The digital format of this report ensures we are ready for guidelines relating to the Financial Reporting Council’s Digital Reporting and ESMA European Single Electronic Format.
To supplement the regulatory disclosures in this report, you can find more regular news and insights into Aviva throughout the year on our website at www.aviva.com.
Contents Strategic Report 01 Chairman’s statement 02 Chairman’s review 05 Key performance indicators 07 The horizon 08 Business model 09 Our strategy 11 Our people 13 Chief Financial Officer’s review 17 Market review 30 Risk and risk management 34 Corporate responsibility 37 Our climate-related financial disclosure
Governance 40 Chairman’s Governance Letter 42 Our Board of Directors biographies 44 Directors’ and Corporate Governance report 68 Directors’ remuneration report
Against this backdrop, Aviva has the experience and strength, the values and the people to do the right thing for our customers and our shareholders. By working harder to deliver outstanding service, we also have the potential do to even better.
New leadership I am delighted that on 4 March 2019 we announced the appointment of Maurice Tulloch as Aviva’s new Chief Executive Officer. Maurice joined Aviva in 1992 and was previously Aviva’s Chief Executive Officer, International Insurance with responsibility for our life insurance and general insurance operations in France, Canada, Ireland, Italy, Poland, Turkey and India. Prior to that he was Chief Executive Officer of Aviva UK and Ireland General Insurance, one of the largest businesses in the Aviva group. Having spent 26 years with the Company, Maurice knows the Aviva business inside out, knows our strengths, and where we need to improve. He is exceptionally well qualified to re-energise Aviva and deliver longterm growth.
Maurice’s appointment follows on from the announcement in October that Mark Wilson would step down from the Board. Mark was brought in to deliver the turnaround of Aviva. He succeeded admirably, leaving us in a strong financial position and with an enduring set of values. But the time is right for new leadership to take us to the next phase of Aviva’s development.
We have campaigned successfully on behalf of consumers to tackle fraud in Canada, Ireland and the UK. We have reduced our carbon footprint by 60% since 2010 and have developed our relationship with the British Red Cross to sign up volunteers to help their neighbours when a crisis hits. The Aviva Community Fund is active in ten markets around the world and our newly created Aviva Foundation has ambitious plans, helping us support over 2.5 million people through our community activities by 2020.
As a long-term business, we care not only about today’s communities, but also tomorrow’s. To that end, I am particularly proud that in October 2018 the United Nations Foundation presented Aviva with its prestigious leadership award, recognising our work to promote the UN’s Sustainable Development Goals.
There will no doubt be more shifts in our operating environment in the months and years to come, just as there has been in our more than 300-year history. Amidst the change, our strategy will evolve, but our commitment to our customers remains constant.
There were also challenges of our own making, including our announcement in March 2018 that we were “evaluating alternatives” for the Aviva plc and General Accident plc preference shares. While we responded quickly to certain investor concerns by withdrawing from further action and paid £10 million in goodwill and administration costs to compensate those who incurred losses from selling these securities during this period, it was a disappointing episode and lessons have been learned.
Financial performance was steady 2018 has been a year of steady performance overall for Aviva. Our businesses have delivered broad-based growth, with six out of our eight major markets increasing adjusted operating profit1 in 2018.
From these strong foundations, Aviva is entering a new phase of its development. We recently announced the appointment of Maurice Tulloch as Chief Executive Officer. Maurice will work with the Board to establish and refine the strategy that will take Aviva forward in the coming years.
Maurice will be an outstanding Chief Executive of Aviva. He knows the business inside out. He has led our businesses in the UK and internationally and built strong teams across life insurance and general insurance. Maurice knows our strengths, knows where we need to improve and has a deep understanding of insurance and customers’ needs. He is exceptionally well qualified to re-energise Aviva and deliver long-term growth.
Having made Aviva stronger, the focus of the next phase is to make Aviva a better company. This means re-emphasising the fundamentals: customer service, distribution, product mix and pricing, and managing expenses. There is much more we can and will achieve.
• Increased operating earnings per share (EPS)2,3 by 7% to 58.4p (2017: 54.8p)
• Increased profit before tax attributable to shareholders’ profit by 6% to £2,129 million (2017: £2,003 million) and increased basic EPS by 9% to 38.2p (2017: 35.0p)
For our customers, we have: • Paid out £32.9 billion in claims and benefits • Supported our customers through difficult times including notable UK storm “the Beast from the East”, as well as poor weather in Canada
• Announced a majority shareholding in Neos, the smart technology insurance provider which helps customers to monitor and protect their homes through connected devices
• Our successful Road to Reform campaign helped bring significant changes to the personal injury compensation system in the UK, culminating in the civil liability bill passing into law
• Launched Blue, our new digital insurance joint venture in Hong Kong, offering zero commission insurance
• Introduced a smartphone dashcam through our UK Aviva Drive app
• Won a number of awards including Insurance Times General Insurer of the year and Insurance Post customer care award
For our people, we have: • Improved employee engagement to 76% (2017: 75%) and we have achieved a 12-point increase in our Organisational Health questionnaire (our headline culture metric)
• Extended our flagship leadership programme to all leaders with 1,500 people leaders starting it in 2018
• Continued to build a culture and environment which attracts and retains people with the right capabilities for the future
• Won the UN Foundation’s leadership award in recognition of Aviva’s work to support the UN’s Sustainable Development Goals (SDGs)
• Launched the World Benchmarking Alliance to establish public, transparent and authoritative league tables of companies’ contribution to the SDGs
• Invested £1.8 billion in the transition to a low carbon economy
• Move to a progressive dividend policy • Target an estimated Solvency II
• Continue to reallocate capital to focus on what we do best and drive higher returns
• Allow our people to manage the fundamentals to ensure we can deliver continued growth for Aviva
• Develop great leaders with a focus on agility and execution
• Continue to focus on developing an inclusive workforce which is fit for the future 1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other Information’ section within the Annual report and accounts for further information.
We use a range of financial and non-financial metrics to measure our performance, financial strength, customer advocacy, employee engagement and impact on society. These include Alternative Performance Measures (APMs) which are non-GAAP measures that are not bound by the requirements of IFRS. These metrics are reviewed annually and updated as appropriate to ensure they remain an effective measure of delivery against our objectives.
Customer Net Promoter Score® (NPS®) NPS® is our measure of customer advocacy and we use it in nine of our markets1 to measure the likelihood of a customer recommending Aviva. Our relationship NPS® survey shows three years of sustained high levels of customer advocacy, with modest improvement in the last 12 months. We are working hard to boost customers’ loyalty by making things simple for customers and putting them in control, for example with the launch of AvivaPlus.
1 All comparators have been restated as we have reduced the number of markets covered in the survey from ten to nine markets as India was not surveyed in 2018. 2 The 2017 and 2016 MyAviva active registrations numbers (7.5 million and 5.2 million respectively as previously reported) have been restated to now only include customers who hold at least one policy with us and have been active on MyAviva in the last 365 days. On the restated basis, 2017 active customer registrations were 3.6 million (2016: 2.7 million). Active registrations previously included guests as well as customers.
Profit before tax attributable to shareholders’ profit (PBT) Profit before tax attributable to shareholders’ profit increased by 6% to £2,129 million due to an increase in Group adjusted operating profit1 and other items, partly offset by adverse investment variances.
Cash remittances2 Sustainable cash remittances2 from our businesses are a key financial priority. Remittances from markets increased 31% to £3,137 million. This was primarily driven by the UK3 businesses which contributed £2,549 million including £1.25 billion special remittances, comprising a £500 million special remittance following the Friends Life integration and an additional £750 million special remittance. Including disposal proceeds from Spain and Avipop, we achieved £7.9 billion in cash remittances for 2016-2018 falling slightly short of our £8.0 billion target. This primarily reflects the delay in the completion of the disposal of Friends Provident International Limited and our decision to retain proceeds from the sale of Avipop in our Italian subsidiary given the high market volatility environment.
Estimated Solvency II shareholder cover ratio2,5 We continue to maintain our strong financial position. During the year the estimated Solvency II shareholder coverage ratio2,5 has strengthened from 198% to 204% primarily due to the positive impact of Operating Capital Generation (OCG)2, a key remuneration metric for the Group, partly offset by the payment of dividends, the £600 million share buy-back programme and the repayment of hybrid debt.
Value of new business on an adjusted Solvency II basis2 Value of new business on an adjusted Solvency II basis (VNB)2 measures growth and is the source of future cash flows in our life businesses. VNB2 decreased by 3% to £1,202 million, however excluding disposals VNB2 increased by 2%. Growth was mainly driven by the hybrid savings product in Italy and bulk purchase annuities in the UK.
4 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other Information’ section of the Annual report and accounts. 5 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
Our strategy has been defined to anticipate these long-term trends which will impact our industry in the future. We acknowledge the risks they present and aim to turn these trends into opportunities for future growth.
Daily active Facebook users on average 1.5 billion Source: facebook.com, stats, September 2018
Economic loss in US dollars caused by global natural disasters in 2018 $160 billion Source: Munich Re, catastrophe losses, January 2019
Older and healthier People will live longer and be healthier. Markets will be driven increasingly by attitudes and needs as family structures evolve and pressures on social care increase.
Average increase in UK and French doctors recommending smartphone apps to patients (for their own use/evaluation) between 2015 and 2017 30% Source: Ipsos Mori, May 2017
Proportion of UK households that will be rented privately by 2021 25% Source: Knight Frank, August 2017
Number of fewer cars required in the US and Europe by 2030 138 million Source: PWC, January 2018
Aviva exists to help our 33 million customers have the confidence and control to be ready for life’s opportunities and challenges. We are the only large-scale multi-line insurer in the UK, our home market. We also have a strong presence in Europe, North America and South-East Asia.
Skills We have a wide range and blend of skills: • Customer experience • Underwriting • Risk management • Claims management • Digital innovation • Data science • Asset & liability management • Capital allocation
Enabling customers to stay with us for the long term is important to the future success of our business.
Our aim is for our people to achieve their potential within a diverse, collaborative and customer-focused organisation.
Over 3,000 Community projects supported in 2018, helping over 1.5 million people
Following the appointment of our new Group CEO, Maurice Tulloch, on 4 March 2019, he will undertake a review of the Group’s strategic priorities. We will update the market on our future strategic priorities later in 2019. The following section takes a look at developments in 2018 across the key areas of our existing strategy.
True Customer Composite We are a True Customer Composite: multi-channel and multiproduct. Our customers are at the core of what we do, and drive all our thinking. We believe in delivering what our customers truly need in a dynamic and ever-changing world.
We help protect what matters the most to our customers through life, general and health insurance products while helping people save for their future through our savings and asset management offerings.
Why it’s important Customers often find themselves dealing with multiple insurers. This makes things complicated, adding to the time they have to spend arranging for their needs rather than enjoying the things that matter most in life.
True Customer Composite means that we can support the wellbeing of our customers in many ways. We bring simplicity. We add value. We can both protect our customers and help them save for their futures. We can also reward our customers for their loyalty, offering multi-product discounts.
True Customer Composite gives us a real competitive advantage in a digital world. Our digital solutions, such as MyAviva, are simple and intuitive, allowing customers to access multiple products and discounts and supporting our partners and intermediaries in an evolving distribution landscape.
How we’ve progressed We continue to expand our range of customer propositions to be a True Customer Composite across our markets, making it easy and more rewarding for customers to manage multiple products through Aviva.
Systems thinking True Customer Composite is also about creating the right customer experiences across our business. Systems thinking is a global method for us to re-think and re-design customer journeys. Systems thinking brings together colleagues throughout the organisation to help solve problems and make it easier for customers to interact with us.
UK Workplace We continue to improve our offerings in the UK where we offer corporate clients pensions, protection, bulk purchase annuities, as well as health and general insurance.
With financial and health wellbeing of employees an increasingly important area for employers, we have continued to increase our capability to help our customers through the workplace. For example, we have further developed our Aviva Wellbeing proposition, including the launch in 2018 of the Digital GP app. This offers a range of services such as digital consultations and repeat prescriptions. By offering this support we are becoming increasingly engaged with employers and their employees.
Ireland In Ireland, we completed the acquisition of Friends First where the integration is progressing ahead of schedule. This acquisition strengthens our life insurance capability and extends our range of investment products, enhancing our position as a True Customer Composite in Ireland.
AvivaPlus creates one of our simplest customer journeys yet. We believe that simple propositions, designed with customer ease at their heart, will increase customers’ loyalty and advocacy.
Quantum Digital First is not only about engaging with customers online but about harnessing the benefits of data. Aviva Quantum is our internal data science team. They work to improve our understanding of risks, allow more accurate pricing, increase fraud prevention and personalise MyAviva quotes. Quantum is at the heart of developing Ask-it-Never, our ambition to make insurance simpler and easier for customers by asking fewer questions when they buy a policy.
Blue 2018 was an intense period for launch activity of disruptive, new services. Our new joint venture in Hong Kong, with our partners Hillhouse and Tencent, launched in September with a simple proposition, designed to disrupt traditionally expensive distribution through intermediaries. Blue is the first digital life insurer in Hong Kong and offers three simple, flexible and fully online life protection products.
How we’ve progressed In 2018, we completed the latest restructuring phase of our businesses.
As well as the completion of the acquisition of Friends First in Ireland and the launch of our Blue joint venture (see above), we completed the exit of our three remaining businesses in Spain, Caja Murcia Vida, Caja Granada Vida and Pelayo Vida, ending our involvement here. In Italy, we completed the sale of our joint venture, Avipop Assicurazioni S.p.A., and its wholly owned subsidiary Avipop Vita S.p.A. We completed our exit from Taiwan, following the sale of our joint venture First Aviva Life. Lastly, Aviva Investors sold a Real Estate Multi-Manager business which was strategically non-core.
Major markets: solid growth, sustainable cash We are focused on eight attractive, growing markets where we are, or have the potential to be the best in class. Our major markets are: • UK – number one composite insurer providing a core growth engine and high levels of sustainable cash flow • France – a cash generator underpinned by strong distribution • Canada – leading general insurance franchise with attractive returns over the long term • Poland – high return on equity (ROE) business with strong distribution and digital credentials • Italy – composite player in large European insurance market • Ireland – a leading brand with an improved composite model • Singapore – composite player with distribution through growing financial advisory channel • Aviva Investors – global asset manager with expertise and solutions in real assets, multi-assets, equity and fixed income
Strategic investments: future, fast growth We have made a number of strategic investments that will accelerate growth and provide increased value over the long term. These investments are: • Digital – developing intellectual property (IP) to be rolled out across our markets • China – delivering growth in sales and adjusted operating profit1 in one of the world’s largest insurance markets • Hong Kong – Blue, our joint venture with Tencent and
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other Information’ section within the Annual report and accounts for further information.
• Actively invest in the skills, mind-sets and future capabilities we need to win in a digital age
Never Rest We fail fast and learn fast, testing and learning at pace. We embrace digital. We are dissatisfied with the way things are done now. We get it done at pace.
Create Legacy We invest with courage, taking smart risks and making good decisions to ensure we allocate our resources where they can do most. We think like an owner, taking responsibility. We go for more than quick wins. We take the long view.
Developing our people Developing our people remains core to the work we do. In 2018, we continued to implement our three-year talent programme by: • Our flagship leadership programme has been extended to all leaders in Aviva. 1,500 leaders have started Leading For Growth (of which 900 have completed the programme so far) with a further 500 scheduled to commence in Q1 2019. The programme is expected to roll out to the remaining 2,000 leaders during 2019. We believe this investment has contributed to our strong engagement scores and our improvement in the healthiness of our culture. We continue to invest in talent throughout the business and this year launched a programme to spot and develop our new generation of leaders much earlier in their career.
• ‘Grow’, our global digital learning portal, has 100% adoption in all our key markets. We continue to improve our digital based learning with a plan in place to deliver innovative bite-sized content, mobile learning and curated external thought leadership. Our online Leadership hub has received over 245,000 views. We are co-creating an online coaching tool with our Digital Garage partners at Founders Factory. Quantum University, our global data science learning practice, is now established and is building capability with c.700 practitioners globally.
• Over 120 women in Aviva have completed our ‘women in leadership’ programme. Since the programme launched we have seen more women take on broader roles and being promoted. This is one of the initiatives that will help us close the gender pay gap.
• In 2018, we adapted our approach to Performance Management, especially in our customer-facing roles. A bigger emphasis was placed on coaching and in-the-moment recognition, either by immediate management or the Group Executive, removing the need for unnecessary calibration of our people.
In the last year, colleagues have seen significant positive shifts in the culture at Aviva with a 12-point increase in the headline culture measure reflecting this. Colleagues are much more likely to say that people around them are moving quickly to put good ideas into action, have the freedom to make decisions in their jobs and are comfortable taking appropriate risks/trying new ideas. The focus in 2019 will be to continue to embed a culture of greater customer focus, innovation and simplicity.
Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information the Chair of the Remuneration Committee. We believe that by doing so we encourage a culture of trust, and open and honest communication that will help us ensure that our organisation is a better place to be. In 2018, we cemented our relationship with Unite the Union by signing a Learning Agreement. This is a collaborative approach to the ongoing development of our people and jointly encourages employees of all ages and genders to seek out opportunities through our Apprenticeship Levy contribution. In addition, we also launched a new Conflict Resolution and Mediation approach as part of our cultural transformation to move away from an adversarial approach to fostering greater dialogue amongst our people.
Financial wellbeing • After successful pilot seminars for employees (Mid-Life MOT and
My Retirement, My Way) we will be rolling these out more widely in 2019
We are still on a journey to make Aviva a company that puts the customers at the heart of everything we do and our focus will be on ensuring our people can deliver in an innovative and simple way.
Read more about our approach to responsible and sustainable business in the ‘Corporate Responsibility’ section of this report and our people strategy at www.aviva.com/about-us/our-people www.aviva.com/about-us/our-people
Key financial metrics A summary of the financial metrics used to measure our performance, including key performance indicators and alternative performance measures (APMs) where appropriate, is shown below. Further guidance in respect of the APMs used by the Group is included in the ‘Other information’ section of the Annual report and accounts.
