Aviva plc HY20 results - 1 of 4

RNS Number : 2935V

Aviva PLC

06 August 2020

 

START part 1 of 4

News Release

6 August 2020

AVIVA PLC 2020 INTERIM RESULTS ANNOUNCEMENT*

Amanda Blanc, Chief Executive Officer, said:

We will focus Aviva on our strongest businesses in the UK, Ireland and Canada and aim to be the UK's leading insurer. We are going to focus on those businesses where we have the necessary size, capability and brilliant customer service to generate superior shareholder returns. This is where we will invest and grow. Where we cannot meet our strategic objectives, we will take decisive action and we will withdraw capital.

We must transform our performance and improve our efficiency. This requires great customer service, stronger innovation and better use of our brand. Our transformation will be underpinned by continuing to manage our balance sheet prudently, reducing debt and increasing our financial resilience.

Aviva's financial performance in the first half of 2020 was solid. Our financial position is strong and operating profit of £1.2 billion was robust, thanks to our diverse range of products, excellent partners and our swift operational response to the COVID-19 pandemic. I am proud of the way our people have gone above and beyond to help our customers during this crisis.

The Board has declared a second interim dividend in respect of the 2019 financial year of 6 pence per share. While the Board continues to monitor the impact of COVID-19 and the economic outlook, we have decided to take the opportunity to review our longer term dividend policy, in light of our strategic priorities and the future shape of the group, with the objective of a sustainable pay-out and lower levels of debt. We will update shareholders on all dividend matters, including the 2019 final dividend in the fourth quarter.

I have been CEO for one month and I am confident we have many of the ingredients to make Aviva a winner. From this moment on, we must deliver. Nothing else will do. My focus is making sure it happens and at pace .

Economic returns	· Operating capital generation‡# £890 million (HY19: £780 million) · Solvency II return on equity1,‡ 7.1% (HY19: 11.0%) · Own funds generation1 £632 million (HY19: £864 million)
Profit	· Operating profit2,3,‡# £1,225 million (HY19: £1,386 million) · Operating EPS2,3,4,‡# 23.4 pence (HY19: 26.1 pence) · IFRS profit before tax attributable to shareholders £1,076 million (HY19 £1,523 million) · Basic EPS 20.0 pence (HY19: 28.2 pence)
Dividend	· Second interim dividend in respect of 2019 of 6 pence per share
Capital & Cash	· Solvency II capital surplus5 £12.0 billion (FY19: £12.6 billion) · Solvency II cover ratio5,‡# 194% (FY19: 206%) · Solvency II net asset value5 416 pence (FY19: 423 pence) · Cash remittances‡# £150 million (HY19: £1,582 million) · Centre liquidity6 £2.5 billion (February 2020: £2.4 billion) · Debt leverage ratio7,‡ 32% (FY19: 31%) · IFRS net asset value per share8 473 pence (FY19: 434 pence)
Performance	· Life PVNBP £21.2 billion (HY19: £21.3 billion) · Value of new business (VNB)‡ £601 million (HY19: £535 million) · General insurance net written premiums (NWP) £4,748 million (HY19: £4,725 million) · General insurance combined operating ratio (COR)3,‡ 99.8% (HY19: 96.8%) · General insurance net IFRS COVID-19 claims impact £165 million · Controllable costs3,9,‡ £1,912 million (HY19: £1,966 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  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  On 31 December 2019 the Group adjusted operating profit APM was 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 of the Analyst Pack). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in a reduction in the prior period Group adjusted operating profit of £62 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, controllable costs and operating earnings per share were also restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in an increase in prior period COR of 0.9%, an increase in prior period controllable costs of £62 million and a reduction in prior period operating earnings per share of 1.2 pence.

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

6  Stated as at end July.

7  Excluding the direct capital instrument, which was redeemed in full at first call date on 27 July 2020.

8  Number of shares as at 30 June 2020: 3,928 million (FY19: 3,921 million).

9  Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £41 million for the 6 month period ended 30 June 2019 and £83 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.

* This announcement contains inside information. The person responsible for making this announcement on behalf of the Group is Kirstine Cooper (Group Company Secretary).

