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This is Aviva.
Aviva plc
Annual Report and
Accounts 2009
09 Performance review
67 Corporate responsibility
79 Governance
117 Shareholder information
127 Financial statements IFRS
283 Financial statements MCEV
317 Other information

Table of contents

  • Page 1
    Aviva plc Annual Report and Accounts 2009 09 Performance review 67 Corporate responsibility 79 Governance 117 Shareholder information 127 Financial statements IFRS 283 Financial statements MCEV 317 Other information This is Aviva.

  • Page 2
    ...compete on a global scale. Nearly three years on, despite difficult market conditions, every day around the world we continue working to realise our vision 'One Aviva, Twice the Value'. By working together closely, we are transforming our business, optimising our performance and...

  • Page 3
    ... total equity to MCEV net worth for life and related businesses 288 Group MCEV analysis of earnings 289 Notes to the MCEV financial statements 315 Statement of directors' responsibilities in respect of the Market Consistent Embedded Value (MCEV) basis 316 Independent auditor's report...

  • Page 4
    ... including share of associates' premiums ** Before tax attributable to shareholders *** On a MCEV basis from 2007. Prior years presented on an EEV basis Sales % UK Europe North America Asia Pacific 32 48 14 6 IFRS operating profit % UK Europe North America Asia Pacific Aviva Investors 42...

  • Page 5
    ... compete effectively in the global insurance marketplace so the launch of the Aviva name worldwide in 2009 was fundamental. This was just one of a number of key deliverables during the year including: a successful partial sale of our Dutch business, Delta Lloyd, and the distribution of monies to our...

  • Page 6
    ... team has performed and I'm confident that by remaining focused on our strategy we will make further progress in 2010. Aviva has delivered a strong return to profit with IFRS total profit after tax at £1,315 million. On an MCEV basis, which takes into account the long-term nature of life insurance...

  • Page 7
    05 Aviva plc Annual Report and Accounts 2009 Group chief executive's review continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Q Q How has Aviva performed throughout a difficult 2009?...

  • Page 8
    ...life insurance, general insurance and asset management as complementary parts of an overall business model that balances cashflow, returns and long-term value creation, and delivers prosperity and peace of mind to customers. Build global asset management Launched in September 2008, Aviva Investors...

  • Page 9
    ... to 59. 2009 Trend IFRS operating profit by line of business % Life GIH FM 2010 Priorities - Manage our general insurance business for value and growth - Drive profitable growth and long-term value creation in our life and pensions business - Strategically manage our investment in Delta Lloyd...

  • Page 10
    ... plc Annual Report and Accounts 2009 Group structure UK Products - Long-term insurance and savings: Pensions, annuities, protection, bonds and savings, equity release - General insurance: personal: motor, home, travel, breakdown (RAC), commercial: motor, property, liability - Health Distribution...

  • Page 11
    ... plc Annual Report and Accounts 2009 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Performance review In this section 10 12 19 33 35 36 50 56 60 61 64 65 Key...

  • Page 12
    ... plc Annual Report and Accounts 2009 Key performance indicators The key measures that are used by the board and executive management team to assess performance at a group level are set out below. Earnings per share Our IFRS earnings per share for 2009 was 37.8 pence (2008: 36.8 pence loss...

  • Page 13
    11 Aviva plc Annual Report and Accounts 2009 Key performance indicators continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Return on equity shareholders' funds The ...

  • Page 14
    12 Aviva plc Annual Report and Accounts 2009 Aviva UK A leader in our home market From 1 January 2010 we have brought together the Aviva UK life and general insurance businesses, creating a new organisation led by one chief executive officer. In 2009, in addition to completing the rebranding to ...

  • Page 15
    13 Aviva plc Annual Report and Accounts 2009 Aviva UK continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Long-term and savings operating profit £m MCEV* IFRS This is...

  • Page 16
    ... their claims. Long-term and savings sales £m Europe Delta Lloyd 09 08 07 06 14,525 12,827 18,704 17,716 17,256 Aviva Europe performance Aviva Europe operates in 12 businesses across Europe (excluding 05 the UK) with substantial operations in France, Italy, Ireland, Poland and Spain. We...

  • Page 17
    ...weak asset values constraining activity in the corporate pensions market, before improving in the latter part of the year when Delta Lloyd secured two large group contracts. Total sales in 2009 of £5,492 million were down 18% reflecting the sale of the health business. IFRS operating profit for the...

  • Page 18
    ... to 'right-price' each property. Total sales £m General insurance Long-term savings We will continue to grow our existing businesses and raise our profile in North America on the back of the strength of the global brand, communicating with financial analysts, key financial and business media...

  • Page 19
    ... Aviva plc Annual Report and Accounts 2009 Asia Pacific Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Committed to building a highgrowth and value-creating region We operate...

  • Page 20
    18 Aviva plc Annual Report and Accounts 2009 Aviva Investors Focused on clients, focused on performance Aviva Investors combines the group's asset management components into a single, globally integrated business. We manage internal funds for Aviva, as well as for a growing range of ...

  • Page 21
    ...the 2008 year. to balance cash flow, returns and long-term value creation. We are one of the top five providers of long-term insurance and savings products in the UK, Ireland, the Netherlands, Poland and - To build a global asset management business that will foster investment performance and...

  • Page 22
    20 Aviva plc Annual Report and Accounts 2009 Information on the company continued fund management services to third-party investors and to our long-term insurance business and general insurance operations. Our geographic operating segments offer the following lines of business to a greater or ...

  • Page 23
    ...Range of product lines and quality of products on offer Operating segments - Strength of distribution channels Each operating segment has a member of our executive - Pricing management team who is responsible for it and who is - Investment management performance accountable to the group chief...

  • Page 24
    22 Aviva plc Annual Report and Accounts 2009 Information on the company continued Our savings and investment products include ISAs, investment bonds, funds, base rate trackers, capital protected plan and with-profits products. The pensions and retirement products we offer include stakeholder, ...

  • Page 25
    ...Aviva France operates through two main companies: Aviva Vie and Aviva Direct. Our general insurance business in France has a 2.3% share of the market as based on 2008 premium income according to L'Argus de L'Assurance. We predominantly sell personal and small commercial lines insurance products...

  • Page 26
    .... In this market we aim to offer competitive pricing and a wide range of products and services. Products Aviva France long-term insurance and savings business sells mainly protection and bonds and savings products. These include protection and unit-linked and with profits savings products. We are...

  • Page 27
    ... Commercial Union, will commence trading as Aviva in June 2010. Products Our Polish life operation is the second-largest overall life Our long-term insurance and savings business offers a wide insurer, with a market share of 10% based on total premium range of products covering protection, bonds...

  • Page 28
    ... products, such as pensions and savings. Market Our life business in Poland provides a broad range of protection, annuities and bonds and savings products. For individuals it offers unit-linked life policies, annuities, single premium savings and, for institutions, group life insurance and employee...

  • Page 29
    ... corporations. The general insurance segment offers motor, household, fire, marine, personal accident, travel and liability insurance. Our Czech Republic business offers individual unit-linked savings, protection insurance, term insurance, other savings products, group life schemes for corporate...

  • Page 30
    ...ratings The long-term insurance and savings business of Delta Lloyd - Investment management performance offers a range of protection, bonds and savings and pensions services, including group pension schemes, annuities, unit-linked - Global brand bonds, savings products and protection insurance...

  • Page 31
    ...in key territories. In commercial lines, we aim to retain our current market position through our expertise in distribution and product innovation. Market Aviva USA has a strategic focus on protection, annuity and savings products. Our life products include our universal life, indexed life, no...

  • Page 32
    ...domestic product (GDP) growth. Aviva Asia Pacific aims to build a high growth and valuecreating region driven primarily by 'must win' markets of China and India by increasing new business sales for long-term insurance and savings products through development of existing businesses, investment in...

  • Page 33
    ... Our Asian businesses generally offer a range of protection, bonds and savings and pension products including universal life, participating life, unit-linked single and regular premium life insurance, other savings and pensions products and a range of accident and health insurance products. In...

  • Page 34
    ...and services comprise: - Alternatives - We offer a range of alternative investment products from private equity fund of funds to hedge funds. - Equities - Fixed Income - Our Fixed Income teams cover the complete product set: UK government securities, liquidity products, corporate bonds, European and...

  • Page 35
    ... Investors UK Funds Limited Aviva Life & Pensions UK Limited Aviva Life Services UK Limited Aviva Risk Management Solutions UK Limited Aviva UKGI Investments Limited CGNU Life Assurance Limited CGU Underwriting Limited Commercial Union Life Assurance Company Limited Gresham Insurance Company...

  • Page 36
    34 Aviva plc Annual Report and Accounts 2009 Organisational structure continued Ireland Spain Aviva group Ireland plc and its principal subsidiaries: Ark Life Assurance Company Limited (75%) Aviva Health Insurance Ireland Limited (70%) Aviva Insurance (Europe) Plc Aviva Life & Pensions Ireland ...

  • Page 37
    ... Net earned premiums Fee and commission income Net investment income/(expense) Share of (loss)/profit after tax of joint ventures and associates Profit on the disposal of subsidiaries and associates Expenses Claims and benefits paid, net of recoveries from reinsurers Change in insurance liabilities...

  • Page 38
    ... Lloyd subsidiary, Poland and Spain and one of the top 10 providers of life and pensions products in France, Italy and Romania, as based on total sales for 2008. Our main activities are the provision of products and services in relation to long-term insurance and savings, fund management and general...

