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. Operating profit is presented before and after integration and restructuring costs.
United Kingdom – Life 1,764 1,553 United Kingdom – General Insurance 411 395 Canada 46 270 Europe 1,059 1,019 Asia 191 201 Aviva Investors 201 160 Other Group activities (604) (588)
Integration and restructuring costs decreased to £141 million (2016: £212 million), as a result of lower transformation spend.
Positive variances in the UK are mainly due to economic modelling developments implemented in 2017. These include a one-off development to align the approach to calculating the valuation interest rate across the heritage Aviva and Friends Life portfolios and also a development to the approach to calculating the valuation interest rate for certain deferred annuity business.
Positive variances also reflect fewer than expected defaults and downgrades on corporate bonds, better than expected experience on equity release mortgages (in terms of losses related to no negative equity guarantees) and a reduction in the default allowances for commercial mortgages. The negative variance in France is primarily due to an increase in life annuity pension reserves, resulting from a reduction to the discount rate cap used in the calculation of these reserves. This economic assumption change reflects the current environment of prolonged low interest rates. A further negative variance stems from losses realised in 2017 on derivative-based funds. During 2017 the Group has kept its long-term assumptions for future property prices and rental income under review to allow for the possible future adverse impact of the decision for the UK to leave the European Union. The aim has been to maintain the same allowance in these assumptions in 2017 as was included in 2016, as the impact of the Brexit process on the UK economy remains uncertain.
In 2016, investment variances and economic assumption changes were £379 million positive. Positive variances in the UK
reflected lower interest rates and narrowing credit spreads, which increased asset values more than liabilities. In the first half of 2016 the Group revised its expectation of future property prices and rental income in light of the UK referendum vote for the UK to leave the European Union. The adverse impact of this adjustment on the Group’s equity release and commercial mortgage portfolios was broadly offset in the second half of the year as expectations for future property price and rental growth increased. In addition, in the
UK the investment variance reflected a refined approach of assuming best estimate expected credit defaults on corporate bonds, with a resulting increase in Group adjusted operating profit in the period. The positive variance in the UK was partially offset by negative variances in France and Italy. The negative variance in France reflected losses on equity hedges managed on an economic basis rather than an IFRS basis and falling interest rates, while the negative variance in Italy reflected widening credit spreads.
The Solvency II regime requires insurers to hold own funds in excess of the Solvency Capital Requirement (SCR). The SCR is calculated at Group level using a risk based capital model which is calibrated to reflect the cost of mitigating the risk of insolvency to a 99.5% confidence level over a one year time horizon – equivalent to a 1 in 200 year event – against financial and non-financial shocks. As a number of subsidiaries utilise the standard formula rather than a risk based capital model to assess capital requirements, the overall
The Solvency II Own Funds position is shown inclusive of pro forma adjustments to align it with the capital information presented to management internally. Pro forma adjustments are made when, in the opinion of the Directors, the cover ratio does not fully reflect the effect of transactions or capital actions that are known as at each reporting date. Such adjustments may be required in respect of planned acquisitions and disposals, group reorganisations and adjustments to the Solvency II valuation basis arising from changes to the underlying Regulations or updated interpretations provided by EIOPA.
Solvency II Own Funds is presented below. This information is estimated and is therefore subject to change. The valuation differences reflect moving from IFRS valuations to a Solvency II shareholder view of Own Funds.
Elimination of goodwill and other intangible assets1 (9.8) (10.0) Liability valuation differences (net of transitional
Estimated Solvency II Own Funds6 24.7 24.0 1 Includes £1.9 billion (2016: £2.0 billion) of goodwill and £7.9 billion (2016: £8.0 billion) of other intangible assets comprising acquired value of in-force business of £3.3 billion (2016: £3.9 billion), deferred acquisition costs (net of deferred income) of £2.9 billion (2016: £2.5 billion) and other intangibles of £1.7 billion (2016: 2 Includes the adjustments required to reflect market consistent principles under Solvency II whereby noninsurance assets and liabilities are measured using market value and liabilities arising from insurance contracts are valued on a best estimate basis using market-implied assumptions.
shareholding in Antarius to Sogecap, which completed on 5 April 2017 (£0.1 billion) and an anticipated future change to UK tax rules restricting the tax relief that can be claimed in respect of tax losses (£0.1 billion). However, under the amended tax rules published on 13 July 2017, this restriction will not be material, and as a result no corresponding pro forma impact is included in the estimated 31 December 2017
December 2016 of £0.4 billion. The net pro forma impact on Own Funds arising from disposals of Friends
5 Regulatory adjustments to bridge from Solvency II Net Assets to Own Funds include recognition of subordinated debt capital and non-controlling interests.