Group adjusted operating profit1 3,116 3,068 48 2% Operating earnings per share2,3 58.4p 54.8p 3.6p 7% Profit before tax attributable to shareholders’ profit 2,129 2,003 126 6% Cash remittances2 3,137 2,398 739 31% Estimated Solvency II shareholder cover ratio2,4 204% 198% — 6.0pp Value of new business on an adjusted
Solvency II basis2 1,202 1,243 (41) (3)% Combined operating ratio2 96.6% 96.6% — —
As we embark on the next phase under a new Chief Executive, we do so from strong foundations, with businesses that are well established in their respective markets, a capital position that provides security for today and flexibility for the future and a well funded, sustainable dividend. However, there are opportunities to reignite the self-help agenda, focusing on cost efficiency, business complexity and prioritising further reduction in debt leverage.
Annuity and equity release provides significant long-term growth opportunities as companies look to transfer their defined benefit pension obligations to the insurance sector and individuals seek to secure income and unlock equity in their retirement. In 2018, annuity and equity release sales rose 12% to £4.8 billion (2017: £4.3 billion) due to higher volumes in bulk purchase annuities. The increase in sales helped to deliver a 7% increase in adjusted operating profit1 to £779 million (2017: £725 million). The result benefitted from favourable experience variances relating to longevity trends though this was offset by lower income from asset mix optimisation. While we have increased our annuity and equity release sales volumes in 2018, we have been selective in expanding our appetite and reflected the uncertain political and economic backdrop in our investment portfolio. We will maintain a prudent approach in 2019.
Aviva’s UK general insurance business maintained its track record of delivering consistent, attractive underwriting results in 2018. The combined operating ratio2 was 93.8% (2017: 93.9%) as higher levels of prior year reserve releases offset an increase in weather related claims. Net written premiums rose 3% to £4,193 million (2017: £4,078 million) due to progress in Global Corporate and Specialty (GCS) and Small and Medium Sized Enterprise (SME) markets. The underwriting result rose 3% to £253 million (2017: £246 million), which in turn helped to underpin a 4% increase in adjusted operating profit1 to £415 million (2017: £400 million).
Our legacy portfolio performed in line with expectations in 2018, with adjusted operating profit1 declining 4% to £318 million (2017: £331 million). The UK with-profits portfolio, which makes a significant contribution to the legacy performance, saw total assets decline to £48.9 billion (2017: £58.2 billion) reflecting the weak investment market environment.
In Canada, the focus of our team in 2018 was on setting the business on the path to recovery following the challenges experienced in 2017, where results were adversely affected by heightened claims inflation in motor insurance. We have taken a range of actions including increases in premium rates, cancellation of some broker relationships and adjustments to underwriting appetite. While these actions have begun to yield results, adjusted operating profit1 in Canada was flat at £46 million (2017: £46 million). Elevated weather and large loss experience, persistent challenges in motor insurance and costs relating to the completion of the RBC Insurance integration kept the combined operating ratio2 elevated at 102.4% (2017: 102.2%), despite an improvement in prior year development.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
In Ireland, adjusted operating profit1 was £100 million (2017: £86 million) and we extended our sponsorship of the Aviva Stadium, a key element of our Group brand strategy. The main driver of growth in adjusted operating profit1 was the Friends First business, which was acquired by Aviva on 1 June 2018. Benefits from the integration of Friends First supported higher adjusted operating profit1 in life insurance, compensating for lower sales in annuities. In general insurance, Aviva has continued to focus on protecting profitability as the pricing cycle has begun to soften. Net written premium fell 2% to £430 million (2017: £436 million) though underwriting margins remained attractive, with a combined operating ratio2 of 91.5% (2017: 91.4%). As a result, general insurance adjusted operating profit1 rose slightly to £56 million (2017: £53 million). During 2018, we also completed important structural changes in our Irish business, with the establishment of a locally incorporated legal entity. This was an important component of our Brexit preparations.
Turkey, Vietnam and Indonesia. In 2018, the aggregate adjusted operating loss1 from these businesses widened to £142 million (2017: £85 million). The primary driver of this was our digital business in the UK, where we invested further in digital innovation, and customer proposition development and engagement. This has given rise to a sharp uplift in customer activity levels; UK MyAviva active customer registrations have risen 48% and we are seeing higher volumes of online customer traffic. However, this did not translate through to higher levels of profitability reflecting the soft market conditions in 2018. Excluding Digital, results from our Strategic Investment markets improved. In China and Turkey, we delivered growth in adjusted operating profit1 in local currency terms while losses narrowed in our less mature businesses in South East Asia.
Capital and cash At the end of 2018, our Solvency II shareholder cover ratio2,3 was 204% (2017: 198%). The increase in the ratio was achieved despite significant capital management actions undertaken during the year, with the £0.9 billion repayment of subordinated debt and £0.6 billion share repurchase equating to a 13 percentage point drag on the opening solvency position.
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information. 2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 3 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
In November 2017, we outlined an ambition to deploy £3 billion of cash by the end of 2019. In 2018, our deployment initiatives totalled £1.7 billion, comprising £0.9 billion of subordinated debt retirement, £0.6 billion of capital returned to shareholders via a share repurchase programme and £0.2 billion on M&A initiatives, the largest of which was the acquisition of Friends First in Ireland. Of the remaining £1.3 billion of cash we had anticipated deploying, we are extending the time-line beyond 2019 and will prioritise reinvestment in our existing operations and debt deleveraging. Based on our current outlook, there is less appetite for bolt-on acquisitions in 2019.
Between 2019 and 2022, Aviva has c£3.0 billion of maturing debt, of which we currently expect to repay without refinancing £1.5 billion. On a pro forma basis, this would reduce our outstanding debt balances by approximately 20%, reduce our ratio of debt to Solvency II own funds by 4 percentage points to 29%, and reduce our Solvency II shareholder cover ratio2,4 by 10 percentage points to 194%. We estimate this would give rise to cash interest expense savings of approximately £90 million per annum, improving Group adjusted operating profit1, operating capital generation2 and excess centre cash flow2. We continue to manage the company consistent with double-A financial metrics.
We expect to fund the reduction of debt balances from internal sources, including regular cash remittances from our business units, special remittances associated with our capital structure optimisation initiatives and proceeds from divestiture activity.
Dividend In light of our results and the strength of our financial position, we have increased our total dividend per share by 9% to 30.0 pence (2017: 27.4 pence). This is the fifth consecutive year of significant annual growth in the dividend, with the 2018 level representing double the level paid for 2013 (15.0 pence).
Having achieved our 50% dividend payout ratio target relative to operating EPS2,3 in 2017, this year we have increased the dividend payout ratio to 51.4%. Looking forward, the Board of Directors has decided to move from a policy targeting a pay-out ratio tied to operating EPS2,3 to a progressive dividend policy. This change will afford the new CEO greater flexibility to implement his strategic agenda while protecting the current dividend per share for our existing shareholders.
In terms of currently identifiable result drivers, we cite potential headwinds from weak investment markets in late 2018 on fee income in our asset gathering businesses including UK long-term savings, European life and Aviva Investors, and a possible increase in the blended tax rate due to changes in the business mix of Group adjusted operating profit1. On the other side of the ledger, we expect results to benefit from improved profitability in Canada in addition to lower interest expense and a reduction in weighted average shares in issue following capital management initiatives undertaken in 2018. Our results will also depend on the degree of offset between benefits from changing longevity trends in the UK and costs associated with investment and change spend.
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information. 2 This is an Alternative Performance Measure (APM) which provides useful information to supplement an understanding of our financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the “Other information” section of the Annual report and accounts. 4 The estimated Solvency II position represents the shareholder view. Please refer to note 57 and the ‘Other information’ section of the Annual report and accounts for more information.
We focus on the customer, with market leading service at the heart of our business. We insure 2.5 million motor customers and 3.2 million home customers. Through the launch of AvivaPlus, an innovative general insurance proposition, customers can pick and choose the cover they need, with no interest or administration fees. The renewal price guarantee means we review each customer’s price at renewal to make sure they pay no more than if they were new to AvivaPlus.
Over 5 million people rely on us to protect them and their families during some of the most difficult times in their lives, such as bereavement and serious illness. We are proud not only of the scale of the financial and wider support that our protection products provide, but the care with which claims are managed. We continue to win several awards recognising our achievements, including Best Protection Provider for the second consecutive year from Money Marketing and Best Individual Critical Illness Provider at both the Cover Excellence and Health Insurance awards.
Financial and health wellbeing is top of employer agendas and we continue to support them and their employees with further development of Aviva Wellbeing, a set of services aimed at helping employers build healthier, happier and more productive workforces. In 2018 we launched Aviva Digital GP, an innovative proposition offering around the clock access to GP video consultations and chat features, pharmacy services and repeat NHS prescriptions.
We continue to win many awards, including ‘General Insurer of the Year’ from Insurance Times for the fifth year running and Insurance Post for the second year, and ‘Health Insurer of the Year’ at the Health Insurance Awards for the ninth year running. We also won Moneywise’s ‘Best Pensions Education Initiative’, an award to highlight the efforts being made by financial providers to educate their customers, and the public, about pensions and retirement planning.
General Insurance Combined operating ratio (COR)5 93.8% 93.9% Net written premiums (NWP) 4,193 4,078 1 Association of British Insurers (ABI) 12 months to end Q318. 2 GlobalData plc online database. 3 Aviva Corporate Operations were awarded the Thomson Online Benefits 5-star service rating in May 2018. 4 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information. 5 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 6 The amounts shown above in respect of adjusted operating profit do not reconcile to the corresponding amounts in note 5 ‘Segmental information’ within the Annual report and accounts due to the inclusion of our Health business within UK General insurance. 7 2018 general insurance cash remittances include amounts of £331 million received from UK General Insurance in February 2019 in respect of 2018 activity. 8 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland were not aligned to our management structure within Europe, but they were reported within United Kingdom.
The UK’s adjusted operating profit1,7 across new and existing business can be analysed by segment as shown below: Adjusted operating profit1,7 New business Existing business Total £m New business Existing business Total £m
Long-term savings Long-term savings adjusted operating profit1,7 increased by 7% to £198 million (2017: £185 million) with positive net fund inflows6 of £5.0 billion (2017: £5.6 billion) while maintaining a stable in-force profit margin. Average assets under management (AUM6) across the year grew to £118 billion (2017: £111 billion). However, weak investment markets towards the end of 2018 constrained growth in AUM6, which ended the year at £116 billion (2017: £118 billion). Along with growth in workplace pension net fund flows6, driven by new scheme wins with large corporates, we delivered continued positive platform net fund flows6 of £3.9 billion (2017: £6.2 billion) despite a difficult market environment and functionality problems impacting advisers and customers during the migration of the adviser platform to a new service provider. Platform assets under management6 grew by 12% in the year to £22.6 billion (2017: £20.2 billion). The increase in new business strain reflects our workplace pensions growth and the continued investment in the Aviva Financial Advisers network.
Legacy Legacy contributed adjusted operating profit1,7 of £318 million (2017: £331 million). The expected reduction in AUM6 as policies mature was partly offset by favourable market movements in 2017 that drove higher opening 2018 AUM6. We continue to expect adjusted operating profit1 from the legacy business to decline by approximately 10% per annum over the medium term.
In 2017, Other of £260 million mainly related to the release of longevity assumptions totaling £710 million8. This was partly offset by the impact of recognition of a £75 million provision relating to potential redress for advised sales by Friends Provident, strengthening of maintenance expense reserves of £89 million, recognition of future costs reserves of £125 million and modelling impacts totalling £131 million.
Adjusted operating profit1,7 is a key driver for the improvement in profit before tax attributable to shareholders’ profits of £450 million (2017: £336 million), partially offset by increased adverse market movements.
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 7 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 ‘Segmental information’ within the Annual report and accounts due to reclassification of health business to general insurance. 8 Please refer to note 47 ‘Effect of changes in assumptions and estimates during the year’ within the Annual report and accounts.
In December 2018, the Civil Liability Bill became an Act of Parliament, which includes a change in the way the discount rate used to calculate lump sum compensation in personal injury cases (the ‘Ogden rate’) is set. Although the rate remains uncertain, it is anticipated that the Government will set a discount rate which is higher than the current -0.75% rate. At this stage, following a review of a range of outcomes, Aviva has adopted a rate of 0.0% within the full year 2018 reserves. The positive impact of this reserve change (£190 million) has been excluded from the 2018 adjusted operating profit1, a consistent treatment with the previous rate change in 2016.
Cash Cash remitted to Group2 was £2,549 million (2017: £1,800 million). 2018 includes an additional £500 million (2017: £500 million) of Friends Life integration remittance taking the total Friends Life integration remittances to £1.25 billion, exceeding the target of £1 billion, along with further special remittances of £750 million, reflecting the strong capital position of UK Life following recent positive longevity developments and management actions.
Expenses Total expenses increased 3% year on year to £1,613 million (2017: £1,569 million) as we continue to focus on operational efficiency and invest in growth and simplification initiatives including building our BPA capability, updating our IT infrastructure, improvements to customer experience while also implementing mandatory requirements such as IFRS 17 and GDPR. Excluding these initiatives, expenses were broadly flat.
Annuities and equity release VNB2 increased 25% to £196 million (2017: £157 million) driven by growth in BPA volumes with improved margins as we continued to participate in the market on a selective basis. Annuity VNB2 includes an £85 million (2017: £96 million) impact of new business on the calculation of UK Life’s transitional measures.
Protection VNB2 reduced by 23% to £140 million (2017: £183 million) driven by an 8% reduction in sales to £1,799 million (2017: £1,964 million) in a competitive individual protection market and the impact of hardening reinsurance rates.
Health and Other VNB2 was stable at £34 million (2017: £34 million) with a fall in volumes, as we exited the International PMI market, offset by increased margins.
Commercial motor 532 514 Commercial non-motor 1,167 1,063 UK Commercial lines 1,699 1,577 96.1% 96.7%
UK Commercial lines increased 8%, driven by a 10% increase in Commercial non-motor, with solid growth in SME and Global Corporate Specialty (GCS) while commercial motor increased 4%.
COR2 UK General Insurance COR2 of 93.8% is a 0.1pp improvement on prior year against the backdrop of the Beast from the East and the softer motor market. Improved underlying performance and higher prior year reserve releases, primarily from favourable experience in attritional and large injury claims, was partly offset by less favourable weather experience compared to prior year, although this was still favourable to the long term average.
UK Commercial lines COR2 of 96.1% improved 0.6pp year on year, as our underlying performance improved from the continued disciplined underwriting and growth combined with higher prior year reserve releases, partly offset by higher weather costs.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5
• We are using robotics and automation to simplify our processes. Our protection customers are now able to provide consent to obtain medical information digitally, with 73% of customers responding within 24 hours, compared to a previous average of 30 days. We have used robotics to move almost 40,000 employees for one of our largest workplace pension clients onto our pension platform, reducing a 150-hour manual process to 10 hours and we have digitised payment and fund switching for around 1.75 million pension customers as part of our new easy transfer process for customers with pots below £30,000.
Market context and challenges • We are well prepared for Britain’s exit from the EU, despite the continued uncertainties as to the outcome of the negotiations. • 2018 saw significant regulatory change in our UK markets, with the Markets in Financial Instruments Directive (MiFID), the Insurance Distribution Directive (IDD) and the General Data Protection Regulation (GDPR) coming into force.
• We promote strong regulation that is effectively targeted, efficiently delivered, and supports sustainable growth and innovation. Through active engagement with our regulator, we hope to see further improvements in the market over the next two to three years, including a fairer pension taxation system and a simpler regulatory environment which allows us to better serve the needs of our customers.
• In general insurance, market conditions have remained competitive across our entire product range, particularly a softening personal motor market. We believe injured motor claimants should be fully compensated for any injuries they receive, but it is also vital that individuals are not over-compensated to a level which increases the cost of insurance premiums for individuals and businesses, large and small. We have continued to support the need for motor insurance reform through our Road to Reform campaign. In 2018 the Civil Liability Bill, which will reform compensation for whiplash injuries from 2020, and the Ogden rate, used by the courts to determine awards for significant bodily injury claims, completed its passage through Parliament. Aviva has promised to pass on 100% of the savings to its customers.
• We fully support the FCA review on pricing practices for new and existing customers in the general insurance industry and are leading the market in tackling unfair pricing through our AvivaPlus proposition.
• Build on our strong employer proposition and become the provider of choice in the workplace for employee investments and insurance.
• Build on our reputation as a trusted partner for individuals managing their transition into and through retirement.
• Drive operational efficiency, underpinned by a sustainable and robust IT infrastructure. Completing our data centre migration will be fundamental to supporting the level of service we offer.
• We will continue to lead the industry on the big customer issues: simplifying our products and customer experience, increasing transparency and putting the customer at the heart of everything we do.
Profitability of the business deteriorated in early 2017, principally due to increased physical damage and injury claims costs in our motor insurance line of business, and the trend of favourable reserve releases ceased. As Canadian motor insurance is heavily regulated, we had difficulty achieving rate increases quickly enough to offset the claims costs. In addition, 2017 and 2018 saw natural catastrophe losses above budget. As a result, adjusted operating profit2,4 in 2018 did not recover from the 2017 level despite the actions taken.
In 2018, we achieved significant rate increases in personal lines business, not all of which will have earned into the 2018 adjusted operating profit2,4. We also reduced the number of intermediaries with access to our products as well as tightened underwriting criteria where appropriate. In commercial lines, our focus was on better risk selection which has hampered net written premium growth, although we are receiving higher premium for much of our renewed business. We expect the combination of rate increases, pricing sophistication and expense management to continue until we achieve our sub-96% target combined operating ratio3.
Combined operating ratio (COR)3 102.4% 102.2% Net written premiums (NWP) 2,928 3,028
COR3 The COR3 increased slightly to 102.4% (2017: 102.2%) due to elevated claims frequency and severity, particularly in motor, partially offset by favourable prior year reserve development.
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 The amounts shown above in respect of adjusted operating profit and lost before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual report and accounts due to the reclassification of non-insurance business to Other Group activities 5 Includes unwind of discount and pension scheme net finance costs
Operational highlights • Launched a profitability action plan with over 30 distinct actions to improve financial performance. • Completed 155 rate changes in personal lines. • Piloted automated quoting for small commercial lines business. • Completed the integration of RBC GI, decommissioning legacy
• Reduced our number of offices from 27 to 21 which reduced our operational footprint (square footage) by 25%.
Market context and challenges During 2018, adjusted operating profit1 remained flat compared to the prior year as we continue to experience poor results in the Canadian motor market. Regulatory challenges, including restrictions on price increases, are faced in both the provinces of Ontario and Alberta, affecting the speed of our turnaround. Impacts from adverse weather conditions continue with current year catastrophe losses of £77 million well above the 5-year historical average of £58 million.
