Momentum for Change award in recognition of a decade of work in reducing the environmental impact of our business and helping inspire action on climate change. More information can be found in the ‘Corporate Responsibility’ sections of this report.
• We also announced the sale of Spanish joint ventures Unicorp Vida,
NPS® is our measure of customer advocacy and we use it to measures the likelihood of a customer recommending Aviva in ten of our markets1. Our relationship NPS® survey shows three years of sustained high levels of customer advocacy, but this year’s scores have marked a decline. We are working hard to boost customers loyalty by making things simple for customers and putting them in control, for example with the launch of our simplified home insurance proposition.
Our strategic framework focuses on the things that really matter and puts the customer at the heart of what we do: • True Customer Composite • Digital First
Our aim is for our people to achieve their potential within a diverse, collaborative and customer-focussed organisation.
Customer Composite means meeting all these needs individually or in tailored combinations in a convenient, easy to understand and timely manner. True Customer Composite also means valuing and rewarding customers for making the choice to have a deeper, more loyal relationship with us.
In 2018, Aviva will offer more proactive ways for people to manage their health, wealth and safety – giving them the confidence to be ready for life’s opportunities as well as its challenges.
We fail fast and learn fast, testing and learning at pace. We embrace digital. We are dissatisfied with the way things are done now. We challenge ourselves to learn about the cutting edge and harness it. We get it done at pace.
Investment in people remains an area of focus for us. In 2017, we: • Developed a three year people strategy. This defines and sets direction for a simpler, global approach, identifying, assessing and developing our talent to mobilise their potential
Headspace for mindfulness practice, an enhanced sickness policy and income protection scheme, key focus on nutrition and we also provide additional support via our essentials products for both physio and cancer. In 2017 we launched our new Carers Policy in the UK which offers paid time off for carers and we are shortly launching a new fitness proposition for all our people. 2018 will also see a higher focus on financial education.
Our legacy business of mature savings products maintained adjusted operating profit1 at £331 million (2016: £332 million). AUM2 in the legacy portfolio remained stable, with positive investment markets offsetting net fund outflows as policies matured. We continue to expect adjusted operating profit1 from the legacy business to decline gradually over the medium term.
markets, with the Markets in Financial Instruments Directive (MiFID), the Insurance Distribution Directive (IDD) and the General Data
• We will drive simplicity across our operating model for example moving all savings products to a single platform to enable us to serve our customers simply through whichever channel they choose, whether they are employees of a group pension scheme, advised clients or direct customers. • We will continue to lead the industry on the big customer issues by implementing what they’ve told us: simplifying our products and customer experience, increasing transparency and launching disruptive solutions to market. We will meet our customers’ needs in ways that are easier and more convenient for them.
(RBC GI) and through affinity partnerships such as Maple Leaf Sports Entertainment.
3 Following the launch of UK insurance which brings UK Life, UK General Insurance and UK Health into a combined business, the Ireland Life and General Insurance businesses have been aligned to the new management structure and reported within Europe. As a result, comparative balances have been restated. This realignment was not implemented for cash remitted to Group, as this metric is managed at a legal entity level and Ireland constitutes a branch of the United Kingdom business.
France is a mature and stable market with an improved growth outlook and strengthened business confidence as a result of pro-business reforms led by the new government. Operational and financial highlights in 2017 include: • Improved the customer experience by making it easier for our direct customers to do business with us and offering a composite set of products in our SME space. • Completed the sale of our shareholding in Antarius to Crédit du Nord in April 2017. • Excluding the Antarius disposal, delivered adjusted operating profit1,4 of £507 million (2016: £422 million).
Operational and financial highlights in 2017 include: • Introduced innovative products and launched MyAviva, an online customer self-service platform, leveraging group capabilities.
The uncertainty of Brexit remains a challenge for the asset management industry. Aviva Investors already has a significant presence in France, Luxembourg and Warsaw and have been looking at all outcomes.
Risks specific to asset management should generally be reduced to as low a level as is commercially sensible, on the basis that taking-on these risks will rarely provide us with an upside.
• Procurement and Outsourcing Standard (covering requirements from suppliers regarding human rights and wider corporate responsibility issues).
Committee to focus further on his role as SID, and Keith Williams assumed this role as the Chair of the Audit Committee and also joined the Risk Committee. Claudia Arney was appointed as
We support the target for women to represent a minimum of 33% of Boards, and a minimum of 33% of Executive Committee members and direct reports, by 2020. As at the date of this report our percentage of women on the Board has increased from 23% in 2016 to 25% in 2017. The percentage of female representation on our Group Executive has fallen from 36% in 2016 to 30% in 2017, due to Monique Shivanandan leaving the Group. Future appointments to the Board and Group Executive will be made in line with our Global Inclusive Diversity Strategy, which is described in the Directors’ and Corporate Governance report.
