All my insurance online with one company at a great price.
We are Aviva We put our customers at the heart of everything we do, enabling us to offer the best possible service and increase employee engagement and customer advocacy.
Who we are We help people save for the future and manage the risks of everyday life.
Our investment thesis of cash flow plus growth sets out why investors should choose us Read more on page 25
Our strategy The ‘what we do, how we do it and where we do it’
— Meeting all customer needs across life, general, health insurance and asset management
We are obsessed with making things simpler for our customers and each other
We are driven to think bigger and do better for our customers and each other
Wage employer 4 Three percentage points above the global financial services norm.
Our plan We have a clear strategy to deliver sustainable and progressive cash flows underpinned by good potential for growth, by always putting customers first.
In this report you can learn about the tangible progress we showed in 2014 and our plans for the future. —
Mark Wilson Group Chief Executive Officer £2,173m (2013: £2,049m) Operating profit on a continuing basis £1bn Value of new business 12.25p Final dividend, a 30% increase
View online summary and download the full report at www.aviva.com/ reports/ar2014
I nsurance can make a real difference to people’s lives. Linda Hunns has had critical illness cover with Aviva since 2002. This is her story.
“I was doing fine. I enjoyed life to the full as a mother and grandmother.
I loved going for walks and prided myself on keeping fit, as well as enjoying my part-time job at the local hospital.
The service I received from Aviva was excellent. I can’t tell you how much this money meant to me. It meant one less thing to worry about and so it hugely helped in my recovery.
— Linda Hunns 02 | Aviva plc Annual report and accounts 2014
During this time, he has assembled a management team that is not only able to deliver good business performance, but who have considerable potential for the future. I know you would wish me to thank Mark and the team for their contribution.
Under Mark’s leadership, Aviva now has a clear purpose, is embracing new cultural values around our people, our customers our shareholders and the communities where we do business, and has articulated a clear strategy for the future.
However, as was announced in September, I shall be standing down from this position at the Annual General Meeting, and will be replaced by Sir Adrian Montague, our Senior Independent Director.
Following the completion of the proposed acquisition Sir Malcolm Williamson, Chairman of Friends Life, will join the Board of Aviva plc as Senior Independent Director, and Andy Briggs, the Group Chief Executive of Friends Life, will become Chief Executive Officer of Aviva UK and Ireland Life, the merged UK life business of the combined Group and also joins the Board. We look forward to both Sir Malcolm and Andy joining the Board.
Gay Huey Evans has decided to retire from the Board from the conclusion of the 2015 AGM and on behalf of the Board I
As with last year, 2014 has brought considerable change and challenge for our people, which they have embraced and managed professionally.
UN and continue our longstanding work in South East Asia for another two years.
I wish my successor Sir Adrian every success, and retire knowing that for Aviva, the best is yet to come.
The Company is in good hands and has the capacity to become one of the world’s leading institutions. —
“It will be a privilege to chair Aviva. The Company is recovering strongly and delivering against its investment thesis of cash flow plus growth, under the strong management team ably led by Mark Wilson. John McFarlane has been an extraordinary Chairman, and has made an immense contribution to Aviva’s recovery.”
Tangible progress but much more to do Our role in business is not to follow the competition, but to exceed our own expectations. To break our own records. To ensure that our positive impact on our customers, shareholders and society is greater this year than the last. That is what we are trying to do at Aviva
We have entered 2015 in a position of strength. Nevertheless, it would be wrong to assume that our turnaround is nearing completion. While performance has improved, there is no room for complacency. Two years of results do not yet create a lasting legacy.
When I joined Aviva, one of my first priorities was to rebuild the Group’s financial strength and establish an investment thesis. This sets out why investors should choose us. It is defined as “Cash flow plus Growth”.
In December 2014, we announced our intention to acquire Friends Life Group. This acquisition accelerates our turnaround and ability to deliver our investment thesis.
Financially, we expect this transaction to add about £600 million to cash flow, eliminate any need to de-lever, generate £225 million of expense savings as well as material capital synergies.
Strategically, this transaction secures our position in our home market, adds up to £70 billion of funds to Aviva Investors and gives us flexibility to invest in key existing growth segments and markets.
We have anchored the company in strong values and a clear strategy. These are preconditions for any successful business – and are even more fundamental for a turnaround.
The Aviva values – create legacy; care more; kill complexity; and never rest – are the core beliefs at the heart of how we do business. They act as a guide whenever we decide on a course of action, and help us to focus on meeting our customers’ needs.
And in July 2014 we launched our strategic anchor to answer some
Aviva has travelled a long way in the past two years. But we have further to travel than the distance we have come.
1 Refer to the glossary for a definition and more information.
fundamental questions defining our business strategy: what we do, how we do it and where we do it.
Thirdly, Not Everywhere. We are not interested in planting flags or being in 100 countries. Our focus is on a select number of markets and segments where we have scale and profitability or a distinct competitive advantage – where we can win.
Turnarounds are not delivered by strategies or financial engineering. They are delivered by people. I want to thank our people for their dedication and commitment, which has helped Aviva make such progress.
Over the past two years, Aviva employees have seen significant change. Despite the sometimes difficult choices that have had to be made, 2014 saw employee engagement markedly improve – in particular in levels of pride, motivation and advocacy. These now stand above sector benchmarks. We have attracted some of the best talent in the market to our senior team – although they are well aware they will be judged by their performance rather than their CVs.
While the proposed integration of Friends Life is a major exercise, there are large parts of the business that are not involved and we will continue to focus on better capital allocation and efficiency across the entire group, driving digital throughout the organisation and building our true customer composite model.
Aviva has travelled a long way in the past two years. But it would be wrong to assume that our turnaround is nearing completion. On the contrary, we have further to travel than the distance we have come – and in 2015 the Friends Life transaction allows us to reset our expectations once again.
• We expect annual run rate cost savings of £225 million by the end of 2017
• It will create the UK’s leading insurance, savings and asset management business with c.16 million customers1, equivalent to accessing one in four households.
• We are an iconic British business and this acquisition will increase our scale in attractive segments of our home market
Euan Munro CEO, Aviva Investors 1 Based on customer numbers as at 31 December 2013 and prior to the deduction of overlapping customers. 2 Based on 2014 funds under management.
• Cost income ratio has improved by 2.6 percentage points to 51.5%
• Continue to improve cash remittances and cost income ratio of all our businesses
Growth • Increase VNB in our life businesses through product mix and pricing
• Improve COR and underwriting in general insurance businesses through predictive analytics
• Ensure digital is a key enabler to True Customer Composite
• Ensure £400 million of expense savings reach the income statement1
• Reduce intercompany loan to £2.2 billion by the end of 2015
1 Based on 2011 baseline expense total of £3,366 million. 2 Our turnaround businesses include Spain, Aviva Investors, Ireland and Italy. 3 Excludes Eurovita, Aseval, CxG and Malaysia. 4 Based on customer numbers as at 31 December 2013 and prior to the deduction of overlapping customers.
Our performance We use five key financial metrics to measure the performance and efficiency of our business. We also focus on other metrics to measure customer advocacy, employee engagement and our impact on society
Read more about our investment thesis on page 25. For definitions of our key metrics, turn to the glossary on pages 316-317.
Operating expenses Managing our expense base is essential to delivering our investment thesis and to improve competiveness.
The overall improvement in cash remittances was driven by improvements across the majority of our markets. We continue to take action on capital efficiency to increase these remittances.
Operating profit was up 6%, which included the benefit of operating expense savings of £113 million3. The result also includes an adverse foreign exchange impact of £87 million. See pages 26 to 29 for further details of the performance of our markets in the year.
Relevance and performance We also measure non-financial metrics, such as the engagement and diversity of our people, and our customer advocacy, as these are critical to our long-term competitiveness.
Customer advocacy Our Relationship Net Promoter Score® (RNPS) measures the likelihood of a customer recommending Aviva.
Diversity We remain committed to having a diverse management team and workforce in terms of gender, as well as diversity of experience, skills and knowledge, background and nationality.
At 31 December 2014, we had the following gender split: Board membership
Reduction in CO2e CO2e data includes emissions from our buildings, business travel, outsourced data centres, water and waste to landfill.
In particular, he now knew that his son would still be able to study overseas.
Mr Yeo’s wife, Mdm Chin Yoke Yoon, recalls how the family coped with the news: “Dealing with my husband’s sudden illness was such a difficult time for the whole family, so not having to worry about our finances, on top of everything else, was a relief. This experience has made me realise just how beneficial insurance can be, so I’m now an advocate and I want to help others understand the importance of planning for the future.”
Shifting wealth Developing markets will have a much larger share of the world’s savings and assets pool
The age of disruption New agile competitors will act faster to disrupt established businesses
My life, my way Customers will be much more in control, expecting to self-serve and self-solve. They will want to be able to access data and insight, and use it to guide their own decisions
Where the world is going We have identified six long-term ‘horizons’ which will impact our industry over the next few years
Personal wealth is highly concentrated within the 50+ population and there are significant opportunities for businesses who can meet their developing needs both in helping them save and then manage their retirement.
One impact of climate change is an increase in extreme weather events. For example, 2014 saw significant flooding in parts of the world (including in our home UK market), and it was the hottest year on record globally*.
As well as the longer term trends that we have identified, we continue to experience regulatory change across many of our markets.
Falling cost of technology Cost of network (bandwidth), Mbps 2006-14, US$
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2012 Revision, NDC Taiwan, August 2014 Revision.
We help customers insure their first car, provide life cover when they buy a house or start a family, help insure them when they set up a business and protect their income should they experience a critical illness or unemployment. We also help them save for important events such as education, a child’s wedding and, most importantly, a comfortable retirement. We then help people manage their income after they have retired.
We sell our products through multiple channels, so that customers can access our products and services in the way that they choose. This can be direct or via intermediaries such as financial advisers, and partners such as banks. Customers are increasingly looking to access Aviva digitally across all of our channels, online or through their mobile. This is a key focus of our strategy.
Customers Customers benefit from a range of solutions to meet their needs, with easy access when and how they want it. Our strong brand and financial strength give customers confidence we will pay out in the event of a claim. Making sure our customers stay with us is important to our longterm success.
Shareholders Aviva creates value for shareholders by returning profits to them in the form of dividends, and by re-investing in our businesses around the world.
Employees Our aim is for employees to work within a diverse, collaborative and customerfocused organisation, with equal opportunities, fair reward and encouragement to achieve their potential.
Society Aviva plays a significant role in the community as a major employer, long-term investor, and enabler of economic growth by helping people and businesses to manage risk, as well as via specific investment in the communities in which we operate, such as our community funds.
Underpinned by: Enabling sustainable value creation: Risk management Our scale affords us the opportunity to optimally manage risk, pooling different risks, maintaining capital strength and working with the best reinsurance specialists in the world so that customers know we will be there when they need us.
Understanding Big Data and analytics Big Data enables us to better support our customers through accurate risk assessment and to present opportunities to customers at every stage of their lives.
Underwriting Our underwriting and pricing expertise coupled with our analytics capability allow us to underwrite risk in a way that accurately reflects our customers’ profiles and is thus more price competitive.
Th e p o w er of com m unities • W inning through data • My life, my way • O
Our thinking was encapsulated in our Strategic Framework. This framework has helped provide clear direction for turning around our business.
We are a True Customer Composite. This is what differentiates us. We are the only true composite of scale in the UK, which means we are one of only a few insurance companies in the world which can provide customers with life, general and health insurance and asset management in one place.
We put Digital First – this is how we will capitalise on being a True Customer Composite. Direct digital distribution is fundamentally changing the customer relationship in many of our markets. So, if it is a choice of where we invest it will be in Digital First across all our distribution channels – it’s how customers want to do business with us.
Embedding our strategy We want to ensure everyone in every team understands our strategy, their role in delivering it and how they can live out our values.
Customer focused innovation Our Customer Cup competition captures our people’s best ideas so we can improve things for our customers. The judges for the 2015 competition have challenged entrants to come up with ideas to make the most of our True Customer Composite model.
We are a True Customer Composite, offering customers life, general and health insurance and asset management. We will provide our customers with tailored offerings to recognise, reward and delight them, in return for their trust and loyalty
In the emerging digital world, the advantages of being a True Customer Composite become more tangible. We will have much greater direct access to customers, who will not use intermediaries to the same extent.
We have launched new propositions and campaigns rewarding existing customer loyalty, and improving average product holdings and profitability. For example, in Singapore we now offer discounted general insurance products to Singapore Armed Forces life assurance policyholders.
In France, we offer discounts on selected new products to existing business customers, and we are selling unit-linked products to existing ‘Euro fund/withprofit ’ customers who want long-term savings products offering returns linked to the performance of the investment markets.
In February 2014 we launched MyAviva in the UK. This creates one place for UK direct customers to purchase, view and amend their Aviva policies.
Focusing on products that meet customers’ needs ... being able to flexibly tailor product combinations, and get a better outcome for that particular customer. And the happier a customer is, the more likely they are to stay with us, the lower our costs will be and the better the deal we can offer these customers.
Putting Digital First means putting digital at the forefront of all change and development activity across Aviva.
We are not starting our digital offering from scratch. We already have significant direct and digital operations in several of our key markets.
Digital First will help make the True Customer Composite central to a new relationship with customers that builds on our understanding of how customers want to use our products in a digital world. We will also seek out and apply innovative business models and capabilities for our customers.
Quick, agile and innovative Today’s successful businesses are quick, agile and innovative. That’s why we hold hackathons. Over a couple of days, we work with developers and designers to take an idea, work out how to deliver it – and do it. These events have challenged how we work and how we design the products our customers want. We’ve identified nine start-up technology companies we want to work with, including specialists in artificial intelligence and enhanced analytics.
Making travel insurance easy There’s so much to sort out before you go on holiday. And none of it’s easy. Tickets, passports, timetables – and that’s before we’ve even thought about travel insurance. So our business in Singapore set out to make travel insurance simple and convenient with its Travel App. This means customers can buy travel insurance, view and manage their policy, and get help with claims through their smartphone.
This allows us to develop products that better meet customer needs and to more accurately and efficiently underwrite, price, bundle and deliver our products, leading to a more robust business.
In December 2014, Andrew Brem joined Aviva as our Chief Digital Officer and a member of the Group Executive. In this new role, Andrew will drive our Group-wide digital transformation which will have a significant impact on every aspect of customer interactions: • product innovation and development through data analytics, customer insights, and risk management
Digital garage We are also structurally and physically separating digital functions from our businesses. We are developing our first Digital Garage, in an old warehouse in Shoreditch, London, not far from Silicon Roundabout. This puts business people alongside IT people to spur their creativity and give them space to develop new propositions, working in an agile way.
We will be using a similar approach across our other businesses.
We will build on our existing digital infrastructure and achievements, for example MyAviva in the UK, and continue to leverage analytics and data to provide interfaces and apps that customers can use to interact with us.
We are also looking to use digital to find new ways to engage with people meaningfully more often. We are harnessing the power of digital throughout the organisation and across all our distribution channels to improve processes, reduce costs and improve user experience.
Finally, we are also working on a number of innovations in the digital space.
Virtual branch ... excellent service What do our customers want? Simplicity and convenience. That’s why Aviva Poland has set up its virtual branch, a real innovation in Polish financial services. Customers can hold a video conference with a professional adviser on their investment choices, complete their application and make their investment online.
UK Digital Insurer of the Year We put Digital First – and we know we’re on the right lines when others recognise what we’re doing. So we were delighted to be awarded the title of the UK’s Digital Insurance Company of the Year at the Incisive Media Awards in November for our MyAviva website, with the citation saying we were the ‘stand out performer’. That’s praise indeed – but we are even more pleased that our customers are saying things like “the website is simplicity itself. Even a technophobe can use it” and “At long last I am able to have all of my insurance in one place and be able to manage it myself. Happy customer”. We want all our customers to be just as happy.
All insurance companies need diversification, for example in products or geography, in order to pool risks. That is the whole premise behind insurance. But, we must still strike a balance between diversification and complexity.
We will continue to reshape our portfolio to drive returns higher: • Only operate in markets where we have scale and defined competitive advantage • Reallocate capital between business lines and countries • A preference for composite where margins and regulation are supportive.
We will continue to deploy capital selectively and focus on the things we’re good at.
January Aviva signed a joint venture in Indonesia with PT Astra International Tbk (Astra), Indonesia’s largest publicly listed company, to create life insurer Astra Aviva Life. Mark Wilson, Group CEO, said: “Astra is a hugely respected household name in Indonesia and the ideal partner for Aviva in one of the world’s fastest growing insurance markets. This joint venture creates a compelling growth opportunity, underlines our commitment to Asia and supports our investment thesis of cash flow plus growth.”
April We announced the sale of our entire 47% stake in South Korean business Woori Aviva Life Insurance to NongHyup Financial Group.
September We announced the sale of our holding in one of our Spanish joint ventures CxG Aviva to Novacaixagalicia Banco (NCG
November We completed the Initial Public Offering (IPO) of a minority stake in our Turkish Life JV with Sabancı Group, AvivaSA, valuing the company at TL1.68 billion (£469 million). Separately, AvivaSA and Akbank agreed to extend their exclusive bancassurance agreement for another seven years.
Cash flow plus growth We set out clearly why investors should choose us, enabling them to make an informed decision about our business. Our aim is to deliver cash flow plus growth and this supports our dividend paying potential
Cash flow We have businesses with the potential to produce significant cash flow: • Our core business lines are: life insurance, general insurance, health insurance and our asset management business, Aviva Investors
• We will maintain our balance sheet strength at an appropriate level to ensure financial resilience. We will continue to reduce our internal debt level.
• Aviva Investors’ flagship range of multi-strategy funds, AIMS, was launched in July 2014 creating an attractive outcomes-based solution for investors, and the potential for significant growth in our external fund flows.
Financial simplicity and clear financial priorities are essential for investors to make an informed decision about us. Our financial reporting focuses on five key metrics. The table below sets out the priority metrics for each of the markets in which we operate.