EUROPE Overview Aviva has a focused approach in Europe with insurance operations in France, Italy, Poland, Ireland and Turkey. In the year we have completed our disposal of Spain and one of our joint ventures in Italy and acquired Friends First in Ireland.
We have over 10 million customers and operate a multi-line model across all our European businesses except for Turkey where we offer life and savings products.
Cash remitted to Group3,4 447 485 Expenses Operating expenses3 847 820 Integration and restructuring costs — 36 847 856 New business Present value of new business premiums (PVNBP)3 12,641 12,065 Value of new business on an adjusted Solvency II basis
France (excl. Antarius) 436 403 110 104 Poland 170 156 20 21 Italy (excl. Avipop) 156 136 32 26 Ireland 44 33 56 53 Other Europe (excl. Spain)5 10 12 — — Total (excl. Antarius,
4 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland are not aligned to our management structure within Europe, but they are reported within the United Kingdom 5 Includes Turkey.
• In Poland, adjusted operating profit1,2 was £170 million (2017: £156 million), an increase of 8% as a result of the favourable impact of equity market movements on assets under management3 increasing fee income and an improved mix towards protection business.
• In Ireland, adjusted operating profit1,2 increased to £44 million (2017: £33 million), an increase of 31% mainly driven by the acquisition of Friends First, longevity releases and asset mix optimisation on the annuity book, partially offset by lower sales of annuity products.
• In Turkey, adjusted operating profit1,2 was lower at £10 million (2017: £12 million), due to adverse foreign exchange movements. However on a constant currency basis, profits were up 8% due to growth in protection products.
• In Poland, adjusted operating profit1,2 was £20 million (2017: £21 million) with the slight decrease mainly due to motor business with improved performance in other lines of business.
• In Italy, adjusted operating profit1,2 increased to £32 million (2017: £26 million) mainly driven by claims management actions on the motor book.
• In Ireland, adjusted operating profit1,2 increased to £56 million (2017: £53 million) driven by improvements to product mix and higher earned premiums, partially offset by an increase in large claims.
Profit before tax attributable to shareholders’ profits2 has reduced to £995 million (2017: £1,044 million) as a result of lower profits on disposal compared to 2017, partially offset by lower adverse investment variances and economic assumption changes.
New business Excluding disposals, PVNBP3 was up by 20% to £12,625 million (2017: £10,552 million) and VNB3 increased by 13%. In Italy VNB3 growth of 36% was mainly due to continued growth in sales of our hybrid savings product. In France, PVNBP3 was up 6% reflecting growth in sales of savings products, although VNB3 was down 4% primarily due to reduced protection volumes and new business margin reflecting increased competition in this market.
• In France we achieved strong profit growth and continued to outperform the market by shifting our product mix towards capital-efficient unit-linked products. In 2018, we realigned under a single brand and made it easy for our customers to get the same products at the same price no matter which distribution channel they choose. We were also the first insurer to be granted a license to transfer our pensions business into a supplementary occupational pension fund (known as FRPS), improving our capital efficiency and providing a unique offering to retirement and pensions customers.
• In Italy our hybrid product continued to be highly successful, supported by our continued innovation and top performing funds, driving strong value of new business on an adjusted Solvency II basis (VNB)3 growth and net flows in the Group.
• Our Polish business has experienced profit growth due mainly to positive macroeconomic factors and supported by a strong reputation in the market. MyAviva platform has increased both the unique user base and the number of online transactions. The Santander relationship in Poland has been improved and there is a good level of growth from ING Poland.
‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information 2 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual report and accounts due to the reclassification of Other operations to Other Group activities. 3 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 4 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland are not aligned to our management structure within Europe, but they are reported within the United Kingdom
Market context and challenges • In France we offer a full range of life, general insurance, protection and health insurance products with strength in distribution through AFER, the number 1 savers association2, UFF the number 2 financial adviser network2 and through our number 2 direct general insurance business2. In late 2018 the French government proposed new laws that seek to shift savings and investment towards the real economy, bringing about further opportunities for our savings and retirement business.
• In Italy we offer life, general and health insurance, with distribution through two major bancassurance partnerships, multi-agents and independent financial advisers. Political uncertainty and a change of government have caused volatility in financial markets.
• In Poland we are one of the leading life insurers3 with one of the largest tied agent salesforces on the market. We provide general insurance distributed through a direct sales network, financial advisers and two key bancassurance partnerships.
• In Ireland we are a market leading composite insurer4, and continue to benefit from a strong macroeconomic environment with high GDP and low unemployment. Despite softening in the general insurance market, we achieved a 92% combined operating ratio (COR)5 demonstrating the strength of our underwriting capability.
Priorities for 2019 • In France we will leverage the benefits of our single brand with focus on four customer propositions (digital, professionals, affluent and partnerships). We will also look to strengthen our broker distribution and develop savings solutions aligned to customer needs and the real economy, continuing to shift our product mix towards unit-linked products and grow our protection business.
• In Poland we remain focused on digitising through both selfservice and IFA platforms. We will continue expansion of bancassurance partnerships with additional product launches in pipeline and also look to exploit profitable and growing niches in group life business and commercial lines general insurance.
• In Ireland we will focus on delivering the benefits of a strong combined life insurance business with the integration of Friends First. In particular, we will invest in new propositions and improved customer journeys to meet the changing needs of our customers. We will maintain a market leading position in general insurance by leveraging our best-in-class underwriting, pricing and indemnity management capabilities, and will continue to invest in digitisation to improve efficiency and our customer experience.
Overview We are focused on six key markets: four large populous nations China, India, Indonesia and Vietnam, and two advanced regional wealth management centres in Hong Kong and Singapore. These markets provide an accessible population of over 3 billion people with relatively low insurance penetrations compared to more developed Western markets. This offers us tremendous growth opportunities in the region.
Investment in Asia’s distribution, digital and analytics capabilities continued throughout 2018. Singapore continues to grow its distribution network, including our financial adviser subsidiaries Aviva Financial Advisers with 816 (2017: 673) advisers and Professional Investment Advisory Services with 724 (2017: 593) advisers on board. Aviva-COFCO, our joint venture in China, posted a modest growth in adjusted operating profit1,3 amid regulatory tightening and an economic slowdown. In Hong Kong, we launched Blue, our new digital life joint venture with Tencent and Hillhouse in September 2018, which is expected to disrupt the insurance market. Aviva Vietnam, which is now a wholly owned subsidiary, is accelerating its business via a stronger partnership with Vietinbank. In 2018, we also completed the sale of our entire 49% shareholding in a joint venture in Taiwan.
Adjusted operating profit1,3 Life 300 235 General insurance & health (16) (8)
186 207 New business Present value of new business premiums (PVNBP)2 2,656 2,719 Value of new business on an adjusted Solvency II basis (VNB)2 189 162
General Insurance Combined Operating Ratio (COR)2 122.1% 123.2% Net written premiums (NWP) 13 13
Total (excl. FPI, Taiwan) 149 115 General insurance & health adjusted operating
The general insurance and health business reported a £16 million adjusted operating loss1,3 (2017: £8 million loss) as a result of higher claims experience in our health business in Singapore. Management has identified a number of actions, including re-pricing, product design changes and cost containment measures to improve the portfolio performance. These remediation actions have commenced in 2018 and will continue throughout 2019.
Cash Cash remitted to Group2 in 2018 was £6 million (2017: £nil) as the successful progress of our business in Singapore has allowed the business to resume paying a dividend.
PVNBP VNB2 New Business Margin Gross of tax and non-controlling interests 1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information 2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
3 The amounts shown above in respect of adjusted operating profit and profit before tax attributable to shareholders’ profits do not reconcile to the corresponding amounts in note 5 – ‘Segmental information’ within the Annual report and accounts due to the reclassification of non-insurance business to Other Group activities.
While PVNBP1 has remained stable at £2,656 million in 2018, estimated VNB1 increased by 18% to £189 million (2017: £162 million). Excluding FPI and Taiwan, VNB1 increased 22% to £191 million (2017: £161 million), primarily driven by Singapore where higher new business volumes from the financial advisory channel and an improved product mix towards protection products improved VNB1 to £152 million (2017: £123 million).
Net written premiums (NWP) and combined operating ratio (COR1) General insurance NWP were flat at £13 million (2017: £13 million). The general insurance COR1 improved by 1.1pp to 122.1% (2017: 123.2%) as a result of improved claims experience.
Market context and challenges We continue to believe that the long-term favourable trends of the emerging middle-class, increasing awareness of retirement planning and a growing market in healthcare will persist across the region. We also believe Asia will continue to outperform other markets in insurance growth towards 2020. Rising interest rates could also potentially benefit life insurers.
Asia is experiencing rapid growth in internet, social media and mobile activity, and China is leading in the technology revolution and digital applications. Today, digital has become an essential part of our daily lives and we are strongly encouraged by the Asian governments’ support of Fintech and consumers’ continued rapid adoption.
• We will continue to invest in our digital capabilities which will help us to drive customer engagement, improve customer experiences and increase operational efficiency
• We will further embrace the True Customer Composite model in Asia to serve our customers in life, health, general insurance and asset management
• Our focus in China is to accelerate growth by enhancing our agency programme and geographical branch expansion
1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
Overview We are Aviva’s global asset management business with expertise in multi-asset, fixed income, equity, real assets and solutions. We currently invest £331 billion on behalf of our customers across a number of major markets. This gives us the size and scale to successfully seek out opportunities that will deliver specific investor outcomes.
Aviva Investors’ strategy is to be a global leader in outcomeorientated solutions. Being an integral part of the Group, we provide asset management services and solutions to both internal and external customers, while at the same time building our external base of institutional and wholesale clients around the world. We combine our insurance heritage and DNA with our skills and experience in asset allocation, portfolio construction and risk management to provide asset management solutions to institutional, wholesale and Aviva’s end retail clients. These solutions deliver the investment outcomes clients are looking for.
Revenue: Fee income 597 577 Expenses Operating expenses2 447 409 Integration and restructuring costs — 3 447 412 Adjusted operating profit1,2 Fund management 150 168 Other operations — 32
We continue to invest in growing our investment capabilities across all asset classes and propositions, particularly in strengthening Equities. During the year, we created a new Real Assets division, focused on direct real estate and infrastructure investing. We further expanded our distribution capability, particularly in the US. As a result, we have experienced new business wins across a broader range of products, creating a more diversified client base.
Expenses Operating expenses2 in Aviva Investors were £447 million (2017: £409 million). The increase in expenses reflects our investment in our front office capabilities and expanded distribution reach. It also reflects increased costs due to regulatory changes.
Assets under management2 decreased by £20.0 billion to £330.7 billion (2017: £350.7 billion) during the period. This is due to £6.3 billion of disposals3, £12.4 billion adverse market and foreign exchange movements and £1.3 billion net outflows. Assets under management and administration2 at 31 December 2018 were £359.8 billion (2017: £381.2 billion).
Operational highlights • We took a decision to strengthen our Equity team in 2018. David
Cumming was hired to head the area and we added an additional 14 portfolio managers to bolster both our standalone Equity propositions and idea generation for our multi-asset solutions.
• We created an integrated Real Assets business in May, combining our Real Estate and Alternative Income Solutions functions. We are already at a position of strength, as we have a long history in this area and £40 billion of assets under management2. With global allocations to private assets expected to double by 2025, we now have the right structure in place to deliver opportunities for clients.
• As part of the integration of our Real Assets business, we transferred our indirect Real Estate Multi-Manager business and our interest in the management of a pan-European commercial property fund to another leading real estate global asset manager.
• We also created a new solutions function under Al Denholm, focused on insurance solutions and environmental, social thinking and governance (ESG) capabilities while working across our broad capability set to deliver tailored outcome-orientated solutions for the Group and external clients.
1 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section, note 5 ‘Segmental Information’ and ‘Other Information’ within the Annual report and accounts for further information 2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section of the Annual report and accounts.
In a slowing growth environment, market participants are likely to focus even more on the downside risks. That should provide a basis for positive, but likely mixed returns across risk assets.
• Continuing to build out our distribution efforts in key markets including third party insurers and partnerships with global financial institutions
Types of risk inherent to our business model Risks customers transfer to us • Life insurance risk includes longevity risk (annuity customers living longer than we expect), mortality risk (customers with life protection), critical illness risk, expense risk (the amount it costs us to administer policies) and persistency risk (customers lapsing or surrendering their policies)
create uncertainty in our ability to offer a minimum investment return on our investments
• Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form
Risks from our operations and other business risks • Operational risk is the risk of direct or indirect loss, arising from inadequate or failed internal processes, people and systems, or external events including changes in the regulatory environment
We like credit risk as we believe we have the expertise to manage it and the structural investment advantages conferred to insurers with long-dated, relatively illiquid liabilities enable us to earn superior investment returns.
Life insurance risk • Longevity1 • Persistency • Mortality • Expenses
We take measured amounts of life insurance risk provided we have the appropriate core skills in underwriting and pricing. We like longevity risk as it diversifies well (i.e. has little or no correlation against other risks we retain).
• Maintaining committed borrowing facilities (£1.65 billion) from banks • Asset liability matching methodology develops optimal asset portfolio maturity structures in our businesses to ensure cash flows are sufficient to meet liabilities
• Commercial paper issuance • Use of our limit framework covering minimum liquidity cover ratio and minimum central liquidity • Contingency funding plan in place to address liquidity funding requirements in a significant stress scenario Asset management risk • Fund liquidity, performance and margin, Product, and Persistency risks
Operational risks specific to asset management should generally be reduced to as low a level as is commercially sensible, on the basis that taking on these risks will rarely provide us with an upside.
• Product development and review process • Investment performance and risk management oversight and review process • Propositions based on customer needs • Client relationship teams managing client retention risk
Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information Strategic report Governance IFRS financial statements Other information
Over the last few years we have taken significant steps to reduce the sensitivity of our balance sheet to investment risks. We aim to closely durationmatch assets and liabilities and take additional measures to limit interest rate risk. We hold substantial capital against market risks, and we protect our capital with a variety of hedging strategies to reduce our sensitivity to shocks. We regularly monitor our exposures and employ both formal and ad hoc processes to evaluate changing market conditions. Other actions taken in the past include reducing sales of products with guarantees and shifting our sales towards protection and unit-linked products.
UK-EU relations (Brexit uncertainty) – there remains considerable uncertainty over the UK’s future relationship with the EU, and the implications for economic growth and productivity and in the longer term for financial services regulation, including Solvency II.
We actively engage with governments and regulators in the development of public policy and regulation. We do this to understand how public policy may change and to help ensure better outcomes for our customers and the Company. The Group’s multi-channel distribution and product strategy and geographic diversification underpin the Group’s adaptability to public policy risk, and often provides a hedge to the risk. For example, since the end of compulsory annuitisation in 2015 in the UK we have compensated for falling sales of individual annuities by increasing sales of other life and pension products including bulk purchase annuities.
The UK government’s lack of parliamentary majority and Brexit divisions could trigger a general election and change of government resulting in a shift in public policy with consequences for the products we sell and our investment strategy. Planned key UK regulatory changes include Guaranteed Minimum Pension equalisation, renewal pricing, Equity Release Mortgage regulation, changes to the Ogden rate and Whiplash Reform. In our other markets: general elections will be held in Canada and Poland in 2019; in France the Pacte Law 1 will significantly change the French savings market; and Italy-EU relations may remain volatile over Italian fiscal policy.
New technologies & data – failure to understand and react to the impact of new technology and its effect on customer behaviour and how we distribute products could potentially result in our business model becoming obsolete. Failure to keep pace with the use of data to price more accurately and to detect insurance fraud could lead to loss of competitive advantage and underwriting losses.
Aviva’s strategy is focused on transformation into a digital leader by taking an enterprise-wide approach to digital and automation, focused on: [1] Digital customer centric propositions (e.g. AvivaPlus) [2] A single view of the customer, consolidating individual and company data on a single platform [3] MyAviva, our digital portal for customers and intermediaries [4] Quantum, our data science practice facilitating market leading innovation in use of data analytics to significantly improve the customer journey (e.g. Ask it Never), improve our understanding of how customers interact with us, and improve underwriting margins. Our Data Charter sets out our public commitment to use data responsibly and securely. Considerable work is going into modernising our legacy infrastructure.
Global average temperatures over the last five years have been the hottest on record. Despite the UNFCCC Paris agreement, the current trend of increasing CO2e emissions is expected to continue with global temperatures likely to exceed pre-industrial levels by at least 2oC and weather events (floods, droughts, windstorms) increasing in frequency and severity. Disclosure of potential impacts against various climate scenarios and time horizons will become increasingly common for all companies.
Medical advances and healthier life styles – these contribute to an increase in life expectancy of our annuity customers and thus future payments over their lifetime may be higher than we currently expect.
We monitor our own experience carefully and analyse external population data to identify emerging trends. Detailed analysis of the factors that influence mortality informs our pricing and reserving policies. We add qualitative medical expert inputs to our statistical analysis and analyse factors influencing mortality and trends in mortality by cause of death. We also use longevity swaps to hedge some of the longevity risk from the Aviva Staff Pension Scheme and longevity reinsurance for bulk purchase annuities and guaranteed annuity options.
There is considerable uncertainty as to whether the improvements in life expectancy that has been experienced over the last 40 years will continue into the future. Despite continued medical advances emerging, dietary changes, increasing obesity and strains on public health services have begun to slow this trend, leading in the UK to some significant industry-wide longevity reserve releases in 2018, and in the longer term may even result in a reversal in the trend of increasing life expectancy.
In 2018 there continued to be several high profile cyber security incidents for corporates in the UK and elsewhere, and we expect this to further increase in 2019 as the multiple threat sources, including cyber criminals and rogue states, become ever more sophisticated and given the growing importance of digital automation in business strategy. We will continuously review the near-to-mid-term threat environment to ensure that our cyber investment remains appropriate to mitigate the continued and changing nature of the cyber threat.
We expect customers will be much more in control, expecting to self-service and self-solve. They will want to access data and insight and use it to guide their own decisions. However, we also expect regulatory scrutiny to increase to ensure we continue to serve and treat fairly our existing customers who are vulnerable and less digitally aware.
Our businesses are required to identify business critical outsourced functions (internal and external) and for each to have exit and termination plans and business continuity and disaster recovery plans in the event of supplier failure, which are reviewed annually. Business continuity and disaster recovery plans are subject to at least annual testing. We also carry out supplier financial stability reviews at least annually.
Defying uncertainty Aviva’s purpose to Defy Uncertainty means helping our customers look to the future with confidence. To do that we have to be a responsible, sustainable business so that we can help protect and improve the future for everyone.
