Final Results part 1 of 4

RNS Number : 1024S

Aviva PLC

07 March 2019

 

Start part 1 of 4

News Release

7 March 2019

AVIVA PLC 2018 PRELIMINARY RESULTS ANNOUNCEMENT

Sir Adrian Montague, Chairman, said:

Aviva made steady progress in 2018. We grew profits, had a record year for cash remittances and further increased our solvency cover ratio to 204%. As a result, the Board has increased the full year dividend by 9% to 30.0 pence per share.

Our key profit measure, operating earnings per share, is up 7%. Just under half our earnings growth is due to higher profits from our major businesses, with the rest of the increase due to our ordinary share buy-back, debt reduction and a higher net contribution from longevity and assumption changes.

We increased profit in the UK, where we won more workplace pension schemes and bulk annuity deals, and across our international businesses, where we expanded and diversified our distribution. Aviva Investors had a more challenging year due to difficult investment markets and we have continued to invest in our asset management expertise.

Looking forward, our capital management plan will prioritise debt reduction for the foreseeable future. We plan to reduce debt by at least £1.5 billion by the end of 2022, saving approximately £90 million per year in interest expenses. This builds on the £1.4 billion of debt repaid over the past two years and will further enhance our financial flexibility.

The security and sustainability of our dividend remains paramount. We are moving to a progressive dividend policy, which will see the dividend maintained or grown over time depending on business performance and growth prospects.

We recently announced the appointment of Maurice Tulloch as Chief Executive. Under Maurice's leadership, we are confident that we can make Aviva a better business for the benefit of our customers and our shareholders.

Maurice Tulloch, Chief Executive Officer, said:

I am excited to be taking over as CEO of Aviva. We have strong foundations but we are only scratching the surface of our full potential. There's a huge opportunity here. At the heart of it, it's all about insurance fundamentals, delivering excellent customer experience, tackling complexity and injecting a different pace of change into Aviva. And that will be just the start. I am determined to re-energise Aviva and deliver long term growth for our shareholders.

Profit	· Operating EPS2,#,‡ up 7% to 58.4 pence (2017: 54.8 pence) · Operating profit1,#,‡ up 2% to £3,116 million (2017: £3,068 million) · IFRS profit after tax up 2% to £1,687 million (2017: £1,646 million)
Dividend	· Final dividend per share 20.75 pence · Total 2018 dividend per share 30.0 pence (2017: 27.4 pence)
Capital	· Solvency II capital surplus4 £12.0 billion (2017: £12.2 billion) · Solvency II cover ratio4,‡ 204% (2017: 198%) · Operating capital generation# £3.2 billion (2017: £2.6 billion) · IFRS net asset value per share 424 pence (2017: 423 pence)
Cash	· Cash remittances‡,# up 31% to £3,137 million (2017: £2,398 million) · UK Insurance special remittance £1,250 million (2017: £500 million) · Holding company liquidity £1.6 billion5 (2017: £2.0 billion) · Cash deployed on debt reduction and share repurchase programme £1.5 billion (2017: £0.8 billion)
Performance	· Value of new business (VNB) ‡ down 3% to £1,202 million (2017: £1,243 million). Excluding the impact of divested businesses, VNB‡ grew 2% · General insurance net written premium stable at £9,114 million (2017: £9,141 million) · General insurance combined operating ratio‡ stable at 96.6% (2017: 96.6%) · Longevity reserve releases £780 million (2017: £779 million) · Operating expenses3 up 7% to £4,026 million (2017: £3,778 million) · Integration and restructure costs held to zero (2017: £141 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 Alternative Performance Measure (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    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.

3    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.

4    The estimated Solvency II position represents the shareholder view as defined in section 8.i of the Analyst Pack.

5    Stated as at end February 2019 .

Key Financial Metrics

Operating profit^1,#,‡

	2018 £m	2017 £m	Sterling % change
Life business2	2,999	2,852	5%
General insurance and health2	704	704	-
Fund management	146	164	(11)%
Other2,3	(733)	(652)	(12)%
Total	3,116	3,068	2%

Operating earnings per share‡#

58.4p

54.8p

7%

Cash remittances^4,‡# 

	2018 £m	2017 £m	Sterling % change
United Kingdom4	2,549	1,800	42%
Canada	28	55	(49)%
Europe4	447	485	(8)%
Asia, Aviva Investors and Other	113	58	95%
Total	3,137	2,398	31%

Operating capital generation (OCG): Solvency II basis^4,#

	2018 £bn	2017 £bn	Sterling % change
United Kingdom4	2.2	2.8	(21)%
Canada	0.1	(0.1)	200%
Europe4	0.9	0.9	-
Asia & Aviva Investors	0.1	0.1	-
Other5	(0.1)	(1.1)	91%
Total	3.2	2.6	23%

Expenses

	2018 £m	2017 £m	Sterling % change
Operating expenses	4,026	3,778	7%
Integration & restructuring costs	-	141	(100)%
Expense base	4,026	3,919	3%

