Loans 7,065 1,443 — — — 1,071 Receivables — 144 338 259 4 5,044 Accrued income and interest — — — — — 265 Other financial assets — — 5 — — — Total 7,065 1,587 343 259 4 6,380
Total 6,305 2,933 322 214 — 5,951 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents that are now presented as loans in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for further information.
At the period end, the Group held cash and cash equivalents of £15,344 million (2018 restated: £11,249 million) that met the SPPI criteria, of which £15,322 million (2018 restated: £11,234 million) is placed with financial institutions with issuer ratings within the range of AAA to BBB. Further information on the extent to which unrated receivables, including those that meet the SPPI criteria, are past due may be found in section (ix) of this note. The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure. The Group’s maximum exposure to credit risk of financial assets, without taking collateral or these hedges into account, is represented by the carrying value of the financial instruments in the statement of financial position. These comprise debt securities, reinsurance assets, derivative assets, loans and receivables. The carrying values of these assets are disclosed in the relevant notes: financial investments (note 28), reinsurance assets (note 47), loans (note 25) and receivables (note 29). The collateral in place for these credit exposures is disclosed in note 62 Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar agreements.
(iv) Credit concentration risk The long-term and general insurance businesses are generally not individually exposed to significant concentrations of credit risk due to the regulations applicable in most markets and the Group credit policy and limits framework, which limit investments in individual assets and asset classes. Credit concentrations are monitored as part of the regular credit monitoring process and are reported to the Group Asset Liability Committee (ALCO). With the exception of government bonds the largest aggregated counterparty exposure within shareholder assets is to the Swiss Reinsurance Company Ltd (including subsidiaries), representing approximately 2.4% of the total shareholder assets.
The Group’s largest reinsurance counterparty is Swiss Reinsurance Company Ltd (including subsidiaries). At 31 December 2019, the reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was £3,097 million (2018: £2,835 million).
(ix) Impairment of financial assets In assessing whether financial assets carried at amortised cost or classified as available for sale are impaired, due consideration is given to the factors outlined in accounting policies (T) and (V). The following table provides information regarding the carrying value of financial assets subject to impairment testing that have been impaired and the ageing of those assets that are past due but not impaired. The table excludes assets carried at fair value through profit or loss and held for sale.
Excluded from the tables above are financial and reinsurance assets carried at fair value through profit or loss that are not subject to impairment testing, as follows: £198,020 million of debt securities (2018 restated: £190,392 million), £44,836 million of other investments (2018 restated: £41,209 million), £28,319 million of loans (2018: £25,526 million) and £4,006 million of reinsurance assets (2018: £4,006 million).
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued (c) Market risk Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, inflation, foreign currency exchange rates, equity and property prices. Market risk arises in business units due to fluctuations in both the value of liabilities and the value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of investment assets owned directly by the shareholders. We actively seek some market risks as part of our investment and product strategy. However, we have limited appetite for interest rate risk as we do not believe it is adequately rewarded.
The most material types of market risk that the Group is exposed to are described below.
Sensitivity to changes in equity prices is given in section (i) Risk and capital management, below.
As at 31 December 2019, no material derivative contracts had been entered into to mitigate the effects of changes in property prices. Exposure to property risk on equity release mortgages from sustained underperformance in the UK House Price Index (HPI) is mitigated by capping loan to value on origination at low levels and regularly monitoring the performance of the mortgage portfolio.
Details of material guarantees and options are given in note 46. In addition, the following table summarises the weighted average minimum guaranteed crediting rates and weighted average book value yields on assets as at 31 December 2019 for our Italian and French participating contracts, where the Group’s key exposure to sustained low interest rates arises.
Sensitivity to changes in interest rates is given in section (i) Risk and capital management, below.
(iv) Inflation risk Inflation risk arises primarily from the Group’s exposure to general insurance claims inflation, to inflation linked benefits within the defined benefit staff pension schemes and within the UK annuity portfolio and to expense inflation. Increases in long-term inflation expectations are closely linked to long-term interest rates and so are frequently considered with interest rate risk. Exposure to inflation risk is monitored through capital modelling, sensitivity testing and stress and scenario testing. The Group typically manages inflation risk through its investment strategy and, in particular, by investing in inflation linked securities and through a variety of derivative instruments, including inflation linked swaps.
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued The Group operates internationally and as a result is exposed to foreign currency exchange risk arising from fluctuations in exchange rates of various currencies. Approximately 58% of the Group’s premium income arises in currencies other than sterling and the Group’s net assets are denominated in a variety of currencies, of which the largest are sterling, euro and Canadian dollars (CAD$). The Group does not hedge foreign currency revenues as these are substantially retained locally to support the growth of the Group’s business and meet local regulatory and market requirements. However, the Group does use foreign currency forward contracts to hedge planned dividends from its subsidiaries.
A 10% change in sterling to euro/CAD$ period-end foreign exchange rates would have had the following impact on total equity.
Net assets at 31 December 2019 (82) 82 (40) 40 Net assets at 31 December 2018 (61) 77 (31) 31
Impact on profit before tax 31 December 2019 (67) 82 (18) 22 Impact on profit before tax 31 December 2018 (60) 85 8 (9)
Maturity analyses The following tables show the maturities of our insurance and investment contract liabilities, and of the financial and reinsurance assets held to meet them. A maturity analysis of the contractual amounts payable for borrowings and non-hedge derivatives is given in notes 53 and 61, respectively. Contractual obligations under leases and capital commitments are given in note 23 and note 57.
Long-term business Insurance contracts – non-linked 106,622 8,421 25,940 40,548 31,713 Investment contracts – non-linked 75,158 5,547 19,199 28,572 21,840 Linked business 156,859 15,559 23,901 52,656 64,743 General insurance and health 16,368 6,859 6,758 2,217 534
Fixed maturity securities 198,832 42,644 47,983 106,981 1,224 Equity securities 99,570 — — — 99,570 Other investments 45,016 38,817 25 5,365 809 Loans 38,579 9,641 4,643 24,293 2 Cash and cash equivalents 19,524 19,524 — — — Total 401,521 110,626 52,651 136,639 101,605
Total 371,935 102,960 52,249 126,428 90,298 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents and other investments that are now presented as loans, fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the period or equity. See note 1(a) for further information.
The majority of the general insurance business underwritten by the Group continues to be short tail in nature such as motor, household and commercial property insurances. The Group’s underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. General insurance risk is managed primarily at business unit level with oversight at the Group level. Claims reserving is undertaken by local actuaries in the various general insurance businesses and is also subject to periodic external reviews. Reserving processes are further detailed in note 43.
The importance of digital interaction with our customers and advanced data analytics, the conduct, data protection and financial crime agenda of the European institutions, the FCA and other regulators, as well as the increasing cyber security threat, as evidenced by continuing instances of high profile cyber security breaches for other corporates in the UK and elsewhere, mean the Group has inherent risk exposure to data theft, conduct regulatory breaches (including financial crime) and customer service interruption due to IT systems failure. During 2019 we have continued to take action to reduce our residual exposure to these risks and improve our operational resilience through our conduct risk management framework, financial crime risk mitigation programme and significant investment in upgrading our IT infrastructure and security.
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued The FCA regularly considers whether we are meeting the requirement to treat our customers fairly and we make use of various metrics to assess our own performance, including customer advocacy, retention and complaints. Failure to meet these requirements could also impact our brands or reputation.