Group n l l l l UK Life n l l u – UK General Insurance n l l – n France n l l u n Canada n l l – n Italy n l u l n Spain n l l l – Ireland n l l l n Poland l l u n n Turkey u l u n – Asia u l l n n Aviva Investors n l l – –
Our proposed acquisition of Friends Life would accelerate our transformation in line with our investment thesis, ‘cash flow plus growth’. It is expected to increase the quantum, resilience and diversification of group cash flows and improve Aviva’s ability to invest for growth in its chosen markets and products, leveraging the respective strengths of Aviva and Friends Life.
For more information on our performance against the five key financial metrics in 2014, see page 10.
How we measure it Life: Value of new business “VNB” General Insurance: Change in underwriting result Aviva Investors: External net fund flows
Laying the foundations for the next stage of transformation Financially, we made further progress on improving our performance and increasing our financial flexibility. Operationally, we have continued to deliver expense savings and realise efficiencies across the Group
External debt leverage reduced from 48% to 41% of tangible capital on an IFRS basis, as we reduced debt and grew book value. On an S&P basis, our debt leverage is 28% and within our target range of being comparable to the AA level. Meanwhile we have also reduced the internal loan3 by £1.3 billion in the 12 months to February 2015 to £2.8 billion. Our capital level and liquidity are within our risk appetite, with an estimated economic capital surplus4 ratio of 178%, even after declaring the year end dividend. We manage our capital on an economic basis, which is consistent with the UK regulatory framework, but also with consideration to the upcoming Solvency II regime.
IGD surplus was stable at £3.6 billion prior to the declaration of our 2014 final dividend (2013: £3.6 billion) and reduced to £3.2 billion after. The redemption of hybrid debt during the year reduced our surplus by £0.2 billion.
Italy was the stand-out performer of our European businesses. Cash increased 167% to £32 million, VNB6 was 55%7 higher at £63 million (2013: £43 million) and the COR improved 1.2 percentage points to 94.0% (2013: 95.2%). Operating profit was 2% higher at £172 million (2013: £169 million). Good execution of a major restructure has helped improve the performance of this turnaround business.
Growth markets of Poland, Turkey and Asia continued their upward momentum. Poland delivered £192 million of operating profit (2013: £184 million), benefitting from a £39 million one-off from regulatory pension changes. VNB grew 31%7 to £64 million (2013: £51 million) and the business remitted £106 million of cash to Group. With a 25% increase in cash, and a 31%7 increase in VNB, Poland is a prime example of delivering cash flow plus growth.
Opening NAV per share at 31 December 2013 270p 463p Operating profit 47p 62p Dividends & appropriations (15)p (15)p Investment variances and AFS equity movements 5p (2)p Pension scheme remeasurements 45p 45p Integration and restructuring costs, goodwill impairment and other (1)p (7)p Foreign exchange movements (11)p (19)p Closing NAV per share at 31 December 340p 527p 6 Italy excludes Eurovita.
Managing capital effectively How we allocate capital is vital to delivering our investment thesis of ‘cash flow plus growth’. We invest in order to optimise returns and future cash flows, while maintaining sufficient diversification to withstand the impact of any unforeseen events.
We have exited businesses that were capital inefficient or subscale but there remains more to do to improve overall return on capital. The proposed acquisition of Friends Life should provide greater financial flexibility to drive growth in the rest of the Group.
Lower debt coupled with growth in our net asset value has resulted in our leverage ratios falling to 28% (2013: 31%) on an S&P basis and 41% (2013: 48%) of tangible capital on an IFRS basis. Following the integration of Friends Life, we see no need to further de-lever. However, there is still further opportunity to optimise our capital structure and financing costs.
We continue to reduce the intercompany loan that exists between our main UK general insurance legal entity, Aviva Insurance Limited, and the Group. The loan balance is currently £2.8 billion and we remain on track to achieve our objective of reducing this to £2.2 billion by the end of 2015.
IFRS profit before tax This measures our total statutory IFRS profit before tax attributable to shareholders during the year.
Total profit before tax of £2,339 million includes £2,281 million from continuing operations and £58 million from discontinued operations.
Operating profit performance in the year is set out on page 10.
Total investment variances and economic assumption changes were £188 million positive (2013: £352 million adverse). In the non-life business this included positive short-term fluctuations of £261 million, mainly due to a decrease in risk-free rates increasing fixed income security market values in the UK, Canada and France. Economic assumption changes were £145 million adverse as a result of lower discount rates. In the life business, investment return variances were £72 million positive, mainly driven by lower risk free rates and narrowing credit spreads on government and corporate bonds in Italy and Spain.
Keith and Sue Blazye, its owners, are one of our customers.
Mr and Mrs Blazye and our case manager, Helen Anderson, worked closely with the loss adjuster to work out what the Blazyes wanted and how it could be delivered.
Opening in time wouldn’t have been possible using standard drying and repair techniques. So our drying consultants found a way to get the repairs done in time. We use these new approaches more often now.
Thanks to Mr and Mrs Blazye’s commitment, the partnership between our claims manager and the loss adjuster, and the innovative approach to getting the drying and repairs done, Teapot Island opened its doors to visitors in time for the start of the tourist season.
This is our life and we wanted it back to normal as quickly as possible. We were so impressed with the help and support that Aviva offered.
We are a leading life insurer in the UK and Ireland with an overall market share of nearly 10%1. We offer a broad range of life insurance, investment, pension and health insurance products.
Our strategy is to improve customer engagement and create deeper and stronger relationships with them. We are also focused on simplifying our business model and putting Digital First to enhance the services we offer while reducing costs and improving efficiency. This means we will increase our cash flow to the Group and grow our new business to deliver the investment thesis of cash flow plus growth.
We will grow our business and future cash flows by focusing on specific areas of the market: our back book, retirement, corporate benefits for Small and Mediumsized Enterprises (SMEs) and protection. We have one of the largest back books in the UK, with three million customers and £85 billion of assets under management. We can manage it more efficiently through rigorous capital management, automation, reducing our costs and improving customer service and retention.
The proposed acquisition of Friends Life would create the UK’s leading insurance, savings and asset management business with 16 million customers2, equivalent to accessing one in four UK households. These customers would benefit from a stronger, more diversified and resilient Group with a good range of products. We would have a leadership position in corporate pensions, a market expected to more than triple in ten years. We also expect the value of new business (VNB) in protection to increase significantly and would have the opportunity to sell our broader range of at-retirement products into the enlarged customer base.
CEO, Aviva UK Life 1 Association of British Insurers (ABI) stats published Q3 2014 – based on Annual Premium Equivalent. 2 Based on customer numbers as at 31 December 2013 and prior to the deduction of overlapping customers.
Performance indicators3 £437m (2013: £370m) Cash remitted to Group £1,039m (2013: £952m) Life operating profit £565m (2013: £607m) Operating expenses £482m (2013: £477m – restated4) Value of new business
In 2014 we: • Focused our strategy on specific market segments, and our competitive advantage of offering customers a ‘one stop shop’ for all their insurance and savings needs
• Achieved our best ever customer satisfaction scores (Relationship Net Promoter Score®).
• On 1 January 2015, we completed the transfer of our Irish Life business into our UK Life company, releasing further capital to the Group.
The UK is Aviva’s home base and we are a British champion. There are opportunities for growth including the Government’s pension reforms which give consumers flexibility in how and when they access their pension savings. The challenge will be providing them with the appropriate level of support within the constraints of the developing regulatory framework for advice.
Assuming the proposed acquisition of Friends Life completes, one in four existing pension customers in the UK will be Aviva customers. That provides the opportunity to offer pensions, drawdown, equity release and long-term care, and create long-term value for shareholders. Similarly, our strengths in the employer-sponsored pension market mean we are well-placed to capitalise on pension saving through large employers and small businesses, including auto-enrolment.
• Support our customers to take advantage of the Government’s pension freedoms by providing a full suite of market leading retirement products
• Launch a new Direct-to-Consumer investment platform to provide customers with a digital online service with easy ready-made packaged solutions
• Continue to manage capital, costs and retention in our back book more efficiently, unlocking value and improving cash flow.
Auto-enrolment Auto-enrolment means that all UK employers must offer and enrol their employees into a suitable pension scheme by early 2018 at the latest, depending on the number of employees they have. To help employers, we’ve developed an online service to help them assess whether their employees have to be registered, make sure they make the minimum contributions and produce documents for employees or remind employers when they have to act. They might, for instance, have to re-register an employee who had previously opted out. It means employers can meet their obligations as easily as possible. And that means they have more time to concentrate on their business.
General insurance is integral to Aviva’s strategy of becoming a True Customer Composite, meeting all customer needs across life, general and health insurance, and asset management. It is an important part of Aviva’s diverse business model and contributes approximately 28% of the Group’s operating profits, with general insurance operations in seven markets.
We are a leading general insurer in both the UK and Ireland, with a market share of 10.5%1 and 13.3%2 respectively, providing a wide range of products to personal and business customers.
We have a multi-distribution network, providing our products and services directly to customers, via broker intermediaries and strategic partners. The quality of the service we provide to our customers was recognised through a number of awards in 2014, most notably the Insurance Times General Insurer of the Year, Digital Insurer of the Year and Insurer Innovation of the Year. We also received the Customer Experience Award Intermediary (Post magazine awards), and Best Car Insurance Provider.
This will ultimately enable us to improve our cost efficiency, accelerate our automation and grow our operating earnings and so contribute to delivering the investment thesis of cash flow plus growth.
We will grow our UK business by focusing on our UK direct and broker channels, and we will make the most of the unique opportunity offered by being the leading UK composite insurer.
Financial performance for the year has been good, with improvement seen in most of the key financial metrics.
Our combined operating ratio improved 2.3 percentage points to 94.9%, with improvements in both the UK and Ireland. Operating profit for the UK & Ireland is marginally higher at £499 million (2013: £489 million), with higher underwriting profits partly offset by a reduction in investment return mainly as a result of reductions in the internal loan during the year. Operating expenses are 8% lower at £755 million, with continued focus on cost control in both our UK and Ireland businesses.
Cash remittances for the UK and Ireland of £294 million were down 15% as a result of the lower interest received following the reductions in the internal loan.
• Performed strongly in commercial lines despite a highly competitive market. This was achieved through product breadth, brand and customer service
• Received high levels of customer satisfaction for the way in which we dealt with more than 50,000 weather-related claims over the 2013/14 winter period, the majority as a result of storm damage
• Made key appointments to the Leadership team to guarantee an even greater focus on meeting our customers’ needs, including Colm Holmes as Chief Financial Officer, Adam Kornick as Global Analytics Director and Lindsey Rix as Chief Operations Officer.
Performance indicators: UK & Ireland £294m (2013: £347m) Cash remitted to Group £499m (2013: £489m) General insurance and health operating profit £755m (2013: £818m) Operating expenses
“It should never have gone to court, but Aviva were behind me and supported me. The judge awarded in our favour, and it’s just brilliant that Aviva is prepared to back anybody who is willing to take it right to the end.”
We will continue to collaborate and share our expertise in underwriting and analytics with other general insurance businesses in the Group in order to benefit our customers.
During 2014 the Canadian dollar weakened by 13% (average rate) against sterling, significantly affecting all metrics from a Group perspective.
However, general insurance operating profit was 23% lower at £189 million (13% lower on a constant currency basis). The reduction in profits included lower underwriting profits of £83 million (2013: £117 million), reflecting higher large losses and lower prior year reserve releases partly offset by expense savings in all lines and an improvement in the underwriting result for commercial lines. In addition weather experience, although better than 2013, impacted profits, with a harsher winter in the first quarter of the year followed by hail storms in Alberta in August. As a result there has been a 1.5 percentage point deterioration in the combined operating ratio to 96.1%.
We are one of Canada’s leading general insurers, with a 7.8%3 market share. We provide personal, home and motor insurance; small and medium-size enterprise commercial insurance, (including motor, property, liability, boiler and machinery, and surety) and a range of niche personal insurance products.
Our objectives are to build on our existing service to our customers, improve the ease of doing business with our distribution partners, diversify our geographic exposure and build our digital capability, including in telematics. Aviva Canada is a cash generator with a strong track record of delivering cash returns to the Group.
We are improving the service we offer our customers by creating more ways of accessing our products directly, including digital self-service. This will mean our customers can deal with us when, where and how they want.
• Develop an iPad and Android tablet version of the MyAviva mobile app and work with Aviva’s other businesses to roll out MyAviva
• Campaign on key industry initiatives that matter to our customers such as motor market reform, including fraudulent whiplash claims, industrial deafness claim management, and Flood Re
Drive safely, save money Our Aviva Drive app is a great example of how we tailor products and prices for our customers – and save them money. It monitors driving behaviour over a combined distance of 200 miles, gives a score – and a discount. Denise, 26, is a new mum to Pippa and works with her husband – so they were keen to keep insurance costs as low as possible. She scored nine out of ten and cut her premium by 20%. Even if she had scored poorly, her premiums would have stayed at their original level. Denise said: “Having a baby and knowing I had the chance to lower my premiums made me more conscious about driving safely.”
Longer term investment return was also lower at £112 million (down 17%) as a result of lower reinvestment yields.
• Used technology to streamline our business processes in commercial lines. We have improved efficiency, underwriting, risk selection, and pricing sophistication, leading to a better service for brokers and customers
• Created innovative ways to combat insurance fraud using predictive analytics and anti-fraud capabilities. We continue to work closely with Aviva’s UK general insurance business on building these capabilities. We are also improving our claims management and quality of customer service by embedding these capabilities in our underwriting processes
• Donated CAN$1 million to community projects through The Aviva Community Fund (ACF), now in its sixth year.
The industry as a whole faces challenges from the severity and frequency of the bad weather experienced over the last two years. We are responding to this by reassessing our exposure to risk, reviewing our products, pricing and our flood mapping.
• Continue to simplify and streamline our processes, resulting in more customerfocused, efficient and effective ways for our customers to interact with us.
Performance indicators: Canada £138m (2013: £130m) Cash remitted to Group £189m (2013: £246m) General insurance operating profit £316m (2013: £378m) Operating expenses
We are focused on five markets in Europe: France, a mature cash-generating business, with excellent distribution and good prospects for further growth; Poland1 and Turkey, two of the strongest growth markets in Europe, with relatively underpenetrated insurance sectors2 where we are building long-term value; and Spain and Italy, our two turnaround businesses where we have been improving capital efficiency and cash generation.
Our European businesses enjoy strong market positions in life insurance and we are a composite in three markets, with general insurance businesses in France, Italy and Poland. We have around 10.5 million customers in Europe.
Our Europe-wide strategy is to deliver sustainable and reliable cash remittances to the Group. Over the last year we continued to reshape our portfolio, exiting sub-scale, unprofitable businesses and focusing on capital light products. We have made some progress in improving operating efficiencies, but we can still do more in this area.
General insurance operating profit of £113 million was also in line with 2013, but 4% up on a constant currency basis, driven mainly by improvements in Italy partly offset by adverse weather experience in France. Combined operating ratio in Europe improved to 97.7%.
Our focus is on building on our existing strength in distribution and developing our digital and multi-access capability. We also have a significant opportunity to make the most of the composite model, by making all our products available to all customers through all channels.
• Used Systems Thinking to simplify our processes, enabling us to improve operational efficiency and meet our customers’ needs more effectively
We have more than three million customers in France and offer a full range of life, protection, pension, general insurance, health and asset management products.
We have significant strength in distribution, with half of our profits from
France is a stable market with a large, well-developed insurance sector. We expect higher growth in protection and retirement sales as a result of demographic changes and decreased government provision.
In 2015, we will: • Build our multi-access capabilities, so that customers can interact with us how and when they want, at different stages of their engagement with us
• Take further action on our back book and improve operating efficiencies.
We have particular strengths in distribution through the country’s largest life insurance direct sales network of more than 2,100 advisers and through our bancassurance agreement with BZ WBK, the third largest bank in Poland and part of the Santander Group.
We also operate a subsidiary in Lithuania, where we are the largest life insurer7.
Aviva Poland delivered strong growth in VNB (25%) to £64 million benefiting from regulatory pension changes in Lithuania and an increase in sales of higher margin protection products. Operating profit of £192 million improved 4% (9% in constant currency), driven by the life business. Cash remittances increased 25% to £106 million.
Our selective underwriting approach in a highly competitive market led to a reduction in general insurance volumes with a combined operating ratio for the year of 96.0%.
AvivaSA is one of Turkey’s leading private pension and life insurance companies, with nearly two million customers.
We also employ the largest life and pension direct sales force in Turkey, with over 600 people, and the fastest growing agency channel, with over 130 agencies. In addition, our corporate channel is ranked number one in employer sponsored group pension contracts8.
In 2014 we: • Launched an initial public offering for a minority stake in AvivaSA, which valued our business at TL1.7 billion (£469 million) and realised £40 million in cash
• Extended our exclusive bancassurance agreement with Akbank for another seven years, until 2029
Despite uncertainties, we believe this market offers strong long-term potential for profitable growth, with its young population, good economic growth and increasing demand for financial products. We are well-placed to make the most of the growth opportunities.
• Launched our New Network, Aviva financial centres offering financial products, including insurance, mortgages and loans. We have a physical presence in ten new branches and 100 advisors in large cities where we are underrepresented
In 2015, we will: • Invest in our existing distribution, building digital capabilities, improving remuneration and introducing new digital sales tools
• Further grow our bancassurance business with BZ WBK by offering innovative products and improving customer retention
In 2015 we will: • Continue to grow our pensions and protection sales, focusing on maximising the value of our distribution agreement with Akbank
• Leverage the opportunity in affinity to access the substantial customer base of other Sabancı Group companies, working closely with some of the largest retailers in Turkey, in sectors such as electronics and energy supply.
We operate through strong bancassurance partnerships, with three of the five top banks in Italy – Banco Popolare, UBI Banca, and UniCredit. We also operate through a distribution network of around 600 agents and brokers.
