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Aviva plc
Annual Report and
Accounts 2010
Putting you
in the picture

Table of contents

  • Page 1
    Aviva plc Annual Report and Accounts 2010 Putting you in the picture

  • Page 2
    ...17 Performance review 75 Corporate responsibility 93 Governance 137 Shareholder information 167 Financial statements IFRS 315 Financial statements MCEV 353 Other information ...or go online 2010 Annual report and accounts You can find more detailed information regarding Aviva's performance during...

  • Page 3
    ... bad times people need to feel secure. As a leading insurance company, we're here to help create prosperity and peace of mind for our customers." Andrew Moss Group chief executive Our key statistics 53.4m customers 25.5p 2010 full year dividend 45,000 Employees 26.1% Growth in operating profit...

  • Page 4
    ... Aviva plc Annual Report and Accounts 2010 We believe in people not policies Our approach We help protect almost every aspect of peoples' lives; their homes, cars, families, health and their financial futures. For over 300 years, we've helped people protect what they have today and to plan, invest...

  • Page 5
    03 Aviva at a glance Aviva plc Annual Report and Accounts 2010 We believe in people not policies continued "You did a super job for us. We'll never forget you, ever." On a Saturday afternoon, Sylvia Cooper was rushed into hospital for a life-saving operation. First thing on Monday morning her ...

  • Page 6
    ... size and potential of the European pensions market and the significant opportunity that exists for Aviva. Igal Mayer Chief executive, Aviva Europe Customers 18 million Delta Lloyd: 4.4 million 1,126 1,165 1,000 In 2010 we delivered total IFRS operating profit growth of 21% to £1,411 million...

  • Page 7
    ... region's long-term growth potential. Simon Machell Chief executive, Aviva Asia Pacific Customers 8 million IFRS operating profit £m 40 30 149 213 In 2010 we delivered strong results growing our total regional IFRS operating profit by 77% to £376 million „ Total sales in the year grew to...

  • Page 8
    ... long-term savings and pensions, and more broadly with climate change. „ Our global 'Street to School' programme helps our charity partners across the world make a real difference to children who are alone and at risk on the streets „ Last year our staff volunteered over 57,250 hours of their time...

  • Page 9
    ...committee report Directors' remuneration report 94 96 97 100 109 110 112 114 115 319 319 320 321 351 Financial statements MCEV 352 Other information Glossary Shareholder services 354 359 Shareholder information Company address and Share capital Related party disclosures Dividend data Guarantees...

  • Page 10
    ... Annual Report and Accounts 2010 Chairman's statement Delivering more than just peace of mind Operationally Aviva is doing extremely well; the executive team and our people across the Group have done a remarkable job in supporting our customers and delivering profits of £2.55 billion for the year...

  • Page 11
    ... of the Company by the Group chief executive officer. The Board has also adopted detailed terms of reference for the Board and its committees, as well as a rigorous and transparent procedure for the appointment of new directors. The continued effectiveness of the Board is assessed annually through...

  • Page 12
    ...right across our business. We had another strong year in life insurance. General insurance is returning to growth from a low point in the cycle. Our asset management business, Aviva Investors, delivered significant growth in funded external sales. £47.1bn worldwide sales £2.55bn operating profit...

  • Page 13
    ... of capital the Group's Internal rate of term savings sales in this area grew by 10% in return (IRR) increased to 12.5% (from 10.0% the year. in 2009) with a payback of 8 years (14 years Aviva Investors, our global asset in 2009). management business, grew assets under In the UK our life business is...

  • Page 14
    ... greater comparability with other UK insurers. On a European Embedded Value equivalent basis Aviva's net asset value per share is 621 pence at 31 December 2010. Our IFRS shareholder equity now exceeds the level before the global financial crisis, having increased during the year by £2.5 billion to...

  • Page 15
    13 Aviva plc Annual Report and Accounts 2010 Group chief executive's review continued 2. Benefiting from the combination of life and general insurance. Our life and general insurance operations are excellent businesses in their own right, with strong market positions, good growth prospects and ...

  • Page 16
    ...-term, so we have set out a number of clear financial deliverables: UK and Europe: our key focus „ UK and Europe represents the largest life and pensions market in the world, offering the greatest absolute growth over the next five years „ We will focus on risk and savings products in UK, France...

  • Page 17
    ... of life and general insurance Our life and general insurance operations are excellent businesses in their own right, but in addition to their inherent strengths there are significant advantages to running these businesses under one brand and in one group. Aviva Investors, our global asset manager...

  • Page 18
    ... to shareholders *** On a MCEV basis from 2007. Prior years presented on an EEV basis Sales % IFRS Group Operating profit % UK • Europe • North America • Asia Pacific • 35 46 14 5 £47.1bn Worldwide sales 2010 UK • Europe • North America • Asia Pacific • Aviva Investors...

  • Page 19
    ... Accounts 2010 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Performance review In this section Key performance indicators Regional performance Information on the company Organisational structure...

  • Page 20
    ... return takes into account everything affecting shareholder value, not just operating profits. 88.0 48.9 10 Proposed ordinary dividend per share and dividend cover Our Board has recommended a final dividend of 16.00 pence per share (2009: 15.00 pence). This brings the total dividend for the year...

  • Page 21
    ...line with global financial service (GFS) benchmark norms and monitor our internal performance by using our historical data to assess annual progress. „ Employee engagement represents the degree to which people believe Aviva is a great place to work and are contributing to help meet our collective...

  • Page 22
    ... and investment performance. However the long-term savings market returned to growth, following two consecutive years of contraction. We gained market share in annuities and core protection as customers turned to strong brands they can trust, like Aviva. The general insurance market remained highly...

  • Page 23
    ... review Aviva plc Annual Report and Accounts 2010 Aviva UK continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The Aviva brand is strong; customer recognition and Long-term and savings sales...

  • Page 24
    .... „ Developing core strengths in product simplification and innovation, shared operational excellence, general insurance claims management, governance and risk management while remaining customer focused. Delta Lloyd is independent of our other operations. Following a successful IPO in 2009, Aviva...

  • Page 25
    .... The focus for 2010 was on growth through cost discipline, strong capital and risk management, customer focus and leading market positions, Delta Lloyd increased IFRS operating profits by 34% to £536 million (2009: £399 million) driven by higher expected investment returns, higher fund management...

  • Page 26
    ... plc Annual Report and Accounts 2010 North America Improving our position and profitability in a key region The North America region is home to two of the world's largest and richest economies. Aviva North America consists of two businesses: our life insurance and annuity business in the United...

  • Page 27
    ... Performance review Aviva plc Annual Report and Accounts 2010 Asia Pacific Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Committed to building franchise value through organic growth Aviva Asia...

  • Page 28
    ...respect of fund management operations and £3 million (2009: nil) from our pooled pensions business, which is reported within the long-term business segment. Strengthening our mutually beneficial position within Aviva Our growth is focused on leveraging our Aviva parentage and insurance heritage to...

  • Page 29
    ... products and services, focused on the following lines of business: long-term insurance and savings business, general insurance and health and fund management. Our business is managed on a geographic basis through a regional management structure based on four regions: UK, Europe, North America...

  • Page 30
    ... financial loss on death or ill-health. Our product ranges include term assurance, mortgage life insurance, flexible whole life and critical illness cover. „ Bonds and savings - accumulation products with single or regular premiums and unit-linked or guaranteed investment returns. Our product...

  • Page 31
    ...Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The other fund management businesses of Aviva comprise our collective investment business with the Royal Bank of Scotland Group in the UK, Delta Lloyd...

  • Page 32
    ...year. We have strong existing relationships with a number of banks and building societies, distribution deals with the Co-operative Insurance Society and the Post Office, and growing corporate and direct channels. United Kingdom Aviva General Insurance Business overview and strategy Products Aviva...

  • Page 33
    ... review Aviva plc Annual Report and Accounts 2010 Information on the company continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information product mix by increasing sales of protection and unit-linked...

  • Page 34
    ... Investors) and health insurance businesses. Our strategy is focused on delivering sustainable, profitable growth, maximising capital generation and leveraging our product portfolio. Market Aviva Italy is the country's sixth-largest life insurer, with a market share of 5% based on 2009 premiums...

  • Page 35
    ... insurance and savings business offers a wide range of products covering protection, bonds and savings and pensions. The largest segment is single and regular premium savings and investment products. These include unit-linked policies linked to a range of investment funds as well as profit-sharing...

  • Page 36
    ... life company and two non-state protected financially within our contracts with the cajas should a pension funds. Aviva Russia has a Net Promoter Score of 86 in merger result in the insurance services of the newly merged 2010, a score that has been consistently high (2009: 85). company being awarded...

  • Page 37
    ... Delta Lloyd's financial flexibility. Under this programme £491 million (â,¬575 million) worth of debt was issued in 2010 which will be used for working capital purposes. Market Czech Republic sells flexible unit-linked insurance products and group life insurance schemes for corporate clients...

  • Page 38
    ... customer focus; „ Quality of distribution partnerships; „ Sophisticated pricing and underwriting capabilities; „ Financial strength and performance; and „ Investment management. USA Business overview and strategy Delta Lloyd distributes long-term insurance and savings and general insurance...