Equity/property market values The impact of a change in equity/property market values by ± 10%. Expenses The impact of an increase in maintenance expenses by 10%. Assurance mortality/morbidity (life insurance only) The impact of an increase in mortality/morbidity rates for assurance contracts by 5%. Annuitant mortality (long-term insurance only) The impact of a reduction in mortality rates for annuity contracts by 5%. Gross loss ratios (non-long-term insurance only) The impact of an increase in gross loss ratios for general insurance and health business by 5%.
Insurance participating — 5 (10) (65) 60 (50) 10 (5) Insurance non-participating (985) 1,265 (800) (120) 105 (240) (145) (955) Investment participating (85) 55 (5) (5) 5 (25) — — Investment non-participating — 5 — 5 (5) (5) — — Assets backing life shareholders’ funds (150) 170 (35) (35) 30 — — — Total (1,220) 1,500 (850) (220) 195 (320) (135) (960)
Strategic report Governance IFRS financial statements Other information 60 – Risk management continued Sensitivities as at 31 December 2018 31 December 2018 Impact on profit before tax £m Interest rates
31 December 2018 Impact on shareholders’ equity before tax £m Interest rates
Gross of reinsurance (210) 165 (115) 185 (175) (25) (315) Net of reinsurance (270) 215 (115) 185 (175) (25) (300)
Sensitivities as at 31 December 2018 31 December 2018 Impact on profit before tax £m Interest rates
Gross of reinsurance (240) 235 (115) 170 (170) (25) (325) Net of reinsurance (305) 295 (115) 170 (170) (25) (315)
Equity/ property 31 December 2018 Impact on shareholders’ equity before tax £m Interest rates
The fair values do not provide an indication of credit risk, as many over-the-counter transactions are contracted and documented under ISDA (International Swaps and Derivatives Association, Inc.) master agreements or their equivalent. Such agreements are designed to provide a legally enforceable set-off in the event of default, which reduces credit exposure. In addition, the Group has collateral agreements in place between the individual Group entities and relevant counterparties. See note 62 for further information on collateral and net credit risk of derivative instruments.
Net investment hedges To reduce its exposure to foreign currency risk, the Group has designated a portion of its euro denominated debt as hedge instruments to hedge a net investment in its European subsidiaries. No material disposals are expected prior to the maturity of the euro denominated debt and the hedge effectiveness is prospectively expected to remain between 80% and 125%. The carrying value of the debt at 31 December 2019 was £2,331 million (2018: £2,468 million) and its fair value at that date was £2,604 million (2018: £2,515 million).
Strategic report Governance IFRS financial statements Other information 61 – Derivative financial instruments and hedging continued (b) Derivatives not qualifying for hedge accounting Certain derivatives either do not qualify for hedge accounting under IAS 39 or the option to designate them as hedge instruments has not been taken. These are referred to below as non-hedge derivatives.
Fair value assets of £7,097 million (2018 restated: £5,357 million) are recognised as ‘Derivative financial instruments’ in note 28(a), while fair value liabilities of £6,517 million (2018 restated: £6,478 million) are recognised as ‘Derivative liabilities’ in note 54.
Derivative transactions requiring Aviva or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit default swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities. The derivative assets and liabilities in the table below are made up of the contracts described in detail in note 61.
Aviva participates in a number of stock lending and repurchase arrangements. In some of these arrangements cash is exchanged by Aviva for securities and a related receivable is recognised within ‘Loans to banks’ in note 25. These arrangements are reflected in the tables below. In instances where the collateral is recognised on the statement of financial position, the obligation for its return is included within ‘Payables and other financial liabilities’ in note 54.
Financial assets Derivative financial assets 6,570 — 6,570 (4,646) (999) (164) 761 Loans to banks and repurchase arrangements 8,830 — 8,830 — (300) (2,980) 5,550 Total financial assets 15,400 — 15,400 (4,646) (1,299) (3,144) 6,311
Financial liabilities Derivative financial liabilities (5,682) — (5,682) 3,961 40 1,130 (551) Other financial liabilities (2,671) — (2,671) — — 2,671 — Total financial liabilities (8,353) — (8,353) 3,961 40 3,801 (551)
Strategic report Governance IFRS financial statements Other information 62 – Financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar arrangements continued Amounts subject to enforceable netting arrangements
Financial liabilities Derivative financial liabilities (5,609) — (5,609) 3,435 376 1,288 (510) Other financial liabilities (3,314) — (3,314) — — 3,314 — Total financial liabilities (8,923) — (8,923) 3,435 376 4,602 (510) 1 Following a review of the Group’s presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents that are now presented as loans to banks and repurchase arrangements in the table above. The restatement has had no impact on the profit for the year or equity. See note 1(a) for further information.
Amounts receivable related to securities lending and reverse-repurchase arrangements totalling £8,830 million (2018 restated: £9,322 million) are recognised within ‘Loans to banks’ in note 25.
Other financial liabilities presented above represent liabilities related to repurchase arrangements recognised within ‘Obligations for repayment of cash collateral received’ in note 54.
Salary and other short-term benefits 12.3 7.9 Other long-term benefits 3.2 8.6 Post-employment benefits 1.3 1.5 Equity compensation plans 12.7 10.5 Termination benefits 1.0 —
A complete list of the Group’s related undertakings comprising of subsidiaries, joint ventures, associates and other significant holdings is contained within note 65.
United Kingdom Aviva Central Services UK Limited Aviva Employment Services Limited Aviva Equity Release UK Limited Aviva Health UK Limited Aviva Insurance Limited Aviva International Insurance Limited Aviva Investors Global Services Limited Aviva Investors Pensions Limited Aviva Investors UK Fund Services Limited Aviva Life & Pensions UK Limited Aviva Life Services UK Limited Aviva Pension Trustees UK Limited Aviva UK Digital Limited Aviva Wrap UK Limited Gresham Insurance Company Limited The Ocean Marine Insurance Company Limited Aviva Management Services UK Limited Aviva Administration Limited Friends Provident International Limited1
Canada Aviva Canada Inc. and its principal subsidiaries: Aviva Insurance Company of Canada Aviva General Insurance Company Elite Insurance Company Pilot Insurance Company Scottish & York Insurance Co. Limited S&Y Insurance Company Traders General Insurance Company
France Aviva France SA (99.99%) and its principal subsidiaries: Aviva Assurances SA (99.9%) Aviva Investors France SA (99.9%) Aviva Investors Real Estate France SA (99.9%) Aviva Solutions (99.9%) Aviva Vie SA (99.9%) Locamat SAS (99.9%) NEWCO (99.9%)
Ireland Aviva Life and Pensions Ireland Designated Activity Company Aviva Insurance Ireland Designated Activity Company 1 See note 4(b) for further details in respect of operations classified as held for sale
The Group’s related undertakings along with the country of incorporation, the registered address, the classes of shares held and the effective percentage of equity owned at 31 December 2019 are disclosed below.