  • Page 39
    ... customers to cancel existing policies, requiring us to change our range of products and services, forcing us to redesign our technology, requiring us to retrain our staff or increase our tax liability. In the UK, the government has recently conducted a number of reviews of the long-term insurance...

  • Page 40
    ...life insurance and savings products; fund management, which manages funds on behalf of our long-term insurance and general insurance businesses, external institutions, pension funds and retail clients; and general insurance and health, Activity in 2007 which focuses on personal and commercial lines...

  • Page 41
    .... Other long-term insurance and savings business Operating earnings within our general insurance and health business arise when premiums, and investment return earned on assets supporting insurance liabilities and shareholder capital, exceed claims costs, costs of acquiring new business and...

  • Page 42
    ... sales is also used internally in the determination of bonus awards as an executive performance measure. For our general insurance and health business we report sales based on IFRS net written premiums. For long-term insurance and savings new business, we define sales as the sum of the present value...

  • Page 43
    ... items. Adjusted operating profit for non long-term insurance business is based on expected investment returns on financial investments backing shareholder funds over the period. Expected investment returns are calculated for equities and properties by multiplying the opening market value of the...

  • Page 44
    ... and 22% decrease in general insurance and health net written premiums in the UK. Europe reported a 12% increase in net written premiums with both North America and Asia Pacific The table below presents our consolidated income statement under IFRS for years ended 31 December 2009, 2008 and 2007...

  • Page 45
    43 Aviva plc Annual Report and Accounts 2009 Financial and operating performance continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Other income Year ended 31 December...

  • Page 46
    ... the years ended 31 December 2009, 2008 and 2007. Long-term and savings business 2009 £m 2008 £m 2007 £m Protection Pensions Annuities Bonds Equity release Investment sales Sales Net written premiums Adjusted operating profit Profit/(loss) before tax attributable to shareholders...

  • Page 47
    ... claims. Year ended 31 December 2008 Sales Long-term insurance and savings business France Ireland Italy Poland (including Lithuania) Spain Other Europe Aviva Europe Delta Lloyd Total long-term insurance and savings business General insurance and health France Ireland Other Europe Aviva...

  • Page 48
    ... operating profit of our general insurance and health businesses was £132 million in 2009, a decrease of £88 million, or 40%, over £220 million in 2008, primarily due to extreme weather in Ireland and France during the year. Delta Lloyd Delta Lloyd reported long-term and savings sales...

  • Page 49
    ... by improved investment margin earned on existing equity indexed annuity business. General insurance adjusted operating profit is in line with 2008 at £144 million (2008: £145 million) with the benefits of increased sales volumes, higher long-term investment return, cost savings and foreign...

  • Page 50
    ... years ended 31 December 2009, 2008 and 2007. 2009 £m 2008 £m 2007 £m Asia Australia Sales Net written premiums Adjusted operating profit Asia long-term insurance and savings business Australia long-term insurance and savings business General insurance and health Fund management...

  • Page 51
    ... IFRS Financial statements MCEV Other information Performance review was mainly due to the decline in investment markets and the integration and restructuring costs of setting up Aviva Investors. Aviva Investors' funds under management were £236 billion in 2008, an increase of £1 billion, or...

  • Page 52
    ... of fixed-income securities than the portfolio held to cover life insurance liabilities. Property partnerships Our investment portfolio supports a range of businesses operating in a number of geographical locations. Our aim is to match the investments held to support a line of business to...

  • Page 53
    ... to investment losses on participating funds is generally limited to our participation in the fund. Shareholder assets are other assets held within our long-term businesses that are not backing unit-linked liabilities or participating funds. Investments held at 31 December 2009, 31 December 2008 and...

  • Page 54
    52 Aviva plc Annual Report and Accounts 2009 Analysis of investments continued Despite the increase in market downgrade activity during 2008 and 2009, debt securities with a credit rating of A or above at 31 December 2009 still represented 81.6% of total holdings (2008: 86.3%). Approximately 43% ...

  • Page 55
    53 Aviva plc Annual Report and Accounts 2009 Analysis of investments continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Debt securities, for which policyholders carry ...

  • Page 56
    54 Aviva plc Annual Report and Accounts 2009 Analysis of investments continued Debt securities, for which participating funds carry the exposure to investment losses, analysed by credit rating and product type are set out in the table below. Government and corporate debt securities are further ...

  • Page 57
    55 Aviva plc Annual Report and Accounts 2009 Analysis of investments continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Debt securities, for which shareholders carry ...

  • Page 58
    56 Aviva plc Annual Report and Accounts 2009 Property and Risk management Equity securities The table below analyses our investments in equity securities by sector. 2009 Policyholder Participating Shareholder £m £m £m Total £m Public Utilities Banks, trusts and insurance companies ...

  • Page 59
    ...Operational Risk Committee (ORC) providing a key focus on financial and operational risk. The group centre committees are in turn supported by similar governance structures in the regions. These relationships are summarised in the diagram below. Board - Set strategic objectives - Monitor performance...

  • Page 60
    ... in loans, debt and equity securities as well as our holdings of investment properties - Impact of market conditions on sales of investment products and our fund management business - Products sold by the group that carry investment return and surrender value guarantees - Premium income, dividends...

  • Page 61
    59 Aviva plc Annual Report and Accounts 2009 Risk management continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Sensitivities1 - A 1% increase in interest rates would ...

  • Page 62
    ... five years £m Total Insurance and investment contracts Long term business - Insurance contracts - non-linked1 - Investment contracts - non-linked2 - Linked business2 General insurance3 Other contractual obligations4 Borrowings Operating lease obligations Capital commitments Payables and...

  • Page 63
    ...Restated 2008 £m Long-term savings General insurance and health Fund management Other business Corporate1 Total capital employed Financed by: Equity shareholders' funds Minority interest Direct capital instruments Preference shares Subordinated debt External debt Net internal debt2...

  • Page 64
    ... With-Profit Sub-Fund (NWPSF) and UK Life and Pensions (UKLAP). These realistic liabilities have been included within the long-term business provision and the liability for insurance and investment contracts on the consolidated IFRS balance sheet at 31 December 2009 and 31 December 2008. Estimated...

  • Page 65
    63 Aviva plc Annual Report and Accounts 2009 Capital management continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Investment mix The aggregate investment mix of the ...

  • Page 66
    ... exchange rates - Operating profit (IFRS basis) - Equity and property prices - Worldwide sales - The impact of competition, inflation and deflation - Return on equity shareholders' funds - Changes to regulations, taxes and legislation Management also use a variety of other performance indicators...

  • Page 67
    ... Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review Accounting basis of preparation International Financial Reporting Standards (IFRS) Longer-term investment return Our...

  • Page 68
    66 Aviva plc Annual Report and Accounts 2009 Accounting basis of preparation continued Item Accounting policy Future accounting developments Insurance and participating investment contract liabilities Goodwill, AVIF and other intangible assets Fair values of financial investments Impairment of...

  • Page 69
    67 Aviva plc Annual Report and Accounts 2009 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Corporate responsibility In this section 68 Highlights 68 Strategy and governance 68 Business ethics 68...

  • Page 70
    ... CR into the Boardroom Aviva Investors has taken a leading position in encouraging global companies to enhance their governance and transparency in CR reporting. In 2008, Alain Dromer, Chief Executive of Aviva Investors, called on all stock market listing authorities to make it a requirement that...

  • Page 71
    ... - Building strong global HR and CR functions. Locally, the use of global tools and 'One Aviva' processes supports the delivery of our business strategies. Our employee promise 76% (2008: 74%) with eight business units achieving 100% participation. Senior management pay continues to be linked to...

  • Page 72
    ... days per year. Nearly 9,000 staff took up the opportunity in 2009, resulting in a total of 79,900 volunteering hours, an increase of 18% on 2008 (67,700 hours). We report the impacts of our activities against the London Benchmarking Group model and have developed tools to help our businesses...

  • Page 73
    ... responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information its sale in October 2009. The data excludes Auto Windscreens and Aviva Global Services (AGS) which were sold at the end of 2008. We also set global annual targets in other key...

  • Page 74
    ...have adequate insurance, we launched Parent Life Cover in the UK which includes free protection until the child's first birthday. - Recognising low levels of confidence among consumers, Lisseo was launched in France to offer customers the opportunity to invest gradually in the equity markets without...

  • Page 75
    73 Aviva plc Annual Report and Accounts 2009 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Key indicators CR Indicator Business ethics % of employees ...

  • Page 76
    ... Direct company impacts Aviva plc - operational carbon footprint covering 100% of employees GHG Emissions data from 1 Jan 2009 to 31 Dec 2009 Tonnes CO2e 2009 2008 Baseline year 2006 Scope 1 Scope 2* Scope 3 Gross CO2 emissions* absolute CO2 footprint Carbon offsetting Total net emissions...

  • Page 77
    ...for the properties we own through our Property Fund managed by Aviva Investors for 2008. Under the new UK Government Carbon Reduction Commitment scheme, electricity, gas and oil used in the properties will be subject to an additional cost of £12 per tonne. Aviva Investors' European Renewable Energy...

  • Page 78
    ... four existing offices into one. Indirect impacts - Water: 7.7m3 per employee per year (National Water Demand Management Centre) - Office Paper: good practice 4,000-5,000 sheets per employee per annum (Gartner Research) iv) Customer advocacy Direct company impacts At Aviva, the Net Promoter...