Doing the right thing for our customers, our communities and the wider society we serve underpins the long-term growth of our business. We need a healthy planet, strong communities and a sustainable global economy so that we can all continue to thrive.
As a result we are committed to helping tackle some of the world’s most pressing social and environmental challenges, from the implications of aging populations to climate change. We were particularly proud this year to receive the UN Foundation’s leadership award in recognition of our work to support the UN’s Sustainable Development Goals (SDGs).
Putting the customer at the centre of everything we do It all starts with helping our 33 million customers protect what’s important to them and save for the future. In 2018 we paid out £32.9 billion in benefits and claims around the world. We pay out 98%1 of all claims. We are improving our digital technology to pay our customers more quickly and simplifying language so our customers can better understand what their policy covers. We have also enhanced our support for vulnerable customers.
During 2018, Aviva Ventures, our global capital investment business, invested in a number of start-ups that have a positive social impact such as Biofourmis, a personalised healthcare analytics platform that uses Artificial Intelligence and Machine Learning to predict health deterioration.
We work hard to offer great customer service and this is reflected in our NPS score® which measures the likelihood of our customers to recommend Aviva. Eight out of nine of our businesses are at or above the market average which is an increase on last year. We have renewed our strategic partnership with the British Red Cross (BRC) for a further two years. Through this partnership, we have trained our frontline service team in crisis response to better respond to our customers’ personal emergencies (watch the video at As a result, those who received the psychosocial training from the BRC secured a 6% uplift in customer satisfaction.
We know that we do not always get it right and we take any complaints and feedback we receive seriously and investigate them thoroughly. Our customer service commitment is reflected in the Customer Experience Business Standard all our markets abide by (see the policies section of www.aviva.com/social-purpose).
Making a difference in communities The Aviva Community Fund (ACF) is now launched in ten markets and helps local communities on a range of issues from social inclusion and diversity to supporting small and medium enterprises (SMEs) and water sanitation.
We have a zero-tolerance approach to acts of bribery and corruption and to manage this we have a risk management framework which sets policies and standards across all markets. These policies and standards apply to everyone at Aviva and it is the responsibility of CEOs (or equivalent) to ensure that their business operates in line with them.
Details of the Company’s compliance with the Code can be found in the Directors’ and Corporate Governance Report in the Annual report and accounts and online at www.aviva.com/investors/corporate-governance. The activities of the Board Governance Committee can be found in the Governance Committee Report in the Annual report and accounts.
We have assessed the environmental risks that we face as a business. The most significant of these is the potential impact of climate change on our customers’ lives and our company’s assets. More detail can be found in this report in the ‘Risk and risk management’ section and in ‘Our climate-related financial disclosure’ section below.
Caring more about human rights: Respecting human rights is the right thing to do and it makes commercial sense. We support initiatives such as the Corporate Human Rights Benchmark and participate in forums, such as the UK Home Office ‘Business Against Slavery’.
Our approach to modern slavery is part our overall approach to human rights. In 2018, we: • Expanded the scope of our work to include Canada, Poland,
Number of cases of modern slavery discovered at Aviva or in our supply chain —
From 2019, we will also report on two additional KPIs: % of supplier and contract owners in Aviva that have received training on modern slavery during the year and number of suppliers engaged by Aviva that declare they have improved their management of MSA risks as a result of this engagement1.
Towards a more sustainable future Responsible investment is central to the way we deliver on Aviva’s values to care more and create legacy. We use Environmental, Social and Governance (ESG) insight to re-orientate capital away from short-term thinking and actively promote good practice among the companies in which we invest. We aim to identify and reduce ESG risks in our portfolios by understanding the quality of the Board of directors of a company and its strategy on issues, such as climate change, human rights or the Living Wage. This helps us gauge how well prepared they are to deal with current or emerging ESG issues.
We continue to engage with a range of governments and wider stakeholders worldwide, to drive market reform. This work included co-convening a Finance Summit in July with HRH the Prince of Wales at St James’ Palace and participating in the G20 Investor Summit in Buenos Aires.
As a further example of our commitment to the environment, Aviva Investors became one of the largest shareholders in DS Smith, a disruptor in the packaging and recycling industry with the majority of their packaging materials now coming from recovered resources, contributing to a reduction in waste to landfill. Aviva’s operations in the UK continue to uphold our zero to landfill commitment which we achieved in 2015. In 2018 we pledged to avoid single-use plastics in all our sites which has resulted in a 50-tonne reduction in waste per year.
We continue to manage the impact of our business on the environment. Our Corporate Responsibility, Environment and Climate change business standard focuses on the most material operational environmental impacts, which we have identified as greenhouse gas emissions. We report these as carbon dioxide equivalent emissions (CO2e) on an operational basis in respect of Aviva’s Group-wide operations. See the table below.
In addition to the car share, we have been granted planning permission to install a car park solar system at our Horizon building in Norwich. This will be the first of its kind anywhere in the UK and will make Horizon energy self-sufficient when the sun is shining. The array will be made up of 1,908 solar panels which will generate 528,148 kWh per year. The Horizon building will consume 68% of this clean energy and will export the remainder into the national grid. The annual carbon emissions saved will be around 232 tonnes per annum. Last year, Aviva Investors made a £400 million investment to help fund the construction of what will be the world’s largest offshore windfarm (www.avivainvestors.com/en-gb/about/companynews /2018/11/aviva-investors-finances-construction-of-hornsea-1).
2018 1.6 2.06 2017 1.6 2.48 2016 2.0 3.12 * 2018 Assurance provided by PricewaterhouseCoopers LLP available at www.aviva.com/CRkpisandassurance2018 ** Carbon offsetting through the acquisition and surrender of emissions units on the voluntary and compliance markets.
Corporate responsibility (CR) key performance indicators (including 2016-2018 figures) and the accompanying limited assurance statement by PwC can be found on www.aviva.com/social-purpose, alongside Aviva’s 2018 CR Summary and Environmental, Social and Governance Data sheet. More details of our internal diversity, inclusion and wellbeing approach can be found in the ‘Our People’ section of this report.
As an international insurance group1, our sustainability and financial strength is underpinned by an effective risk management framework. Our business is directly impacted by the effects of climate change. Aviva believes that unmitigated climate-related risks present a systemic threat to financial stability over the coming decades.
Governance Acknowledging the increasing impact of climate-related changes, Aviva has built a strong system of governance, with effective and robust controls. Aviva’s Chief Risk Officer and Group General Counsel and Company Secretary are the executive sponsors overseeing this disclosure. However, other group executives and local markets are responsible for managing specific areas of the business which may impact or be impacted by climate change: insurance, asset management, operations and finance.
• The Board Governance Committee met 4 times in 2018 to oversee how Aviva meets its corporate and societal obligations and formally considered Aviva’s strategic approach to climate change during the year. This includes setting the guidance, direction and policies for Aviva’s customer and corporate responsibility agenda and advising the Board and management.
For example, our general insurance business considers risks in the underwriting and pricing processes and setting the reinsurance strategy based on a relatively short time horizon (one to three years). Aviva recognises that the increased severity and frequency of weather-related losses has the potential to negatively impact our profitability. Consequently, large catastrophic losses are already explicitly considered in our economic capital modelling to ensure resilience to such catastrophic scenarios.
Alongside this strategic investment response, Aviva has continued to further integrate consideration of climate-related risks and opportunities into our insurance products. For example: • GI reinsurance is now set on an annual aggregate basis and on a per occurrence basis, taking into account the possibility of extreme weather events
• Limit our exposure to underwriting the most carbon intensive elements of the economy through restrictions in the terms of our Group Underwriting Boundaries for sectors such as mining and power generation. In line with our commitments to manage climate change, Aviva’s Global Corporate and Specialty team has announced an immediate move away from insuring fossil fuel power production to renewable energy generation in the UK.
Aviva continues to deliver in all areas of our current climate change strategy. However, in the light of the latest Intergovernmental Panel on Climate Change (IPCC) report1 and the risk of climate tipping points being reached that could cause runaway warming, as well as the findings from our internal analysis of potential climate change impacts, our strategy is being refreshed to accelerate our ambition to be aligned to a 2°C (or lower) transition.
Aviva considers climate change to be a material long-term risk to our business model, and a proximate risk, because its impacts are already being felt. We are therefore taking action now to mitigate and manage the impacts of climate change both today and in the future. Through these actions, Aviva continues to build resilience to climate-related transition, physical and liability risks.
The Climate VaR includes the financial impact of transition risks and opportunities. This covers the projected costs of policy action related to limiting greenhouse gas emissions as well as projected profit from green revenues arising from developing new technologies and patents. In addition, it captures the financial impact of physical risks from extreme weather (e.g. flood, windstorm and wildfires) as well as the impact of rising sea levels and mean temperatures, although we recognise that the most extreme physical effects may only be felt in the second half of the century. Aviva also recognises the growing trend in climate-related litigation and has assessed its potential exposure to litigation risks accordingly.
Metrics and targets In addition to Climate VaR, Aviva uses a variety of other metrics to manage, monitor and report its alignment with global or national targets on climate change mitigation and the associated potential financial impact on our business. These are covered below.
We use carbon foot-printing and weighted average carbon intensity data (tCO2e/£m sales) to assess and manage the exposure of our assets to a potential increase in carbon prices. In addition, we measure our operational carbon emissions and we have already reduced our emissions by 60% since 2010 and have a long-term reduction target of 70% by 2030 compared to this baseline. In 2018, Aviva was recognised as one of 20 companies that reported 100% of their Scope 12 emissions. These figures can be found in the expanded version of this report (www.aviva.com/socialpurpose /policies).
Aviva has used Carbon Delta’s warming potential metric to assess our corporate bond and equity holdings’ alignment with the Paris agreement 2°C target. This warming potential methodology captures investments’ Scope 12 emissions as well as investments in low-carbon technology to provide a forward-looking perspective. We plan to extend this analysis to our whole portfolio over time.
Aviva has used Notre-Dame University’s Notre Dame-Global Adaptation Index measure for country climate change risk to assess the physical risk profile of Sovereign holdings. This measure considers exposure and vulnerability to climate change; readiness and adaptation; ability to raise money for mitigation and postdisaster repair; ability to raise money via taxation and debt; reliance on foreign aid and support of the International Monetary Fund and other supra-national bodies.
Aviva uses the Global Real Estate Sustainability Benchmark to understand climate resilience and broader sustainability performance of individual properties and real estate funds within our investment portfolio. In 2018, we assessed the performance of 18 property funds and Aviva Investors have achieved 32 green stars. Whilst three funds have improved their performance over the year, the remaining fifteen recorded a small reduction in their overall score. This is because the benchmark is designed to encourage continual improvement in the entities that it is assessing, and as such the scoring methodology becomes more challenging each year. We will continue to work in new areas to maintain and improve our scores.
We build the possibility of extreme weather events into our planning to ensure our pricing is adequate. Catastrophic event model results are supplemented by in-house disaster scenarios. We have purchased property catastrophe protection up to a 1-in-250year return period or beyond that limits Aviva’s losses depending on the territory to a relatively low retention level (£150 million on a per occurrence basis and £175 million on an annual aggregate basis).
1 www.ipcc.ch/sr15/ 2 Scope 1 emissions cover: natural gas, fugitive emissions, oil and company owned cars 3 Coal 40 – 40 thermal coal mining and power generation companies selected from Aviva’s beneficial holdings for targeted engagement in an effort to influence the transition to a lower carbon economy www.aviva.com/social-purpose/policies www.aviva.com/social-purpose/policies www.aviva.com/social-purpose www.ipcc.ch/sr15/
In this section Page Chairman’s Governance Letter 40 Our Board of Directors 42 Directors’ and Corporate Governance Report 44 Directors’ Remuneration Report 68
Our governance Good governance is the foundation of what we do at Aviva. It underpins our values, our culture and the way we operate our businesses. Without good governance, we would be unable to deliver on our core purpose to help our customers ‘Defy Uncertainty.’
The Board also remains committed to ensuring that Aviva operates as a responsible corporate citizen, and we have taken steps to minimise our impact on the environment wherever we operate. This includes our commitment to avoid the use of single use plastics in our offices. We also see it as a vital part of our wider corporate purpose to support organisations such as the Red Cross, providing funds and volunteers to help victims of natural disasters and other emergencies both in the UK and globally (see our ‘Corporate responsibility’ report for more detail). In uncertain times our core purpose to ‘Defy Uncertainty’ is more pertinent and more important than ever.
Changes to the Board On 9 October 2018, Mark Wilson stepped down as Group CEO of Aviva and I became Executive Chairman whilst the search for a new CEO was underway. We were pleased to be able to interview a number of excellent internal and external candidates for the position in a thorough and highly competitive process. In this task, we were guided by the recommendations of our Nomination Committee who ensured that there was a diverse selection of candidates and that all the candidates aligned with the culture and value set of the company. This process led to a unanimous conclusion with the appointment of Maurice Tulloch as Group Chief Executive on 4 March 2019.
Maurice is appointed at a time of great challenge but also of great possibility, and we look forward to the future under his leadership with confidence and excitement.
Board and Group Executive diversity The charts below illustrate the diversity of the Board and senior management as at the date of this report.
Diversity remains an important area of focus, with the revised Code stressing the importance of diversity in creating a successful and sustainable business. The Board and I are committed to improving diversity in its widest sense, including gender, ethnicity, diversity of thought, tenure, age, experience, skills, geographical expertise, educational and professional background.
We continue to support the target for women to represent a minimum of 33% of our Board, and a minimum of 33% of Executive Committee members and direct reports, by 2020. As at the date of this report the percentage of women on the Board is 27%. Female representation on our Group Executive stands at 33%.
Sir Adrian Montague, CBE ▲ Position: Chairman Nationality: British Committee Membership: Nomination Committee (Chair) Tenure: 6 years 2 months. Appointed to the Board as a NonExecutive Director in January 2013, as Chairman in April 2015 and Executive Chairman from October 2018 to March 2019 Qualifications: MA, Law (Cambridge); Qualified Solicitor Skills and Experience: In October 2018 Sir Adrian was asked by the Board to assume executive responsibilities during the search for, and transition period to, a new Group Chief Executive Officer. After the appointment of the new Group Chief Executive Officer, Sir Adrian reverted to the role of Non-Executive Chairman. Having held appointments as Chairman of Anglian Water Group Ltd, Friends Provident plc, British Energy Group plc, Michael Page International plc and Crossrail Ltd, Sir Adrian possesses a wealth of experience as a Chairman. He has extensive leadership skills, together with deep knowledge of the financial services industry, government affairs and regulatory matters. His diverse skill-set and strategic awareness facilitate open discussion and allow for constructive challenge in the boardroom. External Appointments: Chairman of The Manchester Airports Group and Cadent Gas Ltd and trustee of the Commonwealth War Graves Foundation.
Andy Briggs n Position: Chief Executive Officer, UK Insurance Nationality: British Committee Membership: N/A Tenure: 3 years 11 months. Appointed to the Board as Executive Director in April 2015 Qualifications: Fellow of the Institute of Actuaries Skills and Experience: Andy is the CEO of UK Insurance and is responsible for all Aviva’s insurance businesses in the UK. Previously CEO of the Friends Life business, Andy’s knowledge and experience of the UK insurance sector is invaluable to the Board. His role as Senior Independent Director, and previously Chairman, of the Association of British Insurers gives him a unique perspective of the UK insurance industry and regulatory environment. External Appointments: Chairman of the NSPCC’s Fundraising Committee and a member of the Board of Trustees and Senior Independent Director of the Association of British Insurers. Andy is also the Government’s Business Champion for Older Workers.
Michael Hawker, AM* ▲ Position: Independent Non-Executive Director Nationality: Australian Committee Membership: Risk Committee (Chair), Audit Committee, Nomination Committee Tenure: 9 years 2 months. Appointed to the Board in January 2010 Qualifications: BSc (University of Sydney); Senior Fellow of the Financial Services Institute of Australia Skills and Experience: Michael brings to the Board broad experience from his career in both the banking and insurance industries within Europe, Asia and Australia, which included seven years as CEO of Australia’s largest general insurer (IAG). Michael’s tenure at Aviva makes him well placed to determine the nature and extent of the potential risks that could stop Aviva achieving its strategic objectives and maintaining sound risk management and internal controls. External Appointments: Non-Executive Director of Macquarie Group Ltd, Macquarie Bank Ltd, Washington H Soul Pattinson Pty and Company Limited (an investment house) and Rugby World Cup Ltd. Michael is also Chairman of The George Institute for Global Health.
*Michael Hawker will retire from the Board with effect from 31 March 2019.
Michael Mire ▲ Position: Independent Non-Executive Director Nationality: British Committee Membership: Governance Committee, Nomination Committee, Remuneration Committee, Risk Committee Tenure: 5 years 6 months. Appointed to the Board in September 2013 Qualifications: MBA, (Harvard) Skills and Experience: Michael has a detailed understanding of the financial services sector and a wealth of experience in business transformation and developing strategies for retail and financial services companies, which alongside his governmental experience, allows Michael to bring a unique perspective and insight to the Board. External Appointments: Chairman of HM Land Registry, NonExecutive Director of the Department of Health and Social Care, and senior adviser to Lazard.
Mark Wilson stepped down from the Board and as Chief Executive Officer of the Group on 9 October 2018 and will remain with the Group until April 2019.
The role profile for the position of Executive Chairman included arrangements for potential conflicts of interest in the execution of Sir Adrian’s executive responsibilities within the company alongside his role as Chairman of the Board. The role profile for the Senior Independent Director, Glyn Barker, was also amended to include additional responsibilities around assisting Sir Adrian in his Chairman’s role, and monitoring any issues around conflicts. No conflicts were identified in the discharge of the role of Executive Chairman. No additional remuneration was paid in respect of these additional responsibilities, as set out in the Directors’ Remuneration Report, and there were no other changes in the terms of any other directors during this period.
We announced in January that Michael Hawker will retire from the Board as a Non-Executive Director, as Chairman of the Risk Committee and as a member of the Audit and Nomination Committees, with effect from 31 March 2019. He has served as a Non-Executive Director since January 2010. We would like to thank Michael for his enormous contribution to Aviva over the past nine years. He has brought to the Board a wealth of knowledge and experience gained over a long career in the banking and insurance industries in both executive and non-executive roles in Europe, Asia and Australia, and has been a distinguished Chairman of the Risk Committee. The appointment of the new Risk Committee Chair is well advanced, and will be announced following the completion of the relevant regulatory approval process.