General Accident plc United Kingdom Pitheavlis, Perth, Perthshire, PH2 0NH Ordinary shares 100
Australia c/o TMF Corporate Services (Aust) Pty Ltd, 201 Elizabeth Street, Australia 2000
Canada 10 Aviva Way, Suite 100, Markham On L6G 0G1 9543864 Canada Inc. Common 100 Aviva Canada Inc. Voting Interest 100 Aviva General Insurance Company
Wayfarer Insurance Brokers Limited 100 King Street West, Suite 4900, Toronto On M5X 2A2
Prolink Limited Common A 34 555 Chabanel Ouest, Bureau 900, Montreal QC H2N 2H8
UFF Obligations 3-5 A FCP 86 UFF Allocation Strategies A FCP 73 13 Rue du Moulin Bailly, 92270, Bois Colombes
Agents 3A Ordinary 50 Aviva Assurances, Société Anonyme d’Assurances Incendie, Accidents et Risques Divers 13, Avenue Lebrun, 92188, Antony Cedex
AFER – SFER Ordinary 100 Global Allocation M FCP 85 Aviva Investors Euro Credit Bonds ISR
Afer Actions Amerique FCP 100 Afer Actions Monde FCP 100 Afer Diversifie Durable FCP 100 Afer Marches Emergents Fcp FCP 100 Afer Multi Foncier FCP 100 Afer Oblig Monde Entreprisese FCP 100 Afer Patrimoine FCP 100 Afer-Flore FCP 97 Afer Actions Euro ISR FCP 100 AFer Actions Monde FCP 100 Afer Avenir Senior SICAV 100 After Convertibles FCP 100 Aviva Actions Convex FPS 100 Aviva Actions Croissance FCP 100 Aviva Actions Euro FCP 100 Aviva Actions Europe ISR FCP 100 Aviva Actions France FCP 79 Aviva Amerique FCP 100 Aviva Asie FCP 100 Aviva Convertibles Ordinary 97 Aviva Conviction Opportunites FCP 100 Aviva Conviction Patrimoine FCP 100 Aviva Croissance Durable ISR FCP 100 Aviva Developpement SICAV 99 Aviva Diversifié SICAV 94 Aviva Europe SICAV 96 Aviva Flexible (AVIFLEX) FPS 100 Aviva Flexible Emergents A FCP FCP 100 Aviva France Opportunites FCP 91 Aviva Grandes Marques ISR FCP 99 Aviva Interoblig FCP 100 Aviva Investors Actions Euro FCP 93 Aviva Investors Alpha Taux A FCP 100 Aviva Investors Alpha Yield FCP 96 Aviva Investors Britannia SICAV 98 Aviva Investors Conviction FCP 98 Aviva Investors Euro Aggregate FCP 75 Faraday FCP 100 Aviva Investors Euro Crédit Bonds 1-3
Aviva Investors France S.A Ordinary 100 Aviva Investors Japon ISR FCP 95 Aviva Investors Portefeuille FCP 100 Aviva Investors Reference Diversifie
Aviva Investors Selection FCP 100 Aviva Investors Valeurs FCP 100 Aviva Investors Valeurs Europe FCP 80 Aviva Investors Yield Curve Abs Rt R
UFF Cap Defensif FCP 100 UFF Euro-Valeur 0-100 A FCP 98 UFF Obligations 5-7 A FCP 99 Obligations 5-7M FCP 81 Rendement Diversifie M FCP 96 UFF Rendement Diversifie A FCP 100 24-26 Rue De La Pépinière, 75008, Paris 100 Courcelles Ordinary 100 AFER Immo Ordinary 100 AFER Immo 2 Ordinary 100 Aviva Commerce Europe Ordinary 100 Aviva Immo Selection Ordinary 100 Aviva Investors Real Estate France S.A.
Sapphire lle de France SCI SPV 100 Aviva Investors Experimmo Propco 1
Mamann Invest Ordinary 100 SACAF Ordinary 100 20 Place Vendome, 75001 Paris
UFF Allocation Optimum FCP 98 UFF Cap Diversifie (UCAPDIV) FCP 50 UFF Capital Planete A (Aviufcp) FCP 98 UFF Croissance Pme A (Ucapcro)
UFF Euro Valeur A FCP 100 UFF Global Allocation A FCP 100 UFF Global Foncieres-A (Ufgf70A)
UFF Global Reactif-A (Ufgf10A) FCP 95 UFF Selection Premium A (Uavfran)
Ufifrance Gestion Ordinary 74 Ufifrance Patrimoine Ordinary 74 UFF Privilège A FCP 69 Union Financière de France Banque 36 Rue De Naples 75008 Paris Ufifrance Immobilier SCI 20 37 Avenue des Champs Elysées, 75008, Paris
CGU Equilibre FCP 100 Aviva Selection FCP 100 Diapason 1 FCP 84 UFF Global Convertibles A FCP 98 UFF Oblicontext Moyen Terme A
53 Avenue d'Iéna UFF Valeurs Pme-A (Fintrma) FCP 98 59 Avenue Pierre Mendes, France 75013, Paris
Company name Share Class1 % held 70 Avenue De L’Europe, 92270 Bois-Colombes
Aviva Epargne Retraite Ordinary 100 Aviva France Ventures Ordinary 100 Aviva Investissements Ordinary 100 Aviva Retraite Professionnelle Ordinary 100 Aviva Vie, Société Anonyme d’Assurances Vie et de Capitalisation
Epargne Actuelle Ordinary 100 Newco 5 Ordinary 100 Newco 6 Ordinary 100 SCI Pesaro Ordinary 79 Carpe Diem Société Civile Immobilière
Zelmis Ordinary 100 Aviva Developpement Vie Ordinary 100 80 Avenue De L’Europe, 92270 Bois-Colombes
Selectipierre – Société Civile Ordinary 100 Societe Concessionaire des Immeubles de la Pepiniere
Victoire Immo 1- Société Civile Ordinary 100 Voltaire S.A.S Ordinary 100 90 Boulevard Pasteur, 75015, Paris
Pretons Ensemble FPS 30 Pretons Ensemble 2 FPS 30 1 Boulevard Haussman, 75009 Paris
Afer Actions PME FCP 100 Aviva Investors Euro Commercial Real Estate Debt II
German Retail IV GmbH Ordinary 98 German Retail IX GmbH Ordinary 98 German Retail V GmbH Ordinary 98 German Retail VII GmbH Ordinary 98 German Retail VIII GmbH Ordinary 98 Sachsenfonds GmbH Ordinary 98 Eschenheimer Anlage 1, 60315 Frankfurt
AXA Property Trust Ltd Ordinary 28 BMO Commercial Property Trust Ltd
Marlborough International Management Limited, First Floor, Tudor House, Le Bordage, St Peter Port, Guernsey, Channel Islands GY1 1 DB
India 2nd Floor, Prakash Deep Building 7, Tolstoy Marg, New Delhi, Delhi, 110001
Pondok Indah Office Tower 3, 1st Floor, Jl. Sultan Iskandar Muda Kav. V-TA, Pondok Indah, Jakarta Selatan, Jakarta, 12310
Aviva Direct Ireland Limited Ordinary 100 Aviva Driving School Ireland Limited
Mercer Multi High Growth Fund OEIC 24 Mercer Multi Asset Moderate Growth Fund 3rd Floor, 2 Harbourmaster Place, IFSC
Unit Trust 26 1 Custom House Plaza, IFSC Blackrock Emerging markets Bond Hard Currency Fam Fund
One Iron Street SPDR FTSE EPRA Europe ex UK Real Estate UCITS ETF
Aviva Italia Holding S.p.A Ordinary 100 Aviva Italia S.p.A Ordinary 100 Aviva Italia Servizi Scarl Ordinary 92 Aviva Life SPA Ordinary 100 Aviva SPA Ordinary 51 Aviva Vita Spa Ordinary 80 Milano, Piazza Lina Bo Bardi n. 3
W Nine Unit Trust Unit Trust 50 3rd Floor Walker House, 28-34 Hill Street, St Helier, JE4 8PN
20 Gracechurch Unit Trust Unit Trust 100 Designer Retail Outlet Centres Unit Trust
Crieff Road Limited Ordinary 100 FF UK Select Limited Ordinary 100
Uždaroji akcinė gyvybės draudimo ir pensijų bendrovė "Aviva Lietuva" (Joint Stock Limited Life Insurance and Pension Company Aviva Lietuva)
MPS L14 Sarl Unit Trust 100 2 rue Edward Steichen, L – 2540, Luxembourg, LU
