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Aviva plc
Annual Report and
Accounts 2011

Table of contents

  • Page 1
    Aviva plc Annual Report and Accounts 2011

  • Page 2
    ... Moss Group chief executive Watch the video online: www.aviva.com/2011ar Aviva provides around 43 million customers with insurance, savings and investment products. We are the UK's largest insurer*and one of Europe's leading providers of life and general insurance. We combine strong life insurance...

  • Page 3
    ...total equity to MCEV net worth Group MCEV analysis of earnings Statement of directors' responsibilities in respect of the MCEV basis Independent auditor's report to the directors of Aviva plc on the consolidated MCEV financial statements Governance Board of Directors Executive Management Directors...

  • Page 4
    ... Aviva plc Annual Report and Accounts 2011 2011 highlights Jason Varner Jason went the extra mile to help a customer complete a life insurance claim when her father died. He went to her home on a Saturday morning to help her fill in the paperwork. In Jason's team - and across Aviva - performance...

  • Page 5
    ... under increasing budget pressure in pensions and long-term savings, the prospects are promising. 1 2 3 Operating profit on a continuing basis, excluding Delta Lloyd, was £2.2bn (FY2010: £2.0bn). The Group's accounting policy for operating profit (also referred to as Group adjusted operating...

  • Page 6
    04 Aviva plc Annual Report and Accounts 2011 Our customers and communities Sherri Voutier In Canada, Sherri Voutier was assigned to help Dorothy, an Aviva customer who had returned home to find she had been robbed. Dorothy, recently divorced, was devastated by the break-in, which left her "scared...

  • Page 7
    ... products to two days, which increased measure, Transactional Net Promoter customer satisfaction by 42%. Score® and more than half our businesses operate in the upper quartile relative to p We've been changing the way we do their competition. things for our UK customers using an p In 2011 we paid...

  • Page 8
    ... a sterling job as chief executive of Australia and New Zealand Banking Group Limited (ANZ) for ten years. I wish him every success and am confident that he will be a huge asset to this company. In 2011 Aviva produced another strong operating performance. We have done this in a year which has been...

  • Page 9
    ...positions in financial and banking institutions and at the Financial Services Authority. Gay replaced Carole Piwnica who stepped down from the board in December, having been a non-executive director for over eight years. Trevor Matthews joined the board in December 2011 as chief executive, Aviva UK...

  • Page 10
    ...in a number of our other markets. We have achieved this by making tough choices, supporting new business growth in markets where we can earn a strong return, such as the UK, and writing less capital intensive business in other markets. As a result, whilst life and pensions sales are marginally lower...

  • Page 11
    ...Aviva plc Annual Report and Accounts 2011 Group CEO's review continued Essential read Life new business internal rate of return % 16.0 8.0 4.0 0 10.6 13.3 12.0 09 excluding Delta Lloyd 10 11 General Insurance combined operating ratio % 100 In North America, operating earnings increased...

  • Page 12
    10 Aviva plc Annual Report and Accounts 2011 Group CEO's review continued Over 100 bank partners around the world Performance v market average - Net Promoter Score® % at market average % exceeding market average 100 80 60 40 20 0 And we have remained focused on balance sheet strength The ...

  • Page 13
    ... more than half of our businesses operate in the upper quartile relative to local competition. We won more than 50 awards across 10 countries for customer service, innovation and performance including being named general insurer of the year by Insurance Times in the UK; Aviva France's product range...

  • Page 14
    ... we can grow and earn the highest returns, such as the UK, which accounts for approximately half of our profits, and Europe, where savings rates remain high and we have strong franchises. Concentrating capital and effort 20 08 20 09 Successful disposals p Aviva Global Services, India. p RAC non...

  • Page 15
    13 Aviva plc Annual Report and Accounts 2011 Group CEO's review continued Essential read Improved efficiency Following the successful delivery of our £500 million cost savings target a year early in 2010, we are on track to deliver our commitment of additional cost savings of £200 million and a...

  • Page 16
    ...Total earnings impacted by market conditions IFRS profit before tax was £87 million (FY 2010: £2.4 billion). This includes a loss of £726 million relating to Delta Lloyd for the first four months of the year as a result of the reversal of investment The Group's accounting policy for operating...

  • Page 17
    15 Aviva plc Annual Report and Accounts 2011 Group CFO's review continued Essential read Life operating profit £m 2,400 1,200 600 0 1,610 1,988 1,800 09 excluding Delta Lloyd 10 11 GI and health operating profit £m 1,000 500 250 00 817 750 09 excluding Delta Lloyd 10 11 We ...

  • Page 18
    ... Aviva plc Annual Report and Accounts 2011 Aviva worldwide UK and Europe - the world's largest life and pensions markets UK - 14 million customers p 48% of group operating profits11 p Nine major centres in the UK Europe - 18 million customers12 p 32% of group operating profits p France, Ireland...

  • Page 19
    ..., we continued to focus on building our customer base in the high-net-worth market, restructured our agency force and emphasised the importance of long term savings and retirement planning to our customers. As a result our profitability increased. In India regulatory changes caused the industry to...

  • Page 20
    18 Aviva plc Annual Report and Accounts 2011 Financial highlights Worldwide sales excluding Delta Lloyd £m 50,000 44,613 44,698 40,000 30,000 20,000 10,000 0 MCEV operating profit £m MCEV operating profit excluding Delta Lloyd Total MCEV operating profit 4,000 3,592 3,760 3,500 42,089 39,...

  • Page 21
    ... Aviva plc Annual Report and Accounts 2011 Performance review Performance review Corporate responsibility In this section Key performance indicators Financial and operating performance Selected consolidated financial data Information on the company Organisational structure Analysis of investments...

  • Page 22
    ... the PVNBP of long-term savings new business sales and net written premiums from the general insurance and health businesses. Worldwide sales excluding Delta Lloyd £m 50,000 44,613 44,698 40,000 30,000 20,000 10,000 0 42,089 2,155 sustainable growth in our operating profit. In seeking to...

  • Page 23
    ....9 12.0 Shareholder information 07 08 09 10 11 Employee engagement and leadership Key performance indicators relating to our employees' views on Aviva are based on questions in our annual global 'Employee Promise' survey. We report and set targets in line with global financial services (GFS...

  • Page 24
    22 Aviva plc Annual Report and Accounts 2011 Financial and operating performance Financial and operating performance We are the sixth-largest insurance group in the world based on gross worldwide premiums for the 2010 year. Our main activities are the provision of products and services in relation...

  • Page 25
    ... 2011, general insurance and health sales accounted for 32% of group net written premiums from continuing operations. Demand for general insurance is usually price-sensitive because of the limited degree of product differentiation inherent in the industry. As a result, the price of insuring property...

  • Page 26
    ...of Delta Lloyd's ordinary share capital, representing 40% (39.3% as at 31 December 2011) of shareholder voting rights. Accordingly, the Group has ceased to consolidate the results of Delta Lloyd in its financial statements. Cash consideration of £380 million was received for the sale of shares, and...

  • Page 27
    ... used internally in the determination of bonus awards as an executive performance measure.  Other information Operating earnings within our general insurance and health business arise when premiums and investment return earned on assets supporting insurance liabilities and shareholder capital...

  • Page 28
    ... 2011 2010 2009 For long-term insurance and savings new business, we define sales Continuing Continuing Continuing as the sum of the present value of new business premiums operations operations operations £m £m £m (PVNBP) of life, pension and savings products and investment sales. Long-term...

  • Page 29
    ...United Kingdom Europe North America Asia Pacific Aviva Investors Other Share of Delta Lloyd as an associate Adjusted operating profit Add back adjusting items: Investment return variances and economic assumption changes on long-term insurance business Short-term fluctuation in return on investments...

  • Page 30
    ...France and Italy. Sales in Europe for general insurance and health increased by £106 million, or 5%, to £2,059 million (2010: £1,953 million) primarily driven by successful pricing actions in personal motor and growth in health sales in Ireland. North America long-term insurance and savings sales...

  • Page 31
    ...the UK staff pension scheme. £8,805 million in 2009. Increased fee and commission expenses were offset by lower other expenses, impairment charges and Year ended 31 December 2010 The long-term insurance and savings business investment finance costs: See 'Financial statements IFRS - Note 6 - Details...

  • Page 32
    ... our UK long-term business for the three years ended 31 December 2011, 2010 and 2009. 2011 £m 2010 £m 2009 £m Protection Pensions Annuities Bonds Equity release Investment sales Sales Net written premiums Adjusted operating profit Profit before tax attributable to shareholders' profits 1,025...

  • Page 33
    ... presents sales, net written 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 three years ended 31 December 2011, 2010 and 2009. 2011 £m 2010 £m 2009 £m Profit before tax...

  • Page 34
    ...profit/(loss) before tax attributable to shareholders for the three years ended 31 December 2011, 2010 and 2009. 2011 £m 2010 £m 2009 £m Protection Annuities General insurance Sales Net written premiums Adjusted operating profit Long-term insurance business General insurance Non-insurance Profit...

  • Page 35
    ..., net written premiums, adjusted operating profit and profit/(loss) before tax attributable to shareholders' profits under IFRS of Aviva Asia Pacific for the three years ended 31 December 2011, 2010 and 2009. 2011 £m 2010 £m 2009 £m Asia Pacific Australia long-term insurance and savings business...

  • Page 36
    ... profit, profit before tax attributable to shareholders' profits under IFRS and funds under management of Aviva Investors for the three years ended 31 December 2011, 2010 and 2009. 2011 £m 2010 £m 2009 £m Sales Long-term insurance and savings business General insurance and health Total sales Net...

  • Page 37
    ... year on year. Delta Lloyd reported net written premiums of £4,340 million in line with 2009 (2009: £4,341 million) primarily due to lower group pension contracts and the closure of the German operation to new business being offset by an increase in annuity product sales. Adjusted operating profit...

  • Page 38
    ...audited consolidated financial statements and the related notes in these financial statements. The Group's shareholding in Delta Lloyd was reduced to 42.7% following the sale of shares on 6 May 2011. The results of Delta Lloyd up to the transaction date, as well as those of the preceding years, have...

  • Page 39
    ... savings, general and health insurance, and fund management products and services. Our business is managed through a regional management structure based on four geographic regions: UK, Europe, North America and Asia Pacific. The four regions, together with Aviva Investors, function as six operating...

  • Page 40
    ...-term insurance and savings products in the UK represented 32% of our worldwide sales for the year ended 31 December 2011. In Aviva Europe long-term insurance products represented 30% of total Group worldwide sales for the year ended 31 December 2011. In North America our life and annuity business...

  • Page 41
    ... Aviva Investors, our fund management business, provides fund management services to Aviva's long-term insurance and savings, and general insurance operations as well as to a growing number of third-party investors. The main fund management operations are in the UK, North America, Europe, Asia...