Skills and Experience: Mark is a dynamic leader with extensive experience of leading major insurance companies. This included
Skills and Experience: Andy is the CEO of UK Insurance and is responsible for all Aviva’s insurance businesses in the UK. Previously
Formerly a senior partner at McKinsey & Company, Michael focussed on developing strategies for retail and financial services companies, which alongside his governmental experience at the
Aviva and is a trusted advisor to the Board. As a qualified solicitor
Company Secretary. The Terms of Reference list both matters that are specifically reserved for decision by our Board and those matters that must be reported to it. The Board delegates clearly defined responsibilities to various committees and reports from the
As at the date of this report the Board comprised of the Chairman, four Executive Directors and seven Independent Non-Executive
Sir Malcolm Williamson retired on 10 May 2017, after serving two years on the Board. Bob Stein also retired on 10 May 2017, after serving four years on the Board.
3 Maurice Tulloch was appointed as an Executive Director on 20 June 2017.
The Board decided to conduct an external evaluation a year earlier than required by the Code in 2017, following changes to the Board during the course of the year. The external evaluation was facilitated by Independent Board Evaluation (IBE). IBE is an external Board evaluation facilitator which has no other connection with Aviva.
Company’s major shareholders during 2017. At these meetings a range of issues are discussed including strategy, financial performance, management, remuneration and governance, within the constraints of information already made public, to understand any issues of concern. In November 2017, we held a Capital Markets
We actively support women advancing into senior roles, as evidenced by our participation in initiatives such as the Future
• Considered specific steps to be taken in relation to diversity in
• Reviewed regular updates on the performance of the Group’s investment portfolios and on the external economic environment, and assessed the implications on the Group’s asset portfolio
• Assessed the performance of all Group Business Units against the 2017 Group Risk and Control Goal
Profit’ APM to ‘Group Adjusted Operating Profit’, have been applied in this annual report. The CRRT subsequently confirmed in writing that it had closed its enquiries.
Committee as a whole has competence relevant to both the insurance and financial services industry.
The significant issues that the Committee considered during the year are set out in the table below.
In line with the Company’s policy for the external audit contract to be put out to tender at least every ten years, and in conformance with European rules on mandatory audit rotation, the Committee propose that a competitive tender process will next be completed no later than for the 2022 year end. While there is no requirement to rotate audit firms until the current auditor has served a maximum of 20 years, in determining the timing of a tender process the
Following review of the questionnaire responses received and consideration of the AQRT report, the Committee concluded that
PwC continued to perform effectively and is recommended to shareholders for reappointment at the 2018 AGM.
The Committee has worked with management to enhance how we measure customer and brand metrics and to develop a dashboard to help us better meet the vision of a business that is simple, effortless and easy for our customers to deal with. In addition to these enhancements, the Committee has conducted
Aviva is committed to being a responsible corporate citizen and the Committee sets the guidance, direction and policies for the Group’s corporate responsibility agenda. Further information on our integrated responsibility and sustainable business approach can be found on the Company’s website at www.aviva.com/social-purpose
The Compliance Effectiveness and Data Governance MCITs closed in July 2017 and the Committee receives regular reports from the Compliance function which now provides second line oversight of data governance. The MCITs are also detailed in the
Related party transactions are disclosed in note 59 which is incorporated into this report by reference.
Details of shares purchased, held or disposed by employee share plan trusts on behalf of the Company in 2017 are set out in
During the year, 57,724,500 ordinary shares were cancelled following repurchase by the Company as outlined above, and 8,867,985 ordinary shares were allotted to satisfy amounts under the Group’s employee share and incentive plans. At 31 December
• issued ordinary share capital totalled 4,012,682,691 shares of 25 pence each (83% of total share capital)
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 a period of at least 12 months from the date of approval of the financial statements. For this reason, they continue to adopt, and to consider appropriate, the going concern basis in preparing the financial statements.
remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Our decision around LTIP metrics has involved the most focus and detailed consultation with shareholders during our engagement on the Policy. We've listened carefully to shareholders' input and we believe the proposal, detailed below, balances some fairly divergent shareholder views while having strong alignment to our announced strategy and plans.
EPS is a key metric. For the 2018 LTIP, 50% of the award will be linked to Operating EPS1 growth and quality of earnings ambition we shared with our shareholders at our Capital Markets Day.
January 2018 along with details of actions we are taking to drive change and bridge the gap. The report can be found at www.aviva.com/gpgr
Large & Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
Performance is assessed against a range of relevant financial, employee, customer and risk targets designed to incentivise the achievement of our strategy, as well as individual strategic objectives as set by the Committee.
Committee, taking into account the circumstances of the individual’s departure, but would typically include planned retirement, or their departure on ill health grounds. In circumstances where good leaver status has been granted, awards may still be subject to malus and clawback in the event that inappropriate conduct of the ED is subsequently discovered post departure. If good leaver status is not granted, all outstanding awards will lapse.
