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RNS
Aviva PLC  -  AV.   

Half-year Report Part 4 of 4

Released 07:00 03-Aug-2017

RNS Number : 9581M
Aviva PLC
03 August 2017
 

Part 4 of 4

Page 87

 

Capital & liquidity

In this section

Page

Capital & liquidity


C1  Analysis of return on equity

88

C2  Group capital structure - IFRS basis

90

C3  Equity sensitivity analysis - IFRS basis

91


 

 

 

Page 88

 

 

 

C1 - Analysis of return on equity


Operating return1



6 months 2017

Before tax
 £m

After tax
£m

Weighted average shareholders' funds including non-controlling

interests2

£m

Return on

equity2

 %

United Kingdom & Ireland Life

756

606

11,323

10.7%

United Kingdom & Ireland General Insurance and Health

259

211

1,817

23.2%

Canada

71

52

1,468

7.1%

Europe

518

367

5,574

13.2%

Asia

115

107

1,661

12.9%

Fund management

69

55

481

22.9%

Corporate and Other Business3

(130)

(88)

5,725

n/a

Return on total capital employed

1,658

1,310

28,049

9.3%

Subordinated debt

(191)

(154)

(7,223)

4.3%

Senior debt

(2)

(2)

(1,384)

0.3%

Return on total equity

1,465

1,154

19,442

11.9%

Less: Non-controlling interests


(73)

(1,372)

10.6%

Direct capital instrument and tier 1 notes4


(23)

(1,123)

6.1%

Preference capital


(9)

(200)

8.5%

Return on equity shareholders' funds


1,049

16,747

12.4%

1    The operating return is based upon Group operating profit. Refer to note B1.

2    Return on equity is based on an annualised operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity.

3    The 'Corporate' and 'Other Business' loss before tax of £130 million comprises corporate costs of £83 million, interest on internal lending arrangements of £3 million, other business operating loss (net of investment return) of £81 million, partly offset by finance income on the main UK pension scheme of £37 million.

4    The return on equity is based on an annualised operating return after tax reflecting the expected direct capital instrument interest in the second half of the year.


Operating return1



6 months 2016

Before tax
£m

After tax
£m

Weighted average shareholders' funds including non-controlling

interests2

£m

Return on

equity2

%

United Kingdom & Ireland Life

711

547

11,057

9.9%

United Kingdom & Ireland General Insurance and Health

231

187

3,008

12.4%

Canada

88

65

1,059

12.3%

Europe

430

296

4,960

11.9%

Asia

112

106

1,478

14.3%

Fund management

49

39

414

18.8%

Corporate and Other Business3

(112)

(91)

4,176

n/a

Return on total capital employed

1,509

1,149

26,152

8.8%

Subordinated debt

(184)

(147)

(6,711)

4.4%

Senior debt

-

-

(650)

-

Return on total equity

1,325

1,002

18,791

10.7%

Less: Non-controlling interests


(67)

(1,210)

11.1%

Direct capital instrument and tier 1 notes4


(21)

(1,123)

5.6%

Preference capital


(9)

(200)

9.0%

Return on equity shareholders' funds


905

16,258

11.0%

1    The operating return is based upon Group operating profit. Refer to note B1.

2    Return on equity is based on an annualised operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity.

3    The 'Corporate' and 'Other Business' loss before tax of £112 million comprises corporate costs of £80 million, interest on internal lending arrangements of £15 million, other business operating loss (net of investment return) of £61 million, partly offset by finance income on the main UK pension scheme of £44 million.

4    The return on equity is based on an annualised operating return after tax reflecting the expected direct capital instrument interest in the second half of the year.

 

 

 

Page 89

 

 

 

C1 - Analysis of return on equity continued


Operating return1



Full Year 2016

Before tax
£m

After tax
£m

Weighted average shareholders' funds including non-controlling

interests2

£m

Return on

equity2

%

United Kingdom & Ireland Life

1,555

1,262

11,218

11.2%

United Kingdom & Ireland General Insurance and Health

471

380

2,431

15.6%

Canada

269

197

1,256

15.7%

Europe

964

674

5,160

13.1%

Asia

228

216

1,548

14.0%

Fund management

138

104

426

24.4%

Corporate and Other Business3

(227)

(219)

4,850

n/a

Return on total capital employed

3,398

2,614

26,889

9.7%

Subordinated debt

(387)

(309)

(6,907)

4.5%

Senior debt

(1)

(1)

(869)

0.1%

Return on total equity

3,010

2,304

19,113

12.1%

Less: Non-controlling interests


(147)

(1,279)

11.5%

Direct capital instrument and tier 1 notes


(68)

(1,123)

6.1%

Preference capital


(17)

(200)

8.5%

Return on equity shareholders' funds


2,072

16,511

12.5%

1    The operating return is based upon Group operating profit. Refer to note B1.

2    Return on equity is based on an annualised operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity.

3    The 'Corporate' and 'Other Business' loss before tax of £227 million comprises corporate costs of £184 million, interest on internal lending arrangements of £23 million, other business operating loss (net of investment return) of £106 million, partly offset by finance income on the main UK pension scheme of £86 million.

 

 

 

 

 

 

Page 90

 

C2 - Group capital structure - IFRS basis

The table below shows how our capital is deployed by product and service segments and how that capital is funded.


30 June
2017
 Capital employed
£m

31 December 2016
Capital employed
£m

Life business



United Kingdom & Ireland

10,882

11,764

France

2,769

2,756

Poland

283

296

Italy

967

947

Spain

653

594

Other Europe

70

71

Europe

4,742

4,664

Asia

1,650

1,643


17,274

18,071

General insurance & health



United Kingdom & Ireland1

1,872

1,761

Canada

1,466

1,471

France

504

462

Italy

304

282

Other Europe

119

70

Europe

927

814

Asia

12

16


4,277

4,062

Fund Management

501

462

Corporate & Other Business1,2

5,917

5,533

Total capital employed

27,969

28,128

Financed by



Equity shareholders' funds

16,691

16,803

Non-controlling interests

1,319

1,425

Direct capital instrument & tier 1 notes

1,123

1,123

Preference shares

200

200

Subordinated debt3

7,233

7,213

Senior debt

1,403

1,364

Total capital employed4

27,969

28,128

1    Capital employed for United Kingdom & Ireland general insurance and health excludes c.£0.9 billion of goodwill which does not support the general insurance and health business for capital purposes and is included in 'Corporate & Other Business'.

2    'Corporate & Other Business' includes centrally held tangible net assets, the main UK staff pension scheme surplus and also reflects internal lending arrangements. These internal lending arrangements, which net out on consolidation, include the formal loan arrangement between Aviva Group Holdings Limited and Aviva Insurance Limited.

3    Subordinated debt excludes amounts held by Group companies of £9 million (FY16: £9 million).

4    Goodwill, AVIF and other intangibles are maintained within the capital base. Goodwill includes goodwill in subsidiaries of £1,911 million (FY16: £2,045 million), goodwill in joint ventures of £19 million (FY16: £20 million) and goodwill in associates of £28 million (FY16: £47 million). AVIF and other intangibles comprise £4,841 million (FY16: £5,468 million) of intangibles in subsidiaries, £46 million (FY16: £72 million) of intangibles in joint ventures and £17 million (FY16: £18 million) of intangibles in associates, net of deferred tax liabilities of £(625) million (FY16: £(783) million) and the non-controlling interest share of intangibles of £(73) million (FY16: £(226) million).

Total capital employed is financed by a combination of equity shareholders' funds, preference capital, subordinated debt and borrowings. Total capital employed at HY17 amounted to £28.0 billion (FY16: £28.1 billion).

At HY17 the market value of external debt, subordinated debt, preference shares (including both Aviva plc preference shares of £200 million and General Accident plc preference shares, within non-controlling interests, of £250 million), direct capital instrument and tier 1 notes is £11,579 million (FY16: £11,006 million).

 

 

 

 

Page 91

 

 

 

C3 - Equity sensitivity analysis - IFRS basis

The sensitivity of the Group's total equity on an IFRS basis at 30 June 2017 to a 10% fall in global equity markets, a rise of 1% in global interest rates or a 0.5% increase in credit spreads is as follows:

31 December 2016
£bn

IFRS basis

30 June
2017
£bn

Equities
 down 10%
£bn

Interest rates up 1%
£bn

0.5% increased credit spread £bn

18.1

Long-term savings

17.3

-

(0.3)

(0.2)

10.1

General insurance and other

10.6

(0.1)

(0.4)

0.6

(8.6)

Borrowings

(8.6)

-

-

-

19.6

Total equity

19.3

(0.1)

(0.7)

0.4

These sensitivities assume a full tax charge/credit on market value assumptions. The interest rate sensitivity also assumes an equivalent movement in both inflation and discount rate (i.e. no change to real interest rates) and therefore incorporates the offsetting effects of these items on the pension scheme liabilities. A 1% increase in the real interest rate has the effect of reducing the pension scheme liability in the main UK pension scheme by £2.3 billion (before any associated tax impact).

The 0.5% increased credit spread sensitivity does not make an allowance for any adjustment to risk-free interest rates. The long-term business sensitivities provide for any impact of credit spread movements on liability valuations. The sensitivities also include the allocation of staff pension scheme sensitivities, which assume inflation rates and government bond yields remain constant. In practice, the sensitivity of the business to changes in credit spreads is subject to a number of complex interactions. The impact of the credit spread movements will be related to individual portfolio composition and may be driven by changes in credit or liquidity risk; hence, the actual impact may differ substantially from applying spread movements implied by various published credit spread indices to these sensitivities. 

 

 

 

 

Page 92

 

 

 

 

 

 

 

This page is intentionally left blank

 

 

 

Page 93

 

Analysis of assets

In this section

Page

Analysis of assets


D1   Total assets

94

D2   Total assets - Valuation bases/fair value hierarchy

95

D3   Analysis of asset quality

98

D4   Pension fund assets

107

D5   Available funds

108

D6   Guarantees

108

 

 

 

 

 

Page 94

 

 

 

 

D1 - Total assets

As an insurance business, Aviva Group holds a variety of assets to match the characteristics and duration of its insurance liabilities. Appropriate and effective asset liability matching (on an economic basis) is the principal way in which Aviva manages its investments. In addition, to support this, Aviva also uses a variety of hedging and other risk management strategies to diversify away any residual mis-match risk that is outside of Group's risk appetite.

30 June 2017

Policyholder assets
 £m

Participating fund assets
 £m

Shareholder assets
 £m

Total assets analysed
 £m

Less assets of operations classified as held for sale £m

Balance
sheet total
£m

Goodwill and acquired value of in-force business and intangible assets

-

-

7,350

7,350

(598)

6,752

Interests in joint ventures and associates

-

1,132

554

1,686

-

1,686

Property and equipment

-

189

322

511

(1)

510

Investment property

6,595

3,599

526

10,720

(1)

10,719

Loans

8

3,202

22,309

25,519

(67)

25,452

Financial investments







Debt securities

26,899

95,495

52,718

175,112

(4,042)

171,070

Equity securities

57,623

15,700

868

74,191

(616)

73,575

Other investments

51,368

8,991

4,337

64,696

(119)

64,577

Reinsurance assets

10,244

175

8,194

18,613

(101)

18,512

Deferred tax assets

-

-

186

186

-

186

Current tax assets

-

-

88

88

(8)

80

Receivables and other financial assets

208

2,179

6,699

9,086

(26)

9,060

Deferred acquisition costs and other assets

10

813

5,601

6,424

(17)

6,407

Prepayments and accrued income

325

1,264

1,380

2,969

(40)

2,929

Cash and cash equivalents

11,034

19,341

12,487

42,862

(406)

42,456

Assets of operations classified as held for sale

-

-

-

-

6,042

6,042

Total

164,314

152,080

123,619

440,013

-

440,013

Total %

37.3%

34.6%

28.1%

100.0%

-

100.0%

FY16 Total

161,128

157,775

121,516

440,419

-

440,419

FY16 Total %

36.6%

35.8%

27.6%

100.0%

-

100.0%

As at 30 June 2017, 28.1% of Aviva's total asset base was shareholder assets, 34.6% participating assets where Aviva shareholders have partial exposure, and 37.3% policyholder assets where Aviva shareholders have no exposure. Of the total assets (excluding assets held for sale), investment property, loans and financial investments comprise £345.4 billion (FY16: £335.4 billion).

