So how was 2020 for you? Well for Aviva, it has been dramatic, but amid everything we have lived up to our purpose, helped our customers, and reset the right strategy for the business. And now is the time to deliver on that strategy, so that the market can finally recognise what our customers already know: that to be there for the things that matter most, to build a better future for people and communities, to set the highest standards and lead the sector, it takes Aviva.
We introduced a mid-life MOT for employees to help those in the middle of their careers consider and plan for their wealth, work and well-being needs. We also launched new support and training around domestic abuse helping employees to identify the signs and offer best practice responses and guidance to customers and colleagues.
Our businesses in continental Europe and Asia are being managed for long term shareholder value. During 2020, we completed the disposals of Friends Provident International Limited, our majority shareholding in Aviva Singapore, and our share in joint ventures in Indonesia and Hong Kong.
Growth in UK public electric vehicle charging points 2015 – 2020 466% Source: UK Department for Transport, February 2021
Since 1696, we have been there for our customers when it really matters. We are here to help them make the most of life and know that if things go wrong, we will be with them to put it right. Our purpose inspires us to do the right thing. It reflects that we are deeply invested in our customers, our communities, our people, our shareholders and our planet.
We will transform performance by making it easier for our customers to engage with us, capitalising on the Aviva brand, simplifying, digitising and automating the business and driving targeted growth. We believe that doing this will deliver greater customer trust, engagement and retention, in addition to improved cost efficiency and business agility. Ultimately this should then result in profitable growth and sustainable value creation for our shareholders.
Our skills We have a wide range and blend of technical skills: • Customer service; • Underwriting; • Risk management; • Claims management; • Digital innovation; • Data Science; and • Asset and liability management.
(where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts. 3 This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the ‘Other information’ section of the Annual Report and Accounts.
VNB1 increased by 3% to £1,260 million (2019: £1,224 million), mainly driven by strong growth in Bulk Purchase Annuity VNB1 in the UK.
COVID-19 affected customer activity and the broader economic environment. Despite this our Core markets proved their underlying strength. Our people continued to serve our customers very well, demonstrating the importance of our long-term relationships with our customers and distributors. At the same time, we were able to launch new products and manage risks through our prudent and disciplined approach to trading across underwriting and investing. The pandemic also clearly accelerated the pre-existing trend toward digital services, reinforcing our belief that we must be a leading digital insurer and that this will be a key competitive advantage in future.
Savings & Retirement Net flows1 increased by 14% to £8.5 billion (2019: £7.5 billion) with higher net flows1 across Workplace and our Platform business. Adjusted operating profit2 increased to £119 million (2019: £88 million) driven by higher revenues driven from an increased asset base, with assets under management (AUM)1 up 13% over 2020 to £128 billion (2019: £113 billion).
Protection & Health Sales2 were in line with prior year at £2.4 billion (2019: £2.4 billion) as record sales2 of group protection, up 38% to £0.7 billion, were offset by a reduction in individual protection sales2. VNB4 from Protection & Health was stable at £167 million (2019: £168 million). Adjusted operating profit5 was 6% lower at £189 million (2019: £201 million) as competition impacted both margin and volumes in individual protection, partly offset by an improvement in group protection which benefited from improved claims experience.
(where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts. 5 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other
Manage-for-value markets Our businesses in continental Europe and Asia delivered adjusted operating profit3 of £1,311 million (2019: £1,150 million), up 14%4. Solvency II OCG5 decreased to £172 million (2019: £867 million) while Solvency II return on capital5 fell to 6.2% (2019: 11.4%) impacted by a correction of a mis-applied rule in French Life model and the low interest rate environment.
New business Present value of new business premiums (PVNBP)1 29,258 29,159 Value of new business on an adjusted Solvency II basis
Group debt costs and other interest for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group’s operating profit. In addition, comparative amounts for Solvency II operating capital generation of £69 million for the year ended 31 December 2019 have been restated. The change has no impact on the Group’s Solvency II operating capital generation.
In 2020, the business delivered the fourth and fifth key deliverables in its Integrated Product Launch Programme, offering the best of both Aviva and Friends First Life Assurance Company to customers and intermediaries.
We are proud not only of the scale of the financial and wider support that our protection products provide, but the care and speed with which claims are managed. In 2019 we paid out 98.6% of life insurance claims equating to £582 million.
