Aviva plc FY19 results - part 1 of 5

RNS Number : 0681F

Aviva PLC

05 March 2020

 

Start part 1 of 5

News Release

5 March 2020

AVIVA PLC 2019 PRELIMINARY RESULTS ANNOUNCEMENT

Maurice Tulloch, Chief Executive Officer, said:

In 2019, we set out our priorities and financial targets, strengthened our leadership team and remained focused on helping our customers prepare for a better future. We've made good progress, but there is much more to do.

Our return on equity was 14.3% and operating profit increased 6% to a record £3.2 billion. Our capital position remains strong and resilient at a 206% Solvency cover ratio. The Board has increased the full year dividend by 3% to 30.9 pence per share.

Customers are choosing Aviva to help them save for their future, draw a secure income in retirement and insure what matters most to them. In 2019, we increased customer numbers by 2% to 33.4 million, and improved customer satisfaction levels.

In general insurance, sales are up 2% and the outlook is positive in the majority of our markets. In our major life businesses, we have increased customer net inflows and grown assets by 9% to £417 billion. Aviva Investors secured third party net inflows of £2.3 billion on the back of strong investment performance.

My objective is to run Aviva better. We will improve business performance and enhance returns through disciplined action on expenses and underwriting. We will focus capital and resources where we can achieve competitive advantage and strong returns and we will take robust action across the portfolio where our performance falls short or where we can see a better way of delivering value to our shareholders.

Economic returns	· Solvency II return on equity1,2, ‡ 14.3% (2018: 12.5%) · Own funds generation1,2 £2.3 billion (2018: £2.0 billion) · Operating capital generation2,‡# £2.3 billion (2018: £3.2 billion)
Profit	· Operating profit3,‡# up 6% to £3,184 million (2018: £3,004 million5) · Operating EPS3,4,‡# up 8% to 60.5 pence (2018: 56.2 pence5) · IFRS profit before tax £3,374 million (2018: £2,129 million) · Basic EPS 63.8 pence (2018: 38.2 pence)
Dividend	· Final dividend per share 21.40 pence · Total 2019 dividend per share 30.9 pence (2018: 30.0 pence)
Capital & Cash	· Solvency II capital surplus2 £12.6 billion (2018: £12.0 billion) · Solvency II cover ratio2,‡# 206% (2018: 204%) · Solvency II net asset value2 per share 423 pence (2018: 392 pence) · Cash remittances‡# £2.6 billion (2018: £3.1 billion) · Centre liquidity6 £2.4 billion (2018: £1.6 billion) · Debt leverage ratio‡ 31% (2018: 33%) · IFRS net asset value per share 434 pence (2018: 424 pence)
Performance	· Life PVNBP up 12% to £45.7 billion (2018: £40.8 billion) · Value of new business (VNB)‡ up 2% to £1,224 million (2018: £1,202 million) · General insurance net written premiums (NWP) up 2% to £9.3 billion (2018: £9.1 billion) · General insurance combined operating ratio (COR)‡ 97.5% (2018: 97.2%5) · Controllable costs‡ £3,939 million (2018: £3,968 million) · Achieved savings £72 million7, before programme implementation and IFRS 17 costs of £59 million

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  Includes Group centre, debt costs and other items not allocated to the markets.

2  The estimated Solvency II position represents the shareholder view only. See section 3 of the Overview for more details.

3  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

4  This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

5  During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, operating expenses and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%, an increase in prior period operating expenses of £112 million and a reduction in prior period operating earnings per share of 2.2 pence.

6  Stated as at end February.

7  Constant currency.

Key financial metrics

Profit

	2019 £m	Restated1  2018 £m	Sterling % change
Operating profit2,‡#	3,184	3,004	6%
Operating earnings per share2,3‡#	60.5p	56.2p	8%
IFRS profit before tax attributable to shareholders	3,374	2,129	58%
Basic earnings per share	63.8p	38.2p	67%

Capital Position

	31 December 2019	31 December 2018	Change
Estimated shareholder Solvency II cover ratio4,‡#	206%	204%	2pp
Estimated Solvency II surplus4	£12.6bn	£12.0bn	5%
Solvency II net asset value per share	423p	392p	8%
Solvency II debt leverage‡	31%	33%	(2)pp

Dividend

	2019	2018	Sterling % change
Final dividend per share	21.40p	20.75p	3%
Total dividend per share	30.90p	30.00p	3%