 

 

 

 

Page 95

 

 

D2 - Total assets - Valuation bases/fair value hierarchy

Total assets - 30 June 2017

Fair value
 £m

Amortised
cost
£m

Equity accounted/

tax assets1

£m

Total
£m

Goodwill and acquired value of in-force business and intangible assets

-

7,350

-

7,350

Interests in joint ventures and associates

-

-

1,686

1,686

Property and equipment

395

116

-

511

Investment property

10,720

-

-

10,720

Loans

22,295

3,224

-

25,519

Financial Investments





Debt securities

175,112

-

-

175,112

Equity securities

74,191

-

-

74,191

Other investments

64,696

-

-

64,696

Reinsurance assets

10,170

8,443

-

18,613

Deferred tax assets

-

-

186

186

Current tax assets

-

-

88

88

Receivables and other financial assets

-

9,086

-

9,086

Deferred acquisition costs and other assets

-

6,424

-

6,424

Prepayments and accrued income

-

2,969

-

2,969

Cash and cash equivalents

42,862

-

-

42,862

Total

400,441

37,612

1,960

440,013

Total %

91.0%

8.6%

0.4%

100.0%

Assets of operations classified as held for sale

5,253

782

7

6,042

Total (excluding assets held for sale)

395,188

36,830

1,953

433,971

Total % (excluding assets held for sale)

91.1%

8.5%

0.4%

100.0%

FY16 Total

400,358

37,674

2,387

440,419

FY16 Total %

90.9%

8.6%

0.5%

100.0%

1    Within the Group's statement of financial position, assets are recognised for deferred tax and current tax. The valuation basis of these assets does not directly fall within any of the categories outlined above. As such, these assets have been reported together with equity accounted items within the analysis of the Group's assets.

Total assets - Policyholder assets 30 June 2017

Fair value
 £m

Amortised
cost
£m

Equity accounted/

tax assets1

£m

Total
£m

Goodwill and acquired value of in-force business and intangible assets

-

-

-

-

Interests in joint ventures and associates

-

-

-

-

Property and equipment

-

-

-

-

Investment property

6,595

-

-

6,595

Loans

-

8

-

8

Financial Investments





Debt securities

26,899

-

-

26,899

Equity securities

57,623

-

-

57,623

Other investments

51,368

-

-

51,368

Reinsurance assets

10,040

204

-

10,244

Deferred tax assets

-

-

-

-

Current tax assets

-

-

-

-

Receivables and other financial assets

-

208

-

208

Deferred acquisition costs and other assets

-

10

-

10

Prepayments and accrued income

-

325

-

325

Cash and cash equivalents

11,034

-

-

11,034

Total

163,559

755

-

164,314

Total %

99.5%

0.5%

-

100.0%

Assets of operations classified as held for sale

723

-

-

723

Total (excluding assets held for sale)

162,836

755

-

163,591

Total % (excluding assets held for sale)

99.5%

0.5%

-

100.0%

FY16 Total

159,107

1,932

89

161,128

FY16 Total %

98.7%

1.2%

0.1%

100.0%

1    Within the Group's statement of financial position, assets are recognised for deferred tax and current tax. The valuation basis of these assets does not directly fall within any of the categories outlined above. As such, these assets have been reported together with equity accounted items within the analysis of the Group's assets.

 

 

 

 

Page 96

 

 

 

D2 - Total assets - Valuation bases/fair value hierarchy continued

Total assets - Participating fund assets 30 June 2017

Fair value
 £m

Amortised
cost
£m

Equity accounted/

tax assets1

£m

Total
£m

Goodwill and acquired value of in-force business and intangible assets

-

-

-

-

Interests in joint ventures and associates

-

-

1,132

1,132

Property and equipment

182

7

-

189

Investment property

3,599

-

-

3,599

Loans

168

3,034

-

3,202

Financial Investments





Debt securities

95,495

-

-

95,495

Equity securities

15,700

-

-

15,700

Other investments

8,991

-

-

8,991

Reinsurance assets

-

175

-

175

Deferred tax assets

-

-

-

-

Current tax assets

-

-

-

-

Receivables and other financial assets

-

2,179

-

2,179

Deferred acquisition costs and other assets

-

813

-

813

Prepayments and accrued income

-

1,264

-

1,264

Cash and cash equivalents

19,341

-

-

19,341

Total

143,476

7,472

1,132

152,080

Total %

94.3%

5.0%

0.7%

100.0%

Assets of operations classified as held for sale

2,476

-

-

2,476

Total (excluding assets held for sale)

141,000

7,472

1,132

149,604

Total % (excluding assets held for sale)

94.2%

5.0%

0.8%

100.0%

FY16 Total

149,146

7,273

1,356

157,775

FY16 Total %

94.5%

4.6%

0.9%

100.0%

1    Within the Group's statement of financial position, assets are recognised for deferred tax and current tax. The valuation basis of these assets does not directly fall within any of the categories outlined above. As such, these assets have been reported together with equity accounted items within the analysis of the Group's assets.

Total assets - Shareholders assets 30 June 2017

Fair value
 £m

Amortised cost
 £m

Equity accounted/

tax assets1

£m

Total
£m

Goodwill and acquired value of in-force business and intangible assets

-

7,350

-

7,350

Interests in joint ventures and associates

-

-

554

554

Property and equipment

213

109

-

322

Investment property

526

-

-

526

Loans

22,127

182

-

22,309

Financial Investments





Debt securities

52,718

-

-

52,718

Equity securities

868

-

-

868

Other investments

4,337

-

-

4,337

Reinsurance assets

130

8,064

-

8,194

Deferred tax assets

-

-

186

186

Current tax assets

-

-

88

88

Receivables and other financial assets

-

6,699

-

6,699

Deferred acquisition costs and other assets

-

5,601

-

5,601

Prepayments and accrued income

-

1,380

-

1,380

Cash and cash equivalents

12,487

-

-

12,487

Total

93,406

29,385

828

123,619

Total %

75.5%

23.8%

0.7%

100.0%

Assets of operations classified as held for sale

2,054

782

7

2,843

Total (excluding assets held for sale)

91,352

28,603

821

120,776

Total % (excluding assets held for sale)

75.6%

23.7%

0.7%

100.0%

FY16 Total

92,105

28,469

942

121,516

FY16 Total %

75.8%

23.4%

0.8%

100.0%

 

 

 

 

Page 97

 

 

 

 

 

 

D2 - Total assets - Valuation bases/fair value hierarchy continued

Financial instruments (including investment property, derivatives and loans) - fair value hierarchy

The table below categorises the measurement basis for assets carried at fair value into a 'fair value hierarchy' in accordance with fair value methodology disclosed in note B17 in the condensed consolidated financial statements (IFRS section).


Fair value hierarchy





Investment property and financial assets - Total 30 June 2017

Level 1
£m

Level 2
£m

Level 3
£m

Sub-total fair value
£m

Amortised cost
£m

Less: Assets of operations classified as held for sale £m

Balance sheet total
 £m

Investment property

-

-

10,720

10,720

-

(1)

10,719

Loans

-

70

22,225

22,295

3,224

(67)

25,452

Debt securities

101,475

57,041

16,596

175,112

-

(4,042)

171,070

Equity securities

73,291

-

900

74,191

-

(616)

73,575

Other investments (including derivatives)

55,160

5,191

4,345

64,696

-

(119)

64,577

Assets of operations classified as held for sale

-

-

-

-

-

4,845

4,845

Total

229,926

62,302

54,786

347,014

3,224

-

350,238

Total %

65.7%

17.8%

15.6%

99.1%

0.9%

-

100.0%

Assets of operations classified as held for sale

4,135

705

5

4,845

-

-

4,845

Total (excluding assets held for sale)

225,791

61,597

54,781

342,169

3,224

-

345,393

Total % (excluding assets held for sale)

65.4%

17.8%

15.9%

99.1%

0.9%

-

100.0%

FY16 Total

218,655

69,953

54,032

342,640

3,576

-

346,216

FY16 Total %

63.2%

20.2%

15.6%

99.0%

1.0%

-

100.0%

At 30 June 2017, the proportion of total investment property, financial investments and loans classified as Level 1 in the fair value hierarchy increased to 65.7% (FY16: 63.2%). The proportion of Level 2 financial investments was 17.8% (FY16: 20.2%), while those classified as Level 3 represented 15.6% (FY16: 15.6%).

 

 

 

 

Page 98

 

 

 

 

D3 - Analysis of asset quality

The analysis of assets that follows provides information about the assets held by the Group.

D3.1 - Investment property





30 June 2017

31 December 2016


Fair value hierarchy


Fair value hierarchy

Investment property - Shareholder assets

Level 1
 £m

Level 2
£m

Level 3
 £m

Total
 £m

Level 1
£m

Level 2
 £m

Level 3
 £m

Total
 £m

Lease to third parties under operating leases

-

-

526

526

-

-

526

Vacant investment property/held for capital appreciation

-

-

-

-

-

-

1

1

Total

-

-

526

526

-

-

527

527

Total %

-

-

100.0%

100.0%

-

-

100.0%

100.0%

95.1% (FY16: 95.1%) of total investment property by value is held in unit-linked or participating funds. Shareholder exposure to investment properties is principally through investments in UK and French property.

Investment properties are stated at their market values as assessed by qualified external independent valuers or by local qualified staff of the Group, all with recent relevant experience. The investment properties are valued on an income basis that is based on current rental income plus anticipated uplifts at the next rent review, lease expiry, or break option taking into consideration lease incentives and assuming no further growth in the estimated value of the property. This uplift and the discount rate are derived from rates implied by recent market transactions on similar property. These inputs are deemed unobservable.

 

 

Page 99

 

 

 

D3 - Analysis of asset quality continued

D3.2 - Loans

The Group loan portfolio is principally made up of:

· Policy loans which are generally collateralised by a lien or charge over the underlying policy;

· Loans and advances to banks, which primarily relate to loans of cash collateral received in stock lending transactions. These loans are fully collateralised by other securities;

· Mortgage loans collateralised by property assets;

· Healthcare, Infrastructure & Private Finance Initiative ('PFI') other loans; and

· Other loans, which include loans to brokers and intermediaries.

Loans with fixed maturities, including policy loans, mortgage loans (at amortised cost) and loans and advances to banks, are recognised when cash is advanced to borrowers. These loans are carried at their unpaid principal balances and adjusted for amortisation of premium or discount, non-refundable loan fees and related direct costs. These amounts are deferred and amortised over the life of the loan as an adjustment to loan yield using the effective interest rate method.

For certain mortgage loans, the Group has taken advantage of the fair value option under IAS 39 to present the mortgages, associated borrowings, other liabilities and derivative financial instruments at fair value, since they are managed together on a fair value basis. The mortgage loans are not traded in active markets. These investments are classified as level 3 as the assumptions used to derive the credit risk, liquidity premium and property risk are not deemed to be market observable.

Loans - Total 30 June 2017

United Kingdom & Ireland
£m

Canada
£m

Europe
 £m

Asia
£m

Total
£m

Policy loans

24

-

740

36

800

Loans and advances to banks

2,319

-

15

-

2,334

Healthcare, Infrastructure & PFI other loans

2,586

-

55

-

2,641

Mortgage loans

19,084

-

-

-

19,084

Other loans

494

157

9

-

660

Total

24,507

157

819

36

25,519

Total %

96.1%

0.6%

3.2%

0.1%

100.0%

Assets of operations classified as held for sale

-

-

67

-

67

Total (excluding assets held for sale)

24,507

157

752

36

25,452

Total % (excluding assets held for sale)

96.3%

0.6%

3.0%

0.1%

100.0%

FY16 Total

23,798

170

854

37

24,859

FY16 Total %

95.8%

0.7%

3.4%

0.1%

100.0%

 

Loans - Shareholder assets 30 June 2017

United Kingdom & Ireland
£m

Canada
£m

Europe
 £m

Asia
£m

Total
£m

Policy loans

4

-

6

2

Loans and advances to banks

553

-

13

-

566

Healthcare, Infrastructure & PFI other loans

2,586

-

-

-

2,586

Mortgage loans

18,975

-

-

-

18,975

Other loans

4

157

9

-

170

Total

22,122

157

28

2

22,309

Total %

99.2%

0.7%

0.1%

0.0%

100.0%

Assets of operations classified as held for sale

-

-

18

-

18

Total (excluding assets held for sale)

22,122

157

10

2

22,291

Total % (excluding assets held for sale)

99.3%

0.7%

0.0%

0.0%

100.0%

FY16 Total

21,164

170

26

2

21,362

FY16 Total %

99.1%

0.8%

0.1%

0.0%

100.0%

The value of the Group's loan portfolio (including Policyholder, Participating Fund and Shareholder assets), at 30 June 2017 stood at £25.5 billion (FY16: £24.9 billion), an increase of £0.6 billion.

The total shareholder exposure to loans was £22.3 billion (FY16: £21.4 billion), and represented 87% of the total loan portfolio, with the remaining 13% mainly held in participating funds (£3.2 billion (FY16: £2.4 billion)) with £nil (FY16: £1.0 billion) in policyholder assets.

Of the Group's total loan portfolio excluding assets held for sale (including Policyholder, Participating Fund and Shareholder assets), 75% (FY16: 74%) is invested in mortgage loans. 

Primary Healthcare, Infrastructure and PFI other loans included within shareholder assets are £2.6 billion (FY16: £2.5 billion) and are secured against the income from healthcare and educational premises.