Total operating profit marginally increased to £172 million (2013: £169 million). Life operating profits were stable at £142 million. Excluding Eurovita, life profits were up 13% (19% in constant currency) driven by improved product mix.
There was also a small increase in profits in our general insurance business, which led to a 1.2 percentage point improvement in the combined operating ratio to 94.0%.
In 2014 we: • Made significant progress in transforming our business • Simplified our holding company structure to improve cash flow and increase dividends
In 2015 we will: • Deliver improved value from our extended life bancassurance agreements, focusing on the protection market
• Accelerate growth in our general insurance business, by building our retail distribution and enhancing our technical capabilities
The Spanish economy continues to present challenges to the business. Despite this, our key metrics demonstrate the progress we have made in our turnaround and that we are well positioned to take advantage of improving economic conditions.
• Introduced new products, offering cover against specific conditions, such as breast or prostate cancer.
In 2015 we will: • Consolidate our bancassurance franchise with key partners as the restructuring of the banking sector in Spain completes
• Continue to grow our retail business profitably and invest in digitising our operations and services
• Further improve customer retention rates to generate additional value from the back book
We achieved a 23% increase in VNB in 2014 to £127 million, driven by growth in China and Singapore. China’s VNB grew 94% to £31 million driven by a shift towards higher margin protection products, and Singapore’s VNB increased 14% to £87 million benefiting from the inclusion of health business in VNB.
International in Indonesia in November • Shifted our product mix, emphasising value growth over pure volume growth, and improved distribution mix towards profitable channels
We have a presence in Greater China (China, Hong Kong and Taiwan), South East Asia (Singapore, Indonesia and Vietnam) and India.
We offer savings, protection, accident and health insurance to individual and corporate customers, and in Singapore we offer motor, home and travel products, as well as a fund management platform, Navigator.
We have three million customers across our markets1. We have leading insurance operations in Singapore (where we are ranked fourth2 in life business) and China (where we are a leading foreign insurer in seven of the 12 provinces in which we operate).
Across Asia we operate a multidistribution strategy which includes bancassurance, agents, financial advisers, telemarketing and a direct sales force. We are also investing in other channels such as direct marketing affinity and digital to differentiate ourselves from competitors.
• Continued to collaborate with our strong partners: COFCO in China; DBS in Singapore and Hong Kong; Astra and Bank Permata in Indonesia; First Financial Holding in Taiwan and Vietinbank in Vietnam
• Rolled out electronic applications on mobile tablets for new business for our bancassurance customers in Singapore, achieving an e-submission rate of 80%. This has also been rolled out in the agency channel in China
Despite several years of healthy growth in new business, Singapore, Hong Kong and Taiwan still have large protection gaps and ageing populations, which provide considerable opportunities for health, retirement and protection product propositions.
The regulatory landscape continues to evolve, with a focus on risk and solvency management, as well as greater interest in sales practices. All international insurers, like Aviva, benefit from being able to draw on their experience of other regulatory environments around the world to respond to these regulatory changes effectively.
• Develop a comprehensive range of products spanning savings, protection, health and retirement to better meet customers’ needs
Performance indicators £23m (2013: £20m) Cash remitted to Group £87m (2013: £96m) Life operating profit £2m loss (2013: £1m profit) General insurance and health operating profit £80m (2013: £86m) Operating expenses £127m (2013: £103m – restated4) Value of new business5
Astra Aviva Life Khor Hock Seng, CEO, Aviva Asia (pictured right), led the launch of Astra Aviva Life. He said: “In November, we launched our joint venture in Indonesia, Astra Aviva Life, with our partner, Astra, one of Indonesia’s largest listed conglomerates. It provides high quality protection and investment products, drawing on the strength of both companies, in one of the world’s fastest growing insurance markets. Our goal is to become a top five insurance provider in Indonesia. This exciting venture exemplifies our objective to be Not Everywhere, but in markets where we can make a major impact.”
(AIMS) fund range has been created with the aim of delivering these specific investment outcomes. We believe this will prove attractive to investors. As we are one of the few players in this segment of our industry, if our funds are successful we should be able to grow our assets under management significantly and in turn our contribution to Aviva’s profits.
To date, the AIMS Target Return Fund has performed impressively and this has already been recognised by clients. The AIMS fund range has now just over £1 billion of assets under management eight months after launch.
Aviva Investors’ activities are core to the strategy of the Group as a whole, firstly in reaching our potential as a True Customer Composite by capitalising on the opportunities between asset management and Aviva’s life insurance business.
Our strategy revolves around putting our customers at the heart of everything we do. No matter who they are, customers want their asset manager to offer them simple financial products delivering specific outcomes. We believe that whether it is a pension scheme, corporation, financial adviser or individual saver, what matters to them is achieving reliable capital growth, securing a reliable income stream, obtaining a return that exceeds inflation or increasing the likelihood they will meet a specific future financial liability.
CEO, Aviva Investors 44 | Aviva plc Annual report and accounts 2014
• Strengthened our executive team with the appointment of Mark Versey as Director of Client Solutions and Susan Ebenston as Chief Operating Officer. David Lis was promoted to the position of Chief Investment Officer, Equities and Multi-Assets, and Mark Connolly was appointed as Chief Investment Officer, Fixed Income
• Streamlined our business, for example we sold our Asia-Pacific real-estate funds business and River Road.
Aggressive action by central banks in lowering interest rates has led to suppressed market volatility and good performance across a wide range of asset classes. However with interest and bond rates already so low it is hard to be very optimistic about prospective returns. The low to non-existent returns available on the lowest risk assets has led to some increased risk appetite among institutional investors, however regulatory pressures are preventing this from going too far. We see this as presenting a very real opportunity for an asset manager like us to use our experience in risk management and investment insight across a broad range of asset classes to deliver the outcomes the institutional investor is looking for and which can no longer be achieved by the traditional approaches.
• Widen our distribution network, with products available through Aviva and third party platforms
• Operate as a globally integrated business in order to continue developing investment propositions that are relevant to our clients.
• Create a streamlined and simple business model that is able to harness scalability within the organisation.
• Capital markets that are systematically short term. This magnifies the problems associated with a flawed system.
To take a lead on these issues, in June 2014, we launched our Roadmap for Sustainable Capital Markets which sets out clear and practical recommendations on how our capital markets could promote and support sustainable growth.
Performance indicators £16m (2013: £14m) Cash remitted to Group £63m profit (2013: £26m loss) Total operating profit comprising: £79m (2013: £68m) Fund management £2m (2013: £2m) Pooled pensions £18m loss (2013: £96m loss) Other operations £298m (2013: £290m) Operating expenses £246bn (2013: £241bn) Assets under management www.aviva.com/roadmap/
O ur Aviva Investors Multi-Strategy (AIMS) range of funds is all about helping our customers to achieve the investment outcomes they are looking for, no matter how unpredictable the markets are. Each fund contains a variety of investment strategies which are designed to perform well in different circumstances because no-one can predict the future and we know that market conditions can change. The intention is to make sure each fund performs well in lots of different market environments.
Peter and Dan have combined investment experience of 39 years and have specialised in multi-asset and target-return investing throughout their careers. The whole process is overseen by Euan Munro, a pioneer of multistrategy investing, who acts as strategic adviser to the fund and chairs the Strategic Investment Group, a Company-wide forum that provides the fund’s managers with investment ideas.
Building the future This section sets out our strategy in relation to our people, the environment, climate change and sustainability, as well as social, community and human rights issues
Below we set out our people strategy: Achievement To drive performance, we will: • Recognise exceptional performance and reward outcomes • Ensure our goal-setting and reward systems drive improved performance year-on-year
Potential To reach our full potential, we will: • Attract and develop people who are the envy of the industry • Inspire our people to dream more, learn more, do more and become more • Identify and invest in people who are critical to our future success • Ensure our performance is improved by embracing people who think and act differently
Collaboration To encourage teamwork, we will: • Invite challenge and ask fierce questions with the right intent • Use a single set of global metrics • Work and win together readily adopting good ideas from others • Enable transparent and engaging conversations • Ensure our office space and IT encourage teamwork.
Corporate responsibility Below we set out our corporate responsibility strategy: Environment and climate change To reduce our impact on the environment and climate change, we will: • Manage our environmental risks and help customers to adapt to climate change
• Work with policy makers and other stakeholders to tackle climate change
• Engage with our stakeholders to build strategic relationships and evolve our strategy.
Community development To best develop the communities we live and work in, we will: • Act responsibly in our communities to extend our positive impact through expertise and partnership
Our people Our people strategy is about changing our culture and supporting our people to achieve their potential, so they can best serve our customers and enable us to achieve outstanding performance. Our people thesis sets out how we will be different to other employers.
These include increased cultural diversity, ageing workforces and a scarcity of talent in some areas. Digital trends include the ubiquity of mobile technology and a culture of constant connectivity.
We want our people to feel valued and ensure they can help shape Aviva’s future, so we encourage open, two-way conversations with our people. In 2014 we used new ways of engaging with our people through digital channels. This included a series of live events presented by members of the Group Executive team, who spoke informally about key elements of our strategy and answered employees’ questions. Videos and transcripts of these events were made available to all employees via the intranet.
We have taken the same approach into our annual, all-employee survey, ‘Voice of Aviva’. This helps us to understand our people and identify what we need to keep doing and where we can improve. This year over 25,000 colleagues took part.
The survey also identified areas where we need to make further progress. Only two in three employees say that they feel recognised, highlighting the importance of individual and team praise. Additionally our people asked for more practical opportunities to collaborate with colleagues to benefit customers.
Our focus for 2015 and beyond will be on continuing our communication efforts, increasing transparency with our people and customers, building our leadership capability and creating a culture of collaboration and recognition.
We are committed to providing an environment in which our people can continue to grow and thrive. We want our people to build careers at Aviva. We are therefore encouraged that 72% told us that in the previous six months they had the opportunity to develop their skills.
Half our employees and customers are women. Yet only 21% of our senior management team and subsidiary board members, 19% of our Group Executive and 18% of our Board are female.
We believe striking a gender balance will enrich and improve our decision-making and therefore business performance as a whole. To this end, in 2014 we signed up to the UK Government’s ‘Think, Act, Report’ initiative which encourages companies to disclose progress on equal pay and gender equality.
We are committed to achieving, by the end of 2015, the recommendation of Lord Davies’ Women on Boards Review that 25% of our Board membership should be female. In 2014, we put two new subsidiary board policies in place to increase board diversity in our Irish business and Aviva Investors.
We continued to focus on attracting and retaining the best talent with a particular focus on attracting talent in digital, predictive analytics and actuarial to support our strategy. In 2015, we will launch a new global onboarding programme.
Corporate Responsibility Our Corporate Responsibility (CR) strategy is underpinned by Aviva’s purpose and values. It sets out our approach to the environment and climate change, sustainable and transparent business practices, and community development.
Our business standard is how we ensure we meet our CR commitments, and helps us deliver our strategy. CR is also embedded in our risk management framework.
We want all our stakeholders to trust us. We are committed to making sure that we communicate with our customers in a straightforward and transparent way. This commitment is reflected in our customer business standard.
The restructure and overall growth of the business has been brilliant. Aviva is moving forward with the times and introducing more online services and fresh ideas.
We aim to uphold the highest ethical standards in managing our business. This commitment is set out in our business ethics code. In 2014, 96% of Aviva employees confirmed they had read, understood and accepted the code (2013: 95%).
Our respect for human rights is embedded in how we do business. For example, we do not insure tobacco, arms and munitions manufacturers and we do not invest our money in cluster munitions manufacturing. Aviva is committed to upholding globally accepted human rights principles which are reflected in the following: • UN Universal Declaration of Human
As part of our work in embedding human rights into how we do business, we focus on five human rights stakeholder groups: Employees We manage our risks by delivering on our commitment to respect and promote fair reward, diversity and inclusion, equal opportunities, labour relations and freedom of association.
Responsible Investment across all asset classes. Where human rights risks are identified in our holdings, we engage with companies to address our concerns. We do not invest in companies which manufacture cluster munitions.
Businesses which act in a sustainable and responsible manner are more likely to achieve long-term success. —
Officer, Aviva Investors expertise, we maximise the value of our investment.
We work with partners such as the Red Cross and Macmillan Cancer Support for our customers and communities. We also work to increase access to insurance. For example, we are the largest provider in the UK of social housing tenants’ contents insurance.
We judge the importance of environmental issues based on the impact on our customers, our business and our stakeholders. Climate change is society’s most pressing environmental challenge and the most directly relevant to our business. We have a commercial interest in making sure risks do not become uninsurable and in understanding the potential long-term impact on our investments.
We publish annual Group performance data for our CO2e emissions, waste and water consumption. Our carbon footprint boundaries identify the scope of the data we monitor and the emissions we offset. We report on all of the Greenhouse Gas (GHG) emission sources on a carbon dioxide emissions equivalents basis (CO2e) as required under the Companies Act 2006 (Strategic Report and Directors’ Reports) 2013 Regulations. Our reporting follows the GHG Protocol Corporate Accounting and Reporting
Standard, and emission factors from the UK Government’s GHG Conversion Factors for Company Reporting 2014.
Street to School Aviva’s five-year global Street to School programme came to an end in December 2014. It has exceeded its goals. Having set out to help only 500,000 children, the programme helped over one million children globally. We are proud to be the leading corporate body supporting the campaign for street children to be recognised in the UN Convention on the Rights of the Child. This has helped put street children back on the UN policy agenda.
Although the global partnership programme has come to an end, Aviva will continue to advocate on behalf of street children through our work with the Consortium for Street Children and the UN. Our longstanding work in parts of Asia will also continue for another two years.
Controlling our impacts: Aviva’s carbon footprint boundaries Covering 100% employees Reporting and offsetting
PricewaterhouseCoopers LLP. *** Carbon offsetting through the acquisition and surrender of emissions units on the voluntary market.
We purchase 56% of our electricity from renewable sources round the world. However, the UK Government conversion factors require that the CO2e element of UK renewable electricity should be reported as grid average. For our unavoidable remaining carbon emissions we offset these to the value of 100% through the acquisition and surrender of emission units on the voluntary carbon market (VERs).
In 2014, we met our long term target to cut CO2e emissions by 20% between 2010 and 2020 achieving a reduction of 32%. As we have reached our target ahead of schedule, we are developing a new more ambitious target as part of our new strategy. In 2014, we cut our emissions by 4% compared with 2013.
Aviva is a founding signatory to the UN Principles for Responsible Investment. We were one of the first global fund managers to integrate environmental, social and governance (ESG) issues into our investment decision-making and to exercise our leverage as an institutional investor to drive changes in business practices, especially through voting at Annual General Meetings.
We exercise stewardship by encouraging greater transparency, more sustainable practices and better corporate governance. By doing so we shape new corporate behaviour that helps to reduce the risks for our clients.
We aim to challenge accepted practices and promote fresh debate in industries in which we invest. In doing so, we create shareholder value whilst building a legacy for our customers and communities.
Reducing carbon emissions and supporting communities We have long taken responsibility for the environmental impacts of our business. In 2006, we were the first global insurance group to offset our total operational emissions and become carbon neutral.
We have worked closely with ClimateCare to develop a new way to measure and report the impact of offsetting our carbon emissions based on the methodology we use to measure our community investment impact. Our support not only reduces carbon emissions but also has an impact on people’s health, resilience and livelihoods. One of the projects we support, Lifestraw water filters, means people do not have to boil drinking water on open fires. This saves them money, reduces their exposure to toxic fumes and protects local forests.
So far, in just three years, we have made a measurable difference to the lives of just under 500,000 people in countries including Kenya, India and China.
T he Social Entrepreneurship sector in France is booming. But these businesses often struggle to find the funding to support their continued development.
Aviva’s investment is in partnership with Minot Recyclage Textile (MRT). Clothes which can’t be re-used get a new life as non-woven felts, geotextiles, cleaning cloths or as thermal or acoustic insulation material.
CFO Aviva France 54 | Aviva plc Annual report and accounts 2014
We achieve significant diversification of risk through our scale, our multi-product offering to customers, the differing countries we choose to operate in and through the different distribution channels we use to sell products to our customers.
General insurance risk: Arising from loss events (fire, flooding, windstorms, accidents etc.).
Health insurance risk: Healthcare costs and loss of earnings arising from morbidity risk (customers falling ill).
Life insurance risk: Includes longevity risk (annuitants living longer than we expect), mortality risk (customers with life protection dying), expense risk (the amount it costs us to administer policies) and persistency risk (customers lapsing or surrendering their policies).
Some of our life and savings contracts provide guaranteed minimum investment returns to customers, and as a result we accept from them investment type risks such as credit and market risk in order to offer upside potential but provide protection against the downside.
Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid assets.
Asset management risk is the risk of customers redeeming funds, not investing with us or switching funds, resulting in reduced fee income. We manage funds on behalf of our customers, so they do not have to manage the credit, market and operational risks which otherwise they would have to manage themselves.
Our core expertise is understanding and managing these risks, so that we can competitively price our products, deliver on our promises to customers and provide sustainable earnings growth to our shareholders.
We manage risk through our choice of business strategy, underpinned by our business culture and values, continuously seeking to identify opportunities to maximise risk-adjusted returns. Rigorous and consistent risk management is embedded across the Group through our risk management framework, which includes the following key elements: 1. Our risk appetite framework 2. Our risk management processes 3. Our risk governance
The key is to understand the risk that you’re taking and the reward that you get from it.
Group Chief Risk Officer 56 | Aviva plc Annual report and accounts 2014
The Aviva Board has approved four risk appetite statements: • Economic capital: Based on economic capital at risk in an extreme loss event over a one year time horizon
• European Insurance Groups Directive (IGD) capital: Based on maintaining an appropriate level of required regulatory solvency capital in a severe loss event
We regularly monitor our risk exposures against risk appetites, as well as key risk indicators against operating and financial risk limits and tolerances. Early warning indicators are monitored as triggers for management action, such as putting into effect pre-prepared contingency plans.