Solvency II basis: Operating capital generation (OCG)^‡# and Cash remittances^‡#

	Solvency II Operating capital generation					Cash remittances
	2019 £m	2018 £m	Sterling % change	2019 £m	2018 £m	Change
Group	2,259	3,198	(29)%	2,597	3,137	(17)%

Solvency II basis: Operating own funds generation and Return on capital/equity^#

	Solvency II Operating own funds generation					Solvency II Return on capital/equity
	2019 £m	2018 £m	Sterling % change	2019 %	2018  %	Change
UK Life and Investments, Savings & Retirement	1,314	1,663	(21)%	9.5%	11.3%	(1.8)pp
General Insurance	628	532	18%	14.0%	11.7%	2.3pp
Europe Life	574	384	50%	10.3%	6.9%	3.4pp
Asia Life	187	144	30%	12.7%	9.7%	3.0pp
Group5	2,257	2,022	12%	14.3%	12.5%	1.8pp

Expenses

	2019 £m	Restated4   2018 £m	Sterling % change
Operating expenses#	4,119	4,138	-
Controllable costs‡	3,939	3,968	(1)%

Value of new business: Adjusted Solvency II basis (VNB)^‡ and Present value of new business premiums (PVNBP)

			VNB			PVNBP
	2019  m	2018 £m	Sterling % change	2019 £m	2018 £m	Sterling % change
UK Life	592	481	23%	27,570	23,946	15%
Europe Life	414	517	(20)%	13,772	12,641	9%
Asia Life	206	189	9%	3,057	2,656	15%
Other	12	15	(19)%	1,266	1,520	(17)%
Total	1,224	1,202	2%	45,665	40,763	12%

General insurance combined operating ratio (COR)^‡  and Net written premiums (NWP)

	COR			NWP
	2019	Restated1   2018	Change	2019	2018	Change
United Kingdom	97.9%	94.6%	3.3pp	4,218	4,193	1%
Canada	97.8%	103.1%	(5.3)pp	3,061	2,928	5%
Europe	95.7%	93.5%	2.2pp	2,017	1,985	2%
Group6	97.5%	97.2%	0.3pp	9,309	9,114	2%

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1   During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, operating expenses and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%, an increase in prior period operating expenses of £112 million and a reduction in prior period operating earnings per share of 2.2 pence.

2  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

3  This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

4  The estimated Solvency II position represents the shareholder view only. See section 3 of the Overview for more details.

5  Includes Group centre, debt costs and other items not allocated to the markets.

6  Group includes Asia & Other net written premiums of £13 million (2018: £8 million).

Chief Executive Officer's report

Overview	Aviva made important changes to its business and leadership in 2019 and began to build operating momentum. This is reflected in our improved results, which included: · Solvency II return on equity1,2, ‡ of 14.3% (2018: 12.5%); · Growth in Solvency II net asset value2 per share, up 31 pence to 423 pence (2018: 392 pence); · Increased Solvency II capital surplus2 and Solvency II shareholder cover ratio2,‡ at £12.6 billion and 206% respectively (2018: £12.0 billion and 204% respectively); · Group adjusted operating profit3,‡# up 6% to £3,184 million (2018: £3,004 million4); and · Strong growth in operating earnings per share3,5,‡#, up 8% to 60.5 pence (2018: 56.2 pence4). The Board of Directors has declared a final dividend of 21.40 pence per share (2018: 20.75 pence). This results in a full year dividend for 2019 of 30.9 pence per share (2018: 30.0 pence), an increase of 3%. Aviva has many positive attributes: high quality businesses, skilled and dedicated staff, a leading focus on sustainability and ESG and a large, loyal base of customers and intermediary partners. Our brand resonates with our customers and partners due to our track record of helping people to manage life's uncertainties by saving for the future, drawing a secure income in retirement and insuring what matters most to them. My goal is for Aviva's portfolio of businesses to be best in class. We will achieve this through a relentless focus on the customer and commercial rigour as we execute our business plans and we will reallocate capital to maximise performance. In short, we will run Aviva better. In 2019, our customer numbers were up 2% to 33.4 million and we improved growth in premiums and managed assets. There is much more to do, simplifying our business, reducing costs and navigating competitive markets to make Aviva a stronger, simpler and better company. COVID-19 presents a new uncertainty in 2020. Our primary focus is the operational readiness and safety for our customers and staff, such that we continue to deliver on our promises. Our scale, diversity and the strength of our balance sheet allows us to meet short-term challenges.
Structure, leadership and culture	In 2019, we made a number of changes to optimise our organisational structure and leadership. These changes were necessary to simplify our ways of working, improve operational efficiency and resilience. We now have greater focus, commercial rigour and accountability throughout the organisation. In the UK, we separated management of our life and general insurance businesses, and our digital operations have been integrated back into the businesses to improve efficiency and customer delivery. Globally, we have reorganised our portfolio of major markets and strategic investments into five divisions with clear alignment of business model. Our objective is to compete and win in our markets by providing great customer outcomes and excelling at the fundamentals. Aviva's leadership team has been strengthened and we have assembled a diverse and talented leadership group with proven success within their respective fields. With a mixture of internal promotions and external hires, my new team brings the expertise, ambition and focus required to grow our business profitably. The new team will help shape our culture, which remains focused on providing the highest standard of service and value for customers, maintaining leadership on environmental and social issues, while at the same time fostering greater commerciality, efficiency and accountability.
Progress against financial targets	At our capital markets day in November 2019, I outlined five key financial objectives that Aviva is targeting for 2022. Delivering these targets will provide a material enhancement in business performance and reinforce the sustainability of our progressive dividend policy and medium-term growth ambitions. In 2019, we made a strong start in pursuit of these objectives and we are on track to achieve our targets: Return on equity1,2, ‡ (RoE) - 2022 target of 12%: Aviva's RoE was 14.3% in 2019, benefiting from favourable assumption changes. Meeting our 2022 ambition of a sustainable 12% RoE will require improved underlying returns that will be achieved through cost reductions, organic business growth and active capital allocation to higher returning segments. Operating capital generation2,‡# (OCG) - targeting £7.5 billion in 2019-22 inclusive: In 2019, group OCG totalled £2.3 billion, representing approximately 30% of our four-year target.