The Board As at the date of this report the Board is comprised of the Chairman, three Executive Directors and seven Independent Non-Executive Directors (NEDs). As noted above Michael Hawker will be retiring from the Board and the committees he serves on 31 March 2019. Details of the role of the Board and its committees are described in this report. The duties of the Board and of each of its committees are set out in the respective Terms of Reference. Our committees’ Terms of Reference can be found on the Company’s website at www.aviva.com/committees and are also available on request from the Group Company Secretary. The Terms of Reference list both matters that are specifically reserved for decision by our Board and those matters that must be reported to it. The Board delegates clearly defined responsibilities to various committees and reports from the Audit, Governance, Nomination and Risk Committees are contained in this report. A report from the Remuneration Committee is included in the Directors’ Remuneration Report.
Board diversity and inclusion Diversity and inclusion are integral parts of Aviva’s culture, and our Board seeks to reflect this. The Board agreed a Diversity and Inclusion Statement in May 2017 and this supports the Nomination Committee in its approach to succession planning, and was incorporated into the Committee’s approach to identifying Maurice Tulloch as our new Group CEO. The statement sets out our beliefs around the importance of diversity and inclusion in the Group, and aligns with our Global Inclusive Diversity Strategy (Diversity Strategy). The Diversity and Inclusion Statement can be found on the Company’s website at www.aviva.com/corporate-governance.
Board activities during 2018 Board strategy and business plans • Approved the 2019-2021 Group Plan and received presentations and reports from our businesses in respect of strategy execution and performance against the Group Plan
• Held an annual dedicated two day offsite strategy session in June 2018, supplemented by further specific strategy sessions, to review and further develop the Group’s strategy
• Discussed regular updates from the Chairman (or Executive Chairman when appointed) on Board matters for which he is responsible, such as Board composition
– Monitored customer reputation issues in relation to IT platform migrations
• Shareholders – Considered the views of major shareholders on company strategy and performance, and assessed investor sentiment more broadly in conjunction with the Group’s corporate brokers
Oversight of risk and risk management • Scrutinised reports from the Chief Risk Officer (CRO), and assessed the Group’s significant risks and regulatory issues, approved the Group’s risk appetite, approved the Group risk policies which provide the risk framework for managing risk across the Group, and received updates on the Group’s capital and liquidity position
• Reviewed and discussed the strategy for the simplification and rationalisation of legacy IT systems
• Undertook regular reviews of the Group’s cyber risk profile • Discussed updates on the operational impact of Brexit on the company; considered and agreed a risk management approach to Brexit planning
• Received assurance that governance structures remained appropriate for the businesses and the global markets in which we operate, while supporting the Group’s overall strategy and culture
Significant transactions and expenditure • Approved financial matters in line with the Group Funding Plan, including a capital return to shareholders via a £600 million share buyback programme, the redemption of the €500 million Tier 2 debt instrument, and the redemption of US$575 million perpetual subordinated loan notes issued by Friends Life Holdings plc (a Group subsidiary)
People, culture, succession planning and Board effectiveness • Reviewed and discussed the succession plan for the Board, with particular emphasis on identifying Maurice Tulloch, our new Group CEO
Board appointments Maurice Tulloch was appointed as Group CEO on 4 March 2019. Maurice was appointed following an extensive search that produced a shortlist of exceptional external and internal candidates. Maurice brings a deep understanding of insurance, both general and life insurance, to the board. He is exceptionally well qualified to reenergise Aviva and deliver long term growth.
The Board has processes in place to appoint NEDs who can apply their wider business skills, knowledge and experience to the oversight of the Group, and provide input and challenge in the boardroom to assist in the development and execution of the Board’s strategy. Similarly, Executive Director appointments are made to ensure the effective formulation and implementation of the Group’s strategy. The Nomination Committee, on behalf of the Board, reviews the skills of Board members at least annually, identifying any areas of skills, experience and knowledge that we can further strengthen. All director appointments are made by the Board and are subject to a formal, rigorous, and transparent process, and to the appropriate regulatory approvals. No new NED appointments were made during the year.
Michael Hawker has served as a director since his appointment in January 2010 and Glyn Barker since his appointment in February 2012. In accordance with Provision B.1.1 of the 2016 Code, the independence of Michael Hawker and Glyn Barker was subject to a particularly stringent review by the Nomination Committee. The review recognised Michael Hawker’s deep knowledge of Aviva and his extensive operational experience of the insurance industry which he brings to his role as Chair of the Risk Committee and to the Board. Glyn’s deep understanding of accounting and regulatory issues and his extensive experience as a business leader means he also continues to provide independent insight and challenge in the boardroom. After careful consideration, it was agreed that both Michael and Glyn remain independent and continue to make a valuable contribution to the Board. Michael Hawker will step down from the Board and its committees on 31 March 2019. The appointment of the new Risk Committee Chair is well advanced, and will be announced following the completion of the relevant regulatory approval process.
Time commitment Each NED must be able to devote sufficient time to the role in order to discharge his or her responsibilities effectively. The Chairman assesses the time commitment of the NEDs as part of the annual review of their effectiveness, and the Senior Independent Director (SID) reviews the time commitment of the Chairman. This assessment takes into account the number of external commitments each director has and considers whether each director has demonstrated that they have sufficient time to devote to their present role within Aviva including under potential periods of corporate stress.
Aviva plc Board Collectively responsible for promoting the long-term sustainability of the Company, generating value for shareholders in a manner which also allows it to discharge its responsibilities to its stakeholders. The Board sets the Group’s purpose, strategy and values, and seeks to ensure that the culture of the Group is aligned with these. The Board sets the Group’s risk appetite and satisfies itself that financial controls and risk management systems are robust, whilst ensuring the Group is adequately resourced.
Senior Independent Director was expanded to ensure that any potential conflicts between the Chairman’s role as Executive Chairman and Non-Executive Chairman were managed appropriately. The creation of the Chairman’s Committee, an increased personal time commitment to Aviva, and the interim nature of the role, enabled Sir Adrian to effectively discharge the role of Executive Chairman.
Conflicts of interest In accordance with the Companies Act 2006, the Company’s Articles of Association allow the Board to authorise potential conflicts of interest that may arise and to impose such limits or conditions as it thinks fit. The decision to authorise a conflict of interest can only be made by non-conflicted directors (those who have no interest in the matter being considered) and in making such a decision the directors must act in a way they consider, in good faith, will be most likely to promote the Company’s success for the benefit of its shareholders as a whole.
Induction, training and development The Board believes strongly in the professional development of the directors and all the Group’s employees. Each director commits to continuing their professional development as part of their service contract. During the year, the directors attended a number of internal training sessions on topics including longevity assumptions, cash and operating capital generation and responsible investing. Training sessions have been built into the Board and Committees’ plans for 2019. The Chairman ensures that any new directors receive a comprehensive induction programme over a number of months, tailored to their particular needs. All new directors would receive induction materials, which include: the current strategic and operational plan; recent Board and committee minutes and meeting packs; organisation structure charts; role profiles; a history of the Group; and relevant policies, procedures and governance material. Any knowledge or skill enhancements identified during the director’s regulatory application process would also be addressed through their induction programme. No new non-executive directors were appointed during the year.
Board calendar During 2018, 14 Board meetings were held, of which nine were scheduled meetings and five were additional meetings called at short notice. In addition, the Board delegated responsibility for certain items to specially created Board committees, which met twice only to discuss these particular items.
Board priorities The Board made solid progress during 2018 on a number of the objectives set at the beginning of the year. These included the execution of capital management strategies to reduce expensive subordinated debt; the buy-back of £600m of ordinary shares and further increase in value for our shareholders by implementing the fourth consecutive year of double digit dividend growth. Succession planning was also a focus of activity in relation to the departure of Mark Wilson and the identification of a new Group CEO.
During 2019, the Board’s agenda will focus on further orientating the organisation towards our customers, embedding our new CEO, continuing to evolve our strategy and simplifying our IT estate. The Board will continue to drive progress to achieve consistently excellent customer service and a comprehensive product offering that meets customers’ evolving needs. Digital First will remain our preferred approach, for example through our new AvivaPlus proposition. We will continue to monitor our risks and controls around IT and Cyber Security, the operational impact of Brexit, and developments in our IT platforms that will simplify and support digitising our service delivery to customers. Offsite strategy days are used to set, and reflect on progress against the Company’s strategy. In these sessions the Board discusses the strategic priorities for the year ahead and sets the three-year strategic plan and these sessions will continue to occur in 2019.
The Audit, Governance and Risk Committees will continue to consider the opportunities and risks associated with each market and the Remuneration Committee will assess any consequential impact on reward decisions. As part of our employee engagement commitments, the Board will continue to interact with the Evolution Council, ‘Your Forum’, and other employee forums and to carefully consider and respond to the annual all-employee survey, ‘Voice of Aviva’. Succession planning and the continued development of the talent pipeline will continue to be a focus for both the Board and the Nomination Committee.
In addition, during the year the NEDs, led by the Chairman, met to discuss the executives’ performance. The NEDs, led by the SID Glyn Barker, also met without the Chairman present to consider the Chairman’s performance.
The identification of Maurice Tulloch as our new Group CEO built on the succession planning work carried out by the Board in previous years. The Board also considered ways in which a pipeline of suitable candidates for executive and non-executive directorships could be maintained and enhanced, and refreshed and strengthened its NED succession framework during the year.
The annual Chairman’s conference was held in November 2018, allowing the Board to engage with subsidiary company board members. The appointment of Non-Executive Directors from the Board to the Group’s material subsidiaries has strengthened communications and strategic linkages between Group companies. During the course of the year, the Board received reports and deep dives into different business areas and markets and held a Board meeting in Italy to get a greater insight into the Italian business and to meet with the Italian board. A number of Aviva plc directors also attended subsidiary board meetings.
Culture Diversity and inclusion The Board is committed to playing a leading role in maintaining a culture which values diversity and inclusion throughout the Group. It uses information from the Voice of Aviva all-employee engagement survey, input from the Evolution Council and from NED participation in the ‘Your Forum’ employee forum to increase insight into our Group’s culture. The Board monitors closely feedback from the Group employee survey and the progress of culture development programmes.
Our stakeholders Why they are important to us How are we engaging
Customers Our customers are the users of our products and services and are those who we support to ‘Defy Uncertainty.’ We serve customers in our eight major markets and in other jurisdictions where we have strategic investments.
The Board receives regular updates on our community activities, such as our partnership with the Red Cross, and the establishment of the Aviva Foundation. The Governance Committee supports the Board in this area and approves the corporate responsibility strategy for the Group and oversees the implementation of that strategy.
Employee engagement The 2018 Code, which Aviva will report against in our 2019 Annual report and accounts, sets out three ways in which companies can engage with the workforce. The Board will consider its approach during the year and currently the company is applying a hybrid arrangement. This consists of engagement with ‘Your Forum’, our workforce engagement forum, which is supplemented by attendance from Non-Executive Directors where appropriate. The Evolution Council provides a further employee engagement forum and is also attended by Board members. This enables the Board attendees to share output from these employee bodies with the wider Board and provide feedback to the Your Forum and Evolution Council. In addition to these arrangements the Board meets with employees at ‘Talent Breakfasts’ and regularly conducts business unit meetings to engage with a wider pool of employees.
A robust assessment was conducted by the Board of the principal risks facing the Company, including consideration by the Risk Committee of those emerging risks that could impact the Group’s business model, future performance, solvency and liquidity. In 2018 the Risk Committee reviewed a number of emerging risk scenarios and focused on Brexit (regular updates), systemic cloud risk and ‘silent cyber’, competitive threats from technology companies entering the insurance market, risks posed by climate change, outsourcing supplier collapse risk and other emerging risks and sources of market uncertainty. Further information is contained in the Risk Committee report.
Third line – internal audit The third line of defence is Internal Audit. This function provides independent and objective assessment on the robustness of the RMF and the appropriateness and effectiveness of internal control to the Audit, Governance and Risk Committees, market audit committees and the Board. Further information can be found in the Audit Committee report.
Assists the Board in its oversight of risk and risk management across the Group and makes recommendations on risk appetite to the Board. Reviews the effectiveness of the Risk Management Framework, and the methodology in determining the Group’s capital and liquidity requirements. Ensures that risk management is properly considered in setting remuneration policy.
Board oversight of risk management The Board’s delegated responsibilities regarding oversight of risk management and the approach to internal controls are set out on the previous pages. There are good working relationships between the Board committees and they provide regular reports to the Board on their activities and escalate significant matters where appropriate. The responsibilities and activities of each Board committee are set out in the committee reports.
The effectiveness assessment also draws on the regular cycle of assurance activity conducted during the year, as well as the results of the annual assessment process. During 2018, this has been supported by the application of the Group’s Operational Risk & Control Management framework. Through this the Group has defined a common system and methodology for the management of operational risks and the controls to be deployed throughout the Group. This framework includes tools, processes and standardised reporting necessary to identify, measure, manage, monitor and report on the operational risks to which the business is, or could be, exposed and the controls in place to mitigate those risks within centrally set tolerances. The details of key failings or weaknesses are reported to the Audit Committee and the Board on a regular basis and are summarised annually to enable them to carry out an effectiveness assessment.
Communication with shareholders The Company places considerable importance on communication with shareholders. The Executive Directors have an ongoing dialogue and a programme of meetings with institutional investors, fund managers and analysts which are managed by the Company’s Investor Relations function. The Chairman met a number of the Company’s major shareholders during 2018. At these meetings a range of issues were discussed within the constraints of information already made public, to understand shareholders’ perspectives. Shareholders’ views are regularly communicated to the Board through the Group CEO’s, or Executive Chairman’s, and CFO’s reports and weekly briefings from the corporate brokers and the Investor Relations function. The SID was available to meet with major investors to discuss any concerns that could not be resolved through normal channels.
Committee focus during 2018 I am pleased to present the Nomination Committee’s report for the year ended 31 December 2018.
On 9 October 2018, the Group Chief Executive Officer (Group CEO) Mark Wilson stepped down from the Board and during the remainder of the year, the Committee was focused on overseeing the selection process for the new Group CEO.
Committee membership The members of the Committee are shown in the table below. Details of their experience and qualifications are shown in the Directors’ biographies, and their attendance at Committee meetings during the year is shown within the Directors’ and Corporate Governance report. There were no changes to the composition of the Committee during 2018.
In January 2019, we announced that Michael Hawker would retire from the Board as a Non-Executive Director and as Chairman of the Risk Committee and as a member of the Audit and Nomination Committees with effect from 31 March 2019. The appointment of the new Risk Committee Chair is well advanced and will be announced following completion of the relevant regulatory approval process.
Keith Williams 01/08/2016 2 1 Chair 2 Michael Hawker will retire from the Nomination Committee with effect from 31 March 2019.
Independence During 2018, the Committee reviewed the balance of skills, experience and independence of the Board. For Non-Executive Directors, independence in thought and judgement is vital to facilitating constructive and challenging debate in the boardroom, and is essential to the operational effectiveness of the Board and Committees of Aviva.
The Committee also reviews the appointment of Executive Directors to external positions. During the year Mark Wilson, at the time Group CEO, was invited to become a Non-Executive Director of BlackRock Inc. Aviva’s policy is to permit Executive Directors to hold one external Non-Executive role, provided there are no conflicts with the interests of Aviva, and to retain any fees from such appointments. The Committee considered the time commitment required by the BlackRock role and any potential conflicts of interest that might be created. Following a review of the proposed role and a discussion of the potential conflicts, the Committee authorised Mark’s acceptance of the BlackRock Non-Executive Director role, subject to certain safeguards being put in place around potential conflicts of interest. These included the Group CEO recusing himself from any meetings that were held with BlackRock as a shareholder in the Company, with the Chairman and CFO assuming this responsibility. In addition the day-to-day management of Aviva Investors, the Group’s asset management business, was carried out directly by the management and Board of Aviva Investors.
CEO Appointment Maurice Tulloch was appointed as Group CEO on 4 March 2019 and was selected following an extensive search that produced a shortlist of exceptional candidates. The Committee appointed Spencer Stuart to support the search and interviewed a number of excellent internal and external candidates for the position in a thorough and highly competitive process. The Committee ensured that there was a diverse selection of candidates and that all the candidates aligned with the culture and value set of the Company. This process led to a unanimous conclusion with the Committee recommending the appointment of Maurice Tulloch as Group CEO.
In May 2017, the Board adopted a Diversity and Inclusion statement which supports the Committee in its approach to succession planning. This Diversity and Inclusion statement, which is in line with the overall Group Diversity and Inclusion strategy, is available on the Company’s website at www.aviva.com/corporategovernance.
Board effectiveness review The Committee undertakes a review of its effectiveness annually. More information can be found in the Directors’ and Corporate Governance report.
2019 priorities In 2019 the Committee will continue to focus on succession planning both for the Board and at senior management level, and will continue to develop a strong talent pipeline and associated leadership programmes.
Sir Adrian Montague Chair of the Nomination Committee 6 March 2019
Committee activities during 2018 Evaluation and annual assessment • Assessed the Non-Executive Directors’ independence • Considered and recommended to the Board the election/reelection of each continuing director ahead of their election/reelection by shareholders at the Company’s 2018 AGM
• Recommended the new succession planning framework to the Board for approval
The Company’s approach to risk and risk management together with the principal risks that face the Group are explained within the Risk and risk management section of this report.
Committee membership The members of the Committee are shown in the table below. Details of their experience and qualifications are shown in the Directors’ biographies, and attendance at Committee meetings during the year is shown within the Directors’ and Corporate Governance report. There were no changes to the composition of the Committee during 2018.
Keith Williams 03/08/2017 1 1 Chair. Michael Hawker will retire from the Risk Committee with effect from 31 March 2019. The appointment of the new Risk Committee Chair is well advanced, and will be announced following completion of the relevant regulatory approval process.
Committee purpose The main purpose of the Committee is to assist the Board in its oversight of risk within the Group, with particular focus on reviewing the Group’s risk appetite and risk profile in relation to capital, liquidity and franchise value and reviewing the effectiveness of the Group’s Risk Management Framework. The Committee reviews the methodology used in determining the Group’s capital requirements and stress testing and ensures that due diligence appraisals are carried out on strategic or significant transactions. In addition to the risks inherent in the Group’s investment portfolio, the Committee reviews the Group’s operational risks, and significant ongoing changes to the regulatory framework, while monitoring the prudential regulatory requirements across the Group. The Committee also works with the Remuneration Committee to ensure that risk management is properly considered in setting the Remuneration Policy, and is responsible for promoting a risk awareness culture for the Group.