VAM Managed Funds (Lux) – International Real Estate Equity Fund 1c Rue Gabriel Lippmann, L -5365, Munsbach, LU
Sapphire Ile de France 2 Sarl Ordinary 100 Aviva Investors Perpetual Capital
Aviva Investors Cells Fund Alternative Investment 100 Aviva Investors CELLs Danone Sarl
Aviva Investors Luxembourg Ordinary 100 Aviva Investors Multi-Strategy Fixed Income Fund
BMO Diversified Growth Fund SICAV 90 BMO Global Total Return Bond Fund 2 Boulevard Konrad Adenauer, L-1115, Luxembourg
The Jupiter Global Fund - Jupiter Financial Innovation 2C rue Albert Borschette, L-1246, Luxembourg
Nordea 1 – Swedish Bond Fund SICAV 32 Nordea 1 – Swedish ShortTerm Bond Fund 11 rue Aldringen, L1118, Luxwmbourg LU
Herakles Alternative Investment Fund 47 Herakles II Alternative Investment Fund 100
Aviva Investors Sfio Pieniezny Non UCITS 100 Aviva Investors Sfio Spolek Dywidend
Aviva Ltd Ordinary 100 Navigator Investment Services Limited 6 Shenton Way, #09-08, OUE Downtown, 068809
Aviva Investors Asia Pte Limited Ordinary 100 6 Temasek Boulevard, #29-
Aviva Asia Digital Pte. Ltd. Ordinary 100 Aviva Asia Pte Ltd Ordinary 100 Aviva Financial Advisers Pte. Ltd
Freetricity Southeast Limited Ordinary 100 Centrium 1, Griffiths Way St Albans, United Kingdom, AL1 2RD
Ballard Investment Company Limited 4th Floor, New London House, 6 London Street, London, EC3R 7LP
Homesun 2 Limited Ordinary 100 Homesun 3 Limited Ordinary 100 Homesun 4 Limited Ordinary 100 Homesun 5 Limited Ordinary 100 Homesun Limited Ordinary 100 Anesco Mid Devon Limited Ordinary 100 Anesco South West Limited Ordinary 100 Free Solar (Stage 1) Limited Ordinary 100 New Energy Residential Solar Limited
Norton Energy SLS Limited Ordinary 100 TGHC Limited Ordinary 100 5 Lister Hill, Horsforth, Leeds, LS18 5AZ
Tenet Group Limited Ordinary B 47 Tenet Limited Ordinary 47 Tenet Platform Services Limited
TenetConnect Limited Ordinary 47 TenetConnect Services Limited Ordinary 47 TenetFinancial Solutions Limited
Architas Multi-Manager Diversified Protector 80 50 Stratton Street, London, W1J 8LL
AXA Rosenberg Global Fund OEIC 88 AXA Rosenberg Japan Fund OEIC 95 8 Surrey Street, Norwich, Norfolk, NR1 3NG
RAC Pension Trustees Limited Ordinary 100 Solus (London) Limited Ordinary 100 Synergy Sunrise (Broadlands) Limited
Aviva (Peak No.1) UK Limited Ordinary 100 Aviva Insurance Limited Ordinary 100 Aviva Investors (FP) Limited Ordinary 100 Aviva Investors (FP) LP LP 100 General Accident plc Ordinary 100
Friends AEL Trustees Limited Ordinary 100 Friends AELLAS Limited Ordinary 100 Friends AELRIS Limited £1 Stock 100 Friends Life and Pensions Limited
Friends Life FPG Limited Ordinary 100 Friends Life FPL Limited Ordinary 100 Friends Life FPLMA Limited Ordinary 100 Friends Life Holdings plc Ordinary 100 Friends Life Limited Ordinary 100 Friends Life WL Limited Ordinary 100 Friends Provident Distribution Holdings Limited
Limited Partnership 100 20 Lowndes Square Management Company Limited 20 Gracechurch (General Partner) Limited 20 Gracechurch Limited Partnership
AI Special PFI SPV Limited Ordinary 100 Atlas Park Management Company Limited
Aviva Plc Ordinary 100 Aviva Investors 40 Spring Gardens (General Partner) Limited
Aviva Group Holdings Limited Ordinary 100 Aviva Staff Pension Trustee Limited
Aviva Investors EBC GP Limited GP 100 Aviva Investors UK Fund Services Limited
Aviva UK Digital Limited Ordinary 100 Aviva UKLAP De-risking Limited Ordinary 100 Aviva Investors Real Estate Limited
Axcess 10 Management Limited Ordinary 100 Axa Sun Life Private Unit Trust 100 Barratt House LP Limited Partnership 50 Barratt House Nominee 1 Limited
Biomass UK No 2 Limited Ordinary 100 Biomass UK No 3 Limited Ordinary 100 Biomass UK No 1 Limited Ordinary 100 Boston Biomass Limited Ordinary 100 Boston Wood Recovery Limited Ordinary 100 Cambridge Research + Innovation
EES Operations 1 Limited Ordinary 100 EIF USPF IV Blocker Fund Closed
Friends Life Funds Limited Ordinary 100 Fitzroy Place GP 2 Limited Ordinary 50 Fitzroy Place Management Co Limited
Irongate House LP2 Limited Partnership 50 Irongate House Nominee 1 Limited2
Lombard (London) 1 Limited Ordinary 100 Lombard (London) 2 Limited Ordinary 100 Matthew Parker Street (Nominee No1) Limited
New Broad Street House LP Ordinary 50 New Broad Street House Nominee 1 Limited
NU Offices for Redcar Limited Ordinary 100 NU Schools for Redbridge Limited
NUPPP (GP) Limited Ordinary 100 NUPPP Nominees Limited Ordinary 100 Opus Park Management Limited
Quaryvale One Limited Ordinary 100 Quaryvale Three Limited Ordinary 100 Renewable Clean Energy Limited
SUE GP Nominee Limited Nominee 50 SUE GP LLP GP 50 Stonebridge Cross Management Limited
The Gobafoss Partnership Ordinary 100 The Ocean Marine Insurance Company Limited
Aviva (Peak No.2) UK Limited Ordinary 100 Aviva Annuity UK Limited Ordinary 100 Aviva Client Nominees UK Limited
Aviva ERFA 15 UK Limited Ordinary 100 Aviva Life & Pensions UK Limited
Aviva Trustees UK Limited Ordinary 100 Aviva Wrap UK Limited Ordinary 100 CGNU Life Assurance Limited Ordinary 100 Friends Provident Pension Scheme Trustees Limited
Undershaft (NULLA) Limited Ordinary 100 Voyager Park South Management Company Limited 12 Throgmorton Avenue BlackRock Market Advantage Fund
Artemis Fund Managers Limited, 57-59 St James’s Street, London SW1A 1LD
Liontrust Sustainable Furture Managed Fund 47 Bermondsey Street, London SE1 3XT
Synergy Sunrise (Sentinel House) Limited 1 London Wall Place, London, UK
Schroder QEP US Core Fund Unit Trust 40 BlackRock Pensions, 33 King William Street
AI-RECAP GP I, LLC Limited Partnership 100 National Corporate Research Limited, 850 New Burton Road, Suite 201, Dover, Delaware Kent County 19904
Exeter Properties Inc. Common Stock Wpv Shares 95 Winslade Investments Inc. Common Stock Wpv Shares 100
Vietnam 10th Floor, Handi Resco Building, No. 521 Kim Ma, Ba Dinh, Hanoi
Fond Common de Placement (‘FCP’) Open Ended Investment Fund (‘OEIC’) Société d ‘Investment à Capital Variable (‘SICAV’) Undertaking for Collective Investment in Transferrable Securities (‘UCITS’) Irish Collective Asset Management Vehicle (‘ICAV’) Authorised Contractual Scheme (‘ACS’) Organisme de Placement Collectif Immobilier (‘OPCI’) Sociétés Civiles de Placement Immobilier (‘SCPI’)