Profit

	6 months 2020 £m	Restated1 6 months 2019 £m	Sterling % change	Full year 2019  m
Operating profit2,‡#	1,225	1,386	(12)%	3,184
Operating earnings per share2,3,‡#	23.4p	26.1p	(10)%	60.5p
IFRS profit before tax attributable to shareholders	1,076	1,523	(29)%	3,374
Basic earnings per share	20.0p	28.2p	(29)%	63.8p

Capital Position

	30 June 2020	31 December 2019	Change	30 June 2019
Estimated shareholder Solvency II cover ratio4,‡#	194%	206%	(12)pp	194%
Estimated Solvency II surplus4	£12.0bn	£12.6bn	(5)%	£11.8bn
Solvency II net asset value per share4	416p	423p	(2)%	407p
Solvency II debt leverage‡	33%	31%	2pp	33%

Dividend

			6 months 2020
Interim dividend per share			6.00p

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

	Solvency II Operating capital generation				Cash Remittances
	6 months 2020  m	6 months 2019 £m	Sterling % change	Full year 2019  m	6 months  2020  m	6 months 2019 £m	Sterling % change	Full year 2019 £m
Group	890	780	14%	2,259	150	1,582	(91)%	2,597

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

	Solvency II Operating own funds generation				Solvency II Return on capital/equity
	6 months 2020 £m	6 months 2019 £m	Sterling % change	Full year 2019 £m	6 months 2020   %	6 months 2019  %	Change	Full year 2019  %
UK Life and Investments, Savings & Retirement	356	449	(21)%	1,314	5.0%	6.5%	(1.5)pp	9.5%
General Insurance	194	298	(35)%	628	8.0%	13.3%	(5.3)pp	14.0%
Europe Life	217	304	(29)%	574	7.1%	11.0%	(3.9)pp	10.3%
Asia Life	97	76	28%	187	12.7%	10.4%	2.3pp	12.7%
Group5	632	864	(27)%	2,257	7.1%	11.0%	(3.9)pp	14.3%

Controllable costs^‡

	6 months 2020 £m	Restated1,6   6 months  2019  £m	Sterling % change	Restated6 Full year 2019  m
Controllable costs‡	1,912	1,966	(3)%	4,022

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

	VNB				PVNBP
	6 months 2020 £m	6 months 2019 £m	Sterling % change	Full Year 2019 £m	6 months 2020  m	6 months 2019 £m	Sterling % change	Full Year 2019  m
UK Life and Investments, Savings & Retirement	323	202	60%	604	14,386	12,416	16%	28,836
Europe Life	188	237	(21)%	414	5,425	7,398	(27)%	13,772
Asia Life	90	96	(6)%	206	1,403	1,477	(5)%	3,057
Total	601	535	12%	1,224	21,214	21,291	-	45,665

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

	COR				NWP
	6 months 2020 %	Restated1   6 months 2019 %	Change	Full year 2019 %	6 months  2020  m	6 months  2019 £m	Sterling % change	Full year 2019 £m
United Kingdom	106.3%	97.2%	9.1pp	97.9%	2,140	2,158	(1)%	4,218
Canada	95.5%	98.1%	(2.6)pp	97.8%	1,502	1,458	3%	3,061
Europe	92.6%	92.9%	(0.3)pp	95.7%	1,099	1,102	-	2,017
Group7	99.8%	96.8%	3.0pp	97.5%	4,748	4,725	-	9,309

‡ 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   On 31 December 2019 the Group adjusted operating profit APM was 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 of the Analyst Pack). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in a reduction in the prior period Group adjusted operating profit of £62 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, controllable costs and operating earnings per share were also restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in an increase in prior period COR of 0.9%, an increase in prior period controllable costs of £62 million and a reduction in prior period operating earnings per share of 1.2 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 Analyst Pack for more details.

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

6  Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £41 million for the 6 month period ended 30 June 2019 and £83 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.

