It is traditional for the Chairman to close his statement by formally thanking employees. This year, however, I think it’s more appropriate to begin by saying that our strong results for 2009 are due to the extraordinary efforts made by the executive team and our people throughout the Aviva group.
Listen to Andrew discuss our year in our new online review Visit Aviva at www.aviva.com
Regions — Successful rebrand to Aviva in the UK — Integrating 12 of our businesses in Europe — Life assurance portfolio outperforms market in North America — Expanded customer reach in Asia Pacific through new bancassurance deals — Improved investment and earnings performance for Aviva Investors
Like all financial services companies, we have been affected adversely, both by market volatility and understandable customer caution. However, the business has stood up well. This is due, in part, to our global diversity, having both life and general insurance operations and also because of the decisive action we have taken through the strategy put in place two years ago.
This fundamental change in the way we operate means our business is now fit for the future, with improved capacity and productivity. We have reduced our costs by £500 million and Aviva has 19% fewer employees than two years ago.
53 million customers place their business with us. That’s a great responsibility and we will be working harder than ever in 2010 to continue to earn their trust and attract new customers to Aviva.
,0 savings new business sales reflecting the tough economic climate. General and net written premiums insurance and health sales of £9,193 million (2008: from the general insurance and health businesses.£11,137 million) were down 17% reflecting the focus on writing for profit rather than volume.
We have made significant progress in our migration to a single Aviva brand. Having operated as Hibernian Aviva in 2009, we adopted the Aviva name in Ireland at the start of 2010 and we will complete our brand migration programme in June 2010 when we will operate as Aviva in Poland. Recognition of the Aviva brand continues to grow in both markets, with Ireland recording prompted awareness rates in excess of 90%3.
The market environment in the Netherlands remained challenging, with weak asset values constraining activity in the corporate pensions market, before improving in the latter part of the year when Delta Lloyd secured two large group contracts. Total sales in 2009 of £5,492 million were down 18% reflecting the sale of the health business. IFRS operating profit for the year increased 29% to £399 million. These results are discussed in more detail on page 46 of this report.
Committed to building a highgrowth and value-creating region We operate in eight countries across the Asia Pacific region through both joint ventures and wholly-owned operations. India and China, both with large populations and relatively high economic growth, are ‘must-win’ markets capable of generating a significant proportion of our future expansion within Asia. Throughout the rest of the region, our focus is on developing the strength of our bancassurance business with joint venture partners.
Market environment Trading conditions were difficult in 2009. Long-term savings sales were affected by the economic climate as investors turned to low volatility investments such as bank deposits. The industry also experienced an increase in lapses and clients exercising their premium holiday options.
As at 1 January 2010, we have integrated our life, general insurance and health businesses in the UK under one CEO. On 5 January 2010, we announced the acquisition of River Road Asset Management, a US equity manager, to support the expansion of Aviva Investors business.
General insurance and health General insurance and health insurance together accounted for 20% of our total sales for the year ended 31 December 2009. In the year ended 31 December 2009, we reported general and health insurance net written premiums of £9.2 billion.
In the year ended 31 December 2009, 47% of our total general insurance and health business was written in the UK.
Performance reviewAviva plc Information on the company continued Corporate responsibilityAnnual Report and Accounts 2009 or profit sharing percentage. Under joint venture agreements, the costs of running the venture are often split between the partners.
Market position Aviva Investors is ranked twenty fourth globally and third based in the UK by assets under management, according to Cerulli Associates’ December 2008 ranking of asset managers by assets under management. Aviva Investors operates under a single brand in 15 countries across our regions of the UK, Europe, North America and Asia Pacific. The other fund management businesses of Aviva comprise our collective investment business with the Royal Bank of Scotland Group in the UK, Delta Lloyd in the Netherlands and our Navigator wrap administration business in Hong Kong and Singapore. Total worldwide funds managed by Aviva managers at 31 December 2009 was £250 billion, the substantial majority of which currently relates to Aviva’s insurance and savings operations.
Our general insurance products include personal motor, home, travel insurance, payment protection, commercial motor, commercial property, and commercial liability insurance. We also offer a range of breakdown cover through the RAC.
Our personal motor insurance product range includes cars, motorcycles and vans. For businesses we offer cover for fleets and commercial vehicles.
Our strategy for Aviva France is to continue the diversification and growth of our business and to maintain our profitability at a high level. We seek to accomplish these goals through our distribution expertise, innovation of products and services, greater communication and brand visibility.
Our strategy is to continue to work with our partners on new products, suited to the current markets, to develop our bancassurance relationships and to expand our customer reach, through customer penetration and expanding our distribution reach.
In the last few years the Italian government has introduced legislation to break the exclusive relationship between general insurance companies and their ‘tied’ agents and therefore widening the availability of general insurance products from different insurers. This has opened up the general insurance marketplace and increased competition from different channels.
Our general insurance business in Italy mainly provides motor and home insurance products to individuals, as well as small commercial risk insurance, including marine, to businesses. For reporting purposes the Italian general insurance business is shown within “Other Europe” in the general insurance segment.
In 2008, we acquired 50% plus one share in UBI Assicurazioni Vita S.p.A. (UBI Vita). UBI Vita distributes life insurance products through Banca Popolare di Ancona and other channels and further expands our distribution capability and customer base.
In 2009 the Polish government agreed further pension legislation changes which restrict the fees that pension fund management companies can charge. This is effective from 1 January 2010.
Market Across these new European markets there are countries at different stages of development. Hungary and Czech Republic are the most developed markets although they still have a gap as compared to Western European markets.
Our Czech Republic business offers individual unit-linked savings, protection insurance, term insurance, other savings products, group life schemes for corporate clients and credit insurance for our own bancassurance partners.
In the Czech Republic, our sales force is made up of over 450 agents operating across 14 branches, with 24 independent distributors and two bancassurance partners.
In April 2008, we entered the South Korean long-term insurance market by acquiring a stake in LIG Insurance Company Ltd through a partnership formed with Woori Finance Holdings Company Ltd Woori Bank is the second largest commercial bank in South Korea by market value. We aim to be a top 10 life insurer by end 2012 by new business premiums.
In our view, the strong outlook for the region is attracting a growing number of new insurers and some existing local insurers are developing wider regional ambitions, resulting in greater competitive pressure throughout the region.
The Group also has interests in several property limited partnerships. Further details are provided in note 18 to the financial statements.