  • Page 79
    ... the flow of capital into the UK insurance industry and ensure its competitive position in the global marketplace. Consumer attitudes to saving 07 08 09 Our performance, strategy and targets Aviva's global survey of consumer attitudes to savings has run for six years, building up a powerful...

  • Page 80
    ... from the wall will be used to educate thousands of underprivileged children supported by Save the Children India. Over 125,000 books were donated in five days. We aim to roll out 'Street to School' in all of our markets from 2010; a challenge for our businesses is to find viable third sector...

  • Page 81
    ... Aviva plc Annual Report and Accounts 2009 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Governance In this section 80 82 83 87 93 94 96 98 99 Board of directors Executive management...

  • Page 82
    ... to the Board in May 2004. Joined as Group Finance Director and became Group Chief Executive in July 2007. Previously director - finance, risk management and operations at Lloyd's of London (insurance) and formerly held a number of senior management positions at HSBC plc (banking). Member of...

  • Page 83
    ...'s long-term savings business in the UK, in 2006. Appointed chief executive of Aviva UK, comprising Aviva UK Life (formerly Norwich Union Life), and Aviva UK General Insurance (formerly Norwich Union Insurance), the Group's insurance and motoring services business in the UK, in January 2010...

  • Page 84
    ..., chief financial officer of Aviva Canada and held various senior management positions in the finance function, including finance director for London & Edinburgh Insurance Company Limited. Previously spent five years with Procter & Gamble Limited. Holds an MA in Economics from Aberdeen University...

  • Page 85
    ... total cost of ordinary dividends paid in 2009, was £775 million (2008: £902 million). Subject to shareholder approval at the 2010 Annual General Meeting, the final dividend for 2009 will be paid on 17 May 2010 to all holders of ordinary shares on the Register of Members at the close of business...

  • Page 86
    ... Directors' Remuneration Report. Financial instruments Aviva Group companies use financial instruments to manage certain types of risks including those relating to credit, foreign currency exchange, cash flow, liquidity, interest rates, and equity and property prices. Details of the objectives...

  • Page 87
    ...MCEV Other information The Group respects all fundamental human rights and is guided in the conduct of its business by the provisions of the United Political donations Nations Universal Declaration of Human Rights and the At the Annual General Meeting held in 2009, shareholders International...

  • Page 88
    ... Barbican Centre, Silk Street, London EC2Y 8DS at 11am. A separate document accompanying this annual report and accounts contains the Notice convening the Meeting and a description of the business to be conducted thereat. By order of the Board Andrew Moss Group chief executive 3 March 2010...

  • Page 89
    ... plc Annual Report and Accounts 2009 Corporate governance report Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The Combined Code on Corporate Governance The Company is aware of the changing...

  • Page 90
    ... and two members of the Committee participated in a Climate Change forum in Hong Kong. Training sessions have also been built into the Board's and committees' work plans for 2010. The Board made visits to the Group's businesses located in the UK, Singapore, Korea and China during the year to gain...

  • Page 91
    ... the Board in providing direction and oversight around the Group's risk and regulatory policies and procedures, including those relating to compliance, risk management, financial malpractice and internal controls. These Committees have clearly defined terms of reference and full reports for these...

  • Page 92
    ... management process has been in place for the year under review and up to the date of approval of the annual report and accounts. Internal Controls over financial reporting A Group Reporting Manual including International Financial Reporting Standards (IFRS) and Market Consistent Embedded Value...

  • Page 93
    .... The Company's annual report and accounts and annual review, together with the Company's half-year report, interim management statements, 20F document (for filings with the United States Securities and Exchange Commission) (SEC) and other public announcements, are designed to present a balanced and...

  • Page 94
    ... the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face. By order of the Board Andrew Moss Group Chief...

  • Page 95
    93 Aviva plc Annual Report and Accounts 2009 Nomination committee report Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information This report provides details of the role of the Nomination Committee and ...

  • Page 96
    .... Twice each year, the Committee receives reports on the adequacy of the Group's life assurance and general insurance reserves. The Committee reports to the Board regarding the effectiveness of the Group's overall systems of internal financial control including the risk management systems...

  • Page 97
    95 Aviva plc Annual Report and Accounts 2009 Audit committee report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information During the year, the Committee performed its annual review of the ...

  • Page 98
    ... how risk is managed in their businesses. During the year, presentations were received from North America region, Europe region, Asia Pacific region and UK General Insurance. - Group risk policies: The Committee approved significant changes to certain Group risk policies and received regular reports...

  • Page 99
    ...independent and objective assurance over the appropriateness, effectiveness and sustainability of the Company's system of internal controls. Key control issues reported by Group internal audit to management and to the Committee members were monitored on a quarterly basis until the risk exposure...

  • Page 100
    ... vote of shareholders at the 2010 AGM as a means of obtaining feedback on the report and the Company's performance in this area. The report is set out on pages 67 to 78 and further details of the resolution are set out in the Notice of Annual General Meeting. The Committee reviewed each region...

  • Page 101
    ... remuneration with the interests of shareholders and other stakeholders, including customers and employees. The Committee's main responsibilities are to: - Recommend to the Board the Group's remuneration policy for the EDs and members of senior management, covering basic salary, bonus, long-term...

  • Page 102
    ... services to the Group in 2009, advised the Committee on the calculation of Total Shareholder Return (TSR) in respect of the Long Term Incentive Plan (LTIP) vesting. The Group Company Secretary and Linklaters LLP advised the Committee in relation to the operation of the Company's share plans...

  • Page 103
    ... EDs' 2009 bonus targets and capital assumptions - Committee Terms of Reference - Approval of an invitation to UK and Irish employees to participate in - LTIP and OATTV Plan performance testing for the the Savings Related Share Option Schemes (SAYE) - EDs' shareholding requirements September...

  • Page 104
    ... changes in the personal tax regime effective in April 2010 will create a significantly different tax position for a number of senior employees. The Company has therefore made available the choice to receive deferred annual bonus awards as restricted stock, thus allowing the payment of income tax...

  • Page 105
    ... plc Annual Report and Accounts 2009 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information - OATTV Plan: This plan was introduced to emphasise the Group Chief...

  • Page 106
    ... - Long-term savings - Aviva Staff Pension Scheme (ASPS) - Benefits - All employee schemes - Monthly in cash - Reviewed annually in February, with changes taking effect from 1 April. Basic salary Benchmarked as for total remuneration but with positioning and progression taking account of...

  • Page 107
    ... Accounts 2009 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Policy How delivered Other Benefits Other benefits are provided on a market competitive...

  • Page 108
    ... as an exchange rate adjustment for the period 1 July 2008 to 30 June 2009. A further â,¬800,000 compensation is payable for loss of earnings, options and performance shares from a previous employer, half payable in 2010 and half payable in 2011. â,¬100,000 annual housing allowance up to July 2011...

  • Page 109
    ... were accurately calculated and reported was provided to the Committee by Group Audit. Personal objectives based on delivery of key strategic priorities, personal leadership and operating performance of the relevant portion of the business account for up to 30% of annual bonus. Carbon emissions...

  • Page 110
    108 Aviva plc Annual Report and Accounts 2009 Directors' remuneration report continued OATTV Plan The OATTV Plan aligns senior executives with the Group Chief Executive's clear strategic aim of doubling EPS by the end of 2012. The plan matches 100% of the deferred ABP shares for the Group Chief...

  • Page 111
    109 Aviva plc Annual Report and Accounts 2009 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The same targets will apply for the 2010 LTIP awards. The ...

  • Page 112
    ... used to pay the resulting tax liability. 8. These figures relate to shares issued in lieu of dividends accrued during the deferral period. 9. The aggregate net value of share awards granted to the directors in the period was £5.256 million (2008: £4.319 million). The net value has been calculated...

  • Page 113
    ... 26 June 2008 Andrea Moneta 29 September 2009 Remuneration and benefits Expenses Holiday entitlement Sickness Non-compete Contract dates Share ownership requirements An internal shareholding requirement was introduced in 2005 that the Group Chief Executive and any EDs should build, over...

  • Page 114
    ... practicable to use the trust and the funding policy is kept under review by the Committee and the Board. Details of the shares currently held in the employee trust are set out in note 30 to the accounts. During 2009 loans totalling of £53.6 million were made to RBC Trustees (CI) Limited to ensure...

  • Page 115
    ...and Accounts 2009 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The Chairman and NEDs do not participate in any incentive or performance plans or pension...

  • Page 116
    ...control of the Company and directors, such as changes in stock market conditions. The transfer values have been calculated in line with the relevant legislation and using actuarial assumptions agreed by the Trustee. These assumptions were revised during the year resulting in higher transfer values...

  • Page 117
    115 Aviva plc Annual Report and Accounts 2009 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information No former Directors received any increase in retirement ...

  • Page 118
    ... Plan rules. As discussed in the 2008 Annual Report and Accounts Mr Scott will receive a non-discounted pension with effect from January 2012 and, from 1 October 2010, will be providing consultancy services to the Group for a limited period. Michael Hawker Michael Hawker joined the Board of Aviva...

  • Page 119
    ... Aviva plc Annual Report and Accounts 2009 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Shareholder information In this section 118 119 119 120 120 120 Major shareholders and related...

  • Page 120
    ...4.01% % of total issued shares/ % of voting rights Various directors and key management of Aviva may from time to time purchase insurance, asset management or annuity products, or be granted mortgages marketed by Aviva Group companies in the ordinary course of business on substantially the...