Income Net investment income A 1,688 2,874 1,688 2,874 Expenses Operating expenses B (195) (246) Other expenses1 — (8) Finance costs C (537) (519)
Profit for the year before tax 956 2,101 Tax credit D 92 96
Statement of comprehensive income For the year ended 31 December 2019 £m
Direct capital instrument and fixed rate tier 1 notes £m Total equity £m
Balance at 1 January 975 200 1,214 44 6,438 120 4,026 724 13,741 Profit for the year — — — — — — 1,048 — 1,048 Other comprehensive income — — — — — — 3 — 3 Total comprehensive income for the year — — — — — — 1,051 — 1,051 Dividends and appropriations 16 — — — — — — (1,244) — (1,244) Reserves credit for equity compensation plans 34 — — — — — 62 — — 62 Shares issued under equity compensation plans 33 5 — 25 — — (62) 55 — 23 Shares purchased in buy-back 33 — — — — — — — — — Reclassification of tier 1 notes to financial liabilities1 37,L — — — — — — 14 (224) (210) Aggregate tax effect D — — — — — — 8 — 8 Balance at 31 December 980 200 1,239 44 6,438 120 3,910 500 13,431 1 On 17 October 2019, notification was given that the Group would redeem the £210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of £210 million, representing its fair value at that date. On 21 November 2019 the instrument was redeemed in full at a cost of £210 million. See note 37 for further details.
Balance at 31 December 975 200 1,214 44 6,438 120 4,026 724 13,741 1 On 1 May 2018, the Group announced a share buyback of ordinary shares for an aggregate purchase price of up to £600 million. On completion in 2018 of this buy-back, £600 million of shares had been purchased and shares with a nominal value of £30 million have been cancelled, giving rise to an additional capital redemption reserve of an equivalent amount. See note 33 for further details of the shares purchase in buy-back.
Equity Ordinary share capital 33 980 975 Preference share capital 36 200 200 Called up capital 1,180 1,175 Share premium 33(b) 1,239 1,214 Capital redemption reserve 33(b) 44 44 Merger reserve H 6,438 6,438 Equity compensation reserve H 120 120 Retained earnings H 3,910 4,026 Direct capital instrument and tier 1 notes 37,L 500 724
Liabilities Non-current liabilities Borrowings J 6,534 6,699 Payables and other financial liabilities K 12,675 12,815 Pension deficits and other provisions I 47 45 19,256 19,559 Current liabilities Borrowings J 238 251 Payables and other financial liabilities K 4,344 4,206 Other liabilities 89 92
Cash flows from investing activities Dividends received from subsidiaries 5 —
Cash and cash equivalents at 1 January 15 87 Exchange gains on cash and cash equivalents (19) 6
Cash and cash equivalents at 31 December 74 15 1 2019 includes redemption of 6.875% £210 million tier 1 notes. 2 2019 includes a £5 million (2018: £3 million) donation of forfeited dividend income to a charitable foundation. 2018 also includes £10 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs (see note 36).
Dividends received from subsidiaries O(iii) 1,595 2,780 Interest receivable from group company loans held at amortised cost O(i) 92 92 Other income 1 2
Staff costs and other employee related expenditure (see (ii) below) 19 19 Other operating costs 175 227 Net foreign exchange losses 1 —
(iii) Equity compensation plans All transactions in the Group’s equity compensation plans, which involve options and awards for ordinary shares of the Company, are included in other operating costs. Full disclosure of these plans is given in the Group consolidated financial statements, note 34. The cost of such options and awards is borne by all participating businesses and, where relevant, the Company bears an appropriate charge. As the majority of the charge to the Company relates to directors’ options and awards, for which full disclosure is made in the directors’ remuneration report, no further disclosure is given here.
D – Tax continued (iv) Tax reconciliation The tax on the Company’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: £m
Profit before tax 956 2,101 Tax calculated at standard UK corporation tax rate of 19.00% (2018: 19.00%) 182 399 Reconciling items
Adjustment to tax charge in respect of prior years (2) (2) Non-assessable dividend income (303) (528) Disallowable expenses — 7 Losses surrendered intra-group for nil value 31 28
Finance Act 2016, which received Royal Assent on 15 September 2016, will reduce the rate of corporation tax to 17% from 1 April 2020. The reduction in rate from 19% to 17% has been used in the calculation of the Company’s deferred tax assets and liabilities at 31 December 2019.
The tax effect of £8 million (2018: £8 million) is recognised in respect of coupon payments of £43 million (2018: £44 million) on the direct capital instrument and tier 1 notes.
Subordinated debt 5,482 5,586 Senior notes 1,052 1,113 Commercial paper 238 251
J – Borrowings continued Maturity analysis of contractual undiscounted cash flows: Principal £m Interest £m Total £m Principal £m Interest £m Total £m
The fair value of the subordinated debt at 31 December 2019 was £6,446 million (2018: £5,831 million), calculated with reference to quoted prices. The fair value of the senior debt at 31 December 2019 was £1,134 million (2018: £1,113 million), calculated with reference to quoted prices. The fair value of the commercial paper is considered to be the same as its carrying value.
Further details of these borrowings and undrawn committed facilities can be found in the Group consolidated financial statements, note 53, with details of the fair value hierarchy in relation to these borrowings in note 24.
Total 17,019 17,021 Expected to be recovered in less than one year 4,344 4,206 Expected to be recovered in more than one year 12,675 12,815
L – Direct capital instrument and tier 1 notes The 6.875% £210 million tier 1 notes were redeemed on 21 November 2019 at a cost of £210 million, see details in note 37. These were reflected in the Company financial statements at a value of £224 million following the transfer at fair value from Friends Life Holdings plc on 1 October 2015. The resulting difference of £14 million between their carrying amount of £224 million and fair value of £210 million has been charged to the Company retained earnings. These were cancelled on 25 November 2019.