The Committee reviewed the Group’s Cyber Dashboard, which focused on seven capabilities (threat led strategy, governance, security engineering, detect and respond, assurance, culture and recovery) and further enhanced how the Group assesses and manages cyber risk. The dashboard provides the Group with a strong framework and a simplified process with consistent measures which enables the Committee to review the progress of the Group’s capabilities for the benefit of all stakeholders. The Group also recently completed external benchmarking on the Cyber Controls and reviewed these controls within the Operational Risk & Control Management (ORCM) framework to provide increased clarity, rigour and understanding within the business units of the Group’s requirements.
During the year the Committee challenged the risk management of the Group’s IT estate and ensured business focus on network availability remained a priority to support our customer and business needs. The proposed transformation of the IT infrastructure in 2019 is a key part of supporting the end to end business process and provides enhanced capacity for the future. The Committee recognises that the risk cultural awareness in the businesses has been strengthened further, especially in relation to overall application governance and business prioritisation and remains satisfied that the appropriate steps are being taken to mitigate the risks of a complex IT estate.
Data migration During the year a number of data migration and functional service activities had not delivered the customer service outcomes we expected or required. The Committee reviewed the lessons learned from these activities and used the insights gained to further enhance risk assessments and monitoring ahead of future migration activity. The Company’s data migration risk profile has been driven largely by the Group’s external regulatory and conduct environment, and the impact of previous data migration projects. The Committee has further increased its focus on risk management within UK Insurance and Group-wide IT and change projects underway. The risks, governance, regulatory accountability, resource allocation, business prioritisation and project management around the Company’s overall change agenda was a particular focus of the Committee’s meeting agenda in 2018, and will continue to be a focus as we go into 2019. As a result, the Committee has requested that an enhanced governance structure be established for the most material Group change programmes. This enhanced structure has brought together members of the Board, Non-Executive Director representatives from key operating and regulated group boards, as well as senior executive management. This structure was further supplemented by representatives of the second and third line oversight functions (Risk and Internal Audit) with external third party assurance where appropriate. The enhanced structure supplemented the Committee Chair’s ongoing engagement with the Risk Committee Chairs in a number of our regulated subsidiaries.
While reviewing the risk profile the Committee oversaw the analysis of the Group’s current and projected Solvency II capital and liquidity position, which included reviewing forecasted operating capital generation over the plan period. The Committee reviewed the different levels of risk appetite and capital ranges across the Group and reviewed the capital positions in the Group’s subsidiaries and Group sensitivities.
Committee activities during 2018 Risk appetite, risk management and risk reporting • Reviewed reports from the Chief Risk Officer (CRO), which included updates on significant risks facing the Group, the Group’s capital and liquidity position, the control environment, emerging risks and risk profile, liquidity risk appetite and operational, regulatory and conduct risk
• Reviewed and recommended for Board approval the Group’s Solvency II (SII) Capital and Liquidity risk appetite
• Approved the Group’s foreign exchange risk appetite and SII capital risk tolerances by risk type
Group capital and liquidity, financial plan and stress testing • Approved the 2018 Group Capital and Liquidity Plan and subsequent updates • Reviewed capital and liquidity projections including the Group’s
Solvency II shareholder cover ratio and liquidity cover ratio • Reviewed updates on credit risk and the Company’s credit exposure and reviewed mitigating actions • Received updates on the asset portfolio; including global economics, assessment of macro economic impacts on the equity release market and investment updates
External factors • Reviewed regular updates on the performance of the Group’s investment portfolios and on the external economic environment, and assessed the implications on the Group’s asset portfolio
Supervisory Report and approved its submission to the regulator • Received updates on the disaster recovery, IT security, outsourcing and cyber risk MCITs, and monitored and challenged progress by management
Remuneration Committee • Reviewed the adequacy and quality of the risk management function • Assessed the performance of all Group Business Units against the 2018 Group Risk and Control Goal
Committee focus during 2018 I am pleased to present the Audit Committee’s report for the year ended 31 December 2018.
2018 has been a year of continued political and business turbulence as uncertainty around Brexit continued to impact financial markets and business planning. Against this background, the Committee has continued to focus on the fundamentals of financial reporting, our system of internal controls and the performance of the internal and external auditors. The potential impact of a number of new International Financial Reporting Standards (IFRS), including the new insurance accounting standard (IFRS 17) on the Company’s financial operations and financial reporting has remained under close review by the Committee.
Committee membership The members of the Committee are shown in the table below. Details of their experience, qualifications and attendance at Committee meetings, together with the number of Committee meetings held, during the year are shown in the Directors’ Biographies and Directors’ and Corporate Governance report. There were no changes of the composition of the Committee during 2018.
Committee member requirements The Committee annually reviews how its members meet the expertise criteria set out in the 2016 UK Corporate Governance Code (the 2016 Code) and the Disclosure Guidance and Transparency Rules (DTRs). Following the review undertaken for 2018, a recommendation was made to the Board that I, as Committee Chair, continued to fulfil the Code requirement for recent and relevant financial experience and the DTR requirement for competence in accounting and auditing, as did Glyn Barker. Patricia Cross and Michael Hawker confirmed that they meet the Code requirement for recent and relevant financial experience. The Committee as a whole has competence relevant to both the insurance and financial services industry.
Challenged estimates and judgements for IFRS and SII reporting bases. IFRS judgements included goodwill and intangible asset impairment reviews, valuation for hard to value investments, reserving for insurance contracts and the additional liability arising in the UK defined benefit pension schemes for Guaranteed Minimum Pensions (GMPs), following the High Court judgement in October 2018. The Committee also reviewed the product governance provision in respect of historical advised sales by Friends Provident.
Reviewed and challenged the principles underpinning the Statement for 2018, and concluded that the Company and its subsidiaries will be able to continue in operation and meet their liabilities as they become due over the period covered by the Statement. The Committee continues to consider it appropriate that the Statement covers a three year period.
Reviewed and challenged the principal assumptions in the calculation of the GI reserves, in particular the continued appropriateness of maintaining the provision for bodily injury claims, which was first made in the 2016 financial statements. The Committee continued to monitor progress in the changes in Ogden rate, noting the passing of the Civil Liability bill, and the range of estimates for the change in the rate.
External auditor PricewaterhouseCoopers LLP (PwC) was appointed as the Group’s External Auditor (Auditor) in 2012 following a formal tender process. In line with the Company’s policy for the external audit contract to be put out to tender at least every ten years, and in conformance with European rules on mandatory audit rotation, the Committee propose that a competitive tender process will next be completed no later than for the 2022 year end. While there is no requirement to rotate audit firms until the current auditor has served a maximum of 20 years, in determining the timing of a tender process the Committee is mindful that it is necessary to allow the selected auditor appropriate time to become independent should the Committee propose that an auditor other than PwC be selected to serve shareholders going forwards. For this reason, it is currently proposed that a tender process be completed in the 2020 financial year for the 2022 year end. The Committee will continue to monitor the effectiveness and independence of PwC, as well as considering whether this proposed timing remains appropriate in light of business developments.
The external audit is currently led by the PwC audit partner, Marcus Hine who has held the role for four years. The role of audit partner will be rotated after completion of the 2018 year end reporting process. The incoming PwC audit partner for the year ending 31 December 2019 has been agreed and a transition plan is in place.
Non-audit fees In 2018 the Group paid PwC £20.4 million (2017: £22.3 million) for audit and audit-related assurance services, a saving of £1.9 million following completion of the Friends Life Part VII transfer in 2017. In addition, PwC were paid £1.9 million (2017: £3.0 million) for other services, including £0.9 million (2017: £2.2 million) for other assurance services, giving a total fee to PwC of £22.3 million (2017: £25.3 million).
The Committee reviews and approves the bi-annual Internal Audit Plan. It also conducts an annual review of the Internal Audit Function to assess its effectiveness and to satisfy itself that the quality, experience and expertise of the Internal Audit function is appropriate for the business. This is carried out by reviewing reports issued by Internal Audit and the output of an annual stakeholder effectiveness survey. This formal process is supplemented by regular private discussions with executive management, the Internal Auditor, and the External Auditor. In 2018, the Internal Audit function also undertook an external quality assurance review, and the Committee assessed the outcome of this review. The Committee concluded that for 2018 the function performed well and remained effective.
Whistleblowing The Committee Chair is the whistleblowers’ champion for the Group and has responsibility to oversee the integrity, independence and effectiveness of the Group’s policies. The Committee as a whole is responsible for establishing and overseeing the effectiveness of controls put in place in accordance with regulatory requirements in respect of whistleblowing. The Board annually receives a formal report in respect of whistleblowing activity and compliance in line with our regulatory requirements.
Committee effectiveness review The Committee undertakes a rigorous review of its effectiveness annually. More information can be found in the ‘Directors’ and Corporate Governance report’ in this report.
2019 priorities In 2019, in addition to carrying out its principal function, the Committee will continue to monitor the implementation of the new IFRS, with particular focus on IFRS 17, regarding the accounting treatment of insurance contracts, ahead of its expected effective date of 1 January 2022. The Committee will also closely monitor the developments related to the impact of Brexit, changes in the Ogden rate and will continue to support the development of the ORCM framework.
UK Life and GI operations • Reviewed and challenged the treatment and recoverability of goodwill and other intangible assets • Reviewed the Chief Financial Officer’s reports which included: IFRS and SII key issues and judgements; accounting developments with particular regard to the new IFRSs; and overview of internal control and risk management over financial reporting
• Reviewed and challenged the going concern assumptions for 2018 and the principles underpinning our Longer Term Viability Statement
Internal audit • Reviewed reports from the Chief Audit Officer (CAO) • Reviewed and approved changes to our Internal Audit Charter and
Internal controls, including financial reporting control framework and financial reporting developments • Received quarterly updates on the effectiveness of our FRCF
framework and rectification of controls • Reviewed management’s assessment of the effectiveness of our risk management and control environment • Oversaw the MCIT programme • Reviewed the Internal Audit function report to ensure adequacy of our systems of internal control and risk management • Ensured an appropriate whistleblowing framework was in place
Committee focus during 2018 I am pleased to present the Governance Committee’s report for the year ended 31 December 2018.
Committee membership The members of the Committee are shown in the table below. Details of their experience, qualifications and attendance at Committee meetings during the year are shown within the Directors’ and Corporate Governance report. There were no changes to the composition of the Committee during 2018.
Customers During 2018, the Committee received regular updates from management on how we measure customer satisfaction and brand metrics. The regular review of a dashboard of customer data metrics helps us better understand our customers’ needs, the challenges they face and how we can address these.
In addition to these enhancements, the Committee has conducted ‘deep dives’ into customer complaints when our products and services have not met our customers’ expectations for any reason, and monitored the resulting upskilling of our people and improvements in our IT systems as we support our customer contact colleagues.
The Committee has also been updated on the culture action programme which aims to drive delivery of our customer first and operational simplicity goals.
Data Ahead of the implementation date of the General Data Protection Regulation (GDPR) the Committee reviewed our data governance arrangements and monitored our implementation preparations.
The Committee has also reviewed our broader approach to data privacy to assess how Aviva demonstrates that it uses customer information appropriately.
Conduct agenda In the past year the Committee has continued to pay close attention to Aviva’s conduct risk agenda.
In addition to UK conduct risks, the Committee has also reviewed conduct and compliance risks across our markets. During the year, the Committee received a deep dive on conduct risk in our Singapore business from the Chief Risk Officer of Aviva Singapore and in our Polish business from the Chief Executive Officer of Aviva Poland.
Governance The Committee focused on changes in the internal governance of the Group, particularly governance within our subsidiary businesses. A set of subsidiary governance principles were put in place in 2016 within the Group to provide a consistent governance framework. As part of a review and refresh of the principles, in 2018 a succession management framework was established for subsidiary entities to consider board succession planning, non-executive director tenure profiling and the skills and composition of the boards. The Committee has provided oversight of the succession framework and this has led to enhanced visibility of the subsidiary boards.
Compliance The Committee has monitored material compliance developments and changes in the regulatory landscape from a conduct risk perspective. The Committee also approves the annual Group Compliance Plan and reviews performance against this plan. The Committee continued to monitor the financial crime risks for the Group, and associated action plans and during the year particularly focused on further strengthening first line antifraud controls. The Committee also monitored the Financial Crime Transformation Programme that built on the existing financial crime structures.
Corporate responsibility The Committee continued to monitor our approach to corporate responsibility and the corporate responsibility strategy to build pride and trust in our company. During the year, the Committee reviewed Aviva’s reporting on modern slavery and also received updates on the Aviva Foundation, which has been established to distribute the proceeds of our share forfeiture programme which became operational in 2018. At the end of 2018, £3 million had been raised for the Aviva Foundation.
2019 priorities In 2019, the Committee will continue to review the customer agenda, concentrating on further improving the experience we provide to customers and reviewing customer conduct risk matters.
We will also review the scope and potential outcomes from a governance review of our UK businesses and how this might be reflected in changes to our governance framework across the Aviva Group.
The Committee will also monitor the wellbeing and engagement of our people through responses to the Voice of Aviva surveys and the embedding of our culture action programme.
Committee activities during 2018 Customer and risk • Focused on the customer agenda and received regular updates and monitored progress on customer metrics relating to customer complaints and the conduct agenda, sales, retention and claims experience
• Reviewed the Group’s modern slavery statement, annual corporate responsibility reporting and the Group’s Financial Crime, Regulatory Business and Corporate Responsibility, Environment and Climate Change Business Standards
• Monitored the Group’s compliance with the UK Corporate Governance Code and other areas of regulation and guidance
Oversight Director • Reviewed potential financial crime risks and any actions required in response • Monitored data governance • Monitored the Group’s relationship and interaction with regulatory bodies and actions taken in respect of regulatory developments
Details of significant post balance sheet events that have occurred after 31 December 2018 are disclosed in note 65.
Related party transactions Related party transactions are disclosed in note 62 which is incorporated into this report by reference.
(2017: 8.4 pence) • Proposed final dividend of 20.75 pence per ordinary share
Subject to shareholder approval at the 2019 AGM, the final dividend for 2018 will become due and payable on 30 May 2019 to all holders of ordinary shares on the Register of Members at the close of business on 12 April 2019 (payment date approximately four business days later for holders of the Company’s American Depositary Shares (ADS)). In compliance with the rules issued by the Prudential Regulation Authority in relation to the implementation of the Solvency II regime, the dividend is required to remain cancellable at any point prior to becoming due and payable and to be cancelled if, prior to payment, the Group ceases to hold capital resources equal to or in excess of its Solvency Capital Requirement, or if that would be the case if the dividend was paid. Details of any dividend waivers are disclosed in note 34.
Dividend policy For the full year dividend for 2018 the Board of Directors has proposed a 9% increase to 30.0 pence per share. We are moving to a progressive dividend policy. Moderating the rate of dividend per share growth will enhance our flexibility to repay debt and invest in business improvement.
UK insurance regulatory laws applicable to UK Life and our other UK subsidiaries impose no statutory restrictions on an insurer’s ability to declare a dividend, the rules require maintenance of each insurance company’s solvency margin, which might impact their ability to pay dividends to the parent company. Our other life, general insurance, and fund management subsidiaries’ ability to pay dividends and make loans to the parent company is similarly restricted by local corporate or insurance laws and regulations. In all jurisdictions, when paying dividends, the relevant subsidiary must take into account its capital position and must set the level of dividend to maintain sufficient capital to meet minimum solvency requirements and any additional target capital expected by local regulators. We do not believe that the legal and regulatory restrictions constitute a material limitation on the ability of our businesses to meet their obligations or to pay dividends to the parent company, Aviva plc.
Acquisition of own shares A share re-purchase programme was one method by which we intended to return capital to shareholders. Our capital strength provided us with significant flexibility in terms of capital allocation, and as a result we outlined plans to commence a share buy-back of ordinary shares. The Board believed that a buy-back was a compelling use of Aviva’s excess capital.
Details of shares purchased, held or disposed by employee share plan trusts on behalf of the Company in 2018 are set out in note 34.
Details of the Company’s share capital and shares under option at 31 December 2018 and shares issued during the year are given in notes 32 to 35. The calculation of earnings per share and the impact of the share buy-back on the number of shares in issue is included in note 15.
Rights and obligations attaching to the Company’s ordinary shares and preference shares Rights and obligations attaching to the Company’s shares together with the powers of the Company’s directors are set out in the Company’s articles of association (the Articles), copies of which can be obtained from Companies House and the Company’s website at www.aviva.com/articles, or by writing to the Group Company Secretary. The powers of the Company’s directors are subject to relevant legislation and, in certain circumstances (including in relation to the issue or buying back by the Company of its shares), are subject to authority being given to the directors by shareholders at a general meeting. At the 2019 AGM, shareholders will be asked to renew the directors’ authority to allot new securities. Details are contained in the Notice of 2019 Annual General Meeting (Notice of AGM).
Authority to purchase own shares Details of shares purchased during 2018 are outlined above. At the 2019 AGM, shareholders will be asked to renew these authorities for another year and the resolution will once again propose a maximum aggregate number of ordinary shares which the Company can purchase of less than 10% of the issued ordinary share capital. Details are contained in the Notice of AGM available at www.aviva.com/agm. The Company held no treasury shares during the year or up to the date of this report.
Shareholder Notified holdings Nature of holding Notified holdings Nature of holding
Directors The directors as at the date of this report, together with their biographical details and details of Board appointments, resignations and retirements during the year are shown earlier in the report.
Financial instruments Group companies use financial instruments to manage certain types of risks, including those relating to credit, foreign currency exchange, cash flow, liquidity, interest rates, and equity and property prices. Details of the objectives and management of these instruments are contained in the risk and capital management section and in note 59 on risk management.
Disclosure of information to the auditor In accordance with section 418 of the Companies Act 2006, the directors in office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s External Auditor, PricewaterhouseCoopers (PwC), is unaware and each director has taken all steps that ought to have been taken as a director in order to make themselves aware of any relevant audit information and to establish that PwC is aware of that information.
Annual general meeting The 2019 AGM of the Company will be held on Thursday 23 May 2019 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 11am. The Notice of AGM convening the meeting describes the business to be conducted thereat. Any proxy voting instruction, whether provided online, by post or via CREST, must be received by our Registrar, Computershare Investor Services PLC, by no later than 11am on Tuesday 21 May 2019. Further details can be found in the shareholder information section of the Notice of AGM.