7  Group includes Asia & Other net written premiums of £7 million (HY19: £7 million, 2019: £13 million).

Overview

COVID-19 has been a tragedy for public health and caused significant disruption to peoples' lives and the global economy. I am immensely proud of how our Aviva colleagues responded to the COVID-19 challenge. We moved quickly to expand our remote working capability enabling our colleagues on the front line to maintain strong levels of service for individual and commercial customers throughout the period of restricted movement. Aviva has also played a significant role in helping the community, contributing more than £40 million to support businesses and health services and providing significant additional relief and assistance to customers experiencing financial hardship.

Against this backdrop, Aviva's interim results demonstrate resilience, both in terms of financial strength and performance. This is no accident. Over recent years, Aviva has deliberately built up its financial strength and maintained a prudent and disciplined approach to trading across both underwriting and investing activities. Accordingly, while COVID-19 has weighed on our results, we maintained solid operating capital generation (OCG)^‡# and operating profit^‡#, and our solvency ratio^‡# and cash resources remain strong.

Notwithstanding COVID-19, it is imperative that Aviva focuses on unlocking value for our shareholders. For too long, this has proven elusive and meaningful change is required. I am focused on three key areas. First, focusing the portfolio on those businesses that are best positioned and have a right to win in their respective markets. Second, transforming our performance to position Aviva as a best-in-class provider across all our product segments for customers, distributors and shareholders. Third, maintaining and building further on our financial strength to provide resilience, sustainability and flexibility.

We have a long road ahead and much work to do. We will work at pace to deliver the change necessary for Aviva to fulfil its abundant potential.

Strategy

Meaningful change is required to unlock value at Aviva. That is what I will deliver, and to achieve this, I have three priorities.

1.  Focus the portfolio

Aviva will focus on those markets or products where we have a right to win, via scale, capability, brand or a compelling proposition for customers. For this reason, today I am announcing that our focus will be on building and extending our leadership in the UK, Ireland and Canada. In these markets, we will invest for growth. Our international businesses in Europe and Asia will be managed for long-term shareholder value. We will build on the good work our teams are doing to grow and optimise their businesses, but where we cannot meet our strategic objectives, we will be decisive and we will withdraw capital.

2.  Transform performance

Aviva has fantastic franchises and exceptional long-term relationships with customers and distributors, but these strengths must be translated into superior financial performance for our shareholders. As customer expectations and preferences change, delivering profitable growth will require us to transform customer experiences and provide excellent value for money. We have strong foundations, particularly in the UK where our TNPS and digital metrics are amongst the best in the industry, and increased even further during COVID-19. We must build on these foundations and go further in efficiency and performance management to ensure we are top quartile in both value and profitability.

3.  Financial strength

Financial strength, resilience and sustainability will be a critical underpin for our strategy and I am determined this will become a source of relative advantage for Aviva. We have maintained capital strength, built central liquidity and made good progress in reducing debt leverage in recent years. In conjunction with actions to focus the portfolio, our financial flexibility will increase. This will enable us to further strengthen our financial position and will give us optionality to invest in our businesses and provide returns to shareholders.

Next steps

The Board and management team have done a significant amount of work on strategy and it is now time for decisions and actions to be taken. I will work at pace and make the difficult choices necessary and will report back to shareholders as we make tangible progress.

Dividends

On the 8th of April 2020, Aviva announced the withdrawal of its final dividend for 2019 for ordinary shareholders. This decision was not taken lightly by the Board, which recognises the importance of the dividend to our shareholders. However, in view of the extreme uncertainty prevailing at the time, and clear regulatory guidance, the Board agreed that preserving capital and liquidity was in the best interest of long-term shareholder value.

The Board has regularly reviewed the impact of COVID-19 on our capital, liquidity, insurance claims, investment performance and outlook for the broader economy. While there is considerable uncertainty in the economic outlook that warrants continued attention, the Board notes operational and financial performance has been resilient and capital and liquidity remain strong, the latter also benefiting from completion of the sale of Friends Provident International Limited.

Accordingly, following its evaluation, the Board has declared a second interim dividend in respect of the 2019 financial year of 6 pence per share. This strikes a balance between paying income to our ordinary shareholders while continuing to preserve additional strength in our capital and liquidity positions.