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  Includes Group centre, debt costs and other items not allocated to the markets.

2  The estimated Solvency II position represents the shareholder view only. See section 3 of the Overview for more details.

3  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

4  During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, operating expenses and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%, an increase in prior period operating expenses of
£112 million and a reduction in prior period operating earnings per share of 2.2 pence.

5  This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

Chief Executive Officer's report continued

Progress against financial targets (continued)	Cash inflows‡ to centre - targeting £8.5 billion to £9.0 billion in 2019-22 inclusive: Cash remittances‡# were £2.6 billion in 2019, representing approximately 30% of our four-year target. Debt reduction - targeting £1.5 billion reduction in debt by 2022: In 2019, we repaid £0.2 billion of subordinated debt, which was the total amount maturing during the year. With debt maturities of £2.7 billion in the next three years and continued strength in centre liquidity levels and cash generation, we expect to achieve our target, resulting in lower debt leverage‡ and declining interest expense. Operating expenses - targeting £300 million reduction in controllable costs‡ by 2022: Controllable costs were £3,939 million in 2019 (2018: 3,968 million). Within this, we achieved net savings of £72 million1 and incurred implementation costs of £59 million. We anticipate £150 million of savings (pre implementation costs) in our 2020 results, compared with our 2018 baseline.
Deliver great customer outcomes	At Aviva, delivering great customer outcomes is one of our strategic priorities. In 2019, our performance demonstrates that customers continue to choose Aviva to meet their savings, retirement and insurance needs. Across the Group, we have increased premium volumes and customer fund inflows. We have made further progress in service quality, with positive trends in net promoter scores, customer retention and resolving customer complaints. Our response to natural catastrophes such as the recent storms in the UK showed Aviva at its best. Weprovided support to several thousandcustomers, responding quickly by helping fix damaged properties and using the latest technology to settle claims. We also identified vulnerable customers and worked with our network of suppliers to ensure these claims were given priority. Natural catastrophes are happening with increased frequency around the world and sustainability is now a key focus for governments, corporates and the wider community. For many years, Aviva has been at the forefront of efforts to combat climate change. The products and services we provide are crucial in helping customers to prepare for, and respond to the challenges that a changing climate brings. We are also a leader in ESG, whether actively investing our customers' savings, or managing their retirement income. Aviva has been carbon neutral since 2006, is a signatory to the UN sustainable development goals and is committed to being a net zero asset owner by 2050. ESG matters to our customers, and it matters to Aviva.
Excel at the fundamentals	We aim to excel at the fundamentals and our 2019 results show the progress we have made in running Aviva better. In UK Life, we increased sales across our product suite. In annuities & equity release, our capability in longevity data analytics, asset origination and transaction structuring enabled us to grow new business volumes by 29% to £6.2 billion (2018: £4.8 billion). We delivered strong growth in bulk annuity sales, which included the first tranche (£1.7 billion) from Aviva's own staff pension scheme. In protection, 2019 was more challenging. Whilst new business volumes increased 4% to £1.9 billion (2018: £1.8 billion), adverse experience and higher reinsurance costs contributed to a reduction in profitability. We responded to these challenges by increasing sophistication of our pricing, underwriting and customer segmentation models. Across UK Savings & Retirement and Aviva Investors, we improved customer net inflows despite the uncertain backdrop weighing on investor sentiment. UK Savings and Retirement net inflows were £7.5 billion (2018: 6.8 billion) as we maintained our leading position in workplace pensions, winning significant new mandates and delivering strong client retention. We also continued to build momentum and increase share in the platform market. In asset management, investment performance has strengthened, with 84% of Aviva Investors' funds beating benchmark over a twelve month time horizon, while third-party net inflows2 rose to positive £2.3 billion (2018: negative £0.1 billion). Although 2019 was a challenging year for profitability at Aviva Investors, with a lower opening asset position and reduced asset origination weighing on results, the significant improvement in investment performance and flows are a step in the right direction.