The Group has considerable financial resources together with a diversified business model, with a spread of businesses and geographical reach. The directors believe the Group is well placed to manage its business risks successfully.
Based on this assessment, the directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year assessment period.
Fair, balanced and understandable To support the directors’ statement below that the annual report and accounts, taken as a whole, is fair, balanced and understandable, the Board considered the process followed to draft the annual report and accounts: • Each section of the annual report and accounts is prepared by a member of management with appropriate knowledge, seniority and experience. Each preparer receives guidance on the requirement for content included in the annual report and accounts to be fair, balanced and understandable
• An extensive verification process is undertaken to ensure factual accuracy
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.
The directors are responsible for making, and continuing to make, the Company’s Annual report and accounts available on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
‘Other Information’ within the Annual report and accounts for further information. 2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements
(where possible), can be found in the ‘Other Information’ section of the Annual report and accounts. 3 The Ogden discount rate is set by the Lord Chancellor and is applied when calculating the present value of future care costs and loss of earnings for claims settlement purposes. In December 2018, the Civil Liability Bill became an Act of Parliament, and it includes a change in the way the Ogden discount rate is set. Although the rate remains uncertain, it is anticipated that the Government will set a discount rate which is higher than the current -0.75% rate. Aviva has adopted a rate of 0.0% within the full year 2018 reserves. For remuneration purposes, the net impact of the 2016 and 2018 rate changes are incorporated.
Company performance during 2018 2018 has been a year of steady performance overall for Aviva. The Group’s businesses have delivered broad-based growth, with six out of our eight major markets increasing Group adjusted operating profit1 in 2018, while continuing to invest in improving the fundamentals of the business and maintaining a prudent approach to pricing and risk management.
Aviva’s progress in recent years has positioned the Group well, putting in place strong financial foundations from which to grow. Solvency II capital surplus remained strong, with an increase in the Group’s cover ratio during 2018, despite weaker investment markets and the deployment of £1.5 billion to repay debt and repurchase shares. Profitability has also continued to grow, with Group adjusted operating profit1 before tax rising 2%, while operating Earnings Per Share (EPS)2 increased 7%. Aviva’s continued financial strength and satisfactory performance has contributed to the Board proposing a 9% increase in the full-year dividend.
Externally, the Committee recognises that challenges remain. Uncertainty in the political and economic backdrop persists, while the regulatory environment also continues to evolve. Coupled with competitive insurance and savings markets, this has provided a challenging macro-environment for the Group.
Remuneration decisions for 2018 2018 Annual Bonus In considering outcomes under the annual bonus scorecard, the Committee has reflected on the financial and strategic performance of the Group during 2018, including: • Operating EPS2, operating capital generation2 and cash remittances2 performance were strong, with out-turns on all three showing healthy year-on-year improvement.
• The Group continued its digital transformation in 2018. Growth of 47% in MyAviva active customers resulted in performance between threshold and target. The number of customers with Multiple Product Holdings (MPH) also grew, although performance was below threshold on this element, falling short of the stretching targets set by the Committee at the start of the year.
Separately, however, the Committee was mindful that when the government announced its decision in February 2017 to reduce the Ogden rate3, the degree of uncertainty around where the rate would finally land meant that we delayed the impact on remuneration outcomes. On 20 March 2018 the Government announced it will introduce the Civil Liability Bill (Bill) which includes provisions to amend the Ogden discount rate. In December 2018, the Bill became an Act of Parliament, meaning that the new rate will be set by the Lord Chancellor in 2019. While there is certainty that there will be a change in the Ogden rate in 2019, uncertainty remains around the amount and timing of the final rate. In the Group accounts the claims reserves have been calculated using a discount rate of 0.0%, though the rate to be announced by the Lord Chancellor later this year may result in a different discount rate. The Committee is satisfied that it is appropriate now to reflect this change in the annual bonus pools for 2018.
Accordingly, the assumed discount rate of 0.0% in 2018 has reduced the outcome under the operating EPS2 measure, resulting in a reduction in the bonus scorecard outcome of 31.3% (to 106.5%). Adjustments may be considered in future years should the final Ogden rate be different from 0.0%.
Under our remuneration framework, the annual bonus scorecard outcome is also subject to (i) a quality of earnings review, (ii) performance against non-financial modifiers focused on employee engagement, customer outcomes, and risk and controls, and (iii) individual performance. The Committee was satisfied that the quality of earnings assessment was appropriately robust, but determined that a 5% downward adjustment should be applied to the scorecard outcome (to 101.5%) under the Risk & Control modifier.
1 Adjusted RoE relate to the 2016 LTIP award only and represent RoE calculated as IFRS profit after tax and non-controlling interest but excluding investment variances, economic assumption changes, pension scheme income/ charge over average IFRS equity (excluding pension scheme net surplus/ deficit).
2016-18 Long Term Incentive Plan (LTIP) As a result of our three-year performance over the 2016-18 period, the 2016 LTIP vested at 50% of maximum. This reflected strong performance against the adjusted Return on Equity (RoE)1 performance condition, while the relative Total Shareholder Return (TSR) condition lapsed. The outcome also reflects the impact of an assumed Ogden rate of 0.0%, although this made no difference to the final level of vesting.
Appointment of new Group Chief Executive Officer (CEO) As announced on 4 March 2019, the Board appointed Maurice Tulloch as our new Group CEO with immediate effect. The Committee gave careful consideration to the remuneration package for Maurice, in doing so taking into account the terms of our Remuneration Policy (Policy), Maurice’s current remuneration arrangements, shareholder expectations, and the provisions of the 2018 UK Corporate Governance Code (2018 Code).
Maurice’s remuneration consists of: • A salary of £975,000 per annum • Our standard benefits package for EDs, including private family medical insurance, life insurance, and reasonable travel benefits • Pension contributions of 14% of salary • An annual bonus opportunity of 200% of salary, with one-third of any bonus earned paid in cash after the year end, and two-thirds deferred into shares which will vest in equal annual tranches over three years
• Assistance with relocation from Canada to the UK, of an amount up to £250,000 exclusive of tax, payable against receipted costs incurred within a period of 24 months from the date of appointment
As announced on 9 October 2018, the Committee, in its discretion, determined that all of Mark’s outstanding LTIP awards should lapse as at the date of departure. Mark retained his deferred bonus shares under the Annual Bonus Plan (ABP) as the Committee’s view was that these had been earned based on previous performance under the ABP. All awards remain subject to malus and clawback.
Nevertheless, during the latter half of 2018, we discussed at length how the remaining provisions of the 2018 Code could be implemented in the most effective manner for the Company and all our stakeholders. To this end, we have made several changes and will continue to work towards identifying areas where our processes could be improved during 2019, as set out below: • Post-cessation shareholding guidelines: the Committee recognises the importance of ensuring that our EDs are aligned with long-term shareholder interests. Our existing shareholding guidelines, which apply during employment, require EDs to build up and maintain an appropriate level of shareholding in Aviva. To complement these the Committee have reviewed a proposed policy for post employment shareholdings. This will be implemented during 2019 and align to developing market practice. The current expectation is that EDs will be required to hold shares for a further two years following their departure from the Group and this will also apply to the GE. We have set the postcessation guideline at the same level as the current (within employment) guideline.
• Wider workforce pay and conditions: the Committee currently receives information from various sources in this area, but during 2019 we will work towards ensuring that we have access to a broader and more detailed suite of data regarding remunerationrelated policies throughout the wider workforce, ensuring that this is appropriately taken into account when considering incentive outcomes for EDs. This is in addition to the various workforce engagement mechanics currently in operation.
Gender Pay Gap Report (GPGR) Last year we outlined our commitment to increasing the focus on our diversity agenda at Aviva and our ambition of achieving
Bonus Customer and financial outcomes continue to be the focus for the Company as critical drivers of our short and longer term success. Consequently, 70% of the bonus will continue to be based on financial performance, although we have changed the balance of the relative weightings, increasing the emphasis on cash remittances1.
RNPS has been replaced within the Customer non-financial modifier with a measure of brand trust. The employee engagement and risk and control modifiers remain unchanged.
The Committee considers that these changes are important to ensure that remuneration is aligned with and supports our strategic focus on driving continuous improvement in our customer performance.
This section of the report sets out how Aviva has implemented its Policy for EDs during the course of 2018. This is in accordance with the requirements of the Large & Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
During the year, the Committee received assistance in considering executive remuneration from a number of senior managers, who attended certain meetings (or parts thereof) by invitation during the year, including: • the former Group CEO; • the Chief Financial Officer (CFO); • the Chief People Officer; • the Group Reward Director; • the Chief Accounting Officer; • the Chief Audit Officer; • the Group Chief Risk Officer; and • the Remuneration Committee Chair of Aviva Investors
During the year, the Committee received advice on executive remuneration matters from Deloitte LLP. Deloitte LLP were approved as advisors to the Committee in 2012 following a competitive tender process. The Committee regularly reviews and satisfies itself that the advice received from Deloitte LLP is independent and objective. The Committee notes they are a member of the Remuneration Consultants Group and adhere to its Code of Conduct. During the year, Deloitte LLP also provided advice to the Group on taxation, financial due diligence, risk, compliance and other consulting advisory services (including technology transformation and cyber). Tapestry Compliance LLP, appointed by the Company, provided advice on share incentive plan related matters, including on senior executive remuneration matters and views on shareholder perspectives.
During the year, Deloitte LLP were paid fees totalling £141,600 and Tapestry Compliance LLP were paid fees totalling £60,630 for their advice to the Committee on these matters. Fees were charged on a time plus expenses basis.
Committee performance and effectiveness During 2018, the Committee undertook an external evaluation of its effectiveness, alongside the exercise undertaken by the Board. Further details on how this has been carried out and the actions arising are contained in the Directors and Corporate Governance report.
• Approved our approach to the new requirements for CEO pay ratio reporting introduced by the Companies (Miscellaneous Reporting) Regulations 2018, and to other changes to reporting in remuneration
• Regularly reviewed the results of engagements with key investors, including discussions on the relationship between senior management remuneration policies and the Group’s strategic objectives
• Approved our 2018 GPGR and considered steps we could take to seek to decrease the gap
Senior management objectives, bonus target setting and pay decisions • Using external advisors, reviewed and benchmarked the EDs’
• Reviewed and approved the individual remuneration for each member of the GE for 2018 in relation to their performance against personal targets
• Approved the Aviva Investors 2018 Bonus Deferral Plan and the identification of the Financial Conduct Authority (FCA) Remuneration Code Staff/Material Risk Takers
• Discussed and approved the overall maximum bonus pool available to senior managers for the 2018 performance year, taking into account metrics on culture and risk as well as on financial performance
• Discussed and approved the ABP targets for 2018 in relation to the financial targets set in the 2018-2020 Group plan. Reviewed the strategic ambition targets set for 2018 in relation to the Company’s Digital First strategy including the number of active digital registrations and the volume of sales made www.aviva.com/remuneration-committee
Share plan operation and performance testing • Reviewed performance testing of all existing LTIP awards, and approved targets for the 2018 LTIP awards • Approved vesting of the 2015 LTIP and noted the interim testing for the 2016, 2017 and 2018 awards • Reviewed the proposed changes to future LTIP grants • Approved the terms of the Aviva Savings Related Share Option
Single total figures of remuneration for 2018 The table below sets out the total remuneration for 2018 and 2017 for each of our EDs. Sir Adrian Montague remained on his Non-Executive Chairman remuneration arrangements while acting as Executive Chairman for the period 9 October 2018 to 31 December 2018. Given that he was not performing the role of Group CEO and did not receive a typical CEO remuneration package, he is not shown in this table, and is instead shown in table 9.
Basic Salary1 816 1,028 728 708 746 726 706 373 2,996 2,835 Benefits2 99 107 85 86 44 53 51 39 279 285 Annual Bonus3 692 1,945 616 997 632 1,022 598 456 2,538 4,420 LTIP4 – 950 650 491 666 503 642 69 1,958 2,013 Pension5 229 288 204 198 209 203 198 104 840 793
Total 1,836 4,318 2,283 2,480 2,297 2,507 2,195 1,041 8,611 10,346 1 Basic salary received during 2018. 2 The benefits disclosure includes the cost, where relevant, of private medical insurance, life insurance, accommodation, travel and car benefits. In the case of Mark and Andy this also includes benefits resulting from the UK
HMRC tax-advantaged SAYE plan, and for Andy the UK HMRC tax-advantaged share incentive plan, the All Employee Share Ownership Plan (AESOP), in which they participate on the same basis as all eligible employees. All numbers disclosed include the tax charged on the benefits, where applicable.
5 Pension contributions consist of employer defined contribution benefits, excluding salary exchange contributions made by the employees, plus cash payments in lieu of pension. EDs are eligible to participate in a defined contribution plan and receive pension contributions and/or a cash pension allowance from the Company in aggregate totaling 28% of basic salary (14% of salary for Maurice following appointment as Group CEO). No ED has prospective entitlement to benefit in a defined benefit scheme.
6 Mark stepped down as Group CEO and left the Board on 9 October 2018; values for 2018 relate to the period whilst he was an ED. Details of Mark’s leaving arrangements are set out on page 79. 7 For Maurice, his 2017 values only relate to his qualifying services as a Director of Aviva from 20 June 2017, when he was appointed as an ED. His basic salary, bonus and benefits are set in Canadian dollars and have been converted to sterling using an average exchange rate for 2018 of CAD 1.73. 8 Year on year decrease is primarily driven by the lower bonus outcomes and prorating of Mark and the lapse of his LTIP award.
Performance is assessed against defined minimum, target and maximum targets. The scorecard contains a business unit modifier for EDs other than the Group CEO.
Step III – Individual performance The modified bonus scorecard outcome provides a pool for funding for bonuses. Actual bonus decisions are made based on: • Individual contribution and achievements; • How the individual has assisted the Group achieve progress against its strategic objectives; • The leadership they have exhibited; and • How the individual has demonstrated Aviva’s values.
The impact of individual performance is not determined in a formulaic manner, with the Committee instead applying judgement as to whether any adjustment is warranted. In recent years adjustments have been in the region of +/-10%.
As outlined in the Chair’s letter on page 68, the Committee was mindful that when the Government announced its decision in February 2017 to reduce the Ogden rate, the degree of uncertainty around where the rate would finally land meant that we delayed the impact on remuneration outcomes. On 20 March 2018 the Government announced it will introduce the Bill which includes provisions to amend the Ogden discount rate. In December 2018, the Bill became an Act of Parliament, meaning that the new rate will be set by the Lord Chancellor in 2019. While there is certainty that there will be a change in the Ogden rate in 2019, uncertainty remains around the amount and timing of the final rate. In the Group accounts the claims reserves have been calculated using a discount rate of 0.0%, though the rate to be announced by the Lord Chancellor later this year may result in a different discount rate. The Committee is satisfied that it is appropriate to reflect this change in the annual bonus pools for 2018.
Accordingly, the assumed discount rate of 0.0% in 2018 has reduced the outcome, under the operating EPS1 measures, resulting in a reduction in the bonus scorecard outcome of 31.3% (to 106.5%). The Committee would highlight that adjustments may be considered in future years should the final Ogden rate be different from 0.0%.
Operating EPS1 30.0% 51.2p 55.4p 59.6p 58.2p 52.5p 19.7% Cash remittances1 15.0% £2,753m £2,976m £3,199m £3,137m £3,137m 50.0% Operating capital generation1 25.0% £1,848m £2,048m £2,248m £3,200m £3,200m 25.8% Total financial measures 70.0% — — — — — 95.5% Strategic measures (30% of total)
Most of our businesses/functions were rated as not falling short, against their overall goal in relation to risk, conduct and control outcomes. The assessments performed by our Risk and Internal Audit functions looked at the effectiveness and robustness of the risk framework and control environment. The outputs of the assessments were shared with the Risk and Audit Committees ahead of decisions being made on impacts to bonus. It was concluded that some specific business areas had been identified that would warrant bonus pool adjustments as part of determining incentive awards for 2018. As a result, the Committee applied a downward adjustment of 5% to the bonus scorecard outcome in respect of this modifier.
Mark Wilson Tom Stoddard Mark was Group CEO until 8 October 2018. Over this period Mark led the organisation to deliver strong financial results, continued progress on improving the culture and employee engagement, and oversaw our IT roadmap. There were a number of notable milestones in 2018: • Achieved 9% Group adjusted operating profit1 growth in our international markets, 7% in the UK, and 14% in Singapore • Continued strong balance sheet management, with the Solvency II
AvivaPlus, providing a solution to the UK market practice of pricing new business below that of renewing business and the launch of Blue, our joint venture with Hillhouse and Tencent in Hong Kong
• Completed the acquisition of Friends First in Ireland, and the divestment of our businesses in Taiwan and Spain. In addition, completed a £600 million share repurchase programme, the redemption of €500 million Tier 2 debt instrument and redeemed US$575 million Friends Life Holdings Plc subordinated notes
• Extended oversight of the finance function to coordinate improved delivery of Operational Risk and Control Management (ORCM) throughout the business
• Executed capital management actions including completing the share repurchase programme, completion of several M&A transactions and a reduction in our debt profile
• Improved employee engagement, empowering colleagues to simplify and put the customer at the heart of decision-making
• Continued progress made via True Customer Composite (TCC) among corporate customers. Strong growth in workplace pensions, bulk annuities, with our largest ever schemes in both these, and in commercial and corporate GI
Canada resulting in strong net flows in Italy, and a positive shift in business mix, diversified distribution and increased efficiency
• The recovery in the Canadian business is on track and accelerating to deliver sub 96% target combined operating ratio2 by 2020
• Growth continued in Ireland with the financial benefits of integrating Friends First. The Brexit transformation is on track with Part VII transfers underway
• Achieved significant top and bottom line growth in Global Corporate & Specialty and strong progress towards our strategic aims
• Maurice is proactively involved in the Aviva ‘Carers’ Community and is the sponsor for the Global Graduate Scheme
These issues were all taken into account in the individual performance assessments for the EDs and reflected in their annual bonuses. This resulted in a downward adjustment of 17.5% to the scorecard outcome for all EDs. As a result, annual bonuses for the EDs were 84% of salary.
Table 4 provides further detail of how these adjustments have been applied.