While the Board continues to monitor the impact of COVID-19 and the economic outlook carefully and with appropriate prudence, we have decided to take the opportunity to review our longer term dividend policy, in light of our strategic priorities and the future shape of the group, with the objective of a sustainable pay-out and lower leverage. We will update shareholders on all dividend matters, including the 2019 final dividend in the fourth quarter.

Group financial headlines

Resilient performance

Our interim results clearly reflect the challenges COVID-19 has brought in terms of increased insurance claims, reduced customer activity levels, lower asset values and additional expenditure on operational readiness and risk management initiatives. However, the results also demonstrate some of the fundamental strengths of our businesses and our disciplined and effective response during what was a period of extreme uncertainty and disruption.

IFRS results

Operating profit^1,2,‡# was £1,225 million (HY19: £1,386 million) while basic earnings per share fell to 20.0 pence (HY19 28.2 pence). Excluding COVID-19 impacts on general insurance claims (£(165) million), operating profit was flat year on year, with strong results in UK annuities and the continued recovery in our Canadian results offset by higher weather claims across our general insurance businesses and additional expenditure related to community support initiatives.

Return on equity (RoE)^3,‡

RoE^3,‡ declined to 7.1% (HY19: 11.0%), due to a 1.8% adverse impact of COVID-19 and lower management actions, which contributed £53 million or 0.6% in the first half of 2020 (HY19: 3.9%). Looking through the COVID-19 impact, underlying RoE increased by 1.7% benefiting from strong new business growth in UK Life. This was partially offset by deliberately tempered sales in Europe in the low interest rate environment, challenging conditions for Aviva Investors and increased weather claims in general insurance.

Operating capital generation (OCG)^‡#

OCG^‡# increased to £890 million (HY19: £780 million). Underlying OCG fell to £534 million (HY19: £679 million), which included a £258 million negative impact from COVID-19 general insurance claims and associated increase in SCR. Total OCG benefited from £356 million of management actions (HY19: £101 million) including initiatives that reduced SCR such as de-risking, asset allocation and hedging actions taken in response to COVID-19, and planned changes to internal reinsurance arrangements.

Capital and cash

Solvency II capital

At 30 June 2020, Aviva's solvency surplus⁴ was £12.0 billion and cover ratio^4,‡# 194% (FY19: £12.6 billion and 206% respectively). Solvency II net asset value per share⁴ was 416 pence (2019: 423 pence). Operating capital generated (OCG)^‡# during the first half was more than offset by capital market movements primarily in relation to lower Government bond yields and widening of credit spreads on corporate bonds plus allowances for potential future credit rating migration in our corporate bond portfolio and reductions in future UK property values.

Corporate credit rating migration

Our corporate bond rating migration allowance includes a "full letter" rating downgrade for 10% of corporate bonds rated BBB and 5% of corporate bonds rated A or above. During the first half, we experienced no defaults, only 0.2% of the portfolio was downgraded below investment grade and c4% of the portfolio rated A or above had been downgraded to a lower letter. We will maintain the prudent allowance for rating migration in our capital position in the second half, during which we will revert to actual experience.

Commercial mortgage portfolio

In our commercial mortgage portfolio, asset quality fundamentals remain strong although as foreshadowed in our update on the 21^st of May, slight deterioration has been seen in some metrics. The average loan to value (LTV) ratio across the portfolio remains low at 59% (2019: 56%), loans in arrears were £95 million (2019: nil), equivalent to 1.25% of the portfolio, and the loan interest cover ratio is strong at 2.75x (2019: 2.90x).

Centre liquidity and cash remittances^‡#

At 31 July 2020, centre liquidity was £2.5 billion (February 2020: £2.4 billion). Cash remittances^‡# during the first half of 2020 were £150 million, significantly down on the prior year comparative of £1,582 million. We did not seek to remit cash from our local subsidiaries in the first half given the unprecedented economic and market uncertainty related to COVID-19 and in view of regulatory guidance. In July, we completed the sale of Friends Provident International Limited, receiving £0.2 billion of cash, as expected in our remittance targets.