 

 

 

 

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D3 - Analysis of asset quality continued

D3.2 - Loans continued

Mortgage loans - Shareholder assets

30 June 2017

Total
£m

Non-securitised mortgage loans


- Residential (Equity release)

890

- Commercial

6,923

- Healthcare, Infrastructure & PFI mortgage loans

3,472


11,285

Securitised mortgage loans

7,690

Total

18,975

Assets of operations classified as held for sale

-

Total (excluding assets held for sale)

18,975

FY16 Total

18,133

The Group's mortgage loan portfolio is mainly focused in the UK, across various sectors, including residential loans, commercial loans and government supported healthcare loans. Aviva's shareholder exposure to mortgage loans accounts for 85% of total shareholder asset loans. This section focuses on explaining the shareholder risk within these exposures.

United Kingdom & Ireland

(Non-securitised mortgage loans)

Residential

The UK non-securitised residential mortgage portfolio has a current value of £0.9 billion (FY16: £0.7 billion). The movement is due to £0.2 billion of net new loans and accrued interest (net of redemptions). Fair value movements were less than £0.1 billion.

These mortgages are all in the form of equity release, whereby homeowners mortgage their property to release cash equity. Due to the structure of equity release mortgages, whereby interest amounts due are not paid in cash but instead rolled into the amount outstanding, they predominantly have a current Loan to Value ('LTV') of below 70%. The average LTV across the portfolio is 30.7% (FY16: 35.2%).

Commercial

Gross exposure by loan to value and arrears is shown in the table below.

Shareholder assets

30 June 2017

>120%
£m

115-120% £m

110-115% £m

105-110% £m

100-105% £m

95-100% £m

90-95% £m

80-90% £m

70-80% £m

<70%
£m

Total
£m

Not in arrears

-

-

-

-

-

302

47

228

1,121

5,225

6,923

0 - 3 months

-

-

-

-

-

-

-

-

-

-

-

3 - 6 months

-

-

-

-

-

-

-

-

-

-

-

6 - 12 months

-

-

-

-

-

-

-

-

-

-

-

> 12 months

-

-

-

-

-

-

-

-

-

-

-

Total

-

-

-

-

-

302

47

228

1,121

5,225

6,923

Of the £6.9 billion (FY16: £6.7 billion) of UK non-securitised commercial mortgage loans in the shareholder fund held by our UK Life business, £6.9 billion are used to back annuity liabilities and are stated on a fair value basis. The loan exposures for our UK Life business are calculated on a discounted cash flow basis, and include a risk adjustment through the use of Credit Risk Adjusted Value ('CRAV') methods.

For commercial mortgages loan service collection ratios, a key indicator of mortgage portfolio performance, improved to 2.09x (FY16: 1.89x). Loan Interest Cover ('LIC'), which is defined as the annual net rental income (including rental deposits and less ground rent) divided by the annual loan interest service, also improved to 2.36x (FY16: 2.18x). Average mortgage LTV remained stable compared to FY16 at 58% (CRAV). The value of loans in arrears included within our shareholder assets is £nil (FY16: £0.1 million).

Commercial mortgages and Healthcare, Infrastructure & PFI loans are held at fair value on the asset side of the statement of financial position. Insurance liabilities are valued using a discount rate derived from gross yield on assets, with adjustments to allow for risk. £11.7 billion of shareholder loan assets are backing annuity liabilities and comprise of commercial mortgage loans (£6.9 billion), Healthcare, Infrastructure and PFI mortgage loans (£3.5 billion) and Primary Healthcare, Infrastructure and PFI other loans (£1.3 billion). The Group carries a valuation allowance within the liabilities against the risk of default of commercial mortgages, including Healthcare and PFI mortgages, of £0.4 billion (FY16: £0.5 billion) which equates to 39bps at 30 June 2017 (FY16: 50bps). The total valuation allowance held by Aviva Annuity UK Limited in respect of corporate bonds and mortgages, including Healthcare and PFI mortgages is £1.3 billion (FY16: £1.3 billion) over the remaining term of the UK Life corporate bond and mortgage portfolio. The valuation allowance for Friends Life Limited in respect of corporate bonds was £0.6 billion (FY16: £0.5 billion). 

The UK portfolio remains well diversified in terms of property type, location and tenants as well as the spread of loans written over time. The risks in commercial mortgages are addressed through several layers of protection with the mortgage risk profile being primarily driven by the ability of the underlying tenant rental income to cover loan interest and amortisation. Should any single tenant default on their rental payment, rental from other tenants backing the same loan often ensures the loan interest cover does not fall below 1.0x. Where there are multiple loans to a single borrower further protection may be achieved through cross-charging (or pooling) such that any single loan is also supported by rents received within other pool loans. Additionally, there may be support provided by the borrower of the loan itself and further loss mitigation from any general floating charge held over assets within the borrower companies.

If the LIC cover falls below 1.0x and the borrower defaults then Aviva still retains the option of selling the security or restructuring the loans and benefitting from the protection of the collateral. A combination of these benefits and the high recovery levels afforded by property collateral (compared to corporate debt or other uncollateralised credit exposures) results in the economic exposure being significantly lower than the gross exposure reported above. We will continue to actively manage this position.

 

 

 

 

Page 101

 

D3 - Analysis of asset quality continued

D3.2 - Loans continued

Healthcare

Primary Healthcare, Infrastructure and PFI mortgage loans included within shareholder assets of £3.5 billion (FY16: £3.3 billion) are secured against primary health care premises (including General Practitioner surgeries), education, social housing and emergency services related premises. For all such loans, government support is provided through either direct funding or reimbursement of rental payments to the tenants to meet income service and provide for the debt to be reduced substantially over the term of the loan. Although the loan principal is not Government guaranteed, the nature of these businesses and premises provides considerable comfort of an ongoing business model and low risk of default.

On a market value basis, we estimate the average LTV of these mortgages to be 78% (FY16: 74%), although as explained above, we do not consider this to be a key risk indicator. Income support from the Government bodies and the social need for these premises provide sustained income stability. Aviva therefore considers these loans to be lower risk relative to other mortgage loans.

Securitised mortgage loans

Securitised residential mortgages held are predominantly issued through vehicles in the UK. As at 30 June 2017, the Group has £7.7 billion (FY16: £7.4 billion) securitised mortgage loans of which £2.5 billion (FY16: £2.4 billion) are externally securitised and the remainder are internally securitised. Funding for the externally securitised residential mortgage assets of £2.5 billion (FY16: £2.4 billion) was obtained by issuing loan note securities. Of these loan notes approximately £183 million (FY16: £217 million) are held by Group companies. The remainder is held by third parties external to Aviva. As any cash shortfall arising once all mortgages have redeemed is borne by the loan note holders, the majority of the credit risk of these mortgages is borne by third parties.

£5.2 billion (FY16: £5.0 billion) of non-securitised residential loans are securitised internally through the issuance of loan notes. These mortgages are all in the form of equity release, whereby homeowners mortgage their property to release cash equity. Due to the structure of equity release mortgages, whereby interest amounts due are not paid in cash but instead rolled into the amount outstanding, they predominantly have a current Loan to Value ('LTV') of below 70%. The average LTV across the internally securitised mortgage loans is 23.4% (FY16: 23.4%).

3.3 - Financial investments


30 June 2017

31 December 2016

Financial Investments - Total

Cost/ amortised
cost
 £m

Unrealised gains
£m

Impairment and
unrealised losses
 £m

Fair value
£m

Cost/ amortised
cost
£m

Unrealised gains
£m

Impairment and
unrealised losses
 £m

Fair value
£m

Debt securities

160,635

15,542

(1,065)

175,112

168,075

16,408

(1,209)

183,274

Equity securities

60,645

15,133

(1,587)

74,191

57,268

13,214

(1,470)

69,012

Other investments

53,603

11,568

(475)

64,696

49,199

9,035

21

58,255

Total

274,883

42,243

(3,127)

313,999

274,542

38,657

(2,658)

310,541

Assets of operations classified as held for sale

4,647

130

-

4,777

9,872

865

(31)

10,706

Total (excluding assets held for sale)

270,236

42,113

(3,127)

309,222

264,670

37,792

(2,627)

299,835

Aviva holds large quantities of high quality bonds, primarily to match our liability to make guaranteed payments to policyholders. Some credit risk is taken, partly to increase returns to policyholders and partly to optimise the risk/return profile for shareholders. The risks are consistent with the products we offer and the related investment mandates, and are in line with our risk appetite.

The Group also holds equities, the majority of which are held in participating funds and policyholder funds, where they form an integral part of the investment expectations of policyholders and follow well-defined investment mandates. Some equities are also held in shareholder funds. The vast majority of equity investments are valued at quoted market prices.

 

 

 

 

Page 102

 

 

D3 - Analysis of asset quality continued

D3.3 - Financial investments continued

D3.3.1 - Debt securities


Fair value hierarchy


Debt securities - Shareholder assets 30 June 2017

Level 1
£m

Level 2
£m

Level 3
 £m

Total
£m

UK Government

10,209

1,257

137

11,603

Non-UK Government

3,366

7,525

567

11,458

Europe

3,245

4,026

285

7,556

North America

32

3,148

282

3,462

Asia Pacific & Other

89

351

-

440

Corporate bonds - Public utilities

171

4,642

591

5,404

Corporate convertible bonds

-

-

-

-

Other Corporate bonds

1,317

15,929

4,415

21,661

Other

171

1,897

524

2,592

Total

15,234

31,250

6,234

52,718

Total %

28.9%

59.3%

11.8%

100.0%

Assets of operations classified as held for sale

1,233

208

-

1,441

Total (excluding assets held for sale)

14,001

31,042

6,234

51,277

Total % (excluding assets held for sale)

27.3%

60.5%

12.2%

100.0%

FY16 Total

15,042

32,440

6,233

53,715

FY16 Total %

28.0%

60.4%

11.6%

100.0%

11.8% (FY16: 11.6%) of shareholder exposure to debt securities is fair valued using models with significant unobservable market parameters (classified as fair value Level 3). Where estimates are used, these are based on a combination of independent third party evidence and internally developed models, calibrated to market observable data where possible.

28.9% (FY16: 28.0%) of shareholder exposure to debt securities is based on quoted prices in an active market and are therefore classified as fair value Level 1.


External ratings



Debt securities - Shareholder assets 30 June 2017

AAA
£m

AA
£m

A
 £m

BBB
£m

Less than
 BBB
 £m

Non-rated
£m

Total
£m

Government








UK Government

-

11,444

71

-

-

71

11,586

UK local authorities

-

-

-

-

-

17

17

Non-UK Government

4,565

4,122

1,316

1,435

7

13

11,458


4,565

15,566

1,387

1,435

7

101

23,061

Corporate








Public utilities

-

119

2,875

2,094

31

285

5,404

Convertibles and bonds with warrants

-

-

-

-

-

-

-

Other corporate bonds

1,988

3,021

8,206

5,639

267

2,540

21,661


1,988

3,140

11,081

7,733

298

2,825

27,065

Certificates of deposits

-

-

-

2

9

-

11

Structured








RMBS1 non-agency ALT A

-

-

-

-

-

-

-

RMBS1 non-agency prime

1

33

22

3

44

-

103

RMBS1 agency

59

-

-

-

-

-

59


60

33

22

3

44

-

162

CMBS2

245

88

85

-

6

1

425

ABS3

41

474

388

49

39

9

1,000

CDO (including CLO)4

2

-

-

-

-

-

2

ABCP5

-

-

-

-

-

-

-


288

562

473

49

45

10

1,427

Wrapped credit

-

13

413

53

58

46

583

Other

2

5

86

118

139

59

409

Total

6,903

19,319

13,462

9,393

600

3,041

52,718

Total %

13.2%

36.6%

25.5%

17.8%

1.1%

5.8%

100.0%

Assets of operations classified as held for sale

65

55

205

1,085

31

-

1,441

Total (excluding assets held for sale)

6,838

19,264

13,257

8,308

569

3,041

51,277

Total % (excluding assets held for sale)

13.3%

37.6%

25.9%

16.2%

1.1%

5.9%

100.0%

FY16 Total

7,307

19,796

13,988

9,165

580

2,879

53,715

FY16 Total %

13.6%

36.8%

26.0%

17.1%

1.1%

5.4%

100.0%

1    RMBS - Residential Mortgage Backed Security.

2    CMBS - Commercial Mortgage Backed Security.

3    ABS - Asset Backed Security.

4    CDO - Collateralised Debt Obligation, CLO - Collateralised Loan Obligation. 

5    ABCP - Asset Backed Commercial Paper.

 

 

 

 

Page 103

 

 

 

D3 - Analysis of asset quality continued

D3.3 - Financial investments continued

D3.3.1 - Debt securities continued 

During the period, shareholder exposure to debt securities decreased by £1.0 billion to £52.7 billion (FY16: £53.7 billion). The overall quality of the book remains strong. 44% of shareholder exposure to debt securities is in government holdings (FY16: 43%). Our corporate debt securities portfolio represents 51% (FY16: 52%) of total shareholder debt securities.

The majority of non-rated corporate bonds are held by our businesses in the UK.

At 30 June 2017, the proportion of our shareholder debt securities that are investment grade decreased to 93.1% (FY16: 93.5%). The remaining 6.9% of shareholder debt securities that do not have an external rating of BBB or higher can be split as follows:

· 1.1% are debt securities that are rated as below investment grade;

· 5.8% are not rated by the major rating agencies.