  • Page 42
    ... insurance and home emergency cover. We also offer single trip and annual travel insurance. Our commercial products focus on insurance for SMEs and the larger UK CSR market. Distribution The UK is the third-largest insurance market in the world according to the ABI based on data for 2010. In 2010...

  • Page 43
    ... to develop higher margin customer-targeted products, to improve our product mix by increasing sales of protection and unit-linked products and to expand our general insurance distribution. Our strategy is focused on building on our:  geographic focus in the five markets of France, Ireland, Italy...

  • Page 44
    ... profit sharing is regularly used to increase the policy Products return. Our traditional plans include savings schemes and income Our long-term insurance and savings business offers a wide range products. Pension savings products have valuable tax advantages. of products covering protection, bonds...

  • Page 45
    ... Aviva Ireland has over one million customers across its general channel in 2010 which has continued to grow in 2011. insurance, life and pensions, asset management (which is Aviva's distribution arrangement with AIB for long-term managed by Aviva Investors) and health insurance businesses. business...

  • Page 46
    .... Market Our life business in Poland provides a broad range of unit-linked, annuities and bonds and savings products. For individuals it offers unit-linked life policies, annuities, single premium savings and health insurance. For institutions it offers group life insurance and employee pension...

  • Page 47
    ... operations. Please see page 49 for more information on Delta Lloyd. Aviva USA is a leading provider of fixed indexed life insurance and fixed indexed annuities according to AnnuitySpecs Indexed Sales & Market Report for the third quarter 2011. Aviva USA has approximately one million customers...

  • Page 48
    ... Annual Report and Accounts 2011 Information on the company continued The indexed annuity and indexed life markets in which Aviva USA operates are dominated by a small number of insurers. According to third quarter 2011 data compiled by AnnuitySpecs.com, the top five indexed annuity providers hold...

  • Page 49
    ... for margin and profit, we believe we are well-positioned to continue delivering strong growth in franchise value. Products Our Asian businesses offer a range of protection, bonds and savings and pension products, including universal life, participating and non-participating endowments, unit-linked...

  • Page 50
    ...asset managers to complement our own products. Our primary investment capabilities include:  Fixed income - our fixed income teams cover a comprehensive product set: UK government securities, liquidity products, corporate bonds, European and global sovereigns, index-linked bonds, emerging markets...

  • Page 51
    ...Lloyd's ordinary share capital. This represents 40% of shareholder voting rights. As Aviva no longer commands a majority of shareholder voting rights, it no longer controls Delta Lloyd. Accordingly, the results of Delta Lloyd up to 6 May 2011 are presented as discontinued operations. After this date...

  • Page 52
    ...Fund Services Limited Aviva Investors UK Funds Limited Aviva Life & Pensions UK Limited Aviva Life Services UK Limited Aviva Risk Management Solutions UK Limited Aviva UKGI Investments Limited Gresham Insurance Company Limited The Ocean Marine Insurance Company Limited Barbados Aviva Participations...

  • Page 53
    ... United States Vietinbank Aviva Life Insurance Company Limited (50.0%) Aviva USA Corporation and its principal subsidiaries: Aviva Life and Annuity Company Aviva Investors North America, Inc. River Road Asset Management, LLC Financial statements IFRS Financial statements MCEV Other information

  • Page 54
    ... in our UK, continental European, North America and Asia Pacific operations. For additional information on our financial investments, see 'Financial statements IFRS - Note 25 - Financial investments'. For a quantitative analysis of funds under management by Aviva and third-party fund managers, see...

  • Page 55
    ... right to receive additional benefits as a supplement to guaranteed benefits. Our exposure to investment losses on participating funds is generally limited to our participation in the fund. Shareholder assets are other assets held within our long-term businesses that are not backing unit-linked...

  • Page 56
    54 Aviva plc Annual Report and Accounts 2011 Analysis of investments continued in government bonds and 33% of total debt security holdings were in corporate bonds with a credit rating of A or above, as of 31 December 2011. 'Wrapped credit' is credit exposure that has been insured with monoline ...

  • Page 57
    55 Performance review Aviva plc Annual Report and Accounts 2011 Analysis of investments continued Debt securities, for which policyholders carry the exposure to investment losses, analysed by credit rating and product type are set out in the table below. Government and corporate debt securities ...

  • Page 58
    56 Aviva plc Annual Report and Accounts 2011 Analysis of investments continued Debt securities, for which participating funds carry the exposure to investment losses, analysed by credit rating and product type are set out in the table below. Government and corporate debt securities are further ...

  • Page 59
    57 Performance review Aviva plc Annual Report and Accounts 2011 Analysis of investments continued Debt securities, for which shareholders carry the exposure to investment losses, analysed by credit rating and product type are set out in the table below. Government and corporate debt securities are...

  • Page 60
    58 Aviva plc Annual Report and Accounts 2011 Analysis of investments continued Equity securities The table below analyses our investments in equity securities by sector. 2011 Policyholder Participating £m £m Shareholder £m Total £m Public utilities Banks, trusts and insurance companies ...

  • Page 61
    ..., England;  UK - UK General Insurance: Norwich, England;  Europe - London, England;  North America - Chicago, Illinois, USA;  Asia Pacific - Singapore; and  Aviva Investors - London, England.   Shareholder information In addition to the above, our regions have major offices in...

  • Page 62
    ... of financial position 347,559 (46,016) (7,787) (281) (1,246) (1,452) 363 650 992 1,403 2,828 297,013 1 Amounts shown in respect of long-term insurance contracts represent estimated undiscounted cash flows for the Group's life assurance contracts. In determining the projected payments, account has...

  • Page 63
    61 Aviva plc Annual Report and Accounts 2011 Risk and capital management Performance review Risk management objectives 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 ...

  • Page 64
    ... Set risk policies Aviva plc Board Audit Committee Risk Committee CR Committee Remuneration Committee Group - Set business standards - Monitor performance - Oversee risk & capital management - Provide challenge - Recommend risk management activity Group CEO Disclosure Committee Group Executive...

  • Page 65
    ...'risks relating to our business' in line with reporting requirements of the Securities Exchange Commission (SEC) provide more detail and can be found in the shareholder information section 'Risks relating to our business' on page 155. Risk environment Corporate responsibility The first half of 2011...

  • Page 66
    ... financial impacts due to changes in fair values or future cash flows from fluctuations in interest rates, foreign currency exchange rates, equity prices and property values    We actively seek some market risks as part of our investment and product strategy We have a limited appetite...

  • Page 67
    .../forward prices, volatility, correlations Active asset management and hedging in business units Increased size of Group-level equity hedging programme Pension fund de-risking Asset and liability duration matching limits impact of interest rate changes and actions taken to manage guarantee risk...

  • Page 68
    ... MCEV basis, is deployed by segment and how that capital is funded. 2011 £m Restated 2010 £m Long-term savings General insurance and health Fund management Other business Corporate1 Delta Lloyd Total capital employed Financed by: Equity shareholders' funds Non-controlling interests Direct capital...

  • Page 69
    67 Performance review Aviva plc Annual Report and Accounts 2011 Risk and capital management continued 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 ...

  • Page 70
    ..., product mix and pricing. This reduction is partly offset by a smaller release of capital from non-life business investment of £0.1 billion (2010: £0.2 billion release). 2011 £bn 2010 £bn Operating capital generation: Life in-force profits1 General insurance, fund management and non-insurance...

  • Page 71
    ...  earnings per share (International Financial Reporting Standards basis);  proposed ordinary dividend per share and dividend cover;  adjusted operating profit before tax;  worldwide sales;  operating capital generation; and  return on equity shareholders' funds. Management also use...

  • Page 72
    ... internally-generated additional value of in-force business (AVIF), which is excluded for IFRS reporting. These financial statements include supplementary information on MCEV reporting in the 'MCEV financial statements' section. Longer-term investment return All estimates are based on management...

  • Page 73
    71 Performance review Aviva plc Annual Report and Accounts 2011 Corporate responsibility In this section Highlights Our strategy Governance Trust and transparency Attracting and retaining talent Developing communities Climate change and environment Sustainable products and services External ...

  • Page 74
    ...Committee going forward. The Committee reviews strategy and policy and receives regional and functional reports four times a year. In 2011, it received a report from all regional offices and paid close attention to the restructuring of the work that the Internal Audit team cover to support embedding...

  • Page 75
    .... This year we have been ranked as one of the top companies in the FTSE4Good ESG ratings. We hold a similarly high position in the STOXX ESG Global Leaders. A full list of our Index rankings can be found on page 79. In terms of leadership participation, Robin Spencer, Aviva's chief risk officer...

  • Page 76
    ... by Aviva, such as annual pension statements and measures to increase consumer confidence in retirement savings products. In October 2011 we announced a proposal to combine Aviva Ireland with Aviva UK to form a new UK and Ireland Region. We also announced that the European regional operations would...

  • Page 77
    ... each. Our employee survey drives local and global change. The results are used by directors and managers to identify areas for improvement across Aviva. Managers of five or more people receive local survey results to use with their teams. Employee wellbeing Financial statements IFRS In 2010 we...

  • Page 78
    ... continue to support the charity donating cash, programmes. Our approach is based on building partnerships clothes, books and homemade goods. across three main areas strategic to our business: education, life  In 2011, more than 14% of our UK employees were actively trauma and financial literacy...

  • Page 79
    ... from businesses around the world for governments to speed up international climate change negotiations and take action at a national level.  Open letters from UKSIF on the green investment bank.  2011 Global Investor Statement on Climate Change - a joint statement by 285 leading investors on...

  • Page 80
    ...'product', insurance has a tangible value for society and individuals. It's a sharing of risk at a local and global level that helps people to live their lives, businesses to do business and modern society to function. Aviva Investors is a leader in the field of responsible investment and from 2012...

  • Page 81
    ...100 companies;  Gold status in Business in the Community's (BITC) Corporate Responsibility Index (2011); and  Stonewall Workplace Equality Index - ranked 98 in the top 100 employers in the UK. Shareholder information Financial statements IFRS Affiliations and engagements We work closely with...

  • Page 82
    ...Ethics Code on an annual basis % of employees completing the Bribery and Corruption training Customers % of businesses that are in or above the upper quartile relative to the local market average (NPS score) % of employees who rate us favourably on customer index 2008 2009 2010 2011 2011 target New...

  • Page 83
    ... of our Aviva vision. 3 The senior leadership team of my business unit provides a clear sense of direction. 4 I trust the senior leadership team in my part of the business. Financial statements IFRS Total community investment at/above previous year Increase the % of employee participation in...

  • Page 84
    ..., the insurance claims fulfilment process and the emissions of the investment funds we manage. The scope of Aviva's emissions includes all operations where we have day-to-day control; including joint ventures and associates. In 2011, we have included new markets in our reporting boundary: Indonesia...