The Irish Life business holds a strong position in the intermediated retail market and has plans in place to continue to challenge for leadership in protection lines while focusing on the simplification of our business, making it easier for intermediaries to interact with Aviva.
The Consumer Insurance Contracts Act was enacted in Ireland, with the requirements to be implemented by September 2021. This represents a significant change for Irish insurers but will improve customer trust and transparency levels.
In line with Aviva’s ESG strategy, we have continued to grow our Renewables book and support our commercial customers with transitioning to more sustainable ways of working.
(where possible), can be found in the ‘Other Information’ section of the Annual Report and Accounts. 2 Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group to supplement the required disclosures under IFRS. Please refer to note B in the ‘Accounting Policies’ section and to the ‘Other
In 2021, we announced the disposals of our entire business in France, our joint venture in Turkey and our remaining Life and General Insurance businesses in Italy. Please see note 4(f) for further information. We confirm that we are exploring strategic options for our businesses in Poland and our other international joint ventures.
We have achieved important improvements to our customer segmentation analysis capabilities, which has enhanced our ability to design products that better meet customers’ and distributors’ demand.
We also continue to build on the strength of our distribution relationship with our bancassurance partners and further digitise the sales and claims processes including self-claims in personal accident and the reporting of motor third party liability claims online.
Customer service – Continued service, despite increased absenteeism and childcare commitments, maintained through IT-enabled home-working and increased customer digital interaction.
New risks relating to extensive home-working – We have adapted our processes and controls to address heightened risks including cyber, data loss and occupational health to ensure these remain at an acceptable level.
We actively engage with governments and regulators in the development of public policy and regulation. We do this to understand how public policy may change and to help ensure better outcomes for our customers and the Company. The Group’s multi-channel distribution and product strategy and geographic diversification underpin the Group’s adaptability to public policy risk, and often provides a hedge to the risk. For example, since the end of compulsory annuitisation in the UK, we have compensated for falling sales of individual annuities by increasing sales of other pension products – particularly bulk purchase annuities.
4 Opening restatements allows for adjustments to the estimated position presented in the preliminary announcement and the final position in the SFCR. 5 Dividends includes £17 million of Aviva plc preference dividends and £21 million of General Accident plc preference dividends, and £511 million for the interim dividends in respect of the 2019 and 2020 financial years. 6 The 2019 comparative results have been restated from those previously published due to a change in presentation of segmental information. 7 Following a review of the presentation of intercompany loan interest, comparative amounts for the 12 months ended 31 December 2019 have been amended to reclassify net interest expense from UK & Ireland to Group centre, debt costs and Other of £69 million as a non-operating item. The change has no impact on the Group’s Solvency II OCG.
UK & Ireland Life3,4 1,007 1,394 UK & Ireland General Insurance3,5 171 273 Canada3,6 131 156 Aviva Investors 50 86
Overview We report here on how our directors have performed their duty under Section 172 (1) (s.172) of the Companies Act 2006. S.172 sets out a series of matters to which the directors must have regard to in performing their duty to promote the success of the Company for the benefit of its shareholders, which includes having regard to other stakeholders. Where this statement draws upon information contained in other sections of the Strategic report, this is signposted accordingly1.
Suppliers We operate in conjunction with a wide range of suppliers to deliver services to our customers. It is vital that we build strong working relationships with our intermediaries.
Communities We recognise the importance of contributing to our communities through volunteering, community investment, and long-term partnerships. As a major insurance company we are fully engaged in building resilience against the global impact of climate change.
• The Board receives regular updates on our Corporate Responsibility activity, including our strategic partnership with the British Red Cross, the Aviva Foundation1 and our wider community investment approach.
As part of our work with the Living Wage Foundation, we have also announced our support for the Living Hours campaign to ensure that workers have sufficient, predictable hours and encourage other companies to do the same.
Our support for human rights We are committed to respecting human rights and doing our best to make a positive impact on society whenever we can. As part of this commitment, we continue to pursue our anti-modern slavery agenda both within the organisation through our operations and supply chain and outside of it through partnerships and collaboration. We continually look for ways to strengthen our approach to addressing human rights. As part of this effort we have refreshed our group-wide human rights policy during 2020 to reflect the most salient human rights issues for our business and stakeholders. We have reflected this commitment in our updated Aviva Business Ethics Code 2020 and our Third Party Business Code of Behaviour, in which we set expectations for third parties and suppliers.