Net earned premiums 32,673 34,642 29,312 27,327 24,859 Fee and commission income 1,789 1,885 1,760 1,870 1,851 Net investment income/(expense) 24,972 (16,043) 9,689 15,908 23,722 Share of (loss)/profit after tax of joint ventures and associates (504) (1,128) (304) 485 340 Profit on the disposal of subsidiaries and associates 153 7 49 222 153
Capital and credit market conditions An important part of our business involves investing client money and policyholders’ and shareholders’ funds across a wide range of financial investments, including equities, fixed income securities and properties. Our results are sensitive to volatility in the market value of these investments, either directly, because we bear some or all of the investment risk or indirectly, because we earn management fees for investments managed on behalf of policyholders. Investment market conditions also affect the demand for a substantial portion of our life insurance products. In general, rising equity price levels have a positive effect on the demand for equity-linked products, such as unit trusts and unitlinked life insurance products and conversely a negative effect on the demand for products offering fixed or guaranteed minimum rates of return. Declining equity price levels tend to have the opposite effects.
Delta Lloyd, at the start of the year, sold its health business for £235 million to OWM CZ Groep Zorgverkeraar UA (CZ). The sale to CZ removed the underwriting risk and administration out of Delta Lloyd whilst continuing to sell health products and also market general insurance and income protection products to CZ’s customers.
Long-term insurance and savings business For most of our life insurance businesses, such as those in the UK, France and the Netherlands, operating earnings are generated principally from our in-force books of business. Our in-force books consist of business written in prior years and on which we continue to generate profits for shareholders. Nevertheless new business written in these markets, with the exception of our UK with-profits business which is discussed below, has a significant direct effect on our operating earnings. Under IFRS, certain costs incurred in acquiring new business must be expensed thereby typically giving rise to a loss in the period of acquisition, though the degree of this effect will depend on the pricing structure of product offerings. In markets where we are experiencing strong growth, such as we have experienced in Spain, Italy, the US and Asia in recent years, current year sales have a more significant effect on current year operating earnings.
— This includes traditional life insurance, annuity business and with profit business – There is an element of insurance risk borne by the group therefore, under IFRS, these are reported within net written premiums.
— Effect of capitalisation factor on regular premium long-term business: PVNBP is derived from the single and regular premiums of the products sold during the financial period and is expressed at the point of sale. The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts. The discounted value of regular premiums is calculated using the market consistent embedded value methodology proposed by the CFO Forum Principles, which we believe will be adopted by all European insurance businesses.
Impairment of goodwill (62) (66) (10) Amortisation and impairment of intangibles (144) (117) (103) Profit on the disposal of subsidiaries and associates 153 7 49 Integration and restructuring costs (286) (326) (153) Exceptional items 45 (551) —
Consolidated results of operations The table below presents our consolidated sales for years ended 31 December 2009, 2008 and 2007.
General insurance and health France 97 107 70 Ireland 57 68 162 Other Europe (22) 45 41
Long-term insurance and savings business in 2008 increased by £498 million or 3% to £17,716 million (2007: £17,256 million). Within this, life and pensions sales increased to £16,952 million from £15,684 million in 2007 as a result of significant sales of the individual regular premium product launched in late 2007 and short-term endowment policies sold through Deutsche Bank in Poland.
Adjusted operating profit Asia long-term insurance and savings business 52 2 (6) Australia long-term insurance and savings business 40 44 37 General insurance and health 6 — 4 Fund management and non-insurance (21) (10) 2
Aviva Asia Pacific’s loss before tax attributable to shareholders’ profit was £68 million in 2008, compared to a profit of £35 million in 2007. The loss in 2008 reflects the impact of adverse economic variances mainly in the long-term insurance and savings businesses.
Year ended 31 December 2009 Aviva Investors’ adjusted operating profit in 2009 was £115 million, in line with 2008. Higher performance fees were earned in 2009, offset by lower average market levels through the year.
Aviva Investor’s profit before tax attributable to shareholders’ profits was £72 million in 2008, a decrease of £57 million, or 44%, from £129 million in 2007. The decrease
The majority of the residential mortgage-backed securities (RMBS) are US investments and over 65% of the total exposure is backed by the US Government-sponsored entities (GSEs) Fannie Mae and Freddie Mac. Under the conservatorship arrangements with the US Government implemented in September 2008, these securities have an implicit guarantee, although they are not expressly backed by the full faith and credit of the US Government. The majority of the remaining US RMBS are backed by fixed-rate loans that originated in 2005 or before.
Excluding the private placements that are rated an average A– by the NAIC, the exposure that is not rated by a major rating agency is less than 3% of total debt securities.
As well as the ongoing monitoring activities the central risk team produces a formal quarterly risk report for the Risk and Regulatory Committee of the board and the various risk oversight committees.
The Financial Services Authority (FSA) requires Aviva to assess its economic capital requirements to ensure that it adequately reflects business and control risks. In turn this analysis supports our strategic planning and decisionmaking processes.
— Fluctuation in the value of our investments in loans, debt and equity securities as well as our holdings of investment properties
— Premium income, dividends from overseas businesses and transactions from currencies other than sterling
— Poorly designed or inadequately priced products — Persistency risk arising from customers lapsing their policies earlier than has been assumed
— Mortality/ morbidity – a 5% worsening in assurance mortality/morbidity experience would reduce shareholder funds by £45 million before tax on an IFRS basis and decrease embedded value by £195 million net of tax on an MCEV basis.
Total contractual obligations above 407,790 Effect of discounting contractual cash flows for insurance contracts (66,092) Contractual undiscounted interest payments6 (12,169) Difference between carrying value of borrowings and undiscounted cash flows of principle (775) Contractual cash flows under operating leases and capital commitments (1,767) Difference between derivative liabilities contractual cash flows and carrying value (444) Liabilities of operations classified as held for sale 33 Non-contractual / short-term obligations — Unallocated divisible surplus7 3,866 — Provisions8 3,980 — Current and deferred tax liabilities 1,230 — Other liabilities 3,653
3. Amounts shown in respect of general insurance contracts are based on undiscounted estimates of future claim payments, including for those classes of business for which discounted provisions are held, see “Financial Statements IFRS – Note 38 – Insurance liabilities”. The timing of cash flows reflects a best estimate of when claims will be settled.
3. The risk capital margin (RCM) is 3.6 times covered by the inherited estate and support arrangement (31 December 2008: 1.8 times).
Performance reviewAviva plc Capital management continued Corporate responsibilityAnnual Report and Accounts 2009
— Extended our reporting of key performance indicators using Accounting for Sustainability’s connected reporting framework
We invested in an online planning tool to help teams record and monitor action plans arising from the survey results. We will share progress on these plans at several stages before the next survey. In 2010 we will produce a global results booklet providing our employees with a clear picture of what we have done well, where we can improve and the steps we will be taking to address their concerns.
Podari Zhizn Our people in Russia volunteered their time and money to support Podari Zhizn, a charity that helps children suffering from terminal illnesses. By funding the charity, instead of subscribing to the tradition of buying gifts for clients during holiday periods, the funds raised to date have provided a new ventilating system of benefit to the children. Aviva Russia has also donated computers to the foundation.