  • Page 121
    ... dividend scheme was replaced by a dividend reinvestment plan (DRIP). For those shareholders participating in the DRIP, we paid a cash dividend, Loans to joint ventures which was then used to buy existing shares on the open market. We make loans to our property management joint ventures to fund...

  • Page 122
    ... Insurance Code of ethics companies), asset managers (Aviva Investors) and intermediaries The company has adopted a code of ethics for its group chief (UK Healthcare and RAC Motoring Services). Aviva plc, although executive, chief financial officer, general auditor and group chief not directly...

  • Page 123
    ... the adequacy of up-front governance, risk management and prevention. It has also increased focus on risk, controls and governance at individual entity level. The FSA has highlighted in its 2009 Business Plan that it expects to focus on: - Ensuring firms are soundly run and in particular that...

  • Page 124
    ... relating to life and health insurance policies - must be segregated from the assets and liabilities attributable to non-life insurance business or to shareholders. Separate accounting and other records must be maintained and a separate fund must be established to hold all receipts of long-term...

  • Page 125
    ...Aviva plc Annual Report and Accounts 2009 Additional information for Shareholders continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information subsidiary and joint venture companies. These companies...

  • Page 126
    ... to fund management activities. In November 2007 the ISD was superseded by the Markets in Financial Instruments Directive (MiFID). MiFID builds on the home country control principle but extends the range of 'core' investments services and activities that may be passported from one member state...

  • Page 127
    ... for rapid adoption so that the new structures can begin functioning in 2010. United States We write life and annuity business in the United States through Aviva USA, a wholly owned subsidiary formed by the merger of Aviva Life Insurance Company of America with AmerUS which it acquired in July...

  • Page 128
    ... shareholder structures and the participation in and the payment of dividends. Markets within the region are moving quickly to modernise insurance regulation with an increasing focus on governance and conduct of business. Intellectual property Our primary brands in the UK (Aviva, Norwich Union...

  • Page 129
    ... Details of expenses 166 7 Finance costs 167 8 Long-term business economic volatility 168 9 Longer term investment return and economic assumption changes for non-long-term business 169 10 Employee information 170 11 Directors 171 12 Auditors' remuneration 172 13 Tax 173 14 Earnings per share 176...

  • Page 130
    128 Aviva plc Annual Report and Accounts 2009 Independent auditor's report to the shareholders of Aviva plc We have audited the Group and Parent Company financial statements (the "financial statements") of Aviva plc for the year ended 31 December 2009 which comprise the Accounting Policies, the ...

  • Page 131
    129 Aviva plc Annual Report and Accounts 2009 Independent auditor's report to the shareholders of Aviva plc continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Matters on which we are ...

  • Page 132
    ... Aviva plc Annual Report and Accounts 2009 Accounting policies Aviva plc (the "Company"), a public limited company incorporated and domiciled in the United Kingdom (UK), together with its subsidiaries (collectively, the "Group" or "Aviva") transacts life assurance and long-term savings business...

  • Page 133
    ... long-term business policyholder funds have invested in a number of property limited partnerships (PLPs), either directly or via property unit trusts (PUTs), through a mix of capital and loans. The PLPs are managed by general partners (GPs), in which the long-term business shareholder companies hold...

  • Page 134
    132 Aviva plc Annual Report and Accounts 2009 Accounting policies continued Group holds minority stakes in PLPs, with no disproportionate influence, the relevant investments are carried at fair value through profit and loss within financial investments. Associates and joint ventures Associates ...

  • Page 135
    ... made during the year. Realised gains or losses on investment property represent the difference between the net disposal proceeds and the carrying amount of the property. (K) Insurance and participating investment contract liabilities Claims Long-term business claims reflect the cost...

  • Page 136
    134 Aviva plc Annual Report and Accounts 2009 Accounting policies continued Long-term business provisions Under current IFRS requirements, insurance and participating investment contract liabilities are measured using accounting policies consistent with those adopted previously under existing ...

  • Page 137
    ... Aviva plc Annual Report and Accounts 2009 Accounting policies continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information (ii) Provision for unearned premiums The proportion of written premiums...

  • Page 138
    ... since that date is shown as a separate asset, whilst that on associates and joint ventures is included within the carrying value of those investments. Acquired value of in-force business (AVIF) The present value of future profits on a portfolio of long-term insurance and investment contracts...

  • Page 139
    137 Aviva plc Annual Report and Accounts 2009 Accounting policies continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information (P) Investment property Investment property is held for long-term ...

  • Page 140
    ... rates, and the timing of payments. Interest rate futures, forwards and options contracts Interest rate futures are exchange-traded instruments and represent commitments to purchase or sell a designated security or money market instrument at a specified future date and price. Interest rate...

  • Page 141
    139 Aviva plc Annual Report and Accounts 2009 Accounting policies continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Derivative instruments for hedging On the date a derivative contract ...

  • Page 142
    ... of service) or a defined contribution basis (generally related to the amount invested, investment return and annuity rates), the assets of which are generally held in separate trustee-administered funds. The pension plans are generally funded by payments from employees and the relevant Group...

  • Page 143
    ... plans The Group offers share award and option plans over the Company's ordinary shares for certain employees, including a Save As You Earn plan (SAYE plan), details of which are given in the Directors' remuneration report and in note 29. The Group accounts for options and awards under equity...

  • Page 144
    ... costs net of income taxes) is shown as a deduction from total shareholders' equity. Gains and losses on sales of own shares are charged or credited to the treasury share account in equity. (AE) Fiduciary activities Assets and income arising from fiduciary activities, together with related...

  • Page 145
    ...' returns Tax attributable to shareholders' profits Profit/(loss) for the year Attributable to: Equity shareholders of Aviva plc Minority interests Expenses Claims and benefits paid, net of recoveries from reinsurers Change in insurance liabilities, net of reinsurance Change in investment...

  • Page 146
    ... reconciliation of Group operating profit to profit before tax For the year ended 31 December 2009 2009 â,¬m Note 2009 £m 2008 £m 2,144 1,091 151 Operating profit before tax attributable to shareholders' profits Long-term business General insurance and health Fund management Other 1,887...

  • Page 147
    ...214) 2,766 (108) (636) 2,022 Year ended 31 December 2008 Long-term business £m General insurance and health £m Fund management £m Other operations £m Total £m UK Aviva Europe Delta Lloyd North America Asia Pacific Aviva Investors Corporate centre Group debt costs and other interest...

  • Page 148
    ... on pension schemes Actuarial losses on pension schemes transferred to unallocated divisible surplus Foreign exchange rate movements Aggregate tax effect - shareholder tax Other comprehensive income, net of tax Total comprehensive income for the year Attributable to: Equity shareholders of Aviva plc...

  • Page 149
    147 Aviva plc Annual Report and Accounts 2009 Consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Consolidated statement of changes in equity For the year...

  • Page 150
    148 Aviva plc Annual Report and Accounts 2009 Consolidated financial statements continued Consolidated statement of changes in equity continued For the year ended 31 December 2008 Shares Ownerheld by Currency occupied Investment Hedging Equity Merger employee translation properties valuation ...

  • Page 151
    ... to shareholders of Aviva plc Direct capital instrument Minority interests Total equity Liabilities Gross insurance liabilities Gross liabilities for investment contracts Unallocated divisible surplus Net asset value attributable to unitholders Provisions Deferred tax liabilities Current tax...

  • Page 152
    150 Aviva plc Annual Report and Accounts 2009 Consolidated financial statements continued Consolidated statement of cash flows For the year ended 31 December 2009 The cash flows presented in this statement cover all the Group's activities and include flows from both policyholder and shareholder...

  • Page 153
    151 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 1 - Exchange rates The Group's principal overseas...

  • Page 154
    ...June 2008 the Group acquired Swiss Life Belgium (SLB). At 30 June 2009, the fair values of the assets and liabilities were updated from their provisional values to reflect decreases in the value of acquired in-force business and deferred acquisition costs, and increases in insurance and investment...

  • Page 155
    ... and distribute health insurance products from CZ to its existing customers and continues to provide asset management for the transferred business. Delta Lloyd also has exclusive rights to market life, general insurance and income protection products to CZ's customers. £m Assets Investments...

  • Page 156
    ... shareholding in Delta Lloyd On 3 November 2009, Aviva plc and Delta Lloyd completed the Initial Public Offering ("IPO") of Delta Lloyd, which commenced trading on Euronext Amsterdam on that date. The IPO consisted of a public offering to institutional and retail investors of Delta Lloyd's ordinary...

  • Page 157
    ...of UK Life are life insurance, long-term health and accident insurance, savings, pensions and annuity business, whilst UK GI provides insurance cover to individuals and to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers...

  • Page 158
    ... Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 4 - Segmental information continued (i) Segmental income statement for the year ended 31 December 2009 United Kingdom Europe Aviva Europe £m Delta Lloyd £m North Asia Pacific America...

  • Page 159
    ... MCEV Other information 4 - Segmental information continued (ii) Segmental income statement for the year ended 31 December 2008 United Kingdom Europe Aviva Europe £m Delta Lloyd £m North America £m Aviva Investors £m Other Group activities £m Life £m GI# £m Asia Pacific £m Total...

  • Page 160
    ... financial position as at 31 December 2009 United Kingdom Europe Aviva Europe £m Delta Lloyd £m North America Asia Pacific £m £m Aviva Investors £m Other Group activities £m Life £m GI £m Total £m Goodwill Acquired value of in-force business and intangible...