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  Constant currency.

2  This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

Chief Executive Officer's report continued

Excel at the fundamentals (continued)

In general insurance, net written premiums (NWP) increased 2% to £9.3 billion (2018: £9.1 billion). We have continued to gradually and deliberately shift our business mix, with NWP from commercial customers rising 7% in the UK and 17% in Canada. Our focus on providing superior service to customers and intermediaries in the SME and mid-market has supported growth in new client acquisition and attractive retention. Our general insurance combined operating ratio (COR) increased to 97.5% (2018: 97.2%1) though this included an additional £113 million of costs allocated to the general insurance business as a result of the realignment of our digital operations. Excluding the 1.2 percentage point impact from these costs, our COR would have been 96.3%. The key driver of improvement was Canada, where we successfully responded to challenges in the auto insurance market, resulting in a 5.3 percentage point improvement in COR to 97.8% (2018: 103.1%1). Our life businesses in Europe and Asia also expanded their customer franchises in 2019, with new business volumes up 9% and 15% respectively and European net fund inflows3 remaining robust at £4.5 billion (2018: £4.2 billion). In France, in the face of significantly lower interest rates, we increased unit-linked new business volumes 46% through targeted campaigns and active engagement with our distribution partners. In Poland, we successfully launched a new protection product in the direct market and made a strong start in auto-enrolment, winning nearly 400 new corporate pension schemes covering more than 70,000 employees. In Singapore, we continued to invest in our leading financial advisor network, which provides customers with high levels of service and a wider array of product and provider choice compared with the traditional agency model. An important element of our programme to run Aviva better is improving our efficiency. In June, we announced plans to reduce our controllable cost‡ base by £300 million per annum, net of inflation. This requires gross (pre-inflation) savings of approximately £500 million relative to our 2018 expense baseline of £4 billion. We have made good progress so far, achieving savings of £72 million in 2019 and laying the groundwork necessary to increase savings to approximately £150 million in 2020.

Invest in sustainable growth

There is no shortage of ambition at Aviva and we have continued to invest in sustainable growth. This investment has been both direct, through deploying capital to write new business, and indirect, to improve the quality and cost effectiveness of our customer propositions and further enhance our data and risk management capability. In November, we announced plans for Aviva Investors and our UK savings businesses to form a combined business segment called Investments, Savings & Retirement (IS&R). Under the leadership of Euan Munro, IS&R will bring together Aviva's global asset management capabilities with Aviva's leading UK workplace pension and platform operations. In addition to the growth potential of each business, their alignment enables Aviva to provide customers with unique, comprehensive solutions from accumulation of pension wealth through to drawing a secure income in retirement. The combination of an ageing society and increased private provision for retirement make this an attractive long-term growth opportunity. The £7.5 billion of net in‑flows2 in savings and retirement and £2.3 billion of third party net inflows in Aviva Investors demonstrates that Aviva has the capability and the customer franchise to capture this growth opportunity. We continue to invest in digital and technology. The integration of our digital activities into our business units will facilitate expense savings as we scale back or stop some activities which are either duplicated or judged not to offer future economic returns. However, we are also aiming to improve the connectivity and co-ordination of digital with our core customer facing businesses. As a result, we are continuing to invest across the group in initiatives that reduce run costs, enhance IT resilience and ensure that our businesses are able to offer service to our customers and distribution partners that is fast, fair and efficient.