Operating expense ratio

54.2%

52.7%

1.5pp

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

			VNB			PVNBP
	2018 £m	2017 £m	Sterling % change	2018 £m	2017 £m	Sterling % change
United Kingdom	481	527	(9)%	23,946	23,764	1%
Europe	517	533	(3)%	12,641	12,065	5%
Asia & Aviva Investors	204	183	11%	4,176	4,966	(16)%
Total	1,202	1,243	(3)%	40,763	40,795	-

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

	COR			NWP
	2018	2017	Change	2018 £m	2017 £m	Change
United Kingdom	93.8%	93.9%	(0.1)pp	4,193	4,078	3%
Canada	102.4%	102.2%	0.2pp	2,928	3,028	(3)%
Europe	93.4%	93.3%	0.1pp	1,985	2,018	(2)%
Asia & Other	122.1%	123.2%	(1.1)pp	8	17	(52)%
Total	96.6%	96.6%	-	9,114	9,141	-

Profit after tax

	2018  £m	2017 £m	Sterling % change
IFRS profit after tax	1,687	1,646	2%
Basic earnings per share	38.2p	35.0p	9%

Dividend

	2018	2017	Sterling % change
Final dividend per share	20.75p	19.00p	9%
Total dividend per share	30.00p	27.40p	9%

Capital position

	2018	2017	Sterling % change
Estimated Solvency II shareholder cover ratio‡ ,6	204%	198%	6.0pp
Estimated Solvency II surplus	£12.0bn	£12.2bn	(2)%
Net asset value per share	424p	423p	1p

‡    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 pofit is a non-GAAP Alternative Performance Measure (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    Non-insurance operations relating to the UK have been reclassified to their respective market segments to better reflect the management of the underlying businesses consistent with the segmental analysis shown in note B6. The impact of this change was to reduce UK Life operating profit by £80 million (2017: £30 million); UK General Insurance operating profit increased by £2 million (2017: £3 million) and UK Health increased by £2 million (2017: £1 million).

3    Other includes other operations, corporate centre costs and group debt and other interest costs, including coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax).

4    Cash remitted to Group and Solvency II operating capital generation are managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland are not aligned to our management structure within Europe, but they are reported within United Kingdom.

5    Other includes Group activities and the Group SCR diversification benefit.

6    The estimated Solvency II position represents the shareholder view only. See Section 8i for more details.

Chairman's report

Overview	Saving for the future, drawing a secure pension income, or protecting against unforeseen events, all these are fundamental to our customers' well-being. Supporting customers in these areas, and more, is Aviva's lifeblood and, through this commitment to serving customers, we will earn the returns our shareholders expect. To provide customers with security and peace of mind, it is imperative to have strong financial foundations. Our capital position makes Aviva a partner that our customers can count on. In 2018, our Solvency II capital surplus4 remained strong at £12.0 billion, equivalent to a Solvency II cover ratio4,‡ of 204%. We increased our Solvency II cover ratio in 2018 despite weaker investment markets and deploying £1.5 billion to repay debt and repurchase shares. And, in 2018, Group adjusted operating profit1,‡,# rose 2% to £3.1 billion, while operating earnings per share2,‡,# increased 7% to 58.4 pence. Profit before tax was £2,129 million (2017: £2,003 million). In view of Aviva's continued financial strength and steady performance, the Board of Directors has proposed a 9% increase in the full year dividend to 30.0 pence per share. We are moving to a progressive dividend policy. Moderating the rate of dividend per share growth will enhance our flexibility to repay debt and invest in business improvement. The future trajectory of the dividend will reflect performance against our strategic objectives.
Operational highlights	In 2018, Aviva's businesses maintained a disciplined approach in competitive markets. In the UK, our business has consolidated its position and we are seeing encouraging results across long-term savings, bulk purchase annuity and general insurance product lines. In 2018, a strong pipeline of workplace pension scheme wins helped to sustain long-term savings flows and we wrote our largest ever bulk purchase annuity contract, a £925 million transaction with Marks and Spencer. We launched AvivaPlus, our new subscription style insurance that offers greater flexibility and choice, giving our customers even more control and rewarding their loyalty. Our European businesses have been invigorated through intelligent choices on product design and mix and a focus on expanding our distribution footprint. In France, we have begun the process of bringing our multi-channel distribution under the Aviva brand, and there is more work to do on that in the coming year. In Italy, our success in the financial adviser channel has paved the way for sustained growth in sales volumes. In Ireland, we completed the acquisition of Friends First, strengthening our position in life insurance. In our general insurance businesses, we have continued to prioritise profitability over sales volumes. While our Canadian motor insurance portfolio is in the early stages of its recovery and an increase in weather related claims provided a headwind for profits across all of our general insurance businesses, the Group combined operating ratio‡ of 96.6% remained acceptable. In Asia, we have a mix of established and emerging businesses and we have continued to invest in their development. In our largest Asian business, Singapore, our advisery distribution network has continued to expand, providing customers with wider product choice and stimulating growth in sales and profits. Digital remains an important element of Aviva's strategy of improving customer experience. In the UK, the number of active customers registered on MyAviva rose 48% to 4.2 million with 700,000 customers logging into MyAviva each month to transact online or to check policy information. We have launched new propositions with AvivaPlus, MyAviva Workplace and Wealthify creating a strong platform for the future. In Hong Kong, following receipt of regulatory approval, we launched "Blue", our digital insurance venture with Tencent and Hillhouse, which offers customers in Hong Kong a new way to buy insurance.
Challenges	Externally, uncertainty in the political and economic backdrop intensified during the year and this was reflected in a difficult year for investment market performance across most asset classes. In our home market, the UK, the prolonged and fraught process of negotiating Britain's exit from the European Union has weighed down on growth in the economy. But Aviva is well placed to deal with this; our locally incorporated and locally regulated businesses in Europe have prepared to minimise the potential operational impact. The regulatory environment also continues to evolve, requiring our businesses to adapt and, in some cases, provide remediation for past practices. The shifting external environment, coupled with competitive insurance and savings markets, has provided a challenging macro-environment in which to operate. The resilience built into Aviva's capital position and operating model over recent years has allowed us to overcome these challenges and continue to serve customers across all our markets.