Portfolio Warming Potential – We use a portfolio warming potential metric to assess our shareholder funds’ credit, equity, real estate, green assets and sovereign bond investments alignment with the Paris Agreement target. This warming potential methodology captures Scope 1, 2, 3 emissions4 and a cooling potential element, to capture avoided emissions, based on low carbon patents and revenues as well as company reported decarbonisation targets to provide a forward-looking perspective.
Patricia Cross ▲ Position: Independent Non-Executive Director Nationality: Australian Committee Membership: Remuneration Committee (Chair), Audit Committee, Nomination and Governance Committee Tenure: 7 years 3 months. Appointed to the Board in December 2013 Skills and Experience: Patricia is an experienced company director with over 20 years’ experience of serving on multiple ASX-30 boards including Macquarie Group Ltd and Macquarie Bank Ltd, National Australia Bank, Wesfarmers Ltd, AMP Ltd, and Qantas Airways Ltd. She is the founding Chair of the 30% Club in Australia. Patricia has held several Australian government positions, including with the Financial Sector Advisory Council, Companies and Securities Advisory Committee, Panel of Experts to the Australian Financial Centre Forum and Sydney APEC Business Advisory Council. Patricia has served on a wide range of not-for-profit boards, including the Murdoch Children’s Research Institute, and she was a founding Director of The Grattan Institute. In 2001, Patricia received the Australian Centenary Medal for service to Australian society through the finance industry and was awarded Life Fellowship of the Australian Institute of Company Directors in 2018. Having started her career in the US Government working in foreign affairs, Patricia had a long career in senior executive roles in large international banking and investment management organisations. External Appointments: Chair of the Commonwealth Superannuation Corporation, and Ambassador for the Australian Indigenous Education Foundation.
Throughout the year the Chair held meetings with the Non-Executive Directors without management present. Additionally, Patrick Flynn as SID met with other Non-Executive Directors without the Chair present to discuss any matters which they wished to raise.
Assists the Board in its oversight of risk and risk management across the Group and makes recommendations on risk appetite to the Board. Reviews the effectiveness of the RMF, and the methodology in determining the Group’s capital and liquidity requirements. Ensures that risk management is properly considered in setting remuneration policy. Oversight of conduct risk through reporting from the Customer, Conduct and Reputation Committee (CCRC).
The details of key failings or weaknesses are reported to the Risk and Audit Committee and the Board on a regular basis and are summarised annually to enable them to carry out an effectiveness assessment.
Board composition and diversity • Reviewed the composition of the Board and its committees and whether the Board required additional skills and experience which would complement those of the existing members and the Company’s risk profile and strategy
Committee purpose The main purpose of the Committee is to assist the Board in its oversight of risk within the Group, with a focus on reviewing the Group’s risk appetite and risk profile in relation to capital, liquidity and franchise value and reviewing the effectiveness of the Group’s RMF. The Committee reviews the methodology used in determining the Group’s capital requirements and associated stress testing and ensures that due diligence appraisals are carried out on strategic or significant transactions.
2021 priorities The Committee will continue to monitor the impacts and associated risks as a result of COVID-19, the regulatory landscape and the UK’s exit from the European Union. There will continue to be a focus on strengthening the risk and control environment, including mobilisation of a Risk Improvement Delivery Programme over the next two years.
Belén Romana García Chair of the Risk Committee 3 March 2021
• Recommended the 2020 Risk and Control Goal for approval by the Remuneration Committee
Impact of COVID-19 on the control environment and finance function. The Committee reviewed the impact of COVID-19 on the internal control environment and finance operations. This included reporting on ORCM to ensure operational risks within the Finance function remained within tolerance, and where necessary, agree the reduction or deferral of work in other areas of activity to ensure core financial operations continued.
The Committee reviewed the principles underpinning the Statement for 2020 and concluded that the Company and its subsidiaries will be able to continue in operation and meet their liabilities as they become due. The Committee recommended to the Board the Statement and going concern statement to the Board. More information on these statements can be found in the Other Statutory Information section of the Directors’ and Corporate Governance report. The Committee continues to consider it appropriate that the Statement covers a three-year period. The Committee also considered the additional guidance issued by the FRC in June 2020 on going concern considering the COVID-19 pandemic including the Group’s specific circumstances, current and potential cash resource and access to existing and new financial facilities. At half year 2020 the Committee reviewed the outcome of a series of stress testing exercises undertaken though 2020 taking account of the impact of COVID-19 on markets, Group solvency, business unit remittances and central liquidity.