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, operating expenses and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in a reduction in prior period COR of 0.6%, an increase in prior period operating expenses of
£112 million and a reduction in prior period operating earnings per share of 2.2 pence.

2  This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

Chief Executive Officer's report continued

Looking ahead

Aviva has made important structural changes and achieved good progress in pursuing our first goal of operational improvement. Our 2019 results showed evidence of our potential, with improved momentum on customer flows, assets and premiums, and a good start on delivering our financial targets. My objective remains to run Aviva better. We will improve business performance, enhancing returns through disciplined execution on expenses and underwriting. We will focus capital and resources where we can achieve competitive advantage and strong returns. We will take robust action across the portfolio where our performance falls short or where we can see a better way of delivering value to our shareholders. Our foundations are strong and we have the necessary ingredients to succeed. Our franchises are well regarded by customers and partners, our capital position and risk management capabilities provide a secure footing. We have a team of talented colleagues across the group who are passionate about building a better tomorrow for our customers and providing attractive returns for our shareholders.

Maurice Tulloch

CEO

Chief Financial Officer's report

Overview

In 2019, the external environment provided both positives and challenges. Economic growth was subdued across most developed economies and government bond yields fell sharply in the second half of the year, moving into negative territory in a number of European countries. However, equity markets rebounded and were supportive for asset values. The political backdrop remained a source of uncertainty, particularly in the UK, where the December general election weighed on confidence and activity across the economy. Aviva is designed to perform whatever the external environment and made good operational progress in 2019, delivering increases in customer activity levels and profitability across our businesses. Group adjusted operating profit1,‡# increased 6% to £3,184 million (2018: £3,004 million2) while Solvency II return on equity3,4,‡ was 14.3% (2018: 12.5%), continuing to benefit from favourable assumption changes. We also further strengthened our financial position. Our Solvency II capital surplus4 rose to £12.6 billion (2018: 12.0 billion), with an increase in the cover ratio4,‡# to 206% (2018: 204%). As planned, we reduced debt by £0.2 billion in 2019, leading to a reduction in our leverage ratio‡ to 31% (2018: 33%). Cash remittances‡# of £2.6 billion (2018: £3.1 billion) were again very strong. At the end of February 2020, our centre liquidity was £2.4 billion (February 2019: £1.6 billion). Reflecting our operational momentum and strong financial fundamentals, the Board of Directors has declared a final dividend of 21.40 pence per share, resulting in a 3% increase in the full year dividend per share to 30.9 pence (2018: 30.0 pence).

Economic returns

At our capital markets day in November 2019, we outlined our intention to increase Aviva's focus on economic performance in our financial communication. This reflects the importance of economic metrics in how we manage the business: the allocation of capital and other resources across the Group and the trading decisions we make each day. Economic returns ultimately support a sustainable dividend and our ability to invest to grow the company. In 2019, Aviva generated equity own funds3,4 of £2.3 billion (2018: £2.0 billion) resulting in RoE3,4,‡ of 14.3% (2018: 12.5%). Operating capital generation (OCG)4,‡# was £2.3 billion (2018: £3.2 billion). Our economic results continued to benefit from significant levels of longevity reserve reductions in our UK Life business, active balance sheet management and other modelling and assumption changes. As a result, net management actions added 6.2% to the Group return on equity (2018: 3.2%) and £0.8 billion to OCG (2018: 1.7 billion). In 2018, OCG also benefited from a number of actions such as model changes that reduced our solvency capital requirement (SCR). We remain prudently reserved for life expectancy in our UK annuity portfolio, although in light of recent trends witnessed in 2019, we expect longevity reserve releases to be materially lower in future periods. As a result, while management actions are expected to make a positive contribution to capital generation and RoE over time, we reaffirm our guidance that this is likely to be at a much lower level than has been the case in 2018 and 2019. On an underlying basis (excluding net management actions), return on equity was 8.1% (2018: 9.3%) and OCG was £1.4 billion (2018: £1.5 billion). Our results benefited from improved returns in general insurance, particularly from Canada, and a reduction in debt interest and corporate centre expenditure. However, this was offset by lower returns from our life businesses which were affected by the loss of temporary transitionals on new business, experience variances in the UK, and lower new business profitability in Europe due to record low interest rates. To achieve our 12% RoE target in 2022, an increase in underlying economic returns is planned. This improvement will include lower costs, improved operating experience, higher new business profitability and prioritisation of capital to product and business segments offering superior returns.