Of the securities not rated by an external agency most are allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to be of investment grade credit quality; these include £2.2 billion of debt securities held in our UK Life business, predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade (FY16: £2.3 billion).

The Group has limited shareholder exposure to CDOs, CLOs and 'sub-prime' debt securities.

Out of the total shareholder asset backed securities (ABS), £938 million (FY16: £948 million) are held by the UK Life business. 95.2% of the Group's shareholder holdings in ABS are investment grade (FY16: 95.7%). ABS which either have a rating below BBB or are not rated represent approximately 0.1% of shareholder exposure to debt securities (FY16: 0.1%).

D3.3.2 - Equity securities


30 June 2017

31 December 2016


Fair value hierarchy


Fair value hierarchy


Equity securities - Shareholder assets

Level 1
 £m

Level 2
£m

Level 3
£m

Total
£m

Level 1
 £m

Level 2
 £m

Level 3
 £m

Total
 £m

Public utilities

7

-

-

7

6

-

-

6

Banks, trusts and insurance companies

121

-

94

215

125

-

81

206

Industrial miscellaneous and all other

414

-

11

425

237

-

15

252

Non-redeemable preferred shares

221

-

-

221

206

-

-

206

Total

763

-

105

868

574

-

96

670

Total %

87.9%

-

12.1%

100.0%

85.7%

-

14.3%

100.0%

Assets of operations classified as held for sale

54

-

-

54

-

-

-

-

Total (excluding assets held for sale)

709

-

105

814

574

-

96

670

Total % (excluding assets held for sale)

87.1%

-

12.9%

100.0%

85.7%

-

14.3%

100.0%

Within our total shareholder exposure to equity securities, 87.9% is based on quoted prices in an active market and as such is classified as Level 1 (FY16: 85.7%).

D3.3.3 - Other investments


30 June 2017

31 December 2016


Fair value hierarchy


Fair value hierarchy


Other investments - Shareholders assets

Level 1
 £m

Level 2
 £m

Level 3
 £m

Total
£m

Level 1
 £m

Level 2
£m

Level 3
£m

Total
£m

Unit trusts and other investment vehicles

2,233

10

29

2,272

1,341

9

34

1,384

Derivative financial instruments

25

1,490

354

1,869

41

1,836

45

1,922

Deposits with credit institutions

9

-

-

9

3

-

-

3

Minority holdings in property management undertakings

-

28

157

185

-

27

162

189

Other

2

-

-

2

8

-

-

8

Total

2,269

1,528

540

4,337

1,393

1,872

241

3,506

Total %

52.3%

35.2%

12.5%

100.0%

39.7%

53.4%

6.9%

100.0%

Assets of operations classified as held for sale

106

24

4

134

-

-

-

-

Total (excluding assets held for sale)

2,163

1,504

536

4,203

1,393

1,872

241

3,506

Total % (excluding assets held for sale)

51.4%

35.8%

12.8%

100.0%

39.7%

53.4%

6.9%

100.0%

In total 87.5% (FY16: 93.1%) of total shareholder other investments are classified as Level 1 or 2 in the fair value hierarchy. Unit trusts and other investment vehicles invest in a variety of assets, which can include cash equivalents, debt, equity and property securities.

D3.3.4 - Available for sale investments - Impairments and duration and amount of unrealised losses

There was no impairment expense for the six months to 30 June 2017 for AFS securities (HY16: £nil).

Total unrealised losses on AFS debt securities, equity securities and other investments at 30 June 2017 were £nil (HY16: £nil), £nil (HY16: £nil) and £nil (HY16: £nil) respectively.

 

 

 

 

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D3 - Analysis of asset quality continued

D3.3 - Financial investments continued

D3.3.5 - Exposures to peripheral European countries

Included in our debt securities and other financial assets are exposures to peripheral European countries. All of these assets are valued on a mark to market basis under IAS 39, and therefore our statement of financial position and income statement already reflect any reduction in value between the date of purchase and the balance sheet date. The significant majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds.

Net of non-controlling interests, our direct shareholder and participating fund asset exposure to the government (and local authorities and agencies) of Italy is £6.3 billion (FY16: £5.8 billion).

Direct sovereign exposures to Greece, Ireland, Portugal, Italy and Spain (net of non-controlling interests, excluding policyholder assets)



Participating


Shareholder


Total


30 June
2017
£bn

31 December 2016
 £bn

30 June
2017
 £bn

31 December 2016
£bn

30 June
2017
£bn

31 December 2016
£bn

Greece

-

-

-

-

-

-

Ireland

0.7

0.7

0.1

0.1

0.8

0.8

Portugal

0.1

0.1

-

-

0.1

0.1

Italy

5.7

5.4

0.6

0.4

6.3

5.8

Spain

1.0

1.0

0.4

0.4

1.4

1.4

Total Greece, Ireland, Portugal, Italy and Spain

7.5

7.2

1.1

0.9

8.6

8.1


Direct sovereign exposures to Greece, Ireland, Portugal, Italy and Spain (gross of non-controlling interests, excluding policyholder assets)



Participating


Shareholder


Total


30 June
2017
 £bn

31 December 2016
£bn

30 June
 2017
£bn

31 December 2016
£bn

30 June
 2017
£bn

31 December 2016
 £bn

Greece

-

-

-

-

-

-

Ireland

0.7

0.7

0.1

0.1

0.8

0.8

Portugal

0.1

0.1

-

-

0.1

0.1

Italy

7.8

7.5

0.7

0.5

8.5

8.0

Spain

1.4

1.4

0.7

0.7

2.1

2.1

Total Greece, Ireland, Portugal, Italy and Spain

10.0

9.7

1.5

1.3

11.5

11.0

 

 

 

 

 

Page 105

 

 

 

 

 

D3 - Analysis of asset quality continued

D3.3 - Financial investments continued

D3.3.6 - Non-UK Government debt securities (gross of non-controlling interests) 



Policyholder


Participating


Shareholder


Total

Non-UK Government Debt Securities

30 June
2017
£m

31 December 2016
 £m

30 June
2017
£m

31 December 2016
£m

30 June
2017
£m

31 December 2016
£m

30 June
 2017
£m

31 December 2016
£m

Austria

4

11

632

715

138

760

864

Belgium

17

21

1,042

1,273

271

357

1,330

1,651

France

119

115

12,604

13,285

1,768

1,859

14,491

15,259

Germany

109

142

1,416

1,629

677

606

2,202

2,377

Greece

-

-

-

-

-

-

-

-

Ireland

2

3

672

662

114

130

788

795

Italy

217

223

7,790

7,500

736

556

8,743

8,279

Netherlands

49

47

883

976

302

329

1,234

1,352

Poland

852

807

777

769

494

384

2,123

1,960

Portugal

1

2

129

118

-

-

130

120

Spain

91

88

1,373

1,386

668

659

2,132

2,133

European Supranational debt

135

174

1,827

2,404

1,820

1,821

3,782

4,399

Other European countries

298

272

1,312

1,029

582

642

2,192

1,943

Europe

1,894

1,905

30,457

31,746

7,556

7,481

39,907

41,132

Canada

20

16

53

174

2,397

2,525

2,587

United States

871

948

446

392

1,010

1,022

2,327

2,362

North America

891

964

499

566

3,462

3,419

4,852

4,949

Singapore

7

2

682

904

330

971

1,236

Other

2,190

2,295

2,695

2,650

158

143

5,043

5,088

Asia Pacific and other

2,197

2,297

3,377

3,554

440

473

6,014

6,324

Total

4,982

5,166

34,333

35,866

11,458

11,373

50,773

52,405

Assets of operations classified as held for sale

18

-

915

2,325

878

-

1,811

2,325

Total (excluding assets held for sale)

4,964

5,166

33,418

33,541

10,580

11,373

48,962

50,080

At 30 June 2017, the Group's total non-UK Government debt securities stood at £50.8 billion (FY16: £52.4 billion). The significant majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds.

Gross of non-controlling interests, our direct shareholder asset exposure to non-UK Government debt securities amounts to £11.5 billion (FY16: £11.4 billion). The primary exposures, relative to total shareholder non-UK Government debt exposure, are to Canadian (21%), French (15%), US (9%), Italian (6%), German (6%), and Spanish (6%) Government debt securities.

The participating funds exposure to non-UK Government debt amounts to £34.3 billion (FY16: £35.9 billion). The primary exposures, relative to total non-UK Government debt exposures included within our participating funds, are to the Government debt securities of France (37%), Italy (23%), Germany (4%), Spain (4%), Belgium (3%), and Netherlands (3%).

 

 

 

 

Page 106

 

 

 

 

D3 - Analysis of asset quality continued

D3.3 - Financial investments continued

D3.3.7 - Exposure to worldwide bank debt securities

Direct shareholder and participating fund assets exposures to worldwide bank debt securities (net of non-controlling interests, excluding policyholder assets)


Shareholder assets

Participating fund assets

30 June 2017

Total
senior debt
£bn

Total subordinated debt
£bn

Total
debt
 £bn

Total
senior debt
£bn

Total subordinated debt
 £bn

Total debt
£bn

Australia

0.3

-

0.3

0.2

-

0.2

Denmark

-

-

-

0.9

-

0.9

France

0.5

0.1

0.6

2.7

0.6

3.3

Germany

-

-

-

0.5

0.3

0.8

Ireland

-

-

-

-

-

-

Italy

0.1

-

0.1

0.1

-

0.1

Netherlands

0.3

0.2

0.5

1.3

0.2

1.5

Spain

0.6

-

0.6

0.5

0.1

0.6

Sweden

0.2

-

0.2

0.2

-

0.2

Switzerland

-

-

-

1.1

-

1.1

United Kingdom

1.3

0.4

1.7

1.4

0.9

2.3

United States

1.0

0.2

1.2

1.7

0.1

1.8

Other

0.7

0.2

0.9

2.3

0.5

2.8

Total

5.0

1.1

6.1

12.9

2.7

15.6

Assets of operations classified as held for sale

0.2

-

0.2

0.3

-

0.3

Total (excluding assets held for sale)

4.8

1.1

5.9

12.6

2.7

15.3

FY16 Total

5.4

1.2

6.6

14.8

3.1

17.9

Net of non-controlling interests, our direct shareholder exposure to worldwide debt bank securities is £6.1 billion (FY16: £6.6 billion). The majority of our holding (82%) is in senior debt. The primary exposures are to UK (28%), US (20%), and Spanish (10%) banks.

Net of non-controlling interests, the participating fund exposures to worldwide bank debt securities, where the risk to our shareholders is governed by the nature and extent of our participation within those funds, is £15.6 billion (FY16: £17.9 billion). The majority of the exposure (83%) is in senior debt. Participating funds are the most exposed to French (21%), UK (15%), and US (12%) banks.

Direct shareholder and participating fund assets exposures to worldwide bank debt securities (gross of non-controlling interests, excluding policyholder assets)


Shareholder assets

Participating fund assets

30 June 2017

Total
senior debt
 £bn

Total
subordinated
 debt
£bn

Total
debt
 £bn

Total
senior debt
£bn

Total
subordinated
debt
 £bn

Total
debt
£bn

Australia

0.3

-

0.3

0.2

-

0.2

Denmark

-

-

-

0.9

-

0.9

France

0.5

0.1

0.6

2.8

0.6

3.4

Germany

-

-

-

0.6

0.3

0.9

Ireland

-

-

-

-

-

-

Italy

0.1

-

0.1

0.2

-

0.2

Netherlands

0.3

0.2

0.5

1.3

0.2

1.5

Spain

0.8

-

0.8

0.6

0.1

0.7

Sweden

0.2

-

0.2

0.2

-

0.2

Switzerland

-

-

-

1.1

-

1.1

United Kingdom

1.3

0.4

1.7

1.5

0.9

2.4

United States

1.0

0.2

1.2

1.8

0.1

1.9

Other

0.7

0.2

0.9

2.4

0.5

2.9

Total

5.2

1.1

6.3

13.6

2.7

16.3

Assets of operations classified as held for sale

0.4

-

0.4

0.4

-

0.4

Total (excluding assets held for sale)

4.8

1.1

5.9

13.2

2.7

15.9

FY16 Total

5.5

1.2

6.7

16.2

3.3

19.5

Gross of non-controlling interests, our direct shareholder exposure to worldwide bank debt securities is £6.3 billion (FY16: £6.7 billion). The majority of our holding (83%) is in senior debt. The primary exposures are to UK (27%), US (19%), and Spanish (13%) banks.

Gross of non-controlling interests, the participating fund exposures to worldwide bank debt securities, where the risk to our shareholders is governed by the nature and extent of our participation within those funds, is £16.3 billion (FY16: £19.5 billion). The majority of the exposure (83%) is in senior debt. Participating funds are the most exposed to French (21%), UK (15%), and US (12%) banks.