Jim McConville Chair of the Customer, Conduct and Reputation Committee 3 March 2021
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and parent company financial statements in accordance with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and apply them consistently • make reasonable and prudent judgements and accounting estimates • state whether applicable IFRS adopted pursuant to Regulation (EC)
On behalf of the Remuneration Committee (the Committee), I am pleased to present the Directors’ Remuneration report (DRR), for the year ended 31 December 2020.
Policy review During 2020 the Committee conducted a comprehensive review of the current Policy.
Remuneration outcomes for 2020 While COVID-19 caused disruption and uncertainty for our business, no adjustments to performance metrics were made for any annual bonus or LTIP awards during the year.
As a result, annual bonuses for Amanda and Jason were 120% and 100% of salary respectively.
• We have a structured salary progression for our frontline colleagues, providing incremental salary increases over the first few years in role as individuals develop and gain experience. As well as being a Living Wage employer, this demonstrates our commitment to improving the salaries of the least well-paid people in Aviva
Quality of earnings assessments Throughout the year, the Committee engages in a regular quality of earnings assessment. A quality of earnings assessment sign-off is the final step in determining annual bonus scorecard outcomes, and is performed before vesting is determined against financial metrics under the LTIP.
Discretions The discretions the Committee has in relation to the operation of the ABP and LTIP are set out in the plan rules. In relation to the outcomes under these plans, the Committee has unfettered discretion to adjust upward or downward (including to nil) the mechanical outcome where it considers that: • The outcome does not reflect the underlying financial or nonfinancial performance of the participant or the Group over the relevant period; • The outcome is not appropriate in the context of circumstances that were unexpected or unforeseen at the award date; • There exists any other reason why an adjustment is appropriate; and/or
Other discretions include, but are not limited to, the ability to set additional conditions and the discretion to change or waive those conditions. Such discretions would only be applied in exceptional circumstances, to ensure that awards properly reflect underlying business performance. Any use of the discretions and how they were exercised will be disclosed, where relevant, in the DRR and, where appropriate, be subject to consultation with Aviva’s shareholders.
Provision Policy Period In line with the requirement of the Code, all NEDs, including the Chair, are subject to annual re-election by shareholders at each AGM.
Belén Romana García ✓ ✓ ✓ C 26 June 2015 AGM 2021
Committee membership The members of the Committee are shown below. George Culmer joined the Committee in January 2020 and retired in May following his appointment as Chair of the Board. Patrick Flynn joined the Committee in June 2020.
• Considered and agreed the remuneration packages for the departing and incoming CEOs, and approved associated regulatory disclosures
Additional disclosures in respect of the single total figure of remuneration table Malus and clawback As part of the annual pay review process, the Committee has considered whether any recovery or withholding under the malus and clawback provisions of Aviva’s incentive plans is required by any current circumstances.
Other items of remuneration The EDs have not received any items in the nature of remuneration other than those disclosed in table 1.
2 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information on APMs, including a reconciliation to the financial statements (where possible), can be found in the ‘Other Information’ section within the Annual Report and Accounts.
Quality of earnings assessment – 2020 remuneration decisions The Committee discussed those items that impacted the overall results in 2020 e.g. foreign exchange, acquisitions and disposals, life assumption and modelling changes, prior year reserve development, and other items that are non-recurring in nature. This process provides the Committee with an understanding of the core profitability of the business taking these factors into account.
Solvency II remuneration Remuneration Requirements (PRA PS22/16 & SS10/16) apply to the Aviva Group. Our remuneration structures have been designed in a way so that they are compliant with these requirements for all senior managers across the Group, not just those identified as being specifically covered by the requirements of the regulation. Such employees at Aviva are termed ‘Covered Employees’. We are required to complete a Remuneration Policy Statement, which outlines how we have complied with each of the requirements. This document was approved by the Group Remuneration Committee and submitted to the Prudential Regulatory Authority (PRA).