The business of the Company is managing its investments in subsidiaries and joint venture operations. Its risks are considered to be the same as those in the operations themselves, and full details of the major risks and the Group’s approach to managing these are given in the Group consolidated financial statements, note 60. Such investments are held by the Company at cost in accordance with accounting policy D.
Financial assets, other than investments in subsidiaries and joint ventures, largely consist of amounts due from subsidiaries. As at the balance sheet date, these receivable amounts were neither past due nor impaired. The credit quality of receivables and other financial assets is monitored by the Company, and provisions are made for expected credit losses. There are no material expected credit losses over the lifetime of the financial assets.
Financial liabilities owed by the Company as at the balance sheet date are largely in respect of borrowings (details of which are provided in note J and the Group consolidated financial statements, note 53) and loans owed to subsidiaries. Loans owed to subsidiaries were within agreed credit terms as at the balance sheet date.
All of the Company’s long-term external borrowings are at fixed rates of interest and are therefore not exposed to changes in these rates. However, for short term commercial paper, the Company is affected by changes in these rates to the extent the redemption of these borrowings is funded by the issuance of new commercial paper or other borrowings. Further details of the Company’s borrowings are provided in note J and the Group consolidated financial statements, note 53.
N – Risk management continued Interest rate risk continued The effect of a 100 basis point increase/decrease in interest rates on floating rate loans due to and from subsidiaries and on refinancing short term commercial paper as it matures would be a decrease/increase in profit before tax of £104 million (2018: decrease/increase of £104 million). The net asset value of the Company’s financial resources is not materially affected by fluctuations in interest rates.
Currency risk The Company’s direct subsidiaries are exposed to foreign currency risk arising from fluctuations in exchange rates during the course of providing insurance and asset management services around the world. The exposure of the subsidiaries to currency risk is considered from a Group perspective in the Group consolidated financial statements, note 60(c)(v).
Liquidity risk 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 Company’s main sources of liquidity are liquid assets held within the Company and its subsidiary Aviva Group Holdings Limited, and dividends received from the Group’s insurance and asset management businesses. Sources of liquidity in normal markets also include a variety of short and long-term instruments including commercial papers and medium and long-term debt. In addition to the existing liquid resources and expected inflows, the Company maintains significant undrawn committed borrowing facilities from a range of leading international banks to further mitigate this risk.
Loans to and from subsidiaries are made on normal arm’s-length commercial terms. The maturity analysis of the related party loans is as follows: (i) Loans owed by subsidiaries
The interest received on these loans is £92 million (2018: £92 million). See note A.
On 1 January 2013, Aviva International Holdings Limited, an indirect subsidiary, transferred an unsecured loan with the Company of €250 million to Aviva Group Holdings Limited, its direct subsidiary. The loan, originally entered into on 7 May 2003, accrues interest at a fixed rate of 5.5% with settlement to be paid at maturity in May 2033. As at the statement of financial position date, the total amount drawn down on the facility was £212 million (2018: £224 million).
On 27 June 2016, the Company provided an unsecured loan of C$446 million to Aviva Group Holdings Limited, its subsidiary, with a maturity date of 27 June 2046. The loan accrues interest at 348 basis points above 6 month CDOR. As at the statement of financial position date, the total amount drawn was £259 million (2018: £256 million).
On 30 September 2016, the Company provided the following loans to Aviva Group Holdings Limited, its subsidiary: • An unsecured loan of €850 million with a maturity date of 30 September 2021. The loan accrues interest at 115 basis points above 12 month EURIBOR with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn was £661 million (2018: £700 million).
• An unsecured loan of €700 million with a maturity date of 3 July 2024. The loan accrues interest at a fixed rate of 1.64% with settlement to be paid at maturity. As at the statement of financial position date, the total amount drawn down on the facility was £593 million (2018: £628 million).
The interest paid on these loans is £212 million (2018: £194 million). See note C.
Income earned relates to dividends. The Company incurred expenses in the year of £0.5 million (2018: £0.5 million) representing audit fees paid by the Company on behalf of subsidiaries. The Company did not recharge subsidiaries for these expenses.
The related parties’ receivables are not secured and no guarantees were received in respect thereof. The receivables will be settled in accordance with normal credit terms.
Expenses incurred relates to operating expenses. All the Company’s operating cash requirements are met by subsidiary companies and settled through intercompany loans.
Key management The directors and key management of the Company are considered to be the same as for the Group. Information on both the Company and Group key management compensation can be found in note 63.
The APMs utilised by Aviva may not be the same as those used by other insurers and may change over time.
At our capital markets day in November 2019, we announced new financial targets focussed on economic value, to measure our progress in meeting our key strategic initiatives. Consequently, we have introduced four APMs in 2019, that are based on Solvency II: • Solvency II return on equity (ROE) ‡ • Operating own funds generation • Solvency II net asset value (NAV) per share‡ • Solvency II debt leverage ratio
The Group adjusted operating profit APM has been amended and now includes amortisation and impairment of internally generated intangible assets to provide more relevant information by better reflecting their operational nature. 2018 comparatives have been restated. For consistency with the change in Group adjusted operating profit, the combined operating ratio, operating earnings per share, operating expenses and IFRS return on equity have also been amended.
Furthermore, controllable costs is a new APM in 2019, based on operating expenses adjusted to exclude premium related costs such as premium based taxes, fees and levies that vary directly with premium volumes.
‡ denotes APMs which are key performance indicators. # denotes key performance indicators used as a base to determine or modify remuneration.
Group adjusted operating profit for the non-life insurance business is based on expected investment returns on financial investments backing shareholder funds over the period. Expected investment returns are calculated for equities and properties by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the long-term rate of return. This rate of return is the same as that applied for the long-term business expected returns. The long-term return for other investments (including debt securities) is the actual income receivable for the period. Actual income and long-term investment return both contain the amortisation of the discounts/premium arising on the acquisition of fixed income securities.
In 2019, the Group adjusted operating profit APM has been amended and now includes amortisation and impairment of internally generated intangible assets to provide more relevant information by better reflecting their operational nature. These assets include advisor platforms, digital distribution channels and claims and policy administration systems which are used to support operational activities. Comparative amounts have been restated resulting in a reduction in the prior year Group adjusted operating profit of £112 million. Amortisation and impairment of intangible assets acquired in business combinations will continue to be excluded from the Group adjusted operating profit as these relate to merger and acquisition activity.
In addition, integration and restructuring costs are now included in Group adjusted operating profit. There is no impact on 2018 comparative figures.
Other items These items are, in the Directors’ view, required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group’s financial performance. Other items at 2019 comprise: • A charge of £45 million relating to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note 44(b)). Consistent with the presentation of the change in the Ogden discount rate in 2016 and 2018, this is disclosed outside of Group adjusted operating profit; and
• A charge of £2 million relating to the negative goodwill which arose on the acquisition of Friends First in 2018, which is excluded from Group adjusted operating profit for consistency with the treatment of impairment of goodwill.