  • Page 85
    ... will report on development in this area next year. Our group annual carbon reduction target still stands at 5%. Our long-term target to 2020 has been rebaselined following the sale of the RAC business. This is now set at 20% reduction using a baseline year of 2010. The UK businesses are financially...

  • Page 86
    84 Aviva plc Annual Report and Accounts 2011 Corporate responsibility continued Waste Direct company impacts Hazardous and non-hazardous waste  long-term target - zero to landfill for UK operations by 2015 and worldwide by 2020. Total disposal cost for hazardous and non-hazardous waste in ...

  • Page 87
    85 Performance review Aviva plc Annual Report and Accounts 2011 Corporate responsibility continued Customer advocacy Direct Company impacts At Aviva, the Net Promoter Score® is our key customer metric. This KPI is derived from the annual Relationship NPS survey conducted across all markets and ...

  • Page 88
    86 Aviva plc Annual Report and Accounts 2011 Corporate responsibility continued Developing communities Direct company impacts Indirect impacts We have taken the opportunity to partner with the Consortium for Street Children (CSC) to aid our ability to play our part in Our global investment in ...

  • Page 89
    ... and community investment performance data at Aviva businesses in the UK, France, Sri Lanka and Group. 6. Reviewed information or explanations about selected data, statements and assertions regarding Aviva's corporate responsibility performance. Level of assurance Has Aviva been engaging...

  • Page 90
    ... 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 Sustainability Assurance Practitioner. Ernst & Young LLP London 7 March 2012

  • Page 91
    ... Performance review Aviva plc Annual Report and Accounts 2011 Governance In this section Board of directors Executive management Directors' report Corporate governance report Nomination Committee report Audit Committee report Risk Committee report Corporate Responsibility Committee report Directors...

  • Page 92
    ...financial officer. Previously group chief of Aviva Canada, managing director, London financial officer and group chief operating markets for CGU Insurance and finance officer at Willis Group Holdings Limited director for Norwich Union Insurance. He was (insurance broking), group financial controller...

  • Page 93
    ... Risk Committees. 15. Scott Wheway Independent non-executive director (Age 45) Shareholder information Financial statements IFRS Financial statements MCEV Other information Appointed to the Board in December 2007. Currently a strategic adviser to Best Buy Co., Inc. (retail services). Former chief...

  • Page 94
    ... Dromer Chief executive, Aviva Investors (Age 57) Joined the Group in 1996. Formerly UK commercial director for Aviva UK and chief operating officer and chief information officer, Aviva Europe. Previously held senior management roles at Commercial Union, CGU plc and Norwich Union. Holds a Master...

  • Page 95
    ... Directors' report Performance review 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 ended 31 December 2011. The Companies Act 2006 requires the directors to present a business...

  • Page 96
    ... defined by section 234 of the Companies Act 2006. These indemnities were in force throughout the year and are currently in force. Details of directors' remuneration, service contracts, employment contracts and interests in the shares of the Company are set out in the Directors' Remuneration Report...

  • Page 97
    ... Group activities in the UK, the amounts due to trade creditors at 31 December 2011 represented 22.2 days of average daily purchases through the year (2010: 20.8 days). Shareholder information Group employees The Group's statement on its employees is set out in the Corporate Responsibility Report...

  • Page 98
    ... Centre, Silk Street, London EC2Y 8DS at 11am. The Notice of AGM convening the meeting will describe the business to be conducted thereat and will include details of proposed amendments to the Company's articles of association. By order of the Board Andrew Moss Group chief executive 7 March 2012...

  • Page 99
    ... in line with annually agreed work plans. At Board and Committee meetings, directors receive regular reports on the Group's financial position, risk appetite, risk management, regulatory compliance, key business operations, customer satisfaction, human resources and other material issues. Directors...

  • Page 100
    ... understanding of the Aviva Group, and to review and refresh regularly the skills of the Board. In line with the Code, several non-executive directors, including the Company chairman, are due to retire in 2012 and 2013, after serving on the Board for up to nine years. During the year, the Nomination...

  • Page 101
    ... of risk committees which has been invaluable in the review and implementation of the Group's risk management framework. Gay Huey Evans Ms Huey Evans has over 30 years of experience within the financial services industry, having held key positions in government and in a number of global financial...

  • Page 102
    ...corporate structure and the Risk Committee members also attended training on economic capital methodology and stress testing. Training sessions have also been built into the Board's and Committees' work plans for 2012. The Board made visits to the Group's businesses located in the UK during the year...

  • Page 103
    ...plc Board Financial statements IFRS Audit Committee Corporate Responsibility Committee Nomination Committee Remuneration Committee Risk Committee Disclosure Committee Group Executive Committee Performance Management Monitoring Committee Control environment The Group operates a 'three lines...

  • Page 104
    ... by the group chief executive, oversees regional performance and provides a forum for review and challenge on strategic, operational and financial performance, including capital and risk management. Control activities The Group has a set of formal risk management and internal control policies that...

  • Page 105
    ... year under review and up to the date of approval of the Company's Annual Report and Accounts. Further details on procedures for the management of risk operated by the Group are given in the section on risk management set out on pages 61 to 68. Financial statements MCEV Other information Internal...

  • Page 106
    ... and are available on the Company's website, www.aviva.com/investor-relations/results-and-reports. The chairman's statement, the group chief executive's review and the Performance Review provide an assessment of the Group's affairs and they will be supported by a presentation to be made at the...

  • Page 107
    105 Performance review Aviva plc Annual Report and Accounts 2011 Corporate governance report continued Under the Code, shareholder approval is also necessary for certain equity-compensation plans and 'significant changes' thereto, subject to certain exceptions. The Code does not provide a detailed...

  • Page 108
    ...are:  evaluating and reviewing the balance of skills, knowledge, and experience of the Board, taking into account the Company's risk appetite and strategy;  monitoring succession plans for the appointment of nonexecutive directors, the group chief executive and other executive directors to the...

  • Page 109
    107 Performance review Aviva plc Annual Report and Accounts 2011 Nomination Committee report continued The Board wholly supported Lord Davies' report, "Women on Boards", and its recommendations and the Group has embedded gender KPIs throughout the talent management process. Currently three female ...

  • Page 110
    ... Financial statements and accounting policies In conjunction with members of management and the internal and external auditors, the Committee reviewed the Company's financial announcements, including the Annual Report and Accounts to shareholders and associated documentation, the half-year results...

  • Page 111
    ...including Solvency II and the Aviva Ireland Transformation Programme. Twice during the year, the Committee received reports on the adequacy of the Group's life assurance and general insurance reserves. The Committee also considered in detail the adequacy of controls over a number of Group programmes...

  • Page 112
    ... Group and Company financial statements and the audit of Group subsidiaries and associates pursuant to legislation (2010: £18.6 million). The fees for other services, which included MCEV supplementary reporting, advice on accounting and regulatory matters, reporting on internal controls, reporting...

  • Page 113
    ...Aviva plc Annual Report and Accounts 2011 Risk Committee report Performance review This report provides details of the role of the Risk Committee and the work it has undertaken during the year. Committee role and responsibilities The Committee assists the Board in providing leadership, direction...

  • Page 114
    ...-bribery global communications programme and training for the Group's businesses and employees. Internal controls As the macro-economic climate deteriorated in the latter half of the year, the Committee received regular detailed reports on key risk exposures, the drivers of risk in the Group and...

  • Page 115
    ...As was the case in 2010 and 2011, the Company will again put its CR Report included in the Annual Report and Accounts to an annual advisory vote of shareholders at the 2012 AGM as a means of obtaining feedback on the report and the Company's performance in this area. This year's CR Report is set out...

  • Page 116
    ...Bonus Plan were mostly exceeded during the year. The combination of financial outcomes, along with performance against targets relating to employees, customers and personal objectives mean the group chief executive received a bonus of 80.27% of his maximum opportunity for 2011 (2010: 74.3%). In line...

  • Page 117
    ...executives' remuneration with the interests of shareholders and other stakeholders, including customers and employees. The Committee's key responsibilities are to: recommend to the Board the Group's remuneration policy for EDs and members of senior management, covering basic salary, bonus, long-term...

  • Page 118
    ...Company Group chief executive Non-executive director Group HR director Group company secretary Group reward and HR policy director Group reward director Chief accounting officer Chief marketing and communications officer Chief executive, Aviva Investors Executive HR director, Aviva Investors Member...

  • Page 119
    ... management would take account of risk objectives Discussions of the FSA's Remuneration Code Approval of the 2011 personal objectives for EDs and EC members Approval of amendments to the rules of the Aviva AESOP Approval of amendments to the Committee's Terms of Reference Financial statements MCEV...

  • Page 120
    ... Solvency II remuneration requirements November Approval of the group chief executive's personal objectives for 2012 Approval of the proposed 2012 financial, employee and customer targets for the operation of the ABP A review of the proposed approach to the 2011 Directors' Remuneration Report...

  • Page 121
    119 Performance review Aviva plc Annual Report and Accounts 2011 Directors' remuneration report continued Section 2 outlines the key changes in respect of executive remuneration that were implemented in 2011, following the Strategic Reward Review. The Committee's considerations shown below relate ...

  • Page 122
    ... ABP LTIP Long-term savings Aviva Staff Pension Scheme (ASPS) Benefits All employee schemes Monthly in cash Reviewed annually in February, with changes taking effect from 1 April. Basic salary Benchmarked as for total remuneration but with positioning and progression taking account of individual...

  • Page 123
    121 Performance review Aviva plc Annual Report and Accounts 2011 Directors' remuneration report continued Table 6: Remuneration Policy in practice continued Policy How delivered Corporate responsibility Conditional Share Award to Trevor Matthews The Committee approved the granting of a one-off ...

  • Page 124
    ... performance in 2010 and 2011 to warrant these increases Bonus is a function of the degree of achievement of 2011 targets as follows: Financial 39.22% (maximum 50%) Employee 9.38 % (maximum 10%) Customer 5.67% (maximum 10%) Personal 26.00% (maximum 30%) The face value of the 2011 grant represented...

  • Page 125
    ...up for tax purposes*** Mr Moneta received a payment of â,¬50,000 as compensation for loss of employment Legal fees were paid directly to Mr Moneta's solicitor for advising Mr Moneta on his departure terms Financial statements MCEV * Andrea Moneta resigned from the Board on 19 January 2011 and the...

  • Page 126
    ... Weighting (% of total bonus opportunity) On target* (%) Stretch (%) Actual payment (%) Key performance indicators Business measures (70%) Volume - total long-term savings Volume - net written premium Operating profit Operating capital generation Internal rate of return (IRR) Customer Employee...

  • Page 127
    ...LTIP award 31 December 2011 vesting projection (% of award) Financial statements MCEV Aviva LTIP 2011 Aviva LTIP 2010 Aviva LTIP 2009 50.00% 73.33% 81.67% Details of the assumptions used in valuing the LTIP for accounting purposes can be found in note 30(e) to the Annual Report and Accounts. The...