Audit scope • Our audit scope has been determined to provide coverage of all material financial statement line items. • We have performed audit procedures that have assessed the extent of the impact of COVID-19, in particular on the valuation of insurance contract liabilities, the Group’s ability to continue meeting regulatory solvency capital requirements, and the Group’s financial performance, as well the ability of the Group to continue as a going concern.
In respect of the annuitant mortality assumptions we performed the following: • Tested the methodology used by management to derive the assumptions with reference to relevant rules and actuarial guidance and by applying our industry knowledge and experience. This included evaluating management’s choice of, and fitting to, the CMI base tables and the adoption of the CMI 2019 model and dataset for improvements and the margin for prudence; • Assessed the results of the experience investigations carried out by management for the annuity business to determine whether they provided support for the assumptions used; • Compared the mortality assumptions selected by management against those used by their peers; and
We assessed the calculation of the nonlife insurance liabilities by performing the following procedures: • Understood and tested the governance process in place to determine the insurance contract liabilities, including testing the associated financial reporting control framework; • Tested the underlying data to source documentation on a sample basis; • Using our actuarial specialist team members, applied our industry knowledge and experience and we compared the methodology, models and assumptions used against recognised actuarial practices; • Using our actuarial specialist team members, independently estimated the reserves on selected classes of business, particularly focusing on the largest and most uncertain reserves. For these classes we compared our estimated reserves to those booked by management, and sought to understand any significant differences; • For the remaining classes evaluated the methodology and assumptions applied, or performed a diagnostic check to identify and investigate any anomalies; and
(AI) Discontinued operations Discontinued operations comprise those activities that were disposed of or classified as held for sale at the end of the period and represent a separate major line of business or geographical area that can clearly be distinguished for operational and financial reporting purposes.
Consolidated income statement For the year ended 31 December 2020 £m
Expenses 7 Claims and benefits paid, net of recoveries from reinsurers (21,045) (22,092) Change in insurance liabilities, net of reinsurance 41(b) (6,640) (5,670) Change in investment contract provisions (6,413) (23,878) Change in unallocated divisible surplus (1,528) (3,616) Fee and commission expense (4,161) (3,924) Investment expense attributable to unitholders (579) (1,355) Other expenses (3,037) (3,057) Finance costs 8 (553) (568) (43,956) (64,160)
Group adjusted operating profit before tax attributable to shareholders’ profits from continuing operations 2,849 2,933 Group adjusted operating profit before tax attributable to shareholders’ profits from discontinued operations 312 251
The above reconciliation of group adjusted operating profit to profit for the year should be read in conjunction with the accounting policies and accompanying notes to the financial statements.
Operating segments UK & Ireland Life 1,873 43 — (9) 1,907 General Insurance
Group adjusted operating profit before tax attributable to shareholders’ profits from continuing operations (note 5) 2,933
(ii) General insurance The estimated impact of COVID-19 on the general insurance results in the year is £(17) million, principally reflecting business interruption claims net of reinsurance, which were partly offset by favourable impacts of reduced economic activity in other product lines tempered by higher profit-contingent commission payments to distributors. Further information on the impact of COVID-19 on general insurance liabilities can be found within note 42(c) and note 59(f).
(Loss)/profit on disposal (3) 674 671 Other small disposals (iii) 73
Continuing operations Gross written premiums Long-term: Insurance contracts 13,272 11,633 Participating investment contracts 5,016 7,425
Net investment income 19,330 39,611 Share of profit after tax of joint ventures 9 32 Share of profit after tax of associates 18 62 Share of profit after tax of joint ventures and associates 27 94 Profit on disposal and remeasurement of subsidiaries, joint ventures and associates 12 6
United Kingdom 4.5% 4.9% 3.0% 3.4% France1 4.5% 4.3% 3.5% 2.8% Other Eurozone 3.7% 4.3% 2.2% 2.8% 1 In light of the current unprecedented low interest rates, the expected investment return on equity and property in France have been determined taking into account local economic and market forecasts of the long-term return.
Other Group activities 203 445 208 465 Employees in continuing operations 28,596 29,550 29,079 30,189 Employees in discontinued operations 334 1,631 1,734 1,602
Total employee numbers 28,930 31,181 30,813 31,791 1 Average employee numbers have been calculated using a monthly average that takes into account recruitment, leavers, transfers, acquisitions and disposals of businesses during the year. 2 The 2019 comparative amounts have been restated from those previously published due to the change in presentation of segmental information. See note 1.