On a like-for-like basis, in 2009, our total carbon emissions fell by 5.2% across our global business, compared to a 6.6% reduction in 2008. Overall, we achieved a group-wide reduction in carbon emissions of 15% (2008: 3.3%). This figure includes energy consumption data from our business in Australia before http:www.avivacommunityfund.org www.payingforit.org.uk
Climate Change — The ClimateWise Statement for Copenhagen — The Corporate Leaders Group Copenhagen Communiqué
Customers With customers’ confidence in financial institutions shaken by the global economic downturn, it was as important as ever before to remain true to our purpose of providing prosperity and peace of mind. We continued to work to understand perceptions and needs in our markets and once again conducted our wide-ranging annual survey on worldwide consumer attitudes to savings, using the results to inform ongoing product and service developments across the Group.
Accounting for Sustainability We also report our performance using Accounting for Sustainability’s connected reporting framework, which integrates financial and non-financial data to provide a comprehensive picture of our impacts. We were one of the first companies to help develop the framework and have used this approach for environmental reporting in our Annual Report and Accounts since 2007. This year we have extended the use of the framework further by adding customer and community investment indicators.
Performance reviewAviva plc Corporate responsibility continued Corporate responsibilityAnnual Report and Accounts 2009 sooner and breakdown assistance mileage is reduced. We are also making use of our local knowledge of reliable garages to reduce towing mileage and achieve a comprehensive repair quickly. These changes in our processes, together with speed limiters and minimising our carrying load, have all reduced the carbon intensity of our roadside breakdown service whilst still providing the highest level of customer satisfaction.
Conservation investment Total capital expenditure for storage and recycling in the UK was zero (2008: £minimal).
Industry benchmark information — 200kg of waste per employee per year — Recycling rate of 60–70% (BRE Office toolkit)
Consumer attitudes to saving Aviva’s global survey of consumer attitudes to savings has run for six years, building up a powerful and valuable body of data on a range of topic areas such as attitudes to risk, debt, trust, financial services providers and pensions. It has been used in product development, PR, strategy and lobbying: — Malaysia: won significant media attention with the release of selected data revealing that a significant majority of Malaysians worry about being under-prepared for their financial future.
Simon Machell Chief executive, Aviva Asia Pacific (Age 46) Joined the Group in 1994. Formerly chief executive of Norwich Union Insurance and managing director of RAC plc. Previously held positions with Ernst & Young LLP and Legal & General. Holds a BA Honours in Economics from the University of Durham and is a Fellow of the Institute of Chartered Accountants of England and Wales.
Share capital and control The issued ordinary share capital of the Company was increased by 108,909,750 ordinary shares during the year. 951,455 shares were allotted under the Group’s employee share and incentive plans and 107,958,295 shares were allotted under the Aviva Scrip Dividend Scheme for the May 2009 and November 2009 dividends. At 31 December 2009 the issued ordinary share capital totalled 2,766,611,374 shares of 25 pence each and the issued preference share capital totalled 200 million shares of £1 each. Accordingly, the issued ordinary share capital constituted 78% of the Company’s total issued share capital and the issued preference share capital constituted 22% of the Company’s total issued share capital at 31 December 2009. All the Company’s shares are fully paid up and quoted on the Main Market of the London Stock Exchange. The Company is listed on the New York Stock Exchange (NYSE) in the form of American Depositary Shares, referenced to ordinary shares, under a depositary agreement with Citibank. Details of the Company’s share capital and shares under option at 31 December 2009 and shares issued during the year are given in notes 28 to 31 to the consolidated financial statements.
The rights and obligations attaching to the Company’s ordinary shares and preference shares as well as the powers of the Company’s directors, are set out in the Company’s Articles of Association, copies of which can be obtained from Companies House and the Company’s website,www.aviva.com, or by writing to the Company Secretary.
The Company’s Articles of Association require one-third of the directors to retire by rotation each year and also require each director to retire at intervals of not more than three years. At the forthcoming Annual General Meeting, Lord Sharman, the Chairman, and Scott Wheway, a non-executive director, will retire and, being eligible, will offer themselves for re-election. Andrew Moss, the Group Chief Executive will also retire and offer himself for re-election. Leslie Van de Walle, Andrea Moneta, Michael Hawker and Patrick Regan will offer themselves for election by shareholders at this year’s Annual General Meeting being the first such meeting after their appointment to the Board. Leslie Van de Walle and Michael Hawker are non-executive directors and were appointed to the Board on 6 May 2009 and 1 January 2010 respectively. Andrea Moneta and Patrick Regan are executive directors and have service contracts with a Group company, details of which can be found in the Directors’ Remuneration Report. Wim Dik retired from the Board at last year’s Annual General Meeting in line with the Board’s plans to renew and refresh its composition, while Philip Scott retired from the board on 26 January 2010 following a 36 year career with the Group, which began with Norwich Union.
Corporate Governance Statement In compliance with Disclosure and Transparency Rules (the DTRs) 7.2.1, the disclosures required by DTR 7.2.2 to 7.2.7 can be found in the Corporate Governance Report on pages 87 to 92 which is incorporated into this Directors’ Report by reference.
The directors in office at the date of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which Ernst & Young LLP are unaware and each director has taken all steps that ought to have been taken as a director to be aware of any relevant audit information and to establish that Ernst & Young LLP are aware of that information.
Annual General Meeting The 2010 Annual General Meeting of the Company will be held on Wednesday 28 April 2010 at the Barbican Centre, Silk Street, London EC2Y 8DS at 11am. A separate document accompanying this annual report and accounts contains the Notice convening the Meeting and a description of the business to be conducted thereat.
The Combined Code on Corporate Governance The Company is aware of the changing regulatory environment following the recent economic downturn. This has led to the review of a number of regulations and corporate governance guidelines. The Company will aim to comply fully with any resulting regulatory changes and best practice guidelines, where it does not already do so.
Aviva plc Corporate governance report continued Annual Report and Accounts 2009 review during 2009. Details of the directors standing for re­ election at this year’s Annual General Meeting are set out in the Notice of Meeting. Biographical details of all the directors are set out on pages 80 to 81.
During the year, directors attended a number of internal and external courses including an update on the macro­ economic outlook at a Board strategy session, and seminars on life accounting and Solvency II for members of the Audit and Risk and Regulatory Committees. New members of the Corporate Responsibility Committee had an induction on the Company’s Corporate Responsibility Programme and two members of the Committee participated in a Climate Change forum in Hong Kong. Training sessions have also been built into the Board’s and committees’ work plans for 2010. The Board made visits to the Group’s businesses located in the UK, Singapore, Korea and China during the year to gain a closer understanding of their operations.
During 2009, the Chairman and the non-executive directors met in the absence of the executive directors and the non-executive directors met in the absence of the Chairman, including one meeting chaired by the Senior Independent Director in order to appraise the Chairman’s performance.