Debt leverage^‡

In the first half, Aviva issued £500 million of tier 2 subordinated debt and in July we redeemed £500 million of tier 1 securities. As a result, core structural debt is unchanged relative to year end. The leverage ratio increased to 32%⁵(2019: 31%) due to a £0.1 billion increase in commercial paper and foreign exchange movements on debt denominated in foreign currency.

Business performance highlights

Our businesses began the year strongly and adapted well as COVID-19 caused disruption to our customers. The impact of COVID-19 was broad-based and affected new business volumes across many markets and products, particularly during the second quarter when lockdown measures were at their most extreme. However, our digital capability, well-developed home-working structures and long-term relationships with customers and distributors meant the effect on our performance was manageable.

COVID-19 also required us to adapt our approach to efficiency initiatives. While some projects planned for this year were deferred or cancelled and overheads were reduced in areas including travel, expenditure increased to accelerate remote working capability and we contributed £43 million towards community support initiatives. At our full year results, we indicated our expectation that in-year cost savings relative to the 2018 baseline would be £150 million including absorbing inflation: based on our first half trends, we expect to beat that estimate.

UK Life and Investments, Savings & Retirement (IS&R)

Headline results

In UK Life and IS&R, OCG^‡# increased 11% to £581 million (HY19: £522 million) and Solvency II return on capital⁴ fell to 5.0% (HY19: 6.5%). UK Life including Savings & Retirement operating profit^2.6.‡# rose 9% to £817 million (HY19: £752 million), while Aviva Investors operating profit was £35 million (HY19: £60 million).

COVID-19 impacts

Our UK Life operating profit^2.6.‡# included a £25 million provision relating to the expected impact of higher mortality and morbidity experience in our protection and annuity portfolios. This provision is being held outside of the product segments in the first half, though this will be updated in the second half when assumptions are aligned to actual experience. At 30 June, total claims paid in relation to COVID-19 in our protection portfolio were £36 million gross, and £16 million net of reinsurance.

COVID-19 also affected our UK Life and IS&R results through lower asset values and disruption to new business activity, although a very strong first quarter and successful execution in bulk purchase annuities (BPA) helped to deliver healthy levels of new business sales and net inflows.

Annuities & Equity Release

New business sales rose 73% to £3.8 billion (HY19: £2.2 billion) while value of new business (VNB) ^‡ increased fivefold to £173 million (HY19: £33 million) reflecting favourable trends in the BPA annuity market, with strong demand and attractive pricing. The BPA market has been less affected by COVID restrictions and our deal pipeline remains strong, although pricing and competitive intensity had returned to more normal levels by the end of the first half.

Health & Protection

New business rose 12% to £1.3 billion (HY19: £1.2 billion). Despite disruption caused by COVID-19, a strong first quarter performance helped deliver modest growth in individual and group protection while higher sales to large corporate customers drove a 37% increase in health insurance. VNB^‡ from health and protection fell 13% to £80 million (HY19: £92 million) as market competition continued to weigh on margins.

Savings & Retirement

Net flows⁷ increased 28% to £4.2 billion (HY19: £3.2 billion) with positive trends in both the workplace and retail platforms. After a very strong start to the year, there was a lull in new business in April and early May though we have begun to see a rebound in customer activity. Retention remained strong with an annualised lapse rate of 6% of opening assets under administration. Assets under administration ended the first half at £113 billion (2019: £113 billion) with positive net flows offset by adverse market movements.

Aviva Investors

Aviva Investors operating profit^2,6,‡# declined to £35 million (HY19: £60 million) due to capital market weakness, de-risking of asset strategies by internal clients and lower levels of private asset origination activity. However, AI maintained the positive customer momentum achieved in the second half of 2019 and has further diversified its third party book. It generated net positive external client flows of £1.3 billion in the period (HY19: £(0.9) billion), driven by significant new business wins in the UK and North America.

General Insurance

Headline results

In General Insurance, operating profit^2,8,‡# was £167 million (HY19: £332 million), OCG^‡# declined 24%⁹ to £163 million (HY19: £216 million) and Solvency II return on capital⁴ fell to 8.0% (HY19: 13.3%).