  • Page 39
    ... 2010, Aviva USA entered the managed account guaranteed investment contract (GIC) market with a product offering that leverages the investment management capabilities of both our life insurance business and those of Aviva Investors North America. In the past, Aviva has also issued funding agreements...

  • Page 40
    38 Aviva plc Annual Report and Accounts 2010 Information on the company continued In long-term insurance and savings, we believe that the outlook is positive, with high growth rates expected in the medium-term owing to currently low penetration rates of insurance products in many markets, high GDP...

  • Page 41
    ... and Accounts 2010 Information on the company continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Aviva Investors Business overview and strategy Products Aviva Investors was set up in 2008...

  • Page 42
    ... management businesses Aviva International Holdings Limited* UK General Insurance Subsidiaries Overseas and other subsidiaries**** United Kingdom Bermuda Aviva Annuity UK Limited Aviva Central Services UK Limited Aviva Consumer Products UK Limited Aviva Employment Services Limited Aviva Equity...

  • Page 43
    41 Performance review Aviva plc Annual Report and Accounts 2010 Organisational structure continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Ireland Spain Aviva Europe SE and its ...

  • Page 44
    ... of shares in issue for the year 2,820 2,784 2,767 2,705 2,658 2,643 2,622 2,588 2,566 2,469 Statement of financial position data Amounts in accordance with IFRS 2010 £m 2009 £m 2008 £m 2007 £m 2006 £m Total assets Gross insurance liabilities Gross liabilities for investment contracts...

  • Page 45
    ... life and pensions products in France and Italy, as based on total sales for 2009. Our main activities are the provision of products and services in relation to long-term insurance and savings, fund management and general insurance. Factors affecting results of operations Capital and credit market...

  • Page 46
    ...of our UK with-profits funds, with the final payment made in 2010. This special bonus reflects the financial strength of those funds, and provided an uplift to IFRS profits in 2008, 2009 and 2010. The uplift in 2010 is approximately £58 million, net of tax. General insurance and health underwriting...

  • Page 47
    ... years, to fund new, non-profit business. Basis of earnings by line of business On 1 October 2009, we completed the sale of our Australian life and pension business and wealth management platform to the National Australia Bank for A$902 million (£443 million). The sale supports Aviva's strategy...

  • Page 48
    ... 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 49
    ...Aviva plc Annual Report and Accounts 2010 Financial and operating performance continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Effect of capitalisation factor on regular premium long-term...

  • Page 50
    ... operating 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...

  • Page 51
    ... and operating performance continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The table below presents our consolidated income statement under IFRS for the years ended 31 December 2010, 2009...

  • Page 52
    ... changes on the non-life business were a £304 million charge (2009: £152 million credit). This is due to unfavourable market movements in a number of our regions. The long-term insurance and savings business investment variances and economic assumption changes on long-term insurance business...

  • Page 53
    ...premiums, adjusted operating profit and profit/(loss) before tax attributable to shareholders' profits under IFRS from our UK general insurance and health business for the years ended 31 December 2010, 2009 and 2008. Year ended 31 December 2010 On a PVNBP basis, sales in our UK long-term insurance...

  • Page 54
    ...Europe Delta Lloyd Total long-term insurance and savings business General insurance and health France Ireland Other Europe Aviva Europe Delta Lloyd Total general insurance and health Fund management Non-insurance Total adjusted operating profit Profit before tax attributable to shareholders' profits...

  • Page 55
    ... the fund management segment resulted from a substantial one-off performance fee received in late 2010 while life operating profit benefited from increased technical margins and a reduction in administration costs. Year ended 31 December 2009 Aviva Europe reported an increase in long-term insurance...

  • Page 56
    54 Aviva plc Annual Report and Accounts 2010 Financial and operating performance continued North America Year ended 31 December 2009 Aviva North America includes the long-term insurance and savings business in the US, which provides life insurance and annuity products, and the general insurance ...

  • Page 57
    ... review Aviva plc Annual Report and Accounts 2010 Financial and operating performance continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Year ended 31 December 2010 Aviva Investors Total...

  • Page 58
    56 Aviva plc Annual Report and Accounts 2010 Financial and operating performance continued Corporate centre and group debt costs and other interest 2010 £m 2009 £m 2008 £m Corporate centre Group debt costs and other interest (143) (656) (108) (636) (141) (379) Year ended 31 December 2010 ...

  • Page 59
    .... Annuities and non-participating contracts, on the other hand, have a high level of guaranteed future payments. We endeavour to match the investments held against these types of business to future cash flows. We therefore have a policy of generally holding fixed income securities and mortgage loans...

  • Page 60
    ... operations classified as held for sale £m 2010 Policyholder Participating Shareholder assets fund assets assets £m £m £m Total assets analysed £m Balance sheet total £m Investment property Loans Financial investments Debt securities Equity securities Other investments Total Total % 2009...

  • Page 61
    59 Performance review Aviva plc Annual Report and Accounts 2010 Analysis of investments continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Measurement basis We carry investments on our ...

  • Page 62
    ... securities - Total Ratings AAA £m AA £m A £m BBB £m Less than BBB £m Non-rated £m Total £m 2010 Government UK government UK local authorities Non-UK government Corporate Public Utilities Convertibles and bonds with warrants Other corporate bonds Certificates of deposits Structured RMBS non...

  • Page 63
    ... Annual Report and Accounts 2010 Analysis of investments continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Debt securities, for which policyholders carry the exposure to investment losses...

  • Page 64
    .... Debt securities - participating fund assets Ratings AAA £m AA £m A £m BBB £m Less than BBB £m Non-rated £m Total £m 2010 Government UK government UK local authorities Non-UK government Corporate Public Utilities Convertibles and bonds with warrants Other corporate bonds Certificates of...

  • Page 65
    ... Annual Report and Accounts 2010 Analysis of investments continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Debt securities, for which shareholders carry the exposure to investment losses...

  • Page 66
    ... Annual Report and Accounts 2010 Property Equity securities The table below analyses our investments in equity securities by sector. 2010 Policyholder Participating £m £m Shareholder £m Total £m Public Utilities Banks, trusts and insurance companies Industrial miscellaneous and all other Non...

  • Page 67
    ... Aviva plc Annual Report and Accounts 2010 Contractual Obligations Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Contractual obligations Contractual obligations with specified payment dates...

  • Page 68
    ... Aviva plc Annual Report and Accounts 2010 Risk management Risk management As a global insurance group, risk management is at the heart of what we do and is the source of value creation as well as a vital form of control. It is an integral part of maintaining financial stability for our customers...

  • Page 69
    ...review Aviva plc Annual Report and Accounts 2010 Risk management continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information This helps to provide assurance to the various risk oversight committees...

  • Page 70
    ... financial instruments from fluctuations in interest rates, equity prices and foreign currency exchange rates securities, mortgages and holdings of investment properties „ Impact of market conditions on the sales of investments, pensions and other savings products and our fund management business...

  • Page 71
    ... review Aviva plc Annual Report and Accounts 2010 Risk management continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Sensitivities1 „ A 1% increase in interest rates would decrease total...

  • Page 72
    ... the UK and Ireland with-profit life funds. The minimum solvency requirement for our European businesses is based on the Solvency 1 Directive. In broad terms, for EU operations, this is set at 4% and 1% of non-linked and unit-linked life reserves respectively and for our general insurance portfolio...

  • Page 73
    ...Aviva plc Annual Report and Accounts 2010 Capital management continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Regulatory capital - group European Insurance Groups Directive UK Life funds...

  • Page 74
    ... new business in UK Life and reduced required capital on general insurance business. 2010 £m 2009 £m Operational capital generation: Life in-force profits1 General insurance, fund management and non-insurance profits Operational capital generated before investment in new business Capital invested...

  • Page 75
    ... Reporting Standards basis); „ Proposed ordinary dividend per share and dividend cover; „ Operating profit (Market Consistent Embedded Value basis); „ Operating profit (IFRS basis); „ Worldwide sales; „ Operational capital generation; and „ Return on equity shareholders' funds. Management...

  • Page 76
    .... We focus instead on operating support the timely development of a global standard for profit incorporating a longer-term investment return (LTIR). Our insurance accounting that reflects the economics of our business, rates of return that we use for equity and property in our LTIR and are working...

  • Page 77
    75 Aviva plc Annual Report and Accounts 2010 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Corporate responsibility In this section Highlights Strategy and risk Governance Trust and integrity ...

  • Page 78
    ..., group CEO and two other non-executive directors, Scott Wheway and Euleen Goh. The committee reviews strategy and policy and receives regional and functional reports four times a year. In 2010 it received a report from all regional offices and the IT, audit, procurement, SRI and customer teams...

  • Page 79
    ...team progressing the International Integrated Reporting Committee which aims to present a more rounded view of responsible reporting. The work Aviva Investors has been developing over the past two years on the Sustainable Stock Exchange initiative continued to gather prominence during 2010. Building...

  • Page 80
    ... directors' annual remuneration. Products and services „ making it easier to work by simplifying and de-cluttering HR tools and processes „ building strong global HR and CR functions. Locally, the use of global tools and 'One Aviva' processes supports the delivery of our business strategies...