  • Page 161
    ... position as at 31 December 2007 United Kingdom Europe Aviva Europe £m Delta Lloyd £m North America £m Aviva Investors £m Other Group activities £m Restated Total £m Life £m GI £m Asia Pacific £m Goodwill Acquired value of in-force business and intangible assets Interests in, and loans...

  • Page 162
    160 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 4 - Segmental information continued (i) Segmental income statement - products and services for the year ended 31 December 2009 General insurance Fund and health** management £m...

  • Page 163
    ... and services for the year ended 31 December 2008 General Insurance and Fund health** management £m £m Long-term business £m Other £m Total £m Gross written premiums* Premiums ceded to reinsurers Net written premiums Net change in provision for unearned premiums Net earned premiums Fee...

  • Page 164
    ... plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 4 - Segmental information continued (iv) Segmental statement of financial position - products and services as at 31 December 2008 Longterm business £m General insurance Fund and health management...

  • Page 165
    ... income statement. 2009 £m 2008 £m Gross written premiums (note 4a & 4b) Long-term: Insurance contracts Participating investment contracts General insurance and health Less: premiums ceded to reinsurers (note 4a & 4b) Gross change in provision for unearned premiums (note 38e) Reinsurers' share...

  • Page 166
    ... 6 - Details of expenses This note gives further detail on the items appearing in the second section of the consolidated income statement. 2009 £m 2008 £m Claims and benefits paid Claims and benefits paid to policyholders on long-term business Insurance contracts Participating investment...

  • Page 167
    ...in the UK life and general insurance businesses and Europe, which have delivered £170 million annualised cost savings in the year. Exceptional items Exceptional items totalled £45 million net profit (2008: £551 million net expense) in the year. For the year ended 31 December 2009, this comprised...

  • Page 168
    166 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 7 - Finance costs This note analyses the interest costs on our borrowings (which are described in note 48) and similar charges. Finance costs comprise: 2009 £m 2008 £m Interest expense...

  • Page 169
    ... market forecasts of investment return and asset classification under IFRS. Within the 2008 results, the expected rate of investment return was calculated by reference to the one year swap rate in the relevant currency plus an appropriate risk premium for equities and properties. For 2009, the Group...

  • Page 170
    ...dividend payments and amortisation of the premium or discount at purchase. The Group has applied the same economic assumptions for equities and properties as are used under MCEV principles to calculate the longer-term investment return for its long-term business in 2008 and 2009. 9 - Longer-term...

  • Page 171
    ... changes for non-long-term business continued The principal assumptions underlying the calculation of the longer-term investment return are: Longer-term rates of return Equities 2009 % 2008 % Longer-term rates of return Properties 2009 % 2008 % United Kingdom France Ireland Netherlands...

  • Page 172
    ... receiving any pension contributions by Aviva. The aggregate net value of share awards granted to the directors in the period was £5.256 million (2008: £4.348 million). The net value has been calculated by reference to the market price at the date of grant. During the year, no share options were...

  • Page 173
    ...plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 12 - Auditors' remuneration This note shows the total...

  • Page 174
    ...Group, as a proxy for policyholders in the UK, Ireland, Singapore and Australia (prior to disposal), is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish, Singapore and Australian life insurance policyholder returns...

  • Page 175
    ...coupon payments on a direct capital instrument. (d) Tax reconciliation The tax on the Group's profit/(loss) before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 2009 £m 2008 £m Profit/(loss) before tax Tax calculated...

  • Page 176
    ... earnings per share is calculated as follows: 2009 Net of tax, minorities, preference dividends Before tax and DCI £m £m Per share p Operating profit attributable to ordinary shareholders Non-operating items: Investment return variances and economic assumption changes on long-term business...

  • Page 177
    175 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 14 - Earnings per share continued (b) ...

  • Page 178
    ...to 31 December 2009, the directors proposed a final dividend for 2009 of 15.0 pence per ordinary share (2008: 19.91 pence), amounting to £415 million (2008: £527 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 17 May 2010 and will be accounted for as...

  • Page 179
    ... recoverable amount of the UK general insurance, RAC and health unit has been determined based on a value in use calculation. The calculation uses cash flow projections based on business plans approved by management covering a three year period and a risk adjusted discount rate of 9.5%. Cash flows...

  • Page 180
    ... is the total of the net worth and the value of the in-force life business. General insurance, health and other The recoverable amount of general insurance, health and other non-life cash generating units in the Europe region has been determined based on a value in use calculation. Value in use is...

  • Page 181
    ...Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 16 - Goodwill continued (viii) Delta Lloyd (long-term, general insurance, health and fund management) The recoverable amount of the Delta Lloyd life...

  • Page 182
    ... At 31 December 2008 Disposals Impairment losses charged to expenses Foreign exchange rate movements At 31 December 2009 Carrying amount At 1 January 2008 At 31 December 2008 At 31 December 2009 * On insurance and participating investment contracts. **On non-participating investment contracts...

  • Page 183
    181 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 18 - Interests in, and loans to, joint ...

  • Page 184
    ...and operate in the United Kingdom. All these investments are held by subsidiary entities. (c) Long-term business undertakings The principal joint ventures are as follows: Country of incorporation and operation Company Class of share Proportion held Aviva-COFCO Life Insurance Co. Limited AvivaSA...

  • Page 185
    ... is as follows: 2009 £m 2008 £m 2007 £m Income, including unrealised (losses)/gains on investments Expenses Share of results before tax Long-term assets Current assets Share of total assets Long-term liabilities Current liabilities Share of total liabilities Share of net assets (105) (876...

  • Page 186
    ... and operation Company Type of business Class of share Proportion held Aviva Life Insurance Company India Limited Banca Network Investimenti SpA Cyrte Fund I CV Cyrte Fund II BV Cyrte Fund III CV RBSG Collective Investments Limited RBS Life Investments Limited Insurance Product distribution...

  • Page 187
    185 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 19 - Interests in, and loans to, associates ...

  • Page 188
    186 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 20 - Property and equipment This note analyses our tangible fixed assets, which are primarily properties occupied by Group companies and computer equipment. Properties under construction £m ...

  • Page 189
    ... statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 21 - Investment property This note gives details of the properties we hold for long-term rental yields or capital appreciation...

  • Page 190
    ... year after the statement of financial position date. Loans at fair value Fair values have been calculated by discounting the future cash flows using appropriate current interest rates for each portfolio of mortgages. Further details of the fair value methodology are given in note 24(b). The change...

  • Page 191
    189 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 22 - Loans continued The movements in the...

  • Page 192
    ..., secured by mortgages, which have then been securitised through non-recourse borrowings, in our UK Life and Dutch businesses. This note gives details of the relevant transactions. (a) Description of arrangements (i) United Kingdom In a long-term business subsidiary Aviva Equity Release UK Limited...

  • Page 193
    191 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 24 - Financial investments This note ...

  • Page 194
    ... securities to provide a reliable proxy price to corroborate the counterparty price. - Private equity investment funds held by our UK Life business amounting to £0.8 billion. In valuing our interest in these funds, we rely on investment valuation reports received from the fund manager, making...

  • Page 195
    ... markets from which prices are sourced. Restated 2008 Fair value hierarchy Less: Assets of operations Amortised classified as cost held for sale £m £m Statement of financial position Total £m Level 1 £m Level 2 £m Level 3 £m Sub-total fair value £m Loans Fixed maturity securities Equity...

  • Page 196
    ...losses £m £m £m £m Fair value £m Fixed maturity securities Equity securities Other investments Unit trusts and specialised investment vehicles Derivative financial instruments Deposits with credit institutions Minority holdings in property management undertakings Other long-term investments...

  • Page 197
    ... Impairment losses £m Fair value £m Fixed maturity securities Equity securities Other investments Unit trusts and specialised investment vehicles Derivative financial instruments Deposits with credit institutions Minority holdings in property management undertakings Other long-term investments...

  • Page 198
    ...In carrying on its bulk purchase annuity business, the Group's UK Life operation is required to place certain investments in trust on behalf of the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its payment obligations in respect of...

  • Page 199
    ... Long-term business Insurance contracts - General insurance and health business Participating investment contracts - Long-term business Non-participating investment contracts - Long-term business Retail fund management business Total deferred acquisition costs Surpluses in the staff pension schemes...

  • Page 200
    ...if equity and property market values were to fall by 10% from year end 2009 levels. The shadow adjustments relate to deferred acquisition costs on business in the United States backed by investments classified as available for sale. As explained in accounting policy K, unrealised gains and losses on...

  • Page 201
    199 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 27 - Assets held to cover linked liabilities...

  • Page 202
    ...the Directors' remuneration report. (b) Outstanding options and awards (i) Share options At 31 December 2009, options to subscribe for ordinary shares of 25 pence each in the Company were outstanding as follows: Aviva Savings Related Aviva Savings Related Share Option Scheme Option price p Number...

  • Page 203
    201 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 29 - Equity compensation plans continued ...

  • Page 204
    ... average assumption 2009 2008 Share price Expected volatility* Expected volatility of comparator companies' share price* Correlation between Aviva and competitors' share price* Expected life Expected dividend yield Risk-free interest rate* * For awards with market-based performance conditions...

  • Page 205
    203 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 30 - Shares held by employee trusts We ...