We monitor the effectiveness of controls in place to manage operational risks, including compliance with the Group’s internal business standards.
Supported by our organisation and people Good risk management is supported by our staff having clear roles and responsibilities, the right skills and capabilities, and the right incentives and rewards. We strive to embed a risk-aware culture and values in our business through employee training and communications.
Risk is governed through group-wide risk policies and business standards, risk oversight committees and clear roles, responsibilities and delegated authorities. The Aviva plc Board is responsible for setting the Group’s risk appetite and establishing and operating controls to assess and manage the risks. The Board delegates ‘day-to-day’ risk management to the Group CEO, who delegates operational aspects to executives within the Group through delegated authority letters.
Functions (Product development/ Underwriting/ Sales & Distribution/ Customer service/Claims handling/ Finance & Capital/Investment/IT/HR/ Legal/Procurement) Accountable for the management of all risks relevant to the business of the function.
Internal Audit Accountable for providing reliable independent assessment and reporting to the Group and business unit Audit and Risk Committees, Board members and Executive Management of Aviva plc and its subsidiaries on the adequacy and effectiveness of the risk management and control frameworks operated by the 1st and 2nd lines of defence.
We take on credit risk as we believe we have the expertise to manage it. As an insurer, we benefit from being able to invest for the long term due to the relative stability and predictability of our cash outflows.
Market risk • Equity price • Property • Interest rate • Foreign exchange • Inflation
Life and health insurance risks • Longevity • Persistency • Mortality • Morbidity • Expenses • New business
General insurance risk • GI catastrophe • GI reserving (latent and non-latent) • GI underwriting / new business
We take general insurance risk in measured amounts for explicit reward, in line with our core skills in underwriting and pricing. We have a preference for those risks that we understand well, that are intrinsically well managed and where there is a spread of risks in the same category. GI risk diverisifies well with our life insurance and other risks.
• Risk appetites set to limit exposures to key general insurance risks • Extensive use of data, financial models and analysis to improve pricing and risk selection • Underwriting limits linked to delegations of authority that govern underwriting decisions • Product development in management framework that ensures products and propositions meet customer needs • Documented claims management philosophies and procedures • Use of reinsurance to reduce the financial impact of a catastrophe and manage earnings volatility
Liquidity risk The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid, assets such as commercial mortgages.
• Commercial paper issuance • Contingency Funding Plan in place to address liquidity funding requirements in a significant stress scenario
Operational risk should generally be reduced to as low a level as is commercially sensible, on the basis that taking operational risk will rarely provide us with an upside, and operational failures may adversely impact our reputation, impairing our ability to attract new business, or lead to poor customer outcomes.
• Application of enhanced business standards covering key processes • Monitoring of controls through assurance activity and information on the operation of the control environment from management, internal audit and risk functions, supported by operational risk and audit registers and first line control logs
• Cyber crime – criminals may attempt to access our IT systems to steal or utilise company and customer data, or plant malware viruses, in order to access customer or company funds, and/or damage our reputation and brand. While we have IT security and data encryption to prevent this happening, the increasing sophistication of criminals and the focus on digital automation as part of our strategy make this an increasing risk.
• Pandemics, new diseases and antibiotic resistance – the adverse impact on mortality could negatively impact the profitability of our life protection products, increase private health insurance claims, and even affect general insurance claims. A pandemic might also disrupt our operations.
• Business Continuity Plans – to ensure we can continue to operate and serve our customers in the event of terrorism, pandemic, cyber-attack or other events disrupting our operations
In this section Page Chairman’s governance letter 62 Board of directors 64 Group executive 68 Directors’ and corporate governance report 70 Directors’ remuneration report 90
This is clearly the case in respect of the proposed acquisition of Friends Life. Given the materiality of the transaction, the Board as a whole carefully deliberated the merits of the transaction, ensured that a robust due diligence process was followed and fully considered the risks, mitigations and opportunities presented by the transaction. If the proposed acquisition completes successfully the Board will oversee the integration to ensure that robust systems of internal control and risk management are implemented throughout the enlarged Group to support its long-term success. I believe management has a clear plan to achieve the strategy agreed by the Board and this will continue to evolve as we integrate Friends Life if the proposed acquisition completes.
Governance Committee We further refined the Governance Committee’s remit during the year to include oversight responsibility for conduct risk, in particular in relation to those risks that may impact customer outcomes and have a potential reputational impact. This has been a key focus of the committee during the year with a push for consistent management information on conduct risk. The committee also became responsible for talent management and development programmes, and during the year implemented initiatives to ensure robust succession plans are in place and a sustainable future workforce is created.
Audit Committee The Audit Committee continued to monitor the internal control environment and the nine key control topics identified by management (see the Audit Committee’s report for further details). In particular, new protocols are being developed to improve oversight of the Group’s joint ventures. The committee is also overseeing the rollout of the Integrated Assurance Framework (IAF) across the Group. In time this will provide a
Dear shareholder Your Board firmly believes that a sound governance framework is essential in supporting management in delivering the Group’s strategy to drive business success
Our governance responsibilities … are particularly important when significant transactions are being considered —
The committee also continued to monitor the integrity of the Group’s financial reporting, focussing on their fair presentation, the reasonableness of financial assumptions and judgement factors and the appropriate application of accounting policies. In the 2013 Annual report and accounts we reported that we had identified controls failings in Aviva Investors that happened between August 2005 to June 2013. In February 2015, Aviva Investors reached a settlement with the FCA in relation to this and agreed to pay a fine of £17.6 million. Aviva Investors has committed significant resources to enhancing its control environment. Aviva Investors has fixed the issues, improved the systems and controls and made substantial changes to the management team.
With the Group’s designation as a Global Systemically Important Insurer (GSII), it was important for the committee to scrutinise the GSII recovery and resolution plans. The committee also reviewed management plans to address potential future capital requirements that might be required as a result of either being classified as a GSII or the transition to Solvency II.
The proposed acquisition of Friends Life gave the committee an opportunity to consider the composition of the Board of the enlarged Group. As a result, the committee recommended to the Board that Andy Briggs and Sir Malcolm Williamson be appointed as directors of the Board following successful completion of the transaction.
Having considered each Non-Executive Director’s independence, each director’s contribution to the Board, and their suitability for re-election, the committee supports the re-election of all Board members standing for re-election at the 2015 AGM.
01. John McFarlane Chairman 02. Mark Wilson Group Chief Executive Officer 03. Tom Stoddard Chief Financial Officer 04. Sir Adrian Montague, CBE Senior Independent Director 05. Glyn Barker Independent Non-Executive Director 06. Patricia Cross Independent Non-Executive Director 07. Michael Hawker, AM Independent Non-Executive Director 08. Gay Huey Evans Independent Non-Executive Director 09. Michael Mire Independent Non-Executive Director 10. Bob Stein Independent Non-Executive Director 11. Scott Wheway Independent Non-Executive Director
John McFarlane Chairman b.1947 — John was appointed to the Board in September 2011 and became Chairman on 1 July 2012. He chairs the Nomination Committee. He is Chairman of FirstGroup plc (transport operator), and is a NonExecutive Director of Barclays plc (banking), Westfield Corporation (retail mall developer and operator) and Old Oak Holdings Ltd (financial holding company).
Mark was previously Chief Executive Officer of AXA China and Chief Executive Officer of AXA South East Asia (insurance). He also held a number of senior management positions at National Mutual (insurance) in New Zealand, where he progressed through many of the major business functions, gaining a deep and broad knowledge of the business.
Tom Stoddard Chief Financial Officer b.1966 — Tom joined Aviva in April 2014 as Chief Financial Officer and a member of the Aviva Group Executive. He has worked primarily as an investment banker, including advising Aviva. He also has experience as a corporate lawyer and an asset based lender. From 2008 to 2014, Tom was Senior Managing Director, Head of Global Financial Institutions Advisory, at the investment and advisory firm Blackstone Advisory Partners LP with responsibility for successfully driving Blackstone’s business of advising banks, insurers and other financial institutions globally on M&A and restructuring.
Sir Adrian Montague, CBE Senior Independent Director b.1948 — Sir Adrian was appointed to the Board in January 2013 and became Senior Independent Director in May 2013. He is a member of the Audit, Governance and Nomination Committees. He is currently Chairman of 3i Group plc (private equity), The Manchester Airport Group plc and The Point of Care Foundation (charity) and a Non-Executive Director of Skanska AB (construction) and Cellmark Holdings AB (forest products).
Government roles including the Australian Financial Centre Forum and the Financial Sector Advisory Council, as well as on numerous charities. She was also Executive General Manager, wholesale banking and finance at NAB, and held a number of senior executive positions at Chase Manhattan Bank and Banque Nationale de Paris (banking).
Patricia has significant experience as both an Executive and Non-Executive Director across a wide range of financial services and other regulated industries in the U.S., Europe and Australia.
Gay Huey Evans Independent Non-Executive Director b.1954 — Gay was appointed to the Board in October 2011, is a member of the Risk, Remuneration and Nomination Committees, and chaired the Governance Committee until February 2014. She is currently a NonExecutive Director of ConocoPhillips (exploration and production), Bank Itau BBA International Ltd (banking), and the Financial Reporting Council.
Gay is also a member of the management board of the panel of finance experts of the Panel of Recognised International Market Experts in Finance and a Trustee of Wellbeing of Women (UK). She was formerly Vice Chairman of the Board of International Swaps and Derivatives Association, Inc. (ISDA), Vice Chairman, Investment Banking & Investment Management at Barclays Capital (banking), a Non-Executive Director of The London Stock Exchange Group plc (stock exchange) and a trustee of The Wigmore Hall Trust (charity). Prior to that, Gay held senior management positions at Citi Alternative Investments (investments) and Bankers Trust Company (banking).
Gay has over 30 years of experience within the financial services industry, having held key positions in government and in a number of global financial and banking institutions and the Financial Services Authority (regulatory predecessor to the PRA and FCA).
Michael Mire Independent Non-Executive Director b.1948 — Michael was appointed to the Board in September 2013 and is a member of the Governance, Risk and Nomination Committees. He is currently the Senior Independent Director at the Care Quality Commission (the UK Government body which regulates the quality of health and adult social care and gives ratings to all hospitals, whether public or private, adult social care homes and services, and primary medical care practices).
Bob spent most of his working life at Ernst & Young (accountancy) in the US, where he held a number of managing partner roles including actuarial, insurance and financial services practices in the US and globally, culminating in being Managing Partner, Global Actuarial Practice.
Scott Wheway Independent Non-Executive Director b.1966 — Scott was appointed to the Board in December 2007, is Chairman of the Governance Committee and is a member of the Audit and Nomination Committees. He is currently a Non-Executive Director of Santander UK plc (retail bank).
He was formerly Chief Executive Officer of Best Buy Europe (retail services), Director of The Boots Company plc (now known as The Boots Company Ltd) (pharmacy), Managing Director and Retail Director of Boots the Chemist at Alliance Boots plc and Director of the British Retail Consortium (trade association for the UK retail industry). He has previously held a number of senior executive positions at Tesco plc, including Chief Executive of Tesco in Japan.
03. Nick Amin Chief Operations and Transformation Officer — Nick joined Aviva in 2013 and has a strong international background in consumer banking and insurance; and significant experience of general management, business operations and transformation projects over a 40 year career. Nick is responsible for driving the transformation programme across the Group, to improve profitability and efficiency.
04. David Barral Chief Executive Officer, Aviva UK & Ireland Life Insurance — David joined Aviva in 1999 and has spearheaded the UK Life business’ activities to champion the customer. He is a Board representative of the Association of British Insurers as well as chairman of the ABI Retirement and savings committee. In 2015, David’s priorities include continuing to adapt to changes to the UK annuities market, launching a new retirement solutions direct to customer platform and maximising the opportunity of auto-enrolment.
05. Paul Boyle Chief Audit Officer — Paul joined Aviva in 2010 and leads the Internal Audit function which independently assesses the effectiveness of the Group’s systems and controls for managing risk. Paul has been a catalyst for a number of improvements in those systems and controls. Paul is a Chartered Accountant and was previously Chief Executive of the Financial Reporting Council.
06. Andrew Brem Chief Digital Officer — Andrew joined Aviva in late 2014 and is accountable for Aviva’s digital product innovation and transformation as our customers increasingly choose digital as their preferred way of dealing with us. Andrew has held significant e-commerce and digital leadership roles in international and retail consumer businesses.
10. John Lister Group Chief Risk Officer — John joined Aviva in 1986 and leads Aviva’s Risk function, regulatory compliance and Solvency II implementation. The function challenges and oversees the Group’s management of risks, and develops and maintains the risk management framework. A qualified fellow of the Institute of Actuaries, he has held a number of senior roles in the UK Life business, including Finance Director.
11. David McMillan Chairman Global Health Insurance and Chief Executive Officer, Aviva Europe — David joined Aviva in 2002 and is responsible for Aviva’s European and Indian businesses and oversees all Health businesses across the Group – a key growth area and part of our composite offering. David recently led the restructuring of our Italian business as well as the IPO of Aviva’s Turkish Life joint venture. He has held a number of senior roles at Aviva.
12. Euan Munro Chief Executive Officer, Aviva Investors — Euan joined Aviva in early 2014 and recently launched a multi-strategy funds range. In 2015 he aims to widen Aviva Investors’ distribution network, harness scalability within the organisation and develop investment propositions for customers. Prior to joining Aviva in January 2014, Euan held a number of senior leadership roles at Standard Life, with responsibility for fixed income and multi-asset management.
13. Monique Shivanandan Chief Information Officer — Monique joined Aviva in 2014. To achieve the Digital First strategy her priorities are to transform the Group’s IT estate, ensure that the Group maximises digital capability and that our customers’ digital experience is in a secure environment. She has held senior technology positions in both the telecommunications and banking sectors.
14. Maurice Tulloch Chairman Global General Insurance and Chief Executive Officer, Aviva UK & Ireland General Insurance — Maurice joined Aviva in 1992 and oversees the general insurance businesses globally, and leads the UK & Ireland General Insurance business. He is at the forefront of change to the industry and is Chairman of the Association of British Insurers’ General Insurance Management Committee. He was formerly Chief Executive Officer of Aviva Canada.
15. Chris Wei CEO Global Life Insurance and Chairman Asia — Chris joined Aviva in October 2014 and is responsible for the overall growth and profitability of Aviva’s Life Insurance businesses. He aims to achieve this by providing excellent customer service and expanding our multi-distribution platforms. Prior to joining Aviva Chris was Group CEO of Great Eastern Holdings Ltd, a leading insurance company in Asia.
16. Jason Windsor Chief Capital and Investments Officer — Jason joined Aviva in 2010 and is responsible for capital management and allocation, investments, treasury and reinsurance. His aim is to achieve better returns on capital and investments across the Group, consistent with the strategic anchor and risk appetite. He was previously a Managing Director in the Financial Institutions Group at Morgan Stanley.
The specific duties of the Board are clearly set out in its terms of reference which address a wide range of corporate governance matters and list those items that are specifically reserved for decision by the Board. Matters reserved for Board approval include: • Group strategy and business plans • Financial reporting and controls, capital structure and dividend policy • Group risk appetite and framework • Remuneration policy • Significant transactions and expenditure • Corporate governance issues (e.g.
appointment and removal of the Group Company Secretary and Chief Risk Officer (CRO), Board and committee succession planning and the constitution of Board committees)
The Board’s Terms of Reference also set out those matters that must be reported to the Board, such as senior leadership changes, significant litigation or material regulatory breaches, and explain how matters that arise between scheduled meetings should be dealt with.
The Board’s policy is to appoint and retain NEDs who can apply their wider business knowledge and experiences to their oversight of the Group and to review and progressively refresh the skills on the Board. The report of the Nomination Committee sets out the work carried out during the year on succession planning for the Board. Committee membership is also regularly refreshed.
NEDs are required to be able to present objective, rigorous and constructive challenge to management, drawing on their wider experiences to question assumptions and viewpoints and, where necessary, defend a given position. The NEDs should also assist management in the development of the Company’s strategy. To be effective, it is our view that the majority of our NEDs should have a sound understanding of the insurance industry so as to be able to evaluate properly the information provided.
All of the current directors were subject to a formal performance evaluation in respect of 2014. The Board, having considered the matter carefully, is of the opinion that all of the current NEDs remain
Geographical mix 70 | Aviva plc Annual report and accounts 2014
Accordingly, over half of the Board members, excluding the Chairman, are independent NEDs. Biographical details including a summary of the skills and experience the directors bring to the Board are set out in their biographies above.
Each NED must be able to devote sufficient time to the role in order to discharge his or her responsibilities effectively. On average, the NEDs spend at least 72 days a year on Company business, with the Chairmen of the Audit, Risk, Governance and Remuneration Committees spending substantially more time. This is significantly higher than previous years due to consideration of the proposed acquisition of Friends Life. The Chairman has recently resigned as Chairman of the Group and Sir Adrian Montague, the current Senior Independent Director, will become Chairman from the conclusion of the 2015 AGM, subject to re-election by shareholders. The Nomination Committee reviewed the time commitment required for the role and Sir Adrian’s significant other commitments and noted that Sir Adrian intended to reduce his external commitments to give him sufficient time to dedicate to the role. In light of this the Nomination Committee supported his appointment and Sir Adrian has since retired as Chairman of Anglian Water Group Ltd and intends to further reduce his external commitments during 2015 including retiring from Skanska AB.
In connection with the proposed acquisition of Friends Life, Sir Malcolm Williamson and Andy Briggs, respectively the current Chairman and CEO of Friends Life, will join the Board following the 2015 AGM (subject to regulatory approval and successful completion of the acquisition). Sir Malcolm will replace Sir Adrian as Senior Independent Director and Andy Briggs will become CEO of the enlarged UK & Ireland Life business. This will provide continuity to the enlarged business. The Board considers Sir Malcolm to be independent as he was considered independent upon his appointment as Chairman of Friends Life and is independent in character and judgement and meets the Code criteria. Gay Huey Evans will also be retiring from the Board from the conclusion of the 2015 AGM.