Adjusted for the following: Investment return variances and economic assumption changes on long-term business 654 (197) Short-term fluctuation in return on investments on non long-term business 167 (476) Economic assumption changes on general insurance and health business (54) 1 Impairment of goodwill, associates and joint ventures and other amounts expensed (15) (13) Amortisation and impairment of intangibles acquired in business combinations (87) (97) Amortisation and impairment of acquired value of inforce business (406) (426) (Loss)/profit on the disposal and re-measurement of subsidiaries, joint ventures and associates (22) 102 Other (47) 231
Combined operating ratio (COR)‡ A financial measure of general insurance underwriting profitability calculated as total underwriting costs in our insurance entities expressed as a percentage of net earned premiums. A COR below 100% indicates profitable underwriting.
In 2018 and 2019, the COR does not include the impact of any changes in the discount rate used for estimating lump sum payments in settlement of bodily injury claims.
Incurred claims – GI & Health (as per note 5)2 (6,620) (6,400) Adjusted for the following: Incurred claims – Health 651 633 Change in discount rate assumptions 54 — Impact of change in the discount rate used in settlement of bodily injury claims 45 (190) Total Incurred claims (included in COR)3 (5,870) (5,957)
(as per note 5)4 (3,321) (3,188) Adjusted for the following: Amortisation and impairment of intangibles acquired in business combinations 19 31
Net earned premiums – GI & Health (as per note 5) 10,015 9,887 Adjusted for: Net earned premiums – Health (895) (857) Net earned premiums (included in COR)6 9,120 9,030
2 Corresponds to the sum of claims and benefits paid, net of recoveries from reinsurers and the change in insurance liabilities, net of reinsurance per note 5.
3 Includes £(6) million (2018: £1 million) relating to incurred claims for Aviva Re. 4 Commission and expenses consists of fee and commission expense and other operating expenses included within the general insurance & health segmental income statement (per note 5) adjusted to an earned basis and to remove the health business.
Claims ratio A financial measure of the performance of our general insurance business which is calculated as incurred claims expressed as a percentage of net earned premiums, which can be derived from the COR table above.
Operating earnings per share (EPS)‡# Operating EPS is calculated based on the Group adjusted operating profit attributable to ordinary shareholders net of tax, deducting non-controlling interests, preference dividends and the direct capital instrument (DCI) and tier 1 note coupons divided by the weighted average number of ordinary shares in issue, after deducting treasury shares. Operating EPS is considered meaningful to stakeholders because it enhances the understanding of the Group’s operating performance over time by adjusting for the effects of non-operating items.
A reconciliation between operating EPS and basic EPS can be found in note 15.
Following the change in the definition of Group adjusted operating profit, operating expenses has been amended to include the amortisation and impairment of internally generated intangible assets to better reflect their operational nature. Comparative amounts have been restated resulting in an increase in prior year operating expenses of £112 million. Amortisation and impairment of intangible assets acquired in business combinations will continue to be excluded from operating expenses as these relate to merger and acquisition activity.
Operating expenses include indirect acquisition costs, such as underwriting overheads, and claims handling costs. These are considered to be controllable by the operating segments and are therefore also included in controllable costs.
Operating expenses exclude other amounts that, in management’s view, are not representative of underlying day-to-day expenses involved in running the business, and that would distort the year on year operating expenses trend, including historical product governance costs and GI instalment income. In 2019 other costs includes an additional £175 million product governance provision in our UK Life business relating to past communications to a specific sub-set of pension policyholders that may not have adequately informed them of switching options into with-profits funds that were available to them (see note 51).
Other costs in 2018 included movements in provisions set aside in respect of ongoing regulatory compliance as well as an increase of £175 million product governance provision relating to a historical issue over pension arrangement sales by Friends Provident (of which over 90% of cases related to pre-2002).
IFRS Return on Equity (RoE) The IFRS RoE calculation is based on Group adjusted operating profit after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders’ equity (excluding non-controlling interests, preference share capital and direct capital instrument and tier 1 notes).
Following the change in the definition of the Group adjusted operating profit APM in 2019, IFRS RoE has been amended and the 2018 comparative amount has been restated resulting in a reduction in the prior year from 13.3% to 12.8%.
Assets Under Management (AUM) and Assets Under Administration (AUA) AUM represent all assets managed or administered by or on behalf of the Group, including those assets managed by Aviva Investors and by third parties. AUM include managed assets that are reported within the Group’s statement of financial position and those assets belonging to external clients outside the Aviva Group which are therefore not included in the Group’s statement of financial position.
Consistent with previous years, Aviva Investors AUA comprises AUM plus £36 billion (2018: £29 billion) of assets managed by third parties on platforms administered by Aviva Investors.
A reconciliation of amounts appearing in the Group’s statement of financial position to AUM is shown below: Restated1 2018 £bn
Assets managed on behalf of Group companies Assets included in statement of financial position2 Financial investments 351 327 Investment properties 11 11 Loans 39 36 Cash and cash equivalents 20 17 Other 1 1
Assets managed on behalf of third parties4 Aviva Investors 67 64 UK Platform5 29 23 Other 9 9
APMs derived from Solvency II measures The Solvency II regime requires insurers to hold own funds in excess of the Solvency Capital Requirement (SCR). Own funds are available capital resources determined under Solvency II. This includes the excess of assets over liabilities in the Solvency II balance sheet, calculated on best estimate, market consistent assumptions and include transitional measures on technical provisions (TMTP), subordinated liabilities that qualify as capital under Solvency II, and off-balance sheet own funds.
Total Group equity on an IFRS basis 18,685 18,455 Elimination of goodwill and other intangible assets1 (8,424) (7,828) Insurance assets and liabilities valuation differences (net of transitional deductions)2 19,564 19,293 Inclusion of risk margin (net of transitional deductions) (3,122) (3,256) Net deferred tax on valuation differences3 (1,220) (1,149) Revaluation of subordinated liabilities4 (716) (649) Other accounting differences4 (99) (286) Estimated Solvency II net assets (gross of non-controlling interests) 24,668 24,580
Difference between Solvency II net assets and own funds5 3,679 2,987
Estimated Solvency II regulatory own funds6 28,347 27,567 1 Includes £1,855 million (2018: £1,872 million) of goodwill and £6,569 million (2018: £5,956 million) of other intangible assets comprising acquired value of in-force business of £2,479 million (2018: £2,916 million), deferred acquisition costs (net of deferred income) of £3,221 million (2018: £2,858 million) and other intangibles of £869 million (2018: £182 million).
3 Net deferred tax includes the tax effect of all other reconciling items in the table above which are shown gross of tax.
5 Regulatory adjustments to bridge from Solvency II net assets to own funds include recognition of subordinated debt capital, non-controlling interests and adjustments for ring-fenced funds restrictions.
Solvency II shareholder cover ratio‡ The estimated Solvency II shareholder cover ratio, which is derived from own funds divided by the SCR using a ‘shareholder view’, is one of the indicators of the Group’s balance sheet strength. The shareholder view is considered by management to be more representative of the shareholders’ risk-exposure and the Group’s ability to cover the SCR with eligible own funds and aligns with management’s approach to dynamically manage its capital position. In arriving at the shareholder position, the following adjustments are typically made to the regulatory Solvency II position: • The contribution to the Group’s SCR and own funds of the most material fully ring fenced with-profits funds and staff pension schemes in surplus are excluded. These exclusions have no impact on Solvency II surplus as these funds are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised.
• A notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP resets. This presentation avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The 31 December 2019 position is based on a formal reset of the TMTP, in line with the requirement to reset the TMTP at least every two years and hence no adjustment is required. The TMTP is amortised on a straight-line basis over 16 years from 1 January 2016 in line with the Solvency II rules.