  • Page 206
    ... of new shares by the Company, thereby attracting merger relief under the Companies Act 1985 and, from 1 October 2009, the Companies Act 2006. The balance on the reserve has arisen through the mergers of Commercial Union, General Accident and Norwich Union companies, forming Aviva plc in 2000...

  • Page 207
    ... income statement* Reserves credit for equity compensation plans (note 29d) Shares issued under equity compensation plans (note 35) Transfer to minority interests following Delta Lloyd IPO (note 3c) Foreign exchange rate movements Aggregate tax effect - shareholders' tax Balance at 31 December 2009...

  • Page 208
    ... ordinary dividend account, arising from the treatment of these shares explained in note 28(b). The Group's regulated subsidiaries are required to hold sufficient capital to meet acceptable solvency levels based on applicable local regulations. Their ability to transfer retained earnings to the UK...

  • Page 209
    ... £m 2007 Net £m Long-term business Insurance contracts Participating investment contracts Non-participating investment contracts Outstanding claims provisions Long-term business General insurance and health Provisions for claims incurred but not reported Provision for unearned premiums Provision...

  • Page 210
    ... shareholders' profits are derived largely from management fees. - In the United States, there are two main types of business - protection products and accumulation products. Protection products include interest-sensitive whole life, term life, universal life and indexed life insurance policies...

  • Page 211
    ...free" rate equal to the spot yield on UK Government securities, plus a margin of 0.1% is used. The rates vary, according to the outstanding term of the policy, with a typical rate as at 31 December 2009 being 4.35% (2008: 3.58%) for a policy with 10 years outstanding. Volatility of investment return...

  • Page 212
    210 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 38 - Insurance liabilities continued Future regular bonuses Annual bonus assumptions for 2010 have been set consistently with the year end 2009 declaration. Future annual bonus rates reflect ...

  • Page 213
    ...date of acquisition. The liability for future policy benefits for traditional life insurance is computed using the net level method, based on guaranteed interest and mortality rates as used in calculating cash surrender values. Reserve interest assumptions ranged from 2.00% to 7.50% in 2009 (2008...

  • Page 214
    ... investment markets in 2009, which had a direct or indirect impact on liability values. Equity markets recovered and the values of corporate bonds and commercial mortgages were increased by the narrowing of credit spreads. For many types of long-term business, including unit-linked and participating...

  • Page 215
    213 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 38 - Insurance liabilities continued ...

  • Page 216
    ... future claim payments, plus an explicit allowance for risk and uncertainty. The allowance for risk and uncertainty is calculated by each business unit in accordance with the requirements of the Group non-life reserving policy, taking into account the risks and uncertainties specific to each line of...

  • Page 217
    ... prior accident year general insurance and health net provisions during 2009 were: - £230 million from the UK, including group reinsurance business, mainly due to an improved view of group reinsurance liabilities, and favourable development on personal and commercial motor claims, and commercial...

  • Page 218
    216 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 38 - Insurance liabilities continued (ii) Gross figures Before the effect of reinsurance, the loss development table is: All prior years £m 2001 £m 2002 £m 2003 £m 2004 £m 2005 £m 2006 ...

  • Page 219
    ... Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 38 - Insurance liabilities continued (iii) Net...

  • Page 220
    ... of its insurance contracts project. For participating business, the discretionary participation feature is recognised separately from the guaranteed element and is classified as a liability, referred to as unallocated distributable surplus. Guarantees on long-term investment products are discussed...

  • Page 221
    ... investment markets in 2009, which had a direct or indirect impact on liability values. Equity markets recovered and the values of corporate bonds and commercial mortgages were increased by the narrowing of credit spreads. For many types of long-term business, including unit-linked and participating...

  • Page 222
    ..., various Group companies have given guarantees and options, including investment return guarantees, in respect of certain long-term insurance and fund management products. Further information on assumptions is given in notes 38 and 39. (a) UK Life with-profit business In the UK, life insurers are...

  • Page 223
    ... and by £42 million (2008: £56 million, 2007: £21 million) if equity markets were to decline by 10% from year end 2009 levels. (iii) Ireland Guaranteed annuity options Products with similar GAOs to those offered in the UK have been issued in Ireland. The current net of reinsurance provision for...

  • Page 224
    ... Spain is calculated conservatively, assuming a long-term market interest rate of 1.6% and no lapses or premium discontinuances. (v) United States Indexed and total return strategy products In the United States, the Group writes indexed life and deferred annuity products. These products guarantee...

  • Page 225
    ...: 2009 £m 2008 £m 2007 £m Long-term business Insurance contracts Participating investment contracts Non-participating investment contracts Outstanding claims provisions General insurance and health Outstanding claims provisions Provisions for claims incurred but not reported Provision...

  • Page 226
    224 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 41 - Reinsurance assets continued (ii) In respect of general insurance and health outstanding claims provisions and IBNR 2009 £m 2008 £m Carrying amount at 1 January Impact of changes ...

  • Page 227
    ...'s UK long-term business operation, Norwich Union Life, announced a one-off, special bonus worth an estimated £2.3 billion, benefiting around 1.1 million with-profit policyholders in its CGNU Life and CULAC with-profit funds. The bonus is being used to enhance policy values by around 10% in total...

  • Page 228
    226 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 44 - Special bonus and reattribution of the inherited estate continued Initial impact The initial impact of the reorganisation on the IFRS income statement and balance sheet at 1 October 2009 ...

  • Page 229
    ... compared with the previous year end. (ii) The net deferred tax liability arises on the following items: Restated 2008 £m 2009 £m Long-term business technical provisions and other insurance items Deferred acquisition costs Unrealised (gains)/losses on investments Pensions and other post...

  • Page 230
    ... Group holds, and shows the movements in these during the year. (a) Carrying amounts Restated 2008 £m Restated 2007 £m 2009 £m Deficits in the staff pension schemes (note 47e(vii)) Other obligations to staff pension schemes - insurance policies issued by Group companies (note 47e(vii)) Total...

  • Page 231
    ...the largest. The assets of the main UK, Irish and Canadian schemes are held in separate trustee-administered funds to meet long-term pension liabilities to past and present employees. In the Netherlands, the main scheme is held in a separate foundation which invests in the life funds of the Group...

  • Page 232
    ... the best estimate of future cash flows to be paid out by the scheme using the projected unit credit method. This is an accrued benefits valuation method which calculates the past service liability to members and makes allowance for their projected future earnings. It is based on a number of...

  • Page 233
    231 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 47 - Pension obligations continued There ...

  • Page 234
    ... payments £m 1,200 1,000 800 600 400 200 0 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 (ii) Assumptions on scheme assets The expected rates of return on the schemes' assets are: UK 2010 2009 2010 Netherlands 2009 2010 Canada 2009 2010 Ireland 2009 Equities Bonds...

  • Page 235
    ...information 47 - Pension obligations continued (iii) Investments in Group-managed funds and insurance policies Plan assets include investments in Group-managed funds in the consolidated statement of financial position of £101 million (2008: £99 million, 2007: £150 million) in the UK scheme...

  • Page 236
    ... losses give a five year history. Scheme assets exclude insurance policies with Group companies and income on the assets underlying them. 2009 £m 2008 £m 2007 £m 2006 £m 2005 £m Fair value of scheme assets at the end of the year Present value of scheme liabilities at the end of the year Net...

  • Page 237
    ... financial position The assets and liabilities of the schemes, attributable to defined benefit members, including investments in Group insurance policies (see footnote below), at 31 December 2009 were: UK Netherlands £m £m Canada £m Ireland £m Total 2009 £m Equities Bonds Property...

  • Page 238
    ... insurance policies) of the schemes give a net deficit of £3,058 million (2008: £2,015 million, 2007: £1,203 million), as shown in the following tables. UK Netherlands £m £m Canada £m Ireland £m Total 2009 £m Equities Bonds Property Other Total fair value of assets Present value...

  • Page 239
    ...(613) (1,402) (2,015) Financial statements IFRS The change in the pension schemes' net deficits during 2009 is mainly attributable to the unfavourable changes in assumptions underlying the present value of the schemes' liabilities, partly offset by a rise in equity and property investment values.

  • Page 240
    238 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 48 - Borrowings Our borrowings are either core structural borrowings, such as subordinated debt, debenture loans and most commercial paper, or operational borrowings, such as bank loans and ...

  • Page 241
    ... plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 48 - Borrowings continued 2008 Maturity dates...

  • Page 242
    ... value currency £m £m Within 1 year £m 1-5 years £m 5-10 years £m 10-15 years £m Over 15 years £m Total £m Amounts owed to credit institutions Bank loans Securitised mortgage loan notes UK lifetime mortgage business Dutch domestic mortgage business Total...

  • Page 243
    ... for defaults discounted at a risk-free rate plus a market-determined liquidity premium, and are therefore classified as "Level 2" in the fair value hierarchy. These have been designated at fair value through profit and loss in order to present the relevant mortgages, borrowings and derivative...

  • Page 244
    ...(a) As explained in accounting policy D, the UK long-term business policyholder funds have invested in a number of property limited partnerships (PLPs). The PLPs have raised external debt, secured on their respective property portfolios, and the lenders are only entitled to obtain payment of both...

  • Page 245
    ...Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 48 - Borrowings continued (v) Securitised mortgage loan...

  • Page 246
    ... Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 49 - Payables and other financial liabilities This note analyses our financial liabilities at the end of the year. 2009 £m 2008 £m 2007 £m Payables arising out of direct insurance Payables...