  • Page 128
    ... none of the shares from 2009 awards will vest. The same outcome is currently forecast for the 2010 awards. 2009-2011 LTIP and OATTV Plan: Performance outcome for group chief executive The 2009 Directors' Remuneration Report disclosed the face value of the LTIP and OATTV Plan awards granted to all...

  • Page 129
    ... review Aviva plc Annual Report and Accounts 2011 Directors' remuneration report continued Performance graph Table 14 below compares the TSR performance of the Company over the past five years with the TSR of the FTSE 100 Return Index. This index has been chosen because it is a recognised equity...

  • Page 130
    ...year Number At 31 December 201113 Number Market price at Market price or date awards sale price at date granted1 awards vested Pence Pence Normal vesting date Andrew Moss Aviva Long Term Incentive Plan 20083 20092 20102 20113 Aviva Annual Bonus Plan 20086 20096 20106 2011 One Aviva, twice the value...

  • Page 131
    ... to pay the resulting tax liability. The monetary value of awards will be calculated by multiplying the relevant number of shares by the closing middle market price of an ordinary share of the Company at the date of vesting. 5 Igal Mayer's 2009 Aviva Annual Bonus Plan award vested in December 2011...

  • Page 132
    130 Aviva plc Annual Report and Accounts 2011 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, ...

  • Page 133
    ... review Aviva plc Annual Report and Accounts 2011 Directors' remuneration report continued 16. Share ownership requirements An internal shareholding requirement was introduced in 2005 that the group chief executive and any ED should build, over a five-year period, a shareholding in the Company...

  • Page 134
    132 Aviva plc Annual Report and Accounts 2011 Directors' remuneration report continued 20. Non-executive directors The NEDs, including the chairman of the Company, have letters of appointment which set out their duties and responsibilities. The key terms of the appointments are set out in Table 19...

  • Page 135
    ... statements IFRS Financial statements MCEV Other information Notes 1 Bonuses show 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 All the EDs received life assurance benefits during the year that relate...

  • Page 136
    ..., over the year net of contributions. 7 The basis used to calculate transfer values for UK scheme members of the defined benefit section changed during 2011 and this contributes to the increase in transfer values over the year. 8 Igal Mayer is a member of the Aviva Canada Pension Plan, and the...

  • Page 137
    135 Performance review Aviva plc Annual Report and Accounts 2011 Directors' remuneration report continued 24. Directors' interests in Aviva shares The interests held by each person who was a director at the end of the financial year and their connected persons in the ordinary shares of the Company...

  • Page 138
    ... Plan awards lapsed, with no shares being released from these awards. 26. Developments in 2012 Glyn Barker was appointed to the Board as a NED on 27 February 2012 and will receive the standard Board membership fee. 27. Directors' Remuneration Report This Directors' Remuneration Report was reviewed...

  • Page 139
    ... review Aviva plc Annual Report and Accounts 2011 Shareholder information In this section Company address Share capital Related party disclosures Dividend data Guarantees, securitised assets and off-balance sheet arrangements Liquidity and capital resources Audit committee financial experts Code...

  • Page 140
    ...'Articles of Association'. Share options and awards The Company maintains a number of active stock option and share award schemes. Details of these schemes are set out in 'Financial statements IFRS - Note 30 - Equity compensation plans'. Share Investment Plan The Company's UK resident employees of...

  • Page 141
    ... Performance review Aviva plc Annual Report and Accounts 2011 Shareholder information continued History of share capital The following table sets out information about the history of the Company's ordinary shares over the last three full calendar years. Corporate responsibility Number of shares...

  • Page 142
    ... Equity compensation plans Termination benefits Total 36 9 18 2 65 36 7 21 2 66 39 5 16 1 61 Various directors and key management of Aviva may from time to time purchase insurance, asset management or annuity products, or be granted mortgages marketed by Aviva Group companies in the ordinary...

  • Page 143
    ... Annual Report and Accounts 2011 Shareholder information continued Dividend data The Company's dividend policy is to sustain a target dividend cover of between one and a half and two times our adjusted operating profit after tax before amortisation of goodwill and adjusting items. Under UK company...

  • Page 144
    ... UK and certain European long-term business policyholder funds have invested in a number As a normal part of our operating activities, various Group of property limited partnerships (PLPs), either directly or via companies have given financial guarantees and options, including property unit trusts...

  • Page 145
    ... financial services company where our working capital is largely representative of our liquidity, we believe our working capital is sufficient for our present operational requirements. For additional information, see 'Financial statements IFRS - Note 56 - Risk management - liquidity risk'. Starting...

  • Page 146
    ... of Delta Lloyd and the impact of financial markets. Over the period the Group has generated post tax profits and benefited from actuarial gains on staff pension schemes. See 'Financial statements IFRS - Note 54 - Group capital structure'. In addition to external funding sources, we have a number of...

  • Page 147
    ...: the financial performance and the local solvency and capital requirements of our individual business units. The table below shows the dividends received from our principal operating subsidiaries in 2011: 2011 Amounts received £m UK life insurance UK general insurance Aviva Investors France...

  • Page 148
    146 Aviva plc Annual Report and Accounts 2011 Shareholder information continued Application of funds Consolidated cash flows We use funds to pay dividends to our shareholders, to service our debt and to pay our central Group cash flows. In 2011, total cash paid by the Company as ordinary and ...

  • Page 149
    147 Performance review Aviva plc Annual Report and Accounts 2011 Shareholder information continued Year ended 31 December 2010 Net cash from operating activities European Insurance Groups Directive UK Life funds £bn Other business £bn Total net cash from operating activities decreased by £878...

  • Page 150
    ... insurance and fund management operations are in the UK, Europe, North America and the Asia Pacific region. We are therefore subject to financial services regulation and local regulatory supervision in all these areas, as individually covered below. As the Group's parent company is based in the UK...

  • Page 151
    149 Performance review Aviva plc Annual Report and Accounts 2011 Shareholder information continued Insurance Mediation Directive Future EU developments This requires EU member states to establish a framework to:  ensure that insurance and reinsurance intermediaries have been registered on the...

  • Page 152
    150 Aviva plc Annual Report and Accounts 2011 Shareholder information continued which operate on a Group basis will be taken into account in determining the adequacy of a regulated subsidiary's systems and In the UK, the FSA is currently the single regulator for those controls. The robustness of ...

  • Page 153
    ...even daily FSA interaction at UK Region, Business Unit and Group level, and the sharing of detailed information about the Group. The FSA also periodically conducts a formal Advanced RiskResponsive Operating framework (ARROW) review of Aviva to assess the level of risk that the Group poses to each of...

  • Page 154
    ... in the separate long-term insurance fund to cover the actuarially determined value of the insurance liabilities. FSA rules require insurance companies to file their audited annual accounts, statements of financial position and life insurers' annual reports from the actuary performing the actuarial...

  • Page 155
    153 Performance review Aviva plc Annual Report and Accounts 2011 Shareholder information continued Consequently, life insurance companies are subject to regulation both in the state in which they are domiciled as well as in each of the individual states in which they operate. State regulation can ...

  • Page 156
    ...Aviva plc Annual Report and Accounts 2011 Shareholder information continued Asia Pacific We operate within the Asia Pacific region through a network of subsidiary companies either wholly owned or established as a joint venture with a local partner. Our business in the region is predominately long...

  • Page 157
    ... continued Risks relating to our business You should carefully review the following risk factors together with other information contained in this Annual Report before making an investment decision relating to our ordinary shares or ADSs. Our business, financial position, results of our operations...

  • Page 158
    ... rate risk relates primarily to the market price and cash flow variability of assets and liabilities associated with changes in interest rates. Some of our products, principally traditional participating products, universal life insurance and annuities, including fixed and equity indexed annuities...

  • Page 159
    ...Insurance Groups Directive. For a discussion of the impact of changes in foreign exchange rates on our results of operations, see 'Financial statements IFRS - Note 56 - Risk management'. Market fluctuations may cause the value of options and guarantees embedded in some of our life insurance products...

  • Page 160
    ... to support its carrying value. Such write downs could have a material adverse effect on our results of operations or financial condition. Liquidity risks relating to Aviva's business Adverse capital and credit market conditions may affect our ability to meet liquidity needs and to access capital...

  • Page 161
    ... reflect changes in the underlying life expectancy of the population or of our particular portfolio used to calculate our long-term business liabilities, would result in an increase in these reserves and reduce our shareholders' equity. See 'Financial statements IFRS - Note 56 - Risk management'. If...

  • Page 162
    ... customers, The factors that affect the scheme's position include: poor investment performance of pension fund investments; greater life broker-dealers, agents, wholesalers and other distributors of our products and services and cause our sales and earnings expectancy than assumed; adverse changes...

  • Page 163
    ... products, methods, insurance business, which may include premium rates, marketing processes or services or could limit our ability to offer certain product and selling practices, advertising, licensing agents, policy forms, features. In recent years, there has been increasing intellectual capital...

  • Page 164
    ...on the financial condition of the relevant long-term business fund of the company in which the business was written. Risks related to ownership of the ADSs and ordinary shares As a holding company, we are dependent on our operating subsidiaries to cover operating expenses and dividend payments. We...

  • Page 165
    ... Performance review Aviva plc Annual Report and Accounts 2011 Shareholder information continued that may be raised through the issuance of debt and commercial paper. Certain subsidiaries have regulatory restrictions that may limit the payment of dividends, which in some circumstances could limit...

  • Page 166
    164 Aviva plc Annual Report and Accounts 2011 Shareholder information continued purchases and sales of our ordinary shares and ADRs. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as US companies whose securities are ...

  • Page 167
    165 Performance review Aviva plc Annual Report and Accounts 2011 Financial statements IFRS In this section Independent auditor's report Accounting policies Consolidated financial statements Consolidated income statement Pro forma reconciliation of Group operating profit to profit before tax ...

  • Page 168
    166 Aviva plc Annual Report and Accounts 2011 Independent auditor's report to the shareholders of Aviva plc We have audited the Group and Parent Company financial statements (the 'financial statements') of Aviva plc for the year ended 31 December 2011 which comprise the Accounting Policies, the ...

  • Page 169
    ... Parent Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or  certain disclosures of Directors' remuneration specified by law are not made; or  we have not received all the information and...

  • Page 170
    ... (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), Canada, Asia and...

  • Page 171
    ... whether Group entities should be consolidated (set out in policy D), product classification (set out in policy F) and the classification of financial investments (set out in policy S). The loss of control of Delta Lloyd in May 2011, and its classification as a discontinued operation in the current...

  • Page 172
    ... long-term business policyholder funds have invested in a number of property limited partnerships (PLPs), either directly or via property unit trusts (PUTs), through a mix of capital and loans. The PLPs are managed by general partners (GPs), in which the long-term business shareholder companies hold...