COVID-19 impacts

The impact of COVID-19 on general insurance claims net of reinsurance was £(165) million. This incorporates notified and expected future claims in relation to business interruption, other commercial lines and travel insurance and allows for £216 million of offsetting favourable impacts in other product lines as a result of reduced economic activity.

Our group COVID-19 event estimate remains consistent with that disclosed on 21st of May, however we reiterate the continued uncertainty with this estimate reflecting the rate of new infections and potential changes in Government response. There is also potential for volatility in future underwriting results as customers and the insurance industry adapt to the post-COVID environment.

Net written premiums (NWP)

NWP was flat year on year at £4.7 billion (HY19: £4.7 billion) with modest (2%⁹) growth in Canada, stable trends in Europe and a slight (1%) decline in the UK. COVID-19 had a dampening effect on premium volumes as Government enforced restrictions reduced demand and this may continue depending on the economic effects from COVID-19.

Looking through COVID-19 impacts, we continued to reshape our business. In commercial lines, NWP grew 8% in the UK and 11%⁹ in Canada due to positive volume and rate trends in Global Corporate and Specialty. In personal lines, NWP declined 8% in the UK where retail own brands proved more resilient than intermediated channels reliant on footfall.

Combined operating ratio (COR)^2,‡

The group general insurance COR^2,‡ increased 3 percentage points to 99.8% (HY19: 96.8%). The drivers of the increased group COR included:

· Net COVID-19 claims of £(165) million, equating to a 3.6 percentage point impact on COR; and

· Higher weather costs, which were 0.2% above long-term average in the first half (HY19: 1.7% below long-term average). All regions experienced increased weather costs compared with the benign prior year, with flooding and hailstorms in Canada and winter storms in the UK having a notable impact.

In the UK, COR was 106.3%, representing a 9.1 percentage point increase compared with the prior year due to COVID-19 claims and an increase in weather costs. In contrast, Canada continued to improve with its COR declining to 95.5% (HY19: 98.1%) despite adverse impacts from COVID-19 and Europe maintained its strong performance with a COR of 92.6% (HY19: 92.9%).

Longer term investment return (LTIR)

General insurance LTIR declined to £173 million (HY19: £184 million) as lower bond yields and changes in portfolio composition pushed the average investment return down to 2.3% (HY19: 2.6%). We took de-risking actions on the portfolio during the first half, increasing cash holdings by more than £1 billion, and reducing our exposure to equities and other assets such as investment funds by £0.2 billion and £0.4 billion respectively.

International Life

Headline results

Our European Life businesses delivered operating profit^2,8,‡# of £367 million (HY19: £392 million), down 6% in constant currency terms. OCG^‡# increased 45% to £464 million (HY19: £324 million) and Solvency II return on capital⁴ fell to 7.1% (HY19: 11.0%).

In Asia, operating profit was £140 million (HY19: £152 million). Excluding Friends Provident International, whose sale was completed in July 2020, Asia operating profit increased 1% in constant currency to £67 million (HY19: £68 million). OCG from Asia more than doubled to £43 million (HY19: £18 million) while Solvency II return on capital rose to 12.7% (HY19: 10.4%).

COVID-19 impacts

The direct impact of COVID-19 on profitability in our International life businesses was £14 million, primarily resulting from adverse experience in our French protection portfolio. Other impacts included lower investment values impacting fee income, and the cost associated with de-risking and hedging actions as we responded to capital market volatility. Lockdowns also disrupted new business activity, although this was mitigated by robust remote servicing of customers and distributors.

Despite COVID-19, we continued to make good progress on optimising business mix to reduce capital intensity given the low (and negative) interest rate environment in Europe. We will continue to make active decisions about our volume and mix appetite and overall level of capital allocation in conjunction with our strategy of managing our international life businesses for long-term shareholder value.