Fees payable to BDO LLP and its associates for the statutory audit of Group subsidiaries in Poland 0.4 0.4
Fees payable to PwC LLP and its associates for Group occupational pensions scheme audits 0.1 0.3
Strategic report Governance IFRS financial statements Other information 17 – Goodwill continued (b) Goodwill allocation and impairment testing continued Indefinite life intangible asset France The recoverable amount of the indefinite life intangible asset has been assessed based on the fair value less costs to sell of the cash generating unit to which it relates. The fair value less costs to sell was determined based on the quoted market value of Aviva’s share of the subsidiary to which it relates.
18 – Acquired value of in-force business (AVIF) and intangible assets This note shows the movements in cost, amortisation and impairment of the acquired value of in-force business and intangible assets during the year.
(b) Impairment testing The recoverable amount of property management undertakings is the fair value less costs to sell of the associate, measured in accordance with the Group’s accounting policy for investment property (see accounting policy Q).
Balance at 1 January 385 410 Additions 66 42 Disposals (9) (1) Foreign exchange rate movements 2 (4) Impairment of right-of-use assets (40) — Depreciation (66) (62)
Strategic report Governance IFRS financial statements Other information 23 – Lease assets and liabilities continued There were no gains arising from sale and leaseback transactions during the year. Included within the income statement is £3 million (2019: £2 million) of income in respect of sublets of right-of-use assets. Impairment of right-of-use assets of £40 million arises from the reduction in the Group’s property footprint.
Fixed maturity securities — 216,154 — 199,481 Equity securities — 100,504 — 99,826 Loans 13,217 30,454 9,580 28,980 Receivables 6,510 3,215 5,799 3,265 Cash and cash equivalents 12,932 4,158 15,344 4,960 Accrued income and Interest 277 1,721 272 1,924 Other financial assets 1 51,626 5 51,930
• At 31 December 2019 mortgage loan assumptions included a specific allowance for the possible adverse impacts of the UK’s exit from the European Union on UK commercial and residential property, which have now been removed. Our future property growth assumptions are reviewed on a quarterly basis and as at 31 December 2020 they include a cumulative 5-year growth assumption, from 2021-25, of -1% for UK commercial property (with variation by sector) and 4% for UK residential property.
• Infrastructure and Private Finance Initiative (PFI) loans held by our UK Life business 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.
Sensitivities The valuation of Level 3 assets involves a high degree of judgement and estimation uncertainty due to the reliance of valuation models on unobservable inputs. Where possible, the Group tests the sensitivity of the fair values of Level 3 assets and liabilities to changes in unobservable inputs to reasonable alternatives. Level 3 valuations are sourced from independent third parties when available and, where appropriate, validated against internally-modelled valuations, third-party models or broker quotes. Where third-party pricing sources are unwilling to provide a sensitivity analysis for their valuations, the Group undertakes, where feasible, sensitivity analysis on the following basis: • For third-party valuations validated against internally-modelled valuations using significant unobservable inputs, the sensitivity of the internally-modelled valuation to changes in unobservable inputs to a reasonable alternative is determined. • For third-party valuations either not validated or validated against a third-party model or broker quote, the third-party valuation in its entirety is considered an unobservable input. Sensitivities are determined by flexing inputs of internal models to a reasonable alternative, including the yield, NAV multiple or other suitable valuation multiples of the financial instrument implied by the third-party valuation. For example, for a fixed income security the implied yield would be the rate of return which discounts the security’s contractual cash flows to equal the third-party valuation.
Policy loans 635 — 635 684 — 684 Loans to banks 11,849 — 11,849 8,528 — 8,528 Non-securitised mortgage loans 15 (15) — 12 (12) — Other loans 1,357 (1) 1,356 1,050 (1) 1,049
Securitised mortgage loans (note 25) and loan notes issued 2,391 (1,396) 2,432 (1,457) Other securitisation assets/(liabilities) 300 (1,295) 282 (1,257)
(c) Other interests in unconsolidated structured entities The Group receives management fees and other fees in respect of its asset management businesses. The Group does not sponsor any of the funds or investment vehicles from which it receives fees. Management fees received for investments that the Group manages, but does not have a holding in, also represent an interest in unconsolidated structured entities. As these investments are not held by the Group, the investment risk is borne by the external investors and therefore the Group’s maximum exposure to loss relates to future management fees. The table below shows the assets under management of entities that the Group manages but does not have a holding in and the fees earned from those entities.