Strategic report Governance IFRS financial statements Other information 4 2018 bonus outcomes for Executive Directors
Target opportunity 100% of salary 100% of salary 100% of salary 100% of salary Maximum opportunity 200% of salary 150% of salary 150% of salary 150% of salary
2 This outcome is pro-rated to reflect the time served in the Group CEO role.
Discretion The Committee is conscious of the provisions of the 2018 Code, with remuneration committees being encouraged to review incentive outcomes against individual and company performance, together with any wider circumstances, and to exercise independent judgement and discretion in relation to remuneration outcomes. This reflects our current practice at Aviva. Taking into account the impact of the assumed discount rate of 0.0%, the outcome of the quality of earnings assessment and the non-financial modifiers, and an assessment of individual performance, the Committee is of the view that these outcomes appropriately reflect the overall performance of Aviva during the year and are aligned with the experience of shareholders over this period. Compared to 2017, there has been a 43% reduction in the overall annual bonus amount paid to the EDs (when measured on a like-for-like basis to reflect part-year service).
Quality of earnings assessment – 2018 remuneration decisions The Committee discussed those items that impacted the overall results in 2018 including foreign exchange, acquisitions and disposals, life assumption and modelling changes, prior year reserve development, and other items that are non-recurring in nature. This process provides the Committee with an understanding of the core profitability of the business taking these factors into account.
The 2016 LTIP vesting outcome also reflects the impact of an assumed Ogden rate of 0.0%, although it made no difference to the final level of vesting.
Andy Briggs 11 May 2018 LTIP 225% £1,642,496 20% 100% 31 Dec 2020 26 Mar 2023 26 Mar 2018 ABP 93% £681,332 N/A 26 Mar 2021 14 Oct 2016 AESOP 0.39% £3,005 N/A 12 Dec 2021
2 Face value for the awards granted on 26 March 2018 has been calculated using the average of the middle-market closing price of an Aviva ordinary share on the three consecutive business days immediately preceding the main date of grant, on 26 March 2018 of 504.00 pence. AESOP has been calculated using the average price achieved at purchase of the partnership shares throughout 2018 of 483.00 pence.
Operating EPS1 targets for awards made in 2018 Operating EPS1 performance determines the vesting of 50% of the LTIP award. Three-year targets are set annually within the context of the Company’s strategic plan. The 2018 targets are provided below.
Achievement of Operating EPS1 targets over the three-year performance period Percentage of shares in award that vests based on achievement of Operating EPS1 targets
Less than 4% p.a. 0% 4% p.a. 10% Between 4% p.a. and 10.0% p.a. Pro-rata between 10% and 50% on a straight line basis 10% p.a. and above 50%
TSR targets for awards made in 2018 Relative TSR performance determines the vesting of the other 50% of the LTIP award. For the 2018 grant, Aviva’s TSR performance will be assessed against that of the following companies: Aegon, Allianz, Assicurazioni Generali, AXA, CNP Assurances, Direct Line Group, Legal & General, Lloyds Banking Group, Old Mutual, Phoenix, Prudential, RSA, Standard Life Aberdeen and Zurich Insurance.
The performance period for the TSR performance condition is the three years beginning 1 January 2018. For the purposes of measuring the TSR performance condition, the Company’s TSR and that of the comparator group will be based on the 90-day average TSR for the period immediately preceding the start and end of the performance period. The vesting schedule is set out in the table below.
• Maurice will be eligible for the grant of an award under the LTIP for 2019 of 300% of basic salary • In taking on the role of Group CEO, Maurice is relocating from Canada to the UK. He will receive assistance with this relocation, of an amount up to £250,000 exclusive of tax, payable against receipted costs incurred within a period of 24 months from the date of appointment. Maurice is also subject to the Group CEO shareholding requirement of 300% of salary.
Payments to past directors (audited information) Russell Walls retired from the Board with effect from 8 May 2013. • Russell was appointed as a Non-Executive Director (NED) of Aviva Italia Holdings S.p.A on 4 December 2014 and on 30 April 2015 was appointed as Chair • On 13 April 2015 Russell was appointed as a NED of Aviva Annuity UK Limited, Aviva Life Holdings UK Limited, Aviva Life & Pensions UK
Limited, Friends Life and Pensions Limited and Friends Life Limited each of which are subsidiary companies of Aviva plc. Russell subsequently stepped down from all these boards on 28 February 2018
• The emoluments he received in respect of all these directorships for the 2018 financial year were £35,000 and €90,000 (as Chair of Aviva Italia Holdings S.p.A)
Mark received a pro-rated bonus in respect of 2018, reflecting the portion of the year worked prior to going on garden leave. No bonus will be payable in relation to 2019.
9 Total 2018 remuneration for Non-Executive Directors (audited information) The table below sets out the total remuneration earned by each NED who served during 2018 for Group-related activities.
Chairman Sir Adrian Montague 550 550 88 67 638 617 — — 638 617 Non-Executive Directors Claudia Arney2 155 140 2 1 157 141 78 40 235 181 Glyn Barker 168 164 3 3 171 167 — — 171 167 Patricia Cross 128 128 — — 128 128 60 53 188 181 Belén Romana García 105 105 10 8 115 113 40 1 155 114 Michael Hawker 138 138 — — 138 138 — 15 138 153 Michael Mire 118 117 1 1 119 118 — — 119 118 Keith Williams 150 124 2 3 152 127 — — 152 127 Total emoluments of NEDs 1,512 1,466 106 83 1,618 1,549 178 109 1,796 1,658 1 Benefits include the gross taxable value of expenses relating to accommodation, travel and other expenses incurred on Company business in accordance with our expense policy and may vary year-on-year dependent on the time required to be spent in the UK. 2 The 2018 Aviva plc fee payment includes £15,000 in arrears from Risk Committee fees which were omitted from payment in 2017 and paid in Q1 2018. The 2018 subsidiaries fees includes £7,345 in arrears from 2017 Chair fees paid in 2018.
The Aviva plc total amount paid to NEDs in 2018 was £1,618,000 which is within the limits set in the Company’s Articles of Association, as previously approved by shareholders.
Committee member of Aviva UK Digital Limited • Patricia Cross received an additional fee of £60,000 (2017: £52,808) in respect of her duties as Senior Independent Director of Aviva
Investors Holdings Limited • Belén Romana García received an additional fee of €44,712 (2017: €1,068) in respect of her duties as a Board member of Aviva Italia
Holding S.p.A., and as a committee member of the Audit and Risk Committees. Belén joined the Board on 19 December 2017 • Sir Adrian Montague became a director of Aviva Group Holdings Ltd on 9 October 2018. He received no fees in respect of this appointment
Percentage change in remuneration of the former Group CEO The table below sets out the increase in the basic salary, bonus and benefits of the former Group CEO and that of the wider workforce. The UK employee workforce was chosen as a suitable comparator group, as the former Group CEO and the majority of EDs are based in the UK (albeit with global responsibilities), and pay changes across the Group vary widely depending on local market conditions. Given that he served for a part-year only in 2018, the former Group CEO’s pay for the year has been annualised so as to provide an appropriate comparison with 2017.
Former Group CEO1 3.0% -53.8% 13.5% All UK-based employees2 6.1% 0.4% -5.2% 1 Salary, annual bonus and benefit amounts for 2018 for the former Group CEO have been pro-rated up to reflect what they would have been over a full 12-month period. This provides a comparable basis with 2017. 2 In terms of the UK based employee figures, the increase shown for salary and the decrease in benefits reflects that car allowances were rolled up into salaries during 2018.
Pay ratio reporting New UK legislation requires companies to publish information on the pay ratio of the Group CEO to UK employees. While formally taking effect from our next reporting year, we have chosen to voluntarily disclose this information a year early as we recognise that it is important to take a lead in this area and some shareholders may find the information to be a useful reference point. In line with the new regulatory requirements, the table below sets out the ratio at median, 25th and 75th percentile of the total remuneration received by the Group CEO compared to the total remuneration received by our UK employees. Total remuneration reflects all remuneration received by an individual in respect of the relevant years, and includes salary, benefits, pension, and value received from incentive plans.
1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and ‘Other Information’ within the Annual report and accounts for further information.
We would highlight the following in terms of the approach taken: • In calculating the Group CEO data, we have used an aggregated figure which is the sum of the amount shown in the single figure table for
Mark (£1,835,716) in respect of his services from the start of the year to 8 October 2018, and the pro rata fees paid to Sir Adrian Montague in his role as Executive Chairman for the period 9 October to 31 December 2018. This approach is consistent with legislative requirements that will apply from next year. However, recognising that 2018 is an atypical year for Aviva, we have also provided an additional ratio below, calculated on a full-year basis using total target remuneration for Mark
The table below provides further information on the total remuneration figure used for each quartile employee, and the salary component within this.
Year Pay element P25 (lower quartile) P50 (median) P75 (upper quartile)
These circumstances would lead to a total single figure for the Group CEO of £4,139,784 and the following Group CEO pay ratios.
2018 (illustrative based on a notional ‘target’ package) 159:1 111:1 66:1
Relative importance of spend on pay Table 15 outlines Group adjusted operating profit1, dividends paid to shareholders and share buy-backs, compared to overall spend on pay in total. This measure of profit has been chosen as it is used for decision-making and the internal performance management of the Group’s operating segments.
Strategic report Governance IFRS financial statements Other information 15 Relative importance of spend on pay
Group adjusted operating profit1 3,010 3,068 3,116 2% Dividends paid2 871 983 1,128 15% Share buy-backs3 — 300 600 100% Total staff costs4 1,764 1,942 1,974 1% 1 Group adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to accounting policy B in the ‘Accounting Policies’
section and to the ‘Other Information’ section within the Annual report and accounts for further information. 2 The total cost of ordinary dividends paid to shareholders. 3 A share buy-back of ordinary shares for an aggregate purchase price of £600 million was undertaken during the year, as described in more detail in note 32. A share buy-back of ordinary shares for an aggregate purchase price of £300 million was undertaken during 2017. 4 Total staff costs from continuing operations includes wages and salaries, social security costs, post-retirement obligations, profit sharing and incentive plans, equity compensation plans and termination benefits. The average number of employees in continuing operations was 31,232 (2018) and 30,332 (2017).
• Mark Wilson was a NED of BlackRock Inc. from 15 March 2018. He received cash and shares in the amount of US$223,814 in the period 15 March 2018 to 9 October 2018
There were no changes to the EDs interests in Aviva shares during the period 1 January 2019 to 6 March 2019, with the exception of Andy Briggs’ continued participation in the AESOP.
Sir Adrian Montague 42,385 58,553 Claudia Arney 14,000 14,000 Glyn Barker 22,700 22,700 Patricia Cross 12,383 25,112 Belén Romana García 790 4,475 Michael Hawker 20,000 20,000 Michael Mire 50,000 50,000 Keith Williams 10,000 10,000 1 This information includes holdings of any connected persons.
There were no changes to the NEDs interests in Aviva shares during the period 1 January 2019 to 6 March 2019.
Company at the date of grant. 2 The actual price used to calculate the ABP and LTIP awards is based on a three-day average closing middle-market price of an ordinary share of the Company, prior to grant date. These were in 2015: 564 pence, 2016: 485 pence, 2017: 530 pence and 2018: 504 pence 3 For the 2015, 2016 and 2017 LTIP grant, the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, MetLife, NN Group,
Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial. For the 2018 LTIP, the comparator group is: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, Lloyds Banking Group, Old Mutual, Phoenix, Prudential, RSA, Standard Life Aberdeen, Zurich Insurance.
4 The performance periods for these awards begin at the commencement of the financial year in which the award is granted and run for a three-year period. 5 Mark Wilson’s 2016, 2017 and 2018 LTIP awards ceased to be capable of vesting on 9 October 2018 when he stepped down as Group CEO and will lapse when he leaves the Company. 6 Any unexercised options will lapse at the end of the exercise period. Options are not subject to performance conditions. The option price was fixed by reference to a three day average closing middle-market price of an ordinary share of the Company, prior to invitation date, with a discount of 20% as permitted under the SAYE plan. Options granted under the SAYE are normally exercisable during the six-month period following the end of the relevant (3 or 5 year) savings contract. 7 The shares comprised in these vested awards include shares issued in lieu of dividends accrued during the deferral period.
The Company monitors the number of shares issued under the Aviva employee share plans and their impact on dilution limits. The Company’s usage of shares compared to the relevant dilution limits set by the Investment Association in respect of all share plans (10% in any rolling ten-year period) and executive share plans (5% in any rolling ten-year period) was 3.07% and 1.83% respectively on 31 December 2018.
The Solvency II reporting requirements for the year ended 31 December 2018 necessitate firms to produce the Solvency and Financial Condition Report (SFCR) which contains remuneration information and is publicly available. Aviva’s reward principles and arrangements are designed to incentivise and reward employees for achieving stated business goals in a manner that is consistent with the Company’s approach to sound and effective risk management.
Directors’ Remuneration Policy 97.13% 2.87% 2,809,661,298 83,164,398 3,970,718 Directors’ Remuneration Report 97.13% 2.87% 2,808,999,968 83,109,802 4,671,678
Approach to NED fees for 2019 NED fees are reviewed annually. No changes were made to the current fee levels, as set out in the table below. As detailed elsewhere in this report, Sir Adrian Montague did not receive any additional remuneration for assuming the role of Executive Chairman upon the departure of Mark on 9 October 2018.
Chairman of the Company1 £550,000 £550,000 Board membership fee £70,000 £70,000 Additional fees are paid as follows: Senior Independent Director £35,000 £35,000 Committee Chair (inclusive of committee membership fee): • Audit £45,000 £45,000 • Governance £35,000 £35,000 • Remuneration £35,000 £35,000 • Risk £45,000 £45,000 Committee membership: • Audit £15,000 £15,000 • Governance £12,500 £12,500 • Nomination £7,500 £7,500 • Remuneration £12,500 £12,500 • Risk £15,000 £15,000 1 Inclusive of Board membership fee and any committee membership fees, and committee chair of the Nomination Committee.
Released after 3 years 21 Implementation of Policy in 2019 The implementation of the Policy will be consistent with that outlined in table 22.
Salary1 • Group CEO – £975,000 per annum • CFO – £748,027 per annum • CEO UKI – £766,938 per annum
• Performance against a number of other non-financial modifiers will be considered when determining bonus payouts (employee engagement, customer and risk). Within customer, RNPS has been replaced by a measure of brand trust; employee engagement and risk modifiers remain unchanged
LTIP • Group CEO – 300% of salary • CFO and CEO – 225% of salary
Pro rata between 10% and 50% on a straight line basis 10.0% p.a and above 50% Upper quintile and above 50%
Our Remuneration Policy was approved by shareholders at our AGM on 10 May 2018 and will apply for a period of up to three years. The full and definitive Policy is therefore set out in our 2017 Annual Report, which can be found on our website at
Discretion The Committee has discretion to amend vesting levels to prevent unreasonable outcomes, which it may use taking into account a range of factors, including the management of risk and good governance and, in all cases, the experience of shareholders.
The financial metric combined with TSR will be a minimum of 80% of the total LTIP award. If, in subsequent years, shareholders indicate support for strategic measures, the Policy will allow for up to 20% of the LTIP to be awarded on the basis of strategic measures and this will be fully disclosed in the DRR.
Maximum opportunity If suitable employee contributions are made, the Company contributes: • 20% of basic salary for new ED appointments • 28% of basic salary for existing EDs (into pension or paid as cash as applicable)
This enables us to attract and retain the right level of talent necessary to deliver the Company’s strategy.
Operation Benefits are provided on a market related basis. The Company reserves the right to deliver benefits to EDs depending on their individual circumstances, which may include a cash car allowance, life insurance, private medical insurance and access to a company car and driver for business use. In the case of non-UK executives, the Committee may consider additional allowances in line with standard relevant market practice.
Notes to the table: Performance measures For the annual bonus, performance measures are chosen to align to some of the Group’s KPIs and include financial, strategic, risk, employee and customer measures. Achievement against individual strategic objectives is also taken into account.
Strategic report Governance IFRS financial statements Other information into effect, provided that the terms of the payment were consistent with the Policy in force at the time they were agreed, or (iii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes, ‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the award is granted.
All other elements of remuneration will also be in line with the Policy set out above.
Employment contracts and letters of appointment ED employment contracts and NED letters of appointment are available for inspection at the Company’s registered office during normal hours of business, and at the place of the Company’s 2019 AGM on 23 May from 10.45am until the close of the meeting.
Remuneration and Benefits The operation of the annual bonus and LTIP is at the Company’s discretion. Expenses Reimbursement of expenses reasonably incurred in accordance with their duties. Car Allowance In the case of Tom and Andy, a cash car allowance is received, as varied from time to time. Holiday entitlement 30 working days plus public holidays. Private medical insurance Private medical insurance is provided for the ED and their family. The ED can choose to opt out of this benefit or take a lower level of cover. However, no payments are made in lieu of reduced or no cover. Other benefits Other benefits include participation in the Company’s staff pension scheme, life insurance and, where applicable, access to a Company car and driver for business related use. Sickness In the case of Tom and Andy, 100% of basic salary for 52 weeks, and 75% thereafter for a further 52 weeks.
In the case of Maurice, 100% of salary for the first 52 weeks, and 50% thereafter for a further five years. Non-compete During employment and for six months after leaving (less any period of garden leave) without the prior written consent of the Company. Contract dates Director
Operation NEDs receive a basic annual fee in respect of their Board duties. Further fees are paid for membership and, where appropriate, chairing Board committees. The Chairman receives a fixed annual fee. Fees are reviewed annually taking into account market data and trends and the scope of specific Board duties. NEDs are able to use up to 100 percent of their posttax base fees to acquire shares in Aviva plc. The Chairman and NEDs do not participate in any incentive or performance plans or pension arrangements and do not receive an expense allowance. NEDs are reimbursed for reasonable expenses, and any tax arising on those expenses is settled directly by Aviva. To the extent that these are deemed taxable benefits, they will be included in the DRR, as required.
Purpose To provide the Chairman with suitable travel arrangements for him to discharge his duties effectively.
Claudia Arney ✓ C ✓ ✓ 8 February 2016 AGM 2019
Michael Mire ✓ ✓ ✓ ✓ 12 September 2013 AGM 2019
Keith Williams ✓ C ✓ ✓ 1 August 2016 AGM 2019 Key C Chair of Committee ✓ Committee 1 The dates shown above reflect the date the individual was appointed to the Aviva plc Board. 2 Appointment end dates are in accordance with letters of appointment, with the exception of Michael Hawker who is retiring from the board on 31 March 2019.
Consolidated statement of changes in equity 120 Consolidated statement of financial position 121 Consolidated statement of cash flows 122