 

 

 

 

Page 107

 

 

 

D4 - Pension fund assets

In addition to the assets recognised directly on the Group's statement of financial position outlined in the disclosures above, the Group is also exposed to the 'scheme assets' that are shown net of the present value of scheme liabilities within the IAS 19 net pension surplus. Pension surpluses are included within other assets and pension deficits are recognised within provisions in the Group's consolidated statement of financial position. Refer to note B15 for details on the schemes' surpluses and deficits.

Scheme assets are stated at their fair values. Total scheme assets in the UK, Ireland and Canada are comprised as follows:


30 June 2017

31 December 2016


UK
£m

Ireland
£m

Canada
 £m

Total
 £m

UK
 £m

Ireland
 £m

Canada
 £m

Total
£m

Bonds









Fixed interest

6,148

465

173

6,786

7,085

249

151

7,485

Index-linked

11,312

284

-

11,596

11,469

157

-

11,626

Equities

1

-

-

1

71

-

-

71

Property

329

-

-

329

338

-

-

338

Pooled investment vehicles

4,296

179

103

4,578

3,433

200

96

3,729

Derivatives

53

2

-

55

86

1

-

87

Cash and other1

(3,813)

(313)

6

(4,120)

(3,046)

3

34

(3,009)

Total fair value of scheme assets

18,326

617

282

19,225

19,436

610

281

20,327

Less: consolidation elimination for non-transferable Group insurance policy2

(628)

-

-

(628)

(633)

-

-

(633)

Total IAS 19 fair value of scheme assets

17,698

617

282

18,597

18,803

610

281

19,694

1    Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repos. At 30 June 2017, repos of £5,813 million (FY16: £4,666 million) are included within cash and other assets for the UK and Ireland pension schemes.

2    Friends Provident Pension Scheme assets are included in the UK balances. As at 30 June 2017, the Friends Provident Pension Scheme's cash and other balance includes an insurance policy of £628 million (FY16: £633 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated from the Group's IAS 19 scheme assets.

Total scheme assets are analysed by those that have a quoted market price in an active market and those that do not as follows:


30 June 2017

31 December 2016


Total
Quoted
£m

Total Unquoted
 £m

Total
£m

Total
Quoted
£m

Total
 Unquoted
 £m

Total
£m

Bonds







Fixed interest

2,908

3,878

6,786

3,697

3,788

7,485

Index-linked

11,195

401

11,596

11,141

485

11,626

Equities

1

-

1

71

-

71

Property

-

329

329

-

338

338

Pooled investment vehicles

396

4,182

4,578

189

3,540

3,729

Derivatives

4

51

55

70

17

87

Cash and other1

165

(4,285)

(4,120)

714

(3,723)

(3,009)

Total fair value of scheme assets

14,669

4,556

19,225

15,882

4,445

20,327

Less: consolidation elimination for non-transferable Group insurance policy2

-

(628)

(628)

-

(633)

(633)

Total IAS 19 fair value of scheme assets

14,669

3,928

18,597

15,882

3,812

19,694

1    Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repos. At 30 June 2017, repos of £5,813 million (FY16: £4,666 million) are included within cash and other assets for the UK and Ireland pension schemes.

2    Friends Provident Pension Scheme assets are included in the UK balances. As at 30 June 2017, the Friends Provident Pension Scheme's cash and other balance includes an insurance policy of £628 million (FY16: £633 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated from the Group's IAS 19 scheme assets.

Risk management and asset allocation strategy

The long-term investment objectives of the trustees and the employers are to limit the risk of the assets failing to meet the liabilities of the schemes over the long term, and to maximise returns consistent with an acceptable level of risk so as to control the long-term costs of these schemes. To meet these objectives, the schemes' assets are invested in a portfolio consisting primarily (approximately 65%3) of debt securities. The investment strategy will continue to evolve over time and is expected to match the liability profile increasingly closely with swap overlays to improve interest rate and inflation matching. The schemes are generally matched to interest rate risk relative to the funding basis.

Main UK Scheme

The Company works closely with the trustee, who is required to consult it on the investment strategy.

Interest rate and inflation risks are managed using a combination of liability-matching assets and swaps. Exposure to equity risk has been reducing over time and credit risk is managed within risk appetite. Currency risk is relatively small and is largely hedged. The other principal risk is longevity risk. In 2014, the Aviva Staff Pension Scheme entered into a longevity swap covering approximately £5 billion of pensioner in payment scheme liabilities.

Other schemes

The other schemes are considerably less material but their risks are managed in a similar way to those in the main UK scheme. In 2015, the RAC pension scheme entered into a longevity swap covering approximately £600 million of pensioner in payment scheme liabilities.

 

 

 

 

 

3    Excluding repos of £5,813 million

 

 

 

 

 

 

 

Page 108

 

 

 

 

 

D5 - Available funds

To ensure access to liquidity as and when needed, the Group maintains £1.7 billion of undrawn committed central borrowing facilities with various highly rated banks. These facilities are used to support Aviva plc's commercial paper programmes. The expiry profile of the undrawn committed central borrowing facilities is as follows:


30 June
2017
 £m

31 December 2016
£m

Expiring within one year

-

-

Expiring beyond one year

1,650

1,650

Total

1,650

1,650

D6 - Guarantees

As a normal part of their operating activities, various Group companies have given guarantees and options, including investment return guarantees, in respect of certain long-term insurance and fund management products.

For the UK Life with-profits business, provisions in respect of these guarantees and options are calculated on a market consistent basis, in which stochastic models are used to evaluate the level of risk (and additional cost) under a number of economic scenarios, which allow for the impact of volatility in both interest rates and equity prices. For UK Life non-profit business, provisions do not materially differ from those determined on a market consistent basis.

In all other businesses, provisions for guarantees and options are calculated on a local basis with sensitivity analysis undertaken where appropriate to assess the impact on provisioning levels of a movement in interest rates and equity levels (typically a 1% decrease in interest rates and 10% decline in equity markets).

 

 

 

 

 

Page 109

 

 

 

VNB & sales analysis

In this section

Page

VNB & sales analysis


E1    Sales, VNB and new business margin analysis by market (adjusted Solvency II basis)

110

E2    Trend analysis of adjusted Solvency II VNB - cumulative

110

E3    Trend analysis of adjusted Solvency II VNB - discrete

111

E4    Trend analysis of PVNBP - cumulative

111

E5    Trend analysis of PVNBP - discrete

111

E6    Trend analysis of PVNBP by product - cumulative

112

E7    Trend analysis of PVNBP by product - discrete

112

E8    Geographical analysis of regular and single premiums

113

E9    Trend analysis of investment sales - cumulative

113

E10  Trend analysis of investment sales - discrete

113

E11  Trend analysis of general insurance and health net written premiums - cumulative

114

E12  Trend analysis of general insurance and health net written premiums - discrete

114

E13  Reconciliation of sales to net written premiums in IFRS

115

E14  Principal assumptions underlying the calculation of VNB (on an adjusted Solvency II basis)

116

 

 

 

 

 

Page 110

 

 

 

E1 - Sales, VNB and new business margin analysis by market (adjusted Solvency II basis)

The table below sets out the present value of new business premiums (PVNBP) written by the life and related businesses, value generated by new business written during the period (VNB) and the resulting margin, gross of tax and non-controlling interests, on an adjusted Solvency II basis. Following the introduction of the Solvency II regime on 1 January 2016, MCEV (which was calculated on the expired Solvency I basis) is no longer used as an indicator of the drivers of financial performance of the Group's in-force Life and related businesses. The MCEV VNB and MCEV PVNBP were disclosed for the last time at 31 December 2016.

The VNB shown below is the present value of the projected stream of pre-tax distributable profit generated by the new business written during the period, including expected profit between point of sale and the valuation date on an adjusted Solvency II basis. It reflects the additional value to shareholders created through the activity of writing new business including the impacts of interactions between in-force and new business. The VNB and PVNBP for 2016 include £(12) million and £257 million respectively relating to the internal transfer of annuities from a with-profits fund to a non profit fund during the second half of 2016 in the UK. The methodology underlying the calculation of adjusted Solvency II VNB remains unchanged from the prior year as set out in note 4. The demographic assumptions used are materially the same as that used at 31 December 2016 as set out in D.2.2 of the Aviva 2016 Solvency and Financial Condition Report (SFCR). The economic assumptions have been updated to be those relevant at the point of sale which has been implemented with the assumptions being taken as those appropriate to the start of each quarter. For contracts that are re-priced more frequently, weekly or monthly economic assumptions have been used. The principal economic assumptions are set out in E14. Adjusted Solvency II PVNBP is calculated using assumptions consistent with those used to determine the adjusted Solvency II VNB.


Present value of new business premiums1

Value of new business

New business margin

Gross of tax and non-controlling interests

6 months
2017
£m

6 months
 2016
£m

Full year
2016
£m

6 months
2017
£m

6 months
2016
£m

Full year
2016
£m

6 months
2017
%

6 months
 2016
%

Full year
2016
 %

United Kingdom

11,191

8,232

18,142

267

200

429

2.4%

2.4%

2.4%

Ireland

495

339

710

3

5

12

0.6%

1.5%

1.7%

United Kingdom & Ireland

11,686

8,571

18,852

270

205

441

2.3%

2.4%

2.3%

France

2,405

2,898

5,523

120

101

225

5.0%

3.5%

4.1%

Poland

202

190

421

28

22

54

13.9%

11.6%

12.8%

Italy

2,191

2,024

3,634

60

42

83

2.7%

2.1%

2.3%

Spain

677

299

935

25

12

34

3.7%

4.0%

3.6%

Turkey

274

216

455

10

11

21

3.6%

5.1%

4.6%

Europe

5,749

5,627

10,968

243

188

417

4.2%

3.3%

3.8%

Asia

1,328

982

2,372

71

43

106

5.3%

4.4%

4.5%

Aviva Investors

1,262

1,388

2,845

12

12

28

1.0%

0.9%

1.0%

Total

20,025

16,568

35,037

596

448

992

3.0%

2.7%

2.8%

1    A reconciliation to IFRS net written premiums can be found in note E13.

E2 - Trend analysis of adjusted Solvency II VNB - cumulative





Growth1 on 1H16

Gross of tax and non-controlling interests

1H16 YTD
£m

2H16 YTD
£m

1H17 YTD
 £m

Sterling
%

Constant currency
%

United Kingdom2

200

429

267

34%

34%

Ireland

5

12

3

(42)%

(47)%

United Kingdom & Ireland

205

441

270

32%

32%

France

101

225

120

19%

8%

Poland3

22

54

28

24%

10%

Italy

42

83

60

43%

29%

Spain

12

34

25

107%

87%

Turkey

11

21

10

(1)%

8%

Europe

188

417

243

29%

18%

Asia

43

106

71

63%

49%

Aviva Investors

12

28

12

-

-

Total

448

992

596

33%

27%

1    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2    Includes £(12) million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 2H16.

3    Poland includes Lithuania.

 

 

 

 

 

 

Page 111

 

 

 

 

 

 

E3 - Trend analysis of adjusted Solvency II VNB - discrete





Growth1 on 1H16

Gross of tax and non-controlling interests

1H16 Discrete £m

2H16 Discrete £m

1H17 Discrete £m

Sterling
%

Constant currency
%

United Kingdom2

200

229

267

34%

34%

Ireland

5

7

3

(42)%

(47)%

United Kingdom & Ireland

205

236

270

32%

32%

France

101

124

120

19%

8%

Poland3

22

32

28

24%

10%

Italy

42

41

60

43%

29%

Spain

12

22

25

107%

87%

Turkey

11

10

10

(1)%

8%

Europe

188

229

243

29%

18%

Asia

43

63

71

63%

49%

Aviva Investors

12

16

12

-

-

Total

448

544

596

33%

27%

1    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2    Includes £(12) million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 2H16.

3    Poland includes Lithuania.

E4 - Trend analysis of PVNBP - cumulative





Growth2 on 1H16

Present value of new business premiums1

1H16 YTD
£m

2H16 YTD
£m

1H17 YTD
 £m

Sterling
%

Constant currency
%

United Kingdom3

8,232

18,142

11,191

36%

36%

Ireland

339

710

495

46%

32%

United Kingdom & Ireland

8,571

18,852

11,686

36%

36%

France

2,898

5,523

2,405

(17)%

(25)%

Poland4

190

421

202

6%

(6)%

Italy

2,024

3,634

2,191

8%

(2)%

Spain

299

935

677

126%

105%

Turkey

216

455

274

26%

39%

Europe

5,627

10,968

5,749

2%

(7)%

Asia

982

2,372

1,328

35%

27%

Aviva Investors

1,388

2,845

1,262

(9)%

(9)%

Total

16,568

35,037

20,025

21%

16%

1    Present value of new business premiums (PVNBP) is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.

2    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3    Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 2H16.