Management in conjunction with the Group Risk function monitors the risk profile of business units, regions and the Group on a regular basis. On a quarterly basis, risk reports, setting the risk profiles, risk exposures outside Group risk appetite and action plans within financial, operational, compliance and strategic risk categories, are reported by the Group risk function. A consolidated Group wide risk profile including residual risk levels and action plans are considered by the Executive Committee and the Risk and Regulatory Committee. Regional executive committees and management receive and similarly consider local risk reporting. Where significant risks outside Group risk appetite are identified an immediate escalation process is in place. Such significant risks are reported by the Chief Risk Officer to the Executive Committee, the Risk and Regulatory Committee and Audit Committee, along with any proposed mitigating actions.
The Committee keeps under review the balance of skills on the Board and the knowledge, experience, length of service and performance of the directors. It also reviews their external interests with a view to identifying any actual, perceived or potential conflicts of interests, including the time available to commit to their duties to the Company. The Committee monitors the independence of each non-executive director and makes recommendations concerning such to the Board. The results of these reviews are important when the Board considers succession planning and the re-election of directors. Members of the Committee take no part in any discussions concerning their own circumstances. During 2009 the Committee reviewed the senior management pool to identify potential Executive Committee members.
This report was reviewed and approved by the Board on 3 March 2010.
Michael Hawker was appointed to the Committee on 1 January 2010. The Committee met on six occasions in 2009 and the members’ attendance record is set out in the Corporate Governance report on page 88. In addition the Committee held separate meetings with members of senior management and Ernst & Young for the purposes of induction and training. The Group Company Secretary acts as the secretary to the Committee.
— Operational risks: during the year the Committee paid particular attention to business protection and IT risks, and how business units were embedding behaviour that met the FSA’s principles of Treating Customers Fairly.
— A performance test of subsisting LTIP grants — A decision on the operation of the UK’s All Employee Share
August — A review of EDs’ bonus targets following a rebase for exchange rates — Consideration of EDs’ 2009 bonus targets and capital assumptions — Committee Terms of Reference
— Comment upon and noting of the EDs’ personal objectives for 2010 — A review of the proposed approach to the 2009 Directors’
The plan matches 100% of the deferred ABP shares for the Group Chief Executive (75% for other EDs)
— Shares vest based only upon the achievement of demanding EPS growth targets.
Basic Salary £925,000 during the year Mr Moss requested not to receive an increase to his basic salary in 2009. Mr Moss requested that his basic salary should not be subject to annual review in 2010.
ACAP £260,000 The Trustee of the Plan accepted Aviva’s recommendation and made an award into the plan equivalent to 50% of Mr Hodges’ basic salary as at 1 April 2009.
ACAP €91,848 Mr Moneta’s ACAP contribution is for the period 1 July 2009 to 31 December 2009.
As described above, the Committee took the view that it was important to maintain the integrity of the financial targets for the EDs, and so these were not adjusted during the year. In the same way, the Committee believes that it is appropriate to pay bonuses based on pre-agreed rigorous targets when these have been met.
External Board appointments Aviva recognises its senior executives can benefit from serving in a personal capacity as a NED of non Aviva Group companies. It is, at the same time, conscious of the corporate governance recommendations that EDs should take account of the time commitment required by a NED position and ensure any such role does not impact their ability to carry out fully their executive duties. The Company therefore has a policy of normally allowing senior executives to serve as a NED of one external company, subject to approval by the Board, and to retain any board fees.
Senior Board membership independent Corporate Risk and fees director Remuneration Audit Nomination Responsibility Regulatory Total fees
Notes 1. “Shares” are the directors’ beneficial holdings in the ordinary shares of the Company and in respect of the EDs include shares held in trust under the Company’s AESOP being shares purchased by them under the partnership element and shares granted under the free share element. 2. ABP relates to entitlements to shares arising through the Aviva Annual Bonus Plan. Under these plans some of the earned bonuses are paid in the form of shares and deferred for three years.
Aviva plc Additional information for Shareholders continued Annual Report and Accounts 2009 procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon Aviva’s evaluation, the Group Chief Executive and Group Chief Financial Officer concluded that as of 31 December 2009 Aviva’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by Aviva in the reports Aviva files and submits under the Securities Exchange Act is recorded, processed, summarised and reported, within the time periods specified in the applicable rules and forms and that it is accumulated and communicated to Aviva’s management, including the Group Chief Executive and Group Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Approved persons and controllers The FSA regime is also predicated on the principle of senior management responsibility. The directors and senior managers holding positions of significant influence of each of the Group’s regulated entities are individually registered with the FSA under the “Approved Person” regime, and can be held directly accountable to the FSA for control failings in those firms. A number of senior managers at Group level have also been registered as Approved Persons for the regulated subsidiaries, even though they are neither directors nor senior managers of these firms. This recognises that these managers exert significant influence over the regulated subsidiaries, because they are responsible for key parts of the Group’s control framework on which the regulated subsidiaries place reliance.
Along with other firms in the insurance industry, our relationship with the FSA has recently gone through another significant stage in its development with the roll out of the individual capital assessment (ICA) regime. This is shifting emphasis from managing issues after the event to better assessing the adequacy of up-front governance, risk management and prevention. It has also increased focus on risk, controls and governance at individual entity level.
FSMA provides further protection to policyholders of insurance companies effecting or carrying out contracts of longterm insurance. Unless the court orders otherwise, a liquidator must carry on the insurer’s business so far as it consists of carrying out the insurer’s contracts of long-term insurance with a view to it being transferred as a going concern to a person who may lawfully carry out those contracts. In carrying on the business, the liquidator may agree to the variation of any contracts of insurance in existence when the winding-up order is made, but must not effect any new contracts of insurance.
— Further provisions aimed at ensuring co-operation between competent regulatory authorities of member states.
The Company’s investments In the Company statement of financial position, subsidiaries and joint ventures are stated at their fair values, estimated using applicable valuation models underpinned by the Company’s market capitalisation. These investments are classified as available for sale (AFS) financial assets, with changes in their fair value being recognised in other comprehensive income and recorded in a separate investment valuation reserve within equity.
The long-term business provisions are calculated separately for each life operation, based either on local regulatory requirements or existing local GAAP at the later of the date of transition to IFRS or the date of the acquisition of the entity, and actuarial principles consistent with those applied in the UK. Each calculation represents a determination within a range of possible outcomes, where the assumptions used in the calculations depend on the circumstances prevailing in each life operation. The principal assumptions are disclosed in note 38(b). For liabilities of the UK with-profit funds, FRS 27 requires liabilities to be calculated as the realistic basis liabilities as set out by the UK’s Financial Services Authority, adjusted to remove the shareholders’ share of future bonuses. For UK non-profit insurance contracts, the Group applies the realistic regulatory basis as set out in the FSA Policy Statement 06/14, Prudential Changes for Insurers, where applicable.