  • Page 173
    ... health premiums written reflect business incepted during the year, and exclude any sales-based taxes or duties. Unearned premiums are those proportions of the premiums written in a year that relate to periods of risk after the statement of financial position date. Unearned premiums are calculated...

  • Page 174
    ... 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 on non-participating business written...

  • Page 175
    173 Performance review Aviva plc Annual Report and Accounts 2011 Accounting policies continued Unallocated divisible surplus In certain participating long-term insurance and investment business, the nature of the policy benefits is such that the division between shareholder reserves and ...

  • Page 176
    ... carrying value of those investments. Acquired value of in-force business (AVIF) The present value of future profits on a portfolio of long-term insurance and investment contracts, acquired either directly or through the purchase of a subsidiary, is recognised as an asset. If the AVIF results from...

  • Page 177
    ... remaining useful life of the related asset. Shareholder information Financial statements IFRS (P) Investment property Investment property is held for long-term rental yields and is not occupied by the Group. Completed investment property is stated at its fair value, which is supported by market...

  • Page 178
    ...FV (referred to in this accounting policy as 'other than trading'). In general, the FV category is used as, in most cases, the Group's investment or risk management strategy is to manage its financial investments on a fair value basis. Debt securities and equity securities, which the Group buys with...

  • Page 179
    177 Performance review Aviva plc Annual Report and Accounts 2011 Accounting policies continued For securities identified as being impaired, the cumulative unrealised net loss previously recognised within the investment valuation reserve is transferred to realised losses for the year with a ...

  • Page 180
    ... risks associated with these products, calibrated using the margins available on new lending or with reference to the rates offered by competitors. They are revalued at each period end, with movements in their fair values being taken to the income statement. At each reporting date, we review loans...

  • Page 181
    ... Financial statements IFRS Purchases and sales of investment property, loans and financial investments are included within operating cash flows as the purchases are funded from cash flows associated with the origination of insurance and investment contracts, net of payments of related benefits...

  • Page 182
    ... Aviva plc Annual Report and Accounts 2011 Accounting policies continued Pension obligations The Group operates a large number of pension schemes around the world, whose members receive benefits on either a defined benefit basis (generally related to a member's final salary and length of service...

  • Page 183
    ...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. The Group's only such holding comprises shares purchased by employee trusts to fund certain awards under the equity...

  • Page 184
    182 Aviva plc Annual Report and Accounts 2011 Accounting policies continued (AE) Fiduciary activities Assets and income arising from fiduciary activities, together with related undertakings to return such assets to customers, are excluded from these financial statements where the Group has no ...

  • Page 185
    183 Aviva plc Annual Report and Accounts 2011 Consolidated financial statements Performance review Consolidated income statement For the year ended 31 December 2011 2011 £m Note 2011 £m 2010 £m Continuing operations 2010 £m Discontinued operations Corporate responsibility Continuing ...

  • Page 186
    ... profits Long-term business General insurance and health Fund management Other: Other operations and regional costs Corporate centre Group debt costs and other interest Operating profit before tax attributable to shareholders' profits (excluding Delta Lloyd as an associate) Share of operating profit...

  • Page 187
    ...Governance Year ended 31 December 2010 Long-term business £m General insurance and health £m Fund management £m Other operations £m Total £m UK Aviva Europe North America Asia Pacific Aviva Investors Corporate centre Group debt costs and other interest Total - continuing operations Total...

  • Page 188
    ... statement Owner-occupied properties Fair value gains/(losses) Share of other comprehensive income of joint ventures and associates Actuarial gains on pension schemes Other pension scheme movements Foreign exchange rate movements Aggregate tax effect - shareholder tax Other comprehensive income, net...

  • Page 189
    187 Performance review Aviva plc Annual Report and Accounts 2011 Consolidated financial statements continued Consolidated statement of changes in equity For the year ended 31 December 2011 OwnerShares held by Currency occupied Investment Merger employee translation properties valuation reserve ...

  • Page 190
    188 Aviva plc Annual Report and Accounts 2011 Consolidated financial statements continued Consolidated statement of changes in equity continued For the year ended 31 December 2010 Shares Ownerheld by Currency occupied Investment Hedging Equity employee translation properties valuation instruments ...

  • Page 191
    ...Ordinary share capital Preference share capital Capital reserves Share premium Merger reserve Shares held by employee trusts Other reserves Retained earnings Equity attributable to shareholders of Aviva plc Direct capital instruments Non-controlling interests Total equity Liabilities Gross insurance...

  • Page 192
    190 Aviva plc Annual Report and Accounts 2011 Consolidated financial statements continued Consolidated statement of cash flows For the year ended 31 December 2011 The cash flows presented in this statement cover all the Group's activities and include flows from both policyholder and shareholder ...

  • Page 193
    191 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements Performance review 1 - Exchange rates The Group's principal overseas operations during the year were located within the Eurozone and the United States. The results and cash flows of these operations have ...

  • Page 194
    ... ventures and associates comprises: 2011 £m 2010 £m Continuing operations United Kingdom RAC Limited (see (i) below) RBS Life and RBS Collective Non-core operations France Australia (see (ii) below) Other small operations Profit on disposal and remeasurement from continuing operations Loss on...

  • Page 195
    ... long-term insurance, general insurance and fund management operation), reducing our holding to 42.7% of Delta Lloyd's ordinary share capital, representing 40% of shareholder voting rights. As the Group no longer commands a majority of shareholder voting rights, it no longer controls Delta Lloyd...

  • Page 196
    ... financial position at 31 December 2011. The operations held for sale at 31 December 2010 related to our interest in the Taiwan joint venture, details of which are given in note 18(a). (d) Irish long-term business Our Irish long-term business is carried out through a subsidiary, Aviva Life Holdings...

  • Page 197
    ... below: United Kingdom The United Kingdom comprises two operating segments - UK Life and UK General Insurance (UK GI). The principal activities of UK Life are life insurance, long-term health and accident insurance, savings, pensions and annuity business, while UK GI provides insurance cover to...

  • Page 198
    ... plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 4 - Segmental information continued (i) Segmental income statement for the year ended 31 December 2011 United Kingdom Aviva Europe £m North America £m Asia Pacific £m Aviva Investors £m Delta Lloyd...

  • Page 199
    ... review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 4 - Segmental information continued (ii) Segmental income statement for the year ended 31 December 2010 United Kingdom Aviva Europe £m North America £m Aviva Investors £m Other Group...

  • Page 200
    ... information continued (iii) Segmental statement of financial position as at 31 December 2011 United Kingdom Aviva Europe £m North America £m Asia Pacific £m Aviva Investors £m Delta Lloyd £m Other Group activities £m Life £m GI £m Total £m Goodwill - Acquired value of in-force business...

  • Page 201
    ... private investors. Other Includes the RAC non-insurance operations (up to the disposal date of 30 September 2011), service companies, head office expenses, such as Group treasury and finance functions, and certain financing costs and taxes not allocated to business segments. Shareholder information...

  • Page 202
    ... Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 4 - Segmental information continued (i) Segmental income statement - products and services for the year ended 31 December 2011 Long-term business £m General insurance and Fund health** management...

  • Page 203
    ... Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 4 - Segmental information continued (ii) Segmental income statement - products and services for the year ended 31 December 2010 Long-term business £m General insurance and health...

  • Page 204
    ... of financial position - products and services as at 31 December 2010 Long-term business £m General insurance and health £m Fund management £m Other £m Total £m Goodwill Acquired value of in-force business and intangible assets Interests in, and loans to, joint ventures and associates Property...

  • Page 205
    ... consolidated income statement. Continuing operations 2011 £m 2010 £m Corporate responsibility Gross written premiums (notes 4a & 4b) Long-term: Insurance contracts Participating investment contracts General insurance and health Less: premiums ceded to reinsurers (notes 4a & 4b) Gross change in...

  • Page 206
    ... detail on the items appearing in the expenses section of the consolidated income statement. Continuing operations 2011 £m 2010 £m Claims and benefits paid Claims and benefits paid to policyholders on long-term business Insurance contracts Participating investment contracts Non-participating...

  • Page 207
    ... of several specific discontinued commercial liability risks written in Canada a significant number of years ago. The table below sets out the lines of the income statement in which the exceptional items have been included: 2011 £m 2010 £m Change in insurance liabilities, net of reinsurance (note...

  • Page 208
    206 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 7 - Finance costs This note analyses the interest costs on our borrowings (which are described in note 48) and similar charges. Finance costs comprise: Continuing operations 2011 £m 2010 £m ...

  • Page 209
    ... Performance review Aviva plc Annual Report and Accounts 2011 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...

  • Page 210
    208 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 8 - Long-term business economic volatility continued (d) Assumptions The expected rate of investment return is determined using consistent assumptions between operations, having regard to local ...

  • Page 211
    209 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 9 - Longer-term investment return and economic assumption changes for non-long-term business continued (d) The total assets supporting the general insurance and health business...

  • Page 212
    210 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 10 - Employee information This note shows where our staff are employed throughout the world, excluding staff employed by our joint ventures and associates, and analyses the total staff costs. (a)...

  • Page 213
    ...The net value has been calculated by reference to the closing middle market price of an ordinary share at the date of grant. During the year, no share options were exercised by directors (2010: nil). Corporate responsibility 12 - Auditors' remuneration This note shows the total remuneration payable...

  • Page 214
    ... statement represents movements on the following items: Continuing operations 2011 £m 2010 £m Long-term business technical provisions and other insurance items Deferred acquisition costs Unrealised (losses)/gains on investments Pensions and other post-retirement obligations Unused losses and tax...

  • Page 215
    ... to equity in the year amounted to £16 million (2010: £17 million), and is wholly in respect of coupon payments on direct capital instruments. Shareholder information (d) Tax reconciliation The tax on the Group's (loss)/profit before tax differs from the theoretical amount that would arise using...

  • Page 216
    214 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 13 - Tax continued The tax (credit)/charge attributable to policyholders' returns is removed from the Group's total (loss)/profit before tax in arriving at the Group's profits before tax ...

  • Page 217
    215 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 14 - Earnings per share continued Corporate responsibility 2010 Operating profit £m Nonoperating items £m Continuing operations Total £m Profit before tax attributable to...

  • Page 218
    ... Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 14 - Earnings per share continued 2010 Net of tax, noncontrolling interests, preference dividends and DCI £m Continuing operations Before tax £m Per share pence Operating profit attributable to ordinary...

  • Page 219
    ... Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 14 - Earnings per share continued Corporate responsibility 2010 Weighted average number of shares million Total £m Per share pence Profit attributable to ordinary shareholders...

  • Page 220
    ... dividend for 2011 of 16.0 pence per ordinary share (2010: 16.0 pence), amounting to £465 million (2010: £451 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 17 May 2012 and will be accounted for as an appropriation of retained earnings in the year...