4    Poland includes Lithuania.

E5 - Trend analysis of PVNBP - discrete





Growth2 on 1H16

Present value of new business premiums1

1H16 Discrete £m

2H16 Discrete £m

1H17 Discrete £m

Sterling
 %

Constant currency
%

United Kingdom3

8,232

9,910

11,191

36%

36%

Ireland

339

371

495

46%

32%

United Kingdom & Ireland

8,571

10,281

11,686

36%

36%

France

2,898

2,625

2,405

(17)%

(25)%

Poland4

190

231

202

6%

(6)%

Italy

2,024

1,610

2,191

8%

(2)%

Spain

299

636

677

126%

105%

Turkey

216

239

274

26%

39%

Europe

5,627

5,341

5,749

2%

(7)%

Asia

982

1,390

1,328

35%

27%

Aviva Investors

1,388

1,457

1,262

(9)%

(9)%

Total

16,568

18,469

20,025

21%

16%

1    Present value of new business premiums (PVNBP) is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.

2    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3    Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 2H16.

4    Poland includes Lithuania.

 

 

 

 

 

Page 112

 

 

 

 

 

 

 

E6 - Trend analysis of PVNBP by product - cumulative





Growth2 on 1H16

Present value of new business premiums1

1H16 YTD
 £m

2H16 YTD
£m

1H17 YTD
£m

Sterling
%

Constant currency
%

Pensions

5,578

11,615

7,169

29%

29%

Annuities3

571

2,074

1,075

89%

89%

Bonds

62

141

70

12%

12%

Protection

887

1,770

1,006

13%

13%

Equity release

247

637

360

46%

46%

Other

887

1,905

1,511

70%

70%

United Kingdom

8,232

18,142

11,191

36%

36%

Ireland

339

710

495

46%

32%

United Kingdom & Ireland

8,571

18,852

11,686

36%

36%

Savings

2,704

5,114

2,151

(20)%

(28)%

Protection

194

409

254

31%

19%

France

2,898

5,523

2,405

(17)%

(25)%

Pensions

322

757

429

33%

35%

Savings

2,137

4,082

2,562

20%

9%

Annuities

-

1

-

-

-

Protection

270

605

353

30%

19%

Poland4, Italy, Spain and Turkey

2,729

5,445

3,344

23%

12%

Europe

5,627

10,968

5,749

2%

(7)%

Asia

982

2,372

1,328

35%

27%

Aviva Investors

1,388

2,845

1,262

(9)%

(9)%

Total

16,568

35,037

20,025

21%

16%

1    Present value of new business premiums (PVNBP) is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.

2    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3    Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 2H16.

4    Poland includes Lithuania.

E7 - Trend analysis of PVNBP by product - discrete





Growth2 on 1H16

Present value of new business premiums1

1H16 Discrete £m

2H16 Discrete £m

1H17 Discrete £m

Sterling
%

Constant currency
 %

Pensions

5,578

6,037

7,169

29%

29%

Annuities3

571

1,503

1,075

89%

89%

Bonds

62

79

70

12%

12%

Protection

887

883

1,006

13%

13%

Equity release

247

390

360

46%

46%

Other

887

1,018

1,511

70%

70%

United Kingdom

8,232

9,910

11,191

36%

36%

Ireland

339

371

495

46%

32%

United Kingdom & Ireland

8,571

10,281

11,686

36%

36%

Savings

2,704

2,410

2,151

(20)%

(28)%

Protection

194

215

254

31%

19%

France

2,898

2,625

2,405

(17)%

(25)%

Pensions

322

435

429

33%

35%

Savings

2,137

1,945

2,562

20%

9%

Annuities

-

1

-

-

-

Protection

270

335

353

30%

19%

Poland4, Italy, Spain and Turkey

2,729

2,716

3,344

23%

12%

Europe

5,627

5,341

5,749

2%

(7)%

Asia

982

1,390

1,328

35%

27%

Aviva Investors

1,388

1,457

1,262

(9)%

(9)%

Total

16,568

18,469

20,025

21%

16%

1    Present value of new business premiums (PVNBP) is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.

2    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3    Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 2H16.

4    Poland includes Lithuania.

 

 

 

 

 

Page 113

 

 

 

 

 

 

E8 - Geographical analysis of regular and single premiums






Regular premiums

Single premiums


6 months
2017
 £m

Constant currency

growth1

WACF

Present value £m

6 months
 2016
£m

WACF

Present value £m

6 months
 2017
£m

6 months
2016
£m

Constant currency growth1

United Kingdom

929

7%

5.5

5,066

869

5.0

4,331

6,125

3,901

57%

Ireland

19

17%

6.3

119

15

6.5

97

376

242

41%

United Kingdom & Ireland

948

7%

5.5

5,185

884

5.0

4,428

6,501

4,143

56%

France

50

(15)%

9.8

491

53

8.9

474

1,914

2,424

(28)%

Poland2

25

17%

6.4

159

19

7.7

146

43

44

(13)%

Italy

18

(33)%

6.5

117

24

2.9

69

2,074

1,955

(4)%

Spain

22

33%

6.2

136

15

5.9

88

541

211

132%

Turkey

54

53%

4.1

224

39

4.8

188

50

28

102%

Europe

169

6%

6.7

1,127

150

6.4

965

4,622

4,662

(10)%

Asia

151

40%

6.7

1,011

100

6.8

682

317

300

(1)%

Aviva Investors

-

-

-

-

-

-

-

1,262

1,388

(9)%

Total

1,268

10%

5.8

7,323

1,134

5.4

6,075

12,702

10,493

15%

1    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2    Poland includes Lithuania.

E9 - Trend analysis of investment sales - cumulative





Growth2 on 1H16

Investment sales1

1H16 YTD
 £m

2H16 YTD
 £m

1H17 YTD
£m

Sterling
 %

Constant currency
%

United Kingdom & Ireland3

575

1,390

1,143

99%

99%

Aviva Investors4

3,587

5,765

2,949

(18)%

(23)%

Asia5

58

137

116

98%

78%

Total investment sales

4,220

7,292

4,208

-

(6)%

1    Investment sales are calculated as new single premiums plus the annualised value of new regular premiums.

2    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3    UK & Ireland investment sales are also reported in UK Life PVNBP. YTD investment sales of £575 million for 1H16, £1,390 million for 2H16 and £1,143 million for 1H17 are equivalent to £636 million, £1,484 million, and £1,202 million respectively on a PVNBP basis.

4    YTD investment sales of £1,381 million for 1H16, £2,834 million for 2H16 and £1,259 million for 1H17 are also included in Aviva Investors' PVNBP.

5    Asia investment sales are also reported in Asia PVNBP.

E10 - Trend analysis of investment sales - discrete






Growth2 on 1H16

Investment sales1

1H16 Discrete £m

2H16 Discrete £m

1H17 Discrete £m

Sterling
%

Constant currency
 %

United Kingdom & Ireland3

575

815

1,143

99%

99%

Aviva Investors4

3,587

2,178

2,949

(18)%

(23)%

Asia5

58

79

116

98%

78%

Total investment sales

4,220

3,072

4,208

-

(6)%

1    Investment sales are calculated as new single premiums plus the annualised value of new regular premiums.

2    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3    UK & Ireland investment sales are also reported in UK Life PVNBP. Discrete investment sales of £575 million for 1H16, £815 million for 2H16, and £1,143 million for 1H17, are equivalent to £636 million, £847 million, and £1,202 million respectively on a PVNBP basis.

4    Discrete investment sales of £1,381 million for 1H16, £1,453 million for 2H16, and £1,259 million for 1H17 are also included in Aviva Investors' PVNBP.

5    Asia investment sales are also reported in Asia PVNBP.

 

 

 

 

Page 114

 

 

 

E11 - Trend analysis of general insurance and health net written premiums - cumulative





Growth1 on 1H16


1H16 YTD
 £m

2H16 YTD
 £m

1H17 YTD
£m

Sterling
 %

Constant currency
 %

General insurance






United Kingdom2

2,001

3,930

2,105

5%

5%

Ireland

179

378

221

23%

12%

United Kingdom & Ireland

2,180

4,308

2,326

7%

6%

Canada

1,049

2,453

1,477

41%

25%

Europe

757

1,438

879

16%

5%

Asia & Other

5

12

6

11%

1%


3,991

8,211

4,688

17%

11%

Health insurance






United Kingdom3

292

514

293

-

-

Ireland4

43

49

-

(100)%

(100)%

United Kingdom & Ireland

335

563

293

(13)%

(14)%

Europe

155

235

165

7%

(3)%

Asia5

64

125

78

22%

10%


554

923

536

(3)%

(8)%

Total

4,545

9,134

5,224

15%

9%

1    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2    FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

3    These premiums are also reported in UK Life PVNBP. 1H16 YTD NWP of £292 million, 2H16 YTD NWP of £514 million, and 1H17 YTD NWP of £293 million are equivalent to £255 million, £424 million and £308 million on a PVNBP basis respectively.

4    The sale of the Ireland Health business was completed in FY16

5    Singapore long-term health business is also reported in Asia PVNBP. For Singapore long term health business, 1H16 YTD NWP of £30 million, 2H16 YTD NWP £67 million and 1H17 YTD £38 million are equivalent to £97 million, £209 million and £69 million on a PVNBP basis respectively.

E12 - Trend analysis of general insurance and health net written premiums - discrete





Growth1 on 1H16


1H16 Discrete £m

2H16 Discrete £m

1H17 Discrete £m

Sterling
%

Constant currency
%

General insurance






United Kingdom2

2,001

1,929

2,105

5%

5%

Ireland

179

199

221

23%

12%

United Kingdom & Ireland

2,180

2,128

2,326

7%

6%

Canada

1,049

1,404

1,477

41%

25%

Europe

757

681

879

16%

5%

Asia & Other

5

7

6

11%

1%


3,991

4,220

4,688

17%

11%

Health insurance






United Kingdom3

292

222

293

-

-

Ireland4

43

6

-

(100)%

(100)%

United Kingdom & Ireland

335

228

293

(13)%

(14)%

Europe

155

80

165

7%

(3)%

Asia5

64

61

78

22%

10%


554

369

536

(3)%

(8)%

Total

4,545

4,589

5,224

15%

9%

1    Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2    FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

3    These premiums are also reported in UK Life PVNBP, 1H16 NWP of £292 million, 2H16 of £222 million and 1H17 of £293 million are equivalent to £255 million, £255 million and £308 million on a PVNBP basis respectively.

4    The sale of the Ireland Health business was completed in FY16

5    Singapore long-term health business is also reported in Asia PVNBP. For Singapore long term health business, 1H16 NWP of £30 million, 2H16 £37 million and 1H17 NWP of £38 million are equivalent to £97 million, £112 million, and £69 million on a PVNBP basis respectively.

 

 

 

 

Page 115

 

E13 - Reconciliation of sales to net written premiums in IFRS

The table below presents our consolidated sales for the periods ended 30 June 2017, 30 June 2016 and the year ended 31 December 2016 as well as the reconciliation of sales to net written premiums in IFRS.


6 months
 2017
£m

6 months
2016
£m

Full Year
 2016
£m

Present value of new business premiums

20,025

16,568

35,037

Investment sales

4,208

4,220

7,292

General insurance and health net written premiums

5,224

4,545

9,134

Less: long-term health and collectives business1

(2,851)

(2,337)

(4,944)

Total sales

26,606

22,996

46,519

Less: Effect of capitalisation factor on regular premium long-term business

(5,938)

(4,941)

(10,563)

Share of long-term new business sales from JVs and associates

(354)

(238)

(552)

Annualisation impact of regular premium long-term business

(152)

(142)

(264)

Deposits taken on non-participating investment contracts and equity release contracts

(5,132)

(3,781)

(7,834)

Retail sales of mutual fund type products (investment sales)

(4,208)

(4,220)

(7,292)

Add: IFRS gross written premiums from existing long-term business

2,516

2,604

4,867

Less: Long-term insurance and savings business premiums ceded to reinsurers

(838)

(845)

(1,696)

Less: Outward reinsurance premium relating to general insurance business

-

-

(107)

Total IFRS net written premiums

12,500

11,433

23,078

Analysed as:




Long-term insurance and savings net written premiums

7,276

6,888

14,051

General insurance and health net written premiums

5,224

4,545

9,027


12,500

11,433

23,078

1    Long-term health and collectives business are included as part of PVNBP.

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 same methodology as for VNB (on an adjusted Solvency II basis).

The discounted value reflects the expected income streams over the life of the contract, adjusted for expected levels of persistency, discounted back to present value. The discounted value can also be expressed as annualised regular premiums multiplied by a weighted average capitalisation factor (WACF). The WACF varies over time depending on the mix of new products sold, the average outstanding term of the new contracts and the projection assumptions.

Share of long-term new business sales from joint ventures and associates

Total long-term new business sales include our share of sales from joint ventures and associates. Under IFRS reporting, premiums from these sales are excluded from our consolidated accounts, with only our share of profits or losses from such businesses being brought into the income statement separately.

Annualisation impact of regular premium long-term business

As noted above, the calculation of PVNBP includes annualised regular premiums. The impact of this annualisation is removed in order to reconcile the non-GAAP new business sales to IFRS premiums and will vary depending on the volume of regular premium sales during the year.