  • Page 81
    ... role modelling personal behaviours that locally as a team. support balanced leadership. One example is the group As with last year, each completed survey triggers a £1 executive committee reciprocal mentoring scheme which donation to our global Street to School charity partner Save the Children...

  • Page 82
    ... behind due to economic migration. This year we have built ten Care Houses, worked in 20 poor rural elementary schools and reached 24,000 children. In addition to significant publicity this helped Aviva Cofco win the award for 'China's Best Corporate Citizen'. „ We used our global brand campaign...

  • Page 83
    ... plc Annual Report and Accounts 2010 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Our focused attention on driving down energy use has been rewarded this year...

  • Page 84
    ...Aviva plc Annual Report and Accounts 2010 Corporate responsibility continued Financial capability We believe it's vital to help build financial capability as the capacity for consumers to save and make provision is the single most important ingredient for future prosperity. We work across a number...

  • Page 85
    83 Aviva plc Annual Report and Accounts 2010 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information External benchmarking and recognition Our achievements in 2010 were ...

  • Page 86
    ...of employees participating in volunteering Number of employee hours spent volunteering % of investment in Aviva 'Street to School' % of employees who feel that Aviva does a good job of contributing to the communities in which we live and work 2007 - 2008 2009 - 2010 96% 2010 target 100% of employees...

  • Page 87
    ... and Accounts 2010 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Met/exceeded 2010 target 9 Missed 2010 target 8 Corporate responsibility Change over year 2011...

  • Page 88
    86 Aviva plc Annual Report and Accounts 2010 Corporate responsibility continued Accounting for Sustainability We also report our performance using Accounting for Sustainability's connected reporting framework, which integrates financial and non-financial data to provide a comprehensive picture of ...

  • Page 89
    87 Aviva plc Annual Report and Accounts 2010 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The cost of offsetting the 2010 emissions has, for the first time, ...

  • Page 90
    ...of strip outs. Industry benchmark information „ „ 200kg of waste per employee per year; and recycling rate of 60-70% (BRE Office toolkit). annual 4% reduction in total waste; annual recycling rate greater than 80%; and long-term target - zero to landfill for UK operations by 2015 and worldwide by...

  • Page 91
    89 Aviva plc Annual Report and Accounts 2010 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Resource usage Direct Company impacts Water The operating cost of ...

  • Page 92
    ... in 2010, a group of independent international thinkers, to develop fresh thinking on the whole area of saving and how this can build prosperity globally. We do receive customer complaints and these are dealt with by our customer complaints management system. Further details of our customer related...

  • Page 93
    ...plc Annual Report and Accounts 2010 Corporate responsibility continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Independent assurance statement The Aviva corporate responsibility content on...

  • Page 94
    ...with the firm's policies. Our assurance team Our assurance team has been drawn from our global Climate Change and Sustainability Services Practice, which undertakes engagements similar to this with a number of significant UK and international businesses. The work has been led and reviewed by a Lead...

  • Page 95
    ... Accounts 2010 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Governance In this section Board of directors Executive management Directors' report Corporate governance report Nomination committee...

  • Page 96
    .... Previously director of 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 the Corporate Responsibility and Nomination committees and member of the supervisory board of Delta Lloyd N.V.

  • Page 97
    ... Group. Formerly chief executive of Aviva North America, chief executive of Aviva UK General Insurance and chief executive officer, chief financial officer and executive vice-president of Aviva Canada. Previously finance director of Norwich Union Insurance and managing director, London Markets...

  • Page 98
    ...US and acting group finance director and deputy group finance director for Old Mutual plc, London. Formerly head of National Australia Insurance Services, a subsidiary of National Australia Bank's UK operations and chief financial officer of their European wealth management business. Previously held...

  • Page 99
    ... Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information The directors submit their Annual Report and Accounts for Aviva plc, together with the consolidated financial statements of the Aviva Group of companies, for the year...

  • Page 100
    ... other political expenditure. 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 and...

  • Page 101
    ...Annual Report and Accounts 2010 Directors' report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information As the authority granted at the 2010 Annual General Meeting will Creditor payment policy...

  • Page 102
    ... Board and its committees operate in line with work plans agreed prior to the start of each year. At Board and committee meetings, directors receive regular reports on the Group's financial position, risk management, regulatory compliance, key business operations and other material issues. Directors...

  • Page 103
    101 Aviva plc Annual Report and Accounts 2010 Corporate governance report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Balance of executive and non-executive directors • Chairman ...

  • Page 104
    ... knowledge both from an executive and non-executive standpoint. She has a strong understanding of risk and product issues in financial services and has brought a new insight to the Company's operations in Asia. Michael Hawker AM Mr Wheway has a wealth of business experience in the retail sector and...

  • Page 105
    ... issue. Aviva plc governance structure Aviva plc Board Audit Committee Corporate Responsibility Committee Nomination Committee Remuneration Committee Risk Committee Disclosure Committee Group Executive Committee Directors' attendance The Company requires directors to attend all meetings...

  • Page 106
    ... the effective day-to-day running and the Group, which has been in place for the year under review and management of the business. The group chief executive has been delegated operational responsibilities and powers by the Board, up to the date of approval of the Annual Report and Accounts. and in...

  • Page 107
    ...by the chief risk officer to the Group Executive Committee, the Risk Committee and Audit Committee, along with any proposed mitigating actions. The risk management process has been in place for the year under review and up to the date of approval of the Annual Report and Accounts. Further details on...

  • Page 108
    ... at this year's Annual General companies. Meeting. Aviva Investors applies and complies with the UK Stewardship The Board is equally interested in the concerns of private Code maintained by the Financial Reporting Council and has shareholders and, on its behalf, the group company secretary published...

  • Page 109
    ... Aviva plc Annual Report and Accounts 2010 Corporate governance report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Independence criteria for directors Shareholder approval of equity...

  • Page 110
    ...Aviva plc Annual Report and Accounts 2010 Corporate governance report continued Directors' responsibility statement pursuant to Disclosure and Transparency Rule 4.1.12 Each of the directors listed on pages 94 and 95 confirms that, to the best of their knowledge: (a) the Group and Company financial...

  • Page 111
    ...plc Annual Report and Accounts 2010 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 the work it...

  • Page 112
    ... reported issues. The committee also reviews, approves and monitors the annual work plan for the Group's internal audit function and approves the annual plan for the external audit. Twice each year, the committee receives reports on the adequacy of the Group's life assurance and general insurance...

  • Page 113
    ...quarterly report of compliance against assurance on risk appetite and controls to the committee. The the external auditor policy and the policy has worked effectively plans, the level of resources, the budget of the Internal Audit during 2010. function and the remuneration of the chief audit officer...

  • Page 114
    112 Aviva plc Annual Report and Accounts 2010 Risk committee report The committee oversees all aspects of risk management in the Group, including market, credit, liquidity, insurance and operational, and their impact on both financial and non-financial goals. During the year the committee focused ...

  • Page 115
    113 Aviva plc Annual Report and Accounts 2010 Risk committee report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information „ „ „ „ „ Group risk management policies: the committee ...

  • Page 116
    ..., www.aviva.com/investor-relations/corporate-governance/termsof-reference, and are also available from the group company secretary. The following directors served on the committee during the year: Period Member From To The Company put its CR Report included in the 2009 annual report and accounts to...

  • Page 117
    ...plc Annual Report and Accounts 2010 Directors' remuneration report Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Highlights „ „ „ „ „ „ „ During 2010, the Company undertook a Strategic...

  • Page 118
    ... Accounts following the relevant year end and will endeavour to reflect all relevant outcomes, behaviors and risk management actions sought by the Board. „ Competitive Long Term Incentive Plans: As previously agreed by shareholders at the 2008 AGM, the 2010 One Aviva Twice the Value (OATTV) bonus...

  • Page 119
    ... review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 3. The committee's objectives The committee is a committee of the Board. Its terms of reference are available from the group general counsel and company...

  • Page 120
    ...' Remuneration Report A review of the committee's 2011 work plan Final approval of the Group's stretch target for the 2010 financial year Assurance of non-financial bonus outcomes for 2009 Approval of the HM Revenue and Customs Approved Options Schedule to the rules of the Aviva Executive Share...

  • Page 121
    ... Aviva plc Annual Report and Accounts 2010 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 6. FSA Remuneration Code: Aviva Investors The FSA Remuneration...

  • Page 122
    ... the LTIP (275% of basic salary). The breakdown does not include any share price growth, the dividends payable on the ABP deferred shares and 2011 long-term incentive awards or other benefits (e.g. cash car allowance, value of private medical insurance (PMI) and all employee share ownership plans).

  • Page 123
    121 Aviva plc Annual Report and Accounts 2010 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 10. Remuneration policy in practice for EDs Table 6, below, ...

  • Page 124
    ... the loss of bonus which would have been paid to Mr Regan by Willis Group Holdings Limited for the 2009 financial year. „ One Aviva, Twice the Value Award (OATTV) with a grant value of 75% of the BRDSA. CFO Recruitment Share Awards Plan „ „ „ 11. Overview of the effect on EDs during 2010 The...

  • Page 125
    123 Aviva plc Annual Report and Accounts 2010 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Philip Scott, chief financial officer* Element Amount ...