When determining the 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 their respective locations. It reviews changes in overall bonus pool funding and long-term incentive grants. The Committee considers feedback on pay matters from sources including the employee opinion survey and employee forums. The Committee also takes into account information provided by the people function and external advisers and from 2018, the Committee Chair has commenced a programme of consultation and meetings with employees to discuss remuneration.
Board duties. Further fees are paid for membership and, where appropriate, chairing Board committees.
This section of the report sets out how Aviva has implemented its
The Group General Counsel and Company Secretary acted as secretary to the Committee. The Chair 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.
remuneration in relation to his performance in 2016 and against both a FTSE 50 and a financial services peer group.
• Approved vesting of the 2014 LTIP and noted the interim testing for 2015 and 2016 awards.
HMRC tax-advantaged SAYE plan, and for Andy the UK HMRC tax-advantaged (share incentive plan) All Employee Share Ownership Plan (AESOP), in which they participate on the same basis as all eligible employees. All numbers disclosed include the tax charged on the benefits, where applicable.
Employee engagement is up one percentage point to 75% after significant improvements for France and Singapore and a four percentage point increase for UK Customer teams. 85%
Insurance in 2017, and his key deliveries included: • Achieving double digit operating profit2 growth across France,
• Strengthened market leadership in Italy and Canada, demonstrating the strength of talent in our businesses by making new internal appointments to the roles of CEO in Canada and in
Maurice Tulloch 27 Mar 2017 LTIP 225% £1,516,282 20% 100% 31 Dec 2019 27 Mar 2022 27 Mar 2017 ABP 67% £453,489 N/A 27 Mar 2020 1 The ABP and LTIP awards have been granted as share awards. LTIP is a conditional right to receive shares based on a three-year performance period, with an additional two-year holding period. ABP represents the portion of the 2016 bonus deferred into shares for three years. AESOP includes partnership, matching and dividend share awards which vest after three years. Further details are provided at tables 17 and 19.
(excluding pension scheme net surplus/deficit) attributable to the ordinary shareholders of the Company.
Table 15 summarises the Group CEO single figure for total remuneration, annual bonus pay-out and LTIP vesting as a percentage of maximum opportunity over this period.
Details of the EDs who were in office for any part of the 2017 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 19. EDs are eligible to participate in the Company’s broad based employee share plans on the same basis as other eligible employees. Details of awards and options granted to EDs under these plans are also included in tables 5, 9 and 17 (and SAYE options are included in table 19). More information around HMRC tax-advantaged plans can also be found in note 31.
Tom Stoddard LTIP3, 4 2014 310,582 — 142,7477 182,312 — 564.50 525.50 Mar-17 2015 269,281 — — — 269,281 535.00 — Mar-18 2016 313,144 — — — 313,144 475.20 — Mar-19 2017 — 295,153 — — 295,153 523.00 — Mar-20 ABP 2015 62,228 — — — 62,228 535.00 — Mar-18 2016 120,618 — — — 120,618 475.20 — Mar-19 2017 — 118,061 — — 118,061 523.00 — Mar-20 Aviva CFO Award 2014 98,232 — 113,0597 — — 564.50 538.50 Jul 15 – Jul 17
Directors’ Remuneration Policy1 97.46% 2.54% 2,379,508,415 61,947,024 82,821,178 Directors’ Remuneration Report 97.70% 2.30% 2,783,050,269 65,392,949 2,480,449 1 Voting on Remuneration Policy at 2015 AGM.
3 2018 LTIP Comparator Group: Aegon, Allianz, Assicurazioni Generali, Axa, CNP Assurances, Direct Line Group, Legal & General, Lloyds Banking Group, Old Mutual, Phoenix, Prudential, RSA, Standard Life Aberdeen, Zurich Insurance.
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company. Other than those disclosed in Note 12 to the consolidated financial statements, we have provided no non-audit services to the Group or the Company in the period from 1 January 2017 to 31 December 2017.
• Overall Group materiality: £147 million (2016: £140 million), based on 5% of Group adjusted operating profit before tax attributable to shareholders’ profits after the deduction of integration and restructuring costs. • Overall Company materiality: £56 million (2016: £69 million), based on 5% of profit before tax from continuing operations.
• We identified a further two components, Aviva Investors and Poland Life, where specific account balances were considered to be significant in size in relation to the Group, and scoped our audit to include detailed testing of those account balances.
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
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £30 million and £120 million. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £5 million (Group audit) (2016: £5 million) and £2.8 million (Company audit) (2016: £3.45 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or
Translation differences on debt securities and other monetary financial assets measured at fair value and designated as held at fair value through profit or loss (FVTPL) (see accounting policy T) are included in foreign exchange gains and losses in the income statement. For monetary financial assets designated as AFS, translation differences are calculated as if they were carried at amortised cost and so are recognised in the income statement, while foreign exchange differences arising from fair value gains and losses are recognised in other comprehensive income and included in the investment valuation reserve within equity. Translation differences on non-monetary items, such as equities which are designated as FVTPL, are reported as part of the fair value gain or loss, whereas such differences on AFS equities are included in the investment valuation reserve.