No new Aviva plc ordinary shares will be issued to satisfy awards made under plans iv, v, vi, vii b) or vii c).
152,482 149,338 1 Provision arising from liability adequacy tests relates to general insurance business only. Additional liabilities arising from liability adequacy test for life operations, where applicable, are included in unallocated divisible surplus.
For participating insurance liabilities, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes impact profit, these are included in the effect of changes in assumptions and estimates during the year (see note 47), together with the impact of movements in related non-financial assets.
Changes in claims reserve recognised as an expense (note 41(b)) 852 234 Effect of portfolio transfers, acquisitions and disposals1 (72) — Foreign exchange rate movements 101 (138) Other movements — 1
2,305 112 139 165 228 396 816 1,052 1,539 1,949 3,656 12,357 Effect of discounting (160) (1) (1) — — — — — — — — (162) Present value 2,145 111 138 165 228 396 816 1,052 1,539 1,949 3,656 12,195 Cumulative effect of foreign exchange movements — 1 5 7 18 60 (4) (9) (2) 17 — 93 Effect of acquisitions — 5 7 7 15 31 31 — — — — 96 Present value recognised in the
The total valuation allowance in respect of corporate bonds was £1.4 billion (2019: £1.3 billion) over the remaining term of the portfolio at 31 December 2020. The total valuation allowance in respect of mortgages (including healthcare mortgages but excluding equity release) was £0.6 billion at 31 December 2020 (2019: £0.5 billion). The total valuation allowance in respect of equity release mortgages was £1.7 billion at 31 December 2020 (2019: £1.5 billion). Total liabilities for the annuity business were £62.9 billion at 31 December 2020 (2019: £57.6 billion).
The equity volatility used depends on term, moneyness and region. The figure shown is for a sample UK equity, at the money, with a ten-year term.
Carrying amount at 31 December 300 275 1 The movement during 2020 relates to the disposal of the Singapore business.
Strategic report Governance IFRS financial statements Other information 52 – Borrowings continued (b) Core structural borrowings continued (ii) The contractual maturity dates of undiscounted cash flows for these borrowings are: Principal £m Interest £m Total £m Principal £m Interest £m Total £m
Company from In the event the Company does not call the notes, the coupon will reset at each applicable reset date to £700 million 14 Nov 2001 14 Nov 2036 16 Nov 2026 5 year Benchmark Gilt + 2.85% £800 million 29 Sep 2003 Undated 29 Sep 2022 5 year Benchmark Gilt + 2.40% £600 million 20 May 2008 20 May 2058 20 May 2038 3 month LIBOR + 3.26% £162 million 21 May 2009 21 May 2021 N/A N/A £500 million 21 April 2011 21 April 2022 N/A N/A £450 million 26 May 2011 3 June 2041 3 June 2021 6 Month LIBOR + 4.136% €650 million 5 July 2013 5 July 2043 5 July 2023 5 year EUR mid-swaps + 5.13% €700 million 3 July 2014 3 July 2044 3 July 2024 5 year EUR mid-swaps + 3.48% £400 million 4 June 2015 4 June 2050 4 December 2030 3 month LIBOR + 4.022% €900 million 4 June 2015 4 December 2045 4 December 2025 3 month Euribor + 3.55% C$450 million 9 May 2016 10 May 2021 N/A N/A £400 million 12 September 2016 12 September 2049 12 September 2029 3 month LIBOR + 4.721% £500 million 3 June 2020 3 June 2055 3 March 2035 Benchmark Gilt Rate + 4.70% C$450 million 2 October 2020 2 October 2030 N/A N/A
Risk models are an important tool in our measurement of risks and are used to support the monitoring and reporting of the risk profile and in the consideration of the risk management actions available. We carry out a range of stress (where one risk factor, such as equity returns, is assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests to evaluate their impact on the business and the management actions available to respond to the conditions envisaged. For those risk types managed through the holding of capital, being our principal risk types except for liquidity risk, we measure and monitor our risk profile on the basis of the Solvency II SCR.