  • Page 126
    ...and are time-limited. 12. Target setting ABP - target setting The financial targets which underpinned the ABP (accounting for 50% of annual bonus) in 2010 were derived from Aviva's return, growth and capital efficiency/capital generation goals. Employee and customer targets (each accounting for up...

  • Page 127
    ... 2010 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Personal objectives based on delivery of key strategic priorities, personal leadership and operating...

  • Page 128
    ...from euro to pound sterling at the average exchange rate for 2010 of â,¬1.16605:£1.00 Assumptions are as follows: Threshold vesting assumes TSR and ROCE elements vest at the minimum level, producing a 30% vesting of the total award. No share price growth is assumed; „ Expected value, based on the...

  • Page 129
    ... Annual Report and Accounts 2010 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Table 13: Vesting history of LTIP awards Percentage of award vesting Year...

  • Page 130
    ... year Number At 31 December 2010 Number8 Market price at Market price or date awards sale price at date awards vested granted1 Pence Pence Normal Vesting Date Andrew Moss Aviva Long Term Incentive Plan 2007 2008 2009 2010 Aviva Annual Bonus Plan 2007 20089 20099 201010 One Aviva Twice the Value...

  • Page 131
    ... year Number At 31 December 2010 Number8 Market price at Market price or date awards sale price at date awards vested granted1 Pence Pence Normal Vesting Date Mark Hodges Aviva Long Term Incentive Plan 2007 2008 2009 2010 Aviva Annual Bonus Plan 2007 20089 20099 201010 One Aviva Twice the Value...

  • Page 132
    130 Aviva plc Annual Report and Accounts 2010 Directors' remuneration report continued 14.Share options Details of the EDs who were in office for any part of the financial year, and hold or held options over ordinary shares of the Company, pursuant to the Company's share based incentive plans, are...

  • Page 133
    ... 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 2010 loans totalling £13.9 million were made to RBC Trustees (CI) Limited to ensure sufficient shares were available to meet...

  • Page 134
    ... will be determined by the Board within the limits set by shareholders. The current aggregate limit of £1.5 million was approved by shareholders at the Company's 2005 Annual General Meeting. The amount paid in 2010 was £1.2 million. EDs are remunerated under their service contracts and receive no...

  • Page 135
    ...the value at the date of award inclusive of the two-thirds of bonus which Aviva requires its EDs to defer into Aviva shares for three years. 2. 'Benefits'. All the EDs received life assurance benefits during the year that relate to the cost incurred by the Company of insuring the directors' life and...

  • Page 136
    ... net of inflation, over the year net of contributions. 7. Philip Scott ceased to accrue benefits in the Aviva Staff Pension Scheme with effect from 30 June 2009. Mr Scott subsequently took early retirement with effect from 1 August 2010. As disclosed in the 2008 and 2009 Annual Report and Accounts...

  • Page 137
    ... Annual Report and Accounts 2010 Directors' remuneration report continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 24. Directors' interests in Aviva shares The interests held by each person...

  • Page 138
    ... a prorated bonus for the 2010 financial year of £27,755 for his period as an ED. A payment of £2,875 was made for legal fees on his departure terms. Mr Scott did not receive any other compensation payments for loss of office. As also disclosed in the 2009 Annual Report and Accounts, Mr Scott...

  • Page 139
    137 Aviva plc Annual Report and Accounts 2010 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Shareholder information In this section Company address Share capital Related party disclosures Dividend...

  • Page 140
    138 Aviva plc Annual Report and Accounts 2010 Shareholder information Company address The Company's registered office is St Helens, 1 Undershaft, London, EC3P 3DQ. The Company's telephone number is +44 (0)20 7283 2000. Share capital The Company has four share classes: „ Ordinary Shares of £0.25...

  • Page 141
    ...31 December 2010 1. For more information on our various option schemes, see 'Governance' section. 2. The issue of shares in lieu of cash dividends is considered a bonus issue under the terms of the Companies Act 2006 and the nominal value of the shares is charged to the share premium account. 2,621...

  • Page 142
    ...2009 £m 2008 £m Salary and other short-term benefits Post-employment benefits Equity compensation plans Termination benefits Total 48 8 21 4 81 39 5 16 1 61 38 3 9 3 53 Various directors and key management of Aviva may from time to time purchase insurance, asset management or annuity products...

  • Page 143
    ... Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Dividend data The Company's dividend policy is to sustain a target dividend cover...

  • Page 144
    ..., the UK and certain European long-term business policyholder funds have invested in a number of property limited partnerships (PLP), either directly or via property unit trusts (PUT), through a mix of capital and loans. The PLPs are managed by general partners (GP), in which the long-term business...

  • Page 145
    ... and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information At 31 December 2010, the Group had £26.5 billion (31 December 2009: £24.0 billion) of total...

  • Page 146
    ...£m UK life insurance UK general insurance Aviva Investors France Netherlands Poland Ireland Other Europe Other operations 190 - 30 123 72 67 44 39 138 703 Application of funds We use funds to pay dividends to our shareholders, to service our debt and to pay our central Group cash flows. In 2010...

  • Page 147
    ... in the UK and Ireland with-profit life term business segment. funds. The minimum solvency requirement for our European businesses is based on the Solvency 1 Directive. In broad terms, Net cash used in investing activities for EU operations, this is set at 4% and 1% of non-linked and Net cash from...

  • Page 148
    ...2010 to £3.8 billion. The key movements over the period are set out in the following table: £bn IGD solvency surplus at 31 December 2009 Operating profits net of income and other expenses Dividends net of scrip Market movements including foreign exchange Pension scheme funding Increase in Capital...

  • Page 149
    ... to the financial services industry, and so to Aviva's businesses in the European Union include: Third Life and Non-Life Directives Code of ethics The Company has adopted a code of ethics for its group chief executive, chief financial officer, general auditor and group chief accounting officer as...

  • Page 150
    ... 2009. Solvency II represents a fundamental change in European regulation and will result in a more sophisticated economic risk-based capital approach. It establishes a solvency system that is better aligned to the true risks of insurers, and aims to enable supervisors to protect policyholder...

  • Page 151
    149 Aviva plc Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information operate within an overall framework of Group governance and controls...

  • Page 152
    ... 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 established to hold all receipts of long-term business...

  • Page 153
    ... and results of operation at this time. We write life and annuity business in the United States through Aviva USA, a wholly owned subsidiary formed by the merger of Risk-based capital Aviva Life Insurance Company of America with AmerUS which it The NAIC has developed risk-based capital standards for...

  • Page 154
    ... companies either wholly owned or established as a joint venture with a local partner. Our business in the region is predominately long-term and savings business, with small general insurance and health operations. There are wholly owned businesses in Singapore and Hong Kong. Aviva operates...

  • Page 155
    153 Aviva plc Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Risks relating to our business You should carefully review the ...

  • Page 156
    ... levels. See 'Liquidity and capital resources' section in are issued by government-related entities, and the remaining the report. We are also exposed to interest rate and equity risk a re from corporate bonds; based upon the discount rate and expected long-term rate of „ £30,109 million invested...

  • Page 157
    ... in 2010 in relation to minimum death benefits for unit-linked contracts in France and guaranteed minimum returns at maturity for unit-linked and segregated fund business in the Netherlands. For a discussion of guarantees we have given for our insurance and investment products, please see 'Financial...

  • Page 158
    ... financial risk. As a normal part of their operating activities, various Group companies have given guarantees, including interest rate guarantees, in respect of certain long-term insurance, unit-linked and fund management products. At the present time, guarantees and options are in force in the UK...

  • Page 159
    157 Aviva plc Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information securities than we prefer, or bear an unattractive cost of capital ...

  • Page 160
    ...ongoing 'One Aviva, Twice the Value' strategy, we have been working to create a global Aviva brand, as well as rebrand businesses in the UK, Ireland and Poland under the Aviva name. While we as a Group are well recognised, we are vulnerable to adverse market and customer perception. We operate in an...

  • Page 161
    159 Aviva plc Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information When establishing their liabilities, our life insurance companies ...

  • Page 162
    ... that we consider market participants would normally use (Level 3). The majority of our financial assets are valued based on quoted market information or observable market data. At 31 December 2010, 4.3% of total financial investments, loans and investment properties at fair value were classified as...

  • Page 163
    161 Aviva plc Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information be less than the value at which the investments may be ultimately ...

  • Page 164
    ... the UK. The inherited estate refers to the affect our financial condition. assets of the long-term with-profit funds less the realistic reserves The extent of losses from a catastrophe is a function of both for non-profit policies, less asset shares aggregated across the the total amount of insured...

  • Page 165
    ... on our business, results of operations and/or financial condition. The design of life insurance products by our life insurance companies takes into account a number of factors, including risks, benefits, charges, expenses, investment returns (including bonuses) and taxation. The design of long-term...

  • Page 166
    164 Aviva plc Annual Report and Accounts 2010 Shareholder information continued We operate both defined benefit and defined contribution staff pension schemes. There are inherent funding risks associated with The governance arrangements in place with Delta Lloyd N.V. the defined benefit schemes. ...

  • Page 167
    ... Annual Report and Accounts 2010 Shareholder information continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Risks related to ownership of the ADSs and Ordinary Shares As a holding company...