(X) Deferred acquisition costs and other assets Costs relating to the acquisition of new business for insurance and participating investment contracts are deferred in line with existing local accounting practices, to the extent that they are expected to be recovered out of future margins in revenues on these contracts. For participating contracts written in the UK, acquisition costs are generally not deferred as the liability for these contracts is calculated on a realistic basis which was grandfathered from UK
Consolidated income statement For the year ended 31 December 2017 £m
Tax on Group adjusted operating profit 14a(i) (639) (706) Tax on other activities 14a(i) 282 372
Wealthify. The investment is part of Aviva’s strategy to build customer loyalty by providing customers with a wide range of insurance and investment services all managed through the convenience and simplicity of Aviva's digital hub, MyAviva. The transaction completed on 8
On 13 November 2017, Aviva announced that it has reached an agreement to acquire Irish insurer Friends First Life Assurance Company dac
Investment return on centrally held assets and head office expenses, such as Group treasury and finance functions, together with certain taxes and financing costs arising on central borrowings are included in ‘Other Group activities’, along with central core structural borrowings and certain tax balances in the segmental statement of financial position. The results of our internal reinsurance operations are also included in this segment, as are the elimination entries for certain inter-segment transactions.
Total finance costs 683 626 8 – Long-term business economic volatility The long-term nature of much of the Group’s operations means that, for management’s decision-making and internal performance management, the effects of short-term economic volatility are treated as adjusting items. The Group focuses instead on a Group adjusted operating profit measure that incorporates an expected return on investments supporting its long-term business, as described below.
Strategic report Governance IFRS financial statements Other information 14 – Earnings per share This note shows how we calculate earnings per share on profit attributable to ordinary shareholders, based both on the present shares in issue (the basic earnings per share) and the potential future shares in issue, including conversion of share options granted to employees
(ii) Diluted earnings per share on Group adjusted operating profit attributable to ordinary shareholders is calculated as follows: Total £m
Diluted Group adjusted operating profit per share 2,213 4,089 54.1 2,072 4,089 50.7 15 – Dividends and appropriations This note analyses the total dividends and other appropriations we paid during the year. The table below does not include the final dividend proposed after the year end because it is not accrued in these financial statements.
As a result of the announced sale of the Group’s entire shareholding in FPI, the recoverable amount of FPI within the wider Asian cash generating unit was determined based on the agreed consideration less costs to sell. This indicated an impairment of goodwill and AVIF
Group’s Spanish business (see note 3(b)(iii)).Disposals in 2016 primarily comprise the derecognition of exhausted assets which are fully amortised or impaired with nil carrying value.
Share of results after tax — 96 — 96 — 178 — 178 Amortisation of intangibles1 (7) — — (7) (8) — — (8) Loss on remeasurement of joint venture — (7) — (7) — — — —
Strategic report Governance IFRS financial statements Other information 18 – Interests in, and loans to, joint ventures continued (ii) The carrying amount at 31 December comprised: Goodwill and intangibles £m
There were no changes in the valuation techniques during the year compared to those described in the 2016 annual consolidated financial statements.
Financial liabilities measured at fair value Non-participating investment contracts1 (note 41 (a)) 116,123 209 — 116,332 — 116,332 Net asset value attributable to unit holders 18,314 — 13 18,327 — 18,327 Borrowings (note 49 (a)) — — 1,180 1,180 9,106 10,286 Derivative liabilities (note 57 (b)) 521 4,872 358 5,751 — 5,751
Financial liabilities of operations classified as held for sale 5,346 26 3,306 8,678 — 8,678 1 In addition to the balances in this table, included within Reinsurance assets in the Statement of financial position and note 43 are £6,094 million of non-participating investment contracts, which are legally reinsurance but do not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments measured at fair value through profit and loss and are classified as Level 1 assets.
Financial liabilities of operations classified as held for sale — 4 — 4 — 4 1 Following a review of the Group’s investment classifications, comparative amounts in respect of unit trusts and other investment vehicles and equity and debt securities have been amended from those previously reported.