The Chairman and Group CEO Role profiles are in place for the Chairman and the Group CEO which clearly set out the duties of each role. The Chairman’s priority is to lead the Board and ensure its effectiveness; the Group CEO’s priority is the management of the Group. The Board has delegated the day-to-day running of the Group to the Group CEO within certain limits, above which matters must be escalated to the Board for determination.
Senior Independent Director The Senior Independent Director’s role is to act as a sounding board for the Chairman, to serve as an intermediary for the other directors where necessary and to be available to shareholders should they have concerns that they have been unable to resolve through normal channels, or when such channels would be inappropriate. During the year the NEDs, led by Sir Adrian Montague, met several times without the Chairman present and Sir Adrian Montague led the review of the Chairman’s performance during the year.
The Board monitored the performance of the Group and its compliance with the governance framework described below through regular: • Group CEO reports, which included updates on the implementation of the Group’s strategy and theses; updates on ongoing corporate transactions and disposals; reports on financial performance; changes in senior management; regulatory developments; and the control environment
• CFO reports, which included the financial results and forecasts; reports on the operational plan and performance; competitor results; treasury activities; and progress against Solvency II (SII)
• Reports from the Chief Capital & Investments Officer on the Group’s capital and liquidity position
As part of its annual work plan, the Board reviewed and approved all financial results announcements, the Annual report and accounts, the operational plan and dividend payments, all changes to the composition of the Board and its committees, and received regular updates on progress against the Group’s strategy.
In addition, the Board undertook the following specific activities during the year: • Approved the restructure of the Group’s
• Approved a proposal that significantly reduced the Group’s exposure to longevity through the transfer of payment funding basis liabilities in the Aviva Staff Pension Scheme to external reinsurers resulting in less volatility in the Aviva Staff Pension Scheme
• Discussed and reviewed the impact of the pension legislation changes in the UK on the UK annuities market
• Approved the use of a Group entity as a captive reinsurer for the Group
• Approved the Group’s recovery plan and liquidity risk management plan required due to its status as a GSII
• Considered the results of the employee engagement survey – Voice of Aviva
Board effectiveness The effectiveness of the Board is vital to the success of the Group and the Company undertakes a rigorous evaluation review each year in order to assess how well the Board, its committees, the directors and the Chairman are performing. The aim is to continually improve the Board’s effectiveness and the Group’s overall performance. For the 2014 evaluation an internal review was conducted with the use of questionnaires and the responses analysed and results discussed by the Board and each of the committees and actions agreed. Overall the Board was found to function well with a collaborative and professional atmosphere around the board table. The Board agreed that its priorities for 2015 should include closely monitoring any risks associated with the completion of the proposed acquisition of Friends Life and its integration into the business; capital and liquidity strength; conduct risk oversight; monitoring global economic risks; and assessing the changing customer preferences for the Group’s products. The focus for the Board committees in 2015 are detailed in each committee’s report.
Group CEO in respect of his executive duties a separate process was carried out by the Chairman and in respect of the CFO, by the Group CEO. The process involved measuring performance against each Executive Director’s role objectives.
Further or follow-up meetings are arranged where a director requires a deeper understanding of a particular issue. All new directors also receive induction materials, which include, but are not limited to, 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 skills gaps identified during the director’s approved person application process are also addressed through their induction programme.
Directors’ attendance The Company requires directors to attend all meetings of the Board and the committees on which they serve and to devote sufficient time to the Company in order to effectively perform their duties. The attendance of the directors at the Board meetings held in 2014 is shown in the following table and the attendance at committee meetings is shown in the committee reports.
3 Pat Regan resigned with effect from 28 March 2014. He did not attend one meeting which was called at short notice to discuss plans for his succession.
The Chairman and the NEDs met several times in the absence of the executive directors and the NEDs met in the absence of the Chairman, including one meeting chaired by the Senior Independent Director to appraise the Chairman’s performance. Members of senior management regularly attend Board meetings to present items of business.
The Board delegates to the Group CEO the day-to-day management of the Company and approval of specific issues up to set financial limits, including limits on revenue and capital expenditure, reinsurance spend and the settlement of claims. In turn the Group CEO delegates some of his authority to his direct reports. There is a similar delegated authority framework in place throughout the Group.
First line Management are responsible for the application of the RMF, for implementing and monitoring the operation of the system of internal control and for providing assurance to the Audit Committee, the Risk Committee, the Governance Committee and the Board.
The Disclosure Committee is chaired by the CFO and reports to the Audit Committee. It oversees the design and effectiveness of the Group’s disclosure controls, for both financial and non-financial information, evaluates the Group’s disclosure controls and reviews and endorses the Group’s key periodic external reports, including the consolidated financial statements. The results of the FRCF process are signed off by business unit Chief Executive Officers and Chief Financial Officers and compliance with the FRCF is reported to the Disclosure and the Audit Committees.
Second line The Risk function is accountable for the quantitative and qualitative oversight and challenge of the identification, measurement, monitoring and reporting of significant risks and for developing the RMF.
The second line Risk function as a whole also includes the Compliance and Actuarial functions. The Actuarial function is accountable for Group wide actuarial methodology, reporting to the relevant governing body on the adequacy of reserves and capital requirements, and on the adequacy of underwriting and reinsurance arrangements. The Compliance function supports and advises the business on the identification, measurement and management of its regulatory, financial crime and conduct risks. It is accountable for maintaining the compliance standards and framework within which the Group operates, and monitoring and reporting on its compliance risk profile.
Third line The Internal Audit 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, business unit Audit Committees and the Board. Further information on the activities of the Internal Audit function is contained within the Audit Committee Report.
The Audit Committee, working closely with the Risk Committee, is responsible for assisting the Board in discharging its responsibilities for the integrity of the Company’s financial statements, the effectiveness of the system of internal financial controls and for monitoring the effectiveness, performance and objectivity of the internal and external auditors. The responsibilities and activities of the Audit Committee are set out in the Audit Committee Report.
The Governance Committee also works closely with the Risk Committee and is responsible for assisting the Board in its oversight of operational risk across the Group, particularly in respect of the risk of not delivering good customer outcomes.
The chart below shows the Board and committee structure that oversees the Company’s frameworks for risk management and internal control.
• Material existing or emerging risks within the business have been identified and assessed and the business operates in a manner which conforms to the minimum requirements outlined in Group risk policies and business standards
The Chief Risk Officer of each business unit must certify that: • The Risk function has reviewed and challenged the process supporting the business unit Chief Executive Officer’s certification and is satisfied that it can provide reasonable assurance of the material accuracy and completeness of the business unit Chief Executive Officer’s assessment
• No material gaps exist in the RMF, as it applies to the business unit
The effectiveness assessment also draws on the regular cycle of assurance activity carried out during the year. The results of the certification process and details of any significant failings or weaknesses are reported to the Audit Committee and the Board annually to enable them to carry out an effectiveness assessment.
During the year, the Chairman and the Senior Independent Director met with the Company’s major institutional investors. This included consultation on the appointment of Sir Adrian Montague as Chairman and in respect of the proposed Friends Life acquisition. In addition, the Senior Independent Director was available to meet with major investors to discuss any areas of concern that could not be resolved through normal channels of investor communication.
The AGM also provides a valuable opportunity for the Board to communicate with private shareholders. All serving directors attended the 2014 AGM. There is a dedicated email address which shareholders can use to ask questions on the business of the AGM at aviva.shareholders@aviva.com. This address is included in the shareholder information section of the Notice of AGM. A presentation on the Group’s performance is given at the AGM and is made available on the Company’s website after the meeting at www.aviva.com/agm. Whenever possible, all directors attend the AGM and shareholders are invited to ask questions related to the business of the meeting at the AGM and have an opportunity to meet with the directors following the conclusion of the meeting.
In this, my final report to you as Chairman of the Nomination Committee, I am pleased to report on how the committee has continued to undertake its role during 2014. The principal purpose of the committee is to monitor the balance of skills, knowledge, experience and diversity on the Board and recommend any changes to the composition of the Board. The committee has focused on ensuring that your Board has strong and responsible leadership together with a wide range of skills, knowledge and experience, which are critical to creating long-term shareholder value and business success.
As previously reported, I will be stepping down as both Chairman of the Board and of the committee following the Group’s AGM in April 2015. I am delighted that Sir Adrian Montague will replace me in both capacities. Further details regarding his appointment follow later in this report.
• Review the external interests and time commitments of the directors to ensure that each has sufficient time to undertake his/her duties to the Company
• Monitor succession plans for the appointment of executive directors and NEDs to the Board
Committee membership and attendance — The committee comprises the Chairman and all the Company’s NEDs. The table below shows the committee members during the year and their attendance at committee meetings: Membership and attendance
Glyn Barker 4 100% Patricia Cross 4 100% Michael Hawker 4 100% Gay Huey Evans 4 100% Michael Mire 4 100% Sir Adrian Montague3 3 75% Bob Stein 4 100% Scott Wheway 4 100%
2 John McFarlane did not attend a meeting at which his retirement from the Board and as Chairman, and consequential succession planning, was the only agenda item. Scott Wheway chaired this meeting.
The committee met on four occasions in 2014, of which three were ad hoc meetings called at short notice to consider the Chairman’s succession and possible new Board appointments following the successful completion of the Friends Life acquisition. During the year the committee also recommended for approval by the Board changes to the membership of the Risk, Audit, Governance and Remuneration Committees, and the appointment of a new Chairman to each of the Governance and Remuneration Committees.
Committee activities during 2014 — During 2014 the committee continued its focus on maintaining an appropriate balance of skills, knowledge and experience on the Board. The work of the committee evolved throughout the year in response to the retirement plans of the Chairman and to the proposed acquisition of Friends Life. These issues are discussed in detail below. The Group Company Secretary assisted the committee chairman in planning the committee’s work, and ensured that the committee received information and papers in a timely manner.
The chart below shows how the committee allocated its time during 2014.
Sir Adrian Montague had indicated his interest in the appointment and his candidature was considered alongside a high level review of potential external candidates. The sub-committee also took account of the succession planning that had been put in place for the role of Chairman which also identified Sir Adrian as a suitable candidate. Taking into consideration the job specification, capabilities, experience and
Due to the circumstances surrounding these appointments it was not appropriate to use an external search consultancy or open advertising for these appointments. The committee considered Sir Malcolm to be independent as he was considered independent upon his appointment as Chairman of Friends Life and is independent in character and judgement and meets the Code criteria.
At the date of this Report, 19% (2013: 21%) of Group Executive members and 21% (2013: 21%) of senior executives in the Company were female. It is the Company’s intention to increase this number as it is recognised that a greater number of women in senior management positions will create a stronger talent pipeline and is better for business. Further details on diversity can be found in the ‘Engaging with our people’ section of the Strategic report.
The committee also reviewed the independence of each NED; carried out an annual review of each director’s conflicts of interest and the balance of skills, knowledge, experience and diversity on the Board. In doing so, the committee noted that a member of Glyn Barker’s family works for the Company’s External Auditor, but that this person did not have any involvement in work carried out for the Group; and the cross-directorships of Michael Hawker and Patricia Cross on Macquarie Group Limited and Macquarie Bank Limited. Consideration of Glyn’s former employment by PwC is considered in the Audit Committee report. Scott Wheway has served on the Board for seven years and the committee was satisfied that he remains independent. His presence on the Board provides continuity given the number of changes to the Board during the previous two years and he makes a considerable contribution to the Board, through his knowledge of the Company and wide skill set. Over the last year the Chairman’s external commitments have increased with appointments to FirstGroup, Westfield Corporation and Barclays plc. The Chairman has commenced an orderly handover of his duties to Sir Adrian Montague and the committee was therefore satisfied that Mr McFarlane continued to devote sufficient time to fulfil his role at Aviva.
Following consideration of these issues the committee concluded that it considered each NED to be independent in character and judgement and that there are no circumstances that are likely to affect their judgement and recommended that each NED standing for re-election at the 2015 AGM be re-elected.
Taking into account the time commitments and any potential conflicts involved, the committee reviewed and recommended that the Board agree the appointments of Glyn Barker as a NonExecutive Director of Auctus Industries plc, Gay Huey Evans as Deputy Chairman of the Financial Reporting Council and Bob Stein as a director of Resolution Life Holdings Inc in the US, in advance of such appointments being taken up.
Committee performance and effectiveness — The Board undertook an annual review of the committee’s performance and effectiveness as part of the Board effectiveness review and the results of the review will be incorporated into the committee’s processes and activities for 2015. In particular it was agreed that the committee would review its processes for recommending appointments to the Board and hold additional meetings on succession planning for Executive Directors.
The main responsibilities of the committee are to: • Review the significant issues and judgements of management, and the methodology and assumptions used in relation to the Group’s financial statements and formal announcements on the Group’s financial performance, including the reserving position relating to the Group’s life assurance and general insurance operations
• Consider and review the performance of the Chief Audit Officer (CAO), and agree his remuneration
• Approve and monitor the application of the External Auditor Business Standard
Committee membership and attendance — The table below shows the committee members during the year and their attendance at committee meetings.
Glyn Barker (Chairman) 11 100% Patricia Cross2 10 91% Michael Hawker 11 100% Sir Adrian Montague3 10 91% Scott Wheway4 7 78%
1 This shows the percentage of meetings which the committee member attended during the year whilst a member of the committee.
2 Patricia Cross was unable to attend one meeting called at short notice due to a prior commitment.
3 Scott Wheway joined the committee on 20 February 2014 and had prior commitments which prevented him being able to attend meetings in late March and April 2014.
The committee met on 11 occasions in 2014 of which one meeting was called at short notice. The Chairman of the Company, Group CEO, CFO, CAO, the Chief Accounting Officer and a representative of the external auditor regularly attended committee meetings. Other members of senior management were also invited to attend as appropriate to present reports. During the year the committee regularly held private sessions to discuss issues to be raised with management in the main meeting, and met separately with senior management, the CAO and the external auditor without management present. The Group Company Secretary acted as the Secretary to the committee.
The committee Chairman reported to subsequent meetings of the Board on the committee’s work and the Board received a copy of the agenda and the minutes of each meeting of the committee.
There is cross-membership between each of the Board committees to ensure that audit issues were appropriately communicated and taken into account in the decisions of each committee.
In performing its duties, the committee had access to the services of the CAO, the Group Company Secretary, senior financial management and external professional advisers.
During the year committee members attended meetings of business unit Audit Committees in Poland, France and Spain.
Committee expertise and independence — The Board is satisfied that Glyn Barker, Michael Hawker and Patricia Cross each meet the US requirements to be an audit committee financial expert. Glyn Barker is a chartered accountant and has held a number of senior positions at PricewaterhouseCoopers LLP (PwC) where, most recently, he was UK-Vice Chairman. The committee is satisfied that Glyn Barker meets the US Securities and Exchange Commission’s and Auditing Practices Board’s Ethical Standards on auditor independence. In addition the Board is satisfied that he has recent and relevant financial experience in accordance with the Code and satisfies the requirements for competence in accounting and/or auditing under the Disclosure and Transparency Rules. Michael Hawker, a senior fellow of the Financial Services Institute of Australasia, is a former Chief Executive Officer and Managing Director of Insurance Australia Group, and therefore has the necessary financial expertise to meet the US requirements.
Sir Adrian Montague has significant financial services industry experience through his former roles as Chairman of Friends Provident plc and Deputy Chairman of UK Green Investment Bank plc.
Scott Wheway was appointed to the committee during 2014, is currently a NonExecutive Director of Santander UK plc and has held a number of senior roles at Best Buy Europe, Boots Company plc, the British Retail Consortium and Tesco plc.
Financial statements and accounting policies The committee reviewed the Group’s financial announcements, the Annual report and accounts and associated documentation, the half year results and the interim management statements, and the going concern assumptions in relation to the Annual report and accounts and half year results. The committee placed particular emphasis on their fair presentation, the reasonableness of the judgement factors applied and the appropriateness of significant accounting policies used in their preparation.
During the year the committee challenged the assumption for credit default in respect of UK commercial mortgages and was satisfied with management’s review at Full Year 2014 that the allowance was appropriate.
Other significant issues The committee considered the impact of a number of changes in legal and regulatory requirements on the Group, including: the UK Government’s 2014 budget announcements on annuities; the introduction of the Strategic report and the requirement for the directors to state that the Group’s financial statements are fair, balanced and understandable for the Group’s 2013 financial statements onwards.
The roll out of the Integrated Assurance Implementation (IAI) programme has continued during the year. The IAI provides
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a basis for a common understanding of the respective responsibilities of first, second and third lines of defence for controls and a common approach to identifying, documenting and testing the key controls in the Group. Progress has been made to embed the IAF into the Group. The IAF is a mechanism to bring together all the information on the operation of the control environment from management, Internal Audit and the Risk function; to provide a holistic view of the status and quality of controls and identify common themes and expedite action to remediate deficiencies.
Regular reports were provided to the committee of any malpractice reported through the Group’s malpractice reporting service. None of the reports lodged in 2014 made allegations of financial malpractice.
Internal audit The Internal Audit function reports to the Board (primarily via the committee), and to management on the effectiveness of the Group’s systems of internal control and the adequacy of these systems to manage business risks and to safeguard the Group’s assets and resources.
• Assess and report on the effectiveness of management actions to address deficiencies in the framework of controls
The Internal Audit Business Standard sets out the requirements for management across the Group to support Internal Audit in achieving its objectives. It requires businesses to design and operate processes and controls to satisfy the mandatory requirements in the standard based on the size and complexity of the business and the nature of the risks and challenges it faces. Any breaches of the Standard must be reported to the CAO and others as appropriate. The committee reviewed and approved the updated Internal Audit Charter and Business Standard in late 2014.