Present value of future profits (PVFP) on non-participating business written in a with-profit fund For UK with-profit life funds falling within the scope of the FSA realistic capital regime, and hence FRS 27, an amount may be recognised for the present value of future profits on non-participating business written in a with-profit fund where the determination of the realistic value of liabilities in that with-profit fund takes account, directly or indirectly, of this value. This amount is recognised as a reduction in the liability rather than as an asset in the statement of financial position, and is then apportioned between the amounts that have been taken into account in the measurement of liabilities and other amounts which are shown as an adjustment to the unallocated divisible surplus.
(L) Non-participating investment contract liabilities Claims For non-participating investment contracts with an account balance, claims reflect the excess of amounts paid over the account balance released.
Reinsurance contracts that principally transfer financial risk are accounted for directly through the statement of financial position and are not included in reinsurance assets or liabilities. A deposit asset or liability is recognised, based on the consideration paid or received less any explicitly identified premiums or fees to be retained by the reinsured.
Amortisation and impairment of intangibles arise in: (158) Subsidiaries 17 (139) (113)
(1,117) Other comprehensive income, net of tax (983) 282 377 Total comprehensive income for the year 332 (603)
Shares issued under equity compensation plans — — — — — — — — — (60) 60 — — — —
Assets 3,842 Goodwill N & 16 3,381 3,578 3,082 3,250 Acquired value of in-force business and intangible assets N & 17 2,860 4,038 3,197 1,933 Interests in, and loans to, joint ventures C & 18 1,701 1,737 2,576 1,456 Interests in, and loans to, associates C & 19 1,281 1,246 1,206 856 Property and equipment O & 20 753 964 942 14,116 Investment property P & 21 12,422 14,426 15,391 46,681 Loans U & 22 41,079 42,237 36,193
(b) An analysis of transfers of financial assets and liabilities between different levels of the fair value hierarchy. (c) A reconciliation from beginning to end of period of financial assets and liabilities whose fair value is based on unobservable inputs.
On 2 December 2009, the Group announced that it had agreed to sell RAC France SA to its existing management team. The sale remains subject to regulatory approval and, as a result, the assets and liabilities of the business have been classified as held for sale, at their carrying values, in the consolidated statement of financial position as at 31 December 2009.
Net earned premiums 7,502 5,368 9,180 5,865 6,218 509 — — 34,642 Fee and commission income 310 362 505 206 40 168 294 — 1,885 7,812 5,730 9,685 6,071 6,258 677 294 — 36,527 Net investment income (8,844) 326 (7,820) 1,652 444 (626) (407) (768) (16,043) Inter-segment revenue — — — — — — 203 — 203 Share of loss of joint ventures and associates (1,058) — (11) (27) — (32) — — (1,128) Profit/(loss) on the disposal of subsidiaries and associates — (38) 9 15 — — — 21 7
(v) Segmental statement of financial position – products and services as at 31 December 2007
Gross insurance liabilities 135,014 17,825 — — 152,839 Gross liabilities for investment contracts 98,244 — — — 98,244 Unallocated divisible surplus 6,785 — — — 6,785 Net asset value attributable to unit holders 3,935 46 — 2,428 6,409 Borrowings 3,947 12 — 8,698 12,657 Other liabilities, including inter-segment liabilities 17,811 698 397 9,459 28,365
Net income from investment properties Rent 908 959 Expenses relating to these properties (47) (33) Realised gains on disposal 339 14 Fair value (losses) on investment properties (note 21) (1,084) (3,137)
(b) Economic volatility The investment variances and economic assumption changes excluded from the long-term business operating profit are as follows: Long-term business
Analysed between: Longer-term investment return, reported within operating profit 1,085 1,268 Short-term fluctuation in investment return, reported outside operating profit 95 (819)
(f) The table below shows the sensitivity of the Group’s non-long-term business operating profit before tax to changes in the longer term rates of return: 2009 2008 Movement in investment return for By Change in £m £m
Profit/(loss) before tax attributable to shareholders’ profits Tax attributable to shareholders’ (loss)/profits
Subsequent to 31 December 2009, the directors proposed a final dividend for 2009 of 15.0 pence per ordinary share (2008: 19.91 pence), amounting to £415 million (2008: £527 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 17 May 2010 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2010.
The loans are interest-bearing but are not secured, and no guarantees were received in respect thereof.
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 19 – Interests in, and loans to, associates continued Although the Group’s holding in two of the three Cyrte funds is less than 20%, it has significant influence through ownership of the fund manager, Cyrte Investments BV, a subsidiary of which acts as general partner to the funds, and through membership of its investment committee.
Aviva plc Notes to the consolidated financial statements continued Annual Report and Accounts 2009 20 – Property and equipment This note analyses our tangible fixed assets, which are primarily properties occupied by Group companies and computer equipment.
Transfers to intangibles (note 17) — — — 3 — 3
All the shares in the securitisation companies are held by independent trustee companies. Although DLL, AMS and DLB do not own, directly or indirectly, any of the share capital of the securitisation companies or their parent companies, they retain control of the majority of the residual or ownership risks and rewards related to the assets of the securitisation companies, and these companies have therefore been treated as subsidiaries in the consolidated financial statements. DLL, AMS and DLB have no right, nor any obligation, to repurchase the benefit of any of the securitised mortgage loans before the optional call date, other than in certain circumstances where they are in breach of warranty.
(b) Carrying values The following table summarises the securitisation arrangements: Securitised assets
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 24 – Financial investments This note analyses our financial investments by type and shows their cost and fair value. These will change from one period to the next as a result of new business written, claims paid and market movements.
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 24 – Financial investments continued (c) Cost, unrealised gains and fair value continued
(e) Financial investment arrangements (i) Stock lending arrangements The Group has entered into stock lending arrangements in the UK and overseas during the year in accordance with established market conventions. The majority of the Group’s stock lending transactions occurs in the UK, where investments are lent to EEAregulated, locally-domiciled counterparties and governed by agreements written under English law.
Carrying amount at 1 January Acquisition costs deferred during the year Amortisation Impairment losses Impact of assumption changes Effect of portfolio transfers, acquisitions and disposals Foreign exchange rate movements Shadow adjustment
Balance at 31 December 2009 2,224 104 162 (771) 109 1,829 * In accordance with accounting policy S, all fair value gains and losses on available-for-sale investments are recorded in the investment valuation reserve. Where these investments are considered to be impaired, the relevant losses are then transferred from this reserve to the income statement.
Provision for claims incurred but not reported — 2,719 2,719 — 2,518 2,518 — 2,099 2,099
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 38 – Insurance liabilities continued Mortality assumptions 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
— £79 million from Canada mainly due to favourable experience on motor and personal property.