Total net gains/(losses) recognised in other comprehensive income — — — — — — — — — —
• Commercial mortgage loans and Primary Healthcare loans held by our UK Life business amounting to £12.2 billion (2016: £11.2 billion), are valued using a Portfolio Credit Risk Model. This model calculates a Credit Risk Adjusted Value for each loan. The risk adjusted cash flows are discounted using a yield curve, taking into account the term dependent gilt yield curve and global assumptions for the liquidity premium. Loans valued using this model have been classified as Level 3 as the liquidity premium is deemed to be non-market observable. The liquidity premium used in the discount rate ranges between 75 bps to 245 bps. • Equity release mortgage loans held by our UK Life business amounting to £9.3 billion (2016: £8.0 billion) are valued using risk-adjusted cash flows for defaults discounted at a risk-free rate plus a market-determined liquidity premium. Inputs to the model include primarily property growth rates, mortality and morbidity assumptions, cost of capital and liquidity premium which are not deemed to be market observable. The liquidity premium used in the discount rate during the reporting period ranges from 195 bps to 250 bps. • Infrastructure and Private Finance Initiative (PFI) loans held by our UK Life business amounting to £1.8 billion (2016: £1.1 billion) are valued using a discounted cash flow model. This adds spreads for credit and illiquidity to a risk-free discount rate. Credit spreads used in the discount rate are calculated using an internally developed methodology which depends on the credit rating of each loan, credit spreads on publicly traded bonds and an estimated recovery rate in event of default and are deemed to be unobservable. • Non-recourse loans of £0.6 billion (2016: £0.6 billion) have been valued using internally developed discounted cash flow models incorporating a significant number of modelling assumptions and unobservable market data including a probability of default and illiquidity premium.
• Financial assets of operations classified as held for sale are held by our Asia business and consist primarily of discretionary managed funds of £1.6 billion (2016: £1.7 billion included within Other investments) and debt securities which are not traded in an active market and have been valued using third party or counterparty valuations of £0.4 billion (2016: £0.2 billion included within Debt securities).
Policy loans 1 792 793 1 881 882 Loans to banks 554 1,970 2,524 569 2,010 2,579 Healthcare, infrastructure & PFI other loans 3,563 — 3,563 2,460 — 2,460 UK securitised mortgage loans (see note 24)1 2,463 — 2,463 2,424 — 2,424 Non-securitised mortgage loans1 17,817 — 17,817 15,829 1 15,830 Loans to brokers and other intermediaries — 180 180 — 170 170 Other loans — 523 523 — 514 514
At 1 January (7) (6) Increase during the year (2) (1)
All the shares in the ERF companies are held by independent companies, whose shares are held on trust. Although AER does not own, directly or indirectly, any of the share capital of the ERF companies or their parent companies, it has control of the securitisation companies, and they have therefore been treated as subsidiaries in the consolidated financial statements. AER has no right to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where AER is in breach of warranty or loans are substituted in order to effect a further advance. AER has purchased subordinated notes and granted subordinated loans to some of the ERF companies. In addition, Group companies have invested £231 million (2016: £217 million) in loan notes issued by the ERF companies. These have been eliminated on consolidation through offset against the borrowings of the ERF companies in the consolidated statement of financial position.
Structured debt securities2 — — 3,058 — 3,058 — — 3,923 — 3,923 Other investments and equity securities 820 326 47,609 — 48,755 1,146 305 44,856 — 46,307
Financial investments comprise: At fair value through profit or loss At fair value through profit or loss
In carrying on its bulk purchase annuity business, the Group’s UK Life operation is required to place certain investments in trust on behalf of the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its payment obligations in respect of policyholder benefits. At 31 December 2017, £2,402 million (2016: £1,777 million) of financial investments were restricted in this way.
At 31 December 2017, the Group’s total government (non-UK) debt securities stood at £52.7 billion (2016: £53.9 billion). The significant majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds.
28 – Deferred acquisition costs, pension surpluses, other assets, prepayments and accrued income (a) Deferred acquisition costs and other assets – carrying amount
No interest will accrue on any deferred coupon on the DCI. Interest will accrue on deferred coupons on the STICS at the then current rate of interest on the STICS.