Annual plan and focus of reviews in 2014 The Internal Audit Plan for 2014 was reviewed and approved by the committee on a half-yearly basis in January and July 2014. Planned reviews reflected the priorities in the Group’s 2014-2016 Operational Plan and were prioritised following a risk-based assessment of the business and a review against the Group’s risk policies. The reviews carried out covered an extensive sample of controls over all risk types, business units and regulated entities and covered ‘business as usual’ activities and an assessment of change programmes. The plan covered the implementation of corporate and commercial decisions; maintenance of adequate financial strength and resilience; the effectiveness of governance, decision making and risk management; legal and regulatory obligations; the availability, security and recoverability of IT systems; management of relationships with key partners and the effectiveness of oversight of risk management in the Group’s joint ventures and investments. The committee received quarterly reports from the CAO on audit reviews carried out, management’s response to the findings and progress in addressing identified issues. In November the committee considered and approved the Internal Audit Functional Plan for the period 2015 to 2017.
External Auditor PwC was appointed as the Group’s External Auditor (Auditor) in 2012 following a formal tender process. The external audit contract will be put out to tender at least once every ten years.
The committee performed its annual review of the independence, effectiveness and objectivity of the Auditor. The process was conducted by means of a questionnaire, completed Group-wide by members of senior management and members of the Group’s finance community and the committee. The questionnaire
Directors’ and corporate governance report continued sought opinions on the importance of certain criteria and the performance of the Auditor against those criteria. Based on this review, the committee concluded that the audit service of PwC was fit for purpose although some efficiencies were identified in relation to the audit process which were fully addressed during the year.
The fees for other services, which are in compliance with applicable UK, US and International Federation of Accountants independence rules, included MCEV supplementary reporting, advice on accounting risk and regulatory matters, reporting on internal controls, reporting on the Group’s Individual Capital Assessment and Economic Capital and work in relation to preparing the business for SII implementation, were £11.5 million (2013: £7.6 million), giving a total fee to PwC of £26.2 million (2013: £24.2 million). The SII assurance fees included in this were £6.4 million (2013: £1.5 million). SII
implementation is a major project requiring substantial model validation assurance that the Company believes is most appropriately performed by the principal Auditor. In view of the significance and scale of this work, the committee specifically assessed the suitability of PwC to provide this service.
Committee performance and effectiveness — The committee undertook an annual review of its performance and effectiveness which concluded that overall the committee was effective in carrying out its duties. The committee agreed that its priorities for 2015 should include: monitoring implementation of compliance with the requirements of SII; continuing to monitor improvements in the control environment; and increasing the level of reporting from business unit Audit Committees.
• Review the implementation of management actions and strategic decisions required to meet the capital implications of the new SII and GSII regulations
• Review and approve risk policies and any relevant Group business standards, and to monitor compliance with these and management's actions to remedy any breaches
• Ensure that a due diligence appraisal of strategic or significant transactions due to be proposed to the Board is undertaken before the Board takes a decision on whether to proceed
• Work with the Remuneration Committee to ensure that risk is considered in setting the overall remuneration policy for the Group
Michael Hawker (Chairman) 6 100% Glyn Barker 6 100% Gay Huey Evans2 5 100% Michael Mire 6 100% Bob Stein 6 100%
2 Gay Huey Evans joined the committee on 19 February 2014.
The committee met on 6 occasions in 2014. The Chairman of the Company, Group CEO, CRO, CFO and the CAO regularly attended committee meetings. Other members of senior management were also invited to attend as appropriate to present reports. The committee holds regular private sessions with the CRO and the CAO to enable them to raise any matters of concern to them without any other members of management present. The Group Company Secretary acted as the secretary to the committee.
There is cross-membership between each of the Board committees to ensure that risk issues were appropriately communicated and taken into account in the decisions of each committee.
The Chairman followed a programme of attending meetings in Canada, France, Spain, Poland and Turkey.
In November 2014, the Chairman of the committee together with the Chairmen of the Governance and Audit Committees cohosted a two-day conference for the chairmen of the Board, Risk, Governance and Audit Committees of the Group’s principal subsidiaries, their Chief Risk Officers, Chief Audit officers and Chief Financial Officers.
Committee activities during 2014 — The work of the committee followed an agreed annual work plan, which evolved throughout the year in response to the changing macro-economic and regulatory environment and changes in the Company’s strategy. The committee appraised all strategic or significant transactions due to be proposed to the Board, prior to the Board’s consideration of such transactions, to ensure that sufficient due diligence had been carried out and any risks identified and mitigated so far as possible or sufficient explanation given as to why a risk should be accepted. These are discussed in more detail below. Given the materiality of the transaction, the due diligence carried out, and risks in relation to, the proposed acquisition of Friends Life was discussed as a full Board and more detail can be found in the Directors’ and corporate governance report on page 72. The Group Company Secretary and the CRO assisted the committee Chairman in planning the committee’s work, and ensured that the committee received information and papers in a timely manner.
The committee received regular liquidity forecasts and closely monitored the Group’s ability to satisfy the 2013 final, 2014 interim and 2014 final dividends.
Solvency II The Group continues to work towards compliance with the requirements of the SII Directive based on currently available guidance from the European Insurance and Occupational Pensions Authority. As it is strategically important for Aviva to have a view of its businesses on an economic capital basis to inform business decisions, the Group intends to move to an enhanced economic capital model ahead of SII implementation. The committee has received regular updates on the progress of the Group’s internal model application and is required to approve any material changes to the internal model. The committee has also approved an Internal Model Validation Business Standard and received regular reports on the external work carried out on the internal model to ensure that it is robust and fit for purpose. This work has been supported by both the Auditor and Internal Audit. The Board has received tailored training on SII with the committee members receiving more detailed training on specific areas. In late 2014 the committee considered and approved the methodology and assumptions for the 2015 ICA submission.
Risk management and governance The committee has an ongoing programme of receiving reports from local risk committee Chairmen or Chief Executive Officers on the risk environment and issues arising in the Group’s businesses and in respect of particular product lines. During the year, the committee received reports on the UK and Ireland General Insurance and Aviva Investors businesses, as well as a detailed review of the business in Canada.
The committee reviewed and recommended to the Board a proposal that significantly reduced the Group’s exposure to longevity through the transfer of payment funding basis liabilities in the Aviva Staff Pension Scheme to external reinsurers. This transaction also resulted in less volatility in the Aviva Staff Pension Scheme, enabling the trustees to de-risk the Scheme and provide greater certainty in respect of future pension contributions. The committee received regular reports from the CRO and monitored the effectiveness of the Company’s RMF which is described in more detail in the Directors’ and corporate governance report and in note 58.
During the year the committee, in conjunction with the Governance Committee, reviewed their respective roles and responsibilities and agreed changes to each committee’s Terms of Reference including moving oversight of conduct risk from the Risk Committee to the Governance Committee.
The committee reviewed how businesses across the Group had performed against risk objectives set for 2014.
Asset portfolio review Throughout the year the committee carried out a review of the Group’s asset and investment portfolio to gain a more detailed understanding of the Group’s asset portfolio and the adequacy of the investment decision process, in the context of the RMF, asset allocation framework and relevant risk policies. The committee further scrutinised the processes and controls in place for investment in new asset classes and exposure to new country risks. The committee also received regular updates on Aviva Investors’ view of the global economic outlook in the short and medium term and the actions that could be taken to protect the Group’s and clients’ asset portfolios in different scenarios such as Eurozone deflation; the impact of the world’s ageing population; and political instability in Russia and Ukraine and the potential impact on other Eastern European countries.
Risk and remuneration The committee approved the CRO’s objectives for 2014 and reviewed his performance against his 2013 objectives. The committee also assessed senior management’s performance against the agreed common risk objective and considered the appropriateness of the risk metrics when setting senior management remuneration policy.
Throughout the year, the Group’s Internal Audit function continued to provide the committee with independent and objective reports on the appropriateness, effectiveness and sustainability of the Company’s system of internal controls. Key control issues reported by Internal Audit to management and to the committee members were monitored on a quarterly basis until the related risk exposures had been properly mitigated. These reports include summaries of any whistle-blowing allegations and the progress of investigations into such claims.
More detail on the management of risk is contained in note 58.
Committee performance and effectiveness — The committee undertook an annual review of its performance and effectiveness which concluded that overall the committee was effective in carrying out its duties.
The Board strongly believes that good governance and strong, responsible, balanced leadership by the Board are critical to creating long-term shareholder value and business success. Our role as a committee is to assist the Board in shaping the culture and ethical values of the Group through overseeing and advising on conduct, reputation, community, people and financial crime matters.
Following the separation of the Financial Services Authority into the PRA and the FCA, the committee reviewed its responsibilities and terms of reference. All aspects of conduct risk which impact on customer outcomes (including marketing and competition issues) or are covered by the FCA’s remit, now form part of this committee’s Terms of Reference. Accordingly the committee’s activities in 2014 were heavily focused on conductrelated matters.
• Set the Group’s conduct and financial crime risk appetites and oversee the Group’s profile against them
• Oversee the brand and reputation of the Group, ensuring that reputational risk is consistent with the risk appetite approved by the Board and the creation of long term shareholder value
• Review employee talent management and development programmes ensuring they take into account diversity, including gender
The full Terms of Reference of the committee can be found on the Company’s website at www.aviva.com/terms-ofreference and are also available from the Group Company Secretary.
3 Gay Huey Evans stepped down as a member and Chairman of the committee on 19 February 2014.
The Chairman of the Board, Group Chief Executive Officer and members of senior management attended meetings by invitation, where appropriate, or to present reports. The Chairman of the committee reported to subsequent meetings of the Board on the committee’s work and the Board received a copy of the agenda and the minutes of each meeting of the committee. There is cross-membership between each of the Board committees to ensure that governance issues were appropriately communicated and taken into account in the decisions of each committee.
Following the extension of its remit, the committee now has oversight of those aspects of conduct risk which impact customer outcomes, including marketing and competition issues. A comprehensive review of the Group’s compliance with regulatory conduct issues was undertaken and a new conduct risk policy and conduct risk appetite were approved and a Groupwide framework for the consistent management and reporting of conduct risk was implemented.
Governance Committee – allocation of agenda time 84 | Aviva plc Annual report and accounts 2014
its subsidiaries and the actions implemented as a result of these reviews. In addition, committee members attended several subsidiary board meetings in Spain, Poland and Turkey.
The committee received a regular summary of the Group’s legal issues and litigation which had the potential to impact the reputation of the Group. Updates on corporate governance developments were also provided and, where appropriate, actions were considered and implemented.
Regulatory and financial crime The committee received regular updates on regulatory developments which had the potential to materially impact the Group and reviewed and advised on management’s responses and actions in response to regulatory issues. The committee also ensured that the FCA was updated on the new conduct risk framework and maintained an overview of the Group’s relationships with regulatory authorities in the UK and in other jurisdictions where the Group has a significant presence. The committee considered the Group’s annual report on financial crime (which included a report from the Money Laundering Reporting Officer) and maintained oversight of actions being taken to mitigate the Group’s exposure to financial crime, including implementation of the new Group-wide framework for reporting financial crime and conduct risks.
Customer The committee continues to have oversight over the Group’s treatment of its customers and the impact of its products on its customer base. The committee initiated a detailed review of conduct issues arising from particular product lines, including annuities, protection, equity release and investment business, and considered actions which could be taken to mitigate these risks and improve the Group’s products for its customers.
The committee received a regular report on the Group’s key customer metrics relating to customer retention, complaints, conduct and values.
People Throughout the year the committee reviewed progress with regard to embedding Aviva’s values, the engagement of our people and the cultural development of Aviva, including employee diversity. In early 2015, the committee's remit was extended to include employee talent management and development programmes including reviewing proposals from management to create a sustainable future workforce to meet current and projected business needs.
Corporate Responsibility The committee continued to oversee the Group’s conduct in relation to its corporate and societal obligations. The committee reviewed and approved the Group’s community, social, human rights, environmental and employee-related information for inclusion in the Strategic report.
The committee also received a report on the Group’s cluster munition and antipersonnel mines policy and approved actions to be taken in relation to the application of this policy. The committee received and considered updates on health and safety issues within the Group and on the issue of stranded assets.
Assurance In respect of the 2014 reporting year, independent assurance on the Group’s CR and related activities and reporting was provided to the committee by PwC. Members of the committee were interviewed as part of the external assurance process and management’s resultant action plan were reviewed by the committee to assist in strengthening and setting the future direction of the CR programme.
Other statutory information The directors submit their Annual report and accounts for Aviva plc, together with the consolidated financial statements of the Aviva group of companies, for the year ended 31 December 2014.
• Increasing diversity and inclusion for details of our policy on employment of disabled persons
Dividends The directors are recommending a final dividend of 12.25 pence per ordinary share (2013: 9.4 pence), which, together with the interim dividend of 5.85 pence per ordinary share paid on 17 November 2014 (2013: 5.6 pence), produces a total dividend for the year of 18.1 pence per ordinary share (2013: 15.00 pence). The total cost of ordinary dividends paid in 2014 was £449 million (2013: £429 million). Subject to shareholder approval at the 2015 AGM, the final dividend for 2014 will become due and payable on 15 May 2015 to all holders of ordinary shares on the Register of Members at the close of business on 9 April 2015 (approximately five business days later for holders of the Company’s American Depositary Receipts). Details of any dividend waivers are disclosed in note 33.
With the exception of restrictions on the transfer of ordinary shares under the Company’s employee share incentive plans, whilst the shares are subject to the rules of the plans, there are no restrictions on the transfer rights attaching to the Company’s ordinary shares or the transfer of securities in the Company.
• Tom Stoddard – appointed Group CFO on 28 April 2014
The Chairman and Gay Huey Evans have also tendered their resignation which will take effect from the conclusion of the AGM on 29 April 2015.
Under the Company’s Articles of Association, the Board can appoint additional directors or appoint a director to fill a casual vacancy. The new director must retire at the first AGM following their appointment and can only continue as a director if they are elected by shareholders at the AGM. The Board has announced its intention to appoint Andy Briggs as an Executive Director and Sir Malcolm Williamson as Senior Independent NonExecutive Director following the successful completion of the proposed acquisition of Friends Life and subject to regulatory approval. Their appointment is expected to commence after the 2015 AGM and they will therefore first stand for election by shareholders at the 2016 AGM.
These indemnities were granted at different times according to the law in place at the time and where relevant are qualifying third-party indemnity provisions as defined by section 234 of the Companies Act 2006. These indemnities were in force throughout the year and are currently in force. Details of directors’ remuneration, service contracts, employment contracts and interests in the shares of the Company are set out in the Directors’ remuneration report. There is no arrangement or understanding with any shareholder, customer, supplier, or any other external party, to appoint a director or a member of the Group Executive (save in connection with the proposed acquisition of Friends Life).
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, PwC, is unaware and each director has taken all reasonable steps that ought to have been taken as a director to be aware of any relevant audit information and to establish that PwC is aware of that information.
Annual General Meeting — The 2015 AGM of the Company will be held on Wednesday, 29 April 2015 at the Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 11 am. The Notice of AGM convening the meeting describes the business to be conducted thereat. Further details can be found in the Shareholder services section.
Related party transactions — Details of related party transactions are disclosed in note 61 which is incorporated into this report by reference.
Going concern — The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report. The performance review includes the Risk and capital management section. In addition, the financial statements sections include notes on the Group’s borrowings (note 50); its contingent liabilities and other risk factors (note 53); its capital structure and position (note 55); management of its risks including market, credit and liquidity risk (note 58); and derivative financial instruments (note 59).
After making enquiries, the directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.
Post Balance Sheet events — Details of significant events that occurred subsequent to 31 December 2014 are disclosed in notes 4 and 63.
Directors’ and corporate governance report continued preparer receives guidance on the requirement for content included in the Annual report and accounts to be fair, balanced and understandable
• comprehensive reviews of drafts of the Annual report and accounts are undertaken by members of the Group Executive and, other members of senior management, external legal advisers and the external auditor
Directors’ responsibilities — The directors are responsible for preparing the Annual report, the Directors’ remuneration report and the financial statements in accordance with applicable law and regulations.
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business
The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The directors consider that the Annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and the company’s performance, business model and strategy.
Each of the directors, whose names and functions are listed in the Directors’ and corporate governance report confirm that, to the best of their knowledge: • the group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the group; and
Mark Wilson Tom Stoddard Group Chief Chief Financial Officer Executive Officer 88 | Aviva plc Annual report and accounts 2014
At least half the Board, excluding the Chairman, should comprise independent Non-Executive Directors, as determined by the Board. The Code sets out its own criteria that may be relevant to the independence determination, but the Board is permitted to conclude affirmative independence notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, so long as it states its reasons.
The independent Non-Executive Directors meet without Executive Directors present at least once annually.
The Company has a Nomination Committee and a Governance Committee, each of which are comprised of Independent NEDs. The Governance Committee assists the Board in shaping the culture and values of the Group, however the Board as a whole is ultimately responsible for the corporate governance of the Group and oversees this through reports to the Board and its committees. The Board conducts an annual appraisal of its own performance, as well as the performance of each of its committees and of individual directors.
Shareholder approval is necessary for certain equitycompensation plans and ‘significant changes’ thereto, subject to certain exceptions.
The Code does not provide a detailed definition or explanation of what are considered to be ‘significant changes’.
Reward objectives The creation of long-term wealth for our shareholders is the guiding principle that underpins the work and decisions of the committee, and the policy we are proposing here for the next three years. A clear Group strategy has been defined to achieve long-term sustainable growth, based on the three anchors of: • True Customer Composite • Digital First; and • Not Everywhere
For the Company - it is important to have a reward framework that supports and enables this – and which protects against the risk of not having people with the talent needed to maintain momentum and deliver on the plans. For the participants – it is important that reward outcomes are fair in view of the results achieved and of the effective and constructive commitment of the individual.
Proposed changes The dialogue we have had with many key stakeholders over the past year concerning the SRR has been consistently constructive. The response overall to the combination of changes we have proposed has been very supportive.