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibilityAnnual Report and Accounts 2009 Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 38 – Insurance liabilities continued (iii) Net of reinsurance After the effect of reinsurance, the loss development table is: Accident year £m £m £m £m £m £m £m £m £m £m £m
(e) Provision for unearned premiums Movements The following changes have occurred in the provision for unearned premiums (UPR) during the year: Carrying amount at 1 January 5,493 5,484 Premiums written during the year 9,968 11,934 Less: Premiums earned during the year (10,613) (12,322)
Performance reviewAviva plc Notes to the consolidated financial statements continued Corporate responsibility Governance Shareholder information
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of participating investment contract liabilities. The £2.5 billion variance between actual and expected experience is not a change in assumptions. For participating business, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact on profit. Where assumption changes do impact on profit, these are included in the effect of changes in assumptions and estimates during the year shown in note 42, together with the impact of movements in related non-financial assets.
Net liability at 1 January 2008 as reported (421) (1,942) Prior year adjustment (see note 2b(ii)) — (33) Net liability at 1 January restated (421) (1,975) Acquisition and disposal of subsidiaries (22) (13) Amounts (charged)/credited to profit (note 13a) (254) 1,726 Amounts (charged)/credited to other comprehensive income (note 13b) (196) 219 Exchange differences 37 (111) Other movements 36 (267)
Deficits in the staff pension schemes (note 47e(vii)) Other obligations to staff pension schemes – insurance policies issued by Group companies (note 47e(vii))
Current service cost Past service cost Gains on curtailments Gains on settlements
Deficits in the schemes included in provisions (note 46) (1,412) (1,365) (110) (171) (3,058)
Debenture loans 9.5% guaranteed bonds 2016 199 £ 2.5% subordinated perpetual loan notes 157 € Other loans 13 Various
Bank overdrafts arise substantially from unpresented cheques and amount to £422 million (2008: £111 million, 2007: £183 million) in long-term business operations and £504 million (2008: £494 million, 2007: £438 million) in general business and other operations.
Deferred income 423 532 339 Reinsurers’ share of deferred acquisition costs 127 202 233 Accruals 1,623 1,643 1,274 Other liabilities 1,493 2,484 2,010 3,666 4,867 3,856 Less: Amounts classified as held for sale (13) (478) (220)
(Profit)/loss on sale of: Investment property (339) (14) Property and equipment (9) — Subsidiaries, joint ventures and associates (153) (7) Investments 1,534 9 1,033 (12) Fair value (gains)/losses on: (14,072) 28,243 Depreciation of property and equipment 115 131 Equity compensation plans, equity settled expense 56 39 Impairment and expensing of: Goodwill on subsidiaries 30 68 Financial investments, loans and other assets 592 1,040 Acquired value of in-force business and intangibles 25 67 Non-financial assets (1) —
16,802 (14,486) Net purchases of operating assets Purchases of investment property (441) (1,846) Proceeds on sale of investment property 1,267 1,164 Net purchases of financial investments (8,113) (1,960)
Participating investment liabilities 613 3,377 5,942 9,932 2,556 12,488 54,071 66,559 — 66,559 65,278 53,609 Non-participating
Where policyholders elected to accept the reattribution their policies have been transferred to New With-Profit Sub-Fund (NWPSF). The inherited estate, totalling £1,105 million at 1 October 2009, has been reattributed to a separate long-term fund called the Non-Profit Sub-Fund 1(NPSF1), in which 100% of the surplus is attributable to shareholders.
Aggregate 44.5 (42.7) 1.8 (0.8) 1.1 2.1 1.1 3.2 * These realistic liabilities include the shareholders' share of future bonuses of £0.6 billion (2008: £0.8 billion, 2007: £1.2 billion). Realistic liabilities adjusted to eliminate the shareholders' share of future bonuses are £42.1 billion (2008: £43.2 billion, 2007: £48.8 billion). 1. These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision included within realistic liabilities is £0.3 billion, £2.2 billion and £3.1 billion for OWPSF, NWPSF and UKLAP respectively (2008: £1.4 billion, £1.5 billion and £4.1 billion, 2007: £0.7 billion, £0.8 billion and £0.3 billion respectively). 2. Estimated realistic inherited estate at 31 December 2008 was £0.7 billion, £0.7 billion and £1.2 billion for CGNU Life, CULAC and NUL&P respectively (2007: £1.4 billion, £1.2 billion, £1.9 billion respectively). 3. The risk capital margin (RCM) is 3.6 times covered by the inherited estate and capital support arrangement (2008: 1.8 times, 2007: 3.5 times). 4. The UKLAP fund includes the Provident Mutual (PM) fund, which has realistic assets and liabilities of £1.7 billion and therefore does not impact the realistic inherited estate. 5. This represents the reattributed estate of £1.1 billion at 31 December 2009 held within the non-profit fund with UKLAP included within other UK life operations.
— (iv) General insurance operations – the capital requirements and corresponding regulatory capital held by overseas businesses are calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to local regulatory restrictions which may constrain management’s ability to utilise these in other parts of the Group. Any transfer of available capital may give rise to a tax charge, subject to availability of tax relief elsewhere in the Group.
(b) Market risk Market risk is the risk of adverse financial impact due to changes in fair values or future cash flows of financial instruments from fluctuations in interest rates, equity prices, property prices, and foreign currency exchange rates. Market risk arises in business units due to fluctuations in both the value of liabilities and the value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of investment assets owned directly by the shareholders.
The Group manages this risk by adopting close asset liability matching criteria, to minimise the impact of mismatches between the value of assets and liabilities from interest rate movements.
— The implementation of a sophisticated capital charge based credit limits framework that considers and quantifies the key specific attributes of each exposure (eg seniority, maturity etc) and provides a counterparty level aggregation methodology on a risk neutral basis. This is then managed against centrally set limits. Absolute upper bound limits are also set to ensure unexpected jump to default risks are kept within appetite. Additional limit frameworks are applied for structured assets and reinsurance counterparty exposures. The limits framework also considers more systemic risk factors such as sector and geographic concentrations, and these are continually assessed throughout our global portfolio to ensure optimal diversification levels are maintained and improved.
Speculative position At 31 December 2009 AAA AA A BBB grade Not rated £m
Where any decision to adopt a position in respect of policyholder assets and liabilities is not closely matched but is within the business unit’s investment risk appetite, the impact is monitored through our economic capital measurement process. The decision taken must be justified to the local management board and Group management by a full analysis of the impact of the level of mismatch on both risk and return.
A further tenet of our risk management strategy involves investment strategies, which also take into account the accounting, regulatory, capital and tax issues. The ALM strategy also takes into account the reasonable expectations of policyholders, local best practice and meets relevant regulatory requirements.
Risk management framework The Group has developed a life insurance risk policy and guidelines on the practical application of this policy. Individual life insurance risks are managed at a business unit level but are also monitored at Group level.
Concentration risk The Group writes a diverse mix of business in worldwide markets that are all subject to similar risks (mortality, persistency etc). The Group assesses the relative costs and concentrations of each type of risk through the ICA capital requirements and material issues are escalated to and addressed at the Life Insurance Committee. This analysis enables the Group to assess whether accumulations of risk exceeds risk appetite.