6 The estimated Solvency II position represents the shareholder view. It excludes the contribution to Group
A number of key performance metrics relating to Solvency II are utilised to measure and monitor the Group’s performance and financial strength: • The Solvency II cover ratio is an indicator of the Group’s balance sheet strength which is derived from own funds divided by the SCR using a ‘shareholder view’ which excludes the contribution of fully ring fenced with-profits funds and staff pension schemes in surplus. These adjustments have no impact on the Group’s
• The Solvency II value of new business (VNB) represents the increase in own funds arising from business written in the period, with adjustments made to i) include VNB not included in Solvency II (e.g. UK and Asia Healthcare business, retail fund management business and UK Equity Release business) ii) remove the impact of contract boundaries and iii) include a ‘look through’ to the value of profits arising in service companies (which would otherwise be excluded from Solvency II). These adjustments are considered to reflect a more realistic basis than the prudential Solvency II rules. The VNB is derived from the present value of projected pre-tax distributable profits generated by new business plus a risk margin.
The Solvency II position disclosed is based on a ‘shareholder view’.
This excludes the contribution to Group Solvency Capital Requirement (SCR) and Group Own Funds of fully ring fenced withprofits funds (£3.3 billion at 31 December 2017) and staff pension schemes in surplus (£1.5 billion at 31 December 2017). These exclusions have no impact on Solvency II surplus. The most material fully ring fenced with-profits funds and staff pension schemes are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised in the Group position. The shareholder view is therefore considered by management to be more representative of the shareholders’ risk-exposure and the
Aviva’s 50% shareholding in Antarius to Sogecap, which completed on 5 April 2017, and a then anticipated future change to UK tax rules restricting the tax relief that could be claimed in respect of tax losses announced in the Chancellor of the Exchequer’s Autumn statement of 23 November 2016, which has been removed in 2017 following a clarification in the 13 July 2017 Finance Bill.
(2016: £2.9 billion) and staff pension schemes in surplus £1.5 billion (2016: £1.1 billion). These exclusions have no impact on Solvency II surplus.
2 The estimated Solvency II position includes the pro forma impacts of the disposals of Friends Provident
4 The Solvency Capital Requirement above represents the Solvency Capital Requirement after the impact of diversification benefit.
Operating Capital Generation 2.6 3.5 Non-operating Capital Generation (0.3) (1.8) Dividends (1.1) (1.0) Share buy-back (0.3) — Foreign exchange variances 0.1 0.6 Hybrid debt issuance/repayment (0.5) 0.4 Acquired/divested business 0.4 (0.1)
The estimated Solvency II surplus at 31 December 2017 is £12.2 billion, with a shareholder cover ratio of 198%. This is an increase of £0.9 billion compared to the 31 December 2016 surplus. In 2017 the beneficial impacts of Operating Capital Generation, disposals and foreign exchange variances have been partially offset by hybrid debt repayment, share buy-back and the impact of the Aviva plc dividend. The 2017 Operating Capital Generation includes the beneficial impact of the transfer of the Friends Life business into the main UK life insurance fund. The beneficial impact from divested businesses in 2017 includes the disposal of the Spanish joint ventures Unicorp Vida and Caja Espana Vida and its retail life insurance business Aviva Vida y Pensiones. Also included are proforma impacts of the disposals of Friends Provident International
An analysis of the components of Operating Capital Generation, including as a result of new business written in the period (VNB), is presented below: £bn 2016 £bn
Differences due to change in business in scope (0.2) (0.2) Tax & Other1 (0.3) (0.2)
This was primarily driven by growth of new business in the UK, Europe and Asia.
Regulation Authority (PRA) in 2017, new business written from 1 January 2016 is now reflected in the calculation of UK Life’s transitional measures. This increased the adjusted Solvency II VNB (and Solvency II Own Funds impact of new business and Solvency II
A financial measurement of general insurance underwriting profitability calculated as total underwriting costs (as detailed below) expressed as a percentage of net earned premiums. A COR
below 100% indicates profitable underwriting. A reconciliation of the Group COR to amounts appearing in the financial statements is shown below together with an explanation of material reconciling items, where appropriate.