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

2  During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, operating expenses and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%, an increase in prior period operating expenses of
£112 million and a reduction in prior period operating earnings per share of 2.2 pence.

3  Includes Group centre, debt costs and other items not allocated to the markets.

4  The estimated Solvency II position represents the shareholder view only. See section 3 of the Overview for more details.

Chief Financial Officer's report continued

Business performance review

Our operational progress in 2019 was reflected in improved IFRS results. Group adjusted operating profit1,‡# increased 6% to £3,184 million (2018: £3,004 million2), which in turn gave rise to 8% growth in operating earnings per share1,3,‡# to 60.5 pence (2018: 56.2 pence2). IFRS profit before tax increased to £3,374 million (2018: 2,129 million) helped by positive investment variances, and this led to basic EPS of 63.8 pence (2018: 38.2 pence). In UK Life and Investments, Savings & Retirement, own funds generation4 was £1,314 million (2018: 1,663 million), giving rise to return on capital4,‡ of 9.5% (2018: 11.3%). The reduction in results was due to the loss of transitional benefits on new business, adverse experience variances related to persistency, expenses and challenges in the protection market, and lower operating profit from Aviva Investors where revenues were impacted by lower opening assets under management in higher margin propositions and divestment of our European indirect real estate business in 2018. Positive assumption changes related to longevity reserves of approximately £0.8 billion were partially offset by a £175 million provision in relation to a heritage pension product where certain pension policyholders may not have been adequately informed of switching options available to them. While financial results were lower in 2019, we achieved higher sales and customer net inflows5 across our life and savings businesses. This underpinned asset growth of 19% in long-term savings to £138 billion (2018: £116 billion), 9% in annuities & equity release to £67 billion (2018: £62 billion) and 5% in Aviva Investors to £346 billion (2018: 331 billion), supporting a positive outlook for future financial results in our UK Life and Savings segments. General Insurance results improved in 2019, with own funds generation increasing to £628 million (2018: 532 million) and return on capital of 14.0% (2018: 11.7%). The improvement in results was principally driven by a recovery in profitability in Canada where pricing and underwriting actions we took in response to industry-wide challenges in the auto insurance market helped drive a 5.3 percentage point improvement in the combined operating ratio (COR)‡ to 97.8% (2018: 103.1%2). We are continuing to aim for a 96% or better COR in Canada in 2020. In the UK, reported COR in 2019 has been affected by higher costs following its incorporation of UK Digital during the year. Adjusting for these changes, our UK COR was up 0.6 percentage points to 97.9%, with solid results in commercial lines offset by weaker performance in personal lines. In Europe we maintained attractive profitability with a COR of 95.7% (2018: 93.5%2) despite adverse large loss experience. Weather had a favourable impact on our COR of 1.0 percentage point relative to long-term average (2018: 0.1% unfavourable) while prior year reserve development (PYD) had a favourable 1.7% impact (2018: 2.3% favourable). In Europe Life, we have balanced long-term franchise value with the requirement to actively manage the current environment of very low, and in some cases, negative government bond yields. Own funds generation increased to £574 million (2018: £384 million) and included assumption changes of £181 million spread across our France, Italy and Ireland businesses. This in turn gave rise to an improvement in return on capital to 10.3% (2018: 6.9%). New business volumes (PVNBP) rose 9% to £13.8 billion (2018: 12.6 billion) demonstrating the strength of our distribution networks and customer appetite for our products. Strong volume growth was achieved in France (+32%) and Poland (+28%). However, the own funds contribution from new business declined to £167 million (2018: £253 million) due to low yields. We will continue to address the challenges from low yields through proactive balance sheet management and a constructive approach to distribution and product mix management. In Asia Life, own funds generation increased 30% to £187 million (2018: £144 million) and return on capital rose to 12.7% (2018: 9.7%). Our businesses in Asia have continued to grow profitably in our larger markets while successfully narrowing losses elsewhere. New business volumes from our continuing operations in Asia increased 22% to £2.7 billion (2018: £2.2 billion) with double digit growth achieved in Singapore and China. This gave rise to VNB in Asia of £210 million (2018: £194 million), representing growth of 9%. Corporate centre costs reduced to £183 million (2018: £216 million) as we commenced initiatives aimed at streamlining our head office and reducing project spending, while debt interest expense fell to £255 million (2018: £280 million). The loss from other operations narrowed to £26 million (2018: £212 million loss) primarily as a result of digital and other costs being realigned to our business units. Total operating expenses were £4,119 million (2018: £4,138 million) with reductions in controllable costs‡ partly offset by an increase in levies and premium taxes to £180 million (2018: £170 million). Controllable costs fell to £3,939 million (2018: £3,968 million). Savings of £72 million1 were mainly derived from our lean group centre initiative and reduced project spend, although we reinvested some of these savings in other areas including IT modernisation and proposition development. Implementation costs associated with the cost reduction programme and our spend on IFRS 17 was £59 million