  • Page 168
    166 Aviva plc Annual Report and Accounts 2010 Shareholder information continued „ a downgrade of our credit or financial strength ratings, including placement on credit watch, or rumours of such downgrades; actual or potential litigation involving us or the insurance or fund management ...

  • Page 169
    ... Longer-term investment return and economic assumption changes for non-long-term business Employee information Directors Auditors' remuneration Tax Earnings per share Dividends and appropriations Goodwill Acquired value of in-force business (AVIF) and intangible assets Interests in, and loans to...

  • Page 170
    ... the Group and Parent Company financial statements (the 'financial statements') of Aviva plc for the year ended 31 December 2010 which comprise the Accounting Policies, the Consolidated and Parent Company Income Statements, the Pro Forma Reconciliation of Group Operating Profit to Profit before Tax...

  • Page 171
    169 Aviva plc Annual Report and Accounts 2010 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 172
    ... with its subsidiaries (collectively, the 'Group' or 'Aviva') transacts life assurance and long-term savings business, fund management and most classes of general insurance and health business through its subsidiaries, associates and branches in the UK, Ireland, continental Europe, United States (US...

  • Page 173
    ...the UK and certain European 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...

  • Page 174
    172 Aviva plc Annual Report and Accounts 2010 Accounting policies continued Accounting for the PUTs and PLPs as subsidiaries, joint ventures or other financial investments depends on the shareholdings in the GPs and the terms of each partnership agreement. Where the Group exerts control over a PLP...

  • Page 175
    ...plc Annual Report and Accounts 2010 Accounting policies continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information to the measurement basis have occurred, the financial statements of that year will...

  • Page 176
    ... the shareholders' share of future bonuses. For UK non-profit insurance contracts, the Group applies the realistic regulatory basis as set out in the FSA Policy Statement 06/14, Prudential Changes for Insurers, where applicable. Present value of future profits (PVFP) on non-participating business...

  • Page 177
    175 Aviva plc Annual Report and Accounts 2010 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 178
    ...of the related contracts in the portfolio on a systematic basis. The rate of amortisation is chosen by considering the profile of the additional value of in-force business acquired and the expected depletion in its value. The value of the acquired in-force long-term business is reviewed annually for...

  • Page 179
    177 Aviva plc Annual Report and Accounts 2010 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 rental...

  • Page 180
    ... exchange 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 181
    ... and Accounts 2010 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 is entered into, the Group...

  • Page 182
    ... costs for non-participating investment and investment fund management contracts are amortised over the period in which the service is provided. General insurance and health deferred acquisition costs are amortised over the period in which the related revenues are earned. The reinsurers' share of...

  • Page 183
    ... 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 30. The Group accounts for options and awards under equity compensation plans, which were granted after 7 November 2002, until such time...

  • Page 184
    ... or obtain rights to purchase its share capital, the consideration paid (including any attributable transaction 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...

  • Page 185
    ... and Accounts 2010 Consolidated financial statements Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Consolidated income statement For the year ended 31 December 2010 2010 â,¬m Note 2010 £m 2009...

  • Page 186
    ...year ended 31 December 2010 2010 â,¬m Note 2010 £m 2009 £m 2,727 1,236 237 (260) (168) (772) 3,000 931 (286) (72) (28) (254) 187 (286) (321) 2,871 (735) 90 (645) 2,226 2010 â,¬m Operating profit before tax attributable to shareholders' profits Long-term business General insurance and health Fund...

  • Page 187
    ... Operating profit can be further analysed into the following segments: General Long-term insurance business and health £m £m Fund manageOther ment operations £m £m Year ended 31 December 2010 Total £m UK Aviva Europe Delta Lloyd North America Asia Pacific Aviva Investors Corporate centre...

  • Page 188
    ... on pension schemes transferred to unallocated divisible surplus and other movements 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 Non-controlling...

  • Page 189
    ...Aviva plc Annual Report and Accounts 2010 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 ended...

  • Page 190
    ...Annual Report and Accounts 2010 Consolidated financial statements continued Consolidated statement of changes in equity continued For the year ended 31 December 2009 Equity Shares Ownerattributable Nonheld by Currency occupied Investment Hedging Equity to Direct capital controlling Merger employee...

  • Page 191
    ... reserves Share premium Merger reserve Shares held by employee trusts Other reserves Retained earnings Equity attributable to shareholders of Aviva plc Direct capital instrument Non-controlling interests Total equity Liabilities Gross insurance liabilities Gross liabilities for investment contracts...

  • Page 192
    190 Aviva plc Annual Report and Accounts 2010 Consolidated financial statements continued Consolidated statement of cash flows For the year ended 31 December 2010 The cash flows presented in this statement cover all the Group's activities and include flows from both policyholder and shareholder ...

  • Page 193
    ...Report and Accounts 2010 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 operations during the year...

  • Page 194
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 3 - Subsidiaries This note provides details of the acquisitions and disposals of subsidiaries that the Group has made during the year, together with details of businesses held for sale at the year...

  • Page 195
    193 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 3 - Subsidiaries continued This transaction ...

  • Page 196
    ...122 - 153 - 153 UK non-core operations On 30 June 2010, the Group sold its wholly owned subsidiaries, RAC France SA and RAC Service Europe SA, to their executive management for a consideration of £17 million. These companies had total assets of £48 million (comprising investments of £25 million...

  • Page 197
    ... general insurance in France, Ireland and Italy. Delta Lloyd The activities of Delta Lloyd comprise long-term business operations in the Netherlands, Belgium and Germany and general insurance, fund management and banking operations in the Netherlands. North America Our activities in North America...

  • Page 198
    ... financial statements continued 4 - Segmental information continued (i) Segmental income statement for the year ended 31 December 2010 United Kingdom Europe Aviva Europe Delta Lloyd £m £m North America Asia Pacific £m £m Aviva Investors £m Other Group activities £m Life £m GI# £m Total...

  • Page 199
    ... MCEV Other information 4 - Segmental information continued (ii) Segmental income statement for the year ended 31 December 2009 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 200
    ... (iii) Segmental statement of financial position as at 31 December 2010 United Kingdom Europe Aviva Europe Delta Lloyd £m £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 201
    ...- products and services for the year ended 31 December 2010 Long-term business £m General insurance and Fund health** management £m £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...

  • Page 202
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 4 - Segmental information continued (ii) Segmental income statement - products and services for the year ended 31 December 2009 Long-term business £m General insurance and Fund health** management...

  • Page 203
    ... Shareholder information Financial statements IFRS Financial statements MCEV Other information 4 - Segmental information continued (iv) Segmental statement of financial position - products and services as at 31 December 2009 Longterm business £m General insurance Fund and health management...

  • Page 204
    ... statement. 2010 £m 2009 £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 39e) Reinsurers' share of change...

  • Page 205
    ... detail on the items appearing in the second section of the consolidated income statement. 2010 £m 2009 £m Claims and benefits paid Claims and benefits paid to policyholders on long-term business Insurance contracts Participating investment contracts Non-participating investment contracts Claims...

  • Page 206
    ... in Delta Lloyd, £20 million in North America and £30 million in Aviva Investors. Expenditure relating to the Quantum Leap project in Europe amounted to £40 million and costs associated with preparing the businesses for Solvency II implementation amounted to £59 million. Costs incurred in 2009...

  • Page 207
    205 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 7 - Finance costs This note analyses the ...

  • Page 208
    206 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 8 - Long-term business economic volatility The long-term nature of much of the Group's operations means that, for management's decision-making and internal performance management, the effects of ...

  • Page 209
    ... Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 8 - Long-term business economic volatility continued The expected return on equities and properties has been calculated by reference to the 10-year...

  • Page 210
    ... or associates. (a) Employee numbers The number of persons employed by the Group was: At 31 December 2010 Number 2009 Number 2010 Number Average for the year 2009 Number United Kingdom operations Aviva Europe Delta Lloyd North America Asia Pacific Aviva Investors Corporate centre 20,762 21,663...

  • Page 211
    ... net value of share awards granted to the directors in the period was £9.510 million (2009: £5.256 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 exercised by directors (2009: nil). Financial statements...

  • Page 212
    ... the Group's Financial Reporting Control Framework; £1.1 million (2009: £1.2 million) for examination of the Group's Individual Capital Assessment (ICA); and £2.7 million (2009: £3.9 million) for other services, which includes £0.8 million relating to two engagements at Delta Lloyd Bank Belgium...

  • Page 213
    ...plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 13 - Tax This note analyses the tax charge for the year...

  • Page 214
    ... direct capital instruments. (d) Tax reconciliation The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 2010 £m 2009 £m Profit before tax Tax calculated at standard UK corporation tax rate...

  • Page 215
    ....4 2009 Before tax £m Net of tax, noncontrolling interests, preference dividends and DCI £m Financial statements IFRS Per share p Operating profit attributable to ordinary shareholders Non-operating items: Investment return variances and economic assumption changes on long-term business (note...

  • Page 216
    214 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 14 - Earnings per share continued (b) Diluted earnings per share (i) Diluted earnings per share is calculated as follows: 2010 Weighted average number of shares m Total £m Per share p Profit...

  • Page 217
    ... and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 15 - Dividends and appropriations This note analyses the total dividends...