  • Page 247
    ... of the Group. (c) Guarantees on long-term savings products As a normal part of their operating activities, various Group companies have given guarantees and options, including interest rate guarantees, in respect of certain long-term insurance and fund management products. Note 40 gives details of...

  • Page 248
    ... 2006, the Group completed the acquisition of the AmerUs Group, a US-based insurer. In common with other companies operating in the sector, AmerUs is subject to litigation, including class-action litigation, arising out of its sale of equitybased index-linked annuity products. The Group is aware of...

  • Page 249
    247 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 52 - Commitments This note gives details of...

  • Page 250
    ... on loans Premium or discount on borrowings Premium or discount on participating investment contracts Financial instruments Acquired value of in-force business and intangibles Change in unallocated divisible surplus Interest expense on borrowings Net finance income on pension schemes Foreign...

  • Page 251
    ... funded. 2009 £m Restated 2008 £m Long-term savings General insurance and health Fund management Other business Corporate1 Total capital employed Financed by Equity shareholders' funds Minority interests Direct capital instrument Preference shares Subordinated debt External debt Net internal...

  • Page 252
    ...: Shareholders' share of accrued bonus Goodwill and other intangibles5 Regulatory valuation and admissibility restrictions2 Total available capital resources Analysis of liabilities: Participating insurance liabilities Unit-linked liabilities Other non-participating life insurance Total insurance...

  • Page 253
    ... MCEV Other information 55 - Capital statement continued Analysis of movements in capital of long-term businesses For the year ended 31 December 2009 Existing CGNU CULAC Old with- New withUKLAP Total UK with-profit with-profit profit sub- profit sub- with-profit life withfund fund...

  • Page 254
    ... is a subordinated loan of £200 million from Aviva Life Holdings UK Limited to the Aviva Annuity Limited to provide capital to support the writing of new business. The available capital of the Group's with-profit funds is determined in accordance with the "Realistic balance sheet" regime prescribed...

  • Page 255
    ... the Group can be categorised as follows: - Financial risks cover market and credit risk, insurance risk, liquidity and capital management. - Strategic risks include issues such as customer, brand, products and markets as well as any risks to our business model arising from changes in our market and...

  • Page 256
    ... of investment risks are borne by its policyholders, these risks are managed in line with local regulations and marketing literature, in order to satisfy the policyholders' risk and reward objectives. The Group writes unit-linked business in a number of its operations. In unit-linked business, the...

  • Page 257
    ...Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 56 - Risk management continued At a business unit level, equity price risk is actively managed in order to mitigate anticipated unfavourable market...

  • Page 258
    ... across our business units on a consolidated basis, and operate group limit frameworks that must be adhered to by all. The Group risk management framework also includes the market related aspect of credit risk. This is the risk of a fall in the value of fixed interest securities from changes in the...

  • Page 259
    ... Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 56 - Risk management continued - Additional committee...

  • Page 260
    ... due diligence in the form of a questionnaire and/or research by dedicated teams). In addition, the asset managers are mandated to make investments in line with the funds' risk profiles as marketed to prospective customers and policyholders. Accordingly, as part of reviewing the asset quality of...

  • Page 261
    259 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 56 - Risk management continued Loans The...

  • Page 262
    260 Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued 56 - Risk management continued Impairment of financial assets The following table provides information regarding the carrying value of financial assets that have been impaired and the ageing...

  • Page 263
    ... a range of highly rated banks to further mitigate this risk. Asset liability matching Generally, our individual business units generate sufficient capital from the receipt of premiums, fees and investment income, along with planned asset sales and maturities, to pay claims and expenses. However...

  • Page 264
    ... - Risk management continued On demand or within 1 year £m At 31 December 2009 Total £m 1-5 years 5-15 years £m £m Over 15 years £m Long-term business Insurance contracts - non-linked Investment contracts - non-linked Linked business General insurance and health Total...

  • Page 265
    ... Life Insurance Committee. At Group level the overall exposure to life insurance risk is measured through the ICA and other management reporting. The Life Insurance Committee monitors the application of the risk policy in each business, and receives management information on life insurance risks...

  • Page 266
    ... to and addressed at the Life Insurance Committee. This analysis enables the Group to assess whether accumulations of risk exceeds risk appetite. One key concentration of life insurance risk for the Group is improving longevity risk from pensions in payment and deferred annuities in the UK and the...

  • Page 267
    ... Aviva plc Annual Report and Accounts 2009 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 56 - Risk management continued (ii) General...

  • Page 268
    ... and which perform in line with what customers have been led to expect; clear information (and advice where relevant); good service; and making sure there are no unfair barriers that prevent customers from getting access to their money, changing products or making a successful insurance claim. The...

  • Page 269
    ... Interest rate and investment return Equity/property market values Expenses Assurance mortality/morbidity (life insurance only) Annuitant mortality (life insurance only) Gross loss ratios (non­life insurance only) The impact of a change in market interest rates by a 1% increase or...

  • Page 270
    ...- Risk management continued Long-term business Sensitivities as at 31 December 2009 Impact on profit before tax (£m) Interest rates +1% Interest rates -1% Equity/ property +10% Equity/ property -10% Assurance Annuitant mortality mortality -5% +5% Expenses +10% Insurance participating...

  • Page 271
    ... will be investment returns, the effect of writing new with-profit business in the fund, changes in the cost of guarantees and changes in assumptions. This increase in potential volatility is the primary driver of the change in IFRS long-term business sensitivities between 2008 and 2009. The impact...

  • Page 272
    ... trigger levels, management actions could include selling investments, changing investment portfolio allocation, adjusting bonuses credited to policyholders, and taking other protective action. A number of the business units use passive assumptions to calculate their long-term business liabilities...

  • Page 273
    ... instruments reserve in shareholders' equity. This hedge was fully effective throughout the current and prior years. - The Group holds a Sterling/Euro cross currency swap derivative, which has been designated as a hedge of the net investment in its European subsidiaries. The notional value of the...

  • Page 274
    ...note 49. The Group's derivative risk management policies are outlined in note 56(b). (ii) The contractual undiscounted cash flows in relation to non-hedge derivative liabilities have the following maturities: 2009 £m 2008 £m 2007 £m Within one year Between one and two years Between two and...

  • Page 275
    ...together with the provision of administration services and financial management to many of them. Our UK life insurance companies earn interest on loans advanced to these entities to fund property developments, including shopping, business and distribution centres, and properties in Europe, as well...

  • Page 276
    ... UK fund management companies manage most of the assets held by the Group's main UK staff pension scheme, for which they charge fees based on the level of funds under management. The main UK scheme and the Dutch scheme hold investments in Group-managed funds and insurance policies with other Group...

  • Page 277
    ...year ended 31 December 2009 Note 2009 £m Restated 2008 £m Income Dividends received from subsidiaries Interest receivable from Group companies Net investment income/(expense) Expenses Operating expenses Interest payable to Group companies Interest payable on borrowings Profit before tax Tax...

  • Page 278
    276 Aviva plc Annual Report and Accounts 2009 Financial statements of the Company continued Statement of financial position At 31 December 2009 Note 2009 £m Restated 2008 £m 2007 £m Assets Non-current assets Investments in subsidiaries Investment in joint venture Loans owed by ...

  • Page 279
    277 Aviva plc Annual Report and Accounts 2009 Financial statements of the Company continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Statement of cash flows For the year ended 31 December...

  • Page 280
    ... schemes Profit sharing and incentive plans Equity compensation plans (see (iv) below) Termination benefits Total 85 9 6 6 9 12 3 130 49 7 6 3 3 11 7 86 (iii) Pension costs The Company is one of a number of UK companies being charged for its employees participating in the Aviva Staff...

  • Page 281
    ... the tax rate of the home country of the Company as follows: 2009 £m Restated 2008 £m Profit before tax Tax calculated at standard UK corporation tax rate of 28% (2008: 28.5%) Adjustment to tax charge in respect of prior years Non-assessable dividends Disallowable expenses Unpaid group...

  • Page 282
    280 Aviva plc Annual Report and Accounts 2009 Notes to the Company's financial statements continued E - Reserves Merger reserve £m Investment Equity valuation compensation reserve reserve £m £m Restated Retained earnings £m Balance at 1 January 2008 Arising in the year: Profit for the year...

  • Page 283
    281 Aviva plc Annual Report and Accounts 2009 Notes to the Company's financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information H - Risk management Risk management in the...

  • Page 284
    ... and payable, as well as inter-company balances for fees and other transactions in the normal course of business. Dividends, loans, interest Services provided to related parties Income Receivable at year earned in end year 2009 2009 £m £m Income earned in year 2008 £m Income earned...

  • Page 285
    ... - Maturity profile of business 304 M13 - Segmental analysis of life and related business embedded value 304 M14 - Risk allowance within present value of in-force (VIF) 305 M15 - Implied discount rates (IDR) 306 M16 - Analysis of fund management and service company business within embedded value 306...

  • Page 286
    ... changes on pensions in Poland, an increase in the latent claims reserves in North America of £60 million and expenses of £102 million for the migration of all remaining local brands, with the exception of Delta Lloyd and RAC, to the single global Aviva brand. Earnings per share - MCEV basis 2009...

  • Page 287
    ... 16,164 Balance at 1 January Total comprehensive (income/(expense) for the year Dividends and appropriations Issues of share capital Shares issued in lieu of dividends Capital contributions from minority shareholders Net increase to total equity following Delta Lloyd IPO Minority share of dividends...