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

2  During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of £112 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, operating expenses and operating earnings per share have also been restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts have been restated resulting in an increase in prior period COR of 0.6%, an increase in prior period operating expenses of £112 million and a reduction in prior period operating earnings per share of 2.2 pence.

3  This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

4  The estimated Solvency II position represents the shareholder view only. See section 3 of the Overview for more details.

5  This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

Chief Financial Officer's report continued

Capital & liquidity	At the end of 2019, our Solvency II surplus2 was £12.6 billion (2018: £12.0 billion), giving rise to cover ratio2,‡# of 206% (2018: 204%). All of our principal operating entities are well capitalised and operating within their respective normal working ranges. In France, we added approximately 70 percentage points of solvency cover in the second half of 2019, including a 20 percentage point benefit from PPE5, following changes to regulations. This, combined with our active management of capital, including the purchase of interest rate and other hedges, gives us headroom to manage volatility from falling bond yields. Solvency II net asset value (NAV)2 per share rose 31 pence to 423 pence (2018: 392 pence). During 2019, we redeemed £0.2 billion of hybrid capital as part of our overall £1.5 billion debt reduction target. Together with the increase in Solvency II own funds2,3, this has led to a reduction in our leverage ratio‡ to 31% (2018: 33%). Cash remittances‡# were once more very strong in 2019 at £2.6 billion (2018: £3.1 billion). This represents approximately 30% of our four-year target for cash inflows to centre (of £8.5-£9.0 billion), underpinning our confidence in meeting this objective. At the end of February 2020, centre liquidity was £2.4 billion (February 2019: £1.6 billion).
Dividend	Aviva has a progressive dividend policy, which means we aim to maintain or grow the dividend. In light of our 2019 performance and the continued strength of our capital and liquidity, the Board has declared a final dividend of 21.40 pence per share (2018: 20.75 pence), bringing the full year dividend for 2019 to 30.9 pence (2018: 30.0 pence).
Looking ahead	As CFO of Aviva, my focus is on growing value of the company safely, by increasing sustainable return on equity2,3,‡, improving growth and avoiding volatility through prudent and proactive financial management. Our 2019 results show we are on the right path and I envisage significant upside in performance and value from delivering further progress. So far 2020 has brought significant uncertainty, compounded by COVID-19, in relation to macro trends including the level of interest rates, investment market volatility and foreign exchange. However, we have a strong and resilient balance sheet that is designed to withstand volatility. In the last three years, operating profit4,‡# and OCG2,‡# have benefited from large assumption changes and other actions, most notably a reduction of longevity reserves. We expect our results to benefit from some similar actions over the medium term, but from 2020, we expect this to be in a range of zero to £200 million per annum for IFRS and c.£200 million per annum for OCG, as we highlighted at our capital markets day in November. We have set out our targets to improve returns, reduce debt leverage and enhance sustainable capital generation while continuing to invest wisely to grow the company. We are committed to achieving these targets, and furthermore, we expect to make progress in 2020, with an increase in underlying OCG.

Jason Windsor

Chief Financial Officer

‡ Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1  Constant currency.

2  The estimated Solvency II position represents the shareholder view only. See section 3 of the Overview for more details.

3  Includes Group centre, debt costs and other items not allocated to the markets.

4  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

5  Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excedents (PPE) into Solvency II own funds. The PPE has been included in the France local regulatory own funds in 2019 but it is not included in the Group regulatory own funds.

Notes to editors

Notes to editors

All comparators are for the full year 2018 position unless otherwise stated.

Income and expenses of foreign entities are translated at average exchange rates while their assets and liabilities are translated at the closing rates on 31 December 2019. The average rates employed in this announcement are 1 euro = £0.88 (2018: 1 euro = £0.88) and CAD$1 = £0.59 (2018: CAD$1 = £0.58).

Growth rates in the press release have been provided in sterling terms unless stated otherwise. The following supplement presents this information on both a sterling and constant currency basis.