Our success and results are, to a certain extent, dependent on the strength of our brands and reputation. As part of our ongoing “One Aviva, Twice the Value” strategy, we have been working to create a global Aviva brand, as well as rebrand businesses in the UK under the Aviva name. While we as a group are well recognised, we are vulnerable to adverse market and customer perception. We operate in an industry where integrity, customer trust and confidence are paramount. We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, press speculation and negative publicity, disclosure of confidential client information, inadequate services, amongst others, 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 the customer’s expectations for the product change.
Aviva plc Notes to the consolidated financial statements continued Annual Report and Accounts 2009 56 – Risk management continued Long-term business Sensitivities as at 31 December 2009 Impact on profit before tax (£m)
European and American subsidiaries. The carrying value of the debt at 31 December 2009 was £2,806 million (2008: £2,914 million, 2007: £1,988 million) and its fair value at that date was £2,709 million (2008: £1,962 million, 2007: £1,972 million).
— The Group holds a Sterling/Euro cross currency swap derivative, which has been designated as a hedge of the net investment in its European subsidiaries. The notional value of the derivative at 31 December 2009 was £500 million (2008: £500 million, 2007: £1,000 million) and its fair value at that date was £120 million liability (2008: £185 million liability, 2007: £27 million liability). During 2008, the Group reduced the size of the notional amount from £1 billion to £500 million, realising a loss of £164 million in closing out this part of the hedge. The fair value gain during 2009 was £65 million (2008: £158 million loss; 2007: £27 million loss) on revaluation of the derivative which was recognised in other comprehensive income and the hedging instrument reserve in shareholders’ equity. This hedge was fully effective throughout the year.
Ordinary Preference Investment Equity Direct share share Share Merger valuation compensation Retained capital Total capital capital premium reserve reserve reserve earnings Equity instrument equity Note £m £m £m £m £m £m £m £m £m £m
B – Investments in subsidiaries (i) Movements in the Company’s investments in its subsidiaries are as follows: Fair value as at 1 January 16,353 24,466 27,886 Movement in fair value 883 (8,113) (3,420)
(ii) At 31 December 2009, the Company has two wholly-owned subsidiaries, both incorporated in Great Britain. These are General Accident plc and Aviva Group Holdings Limited. Aviva Group Holdings Limited is an intermediate holding company, whilst General Accident plc no longer carries out this function. The principal subsidiaries of the Aviva Group at 31 December 2008 are listed on pages 33 and 34.
The fair values of the subsidiaries and joint venture are estimated using applicable valuation models, underpinned by the Company’s market capitalisation. This uses a three month rolling average of the Company’s share price. Given that the key input into the valuation model is based on an observable current share price, and therefore sensitive to movements in that price, the valuation process is not sensitive to non-observable market assumptions. Management believes the resulting estimated fair values recorded in the balance sheet and any changes in fair values recorded in the income statement are reasonable, and are the most appropriate values at the balance sheet date.
The related parties’ receivables are not secured and no guarantees were received in respect thereof. The receivables will be settled in accordance with normal credit terms. Details of guarantees, indemnities and warranties given by the Company on behalf of related parties are given in note 51(j).
The directors and key management of the Company are considered to be the same as for the Group. Information on both the Company and Group key management compensation can be found in note 59.
(325) Integration and restructuring costs (286) (326) (282) Exceptional items3 (248) (754)
Liabilities 194,423 Gross insurance liabilities 171,092 174,850 125,017 Gross liabilities for investment contracts 110,015 107,559 4,393 Unallocated divisible surplus 3,866 2,325 11,243 Net asset value attributable to unitholders 9,894 6,918 218 Current tax liabilities 192 642 17,045 Borrowings 15,000 15,201 23,343 Payables and other financial liabilities 20,542 20,840 4,152 Other liabilities 3,653 4,386 38 Liabilities of operations classified as held for sale 33 1,221 407,700 Total equity and liabilities 357,767 357,421 The summarised consolidated statement of financial position presented above is unaltered from the corresponding IFRS summarised consolidated statement of financial position with the exception of the following: 1.Adding the excess of the Life MCEV, including minority interests, over the corresponding Life IFRS net assets represented as the additional value of in-force long-term business; corresponding item within equity represented by the additional retained profit on an MCEV basis; and, corresponding adjustments to minority interests.
Reconciliation of IFRS total equity to MCEV net worth For the year ended 31 December 2009 £m £m
Net assets on a statutory IFRS net basis 15,086 14,573 Adjusting for general business and other net assets on a statutory IFRS net basis 2,231 2,008
Required capital is the market value of assets attributed to the covered business over and above that required to back liabilities for covered business, for which distribution to shareholders is restricted. Required capital is reported net of implicit items permitted on a local regulatory basis to cover minimum solvency margins which are assessed at a local entity level. The level of required capital for each business unit is set equal to the higher of: — The level of capital at which the local regulator is empowered to take action; — The capital requirement of the business unit under the group’s economic capital requirements; and — The target capital level of the business unit.
M1 – Basis of preparation continued Consolidation adjustments The effect of transactions between group life companies such as loans and reinsurance arrangements have been included in the results split by territory in a consistent manner. No elimination is required on consolidation.
7.Persistency assumptions have been strengthened across most of our businesses, in light of experience. In Poland, persistency assumptions have been weakened following sustained favourable experience.
M6 – Analysis of life and pension earnings The following table provides an analysis of the movement in embedded value for covered business. The analysis is shown separately for free surplus, required capital and the value of in-force covered business, and includes amounts transferred between these categories. All figures are shown net of tax and minority interests.
Present value of new business premiums Value of new business New business margin
United Kingdom 403 119 736 85 1,343 (147) (159) (306) 1,037 Aviva Europe 501 135 (50) 248 834 (168) (197) (365) 469 Delta Lloyd 118 145 (42) 77 298 (270) (225) (495) (197)
Restated 2008 Total gross of Total net of £m 0-5 6-10 11-15 16-20 20+ minority interest minority interest
United Kingdom 634 542 385 279 213 2,053 2,053 Aviva Europe 1,836 1,189 669 362 214 4,270 3,336 Delta Lloyd (34) 255 110 98 194 623 511
In setting the risk-free rate we have, wherever possible used the mid-price swap yield curve for an AA-rated bank. The curve is extrapolated if necessary to get rates suitable to the liabilities. For markets in which there is no reliable swap yield curve the relevant government bond yields are used.
Product Definitions Annuities A type of policy that pays out regular amounts of benefit, either immediately and for the remainder of a person’s lifetime, or deferred to commence from a future date. Immediate annuities may be purchased for an individual and his or/her dependents or on a bulk purchase basis for groups of people. Deferred annuities are accumulation contracts, which may be used to provide benefits in retirement, and may be guaranteed, unit-linked or index-linked.