  • Page 221
    ...Long-term business Financial statements IFRS As part of the annual review of goodwill, management have considered the recoverability of the goodwill balance associated with the two cash generating units representing the UK Creditor Life business and the UK Occupational Health business. As a result...

  • Page 222
    ...key assumption used for the calculation was the embedded value which represents the shareholder interest in the life business and is calculated in accordance with the MCEV principles. The embedded value is the total of the net worth and the value of the in-force life business. (ii) General insurance...

  • Page 223
    ... value and is based on an embedded value of the business (the total of the net worth of the life business and the value of the in-force business) together with the present value of expected profits from future new business. Key assumptions used for the calculation were:  Embedded value represents...

  • Page 224
    ... September 2011), and the value of the Union Financière de France Banque distribution channel, where the existing lives of the assets and their competitive position in, and the stability of, their respective markets support this classification. Impairment testing of these intangibles is covered in...

  • Page 225
    223 Performance review Aviva plc Annual Report and Accounts 2011 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 ...

  • Page 226
    ... UK. All these investments are held by subsidiary entities. (c) Long-term business undertakings The principal joint ventures are as follows: Country of incorporation and operation Company Proportion held Aviva-COFCO Life Insurance Co. Limited AvivaSA Emeklilik ve Hayat A.S. CIMB Aviva Assurance...

  • Page 227
    ... Embedded value represents the shareholder interest in the life business and is calculated in accordance with the MCEV principles. The embedded value is the total of the net worth of the life business and the value of the in-force business.  New business contribution represents the present value...

  • Page 228
    ... present value of expected profits from future new business. 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...

  • Page 229
    ...incorporation and operation Company Type of business Proportion held Aviva Life Insurance Company India Limited Delta Lloyd N.V. Insurance Financial Services 26.00% 41.91% India Netherlands The Group controls 39.3% of the shareholder voting rights in Delta Lloyd. All investments in principal...

  • Page 230
    ...year discounted using a risk adjusted discount rate of 18.4% (2010: 17.3%); and Aviva Life Insurance Company India Limited is a developing business and the recoverability of value is reliant on the achievement of future projected growth. In addition, local regulatory changes have resulted in changes...

  • Page 231
    229 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 20 - Property and equipment This note analyses our tangible fixed assets, which are primarily properties occupied by Group companies and computer equipment. Properties under ...

  • Page 232
    ... Aviva plc Annual Report and Accounts 2011 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 2010...

  • Page 233
    ... the business unit considers that market participants would use in pricing the asset or liability. Examples are certain private equity investments and private placements. The majority of the Group's financial assets and certain financial liabilities are valued based on quoted market information or...

  • Page 234
    232 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 22 - Fair value methodology continued 2010 Fair value hierarchy Less: Assets of operations classified as held for sale £m Level 1 £m Level 2 £m Level 3 £m Sub-total fair value £m ...

  • Page 235
    233 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 22 - Fair value methodology continued The transfers into and out of Level 3 in 2011 are spread across our businesses in the UK, Italy, the US and France and across a number of ...

  • Page 236
    234 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 23 - Loans This note analyses the loans our Group companies have made, the majority of which are mortgage loans. (a) Carrying amounts The carrying amounts of loans at 31 December 2011 and 2010 ...

  • Page 237
    ...Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 23 - Loans continued (b) Analysis of loans carried at amortised cost 2011 Amortised cost Impairment £m £m Carrying value £m Amortised cost £m Impairment £m 2010 Carrying value...

  • Page 238
    236 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 24 - Securitised mortgages and related assets The Group, in our UK Life and (prior to its deconsolidation) Dutch businesses, has loans receivable, secured by mortgages, which have then been ...

  • Page 239
    237 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 25 - Financial investments This note analyses our financial investments by type and shows their cost and fair value. These will change from one period to the next as a result ...

  • Page 240
    ... value £m Fixed maturity securities Equity securities Other investments Unit trusts and specialised investment vehicles Derivative financial instruments Deposits with credit institutions Minority holdings in property management undertakings Other long-term investments Other short-term investments...

  • Page 241
    ...bulk purchase annuity business, the Group's UK Life operation is required to place certain investments in trust on behalf of the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its payment obligations in respect of policyholder benefits...

  • Page 242
    ... 2011 Non-UK government debt securities* Policyholder Participating Shareholder £m £m £m Total £m Austria Belgium France Germany Greece Ireland Italy Netherlands Poland Portugal Spain European supranational debt Other European countries Europe Canada United States North America Singapore...

  • Page 243
    241 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 25 - Financial investments continued Non-UK government debt securities (gross of non-controlling interests) Corporate responsibility 31 December 2010 Non UK government debt ...

  • Page 244
    ... Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 25 - Financial investments continued (f) Exposure to worldwide banks - debt and equity securities continued Participating funds assets exposure to worldwide banks - debt and equity securities (net...

  • Page 245
    243 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 25 - Financial investments continued (f) Exposure to worldwide banks - debt and equity securities continued Corporate responsibility Participating funds assets exposure to ...

  • Page 246
    ...- 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 247
    ... 2011, a total of 85,564,296 ordinary shares of 25 pence each were allotted and issued by the Company as follows: Number of shares Share capital £m Share premium £m At 1 January 2010 Shares issued under the Group's employee and executive share option schemes Shares issued in lieu of dividends...

  • Page 248
    246 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 30 - Group's share plans This note describes the Group's various equity compensation plans, and shows how the Group values the options and awards of shares in the Company. (a) Description of the ...

  • Page 249
    247 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 30 - Group's share plans continued (b) Outstanding options and awards (i) Share options Corporate responsibility At 31 December 2011, options to subscribe for ordinary shares ...

  • Page 250
    ...Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 30 - Group's share plans continued One Aviva, twice the value bonus plan Number of shares Vesting period Number of shares Vesting period 2,181,411 Aviva Annual Bonus Plan 2005 Number of shares 2009...

  • Page 251
    ... assumption 2011 2010 Shareholder information Share price Expected volatility* Expected volatility of comparator companies' share price* Correlation between Aviva and competitors' share price* Expected life Expected dividend yield** Risk-free interest rate* 435.70p 66% 65% 57% 3.00 years n/a 1.79...

  • Page 252
    ... Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 32 - Preference share capital This note gives details of Aviva plc's preference share capital. The preference share capital of the Company at 31 December 2011 was: 2011 £m 2010 £m Issued and paid...

  • Page 253
    ...credit for equity compensation plans Shares issued under equity compensation plans (note 36) Transfer to non-controlling interests following Delta Lloyd IPO Foreign exchange rate movements Aggregate tax effect - shareholders' tax Balance at 31 December 2010 Arising in the year: Fair value gains Fair...

  • Page 254
    252 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 36 - Retained earnings This note analyses the movements in the consolidated retained earnings during the year. 2011 £m 2010 £m Balance at 1 January Profit for the year attributable to equity ...

  • Page 255
    253 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 38 - Contract liabilities and associated reinsurance The following notes explain how we calculate our liabilities to our policyholders for insurance and investment products we ...

  • Page 256
    ... financial statements continued 39 - Insurance liabilities continued (b) Long-term business liabilities (i) Business description The Group underwrites long-term business in a number of countries as follows:  In the UK mainly in: - New With-Profits sub-fund (NWPSF) of Aviva Life & Pensions UK...

  • Page 257
    ...as follows: Shareholder information Future investment return A 'risk-free' rate equal to the spot yield on UK government securities, plus a margin of 0.1% is used. The rates vary according to the outstanding term of the policy, with a typical rate as at 31 December 2011 of 2.20% (2010: 3.78%) for...

  • Page 258
    256 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 39 - Insurance liabilities continued Non-profit business Conventional non-profit contracts, including those written in the with-profit funds, are valued using gross premium methods which ...

  • Page 259
    ... Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 39 - Insurance liabilities continued (b) France Corporate responsibility The majority of reserves arise from a single premium savings product and is based on the accumulated fund...

  • Page 260
    ... impact of falling equity markets on liabilities for unit-linked insurance contracts. 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. Minor variances...

  • Page 261
    259 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 39 - Insurance liabilities continued (ii) Discounting Corporate responsibility Outstanding claims provisions are based on undiscounted estimates of future claim payments, ...

  • Page 262
    260 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 39 - Insurance liabilities continued Interest rates used to discount latent claim liabilities The discount rates used in determining our latent claim liabilities are based on the relevant swap ...

  • Page 263
    261 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 39 - Insurance liabilities continued The Group aims to maintain strong reserves in respect of its general insurance and health business in order to protect against adverse ...

  • Page 264
    ... financial statements continued 39 - Insurance liabilities continued (iii) Net of reinsurance After the effect of reinsurance, the loss development table is: All prior years £m 2002 £m 2003 £m 2004 £m 2005 £m 2006 £m 2007 £m 2008 £m 2009 £m 2010 £m 2011 £m Total £m Accident year Net...

  • Page 265
    263 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 40 - Liability for investment contracts This note analyses our investment contract liabilities by type of product and describes how we calculate these liabilities and the ...

  • Page 266
    ... on corporate bonds widened, reducing the value of assets supporting the participating investment liabilities. 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...

  • Page 267
    ... stochastic model, and amounts to £35 million at 31 December 2011 (2010: £31 million). (ii) Guaranteed unit price on certain products Financial statements MCEV Certain unit-linked pension products linked to long-term life insurance funds provide policyholders with guaranteed benefits at...

  • Page 268
    ... rates or equity markets since there is no longer any exposure to equity in these funds and a matching strategy has been implemented for bonds. Return of premium guarantee Until 2005, Aviva Life and Pensions Ireland wrote two tranches of linked bonds with a return of premium guarantee, or a price...

  • Page 269
    ... adjustment of 2.48% (2010: 1.47%) for indexed life and 2.51% (2010: 1.48%) 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 270
    ... financial statements continued 42 - Reinsurance assets This note details the reinsurance recoverables on our insurance and investment contract liabilities. (a) Carrying amounts The reinsurance assets at 31 December comprised: 2011 £m 2010 £m Long-term business Insurance contracts Participating...

  • Page 271
    ... value of backing financial assets. Effect on profit 2011 £m Effect on profit 2010 £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 272
    270 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 43 - Effect of changes in assumptions and estimates during the year continued The impact of interest rates for long-term business relates primarily to the UK and Netherlands driven by the ...

  • Page 273
    ...Governance (ii) The net deferred tax liability arises on the following items: 2011 £m 2010 £m Long-term business technical provisions and other insurance items Deferred acquisition costs Unrealised gains on investments Pensions and other post-retirement obligations Unused losses and tax credits...

  • Page 274
    ...Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 46 - Provisions This note details the non-insurance provisions that the Group holds, and shows the movements in these during the year. (a) Carrying amounts 2011 £m 2010 £m Deficits in the main staff pension...

  • Page 275
    273 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 47 - Pension obligations This note describes the Group's pension arrangements for its employees and explains how our obligations to these schemes are calculated. (a) ...