Cautionary statements:

This should be read in conjunction with the documents distributed by Aviva plc (the "Company" or "Aviva") through the Regulatory News Service (RNS). This announcement contains, and we may make other verbal or written "forward-looking statements" with respect to certain of Aviva's plans and current goals and expectations relating to future financial condition, performance, results, strategic initiatives and objectives. Statements containing the words "believes", "intends", "expects", "projects", "plans", "will," "seeks", "aims", "may", "could", "outlook", "likely", "target", "goal", "guidance", "trends", "future", "estimates", "potential" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. Aviva believes factors that could cause actual results to differ materially from those indicated in forward-looking statements in the announcement include, but are not limited to: the impact of ongoing difficult conditions in the global financial markets and the economy generally; the impact of simplifying our operating structure and activities; the impact of various local and international political, regulatory and economic conditions; market developments and government actions (including those arising from the outcome of the negotiations on the future economic relationship between the UK and the EU); the effect of credit spread volatility on the net unrealised value of the investment portfolio; the effect of losses due to defaults by counterparties, including potential sovereign debt defaults or restructurings, on the value of our investments; changes in interest rates that may cause policyholders to surrender their contracts, reduce the value of our portfolio and impact our asset and liability matching; the impact of changes in short or long-term inflation; the impact of changes in equity or property prices on our investment portfolio; fluctuations in currency exchange rates; the effect of market fluctuations on the value of options and guarantees embedded in some of our life insurance products and the value of the assets backing their reserves; the amount of allowances and impairments taken on our investments; the effect of adverse capital and credit market conditions on our ability to meet liquidity needs and our access to capital; changes in, or restrictions on, our ability to initiate capital management initiatives; changes in or inaccuracy of assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical downturn of the insurance industry; the impact of natural and man-made catastrophic events (including the impact of COVID-19) on our business activities and results of operations; our reliance on information and technology and third-party service providers for our operations and systems; the inability of reinsurers to meet obligations or unavailability of reinsurance coverage; increased competition in the UK and in other countries where we have significant operations; the impact of actual experience differing from estimates used in valuing and amortising deferred acquisition costs ("DAC") and acquired value of in-force business ("AVIF"); the impact of recognising an impairment of our goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment securities; the effect of legal proceedings and regulatory investigations; the impact of operational risks, including inadequate or failed internal and external processes, systems and human error or from external events (including cyber attack); risks associated with arrangements with third parties, including joint ventures; our reliance on third-party distribution channels to deliver our products; funding risks associated with our participation in defined benefit staff pension schemes; the failure to attract or retain the necessary key personnel; the effect of systems errors or regulatory changes on the calculation of unit prices or deduction of charges for our unit-linked products that may require retrospective compensation to our customers; the effect of fluctuations in share price as a result of general market conditions or otherwise; the effect of simplifying our operating structure and activities; the effect of a decline in any of our ratings by rating agencies on our standing among customers, broker-dealers, agents, wholesalers and other distributors of our products and services; changes to our brand and reputation; changes in government regulations or tax laws in jurisdictions where we conduct business, including decreased demand for annuities in the UK due to changes in UK law; the inability to protect our intellectual property; the effect of undisclosed liabilities, integration issues and other risks associated with our acquisitions; and the timing/regulatory approval impact, integration risk and other uncertainties, such as non-realisation of expected benefits or diversion of management attention and other resources, relating to announced acquisitions and pending disposals and relating to future acquisitions, combinations or disposals within relevant industries; the policies, decisions and actions of government or regulatory authorities in the UK, the EU, the US or elsewhere, including the implementation of key legislation and regulation. For a more detailed description of these risks, uncertainties and other factors, please see 'Other information - Shareholder Information - Risks relating to our business' in Aviva's most recent Annual Report. Aviva undertakes no obligation to update the forward-looking statements in this announcement or any other forward-looking statements we may make. Forward-looking statements in this presentation are current only as of the date on which such statements are made.

Aviva plc is a company registered in England No. 2468686.

Registered office

St Helen's
1 Undershaft
London
EC3P 3DQ

Contacts
Investor contacts	Media contacts	Timings
Chris Esson [phone] Diane Michelberger [phone]	Andrew Reid [phone] Sarah Swailes [phone]	Presentation slides: 07:00 hrs GMT www.aviva.com Real time media conference call: 07:45 hrs & 11:00 GMT Analyst presentation: 0900 hrs GMT Live webcast: 0900hrs GMT https://www.aviva.com/

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