The Group underwrites long-term business in a number of countries as follows: • In the UK, in Aviva Life & Pensions UK (UKLAP) mainly in: New With-Profits Sub-Fund (NWPSF) where the with-profits policyholders are entitled to at least 90% of the distributed profits, with the shareholders receiving the balance. Any surplus or deficit emerging in NWPSF that is not distributed as bonus will be transferred from this sub-fund to the Reattributed Inherited Estate External Support Account (RIEESA) (see below). Old With-Profits Sub-Fund (OWPSF), UKLAP With-Profits Sub-Fund (UKLAP WPSF) and Provident Mutual Sub-Fund (PMSF) of UKLAP, where the with-profits policyholders are entitled to at least 90% of the distributed profits, with the shareholders receiving the balance. The FP With-Profits Sub-Fund (FP WPSF), which was formally closed to new business during 2017 and where shareholders are entitled to 10% of the distributed profits, plus 60% of the surplus arising on pre-demutualisation non-profit and unitised business and noninvestment sources of surplus on policies held by post-demutualisation policyholders. The Friends Provident demutualisation occurred in 2001. The FLC New With-Profits Sub-Fund (FLC New WPSF), the FLC Old With-Profits Sub-Fund (FLC Old WPSF), the WL With-Profits Sub-Fund
Income Protection1 Active lives 1.0% to 2.5% 1.0 to 2.6% Claims in payment (level and index linked) 1.0% to 1.5% (0.2)% to 1.6%
Strategic report Governance IFRS financial statements Other information 40 – Insurance liabilities continued Mortality assumptions for non-profit business are set with regard to recent Company experience and general industry trends. The mortality tables used in the valuation are summarised below: Mortality tables used 2017 2016
(c) General insurance and health liabilities (i) Provisions for outstanding claims
Changes in claims reserve recognised as an expense (note 40a(ii)) 73 867 Effect of portfolio transfers, acquisitions and disposals 3 430 Foreign exchange rate movements 16 966
Before the effect of reinsurance, the loss development table is: Accident year
After the effect of reinsurance, the loss development table is: Accident year
Carrying amount at 31 December 4,980 4,766 1 The £46 million in respect of 2017 relates to the full consolidation of the Poland Joint Venture. The £124 million in respect of 2016 relates to the acquisition of Royal Bank of Canada General Insurance Company.
Changes in reinsurance asset recognised as income 5 (19) Reinsurers’ share of portfolio transfers and acquisitions — (38) Foreign exchange rate movements 2 18 Other movements — —
In 2016 there was a release of annuitant reserves in the UK following a review of recent experience (including the exposure to antiselection risk) of £130 million, the adoption of the CMI 2015 mortality improvement assumptions of £153 million and other less significant movements of £11 million. In the general insurance and health business, an adverse impact of £7 million (2016: £242 million adverse) mainly arises as a result of a slight decrease in the estimated future inflation rate used to value periodic payment orders, offset by a slight decrease in the interest rates used to discount claim reserves for periodic payment orders and latent claims. During 2016 market interest rates used to discount periodic payment orders and latent claims reduced and the estimated future inflation rate used to value periodic payment orders was increased to be consistent with market expectations. This was, in part, offset by a change in estimate for the interest rate used to discount periodic payment orders to allow for the illiquid nature of these liabilities.
Change in participating fund assets 406 4,977 Change in participating fund liabilities (710) (4,596) Other movements 10 —
Of the total restructuring and other provisions, £182 million (2016: £188 million) is expected to be settled more than one year after the statement of financial position date.
Bonds Fixed interest 6,925 408 163 7,496 7,085 249 151 7,485 Index-linked 11,744 292 — 12,036 11,469 157 — 11,626
Ireland 89% PNA00 with allowance for future improvements 61 88.4 91.7 91.3 94.5 (27.4) (30.7) (30.3) (33.5)
The assumptions above are based on commonly used mortality tables. The tables make allowance for observed variations in such factors as age, gender, pension amount, salary and postcode-based lifestyle group, and have been adjusted to reflect recent research into mortality experience. However, the extent of future improvements in longevity is subject to considerable uncertainty and judgement is required in setting this assumption. In ASPS, which is the most material to the Group, the allowance for mortality improvement is per the actuarial profession’s ‘CMI_2016 (S=7.5) Advanced with adjustments’ model (2016: CMI 2015 model), with assumed long-term rates of improvement of 1.75% p.a. for males (2016: 1.75% p.a.), and 1.50% p.a. for females (2016: 1.50% p.a.). The CMI 2016 tables have been adjusted to reflect the socio-economic profile of the pension scheme membership relative to the general population (on which CMI 2016 is based). These adjustments are in line with those adopted in respect of the UK Life annuitant population (see note 40 for details) and reflect the similar socio-economic profiles of the pension scheme membership and the annuitant population. The projections also use the advanced parameters to taper the long term improvement rates to zero between ages 90 and 115 (the ‘core’ parameters taper the long term improvement rates to zero between ages 85 and 110) in line with the approach adopted for the UK Life annuitant population (see note 40 for details).
Strategic report Governance IFRS financial statements Other information 48 – Pension obligations continued (c) Defined contribution (money purchase) section of the ASPS
(b) The UK long-term business entered into a financial reassurance agreement with Swiss Re in 2008, under which up-front payments are received from Swiss Re in return for 90% of future surpluses arising. The loan will be repaid as profits emerge on the business.
Provident International Limited and the Italian joint venture Avipop Assicurazioni S.p.A, which is £nil. The 31 December 2016 Solvency II Own Funds position includes the pro forma impacts of £0.1 billion in relation to the disposal of
The decrease in the capital employed is primarily driven by the decrease in direct capital instrument & tier 1 notes as a result of the redemption of the Group’s $650 million tier 1 notes in full at the first call date on 3 November 2017 and the decrease in non-controlling interests mainly resulting from the sale of Antarius in April 2017 and Spanish operations in September 2017 (see note 3(b)(i) and (iii)).