  • Page 276
    274 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 47 - Pension obligations continued (ii) Defined contribution (money purchase) section of the ASPS The trustees have responsibility for selecting a range of suitable funds in which the members ...

  • Page 277
    275 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 47 - Pension obligations continued Valuations and assumptions Corporate responsibility The valuations used for accounting under IAS 19 have been based on the most recent full ...

  • Page 278
    ...Group-managed funds and insurance policies Plan assets include investments in Group-managed funds in the consolidated statement of financial position of £112 million (2010: £116 million) and insurance policies with other Group companies of £163 million (2010: £160 million) in the main UK scheme...

  • Page 279
    ... review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 47 - Pension obligations continued (iv) Pension expense Corporate responsibility As noted above, plan assets in the UK and Dutch schemes include insurance policies with other Group companies...

  • Page 280
    ...and losses give a five-year history. Scheme assets exclude insurance policies with Group companies and income on the assets underlying them. 2011 £m 2010 £m 2009 £m 2008 £m 2007 £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 281
    ... attributable to defined benefit members, including investments in Group insurance policies (see footnote below), at 31 December 2011 were: UK £m Ireland £m Canada £m Total 2011 £m Equities Bonds Property Other Total fair value of assets Present value of scheme liabilities Net surplus/(deficits...

  • Page 282
    ...: 2011 Pension scheme net Scheme surplus/ liabilities (deficit) £m £m Adjust for IAS 19 Group pensions insurance net surplus/ policies (deficit) £m £m Scheme assets £m Net deficits in the schemes at 1 January Employer contributions Employee contributions Benefits paid Current and past service...

  • Page 283
    281 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 48 - Borrowings Our borrowings are either core structural borrowings or operational borrowings. This note shows the carrying values and contractual maturity amounts of each ...

  • Page 284
    ... Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 48 - Borrowings continued Borrowings are considered current if the contractual maturity dates are within a year. Where subordinated debt is undated or loan notes are perpetual, the interest payments...

  • Page 285
    ...these funds and unit trusts. The lenders have no recourse whatsoever to the shareholders' funds of any companies in the Aviva Group. These loans run for a period of five years, with interest rates fixed monthly and based on a fixed margin above the euro inter-bank rate. (c) The UK long-term business...

  • Page 286
    284 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 48 - Borrowings continued (v) Securitised mortgage loan notes Loan notes have been issued by special purpose securitisation companies in the UK and, prior to the deconsolidation of Delta Lloyd, ...

  • Page 287
    285 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 49 - Payables and other financial liabilities This note analyses our payables and other financial liabilities at the end of the year. 2011 £m 2010 £m Corporate ...

  • Page 288
    ... long-term insurance and 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...

  • Page 289
    ... review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 51 - Contingent liabilities and other risk factors continued (f) Structured settlements Corporate responsibility In Canada, annuities have been purchased from licensed Canadian life insurers...

  • Page 290
    ... of insurance and investment contracts, net of payments of related benefits and claims. During the year, the net operating cash inflow reflects a number of factors, including changes in the investment strategy of funds to hold a lower weighting of cash and higher levels of financial investments, the...

  • Page 291
    ... MCEV basis, is deployed by segment and how that capital is funded. 2011 £m Restated 2010 £m Long-term savings General insurance and health Fund management Other business Corporate* Delta Lloyd Total capital employed Financed by Equity shareholders' funds Non-controlling interests Direct capital...

  • Page 292
    290 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 54 - Group capital structure continued Total capital employed is financed by a combination of equity shareholders' funds, preference capital, subordinated debt and borrowings. At 31 December 2011...

  • Page 293
    ... in our Group. Within the Aviva Group there exist intra-group arrangements to provide capital to particular business units. Included in these arrangements is a subordinated loan of £200 million from Aviva Life Holdings UK Limited to Aviva Annuity Limited to provide capital to support the writing of...

  • Page 294
    ... risk capital margin (RCM) is 2.7 times covered by the inherited estate and support arrangement (31 December 2010: 3.7 times). Under the FSA regulatory regime, UK life with-profits business is required to hold capital equivalent to the greater of their regulatory requirement based on EU directives...

  • Page 295
    ...Operational Risk Committee (ORC) providing a key focus on operational risks. The group-level committees are in turn supported by similar governance structures in the regions. Risk management in relation to Delta Lloyd During 2011 Aviva has completed a partial disposal of its equity holding in Delta...

  • Page 296
    .... The group manages its credit risk at business unit, regional and group levels. All business units and regions are required to implement local credit risk management processes (including limits frameworks), operate specific risk management committees, and ensure detailed reporting and monitoring...

  • Page 297
    295 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued A detailed breakdown of the group's current credit exposure by credit quality is shown below. Financial exposures by credit ratings Corporate ...

  • Page 298
    296 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued Other investments Other investments (including assets of operations classified as held for sale £217 million) include: £27,260 million of unit trusts and other ...

  • Page 299
    297 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued Reinsurance credit exposures Corporate responsibility The Group is exposed to concentrations of risk with individual reinsurers, due to the ...

  • Page 300
    ... management charges or a share of performance are taken.  Its interest in the free estate of long-term with-profits funds. We continue to limit our direct equity exposure in line with our risk preferences for equity risk. The reduction of the shareholding in Delta Lloyd has decreased the Group...

  • Page 301
    299 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued Property price risk Corporate responsibility The Group is subject to property price risk due to holdings of investment properties in a variety ...

  • Page 302
    ... Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued At 31 December 2011 and 2010, the Group's total equity deployment by currency was: Sterling £m Euro £m US$ £m Other £m Total £m Capital 31 December 2011 Capital...

  • Page 303
    ... Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued Corporate responsibility On demand or within 1 year £m Over 15 years £m At 31 December 2011 Total £m 1-5 years £m 5-15 years £m Long-term business Insurance contracts...

  • Page 304
    302 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued The committee considers all areas of life insurance risk, but in particular has a remit to monitor mortality, longevity, morbidity, persistency, product development...

  • Page 305
    ... Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued The majority of the general insurance business underwritten by the Group is of a short tail nature such as motor, household and commercial property...

  • Page 306
    ... report. Life insurance and investment contracts The nature of long-term business is such that a number of assumptions are made in compiling these financial statements. Assumptions are made about investment returns, expenses, mortality rates and persistency in connection with the in-force policies...

  • Page 307
    ... Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued Sensitivity test results Corporate responsibility Illustrative results of sensitivity testing for long-term business, general insurance and health...

  • Page 308
    306 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued The different impacts of the economic sensitivities on profit and shareholders' equity arise from classification of certain assets as AFS in some business units, ...

  • Page 309
    ... Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued General insurance and health business Sensitivities as at 31 December 2011 Impact on profit before tax (£m) Interest rates +1% Interest rates -1% Equity/ property...

  • Page 310
    308 Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 56 - Risk management continued Limitations of sensitivity analysis The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, ...

  • Page 311
    309 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 57 - Derivative financial instruments and hedging continued (i) Cash flow hedges Corporate responsibility During 2010, the cash flow hedges were discontinued. The Group has ...

  • Page 312
    ... our joint ventures, associates and staff pension schemes. The Group undertakes transactions with related parties in the normal course of business. Loans to related parties are made on normal arm's-length commercial terms. Services provided to, and by related parties 2011 Income earned in period...

  • Page 313
    311 Performance review Aviva plc Annual Report and Accounts 2011 Notes to the consolidated financial statements continued 59 - Related party transactions continued Transactions with joint ventures in the UK relate to the property management undertakings, the most material of which are listed in ...

  • Page 314
    312 Aviva plc Annual Report and Accounts 2011 Financial statements of the Company Income statement For the years ended 31 December 2011 and 2010: Note 2011 £m 2010 £m Income Dividends received from subsidiaries Interest receivable from Group companies Net investment expense Expenses Operating ...

  • Page 315
    313 Performance review Aviva plc Annual Report and Accounts 2011 Financial statements of the Company continued Statement of changes in equity For the year ended 31 December 2011: Ordinary Preference share share capital capital £m £m Share premium £m Merger reserve £m Investment Equity ...

  • Page 316
    314 Aviva plc Annual Report and Accounts 2011 Financial statements of the Company continued Statement of financial position At 31 December 2011 and 2010: Note 2011 £m 2010 £m Assets Non-current assets Investments in subsidiaries Investment in joint venture Loans owed by subsidiaries Current tax...

  • Page 317
    ... review Aviva plc Annual Report and Accounts 2011 Financial statements of the Company continued Statement of cash flows For the years ended 31 December 2011 and 2010: All the Company's operating and investing cash requirements are met by subsidiary companies and settled through intercompany loan...

  • Page 318
    ... losses/(gains) Total 156 6 22 184 159 42 (25) 176 (ii) Staff costs Total staff costs were: 2011 £m 2010 £m Wages and salaries Social security costs Post-retirement obligations Defined benefit schemes (see (iii) below) Defined contribution schemes Profit sharing and incentive plans Equity...

  • Page 319
    ... Performance review Aviva plc Annual Report and Accounts 2011 Notes to the Company's financial statements continued C - Tax (i) Tax credited to the income statement 2011 £m 2010 £m Corporate responsibility Current tax: For this year Prior year adjustments Total tax credited to income statement...

  • Page 320
    318 Aviva plc Annual Report and Accounts 2011 Notes to the Company's financial statements continued D - Reserves Merger reserve £m Investment valuation reserve £m Equity compensation reserve £m Retained earnings £m Balance at 1 January 2010 Arising in the year: Profit for the year Fair value ...

  • Page 321
    ... review Aviva plc Annual Report and Accounts 2011 Notes to the Company's financial statements continued G - Risk management Risk management in the context of the Group is considered in the Group consolidated financial statements, note 56. The business of the Company is managing its investments...

  • Page 322
    320 Aviva plc Annual Report and Accounts 2011 Notes to the Company's financial statements continued H - Related party transactions continued Dividends, loans, interest Services provided to related parties 2011 Income earned Receivable in year at year end £m £m Income earned in year £m 2010 ...

  • Page 323
    ...life and related business embedded value E15 - Risk allowance within present value of in-force (VIF) E16 - Implied discount rates (IDR) E17 - Summary of non-controlling interest in life and related businesses' MCEV results E18 - Principal assumptions E19 - Sensitivity analysis Statement of directors...

  • Page 324
    ... Restated 2010 £m Total Operating profit before tax attributable to shareholders' profits United Kingdom Europe North America Asia Pacific Long-term business General insurance and health Fund management1 Other operations and regional costs2 Regional operating profit Corporate centre Group debt...

  • Page 325
    ... Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued Earnings per share - MCEV basis Corporate responsibility Earnings per share Continuing operations Discontinued operations 2011 Total Continuing operations Discontinued operations Restated 2010 Total...

