG goodwill 218 231
The results of the Group’s life operations under the modified statutory basis, which is the basis used in the annual statutory accounts, can be found on pages 56 to 100.
– experience variances (12) (110) – operating assumption changes* 38 9
Life achieved operating profit before tax 1,555 1,524 Investment return variances 683 (2,320) Effect of economic assumption changes 11 (561)
*In 2003, operating assumption changes included the impact of reducing the risk margins in Poland, the US and Australia in line with the directors’ views of the risks associated with this in-force portfolio. The impact of this change was £24 million. In 2002, operating assumptions included the impact of reducing risk margins in the US. The impact of this change was £13 million.
Europe (excluding UK) France 241 223 (2%) 70 69 Ireland 81 103 (29%) 23 29 Italy 194 153 15% 45 38 Netherlands (including Belgium and Luxembourg) 224 158 29% 62 21 Poland 35 48 (23%) 3 10 Spain 246 189 18% 134 87 Other 101 93 2% (3) (5) International 187 175 9% 46 39
Total annualised premiums 2,377 2,373 (3%) Total new business contribution before effect of solvency margin** 621 578 Effect of solvency margin (149) (126)
Total new business contribution including effect of solvency margin 472 452 *Annual premium equivalent represents regular premiums plus 10% of single premiums.
Life achieved operating profit is calculated on an after-tax basis and then grossed up at the full rate of corporation tax for UK business and at appropriate rates of tax for other countries.
Embedded value at the beginning of the year 10,148 11,063 Total life achieved profit/(loss) after tax 1,585 (960) Exchange rate movements 342 220 Embedded value of businesses acquired* 64 13 Amounts injected into life operations 221 419 Amounts released from life operations (205) (607)
**The value of in-force includes the effect of holding shareholders’ capital to support the minimum statutory solvency margin requirements and allowing for projected future releases. This impact reduces the value of in-force by £870 million (2002: £750 million). The minimum statutory solvency margin requirements supported by shareholders’ capital of £3,100 million (2002: £2,600 million) is included within the net worth.
New business contribution including effect of solvency margin 389 83 472 452
The present value of the projected releases to shareholders is calculated by discounting back to the current time using a risk discount rate. The risk discount rate is a combination of a discount rate to reflect the time value of money and a risk margin to make prudent allowance for the risk that experience in future years may differ from the assumptions referred to above.
Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at each period end. Margins are applied on a consistent basis to risk free yields to obtain investment return assumptions for ordinary shares and property, and risk discount rates. The change in assumptions in 2003 reflects the movements in actual risk-free yields in each territory. Risk margins remain unchanged in all of our key businesses, except Poland, the US and Australia.
Risk discount rate 7.5% 7.3% 7.7% 8.1% 8.1% 8.6% Pre-tax investment returns: Base government fixed interest 4.8% 4.5% 5.0% 4.3% 4.3% 5.1% Ordinary shares 7.3% 7.0% 7.5% 6.3% 6.3% 7.1% Property 6.3% 6.0% 6.5% 5.8% 5.8% 6.6%
Future expense inflation 4.1% 3.6% 3.7% 2.5% 2.5% 2.5% Tax rate 30.0% 30.0% 30.0% 35.4% 35.4% 36.4%
Risk discount rate 7.4% 7.4% 8.0% 13.5% 15.4% 18.5% Pre-tax investment returns: Base government fixed interest 4.2% 4.2% 5.1% 6.0% 8.0% 12.5% Ordinary shares 7.2% 7.2% 8.1% 6.0% 8.0% 12.5% Property 5.7% 5.7% 6.6% n/a n/a n/a
Risk discount rate 7.7% 7.7% 8.3% Pre-tax investment returns: Base government fixed interest 4.6% 4.6% 5.3% Ordinary shares 7.6% 7.6% 8.3% Property 6.1% 6.1% 6.8%
Future expense inflation 3.0% 3.0% 3.2% Tax rate 35.0% 35.0% 35.0%
• Current tax legislation and rates have been assumed to continue unaltered, except where changes in future tax rates have been announced.
A lte rn at iv e m et ho d of r ep or tin g
This report is made solely to the Company’s directors, as a body. Our audit work has been undertaken so that we might state to the Company’s directors those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s directors as a body, for our audit work in respect of this report, for this report, or for the opinions we have formed.
The directors are responsible for preparing the Annual report, including, as described on page 43, the accounts prepared on the modified statutory solvency basis. Our responsibilities in relation to the Annual report, including those accounts, are set out on page 55. The directors are also responsible for preparing the supplementary information on the above achieved profits basis.
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the supplementary information. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the supplementary information, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
In our opinion, the supplementary information for the year ended 31 December 2003 has been properly prepared in accordance with the achieved profit basis, using the methodology and assumptions set out on pages 107 to 109.