Solvency II is the Europe-wide prudential regulatory framework that came into force on 1 January 2016 and put in place a consistent solvency framework for insurers across Europe. This capital regime requires insurers to calculate regulatory capital adequacy at both individual regulated subsidiaries and an aggregate Group level. Non-EEA entities have been included in Group solvency in line with Solvency II requirements. Other financial sector entities (including fund management) are included at their proportional share of the capital requirement according to the relevant sectoral values. Solvency II surplus at the Group level represents the excess of the aggregate value of capital employed in our business over the aggregate solvency capital requirements calculated in accordance with Solvency II requirements. The Group maintained capital in excess of the Solvency Capital Requirement (SCR) at all times during 2017. Further information on the Group’s Solvency II position, including details of available capital resources and solvency surplus, determined using the shareholder’s view of Solvency II and including pro forma adjustments, can be found in other information section. This information is estimated and is therefore subject to change. It is also unaudited. In addition, non-EEA businesses including Canada, Hong Kong and Singapore, are subject to the locally applicable capital requirements in the jurisdictions in which they operate. All regulated subsidiaries complied with their capital requirements throughout the year.
As at 31 December 2017 AAA AA A BBB Below BBB Not rated
The majority of non-rated debt securities within shareholder assets are held by our businesses in the UK. Of these securities most are allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to be of investment grade credit quality; these include £2.0 billion (2016: £2.3 billion) of debt securities held in our UK Life business, predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade.
The Group has significant securities financing operations within the UK and smaller operations in some other businesses. The risks within this activity are mitigated by collateralisation and minimum counterparty credit quality requirements.
The following table provides an analysis, by maturity date of the principal, of the carrying value of financial assets which are available to fund the repayment of liabilities as they crystallise. This table excludes assets held for sale.
A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, a change in the underlying assumptions may not have any impact on the liabilities, whereas assets held at market value in the statement of financial position will be affected. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and equity where explicit assumptions are made regarding interest (discount) rates or future inflation. Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that only represent the Group’s view of possible near-term market changes that cannot be predicted with any certainty, and the assumption that all interest rates move in an identical fashion.
Strategic report Governance IFRS financial statements Other information 60 – Organisational structure The following chart shows, in simplified form, the organisational structure of the Group as at 31 December 2017. Aviva plc is the holding company of the Group.
Strategic report Governance IFRS financial statements Other information 60 – Organisational structure continued Italy
Aviva Towarzystwo Ubezpieczen na Zycie SA (90%) Aviva Towarzystwo Ubezpieczen Ogolnych SA (90%)
Uff Rendement Diversifie A FCP 100 242, Rue de Rivoli, 75001, Paris
Société Française de Gestion et d'Investissement Ordinary B Shares 57 39 Rue Saint-Simon , Greenopolis, 69009,
Lvovo g. 25, Vilnius, LT-09320 Uždaroji akcinė gyvybės draudimo ir pensijų bendrovė ‘Aviva Lietuva’ (Joint
Aviva Investors Polish Retail S.à r.l. Ordinary Shares 100 16 rue Jean-Pierre Brasseur, L-1258
NU Local Care Centres (Farnham) Limited Ordinary Shares 100 1020 Eskdale Road, Winnersh,
IFA Network Limited Ordinary Shares 100 1st Floor, 45 Grosvenor Road, St. Albans,
Subordinated debt 6,009 5,916 Senior notes 751 722 Commercial paper 668 642
Total contractual undiscounted cash flows 7,479 8,106 15,585 7,337 8,271 15,608 1 Following a review of the treatment of undated subordinated debt we have reallocated £800 million of such instruments from the 10 to 15 years category to the Over 15 years category. As a result of this change prior year comparatives have been restated.
On 3 September 2013 Aviva Group Holdings Limited, its subsidiary provided and unsecured rolling credit facility of £5,000 million to the Company, accruing interest at 75 basis points above 6 month LIBOR and with maturity date of 3 September 2018. The total amount drawn down on the facility at 31 December 2017 was £3,108 million (2016: £3,108 million). On 3 September 2013 Aviva Group Holdings Limited, its subsidiary provided and unsecured rolling credit facility of €250 million to the
I – Related party transactions continued Dividends, loans, interest continued Services provided by related parties
Short-term fluctuations on non long-term business were £345 million negative (2016: £518 million negative). The adverse movements during 2017 are mainly due to foreign exchange losses and adverse market movements on Group Centre holdings, including the centre hedging programme. In the general insurance and health business, an adverse impact of £7 million (2016: £242 million adverse) mainly arises as a result of a slight decrease in the estimated future inflation rate used to value periodic payment orders offset by a slight decrease in the interest rates used to discount claim reserves for periodic payment orders and latent claims. During 2016 market interest rates used to discount periodic payment orders and latent claims reduced and the estimated future inflation rate used to value periodic payment orders was increased to be consistent with market expectations.