Deposits taken on non-participating investment contracts and equity release contracts

Under IFRS, non-participating investment contracts are recognised in the Statement of Financial Position by recording the cash received as a deposit and an associated liability and are not recorded as premiums received in the IFRS income statement. Only the margin earned is recognised in the IFRS income statement.

Retail sales of mutual fund type products (investment sales)

Investment sales included in the total sales number represent the cash inflows received from customers to invest in mutual fund type products such as unit trusts and OEICs. We earn fees on the investment and management of these funds which are recorded separately in the IFRS income statement as 'fees and commissions received' and are not included in statutory premiums.

IFRS gross written premiums from existing long-term business

The non-GAAP measure of long-term and savings sales focuses on new business written in the year under review whilst the IFRS income statement includes premiums received from all business, both new and existing.

 

 

 

 

 

Page 116

 

E14 - Principal Assumptions underlying the calculation of VNB (on an adjusted SII basis)

Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at the end of each reporting period.

The risk-free interest rate curves used to calculate VNB reflect the basic risk-free interest rate curves (including the credit risk adjustment), volatility adjustment and fundamental spread for the matching adjustment published by EIOPA on their website. The details on methodology are set out in D.2.2.3 of the Aviva 2016 Solvency and Financial Condition Report (SFCR).

(a) Basic risk-free interest rates

The basic risk-free rate curves are stated in the table below, including a credit risk adjustment.

United Kingdom

2Q 2017
%

1Q 2017
%

4Q 2016
%

3Q 2016
%

2Q 2016
%

1Q 2016
%

Reference rate







1 year

0.4%

0.4%

0.4%

0.3%

0.4%

0.6%

5 years

0.8%

0.7%

0.7%

0.4%

0.5%

0.9%

10 years

1.2%

1.0%

1.1%

0.6%

0.9%

1.3%

15 years

1.4%

1.2%

1.3%

0.8%

1.1%

1.5%

20 years

1.5%

1.3%

1.3%

0.9%

1.1%

1.6%

 

Eurozone

2Q 2017
%

1Q 2017
%

4Q 2016
%

3Q 2016
%

2Q 2016
%

1Q 2016
%

Reference rate







1 year

(0.3)%

(0.3)%

(0.3)%

(0.3)%

(0.3)%

(0.2)%

5 years

0.2%

0.1%

0.0%

(0.2)%

(0.2)%

(0.1)%

10 years

0.8%

0.7%

0.6%

0.2%

0.3%

0.5%

15 years

1.2%

1.1%

1.0%

0.5%

0.7%

0.8%

20 years

1.4%

1.3%

1.1%

0.7%

0.8%

0.9%

 

(b) Matching adjustment

The matching adjustment (MA) is an increase applied to the risk-free rate used to value insurance liabilities where the cash flows are relatively fixed (e.g. no future premiums or surrender risk) and are well matched by assets that are intended to be held to maturity and have cash flows that are also relatively fixed. The intention is that, if held to maturity, the business can earn the additional yield on these assets that relate to illiquidity risk.

Aviva applies a matching adjustment to certain obligations in UK Life and Spain Life, using methodology which is set out in the SFCR Report. The matching adjustments used to value new business will reflect the characteristics of the assets allocated to back the new business. The allocation of assets to new business anticipates the expected assets chosen to back new business at the end of year closing balance sheet. These may be different to the matching adjustments applied at the portfolio level.

The matching adjustments used for new business are shown in the table below:

Matching Adjustment Portfolio (bps)

1H 2017

2H 2016

1H 2016

UK Life

 123

 171

 152

Spain Life

 19

 24

 30

At HY17, a combined MA of 123 bps was calculated for new business within the Friends UK and the Aviva UK annuity portfolios. Prior to HY17 separate MAs were calculated for these portfolios and the assumptions shown in the table above for the comparative periods relate to the Aviva UK annuity portfolio. For Friends UK, the MAs were 106 bps and 123 bps at 2H2016 and 1H2016 respectively. In the comparative periods, the higher MA for Aviva UK new business partly reflects the allocation to Aviva UK of a higher proportion of illiquid assets.

(c) Volatility adjustment

The volatility adjustment (VA) is intended to reflect temporary distortions in spreads caused by illiquidity in the market or extreme widening of credit spreads, in particular in relation to government bonds. VAs are prescribed by EIOPA and published along with the basic risk-free interest rate curves on their website. Where applicable the VA is applied to all those liabilities where a MA is not applied, with the exception of unit-linked business in UK Life where, in line with the approved applications, no allowance for the VA is made.

The volatility adjustments used are shown in the table below:

Volatility Adjustment (bps)

1H 2017

2H 2016

1H 2016

United Kingdom

21

30

38

Eurozone

9

13

16

 

 

Page 117

 

Other information

In this section

Page

Other information


Glossary

118

Shareholder services

122

 

 

 

 

 

Page 118

 

 

 

 

Product definitions

Annuity

A type of policy that pays out regular amounts, 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 dependants 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 funded by a policyholder by payment of a series of contributions or by a capital sum. Annuities may be guaranteed, unit-linked or index-linked.

Bonds and savings

These are accumulation products with single or regular premiums and unit-linked or guaranteed investment returns.

Critical illness cover

Pays out a lump sum if the insured person is diagnosed with a serious illness that is specified within the insurance policy.

Equity release

Equity release mortgages allow a homeowner to receive a lump sum in return for a mortgage secured on their house. No interest is payable on the loan; instead, interest is rolled-up on the loan and the loan and accrued interest are repayable at redemption (upon death or moving into long-term care).

General insurance

Also known as non-life or property and casualty insurance. Property insurance covers loss or damage through fire, theft, flood, storms and other specified risks. Casualty insurance primarily covers losses arising from accidents that cause injury to other people or damage to the property of others.

Group pension

A pension plan that covers a group of people, which is typically purchased by a company and offered to their employees.

Health insurance

Provides cover against loss from illness or bodily injury. It can pay for medicine, visits to the doctor, hospital stays, other medical expenses and loss of earnings, depending on the conditions covered and the benefits and choices of treatment available on the policy.

Individual savings account (ISAs)

Tax-efficient plans within the UK for investing in stocks and shares, cash deposits or life insurance investment funds, subject to certain limits.

Investment sales

Comprise retail sales of mutual fund-type products such as unit trusts, individual savings accounts (ISAs) and open-ended investment companies (OEICs).

Mortgage endowment

An insurance contract combining savings and protection elements which is designed to repay the principal of a loan or mortgage.

Mortgage life insurance

A protection contract designed to pay off the outstanding amount of a mortgage or loan in the event of the death of the insured.

Open-ended investment company (OEIC)

A collective investment fund structured as a limited company in which investors can buy and sell shares.

Pension

A means of providing income in retirement for an individual and possibly his/her dependants. Individual pensions are pension plans that are arranged by the policyholder whereas workplace pensions are plans that are arranged by an individual's employer.

Protection

An insurance contract that protects the policyholder or his/her dependants against financial loss on death or ill-health.

Regular premium

A series of payments made by the policyholder, typically monthly or annually, for part of or all of the duration of the contract.

Single premium

A single lump sum paid by the policyholder at the start of the contract.

Unit-linked

Unit-linked business relates to collective investment savings products where premiums are invested on policyholders' behalf in individual units within an investment fund. The financial risk on these contracts is borne by the policyholders.

Unit trusts

A form of open-ended collective investment that is set up under a trust deed, in which investors can buy and sell units.

With-profits/Participating business

With-profits business relates to insurance contracts where premiums are invested in investment funds and policyholders have a contractual right to receive additional benefits based on factors such as the performance of the assets held within the fund, in addition to any guaranteed benefits. The insurer may have discretion as to the timing or amount of additional benefits allocated to policyholders.

 

 

 

 

Page 119

 

 

 

General terms

Alternative performance measures

Alternative performance measures ('APMs') are non-GAAP measures used by the Aviva Group within its financial publications to supplement disclosures prepared in accordance with other regulations such as International Financial Reporting Standards (IFRS) and Solvency II. We believe that these measures provide useful information to enhance the understanding of financial performance. The APMs should be viewed as complementary to, rather than a substitute for, the figures determined according to other regulatory measures.

The Group's APMs are highlighted below using the following symbol '‡'.

Acquired value of in force (AVIF)

The present value of future profits on a portfolio of long-term insurance and investment contracts, acquired either directly or through the purchase of, or investment in, a business.

Adjusted Solvency II Present value of new business premiums (PVNBP) ‡

Present value of new regular premiums plus 100% of single premiums from new business written at the point of sale and any changes to existing contracts, which were not anticipated at the outset of the contract that generates additional shareholder risk and associated premium income of the nature of a new policy. An example of a change to existing contracts that is considered to be generating PVNBP is an internal transfer of annuities from with-profits funds to a non-profit fund. PVNBP is calculated using assumptions consistent with those used to determine the adjusted Solvency II value of new business.

Adjusted Solvency II value of new business ‡

Adjusted Solvency II VNB is the increase in Solvency II Own Funds resulting from business written in the period, adjusted to remove the impact of contract boundaries, to include look through profits in service companies (where not included in Solvency II) and to include business which is not included in the Solvency II valuation. There is no explicit adjustment to include the cost associated with holding the Solvency II capital requirement as the Solvency II risk margin is viewed to be sufficient.

The methodology underlying the calculation of adjusted Solvency II VNB uses Solvency II rules with adjustments to reflect a more realistic basis than the prudential Solvency II basis.

Adjusted Solvency II VNB can be reconciled to the Solvency II Own Funds impact of new business; however there is no equivalent IFRS metric.

Annual premium equivalent (APE)

Used as a measure of life sales. It is calculated as the sum of new regular premiums plus 10% of new single premiums written in the period.

Assets under management‡

Assets under management represents all assets managed or administered by or on behalf of the Group, including those assets managed by third parties. Assets under management include managed assets that are included within the Group's statement of financial position and those assets belonging to external clients outside the Aviva Group which are therefore not included in the Group's statement of financial position.

 

Available for sale (AFS)

Securities that have been acquired neither for short-term sale nor to be held to maturity and are not classified as other than trading. These are shown at fair value on the statement of financial position and changes in value are taken straight to equity instead of the income statement.

Bancassurance/Affinity

An arrangement whereby banks and building societies sell insurance and investment products to their customers on behalf of other financial providers.

Best Estimate Liabilities (BEL)

The expected present value of future cash flows for a company's current insurance obligations, calculated using best estimate assumptions, projected over the contract's run-off period, taking into account all up-to-date financial market and actuarial information.

Cash remittances ‡

Amounts paid by our operating businesses to the Group, comprising dividends and interest on internal loans. These amounts eliminate on consolidation and hence are not directly reconcilable to the Group's IFRS consolidated statement of cash flows.

Combined operating ratio (COR) ‡

A financial measurement of general insurance underwriting profitability calculated as the sum of claims incurred, earned commission and earned expenses expressed as a percentage of net earned premiums. A COR below 100% indicates profitable underwriting.

The components used to calculate COR for the Group are detailed in note 7.ii - General insurance and health.

Contract boundaries

A contract boundary is the first point in time in the lifetime of an insurance policy at which the insurer has the ability to review the premiums charged at the individual policy level, without any contractual constraints. For policies in which such a point does not exist, the contract boundary is the same as the full term of the contract. Under Solvency II, if a contract boundary on an insurance contract is less than the full term of the contract the expected future premiums and obligations that relate to cover which may be provided after that date are not recognised in the measurement of the insurance liabilities.

Deferred acquisition costs (DAC)

The costs directly attributable to the acquisition of new business for insurance and investment contracts may be deferred to the extent that they are expected to be recoverable out of future margins in revenue on these contracts.

EIOPA

The European Insurance and Occupational Pensions Authority (EIOPA) was established as a consequence of the reforms to the structure of supervision of the financial sector in the European Union. The reform was initiated by the European Commission.

EIOPA's core responsibilities are to support the stability of the financial system, transparency of markets and financial products as well as the protection of policyholders, pension scheme members and beneficiaries. EIOPA is commissioned to monitor and identify trends, potential risks and vulnerabilities stemming from the micro-prudential level, across borders and across sectors.

The implementation of the Solvency II directive aims to address these goals.

 

 

 

 

 

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Fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price).

Financial Conduct Authority (FCA)

The FCA is an independent public body and is independent of the Bank of England. It is responsible for the conduct business regulation of financial services firms (including those firms subject to prudential regulation by the PRA) and the prudential regulation of firms not regulated by the PRA. The FCA has three statutory objectives: securing an appropriate degree of protection for consumers; protecting and enhancing the integrity of the UK financial system; and promoting effective competition in the interests of consumers.

Gross written premiums

The total earnings or revenue generated by sales of insurance products, before any reinsurance is taken into account. Not all premiums written will necessarily be treated as income in the current financial year, because some of them could relate to insurance cover for a subsequent period.

Independent Financial Advisers (IFAs)

A person or organisation authorised to give independent advice on financial matters. IFAs are authorised by the FCA in the UK.

Inherited estate

In the UK, the assets of the long-term with-profits funds less the realistic reserves for non-profit policies written within the with-profits funds, less asset shares aggregated across the with-profits 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.