• reflect a gross of tax and non-controlling interests basis, include the impact of ‘look through profits’ in service companies (where not included in Solvency II) and reflect the difference between locally applicable capital requirements for the smaller Asian markets (Indonesia, Vietnam, Hong Kong) and the value of new business on an adjusted Solvency II basis.
A reconciliation between VNB and the Solvency II own funds impact of new business is provided below: Europe £m
Businesses which are not in the scope of Solvency II own funds (138) (1) (19) (158)
Tax and Other1 (100) (171) (68) (339) Solvency II own funds impact of new business (net of tax and non20181 Restated UK £m
Solvency II own funds impact of new business (net of tax and non1 Other includes the impact of ‘look through profits’ in service companies (where not included in Solvency II) of £(78) million (2018: £(63) million), the reduction in value when moving to a net of non-controlling interests basis of £(57) million (2018: £(81) million) and the difference between locally applicable capital requirements for the smaller Asian markets (Indonesia, Vietnam, Hong Kong) and the value of new business on an adjusted Solvency II basis of £(37) million (2018 restated: £(46) million).
The methodology underlying the calculation of VNB remains unchanged from the prior year. For 2018, new business written contributed to the calculation of the UK Life’s transitional measures (in line with the clarification issued by the PRA in 2017), but this is no longer applicable to the Group in 2019.
VNB is calculated using economic assumptions as at the point of sale, taken as those appropriate to the start of each quarter. For contracts that are repriced more frequently, weekly or monthly economic assumptions have been used. The economic assumptions follow Solvency II rules for risk-free rates, volatility adjustment and matching adjustment. The operating assumptions are consistent with the Solvency II balance sheet, when these assumptions are updated, the year-to-date VNB will capture the impact of the assumption change on all business sold that year.
Present value of new business premiums 45,665 40,763 Investment sales 4,621 4,799 General insurance and health net written premiums 10,224 9,968 Long-term health and collectives business (3,563) (3,840) Total sales 56,947 51,690 Effect of capitalisation factor on regular premium longterm business1 (15,294) (12,726) JVs and associates2 (286) (257) Annualisation impact of regular premium long-term business3 (327) (247) Deposits4 (10,917) (10,329) Investment sales5 (4,621) (4,799) IFRS gross written premiums from existing long-term business6 5,057 4,776 Long-term insurance and savings business premiums ceded to reinsurers (2,879) (1,775)
Analysed as: Long-term insurance and savings net written premiums 17,456 16,365 General insurance and health net written premiums 10,224 9,968 27,680 26,333 1 Discounted value of regular premiums expected to be received over the term of the new contract, adjusted for expected levels of persistency. 2 Total long-term new business sales include our share of sales from joint ventures and associates. Under IFRS, premiums from these sales are excluded. 3 The impact of annualisation is removed in order to reconcile the non-GAAP new business sales to IFRS
Operating capital generation (OCG)‡# OCG measures the amount of Solvency II capital the Group generates from operating activities and incorporates an expected return on investments supporting the life and non-life insurance businesses. The Group considers this measure meaningful to stakeholders as it enhances the understanding of the Group’s operating performance over time by separately identifying non-operating items. The calculation of OCG is consistent with previous periods.
OCG includes the effect of variances in experience for non-economic items, such as mortality, persistency and expenses, the effect of changes in non-economic assumptions (for example, longevity), model changes that are non-economic in nature and the impact of capital actions, for example, strategic changes in asset mix including changes in hedging exposure. Consistent with the Group adjusted operating profit APM, OCG is determined on start of period economic assumptions and therefore excludes economic variances and economic assumption changes.
Operating own funds generation from non-life 431 299 Other own funds generation1 944 497 Group debt costs (284) (298)
Solvency II operating SCR impact 2 1,176 Solvency II OCG 2,259 3,198 1 Other includes the impact of capital actions and non-economic assumption changes.
Operating capital generation 2,022 1,176 3,198 Non-operating capital generation (777) (231) (1,008) Dividends1 (1,166) — (1,166) Share buy-back (600) — (600) Hybrid debt repayments (875) — (875) Acquired/divested business 210 (8) 202
Estimated Solvency II shareholder surplus at 31 December 1 Dividends includes £17 million (2018: £17 million) of Aviva plc preference dividends and £21 million (2018: £21 million) of General Accident plc preference dividends.
Solvency II Return on Equity (RoE)‡ Solvency II ROE is calculated as: • Operating own funds generation less preference dividends, direct capital instrument (DCI) and tier 1 note coupons divided by; • Opening value of unrestricted tier 1 shareholder own funds
Unrestricted regulatory tier 1 own funds 20,377 19,312 Restricted Tier 1 1,839 2,096 Tier 2 5,794 5,811 Tier 31 337 348
Unrestricted regulatory tier 1 own funds 20,377 19,312 Adjustments for: Fully ring-fenced with-profit funds (2,501) (2,634) Staff pension schemes in surplus (1,181) (1,142) Notional reset of TMTP — (127) Pro forma adjustments 1 (117) (113) Unrestricted shareholder tier 1 own funds 16,579 15,296 1 The 31 December 2019 Solvency II position includes two pro forma adjustments that relate to the disposal of
Solvency II operating own funds generation 2,257 2,022 Less preference share dividends (38) (38) Less DCI and tier 1 note coupons (34) (36) 2,185 1,948 Opening Unrestricted tier 1 shareholder Solvency II
The Solvency II NAV per share is shown below: Unrestricted tier 1 shareholder Solvency II own funds (£m) 16,579 15,296 Number of shares in issue at 31 December (in millions) 3,921 3,902
Total Solvency II debt 9,182 9,525 Estimated Solvency II regulatory own funds, senior debt and commercial paper 29,637 28,931 Solvency II debt leverage 31% 33%
IFRS sub-ordinated debt 6,206 6,340 Revaluation of subordinated liabilities 716 649 Other movements 20 (10) Solvency II subordinated debt 6,942 6,979
Preference share capital, deferred capital instrument and tier 1 notes 950 1,181
Operating expense ratio The operating expense ratio expresses expenses as a percentage of operating income.
Operating income is calculated as Group adjusted operating profit before Group debt costs and operating expenses.
Other key dates: Annual General Meeting 1:30pm on 26 May 2020 2020 interim results announcement 6 August 2020 * Please note that the ADR local payment date will be approximately four business days after the proposed dividend date for ordinary shares. ** These dates are provisional and subject to change
• The Dividend Reinvestment Plan enables eligible shareholders to reinvest their cash dividend in additional Aviva ordinary shares.
Annual General Meeting (AGM) The 2020 AGM will be held at The Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE, on Tuesday, 26 May 2020, at 1.30pm.
Aviva plc Strategic report The Strategic report sets out a review of Aviva’s business, addressing key issues such as its business model, strategy and principal risks and uncertainties facing the business. The Strategic report forms part of the annual report and accounts. However, shareholders can also elect to receive Aviva’s standalone Strategic report as an alternative to the full annual report and accounts by contacting Computershare using the contact details below.
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Aviva undertakes no obligation to update the forward looking statements in this announcement or any other forward-looking statements we may make. Forward-looking statements in this report are current only as of the date on which such statements are made.