In 2016, other items included a charge of £475 million in respect of the change in the Ogden discount rate. This was excluded from operating profit on the grounds that the change in rate from 2.5% to -0.75% reflects the Lord Chancellor’s view of the development of interest rates in the period since 2001 when the rate was last adjusted. This was reported outside operating profit as it does not reflect the underlying performance of the Group for the year and would distort the trend in Group adjusted operating profit on a year-on-year basis. In 2017 the impact of Ogden was immaterial.
Solvency II position disclosed includes a notional reset of the TMTP to reflect interest rates at 31 December 2016. This presentation is in line with the Group’s approach to manage its capital position assuming a dynamic TMTP in respect of the impact of interest rate movements on the risk margin, as this avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The estimated 31 December 2017 Solvency II position includes an estimated reset of the TMTP in line with the regulatory requirement to reset the TMTP every two years. This TMTP has also been amortised on a straight line basis over 16 years from 1 January 2016 in line with the Solvency II rules. The 31 December 2017 Solvency II position disclosed includes two pro forma adjustments, to reflect known or highly likely events materially affecting the Group’s solvency position post 31 December 2017. The adjustments consist of the disposals of Friends Provident International Limited and the Italian joint venture Avipop
Solvency Capital Requirement (SCR) and Group Own Funds of fully ring fenced with-profits funds £3.3 billion
An analysis of change in respect of the overall Group solvency position, including as a result of Operating Capital Generation, is included below.
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‘expects’, ‘projects’, ‘plans’, ‘will’, ‘seeks’, ‘aims’, ‘may’, ‘could’, ‘outlook’, ‘likely’, ‘target’, ‘goal’, ‘guidance’, ‘trends’, ‘future’,
‘estimates’, ‘potential’ and ‘anticipates’, and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. Aviva believes factors that could cause actual results to differ materially from those indicated in forward-looking statements in the announcement include, but are not limited to: the impact of ongoing difficult conditions in the global financial markets and the economy generally; the impact of simplifying our operating structure and activities; the impact of various local and international political, regulatory and economic conditions; market developments and government actions (including those arising from the referendum on UK membership of the European Union); the effect of credit spread volatility on the net unrealised value of the investment portfolio; the effect of losses due to defaults by counterparties, including potential sovereign debt defaults or restructurings, on the value of our investments; changes in interest rates that may cause policyholders to surrender their contracts, reduce the value of our portfolio and impact our asset and liability matching; the impact of changes in short or long-term inflation; the impact of changes in equity or property prices on our investment portfolio; fluctuations in currency exchange rates; the effect of market fluctuations on the value of options and guarantees embedded in some of our life insurance products and the value of the assets backing their reserves; the amount of allowances and impairments taken on our investments; the effect of adverse capital and credit market conditions on our ability to meet liquidity needs and our access to capital; changes in, or restrictions on, our ability to initiate capital management initiatives; changes in or inaccuracy of assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical downturn of the insurance industry; the impact of natural and man-made catastrophic events on our business activities and results of operations; our reliance on information and technology and thirdparty service providers for our operations and systems; the inability of reinsurers to meet obligations or unavailability of reinsurance coverage; increased competition in the UK and in other countries where we have significant operations; regulatory approval of extension of use of the Group’s internal model for calculation of regulatory capital under the European Union’s Solvency II rules; the impact of actual experience differing from estimates used in valuing and amortising deferred acquisition costs (DAC) and acquired value of in-force business (AVIF); the impact of recognising an impairment of our goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment securities; the effect of legal proceedings and regulatory investigations; the impact of operational risks, including inadequate or failed internal and external processes, systems and human error or from external events (including cyber attack); risks associated with arrangements with third parties, including joint ventures; our reliance on third-party distribution channels to deliver our products; funding risks associated with our participation in defined benefit staff pension schemes; the failure to attract or retain the necessary key personnel; the effect of systems errors or regulatory changes on the calculation of unit prices or deduction of charges for our unit-linked products that may require retrospective compensation to our customers; the effect of fluctuations in share price as a result of general market conditions or otherwise; the effect of simplifying our operating structure and activities; the effect of a decline in any of our ratings by rating agencies on our standing among customers, broker-dealers, agents, wholesalers and other distributors of our products and services; changes to our brand and reputation; changes in government regulations or tax laws in jurisdictions where we conduct business, including decreased demand for annuities in the UK due to changes in UK law; the inability to protect our intellectual property; the effect of undisclosed liabilities, integration issues and other risks associated with our acquisitions; and the timing/regulatory approval impact, integration risk and other uncertainties, such as non-realisation of expected benefits or diversion of management attention and other resources, relating to announced acquisitions and pending disposals and relating to future acquisitions, combinations or disposals within relevant industries, the policies, decisions and actions of government or regulatory authorities in the