The Group manages its credit risk at business unit and Group level. All business units are required to implement credit risk management processes (including limits frameworks), operate specific risk management committees, and ensure detailed reporting and monitoring of their exposures against pre-established risk criteria. At Group level, we manage and monitor all exposures across our business units on a consolidated basis, and operate a Group limit framework that must be adhered to by all.
Businesses aim to maintain sufficient assets in local currency to meet local currency liabilities, however movements may impact the value of the Group’s consolidated shareholders’ equity which is expressed in sterling. This aspect of foreign exchange risk is monitored and managed centrally, against pre-determined limits. These exposures are managed by aligning the deployment of regulatory capital by currency with the Group’s regulatory capital requirements by currency. Currency borrowings and derivatives are used to manage exposures within the limits that have been set. Except where the Group has applied net investment hedge accounting (see note 60(a)), foreign exchange gains and losses on foreign currency borrowings are recognised in the income statement, whereas foreign exchange gains and losses arising on consolidation from the translation of assets and liabilities of foreign subsidiaries are recognised in other comprehensive income. At 31 December 2020 and 2019, the Group’s net assets by currency including assets ‘held for sale’ was: Sterling £m Euro £m CAD$
Net asset and profit before tax figures are stated after taking account of the effect of currency hedging activities.
(vii) Correlation risk The Group recognises that lapse behaviour and potential increases in consumer expectations are sensitive to and interdependent with market movements and interest rates. These interdependencies are taken into consideration in the internal capital model and in scenario analysis.
We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, media speculation and negative publicity, disclosure of confidential client information, and inadequate services, whether or not founded, could impact our brands or reputation. Any of our brands or our reputation could also be affected if products or services recommended by us (or any of our intermediaries) do not perform as expected (whether or not the expectations are founded) or customers’ expectations for the product change. We seek to reduce this risk to as low a level as commercially sensible.
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. During 2020, the FCA published their General Insurance Pricing Practices Report. We support the FCA’s intent to bring greater clarity and consistency to consumers across general insurance pricing. This will be a significant area of focus for us over the next 12 months.
Associates 12 (1) — 6 1 — — 4 Joint ventures 27 — — 1 54 — — 4 Employee pension schemes 11 — — 6 9 — — 6
Subsidiaries The principal subsidiaries of the Company at 31 December 2020 are listed below by country of incorporation.
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 2020 are disclosed below.
One Park Place, Hatch Street, Dublin 2 Aviva DB Trustee Company Ireland Designated Activity Company
Pixham End, Dorking, Surrey, RH4 1QA, United Kingdom Aviva Investment Solutions UK Limited
Aviva Investors Investment Funds ICVC Aviva Investors UK Equity Income Fund
Interest payable on borrowings 342 325 Interest payable on group loans held at amortised cost O(ii) 158 212 Total 500 537
Net earned premiums (included in COR) from discontinued operations 12 15
Controllable costs also excludes 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 controllable costs trend such as GI instalment income.
Goodwill (1,805) (1,855) Acquired value of in-force business (1,742) (2,479) Deferred acquisition costs (net of deferred income) (3,154) (3,221) Other intangibles (704) (869)
Businesses which are not in the scope of Solvency II own funds (106) (9) (5) (120)
Total IFRS net written premiums 26,661 27,680 Analysed as: IFRS net written premiums from continuing business 25,377 26,527 IFRS net written premiums from discontinued 26,661 27,680 Analysed as: Long-term insurance and savings net written premiums 16,429 17,456 General insurance and health net written premiums 10,232 10,224 26,661 27,680 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
Group Solvency II shareholder surplus at 1 January 24,548 (11,910) 12,638
For UK general insurance only, capital held for internal risk appetite purposes is used instead of opening shareholder Solvency II own funds. This removes any distortions arising from our general insurance legal entity structure and therefore ensures consistency in measuring performance across markets. This is only applicable to UK general insurance Solvency II return on capital and not to the aggregated Group Solvency II return on capital and Solvency II return on equity measures.
Centre liquidity Centre liquidity comprises cash and liquid assets and represents amounts as at the end of the month preceding preliminary results announcements. It provides meaningful information because it shows the liquidity at the Group centre available to meet debt interest and central costs and to pay dividends to shareholders.