Belgium Bank Nagelmackers 1747 NV (Banking) (99.6%) Delta Lloyd Life NV
Canada Aviva Canada Inc and its principal operating subsidiary: Aviva Insurance Company of Canada
Ireland Hibernian Group plc and its principal subsidiaries: Hibernian General Insurance Limited Hibernian Investment Managers Limited
Netherlands Delta Lloyd NV and its principal subsidiaries: Delta Lloyd ABN AMRO Verzekeringen Holding BV (51.0%) Delta Lloyd Asset Management NV Delta Lloyd Bankengroep NV (Banking) Delta Lloyd Levensverzekering NV Delta Lloyd Schadeverzekering NV Delta Lloyd Zorgverzekering NV OHRA Schadeverzekeringen NV OHRA Levensverzekeringen NV
Turkey Commercial Union Hayat ve Emeklilik Commercial Union Sigorta AS (98.6%)
United States Aviva USA Corporation and its principal operating subsidiary: Aviva Life Insurance Company
Associates and joint ventures In addition to the principal subsidiaries listed above, the Group has ongoing interests in the following operations that are classified as associates or joint ventures. Further details of those operations that were most significant in 2003 are set out in notes 20 and 21 on pages 80 to 82.
The Group also has interests in several UK property limited partnerships. Further details are provided in note 20 on page 80.
Sh ar eh ol de r in fo rm at io n
Aviva’s Dividend Reinvestment Plan (the “Plan”) enables cash dividends to be reinvested in the Company’s shares at reduced dealing costs. Shareholders who have not already joined the Plan and wish to do so should contact the Company’s registrar at the address opposite to obtain full details and a mandate form. Shareholders who have previously elected to join the Plan need take no further action. At the Annual General Meeting the Board will be seeking authority to offer shareholders the choice of receiving scrip dividends as an alternative to cash dividends. If this proposal is approved by shareholders and is introduced, it would replace the Company’s current dividend reinvestment plan and accordingly the Company would write to all shareholders setting out full details of the scrip dividend scheme and its implications.
For those shareholders who currently receive dividends paid directly into their bank/building society account, it is now the Company’s intention to issue one tax voucher each year instead of two. This we hope will prove to be more convenient for shareholders and will also result in cost and environmental savings. The new practice does not alter the dividend payments or when they are paid and will come into operation in the 2004/05 tax year. You will not receive a tax voucher for the May and November 2004 dividends, you will instead receive a consolidated tax voucher relating to these payments in 2005. The voucher will be issued prior to any tax return from the Inland Revenue. Any shareholders who do not wish to receive this service and wish to continue to receive tax vouchers with each dividend may elect to do so by contacting the Company’s registrar at the address opposite. Please note that we are unable to offer the service to institutional shareholders or those participating in the Dividend Reinvestment Plan.
Shareview is the internet based service that allows you to view your shareholding online and, if you wish, to receive shareholder communications (e.g. Notice of Meeting, Report and Accounts, etc.) via e-mail rather than by post.
You can access the current share price of Aviva shares at www.aviva.com or alternatively you can call 0906 843 2197*.
The Company has arranged the following services that can be used to buy or sell Aviva Shares. Alternatively if you hold a share certificate you can also use any bank, building society or stockbroker offering share dealing facilities. If you are in any doubt about buying or selling your shares you should seek professional financial advice.
To buy or sell your shares over the telephone, you can contact Barclays Stockbrokers on 0870 549 3002 (if you hold a share certificate) or 0870 549 3001 (if you hold a share account statement). Barclays Stockbrokers Limited is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority.
If you were mailed more than one copy of this Annual report, it may be because Aviva has more than one record of shareholdings in your name. To ensure that you do not receive duplicate mailings in future, you can have all your shares amalgamated into one account by contacting Lloyds TSB Registrars at the address opposite.
Technical account – general business 61 Consolidated profit and loss account Non-technical account 62 Reconciliation of Group operating profit to profit on ordinary activities before tax 63 Consolidated statement of total recognised gains and losses 63 Reconciliation of movements in consolidated shareholders’ funds 64 Consolidated Group balance sheet 66 Consolidated cash flow statement 67 Company balance sheet 68 Notes to the accounts 101 Five year review 102 Alternative method of reporting long-term business 111 Aviva Group of companies 112 Shareholder information
Individuals Banks and nominee companies Pension fund managers and insurance companies Other corporate bodies
Detailed below are various addresses that may prove useful in the event that you have a query in respect of your shareholding.
Corporate and single company Peps Barclays Stockbrokers Limited Tay House 300 Bath Street
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Aviva plc St Helen’s, 1 Undershaft London EC3P 3DQ Telephone +44 (0)20 7283 2000 www.aviva.com Registered in England Number 2468686