Bonus opportunity – An increase is proposed in the “at target” opportunity - from 75% to 100% of basic salary for all Executive Directors (EDs), as well as an increase in the maximum opportunity from 150% to 200% of basic salary for the Group CEO only. This is intended to recognise outstanding execution against annual business objectives and also exemplary leadership and demonstration of the Aviva values in circumstances where these occur to the benefit of shareholders.
The committee considers that meaningful disclosure of targets is a key feature of good reward governance, and that it is in the interests of shareholders that these should be disclosed retrospectively, and at the earliest time when considerations of commercial sensitivity make it prudent to do so.
Certain non-financial targets (e.g. customer and some employee targets) may have continuing commercial sensitivity which makes disclosure against the interests of the Company.
The committee believes, therefore that the appropriate and balanced approach for Aviva is to disclose the financial targets with a one year delay in relation to the reward outcomes that are being reported, i.e. this year, reward outcomes are being reported for the 2014 annual bonus, and financial targets are being disclosed for 2013.
Dear Shareholder 90 | Aviva plc Annual report and accounts 2014
The LTIP vesting process was made more rigorous during 2014, so that once the financial return performance is determined (at end of year three), that vesting calculation is now subject to a further structured assessment to ensure that vesting levels are not inflated by windfall items or outcomes of accounting treatment that are clearly not a result of management performance.
Shareholder approval The Remuneration Committee is seeking approval from shareholders for the remuneration policy that will result from these changes set out in the DRR at pages 100 to110. If approved, the new policy will be effective for three years from the conclusion of the 2015 AGM.
In combination, the changes are intended to: • Extend the period over which reward is delivered; • Provide appropriate incentive and retention during a critical time strategically for Aviva; • Reflect the commitment required of the EDs as Aviva’s leaders; and
• Demonstrate the level of alignment with shareholders and of concern for shareholder outcomes that the committee considers appropriate.
Remuneration outcomes for 2014 The outcomes for 2014 (detailed on pages 102 to 106 of the Company’s Annual Report and accounts for the financial year ended 31 December 2014 (Annual report) have been determined under the existing remuneration policy – and the current annual bonus opportunities and incentive plan conditions.
• Basic salary – No change in basic salary is proposed for either of the EDs. This may be reviewed later in 2015 following the outcome of the proposed Friends Life Group Limited (“Friends Life”) transaction.
• 2014 Annual bonus – The 2014 annual bonus awards for the EDs reflect strong financial performance by Aviva for 2014, with 142.42% achievement overall against the annual bonus financial targets.
The annual bonus is not awarded against financial targets alone, and the other performance factors defined under the plan structure were then also considered, i.e. customer, employee, risk and personal performance.
For the Group CEO, whose achievements in 2014 were a continuation of the turnaround in performance and strategic direction he has led since commencing with Aviva in 2013, the committee awarded a bonus of 130% of basic salary.
In making its decision on the annual bonuses, the committee also considered: − The increase in shareholder wealth that occurred during 2014; − The quality of earnings that were achieved; − Significant progress made on the strategic agenda, reflected in progress on the Digital First strategy, and in the pursuit of the Friends Life transaction; − Outstanding leadership and demonstration of the Aviva values – in terms of taking the business forward, and as reflected in the significant turnaround in the employee engagement scores in 2014.
• LTIP Neither of the current EDs were participants in the 2012 LTIP. Both, however, will participate in the 2015 LTIP, and it is proposed to make awards of 350% of basic salary to the Group CEO; and 250% of basic salary to the CFO. The award to the Group CEO for this year is at the maximum for LTIP awards under the existing policy (and also under the proposed policy).
Use of judgment and discretion by the committee in 2014 While judgment was applied by the committee in determining achievement against the non-financial objectives under the annual bonus, the committee did not exercise the discretions available to it to increase or reduce reward outcomes outside of the normal operation of the relevant incentive plan rules.
To provide core market related pay to attract and retain the required level of talent.
Annual review, with changes normally taking effect from 1 April each year. The review is informed by: • Relevant pay data including market practice among relevant FTSE listed companies of comparable size to Aviva in terms of market capitalisation, large European and global insurers; and UK financial services companies
There is no maximum increase within the policy. However, basic salary increases take account of the average basic salary increase awarded to UK employees. Different levels of increase may be agreed in certain circumstances at the committee’s discretion, such as: • An increase in job scope and responsibility
Awards are based on performance in the year. Targets are set annually and pay-out levels are determined by the committee based on performance against those targets.
Two-thirds of any bonus awarded is deferred into shares which vest after three years.
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.
• 50% vest based on relative Total Shareholder Return (TSR) against a comparator group
This shareholding is normally to be built up over a period not exceeding 5 years (subject to the committee’s discretion where personal circumstances dictate).
Notes to the table: Performance measures For the annual bonus, performance measures are chosen to align to the Group’s KPIs and include financial, risk, employee and customer measures. Achievement against individual strategic objectives is also taken into account.
Target annual bonus opportunity of 100% of basic salary for all EDs.
Maximum annual bonus opportunity of 200% of basic salary for the Group CEO and 150% of basic salary for other EDs.
No formal holding period for EDs other than existing shareholding requirement.
Introduction of clawback, in addition to malus provisions, to cash and deferred elements of ABP awards and LTIP awards. The clawback will apply to the annual bonus from 2015 (paid March 2016) and the LTIP awards granted in 2015 and any future awards. The circumstances where these may apply include (but are not limited to) where the committee considers that the employee concerned has been involved in or partially or wholly responsible for: • A materially adverse misstatement of the Company’s financial statements, or a misleading representation of performance; or
Clawback applied for two years from the date of vesting (or from the date of payment in the case of annual bonus awards).
Change in control In the event of a change in control, unless a new award is granted in exchange for an existing award, or if there is a significant corporate event like a demerger, awards under the LTIP would normally vest to the extent that the performance conditions have been satisfied as at the date of the change in control, and unless the committee decides otherwise, would be pro-rated to reflect the time between the start of the performance period and the change in control. Awards under the ABP would normally vest on the date of the change in control and may vest if there is a significant corporate event.
Consistency of executive remuneration policy across the Group The remuneration policy for our EDs is designed as part of the remuneration philosophy and principles that underpin remuneration for the wider Group. Remuneration arrangements for employees below the EDs take account of the seniority and nature of the role, individual performance and local market practice. The components and levels of remuneration for different employees may therefore differ from the policy for EDs. Any such elements are reviewed against market practice and approved in line with internal guidelines and frameworks.
The committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was not a director of the Company and, in the opinion of the committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes “payments” includes the committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted.
In determining the actual remuneration for a new ED, the committee would consider the package in totality, taking into account elements such as the likely contribution of the individual, local market benchmarks, remuneration practice, and the existing remuneration of other senior executives. The committee would ensure any arrangements agreed would be in the best interests of Aviva and its shareholders. It would seek not to pay more than necessary to secure the right candidate.
All other elements of remuneration will also be in line with the policy set out above.
Notes to the charts 1 Fixed pay consists of basic salary, pension as described in table 1, and estimated value of benefits provided under the remuneration policy, excluding any one offs. This therefore excludes the relocation assistance for Mr Stoddard, in connection with his relocation to the UK. Actual figures may vary in future years. 2 The value of the LTIP and deferred element of the annual bonus assumes a constant share price and does not include additional shares awarded in lieu of dividends, that may have been accrued during the vesting period 3 LTIP as awarded in 2015..
£7,000k £6,000k £5,000k £4,000k £3,000k £2,000k £1,000k 2015 Minimum 2015 Target 2015 Maximum £1,309k £4,004k £6,699k
Mark Wilson Potential earnings by pay element £7,000k £6,000k £5,000k £4,000k £3,000k £2,000k £1,000k 2015 Minimum 2015 Target 2015 Maximum £904k £2,423k £3,604k
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 2015 AGM from 10.45 am on 29 April 2015 until the close of the meeting. The key employment terms and conditions of the current EDs, and those who served during the year, as stipulated in their employment contracts, are set out in table 3 below.
Table 3: Executive Directors’ conditions of employment Provision Policy Notice period
Sickness 100% of basic salary for 52 weeks, and 75% thereafter for a further 52 weeks.
Policy on payment for loss of office There are no pre-determined ED special provisions for compensation for loss of office. The committee has the ability to exercise its discretion on the final amount actually paid. Any compensation would be based on basic salary, pension entitlement and other contractual benefits during the notice period, or a payment made in lieu of notice, depending on whether the notice is worked.
In the case of LTIPs, where the committee determines EDs to be good leavers, vesting is normally based on the extent to which performance conditions have been met at the end of the relevant performance period, and the proportion of the award that vests is prorated for the time from the date of grant to final date of service (unless the committee decides otherwise). Any decision not to apply this would only be made in exceptional circumstances, and would be fully disclosed. It is not the practice to allow such treatment.
Consideration of wider employee pay and shareholder views When determining the remuneration policy and arrangements for our EDs, the committee considers: • Pay and employment conditions elsewhere in the Group to ensure that pay structures are suitably aligned and that levels of remuneration remain appropriate. The committee reviews levels of basic salary increases for other employees and executives based in the UK. It reviews changes in overall bonus pool funding and long term incentive grants. The committee does not directly consult with employees on pay issues but it does consider feedback from sources including the employee opinion survey. The committee also takes into account information provided by the HR function and external advisers
• Its ongoing dialogue with shareholders. It seeks shareholder views and takes them into account when any significant changes are being proposed to remuneration arrangements and when formulating and implementing remuneration policy. For example, during 2014 and continuing in 2015, the committee has had detailed engagement with our largest shareholders to discuss the remuneration policy proposals as set out in this report Topics covered included: − Appropriate benchmarking group − Measures of short-term and long-term performance − Decisions on annual bonus and LTIP opportunities, performance measures, and deferral or holding periods − Malus and clawback − Shareholding requirements and holding periods
Termination By the director or the Company at their discretion without compensation upon giving one month’s written notice for NEDs and three months’ written notice for the Chairman of the Company.
Glyn Barker 3 May 2012 AGM 2015 Patricia Cross 1 December 2013 AGM 2015 Michael Hawker 3 May 2012 AGM 2015 Gay Huey Evans2 3 May 2012 AGM 2015 John McFarlane2 3 May 2012 AGM 2015 Michael Mire 12 September 2013 AGM 2015 Sir Adrian Montague 15 January 2013 AGM 2015 Bob Stein 15 January 2013 AGM 2015 Scott Wheway 3 May 2012 AGM 2015
Key Audit Committee member Risk Committee member Remuneration Committee member Nomination Committee member Governance Committee member Denotes chair of committee
Annual remuneration report This section of the report sets out how Aviva has implemented its remuneration policies for directors in the course of 2014 and how the proposed remuneration policy will be implemented for 2015. This is in accordance with the requirements of the Large & Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). Where new requirements have been introduced, Aviva has taken account of the guidance produced by the GC100 and Investor Group and emerging good practice.
Remuneration Committee membership and attendance The committee comprises independent NEDs only. Table 6 below shows the committee members during the year and their attendance at committee meetings.
Group Executive (GE) and members of senior management, taking account of all legal and regulatory requirements and provisions of best practice
• Work with the Risk Committee to ensure that risk and risk appetite are considered in setting the remuneration policy • Obtain information about remuneration in other companies and, in this regard, select, appoint and determine the terms of reference for independent remuneration consultants, to advise on remuneration policy and levels of remuneration • Review and determine the remuneration of the Board Chairman and the terms of employment and remuneration of individual EDs and
GE members, including any specific recruitment or severance terms • Review and recommend to management the level and structure of senior management remuneration • Approve the Aviva Investors' reward strategy, including any changes to the strategy • Recommend to the Board the establishment of any employee share plans; exercise all the Board’s powers in relation to the operation of all share and incentive plans and the Group’s Savings Related Share Option Scheme (SAYE) share option plan and all employee share ownership plan
Board members, approve exceptional remuneration activity for employees outside agreed policy
During the year, the committee received advice on executive remuneration matters from Deloitte LLP which is a member of the Remuneration Consultants Group and adheres to its Code of Conduct. Deloitte LLP was appointed by the committee as its adviser with effect from 4 December 2012 following a competitive tender process and reappointed with effect from 4 November 2013 following an assessment by the committee of the quality of the advice provided. In addition, the Group received advice on remuneration matters, taxation and other consulting services (including advice in relation to Solvency II) from Deloitte LLP during the year. Deloitte LLP were paid fees totaling £137,245, during the year for the provision to the committee of advice on general HR and remuneration matters, benchmarking advice on market practice and views on shareholder perspectives. Fees were charged on a time plus expenses basis. The committee reflects on the quality of the advice provided and whether this properly addresses the issues under consideration as part of its normal deliberations. The committee is satisfied that the advice received during the year was objective and independent.
Aviva Investors The committee reviewed the detail and methodology for assessing the 2013 bonus pool for Aviva Investors, approving the maximum bonus pool and allocations. Remuneration proposals for 2014 were considered and approved, including formal approval of the bonus targets and consideration of a new Aviva Investors LTIP.
Directors’ remuneration report The committee reviewed the DRR for the year ended 2013 prior to its approval by the Board and subsequent approval by shareholders at the 2014 AGM.
Hires and departures during 2014 During the year the committee also considered and reviewed the remuneration and buyout packages of senior hires, including GE members, Aviva Investors senior management, and senior members of staff designated as Code Staff. The committee also reviewed severance terms for members of senior management.
• Buyout – On a strict “like for like” basis he will be eligible to receive a buyout up to a maximum level of £1 million gross to replace deferred compensation he has forfeited on resignation from his previous employer
• Relocation expenses – He may claim reasonable relocation expenses up to a maximum of £200,000 (inclusive of any benefit in kind liability that may arise) in respect of relocation from the US to the UK
The LTIP and buyout awards mentioned above have not been made during 2014 as Mr Stoddard has been subject to share dealing restrictions, due to the Friends Life transaction. The awards will be made during 2015 once these restrictions have been lifted.
Single total figures of remuneration for 2014 – Executive Directors (audited information) Table 7 below sets out in the required form the total 2014 remuneration for each of our EDs who served with the Company during 2014.
Annual bonus The bonus awards made to EDs for 2014 are based on an assessment of performance against financial and non financial KPIs, with financial performance being the major factor in considering overall expenditure on bonuses, and performance against non financial targets and strategic goals being used to modify bonuses up or down. A summary of performance against these factors, can be seen in table 8 below.
In agreeing these bonus awards, the committee considered the wider performance of Aviva and the experience of shareholders during the year, and is satisfied that the bonus awards above are a fair reflection of performance and shareholder value delivered during 2014.
One third of the bonus award for Mr Wilson and Mr Stoddard will be delivered in cash, with two thirds being deferred into shares for three years.
Table 8: Assessment of 2014 ED performance and impact on bonus Financial Element Assessment Bonus Award (% of Salary)
Financial • Gross Cash Remittances • IFRS Profit Before Tax • IFRS ROCE • MCEV Value of New Business (VNB) • Combined Operating Ratio (COR) • Operating Expense Ratio
Overall performance against financial targets resulted in an outcome of 142.42% of target. All key metrics have moved in the right direction.
Operating profit has increased by 6% due to expense reduction and an improved result in UK Life, despite the negative impact of currency and other challenges.
Engagement and Enablement scores 2014 saw employee engagement improve by 9 percentage points to 65% across the Group.
Group CEO – continued leadership and pursuit of opportunities consistent with the strategic objectives, following on from the progress made in 2013.
Group CFO – played a key role in embedding the investment thesis and ensuring alignment of Aviva’s strategic and capital efficiency objectives.
Overall impact of performance against non-financial targets on annual bonus (can result in [+} positive or [-] negative adjustment under operation of the annual bonus)
Financial KPI Threshold £m Maximum £m Outcome £m 2013 bonus as a % of basic salary 2013 bonus as a % of maximum
Directors’ remuneration report continued 2014 targets have not been disclosed as the committee considers them to be commercially sensitive, and that disclosing them so soon after the end of the relevant financial year may adversely impact the Group’s business. As stated above in the committee Chairman’s letter to shareholders, the committee believes it is in the interests of shareholders that targets should be disclosed retrospectively, and at the earliest time when considerations of commercial sensitivity make it prudent to do so.
Pension For 2014, under the prevailing remuneration policy, EDs were eligible to participate in a defined contribution plan under which they could elect to receive 31% of basic salary from the Company minus a personal contribution of 8% of basic salary up to the scheme specific earnings cap (£145,800 in 2014/2015). For any contribution above the HMRC annual or life time allowance cap, a cash alternative in lieu of pension contribution was offered subject to the same limit of 31% of basic salary minus the personal contribution.
Subject to the approval of the remuneration policy by shareholders, pension contributions will be amended and simplified from 2015, as set out in the policy section of this report.
The Aviva 2007 SAYE Scheme allows eligible employees to acquire options over the Company’s shares at a discount of up to 20% of their market value at the date of grant. In order to exercise these options, participants must have saved through a 3, 5 or 7 year HMRC approved savings contract. Savings are subject to a statutory savings limit, which in 2014 increased from £250 to £500 per month although the allowed increase has not so far been applied but will continue to be reviewed in line with the market. From 2012, only 3 and 5 year contracts have been offered. Details of options granted to EDs under these schemes are included in table 22.
The total amount paid to NEDs in 2014 was £1,601,000 which is within the limits set in the Company’s articles of association, which have previously been approved by shareholders.
Share awards made during the financial year (audited information) Awards are made in shares which vest conditionally, and upon performance targets being met in the case of LTIP awards. The number of conditional shares granted is based on a percentage of basic salary. The following table sets out details of LTIP and ABP awards of conditional shares made during the year.
ROE targets ROE targets determine the vesting of 50% of the LTIP award and are set annually within the context of the Company’s three-year business plan. Vesting depends upon performance over the three year period against a target return. The 2014 LTIP award ROE targets are set out in table 13 below.