  • Page 288
    ...Shares held by employee trusts 3,892 Retained earnings 2,803 Additional retained earnings on an MCEV basis1 14,813 Equity attributable to ordinary shareholders of Aviva plc 1,352 Preference share capital and direct capital instruments 4,814 Minority interests1 20,979 Total equity Liabilities...

  • Page 289
    ... MCEV £m Ordinary share capital Capital reserves Other reserves Shares held by employee trusts Retained earnings Additional retained earnings on an MCEV basis Equity attributable to ordinary shareholders of Aviva plc Preference share capital Direct capital instruments Minority interests Total...

  • Page 290
    ...,001 Preference share capital and direct capital instruments Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis 1. Covered business represents the business that the MCEV calculations cover, as detailed in the Basis of preparation note. The embedded value is presented net of...

  • Page 291
    ... the expiry of any guaranteed premium rates. Life and pensions operating earnings Financial statements MCEV For life and pensions operating earnings, Aviva uses normalised investment returns. The use of asset risk premia reflects management's long-term expectations of asset returns in excess of...

  • Page 292
    ... with the market prices of assets without options and guarantees. Further information on the risk-free rates is given in note M18. The PVFP includes the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the...

  • Page 293
    ... the total assets in the group's with-profit funds are not sufficient to pay all policyholder claims. The average additional shareholder cost arising from this shortfall has been included in the TVOG. For profit sharing business in continental Europe, where policy benefits and shareholder value...

  • Page 294
    ... the risk free rates on paid-up and single premium group deferred annuity business in Delta Lloyd and immediate annuities in France and Spain. At 31 December 2008, this increased the embedded value by £467 million and increased total earnings by £234 million in 2008. The impact of these changes...

  • Page 295
    ... £m UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m Delta Lloyd £m North Europe America £m £m Australia Asia £m £m Asia Pacific £m Total £m Value of new business Earnings from existing business...

  • Page 296
    ... of MCEV operating earnings continued Gross of tax and minority interests 2008 Restated £m UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m Delta Lloyd £m Europe £m North America £m Asia £m Australia £m Asia Pacific £m Total £m Value of...

  • Page 297
    ... MCEV operating earnings continued Net of tax and minority interests 2009 UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m Delta Lloyd £m North Europe America £m £m Asia Australia £m £m Asia...

  • Page 298
    ... analysis of MCEV operating earnings continued Net of tax and minority interests 2008 Restated UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m Delta Lloyd £m Europe £m North America £m Asia £m Australia £m Asia Pacific £m Total £m Value of...

  • Page 299
    ... provision of fund management services to our Life businesses. These results are included within the Life MCEV operating earnings. 2009 £m 2008 £m United Kingdom Europe North America Asia Pacific Aviva Investors United Kingdom Aviva Europe Delta Lloyd Europe Asia Pacific Total 42...

  • Page 300
    ... value of in-force long-term business1 Net assets on an MCEV basis2 Equity capital, capital reserves, shares held by employee trusts and other reserves IFRS basis retained earnings Additional MCEV basis retained earnings Equity attributable to ordinary shareholders of Aviva plc on an MCEV...

  • Page 301
    299 Aviva plc Annual Report and Accounts 2009 MCEV financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information M6 - Analysis of life and pension earnings The following ...

  • Page 302
    ... value of regular premiums £m Single premiums £m Present value of new business premiums £m 31 December 2009 WACF £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd1 Europe North America Asia Australia Asia Pacific Total life and pensions...

  • Page 303
    ...Life and pensions (net of tax and minority interest) 2009 £m Restated 2008 £m 2009 £m Restated 2008 £m New business margin 2009 % Restated 2008 % United Kingdom France Ireland Italy Poland Spain1 Other Europe Aviva Europe Delta Lloyd Europe North America Asia Pacific Total life...

  • Page 304
    ...life and pensions new business 31 December 2009 Internal rate of return % Initial capital £m Required capital £m Total invested capital £m Payback period years United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America...

  • Page 305
    ... year tranches depending on the date when the profit is expected to emerge. Financial statements MCEV 2009 £m Total gross of minority interest Total net of minority interest 0-5 6-10 11-15 16-20 20+ United Kingdom Aviva Europe Delta Lloyd Europe North America Asia Pacific Total Restated 2008...

  • Page 306
    ... profits calculation. Time value of financial Nonoptions Frictional hedgeable and costs risks guarantees £m £m £m 2009 PVFP £m VIF £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia Australia Asia...

  • Page 307
    ...profits calculation. Time value Non- of financial hedgeable options and risks guarantees £m £m Restated 2008 PVFP £m Frictional costs £m VIF £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia Australia Asia Pacific Total...

  • Page 308
    ...Restated 2008 France £m Ireland £m Italy £m Poland £m Spain £m Aviva Europe £m Delta Lloyd £m Europe £m Asia Pacific £m Total £m Group £m Value of new business, after tax Life MCEV operating earnings after tax Life MCEV (loss)/earnings after tax Closing covered...

  • Page 309
    ... risk-free rate for immediate annuity type contracts and all US contracts are shown below the reference rate table. The principal economic assumptions used are as follows: Reference rate (spot, swap rates) and expense inflation United Kingdom 2009 2008 2007 Reference rate 1 year 5 years 10 years...

  • Page 310
    ...50% Risk premium - used for operating profit, Implied Discount Rates (IDR), Internal Rates of Return (IRR) and payback period For life and pensions operating earnings, Aviva uses normalised investment returns. For 2008, the normalised investment returns were expressed as one year swap returns plus...

  • Page 311
    ... for UK participating business are equities, property and long-term fixed rate bonds. The most significant assumption is the distribution of future long-term interest rates, since this is the most important factor in the cost of guaranteed annuity options. For many businesses, including US, France...

  • Page 312
    ... separately and are generally charged as incurred. No future productivity gains have been anticipated. Where subsidiary companies provide administration, investment management or other services to our life businesses, the value of profits or losses arising from these services have been included...

  • Page 313
    ...risk-free on page 304 rates 1% increase £m £m £m 2009 Embedded value (net of tax and minority interest) 1% decrease £m 2% increase £m 2% decrease £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia...

  • Page 314
    ... reported to risk-free on page 295 rates £m £m 2009 Value of new business (net of tax and minority interest) 1% increase £m 1% decrease £m 2% increase £m 2% decrease £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia...

  • Page 315
    ...Equity/property Market values 2009 Value of new business (net of tax and minority interest) As reported on page 295 £m 10% increase £m 10% decrease £m Volatility 25% increase £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America...

  • Page 316
    ... business £m £m 2009 Embedded value (net of tax) 10% decrease in 10% As reported maintenance decrease in on page 304 expenses lapse rates £m £m £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia Australia Asia Pacific Total...

  • Page 317
    ... Aviva plc Annual Report and Accounts 2009 MCEV financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Statement of directors' responsibilities in respect of the Market...

  • Page 318
    ... Income, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Financial Position, the Reconciliation of Shareholders' Equity on IFRS and MCEV bases, the Reconciliation of IFRS Total Equity to MCEV Net Worth, the Group MCEV Analysis of Earnings...

  • Page 319
    317 Aviva plc Annual Report and Accounts 2009 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Other information In this section 318 323 Glossary Shareholder services Other information

  • Page 320
    ... index-linked. Bonds and savings Individual savings accounts - Tax efficient plans for investing in stocks and shares, cash deposits or life insurance investment funds, subject to certain limits. Introduced in the UK in 1999. Monolines Financial companies specialising in a single line of products...

  • Page 321
    ... of future profits that will emerge over the remaining term of all existing life and pensions policies for which premiums are being paid or have been paid at the statement of financial position date. Bancassurance A simple form of life insurance, offering cover over a fixed number of years during...

  • Page 322
    320 Aviva plc Annual Report and Accounts 2009 Glossary continued General terms cont. Funds under management Long-term and savings business Represents all assets actively managed or administered by or on behalf of the Group Market Consistent Embedded Value including those funds managed by third ...

  • Page 323
    ... value per ordinary share Gross of tax yields on risk-free fixed interest investments, generally swap rates under MCEV. IFRS operating profit Net asset value divided by the number of ordinary shares in issue. Net asset value is based on equity shareholders' funds. Other information Net worth...

  • Page 324
    ... away by investors. Time value and intrinsic value The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted. Risk-free rate (reference rate in CFO Forum terminology) A financial option or guarantee has two...

  • Page 325
    ...29, 30 March 2010 31 March 2010 16 April 2010 17 May 2010 * Please note that the ADR local payment date will be approximately five business days after the proposed dividend date for ordinary shareholders. Share price You can access the current share price of Aviva plc ordinary shares and ADRs...

  • Page 326
    ... features to allow you to manage your holding in Aviva easily and efficiently. Within the online centre you will be able to find our current and historic ordinary and ADR share prices, sharedealing information, news, updates, and when available, presentations from the Group Chief Executive. You...

  • Page 327
    Designed by sasdesign.co.uk Board photography by Marcus Ginns This document is printed on Revive Pure White Uncoated, which is a recycled grade containing 100% post consumer waste and manufactured at a mill accredited with ISO14001 environmental management standard. The pulp used in ...

  • Page 328
    Aviva plc St Helen's, 1 Undershaft London EC3P 3DQ +44 (0)20 7283 2000 www.aviva.com Registered in England Number 2468686