An exceptional charge of £475 million was included in 2016 underwriting costs as a result of the change in the Ogden discount rate from 2.5% set in 2001 to minus 0.75% in line with the announcement made by the Lord Chancellor on 27 February 2017. This charge was excluded from this APM as it was considered that the change made was one-off in nature and did not reflect the Group’s underlying performance i.e. it would distort the trend in the
Strategic report Governance IFRS financial statements Other information 5. Net asset value (NAV) per share
Net asset value (NAV) per share is calculated as the equity attributable to shareholders of Aviva plc, less preference share capital (both within the consolidated statement of financial position), divided by the actual number of shares in issue as at the balance sheet date. NAV is used to monitor the value generated by the Company in terms of the equity shareholders face value per share investment and enables comparability.
Equity attributable to shareholders of Aviva plc 17,169 17,003 Preference share capital (200) (200)
Net asset value per share 423p 414p 6. Operating earnings per share (EPS)
Non-controlling interests (134) (147) Preference dividends (17) (17) Direct capital instrument and tier 1 notes1 (65) (68)
The day-to-day expenses involved in running the business are classified as operating expenses and forms part of the disclosures within note 6 of annual report and accounts.
Other expenses (per note 6) 3,481 3,279 Amortisation and impairment (per note 6) (671) (708) Other acquisition cost (per note 6)1 892 846 Claims handling costs2 330 290 Integration & restructuring costs (per note 6) (141) (212) Less other costs3 (113) (87)
1 Other acquisition cost excluding £66 million acquisition costs relating to commission on non-participating investment contracts 2 Claims handling costs includes £322 million (2016: £289 million) of claims handling expenses as included in the claims and benefits paid, net of recoveries from reinsurers and £8 million relating to the change in claims handling provision included in the change in insurance liabilities, net of reinsurance as per note 6 of the Annual report and accounts.
3 Other costs represent a reallocation of expenses to adjusting items based on management’s assessment of on going maintenance of business units and includes movements in provisions set aside in respect of ongoing regulatory compliance (included in note 47 – Pension deficits and other provisions)
The operating 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).
Single European Payment Area to elect to receive their dividends or interest payments in a choice of over 60 international currencies • The Dividend Reinvestment Plan enables eligible shareholders to reinvest their cash dividend in additional Aviva ordinary shares
You can find further details regarding these payment options at www.aviva.com/dividends and register your choice by contacting
Annual General Meeting (AGM) The 2018 AGM will be held at The Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE, on Wednesday, 10 May 2018, at 11am. Details of each resolution to be considered at the meeting and voting instructions are provided in the Notice of AGM, which is available on the Company’s website at www.aviva.com/agm. The voting results of the 2018 AGM will be accessible on the Company’s website at www.aviva.com/agm shortly after the meeting.
Shareholder contacts: Ordinary and preference shares – Contact: For any queries regarding your shareholding, please contact Computershare: • By Telephone: 0371 495 0105 We are open Monday to Friday, 8.30am to 5.30pm UK time, excluding public holidays. Please call +44 117 378 8361 if calling from outside of the UK
• By Email: AvivaSHARES@computershare.co.uk • In Writing: Computershare Investor Services PLC, The Pavilions,
We are open Monday to Friday, 8.30am to 6pm US Eastern Standard Time, excluding public holidays. Please call +1 781 575 4555 if calling from outside of the US • By Email: Citibank@shareholders-online.com
Shareholders may contact the Group Company Secretary: • By Email: Aviva.shareholders@aviva.com • In Writing: Kirstine Cooper, Group Company Secretary, St
Helen’s, 1 Undershaft, London, EC3P 3DQ • By Telephone: +44 (0)20 7283 2000
Regulatory News Service (RNS). This announcement contains, and we may make other verbal or written ‘forward-looking statements’ with respect to certain of Aviva’s plans and current goals and expectations relating to future financial condition, performance, results, strategic initiatives and objectives. Statements containing the words ‘believes’, ‘intends’,
The cover of this report is printed on Cocoon Silk 100 and the text on Cocoon Preprint, made from 100% genuine de-inked post consumer waste and is FSC® certified. This report was printed using vegetable oil based inks by Pureprint Group a CarbonNeutral® printer certified to ISO 14001 environmental management system and registered to EMAS the Eco Management Audit Scheme.