  • Page 218
    ... of UK premium growth published by the Association of British Insurers. Key assumptions used for the calculation were: „ Budgeted operating profit represents the operating profit in the business plans, approved by management, and as such reflects the best estimate of future profits based on...

  • Page 219
    ... Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 16 - Goodwill continued For European long-term business cash-generating units a key assumption used for the calculation was the embedded value...

  • Page 220
    218 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 16 - Goodwill continued (viii) Delta Lloyd (long-term, general insurance, health and fund management) The recoverable amount of Delta Lloyd exceeds the carrying value of the cash-generating unit...

  • Page 221
    219 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 17 - Acquired value of in-force business (...

  • Page 222
    220 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 18 - Interests in, and loans to, joint ventures In several business units, Group companies and other parties jointly control certain entities. This note analyses these interests and describes the...

  • Page 223
    221 Aviva plc Annual Report and Accounts 2010 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 224
    ... exceeds the carrying values of the investments. Key assumptions used for the calculation were: „ Cash flow projections based on: (i) the policy portfolio reported at the valuation date; and (ii) the future sales based on plans approved by management covering the subsequent three-year period. The...

  • Page 225
    ... 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 Insurance Product distribution Investment fund Investment fund Investment fund Ordinary shares of...

  • Page 226
    ... three-year period have been extrapolated using a growth rate of 14% for seven years and 10% thereafter. Aviva Life Insurance Company India Limited is a developing business and the recoverability of value is reliant on future projected growth being achieved. In addition local regulatory changes have...

  • Page 227
    ... Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 20 - Property and equipment This note analyses our tangible fixed...

  • Page 228
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 21 - Investment property This note gives details of the properties we hold for long-term rental yields or capital appreciation. Freehold £m Leasehold £m Total £m Carrying value At 1 January 2009...

  • Page 229
    227 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 22 - Fair value methodology This note ...

  • Page 230
    ...position Total £m Level 1 £m Level 2 £m Level 3 £m Sub-total fair value £m Financial investments and loans (notes 25 and 23) Loans Fixed maturity securities Equity securities Other investments (including derivatives) Total Financial liabilities Non-participating investments contracts (note...

  • Page 231
    229 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 22 - Fair value methodology continued (c) ...

  • Page 232
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 22 - Fair value methodology continued (ii) The principal investments classified as Level 3, and the valuation techniques applied to them, are: „ Structured bond-type products held by our businesses...

  • Page 233
    ...Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 23 - Loans This note analyses the loans our Group companies...

  • Page 234
    ...plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 23 - Loans continued (b) Collateral The Group holds collateral in respect of loans where it is considered appropriate, in order to reduce the risk of non-recovery. This collateral generally takes the form...

  • Page 235
    ... Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 24 - Securitised mortgages and related assets continued (b) Carrying values...

  • Page 236
    ...sale £m Total £m 2009 Fixed maturity securities Debt securities UK government UK local authorities Non-UK government Corporate bonds Public utilities Other corporate Convertibles and bonds with warrants attached Other Certificates of deposit Redeemable preference shares Equity securities Ordinary...

  • Page 237
    235 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 25 - Financial investments continued (b) Cost...

  • Page 238
    ... investments for the years ended 31 December 2009 and 2010 were as follows: Fixed maturity securities £m Equity Other securities investments £m £m Total £m At 1 January 2009 Increase for the year charged to the income statement Write back following sale or reimbursement Foreign exchange rate...

  • Page 239
    ...- 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 240
    ...) - (13) 14 5,416 2009 Long-term business £m General insurance and health business £m Retail fund management business £m Total £m Carrying amount at 1 January Acquisition costs deferred during the year Amortisation Impact of assumption changes Effect of portfolio transfers, acquisitions and...

  • Page 241
    ...and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 28 - Assets held to cover linked liabilities Certain unit-linked products...

  • Page 242
    ... Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 30 - Equity compensation plans This note describes the various equity compensation plans we use, and shows how we value the options and awards of shares in the Company. (a) Description of the plans The Group...

  • Page 243
    ... Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 30 - Equity compensation plans continued Aviva Executive Share Option Plan...

  • Page 244
    242 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 30 - Equity compensation plans continued (c) Movements in the year A summary of the status of the option plans as at 31 December 2009 and 2010, and changes during the years ended on those dates,...

  • Page 245
    ... Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 31 - Shares held by employee trusts We satisfy awards and options...

  • Page 246
    ... in the consolidated statement of financial position, being the difference between the nominal value of new shares issued by the Parent Company for the acquisition of the shares of the subsidiary and the subsidiary's own share capital and share premium account. The merger reserve is also used where...

  • Page 247
    ... Shares issued under equity compensation plans (note 36) Transfer to minority interests following Delta Lloyd IPO Foreign exchange rate movements Aggregate tax effect - shareholders' tax Balance at 31 December 2009 Arising in the year: Fair value gains/(losses) Fair value gains transferred to profit...

  • Page 248
    ... to hold sufficient capital to meet acceptable solvency levels based on applicable local regulations. Their ability to transfer retained earnings to the UK parent companies is therefore restricted to the extent these earnings form part of local regulatory capital. 37 - Non-controlling interests...

  • Page 249
    ... Reinsurance assets £m 2009 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...

  • Page 250
    ... £m Long-term business £m General insurance and health £m 2009 Total £m Total £m Long-term business provisions Participating Unit-linked non-participating Other non-participating Outstanding claims provisions Provision for claims incurred but not reported Provision for unearned premiums...

  • Page 251
    ... plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 39 - Insurance liabilities continued „ In the United...

  • Page 252
    ...business in the non-profit funds are as follows: Valuation discount rates 2010 2009 Assurances Life conventional non-profit Pensions conventional non-profit Deferred annuities Non-profit - in deferment Non-profit - in payment Annuities in payment Conventional annuity Non-unit reserves Life Pensions...

  • Page 253
    ... in 2010. Valuation discount rates 2010 and 2009 Mortality tables used 2010 and 2009 Financial statements IFRS Life assurances Annuities in deferment and in payment Market risk-free yield curves, based on iBoxx index for collateralised AAA bonds Market risk-free yield curves, based on iBoxx index...

  • Page 254
    ... bond yields fell in major markets and credit spreads on corporate bonds were broadly unchanged. For many types of long-term business, including unit-linked and participating funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit...

  • Page 255
    ... are based on undiscounted estimates of future claim payments, except for the following classes of business for which discounted provisions are held: Rate Class 2010 2009 2010 Mean term of liabilities 2009 Financial statements IFRS Netherlands Permanent health and injury Reinsured London Market...

  • Page 256
    ... 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 257
    ... of claims. Key elements of the release from 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...

  • Page 258
    ... the loss development table is: All prior years £m 2001 £m 2002 £m 2003 £m 2004 £m 2005 £m 2006 £m 2007 £m 2008 £m 2009 £m 2010 £m Total £m Accident year Gross cumulative claim payments At end of accident year One year later Two years later Three years later Four years later Five years...

  • Page 259
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 39 - Insurance liabilities continued (iii) Net...

  • Page 260
    ...fair value Non-participating contracts at amortised cost Total Long-term business 69,482 46,124 2,181 48,305 66,559 41,289 2,167 43,456 117,787 110,015 (b) Long-term business investment liabilities Investment contracts are those that do not transfer significant insurance risk from the contract...

  • Page 261
    ... Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 40 - Liability for investment contracts continued (c) Movements in the year...

  • Page 262
    ...operating activities, various Group companies have given guarantees and options, including investment return guarantees, in respect of certain long-term insurance and fund management products. Further information on assumptions is given in notes 39 and 40. (a) UK Life with-profit business In the UK...

  • Page 263
    ...by 10% from year end 2010 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 such options is £236 million (2009: £214 million). This has been calculated on a deterministic...

  • Page 264
    ... adjustment of 1.47% (2009: 1.87%) for indexed life and 1.48% (2009: 1.65%) for indexed deferred annuities is used as the discount rate to calculate the fair value of the embedded options. The risk adjustment calculation is based on market spreads on senior long-term unsecured Aviva plc debt with...

  • Page 265
    ... 2009 £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 for unearned premiums Total...

  • Page 266
    ... value of backing financial assets. Effect on profit 2010 £m Effect on profit 2009 £m Assumptions Long-term insurance business Interest rates Expenses Persistency rates Mortality for assurance contracts Mortality for annuity contracts Tax and other assumptions Investment contracts Interest rates...

  • Page 267
    ...by UK Life business On 5 February 2008, the Group'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 has been used...

  • Page 268
    ... will be available. Where this is the case, the directors have relied on business plans supporting future profits. The Group has unrecognised tax losses and other temporary differences of £2,150million (2009: £2,975 million) to carry forward against future taxable income of the necessary category...

  • Page 269
    ...Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 47 - Provisions This note details the non-insurance provisions that the Group...

  • Page 270
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 48 - Pension obligations This note describes the Group's pension arrangements for its employees and explains how our obligations to these schemes are calculated. (a) Introduction The Group operates...

  • Page 271
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 48 - Pension obligations continued (i) Defined...

  • Page 272
    ...Accounts 2010 Notes to the consolidated financial statements continued 48 - Pension obligations continued Alternative measurement methods There are alternative methods of measuring liabilities, for example by calculating an accumulated benefit obligation (the present value of benefits for service...