France

New business declined 20%⁹ to £2.2 billion (HY19: £2.7 billion) while VNB^‡ rose 6%⁹ to £100 million (HY19: £95 million). Our focus on shifting new business toward capital-light savings gathered further momentum in the first half. Unit linked sales rose 44% helped by strong demand for pensions and property linked funds while our efforts to actively manage down with-profits sales drove a 47% decline in volumes. Operating profit^2,8,‡# was affected by adverse experience in protection claims, declining 16%⁹ to £165 million (HY19: £195 million).

Italy

Italian new business sales declined 38%⁹ to £2.1 billion (HY19: £3.5 billion) and VNB^‡ fell 49%⁹ to £51 million (HY19: £99 million). As with France, we continued to actively manage down with-profits sales, which halved year-on-year. Despite lower sales, the benefits of previous strength in new business volumes and therefore asset growth were reflected in operating profit^2,8,‡#, which increased 20%⁹ to £100 million.

Poland & Other Europe

In Poland, new business sales declined 23%⁹ to £234 million (HY19: £307 million) while VNB^‡ fell 14%⁹ to £26 million (HY19: £31 million). Lockdown measures had a more meaningful impact on Polish sales due in part to closure of branches by our bancassurance partners. Despite lower sales, operating profit^2,8,‡# increased 5%⁹ in Poland owing to expense reductions. In our other European markets of Ireland and Turkey, new business sales were broadly stable in constant currency terms at £891 million (HY19: £913 million) with strong pension sales in Ireland offsetting COVID related disruptions.

Singapore

New business sales fell 4%⁹ to £693 million (HY19: £724 million). VNB^‡ rose 2%⁹ to £72 million (HY19: £71 million). Lockdown measures restricted sales activities across multiple channels in Singapore, particularly in the second quarter when a number of sales campaigns were planned for higher margin protection sales. Nonetheless, there was still a favourable movement in product mix with protection sales up 13% compared with an 18% decline in with-profits.

Outlook

Aviva has responded well to the COVID-19 challenge and is well positioned as customers look for trusted brands, good value, and convenient, reliable service.

However, we are under no illusions that the COVID-19 challenges are behind us. We are all still living with COVID-19 and a return to normality is likely to remain some way off. The recent global economic downturn is unprecedented and the fiscal response by Governments around the world has been extraordinary. As protective measures are eased and Government support withdrawn, economic headwinds and capital market volatility are likely to persist. As a result, any recovery in customer activity is likely to be gradual and we will continue to be prudent in managing our businesses and capital resources.  

This means uncertainty in the outlook will persist in the near term and may mean that growth and profitability targets will be harder to deliver. However, as demonstrated in our first half results, Aviva is operationally and financially resilient. As we deliver on our priorities of focusing the portfolio, transforming performance and building on our financial strength, we will unlock value for shareholders. 

‡ 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  On 31 December 2019 the Group adjusted operating profit APM was 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 of the Analyst Pack). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in a reduction in the prior period Group adjusted operating profit of £62 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, controllable costs and operating earnings per share were also restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in an increase in prior period COR of 0.9%, an increase in prior period controllable costs of £62 million and a reduction in prior period operating earnings per share of 1.2 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 Analyst Pack for more details.

5  Excluding the direct capital instrument, which was redeemed in full at first call date on 27 July 2020.

6  Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been amended to reclassify net interest expense from UK Life including Savings & Retirement to Group debt costs and other interest of £32 million for the 6 month period ended 30 June 2019 and £65 million for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group's operating profit. In addition, comparative amounts for operating capital generation of £34 million for the 6 month period ended 30 June 2019 and £69 million for the year ended 31 December 2019 have been restated. The change has no impact on the Group's operating capital generation.

7  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.

8  Comparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations of Europe and Asia to their respective market segments to better reflect the management of the underlying businesses.

9  On a constant currency basis.

Notes to editors

All comparators are for the half year 2019 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 30 June 2020. The average rates employed in this announcement are 1 euro = £0.88 (6 months to 30 June 2019: 1 euro = £0.88) and CAD$1 = £0.58 (6 months to 30 June 2019: 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 referendum on UK membership of the European Union); 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: 0700 hrs BST www.aviva.com Real time media conference call: 0745 & 1115 hrs BST Analyst conference call / audiocast: 0830 hrs BST https://www.aviva.com/

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