Deferred annuities An annuity (or pension) due to be paid from a future date or when the policyholder reaches a specified age. A deferred annuity may be funded by a policyholder by payment of a series of regular contributions or by a capital sum (the latter often provided from a pension fund).
ISAs Individual savings accounts – Tax efficient plans for investing in stocks and shares, cash deposits or life insurance investment funds, subject to certain limits. Introduced in the UK in 1999.
Inherited estate In the UK, the assets of the long-term withprofit funds less the realistic reserves for non­ profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees.
Turnbull Guidance on Internal Control The Turnbull guidance sets out best practice on internal controls for UK listed companies, and provides additional guidance in applying certain sections of the Combined Code.
Market consistent A measurement approach where economic assumptions are such that projected asset cash flows are valued consistently with current market prices for traded assets.
— General insurance: personal: auto, home, niche products commercial: motor, property, liability
A strong, single brand name is essential for us to compete effectively in the global insurance marketplace so the launch of the Aviva name worldwide in 2009 was fundamental. This was just one of a number of key deliverables during the year including: a successful partial sale of our Dutch business, Delta Lloyd, and the distribution of monies to our policyholders from the UK inherited estate.
In a year of ‘business as usual’, these would have been great achievements, so I am extremely proud that, through 2009’s adverse conditions, at Aviva we have remained strong, resolute and on track. 2010 is unlikely to be any easier but we’re now in an even better position to take advantage of new opportunities, and of achieving our vision for ‘One Aviva, Twice the Value’.
We further strengthened our Board with the appointment of Andrea Moneta, chief executive of Aviva Europe, Middle East and Africa, in September 2009. Other Board changes include: the retirement after nearly ten years of our senior independent non-executive director, Wim Dik; the resignation of Nikesh Arora, due to relocation to the United States; the appointment of new independent non-executive directors, Leslie Van de Walle, former chief executive officer of Rexam plc, who joined us in May 2009 and, from January 2010, Michael Hawker, who was previously chief executive and managing director of Insurance Australia Group.
solvency more than doubled in 2009 — Successful partial sale of Delta Lloyd in the Netherlands for £1 billion — Sale of Australian life business — £471 million paid to policyholders from reattribution of inherited estate
I’m most proud of our people: their dedication and resilience over the past year has been incredible. They’ve remained focused on what we’re here for – delivering prosperity and peace of mind to our customers – and have done a great job.
Active management of our composite model: — Focused on profitability above sales volume in our life and pensions and general insurance businesses
— Further develop the global integration of our business across mature and emerging markets
Return on equity shareholders’ funds* The improvement in return on equity reflects the increase in the post-tax MCEV operating profit and the impact of lower opening equity shareholder’s funds following falls in asset values in 2008.
4. Mark Hodges Executive director, Chief executive Aviva UK (Age 44) Appointed Jun 2008 Chief executive, United Kingdom. Previously chief executive, Aviva UK Life. Has also held senior finance roles within Norwich Union since joining in 1991.
9. Scott Wheway Independent non-executive director (Age 43) Appointed Dec 2007 Currently chief executive of Best Buy Europe (retail services). Formerly held senior management positions at The Boots Company plc (pharmacy), Alliance Boots plc and Tesco plc (retail services).
We delivered new propositions recognising consumer needs, including offering 12-months free life cover to new parents, the launch of a With-Profit Guaranteed bond and recently re-opening our Wrap and Sipp platforms to new business. Our innovative Simplified Life protection product continues to go from strength to strength with a 147% increase in new applications compared to 2008, whilst our market-leading individual annuity pricing capability attained record new business volumes for this product in the fourth quarter of 2009.
We have refocused our brands to offer our customers the best price when they buy direct from Aviva supported by our ‘Get the Aviva Deal’ marketing campaign, complimented by the RAC panel which is available on all major online price comparison sites and supported by 17 insurers. The impact has been extremely positive: we sold more Direct personal motor policies in the fourth quarter than in the same period in the previous three years and the RAC panel had gained a share of around 3.5% of new business in the UK personal motor market by the end of 2009.
RAC continues from strength to strength as a leading UK service brand, coming fifth in the Institute of Customer Service’s 2009 survey, comparable with John Lewis, Waitrose and M&S. In its core breakdown category it won the JD Power survey for an unprecedented fourth consecutive year. The service culture is not just delivered by our patrol staff either: RAC’s membership call centre entered the Times Top 50 UK call centres at 14th.
Health plan meant that they would even be covered for cancer care and cardiac procedures – she hoped they would never have to use them but it made her feel safer; the maternity benefits were great too (just in case) and, with her daughter growing up, the cervical cancer vaccination would mean one less thing to worry about. And by just knowing that the plan gave them fast access, if they needed it, to hospitals and treatment centres close to home, she would certainly sleep better now. * Pseudonym
The market environment in the Netherlands remained challenging, with weak asset values constraining activity in the corporate pensions market, before improving in the latter part of the year when Delta Lloyd secured two large group contracts. Total sales in 2009 of £5,492 million were down 18% reflecting the sale of the health business. IFRS operating profit for the year increased 29% to £399 million. These results are discussed in more detail on page 45 of this report.
Market environment The US economy, and its financial sector in particular, suffered a severe contraction as a result of the financial crisis. The recession also had a major impact on Canada, the US’s largest trading partner. There are now increasing signs of economic recovery and, despite the recession, North America’s economies remain among the world’s largest and its population among the world’s wealthiest.
‘ Opening up in new markets across the region’ We expanded our customer reach in local markets during the year with a particular focus on bancassurance, we renewed our partnership with DBS Bank in Singapore and Hong Kong until 2015, extended to additional markets in India, China and Taiwan, and also agreed extended terms with key partners in India. We opened our tenth provincial branch in China, ahead of our 2010 target; achieved encouraging sales through Woori Bank in South Korea and opened 13 new branches around the Seoul area.
Impressive pitch We go the extra mile to win over our customers
Key indicators In 2009 Aviva’s Group CR strategy was underpinned by focusing on a number of key performance measures. The measures that are used to assess performance at a group level are set out below: CR Indicator 2007 2008 2009 2009 target Change over 2010 target year
Business ethics % of employees signing of receipt, — — 90% 100% of employees n/a 100% of employees understanding and acceptance of our Business Ethics Code annually
In November 2009 the Company announced its intention to put its Corporate Responsibility Report to an advisory vote of shareholders at the 2010 Annual General Meeting as a means of obtaining feedback on the report and the Company’s performance in this area.
£m £m 2. Operating earnings per share is based on the operating profit on either an MCEV or IFRS
Assets share incentive plans and details of all the awards and options Goodwill 3,381 3,578 held by the directors. Additional value of in-force business and intangible assets Interest in, and loans to, joint ventures 2,860 4,038 Highlights and associates