  • Page 326
    ... at 1 January Total comprehensive (expense)/income for the year Dividends and appropriations Shares issued in lieu of dividends Capital contributions from minority shareholders Movements in ordinary shareholder equity following deconsolidation of Delta Lloyd Movements in non-controlling interests...

  • Page 327
    ... Life IFRS net assets represented as the additional value of in-force long-term business; corresponding item within equity represented by the additional retained profit on an MCEV basis; and, corresponding adjustments to non-controlling interests. The summarised consolidated statement of financial...

  • Page 328
    ...Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued Reconciliation of shareholders' equity on IFRS and MCEV bases For the year ended 31 December 2011: 2011 £m IFRS £m Adjustment £m MCEV £m Ordinary share capital Capital reserves Other reserves Shares held by employee...

  • Page 329
    ... the MCEV calculations cover, as detailed in the Basis of preparation note. The embedded value is presented net of non-controlling interests and tax. 2 Non-covered but related to life business represents the adjustments to the MCEV, including goodwill, to calculate the long-term business net assets...

  • Page 330
    ...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 331
    ...Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E1 - Basis of preparation continued MCEV methodology Overview Corporate responsibility Under the MCEV methodology, profit is recognised as it is earned over the life of products defined within covered...

  • Page 332
    ... existing business operating return. 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 and Ireland...

  • Page 333
    331 Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E1 - Basis of preparation continued The embedded value of the US spread-based products anticipates the application of management discretion allowed for contractually within the policies, subject to...

  • Page 334
    ...Accounts 2011 MCEV financial statements continued E2 - Geographical analysis of life MCEV operating earnings 2011 United Kingdom £m Aviva Europe £m North America £m Asia Pacific £m Continuing Discontinued operations operations £m £m Total £m Gross of tax and non-controlling interest Value...

  • Page 335
    ... review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E2 - Geographical analysis of life MCEV operating earnings continued North America MCEV operating earnings decreased by 17% to £241 million (2010: £289 million) as higher expected return and improved value...

  • Page 336
    ... Report and Accounts 2011 MCEV financial statements continued E2 - Geographical analysis of life MCEV operating earnings continued Gross of tax and non-controlling interests 2011 UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m North America £m Asia...

  • Page 337
    335 Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E2 - Geographical analysis of life MCEV operating earnings continued Corporate responsibility Gross of tax and non-controlling interests 2010 UK £m France £m Ireland £m Italy £m Poland £m ...

  • Page 338
    ... Report and Accounts 2011 MCEV financial statements continued E2 - Geographical analysis of life MCEV operating earnings continued Net of tax and non-controlling interests 2011 UK £m France £m Ireland £m Italy £m Poland £m Spain £m Other Europe £m Aviva Europe £m North America £m Asia...

  • Page 339
    337 Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E2 - Geographical analysis of life MCEV operating earnings continued Corporate responsibility Net of tax and non-controlling interests 2010 UK £m France £m Ireland £m Italy £m Poland £m Spain ...

  • Page 340
    ... within the Group that arise from the provision of fund management services to our Life businesses. These results are included within the Life MCEV operating earnings. 2011 £m 2010 £m United Kingdom Europe North America Asia Pacific Aviva Investors United Kingdom Aviva Europe Asia Pacific Total...

  • Page 341
    ... related to associated undertakings and joint ventures. 4 The value of the Aviva Staff Pension Scheme surplus has been notionally allocated between segments, based on current funding and the Life proportion has been included within the long-term business net assets on an MCEV basis. The pension fund...

  • Page 342
    340 Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E7 - Analysis of life and pension earnings The following table provides an analysis of the movement in embedded value for covered business. The analysis is shown separately for free surplus, required capital and the ...

  • Page 343
    341 Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E8 - Life MCEV operating earnings The table below presents the life and pensions MCEV earnings broken down into constituent parts. The life and pensions MCEV operating earnings comprise: the value ...

  • Page 344
    342 Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E9 - Present value of life new business premiums The tables below set out the present value of new business premiums (PVNBP) written by the life and related businesses, gross of tax and non-controlling interests. The...

  • Page 345
    ... 1.9 Shareholder information Value of new business 2011 £m 2010 £m New business margin 2011 % 2010 % Life and pensions (net of tax and non-controlling interest) 2011 £m 2010 £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe North America Asia Pacific Total life...

  • Page 346
    ... properties and bonds earn a return in excess of risk-free consistent with the long-term rate of return assumed in operating earnings. The IRR on life and pensions new business for the Group (excluding Delta Lloyd) was 14.4% (2010: 13.3%). Gross of non-controlling interests 31 December 2011 Internal...

  • Page 347
    345 Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E12 - Free surplus emergence Corporate responsibility Existing business Impact of experience variances and assumption Return on changes on net worth net worth £m £m Total existing business ...

  • Page 348
    ... of life and related business embedded value Net of non-controlling interests 2011 Free surplus £m Required capital1 £m VIF £m Total MCEV £m United Kingdom France2 Ireland Italy3 Poland Spain Other Europe Aviva Europe North America2,4 Asia Pacific Total 1 2 3 4 Required capital is shown net of...

  • Page 349
    ... value of future profits calculation. Time value Non- of financial hedgeable options and risks guarantees £m £m Governance Net of non-controlling interests 2011 PVFP £m Frictional costs £m VIF £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe North America Asia...

  • Page 350
    348 Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E16 - Implied discount rates (IDR) In the valuation of a block of business, the IDR is the rate of discount such that a traditional embedded value calculation for the covered business equates to the MCEV. The cash ...

  • Page 351
    ...plc Annual Report and Accounts 2011 MCEV financial statements continued E17 - Summary of non-controlling interest in life and related businesses' MCEV results Corporate responsibility 2011 France £m Ireland £m Italy £m Poland £m Spain £m Aviva Europe £m Asia Pacific £m Delta Lloyd £m Total...

  • Page 352
    350 Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E18 - Principal assumptions (a) Economic assumptions - deterministic calculations Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at the end of each reporting ...

  • Page 353
    ...risk. There has been no change to the types of contracts to which a liquidity premium is applied. Risk premium - used for operating profit, implied discount rates (IDR), internal rates of return (IRR) and payback period Financial statements MCEV For life and pensions operating earnings, Aviva uses...

  • Page 354
    352 Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E18 - Principal assumptions continued All territories 2011 2010 2009 Equity risk premium Property risk premium 3.5% 2.0% 3.5% 2.0% 3.5% 2.0% Future returns on fixed interest investments are calculated from ...

  • Page 355
    353 Performance review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E18 - Principal assumptions continued Model - Europe (excluding Delta Lloyd) and Asia Pacific Corporate responsibility Swap rates are generated by a model, the LIBOR Market Model (LMM),that ...

  • Page 356
    ... Black-Scholes formula to reproduce the market price of the option. The following table sets out the model equity implied volatilities. 2011 Option length UK France Italy Ireland Spain US UK France Italy Ireland Spain US 2010 Delta Lloyd 5 years 10 years 15 years 25.8% 27.2% 27.1% 27.5% 27.9% 29...

  • Page 357
    ... in the risk-free rate, including all consequential changes (including assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates);  10% increase and decrease in market values of equity and property assets;  25% increase in equity and swaption...

  • Page 358
    ... Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued E19 - Sensitivity analysis continued Embedded value Interest rates 10bp increase in adjustment to risk-free rates £m Swaption implied volatilities 25% increase £m 2011 Embedded value (net of tax and non-controlling...

  • Page 359
    ... £m 2011 Value of new business (net of tax and non-controlling interest) As reported on page 340 £m 10% increase £m 10% decrease £m 50bps increase £m 50bps decrease £m Shareholder information United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe North America Asia...

  • Page 360
    ... rates - life assurance £m 5% decrease in mortality/ morbidity rates - annuity business £m 2011 Embedded value (net of tax and non-controlling interest) 10% decrease in lapse rates £m United Kingdom France Ireland Italy Poland Spain Other Europe Aviva Europe North America Asia Pacific Total...

  • Page 361
    ... review Aviva plc Annual Report and Accounts 2011 MCEV financial statements continued Statement of directors' responsibilities in respect of the MCEV basis When compliance with the European Insurance CFO Forum Market Consistent Embedded Value Principles (MCEV Principles), published in October 2009...

  • Page 362
    ... and 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 Consolidated MCEV financial statements have been prepared by the directors of Aviva plc in accordance with the MCEV Principles issued in June 2008 by...

  • Page 363
    Performance review Corporate responsibility Governance Shareholder information Financial statements IFRS Financial statements MCEV Other information 361 Other information In this section Page Glossary Shareholder services Aviva plc Annual Report and Accounts 2011 366 362

  • Page 364
    ...Long-term savings and insurance products sold in the UK other than 'With profits' (see definition below) products. OEIC An open ended investment company is a collective investment fund structured as a limited company in which investors can buy and sell shares. Pensions Critical illness cover pays...

  • Page 365
    ... review Aviva plc Annual Report and Accounts 2011 Glossary continued Product definitions cont. 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 listing to disclose, in relation to the UK...

  • Page 366
    ... of in-force long-term business, and excluding the surplus held in the Group's life funds. The Group solvency calculation is determined according to the UK Financial Services Authority application of EU Insurance Groups Directive rules. Financial options and guarantees Present value of new regular...

  • Page 367
    365 Performance review Aviva plc Annual Report and Accounts 2011 Glossary continued Market Consistent Embedded Value (MCEV) terms cont. Implicit items Risk-free rate (reference rate in CFO Forum terminology) Corporate responsibility The risk-free rate is taken as swaps except for all contracts ...

  • Page 368
    ... Annual General Meeting Announcement of first quarter Interim Management Statement Announcement of unaudited half-year results Announcement of third quarter Interim Management Statement 3 May 2012 17 May 2012 9 August 2012 8 November 2012 2011 final dividend dates - ordinary shares Ex-dividend date...

  • Page 369
    ..., Group Company Secretary, St Helen's, 1 Undershaft, London EC3P 3DQ By telephone: +44 (0)20 7283 2000 Financial statements MCEV By email: [email protected] Form 20-F Aviva is a foreign private issuer in the United States of America and is subject to certain reporting requirements...

  • Page 370
    ... plc Annual Report and Accounts 2011 Shareholder services continued Useful links for shareholders Aviva shareholder services centre www.aviva.com/shareholderservices ADR holders www.aviva.com/adr Aviva preference shareholders www.aviva.com/preferenceshares Dividend information for ordinary shares...

  • Page 371
    ...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 (ECF). This document was printed by Butler Tanner and Dennis who are FSC, and...

  • Page 372
    ... insure rs, but also and most importantly as human be ings who we re the re to he lp the m." Gaë l R oux Gaël Roux When Hurricane Xynthia cut a swathe of destruction across west France, in its wake came Aviva adviser Gaël Roux, ready to help. He arranged advance payments so that Aviva customers...