International Financial Reporting Standards (IFRS)

These are international accounting regulations that all publicly listed companies in the European Union are required to use.

Latent claims

General insurance claims that are often not made until many years after the period of cover provided, due to the impact of perils or causes not becoming evident for a number of years. Sources of latent claims include asbestos-related diseases, environmental pollution and industrial deafness.

Life business

Subsidiaries selling life and pensions contracts.

Longevity risk

Risk associated with increasing life expectancy trends among policyholders and pensioners.

Long-term and savings business

Collective term for life insurance, pensions, savings, investments and related business.

Matching adjustment

An increase applied to the risk-free interest rate used to value insurance liabilities under Solvency II where the cash flows are relatively fixed (e.g. no future premiums or surrender risk) and are well matched to assets that are intended to be held to maturity and have cash flows that are also relatively fixed.

Minimum capital requirement (MCR)

The Minimum Capital Requirement is the minimum amount of capital that an insurer needs to hold to cover its risks under the Solvency II regulatory framework. If an insurer's capital falls below the MCR then authorisation will be withdrawn by the regulator unless a firm is able to meet the MCR within a short period of time.

Morbidity

Rate of disease or how likely someone will fall ill, varying by such parameters as age, gender and health, used in pricing and calculating liabilities for policyholders of life and annuity products, which contain morbidity risks.

Mortality

Rate of death, varying by such parameters as age, gender and health, used in pricing and calculating liabilities for policyholders of life and annuity products, which contain mortality risks.

Net asset value (NAV) per share‡

Net asset value (NAV) per share is calculated as the equity attributable to shareholders of Aviva plc, less preference share capital (both within the Consolidated statement of financial position), divided by the actual number of shares in issue as at the balance sheet date.

Net written premiums

Total gross written premiums for the given period, minus premiums paid over or 'ceded' to reinsurers.

New business margin

New business margins are calculated as the adjusted Solvency II value of new business divided by the adjusted Solvency II present value of new business premiums (PVNBP), and expressed as a percentage.

Operating Capital Generation (OCG)‡

OCG is the Solvency II surplus movement in the period due to operating items including the impact of new business, expected investment returns on existing business, operating variances, operating assumption changes and management actions. It excludes economic variances, economic assumption changes and integration and restructuring costs.

Operating earnings per share (EPS)‡

Operating EPS is calculated based on the operating profit attributable to ordinary shareholders net of tax, non-controlling interests, preference dividends, the direct capital instrument (DCI) and tier one notes divided by the weighted average number of ordinary shares in issue, after deducting treasury shares.

The components used to calculate the operating EPS are detailed in note B7 - Earnings per share.

Operating expense ratio ‡

The Group operating expense ratio expresses operating expenses as a percentage of operating income. Operating income is calculated as operating profit before Group debt costs and operating expenses.

The components used to calculate the operating expense ratio are detailed in note 1 - Operating profit, note 3 - Expenses and note A3 - Group debt costs and other interest.

Operating expenses ‡

The day-to-day expenses involved in running the business including staff costs. For the avoidance of doubt, operating expenses excludes commission, non-operating integration and restructuring costs, and amortisation and impairment of AVIF and intangible assets. The components of operating expenses are detailed in note 3 - Expenses.

 

 

 

 

 

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Operating profit ‡

This is a non-GAAP financial performance measure. It is based on expected investment returns and stated before tax and before non-operating items including impairment of goodwill and amortisation and impairment of acquired value of in-force business, the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates, integration and restructuring costs and other items. Other items are those items that, in the Directors' view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group's financial performance.

The components of operating profit are detailed in note A - Reconciliation of group operating profit to profit after tax.

Own Funds

Under Solvency II, capital available to cover the SCR and MCR is referred to as own funds. This includes the excess of assets over liabilities in the Solvency II balance sheet (calculated on best estimate, market consistent assumptions and net of transitional measures on technical provisions), subordinated liabilities that qualify as capital under Solvency II, and off-balance sheet own funds approved by the regulator. Own funds eligible to cover the SCR and MCR also reflect any tiering restrictions.

Persistency

The rate at which policies are retained over time and therefore continue to contribute premium income and assets under management.

Prudential Regulatory Authority (PRA)

The PRA is a part of the Bank of England and is responsible for the prudential regulation of deposit taking institutions, insurers and major investment firms. The PRA's objectives are: to promote the safety and soundness of the firms it regulates; specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders; and a secondary objective to facilitate effective competition.

Return on equity ‡

The return on equity calculation is based on operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity.

The components of the calculation are detailed in note C1 - Analysis of return on equity.

Risk-adjusted returns

Adjusting profits earned and investment returns by how much risk is involved in producing that return or profit.

Risk Margin

The amount an insurance company would require, in excess of best estimate liabilities, in order to take over and meet the whole portfolio of insurance and reinsurance obligations. It reflects the cost of providing capital equal to the Solvency II capital requirement for non-hedgeable risks necessary to support the insurance obligations over their lifetime. Risk Margin represents the value of deviation risk of the actual outcome compared with the best estimate, expressed in terms of a defined risk measure.

Solvency II

These are insurance regulations designed to harmonise EU insurance regulation. Primarily this concerns the amount of capital that European insurance companies must hold under a measure of capital and risk. Solvency II became effective from 1 January 2016.

Solvency II cover ratio ‡

Own funds divided by the Solvency Capital Requirement (SCR), as calculated on a shareholder view. The shareholder view excludes the contribution to Group SCR and Group own funds of fully ring fenced with-profits funds and staff pension schemes in surplus - these exclusions have no impact on Solvency II surplus.

Solvency II cover ratio is detailed in note 8.iv - Solvency II.

Solvency II own funds impact of new business

The change in own funds resulting from new business written in the period.

Solvency II surplus

Own funds less the SCR. Holding capital in excess of the SCR demonstrates an insurer has adequate financial resources in place to meet all its liabilities as and when they fall due and that there is sufficient capital to absorb significant losses.

Solvency II surplus impact of new business

The change in Solvency II surplus resulting from new business written in the period.

Solvency Capital Requirement (SCR)

The SCR is the amount of capital the regulator requires an insurer to hold to meet the requirements under the Solvency II regulatory framework. Firms may use their own internal model, the European Insurance and Occupational Pensions Authority (EIOPA) prescribed standard formula or a partial internal model to determine SCR.

Transitional Measures on Technical Provisions (TMTP)

TMTP is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis changed, to smooth the introduction of the new regime. This will decrease linearly over the 16 years following Solvency II implementation but may be recalculated to allow for material changes to the risk profile of the relevant business, subject to agreement with the regulator. TMTP may also be recalculated every 24 months if considered appropriate by the firm or at the request of the regulator.

Underwriting result

The profit or loss from general insurance and health activities, excluding investment performance. It is calculated as net earned premiums less net insurance claims, commission and expenses. The underwriting result is calculated in note 7ii - General insurance and health.

Volatility adjustment

A reduction to Solvency II technical provisions to reflect temporary distortions in spreads caused by illiquidity in the market or extreme widening of credit spreads. The volatility adjustment reduces technical provisions by increasing the discount rate used to calculate the best estimate liability. Volatility adjustments are prescribed by EIOPA on a currency and country basis.

 

 

 

 

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Annual General Meeting (AGM)

The voting results for the 2017 AGM, including proxy votes and votes withheld, can be viewed on our website at www.aviva.com/agm. There, you will also find a webcast of the formal business of the meeting and information relating to past general meetings.

2017 financial year calendar

2017 interim dividend ex-dividend

5 October 2017

2017 interim record date

6 October 2017

Last day for Dividend Reinvestment Plan and

currency election for 2017 interim dividend

27 October 2017

Payment date1

17 November 2017

Full year results announcement2

8 March 2018

1    Please note that the ADR dividend payment date will be 23 November 2017.

2    This date is provisional and subject to change

Don't miss out on your dividends!

From November 2017, we are simplifying the way we pay dividends to shareholders by only paying cash dividends directly into a nominated bank account. This provides shareholders with the following benefits:

· Make dividend payments to shareholders faster and more secure, minimising the risk of loss or fraud

· Reduce costs and our impact on the environment - we use six metric tons of paper for printing cheques each dividend payment

· Remove administration fees currently payable by shareholders for replacement dividend cheques

If you are currently receiving your dividend by cheque, take action now and choose from the dividend payment options detailed below. There is also a dividend changes timeline to the right showing the key dates of our change to payment of dividends. If you already receive your dividend directly to your bank account, your current payment instruction will apply.

Dividend payment options

Shareholders are able to receive their dividends in the following ways:

· Directly into your nominated UK bank account

· Directly into your nominated Eurozone bank account

· The Global Payment Service provided by our Registrar, Computershare Investor Services PLC (Computershare). This enables shareholders living outside of the Single Euro Payments Area (SEPA) to elect to receive their dividends or interest payments in a choice of over 60 international currencies

· The Dividend Reinvestment Plan enables eligible shareholders to reinvest their dividends in additional Aviva ordinary shares

You can find further details regarding these payment options at www.aviva.com/dividends and register your choice by contacting Computershare using the contact details on the next page, online at www.aviva.com/online or by returning a dividend mandate form. You must register for one of these payment options to receive dividend payments.

 

Manage your shareholding online

www.aviva.com/online:

You can access Computershare online services directly using the above address where you can log in using your Computershare details to:

· Change your address

· Change your payment options

· Switch to electronic communications

· View your shareholding

· View any outstanding payments

· Access useful information and view your Aviva policies

www.aviva.co.uk/myaviva:

If you've already registered for MyAviva you'll be able to view useful shareholder information. You can also check the details of Aviva policies you may have. Our online portal brings all this information together into one safe and secure place at a time that suits you. Just log in as normal using your email address via www.aviva.co.uk/myaviva.

MyAviva also includes a link to the Investor Centre, where you can log in and manage your shareholding as outlined above.

 

www.aviva.com/shareholders:

For access to our shareholder services centre.

 

www.aviva.com/dividends:

To find the latest information on Aviva dividends.

 

www.aviva.com/agm:

To find the latest information on our Annual General Meeting.

 

www.aviva.com/reports:

To access our latest reports.

 

www.aviva.com/shareprice:

To find out the latest Aviva plc Ordinary share price.

 

www.londonstockexchange.com:

To find out the latest Aviva plc Preference share price.

 

Dividend changes timeline

27 October 2017

Last date to complete a mandate instruction to receive the dividend payable in November 2017

17 November 2017

First dividend where direct credit is the only method of payment for cash dividends - a reminder will be sent to shareholders who have not received their dividend

Spring 2019

An annual dividend confirmation will be sent to shareholders who have had dividends withheld during the previous year

 

 

 

 

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Contact details

Ordinary and preference shares - Computershare Investor
Services Plc

For any queries regarding your shareholding, or to advise of changes to your personal details, please contact Computershare:

 

By telephone: 0371 495 0105

Lines are open from 8.30am to 5.30pm (UK time),
Monday to Friday (excluding public holidays).

Please call +44 117 378 8361 if calling from outside the UK.

 

By email: AvivaSHARES@computershare.co.uk

 

In writing: Computershare Investor Services PLC,

The Pavilions, Bridgwater Road, Bristol BS99 6ZZ

American Depositary Receipts (ADRs) - Citibank

For any queries regarding Aviva ADRs, please contact Citibank Shareholder Services (Citibank):

 

By telephone: 1 877 248 4237 (1 877-CITI-ADR), or +1 781 575 4555 if you are calling from outside the US. (Lines are open from 8.30am to 6pm, Monday to Friday US Eastern Standard Time).

 

By email: citibank@shareholders-online.com

 

In writing: Citibank Shareholder Services,

PO Box 43077, Providence, Rhode Island 02940-3077 USA

Please visit www.citi.com/dr for further information about Aviva's ADR programme.

Group company secretary

Shareholders may contact the group company secretary as follows:

 

By email: aviva.shareholders@aviva.com

 

In writing: Kirstine Cooper, Group Company Secretary,
St Helen's, 1 Undershaft, London EC3P 3DQ

 

By telephone: +44 (0)20 7283 2000

 

 

 

Shareholder updates

We provide quarterly online updates to shareholders to keep them informed on how Aviva is doing as well as useful information for shareholders. Sign up for email communications at www.aviva.com/online to receive a notification when the latest update is available.

Be a ScamSmart investor

www.fca.org.uk/scamsmart

 

As a shareholder, you may receive a call from someone offering to buy your shares at a higher price than their market value. This might sound like a great deal, but will likely come with a request for money upfront as a bond or other form of security. This is probably a scam where you pay money upfront but never hear from them again.

If you're cold-called regarding your shares or other investment opportunity, chances are it's very risk or a scam.

The safest thing to do is hang up.

 

Do you receive duplicate documents?

A number of shareholders still receive duplicate documentation and split dividend payments as a result of having more than one account on the Aviva Register of Members. If you think you fall into this group and would like to combine your accounts, please contact Computershare.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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Half-year Report Part 4 of 4 - RNS