  • Page 273
    ... and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 48 - Pension obligations continued The mortality tables, average life...

  • Page 274
    ... Recognised in the income statement 2010 £m 2009 £m Current service cost Past service cost Gains on curtailments Gains on settlements Total pension credit/(cost) charged to net operating expenses Expected return on scheme assets Less: Income on insurance policy assets accounted for elsewhere (see...

  • Page 275
    ...and losses give a five-year history. Scheme assets exclude insurance policies with Group companies and income on the assets underlying them. 2010 £m 2009 £m 2008 £m 2007 £m 2006 £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 276
    ... to defined benefit members, including investments in Group insurance policies (see footnote below), at 31 December 2010 were: UK £m Netherlands £m Canada £m Ireland £m Total 2010 £m Equities Bonds Property Other Total fair value of assets Present value of scheme liabilities Net surplus...

  • Page 277
    275 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 48 - Pension obligations continued (viii) ...

  • Page 278
    ... borrowings are £84 million (2009: £86 million). Contractual undiscounted interest payments are calculated based on underlying fixed interest rates or prevailing market floating rates as applicable. Year-end exchange rates have been used for interest projections on loans in foreign currencies.

  • Page 279
    277 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 49 - Borrowings continued (c) Operational ...

  • Page 280
    278 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 49 - Borrowings continued (ii) Debenture loans The 9.5% guaranteed bonds were issued by the Company at a discount of £1.1 million. This discount and the issue expenses are being amortised over ...

  • Page 281
    ...plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 49 - Borrowings continued (v) Securitised mortgage loan...

  • Page 282
    ... analyses our financial liabilities at the end of the year. 2010 £m 2009 £m Payables arising out of direct insurance Payables arising out of reinsurance operations Deposits and advances received from reinsurers Bank overdrafts Derivative liabilities (note 58) Bank customer accounts Bank deposits...

  • Page 283
    ... fund management products. Note 41 gives details of these guarantees and options. In providing these guarantees and options, the Group's capital position is sensitive to fluctuations in financial variables including foreign currency exchange rates, interest rates, property values and equity prices...

  • Page 284
    282 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 52 - Contingent liabilities and other risk factors continued (h) Other In the course of conducting insurance and investment business, various Group companies receive liability claims, and become...

  • Page 285
    283 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 54 - Statement of cash flows This note gives ...

  • Page 286
    ...an MCEV basis, is deployed by segment and how that capital is funded. 2010 £m Restated 2009 £m Long-term savings General insurance and health Fund management Other business Corporate1 Total capital employed Financed by Equity shareholders' funds Non-controlling interests Direct capital instrument...

  • Page 287
    ... and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 56 - Capital statement This statement sets out the financial strength of...

  • Page 288
    286 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 56 - Capital statement continued Analysis of movements in capital of long-term businesses For the year ended 31 December 2010 Old withprofit subfund £m New withprofit subfund £m Total UK life ...

  • Page 289
    ... and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 56 - Capital statement continued The available capital of the Group...

  • Page 290
    ...) and the 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. (b) Market risk Market risk is the risk of adverse financial impact due to changes in fair values or...

  • Page 291
    ... benefit pension funds. „ The indirect impact from changes in the value of equities held in policyholders' funds from which management charges or a share of performance are taken; and „ Its interest in the free estate of long-term with profits funds. At a business unit level, equity price risk is...

  • Page 292
    290 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 57 - Risk management continued The Group's foreign exchange policy requires that each of our subsidiaries maintains sufficient assets in its local currency to meet local currency liabilities. ...

  • Page 293
    ... consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 57 - Risk management continued The implementation of a sophisticated capital charge-based credit limit...

  • Page 294
    292 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 57 - Risk management continued Unit trusts and other investment vehicles The credit quality of the underlying debt securities within these vehicles is managed by the safeguards built into the ...

  • Page 295
    ... and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 57 - Risk management continued Derivative credit exposures The Group is...

  • Page 296
    ... 105,270 On demand or within 1 year £m At 31 December 2009 Total £m 1-5 years £m 5-15 years £m Over 15 years £m Long-term business Insurance contracts - non-linked Investment contracts - non-linked Linked business General insurance and health Total contract liabilities 123,933 59,504 80...

  • Page 297
    295 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 57 - Risk management continued (ii) Analysis ...

  • Page 298
    ... guaranteed minimum rate of annuity payment. „ Other: indexed interest or principal payments, maturity value, loyalty bonus. The impact of these is reflected in ICA and MCEV reporting and managed as part of the asset liability framework. (ii) General insurance risk Types of risk General insurance...

  • Page 299
    ... and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 57 - Risk management continued The vast majority of the Group's general...

  • Page 300
    298 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 57 - Risk management continued Our businesses are primarily responsible for identifying and managing operational risks in line with minimum standards of control set out in our policies. Each ...

  • Page 301
    ... Shareholder information Financial statements IFRS Financial statements MCEV Other information 57 - Risk management continued Sensitivity test results Illustrative results of sensitivity testing for long-term business, general insurance and health business and the fund management and non-insurance...

  • Page 302
    ...' equity. The sensitivities to economic movements relate mainly to business in the UK, US and the Netherlands. In general a fall in market interest rates has a beneficial impact on non-participating business and shareholders' funds, due to the increase in market value of fixed interest securities...

  • Page 303
    ... plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 57 - Risk management continued Fund management and non...

  • Page 304
    302 Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 58 - Derivative financial instruments This note gives details of the various derivative instruments we use to mitigate risk. The Group uses a variety of derivative financial instruments, ...

  • Page 305
    ...plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 58 - Derivative financial instruments continued (b) Non...

  • Page 306
    ... Aviva plc Annual Report and Accounts 2010 Notes to the consolidated financial statements continued 59 - Assets under management In addition to the assets included in the consolidated statement of financial position, the Group manages many funds for third parties. This note details the total funds...

  • Page 307
    ... 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 as a film...

  • Page 308
    306 Aviva plc Annual Report and Accounts 2010 Financial statements of the Company Income statement For the year ended 31 December 2010 Note 2010 £m 2009 £m Income Dividends received from subsidiaries Interest receivable from Group companies Net investment (expense)/income Expenses Operating ...

  • Page 309
    307 Aviva plc Annual Report and Accounts 2010 Financial statements of the Company continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Statement of changes in equity For the year ended 31 ...

  • Page 310
    308 Aviva plc Annual Report and Accounts 2010 Financial statements of the Company continued Statement of financial position At 31 December 2010 Note 2010 £m 2009 £m Assets Non-current assets Investments in subsidiaries Investment in joint venture Loans owed by subsidiaries Current tax assets ...

  • Page 311
    ... Accounts 2010 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 2010 All the Company's operating...

  • Page 312
    ... operating costs Net foreign exchange (gains)/losses Total 159 42 (25) 176 130 20 44 194 (ii) Staff costs Total staff costs were: 2010 £m 2009 £m Wages and salaries Social security costs Post-retirement obligations Defined benefit schemes (see (iii) below) Defined contribution schemes Profit...

  • Page 313
    ... the Company as follows: 2010 £m 2009 £m Profit before tax Tax calculated at standard UK corporation tax rate of 28% (2009: 28%) Adjustment to tax charge in respect of prior years Non-assessable dividends Disallowable expenses Unpaid group relief Other Total tax credited to income statement 272...

  • Page 314
    312 Aviva plc Annual Report and Accounts 2010 Notes to the Company's financial statements continued D - Reserves Merger reserve £m Investment Equity valuation compensation reserve reserve £m £m Retained earnings £m Balance at 1 January 2009 Arising in the year: Profit for the year Fair value ...

  • Page 315
    ... Aviva plc Annual Report and Accounts 2010 Notes to the Company's financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information F - Contingent liabilities Details of the Company...

  • Page 316
    314 Aviva plc Annual Report and Accounts 2010 Notes to the Company's financial statements continued H - Related party transactions continued Dividends, loans, interest Services provided to related parties 2010 Income earned in Receivable year at year end £m £m Income earned in year £m 2009 ...

  • Page 317
    ...changes in equity Condensed consolidated statement of financial position Reconciliation of shareholders' equity on IFRS and MCEV bases Reconciliation of IFRS total equity to MCEV net worth Group MCEV analysis of earnings E1 - Basis of preparation E2 - Geographical analysis of MCEV operating earnings...

  • Page 318
    ... this total the long-term business operating profit before shareholder tax was £3,579 million (2009: £3,498 million), an increase of 2%. For 2010, the expected profit has been adjusted to reflect an even emergence of risk, calculated by using the Implied Discount Rates to 'unwind' the opening...

  • Page 319
    ... schemes transferred to unallocated divisible surplus and other movements Impairment losses 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 Non...

  • Page 320
    ...on an MCEV basis1 Equity attributable to ordinary shareholders of Aviva plc Preference share capital and direct capital instruments Non-controlling interests1 Total equity Liabilities Gross insurance liabilities Gross liabilities for investment contracts Unallocated divisible surplus Net asset value...

  • Page 321
    ...Annual Report and Accounts 2010 MCEV financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Reconciliation of shareholders' equity on IFRS and MCEV bases For the year ended...