Table 13: 2014 LTIP ROE targets Achievement of ROE targets over the three-year performance period Percentage of shares in award that vests based on achievement of ROE targets
Between 41% and 50% Pro rata between 10% and 50% on a straight line basis 50% and above 50%
Table 14: TSR vesting schedule for the 2014 LTIP award TSR position over the three-year performance period Percentage of shares in award that vests based on achievement of TSR targets
March 2014. The value realised was £566,166 (based on 118,693 phantom shares, inclusive of shares awarded in lieu of dividends accrued), vesting at a share price of 477.00 pence and a vesting percentage of 34.48%
Richard Karl Goeltz retired from the Board with effect from 8 May 2013. Mr Goeltz was appointed as Chairman and NED of Aviva Life Holdings UK Limited on 14 May 2013, a subsidiary company of Aviva plc and the emoluments he received in respect of this directorship for the 2014 financial year were £105,000. On 13 February 2014, Mr Goeltz was also appointed as a NED of Aviva Life & Pensions UK Limited, Aviva Annuity UK Limited and Aviva Life Services UK Limited, each of which are subsidiary companies of Aviva plc.
Whilst 2015 bonus targets are not being disclosed due to commercial sensitivity, an explanation of 2015 bonus payments and how they align to performance against measures and targets will be provided in the 2015 report. Details of performance against targets and disclosure of those targets will be provided at the earliest opportunity, taking into account the committee’s view of the extent to which these targets remain commercially sensitive.
LTIP LTIP grants in 2015 will be in line with the levels set out in the policy report. The LTIP will vest subject to the degree of achievement of two equally weighted performance measures, absolute ROE and relative TSR performance, which have been chosen to reflect shareholders’ long-term interests. The specific ROE targets which apply to this award will be reviewed following the completion of any proposed corporate activity in 2015 and disclosed in the 2015 DRR.
Approach to Non-Executive Directors’ fees for 2015 NED fees were last reviewed in March 2015. No changes are made to the current fee levels, as set out in Table 15, below: Table 15: Non-Executive Directors’ fees
Committee Chairman (inclusive of committee membership fee) – Audit £45,000 £45,000
Historical TSR performance and Group CEO remuneration outcomes Table 16 below compares the TSR performance of the Company over the past six years with the TSR of the FTSE 100 Return Index. This index has been chosen because it is a recognised equity market index of which Aviva is a member. The companies which comprise the current LTIP comparator group for TSR purposes are listed in the ‘TSR Targets’ section above.
Table 16: Aviva plc six-year TSR performance against the FTSE 100 return index and the median of the comparator group
Notes 1 Mr Wilson joined the Board as an ED with effect from 1 December 2012, and became Group CEO on 1 January 2013. He received no emoluments in respect of 2012. 2 Mr Moss resigned from the Board with effect from 8 May 2012 and left the Company on 31 May 2012.
Pat Regan continued with his NED appointment within Delta Lloyd N.V. Mr Regan received €31,113.45 between 1 January and 28 March 2014 (the time he was a director at Aviva).
The EDs are required to retain 50% of the net shares released from deferred annual bonuses and LTIPs until the shareholding requirement is met.
Tom Stoddard — — — — — 150 07 No Patrick Regan8 236,583 — — — — — — —
There were no changes to the current directors’ interests in Aviva shares during the period 1 January 2015 to 3 March 2015.
Table 21: Non-Executive Directors’ shareholdings1 1 January 2014 31 December 2014
Share awards and Share Options (audited information) Details of the EDs who were in office for any part of the 2014 financial year and hold or held outstanding share awards or options over ordinary shares of the Company pursuant to the Company’s share based incentive plans are set out in Table 22 below. Savings-related share options refer to options granted under the HMRC approved Aviva 2007 SAYE Scheme and are normally exercisable during the six month period following the end of the relevant (3, 5 or 7 year) savings contract.
Patrick Regan Aviva long term incentive plan5, 6 2011 311,059 — — 311,059 — 435.60 — Mar-14
Aviva annual bonus plan 2011 102,741 — — 102,741 — 435.60 — Mar-14
Notes 1 The aggregate net value of share awards granted to the directors in the period was £3.6 million (2013: £4.5 million). The net value has been calculated by reference to the closing middle-market price of an ordinary share of the Company at the date of grant. 2 Awards lapsed during the year further to Mr Regan’s resignation from the Company effective 28 March 2014. 3 The information given in this column is at 31 December 2014 or the date on which a director ceased to be a director of the Company (Mr Regan: 28 March 2014). 4 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 2011: 434 pence, 2012: 336 pence, 2013: 299 pence and 2014: 489 pence. 5 For the 2013 and 2014 LTIP grant, the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali , Axa, CNP Assurances, Direct Line
Group, Friends Life Group, Legal & General, Met Life, Old Mutual, Prudential, RSA Insurance Group, Standard Life and Zurich Financial. For the 2011 and 2012 LTIP grants the TSR comparator group consisted of the following companies: Aegon, Allianz, Assicurazioni Generali, Axa, Ageas, Friends Life Group, ING Groep, Legal & General, Lloyds Banking Group, Prudential, RSA, Royal Bank of Scotland Group, Standard Life and Zurich Financial.
Dilution Awards granted under the Aviva all employee share plans are currently met by issuing new shares as agreed by the Board. Shares are still held in employee trusts, details of which are set out in note 33. 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 2.95% and 1.86% respectively on 31 December 2014.
Governance Regulatory remuneration code The Financial Conduct Authority’s (FCA) remuneration code applies to Aviva Investors and one small ‘firm’ (as defined by the FCA) within the UK & Ireland Life business. From 1 January 2014 the majority of these firms are now subject to the Capital Requirements Directive IV (CRD IV) and the subsequent revised Remuneration Code, having previously been subject to the Capital Requirements Directive III (which is still the active regulatory directive for ORN Capital Ltd within Aviva Investors as it remains registered as a BIPRU firm unlike the other regulated Aviva Investors firms which, following CRD IV, became IFPRU firms). Additionally in May 2014 Aviva Investors UK Funds Services Ltd became registered and therefore subject to the Alternative Investment Fund Management Directive (AIFMD). The remuneration requirements of AIFMD take effect in the first full performance year following registration i.e. January – December 2015. Remuneration Code requirements include an annual disclosure. For Aviva Investors this can be found in the Chapter 4 of the Pillar 3 Disclosure which can be found at and for the UK & Ireland Life firms at
Table 23: Result of the vote at 2014 AGM Percentage of Votes Cast For Against Votes withheld
Directors’ Remuneration Policy 96.88% 3.12% 5,851,008 Directors’ Remuneration Report 98.09% 1.91% 70,711,167
Following the result of the 2014 vote, the committee has continued to engage with institutional shareholders in the course of 2014/15, in particular seeking their views on our proposed remuneration policy to apply from the 2015 AGM, and to address any concerns regarding remuneration of our EDs.
Approval by the Board This Directors’ remuneration report was reviewed and approved by the Board on 4 March 2015.
Consolidated income statement 130 Consolidated statement of comprehensive income 131 Reconciliation of Group operating profit to profit for the year 132 Consolidated statement of changes in equity 134 Consolidated statement of financial position 135 Consolidated statement of cash flows 136
Notes to the consolidated financial statements 1 Analysis of the impact of new standards and amendments to published standards that have been adopted by the Group 137 2 Exchange rates 137 3 Presentation of discontinued operations 137 4 Subsidiaries 138 5 Segmental information 142 6 Details of income 150 7 Details of expenses 151 8 Finance costs 152 9 Long-term business economic volatility 152 10 Longer-term investment return and economic assumption changes for non-long-term business 153 11 Employee information 155 12 Directors 155 13 Auditors’ remuneration 156 14 Tax 156 15 Earnings per share 159 16 Dividends and appropriations 160 17 Goodwill 161 18 Acquired value of in-force business
(AVIF) and intangible assets 163 19 Interests in, and loans to, joint ventures 164 20 Interests in, and loans to, associates 165 21 Property and equipment 166 22 Investment property 167 23 Fair value methodology 167 24 Loans 173 25 Securitised mortgages and related assets 174 26 Interest in structured entities 174 27 Financial investments 176 28 Receivables 180 29 Deferred acquisition costs, other assets, prepayments and accrued income 180 30 Assets held to cover linked liabilities 181 31 Ordinary share capital 181 32 Group’s share plans 182 33 Shares held by employee trusts 185 34 Preference share capital 185 35 Direct capital instruments and fixed rate tier 1 notes 185 36 Merger reserve 186 37 Other reserves 186 38 Retained earnings 187 39 Non-controlling interests 187 40 Contract liabilities and associated reinsurance 188 41 Insurance liabilities 188 42 Liability for investment contracts 197 43 Financial guarantees and options 198 44 Reinsurance assets 200 45 Effect of changes in assumptions and estimates during the year 202 46 Unallocated divisible surplus 203 47 Tax assets and liabilities 204 49 Pension obligations 205 51 Payables and other financial liabilities 213 52 Other liabilities 214 53 Contingent liabilities and other risk factors 214 55 Group capital structure 216 56 Statement of cash flows 217 57 Capital statement 218 58 Risk management 220 59 Derivative financial instruments and hedging 232 60 Financial assets and liabilities subject to offsetting, enforceable master netting arrangements and similar agreements 233 61 Related party transactions 235 62 Organisational structure 236 63 Subsequent events 237
Report on the financial statements Our opinion In our opinion, Aviva plc’s Consolidated financial statements and parent company financial statements (the ‘financial statements’): • Give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2014 and of the
Group’s and the parent company’s profit and cash flows for the year then ended; • Have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European
The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
Based on the work performed, we noted no significant matters arising from our testing and consider that the assumptions used to be in line with recognised market practices and, where appropriate, industry peers.
UK Life Annuitant Mortality Assumptions Annuitant mortality assumptions require a high degree of judgement due to the number of factors which may influence mortality experience. The differing factors which affect the assumptions are underlying mortality experience (in the portfolio), industry and management views on the future rate of mortality improvements; and external factors arising from the development of the enhanced annuity market and the UK annuity reforms announced in the March 2014 budget.
• We evaluated management’s assessment of the implications of the UK annuity reforms announced in the March 2014 budget on the assumptions adopted by UK Life.
• We compared the mortality assumptions selected by UK Life against those used by its peers.
UK Life Credit Default Assumptions UK Life holds significant commercial mortgage, corporate bond and other loan asset portfolios to support the annuity liabilities. In line with relevant rules, the current yield on these assets less a prudent deduction for credit default and reinvestment risk is used to discount the annuity liabilities. Additional supplementary liabilities are held particularly in respect of the use of higher risk assets. These liabilities are to cover inter alia the risk of increased short term default rates and in the event of default, the availability of assets yielding similar returns. The assumptions used require significant judgement.
In respect of the credit default assumptions at UK Life: • We understood and tested the governance process in place to determine the credit default risk methodology and assumptions. • We tested the methodology and credit risk pricing models used for commercial mortgages by management to derive the assumptions with reference to relevant rules and actuarial guidance, and by applying our industry knowledge and experience.
• We validated assumptions used by management against market observable data and our experience of market practices.
Based on the work undertaken, we consider the allowance for credit default risk to be appropriate.
In the UK General Insurance and Canada markets, we assessed the Directors’ calculation of the non-life insurance liabilities by testing the underlying company data, the methodology and assumptions used against recognised actuarial practices and by applying our industry knowledge and experience.
The testing included performing the following procedures: • Understanding and testing the governance process in place to determine the loss reserves, including testing the financial reporting control framework for setting these reserves.
• Performing independent re-projections on selected classes of business, particularly focussing on the largest and most uncertain reserves. For these classes we compared our re-projected claims reserves to those booked by management, and sought to understand any significant differences.
Valuation of hard to value investments Refer to page 167 (notes).
The testing included performing the following procedures: • Evaluated the methodology and assumptions used within the valuation models. • Comparing the assumptions used against appropriate benchmarks and investigating significant differences. • Testing the operation of data integrity and change management controls for the models and in particular, changes to the Equity Release Mortgage valuation model.
Valuation of goodwill Refer to page 161 (notes). Our audit work on the Directors’ goodwill impairment assessment focused in particular on Spain following the recognition of an impairment in the prior year, and with the continued volatility in the Spanish economy there continues to be a heightened risk of impairment in the current year.
The work we performed over the valuation of goodwill in Spain included the following: • Evaluating the results of the Directors’ impairment assessment, including an analysis of the methodology and the assumptions adopted.
• Testing the appropriateness of the key assumptions, including performing a sensitivity analysis over the Directors assumptions regarding the planned growth rate in cash flows including value of new business and discount rate assumed whilst also considering publicly available data, such as interest rate and economic growth projections.
Although uncertainties always exist with regards to forecasts on which the impairment assessment is based, when considering the work performed and evidence obtained, we considered management’s assessment that goodwill had not been impaired to be appropriate.
Materiality The scope of our audit is influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality £102 million (2013: £81 million). How we determined it 5% of operating profit before tax attributable to shareholders'
Going concern Under the Listing Rules we are required to review the Directors’ statement, set out on page 88, in relation to going concern. We have nothing to report having performed our review. As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the financial statements using the going concern basis of accounting. The going concern basis presumes that the Group and parent company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and parent company’s ability to continue as a going concern.
ISAs (UK & Ireland) reporting Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: • Information in the Annual Report is: – materially inconsistent with the information in the audited financial statements; or – apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and parent company acquired in the course of performing our audit; or – otherwise misleading.
(“the Code”), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and parent company’s performance, business model and strategy is materially inconsistent with our knowledge of the Group and parent company acquired in the course of performing our audit.
Corporate governance statement Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the parent company. We have no exceptions to report arising from this responsibility. Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the parent company’s compliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Directors’ Responsibilities Statement set out on page 88, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
David Law (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 4 March 2015 (a) The maintenance and integrity of the Aviva plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(A) Basis of preparation The consolidated financial statements and those of the Company have been prepared and approved by the directors in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as endorsed by the European Union (EU), and those parts of the Companies Act 2006 applicable to those reporting under IFRS. In addition to fulfilling their legal obligation to comply with IFRS as adopted by the EU, the Group and the Company have also complied with IFRS as issued by the IASB and applicable at 31 December 2014. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of land and buildings, investment property, available-for-sale financial assets, and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. In accordance with IFRS 4 Insurance Contracts, the Group has applied existing accounting practices for insurance and participating investment contracts, modified as appropriate to comply with the IFRS framework and applicable standards. Further details are given in accounting policy G. Items included in the financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are stated in pounds sterling, which is the Company’s functional and presentational currency. Unless otherwise noted, the amounts shown in these financial statements are in millions of pounds sterling (£m). The separate financial statements of the Company are on pages 238 to 246.
(iv) IFRIC 21, Levies The interpretation clarifies when an entity recognises a liability for a levy imposed by government in accordance with legislation (other than taxes and fines or other penalties). The adoption of the amendment has no impact for the Group’s consolidated financial statements.
(ii) Annual Improvements to IFRSs 2011-2013 These improvements to IFRSs consist of amendments to four IFRSs including IFRS 3 Business Combinations and IFRS 13 Fair Value Measurement. The amendments clarify existing guidance. The adoption of these amendments is not expected to have a significant impact on the Group’s profit or loss or equity. The amendments are effective for annual periods beginning on or after 30 June 2015 and have been endorsed by the EU.
(iii) Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Amendments to IFRS 10 and IAS 28 clarify that for transactions between an investor and its associate or joint venture, full gains are to be recognised where the assets sold or contributed constitute a business as defined in IFRS 3 Business Combinations. Where the assets sold or contributed do not constitute a business, gains and losses are recognised only to the extent of other investors’ interests in the associate or joint venture. The adoption of these amendments is not expected to have significant implications for the Group’s consolidated financial statements. These amendments will be effective on annual reporting periods beginning on or after 1 January 2016 and have yet to be endorsed by the EU.
(iv) Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation
(v) Amendments to IAS 27, Equity Method in Separate Financial Statements
The amendments to IAS 27 allow investments in subsidiaries to be accounted for using the equity method within the Company’s financial statements. The Company has not completed the assessment of the impact of the adoption of the amendments on its financial statements. The amendments to IAS 27 are effective for annual reporting periods beginning on or after 1 January 2016 and have not yet been endorsed by the EU.
These narrow-scope amendments clarify the application of the requirements for investment entities to measure subsidiaries at fair value instead of consolidating them. There are no implications for the Group’s consolidated financial statements as the Group does not meet the definition of an investment entity. These amendments are effective for annual reporting periods beginning on or after 1 January 2016 and have not yet been endorsed by the EU.
(vii) Amendments to IAS 1 – Disclosure Initiative These amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. The amendments form part of the IASB’s Disclosure Initiative, which explores how financial statement disclosures can be improved. The adoption of these amendments will have no impact for the Group’s profit or loss or equity. The amendments are effective for annual reporting periods beginning on or after 1 January 2016 and have not yet been endorsed by the EU.
Instruments which will replace IAS 39, Financial Instruments: Recognition and Measurement. The finalised standard incorporates new classification and measurements requirements for financial assets, the introduction of an expected credit loss impairment model which will replace the incurred loss model of IAS 39, and new hedge accounting requirements. Under IFRS 9, all financial assets will be measured at either amortised cost or fair value. The basis of classification will depend on the business model and the contractual cash flow characteristics of the financial assets. The standard retains most of IAS 39 requirements for financial liabilities except for those designated at fair value through profit or loss whereby that part of the fair value changes attributable to own credit is to be recognised in other comprehensive income instead of the income statement. The hedge accounting requirements are more closely aligned with risk management practices and follow a more principle based approach. The mandatory effective date of the new standard is annual reporting periods beginning on or after 1 January 2018, with earlier adoption permitted.
Exceptional items are those items that, in the Directors’ view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group’s financial performance. Details of these items are provided in the relevant notes.
Critical accounting policies and the use of estimates These major areas of judgement on policy application are summarised below: Item Critical accounting judgement, estimate or assumption