  • Page 322
    320 Aviva plc Annual Report and Accounts 2010 MCEV financial statements continued Group MCEV analysis of earnings Covered business1 £m A Non-covered but related to life business2 £m B Total life business3 £m A+B Non-covered relating to non-life £m C Total noncovered business £m B+C 2010 £m...

  • Page 323
    ...the Report and Accounts. Covered business The MCEV calculations cover the following lines of business: life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business and our share of...

  • Page 324
    ... rate was used for the 2009 post-tax results, and consequently for 'grossing up'. Net worth The net worth is the market value of the shareholders' funds and the shareholders' interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency...

  • Page 325
    ... risks as these are diversifiable by investors. Participating business Future regular bonuses on participating business are projected in a manner consistent with current bonus rates and expected future market-consistent returns on assets deemed to back the policies. For with-profit funds in the UK...

  • Page 326
    ... 50% to all other life covered business. This change aligns local Delta Lloyd and Group Aviva reporting for MCEV and Solvency II internal model calculations. This change increases the closing 2010 embedded value by £20 million net of non-controlling interests. Results for 2009 have been restated on...

  • Page 327
    ... statements MCEV Other information E2 - Geographical analysis of MCEV operating earnings 2010 Europe United Kingdom £m Aviva Europe £m Delta Lloyd £m North America £m Asia Pacific £m Total £m Value of new business Earnings from existing business: - expected returns at the reference rate...

  • Page 328
    ...expense assumption changes related to planned expense savings following restructuring activities. Other operating variances of £157 million (2009: £65 million) related to various modelling changes, mainly in Delta Lloyd Belgium and Delta Lloyd Life. North America MCEV operating earnings increased...

  • Page 329
    ... interests 2010 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 Pacific £m Total £m Value of new business Earnings from existing business - expected existing business contribution (reference rate...

  • Page 330
    ... Annual Report and Accounts 2010 MCEV financial statements continued E2 - Geographical analysis of MCEV operating earnings continued Restated Gross of tax and non-controlling interests 2009 UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m Delta Lloyd...

  • Page 331
    ... continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information E2 - Geographical analysis of MCEV operating earnings continued Net of tax and non-controlling interests 2010 UK £m France £m Ireland...

  • Page 332
    ... Aviva plc Annual Report and Accounts 2010 MCEV financial statements continued E2 - Geographical analysis of MCEV operating earnings continued Restated Net of tax and non-controlling interests 2009 UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m Delta...

  • Page 333
    ... of fund management services to our Life businesses. These results are included within the Life MCEV operating earnings. 2010 £m 2009 £m United Kingdom Europe North America Asia Pacific Aviva Investors United Kingdom Aviva Europe1 Delta Lloyd Europe Asia Pacific2 Total 1 Aviva Europe included...

  • Page 334
    ... value of in-force long-term business is as follows: 2010 £m Restated 2009 £m Movement in year £m Group's share included in shareholders' funds Non-controlling interests' share Movements in AFS securities Additional value of in-force long-term business 2 Analysis of net assets on an MCEV...

  • Page 335
    ... reference rate) Transfers from VIF and required capital to the free surplus Experience variances Assumption changes Expected return on shareholders' net worth Other operating variances Operating MCEV earnings Economic variances Other non-operating variances2 Total MCEV earnings Capital and dividend...

  • Page 336
    ... investment return on the shareholders' net worth. These components are calculated using economic assumptions as at the start of the year (in-force business) or start of the quarter (new business) and operating (demographic and expenses) assumptions as at the end of the year. Gross of tax and non...

  • Page 337
    ... regular premiums £m Present value of new business premiums £m Gross of non-controlling interests 2010 Regular premiums £m WACF Single premiums £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia Pacific Total life and pensions...

  • Page 338
    ... £m 2009 £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia Pacific Total life and pensions 1 Value of new business of £(194) million reflects adverse economic movements, particularly in the second half of 2010, as risk free rates...

  • Page 339
    ....5% (2009: 10.0%). Gross of non-controlling interests 31 December 2010 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 Asia...

  • Page 340
    ...of tax and non-controlling interests 2010 Transfer from VIF to net worth £m Release of Total required existing capital to business free surplus surplus generation £m £m Impact on net worth £m Total free surplus generation £m United Kingdom Aviva Europe Delta Lloyd Europe North America Asia...

  • Page 341
    ... of life and related business embedded value Net of non-controlling interests 2010 Free surplus £m Required capital1 £m VIF £m Total MCEV £m United Kingdom France2 Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America2,3 Asia Pacific Total 1 Required capital is...

  • Page 342
    ... profits calculation. Time value Non- of financial hedgeable options and risks guarantees £m £m Net of non-controlling interests 2010 PVFP £m Frictional costs £m VIF £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia Pacific...

  • Page 343
    ...-free is required to give a value equal to the market-consistent embedded value. Average derived risk discount rates are shown below for the embedded value. 2010 % Restated1 2009 % France Ireland Italy Poland Spain Other Europe Delta Lloyd United Kingdom Aviva Europe Europe North America2 Asia...

  • Page 344
    ... Poland £m Spain £m Aviva Europe £m Delta Lloyd £m Europe £m Asia Pacific £m Total £m Shareholders' interest £m Group £m 2010 Value of new business after tax Life MCEV operating earnings after tax Life MCEV (loss)/earnings after tax Closing covered businesses' embedded value 15 41 47 250...

  • Page 345
    ... and Accounts 2010 MCEV financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information E18 - Principal assumptions continued Poland 2010 2009 2008 Reference rate 1 year 5 years 10...

  • Page 346
    344 Aviva plc Annual Report and Accounts 2010 MCEV financial statements continued E18 - Principal assumptions continued All territories 2010 2009 2008 Equity risk premium Property risk premium 3.5% 2.0% 3.5% 2.0% 3.5% 2.0% Future returns on corporate fixed interest investments are calculated ...

  • Page 347
    ... Report and Accounts 2010 MCEV financial statements continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information E18 - Principal assumptions continued Model - United Kingdom, Europe (excluding Delta...

  • Page 348
    ... 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 in the embedded value and value of new business. Non-hedgeable risk For the opening balance sheet and operating profit...

  • Page 349
    ... with the primary financial statements. At 31 December 2010 the market value of the Group's external debt, subordinated debt, preference shares including General Accident plc preference shares of £250 million (classified as non-controlling interests) and direct capital instrument was £7,279...

  • Page 350
    ... Equity/property Market values As reported on page 339 £m Volatility 25% increase £m 2010 Embedded value (net of tax and non-controlling interest) 10% increase £m 10% decrease £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North America Asia...

  • Page 351
    ... to risk-free 329 rates £m £m 2010 Value of new business (net of tax and non-controlling 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 Pacific Total...

  • Page 352
    ...annuity assurance business £m £m 2010 Embedded value (net of tax and non-controlling interest) 10% decrease in 10% As reported maintenance decrease in on page 339 expenses lapse rates £m £m £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe Delta Lloyd Europe North...

  • Page 353
    ... Accounts 2010 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 Consistent Embedded Value (MCEV...

  • Page 354
    ... MCEV bases, the Reconciliation of IFRS Total Equity to MCEV Net Worth, the Group MCEV Analysis of Earnings and the related notes E1 to E19. The financial reporting framework that has been applied in the consolidated MCEV financial statements is the Market Consistent Embedded Value Principles issued...

  • Page 355
    353 Aviva plc Annual Report and Accounts 2010 Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Other information In this section Glossary Shareholder services Page 354 359 Other information

  • Page 356
    ... 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 357
    ... cover over a fixed number of years during which a lump sum will be paid out if the life insured dies. Unit trusts A form of open ended collective investment constituted under a trust deed, in which investors can buy and sell units. Unit-linked annuities An arrangement whereby banks and building...

  • Page 358
    ... written premiums Collective term for life insurance, pensions, savings, investments and related business. Market Consistent Embedded Value Aviva's Market Consistent Embedded Value (MCEV) methodology which is in accordance with the MCEV Principles published by the CFO Forum in June 2008 as amended...

  • Page 359
    ... plc Annual Report and Accounts 2010 Glossary continued Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information Market Consistent Embedded Value (MCEV) terms Asymmetric risk Funds under management Risks...

  • Page 360
    ... annuities ordinary shares in issue. Net asset value is based and life business. on equity shareholders' funds. Net worth Statutory basis The excess of the regulatory value of total assets over total liabilities, divided by the regulatory value of the required minimum solvency margin. The market...

  • Page 361
    ...Ordinary shareholders - Have your dividends paid directly into your bank account If you are unable to attend the meeting but would like to ask the Board of directors a question regarding the business of the meeting, please do so via our website at www.aviva.com/agm or send an email to agm.faq@aviva...

  • Page 362
    ... UK long-term savings and general insurance www.aviva.co.uk Asset management www.avivainvestors.com Aviva worldwide internet sites www.aviva.com/websites Aviva shareholder services centre www.aviva.com/shareholderservices ADR holders Contact details www.aviva.com/adr Ordinary and preference shares...

  • Page 363
    ....co.uk 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 this product is bleached using an Elemental Chlorine Free process...

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