‡    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 Alternative Performance Measure (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    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.

3    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.

4    The estimated Solvency II position represents the shareholder view as defined in section 8.i of the Analyst Pack.

Chairman's report continued

Challenges (continued)	There were also challenges of our own making, including our announcement in March 2018 that we were "evaluating alternatives" for the Aviva plc and General Accident plc preference shares. While we responded quickly to certain investor concerns by withdrawing from further action and paid £10 million in goodwill and administration costs to compensate those who incurred losses from selling these securities during this period, it was a disappointing episode and lessons have been learned. We also responded to challenges in our UK business. We encountered disruption during the migration of our independent financial adviser platform to a new supplier, which adversely affected our service standards. Our teams worked hard to resolve these challenges and advisers are now starting to benefit from the improved functionality and processing capability that the new platform offers. We also increased the amount set aside for customer redress in relation to historical advised sales by Friends Provident to £250 million (2017: £75 million). Over 90% of cases identified are pre-2002.
Financial performance	2018 has been a year of steady performance overall for Aviva. Our businesses have delivered broad-based growth, with six out of our eight major markets increasing operating profit in 2018. We have maintained profit momentum in our UK and European insurance businesses and Canada has responded well to the challenges in the auto insurance portfolio that emerged in 2017. Aviva Investors was set back by a difficult investment market backdrop, though we have chosen to continue investing to facilitate the long-term expansion of our third-party franchise. In the UK, our results have continued to benefit from releases of provisions arising from changes in UK longevity trends. However, as in 2017, we continued to use this additional profitability to increase spending to advance our digital innovation agenda and accelerate the transformation programme in IT and Finance that will provide benefits to Aviva in the years to come.
Leadership & priorities	In October 2018, we announced that Mark Wilson would step down from his role as Chief Executive Officer. In almost six years under Mark's leadership, Aviva transformed its capital strength, refined its focus towards those markets with the strongest returns and growth prospects and invested in digital capabilities and propositions that will differentiate Aviva in the insurance and savings market place in the coming years. From these strong foundations, Aviva is entering a new phase of its development. We recently announced the appointment of Maurice Tulloch as Chief Executive Officer. Maurice will work with the Board to establish and refine the strategy that will take Aviva forward in the coming years. Maurice will be an outstanding Chief Executive of Aviva. He knows the business inside out. He has led our businesses in the UK and internationally and built strong teams across life insurance and general insurance. Maurice knows our strengths, knows where we need to improve and has a deep understanding of insurance and customers' needs. He is exceptionally well qualified to re-energise Aviva and deliver long-term growth. Having made Aviva stronger, the focus of the next phase is to make Aviva a better company. This means re-emphasising the fundamentals: customer service, distribution, product mix and pricing, and managing expenses. There is much more we can and will achieve.
Outlook	The coming year is shaping up as an important period for Aviva. The arrival of our new Chief Executive will have a galvanising effect on our organisation, providing renewed clarity of purpose. Aviva has abundant strengths: committed and energetic staff, depth in technical expertise, supportive partners and most importantly, 33 million customers. Our challenge is to capitalise on these strengths to become a better, simpler, more efficient company known for excellence in serving customers. This will require significant improvements by Aviva. It will also entail choices with respect to resource allocation. However, our strong existing foundations give us all we need to ensure the new phase Aviva is embarking on will be a success.

Sir Adrian Montague

Chairman

Chief Financial Officer's report

Overview

In 2018, Aviva delivered growth while investing to improve the fundamentals of the business and maintaining a prudent approach to pricing and risk management. Group adjusted operating profit1,‡,# increased 2% to £3,116 million (2017: £3,068 million) while operating earnings per share2,‡,# rose 7% to 58.4 pence (2017: 54.8 pence). IFRS profit after tax was £1,687 million (2017: £1,646 million), leading to basic earnings per share of 38.2 pence (2017: 35.0 pence). Our operating results continue to benefit from broad based growth from our major markets together with releases of longevity provisions in our UK annuity portfolio. However, as in previous years, we have used the additional profitability provided by longevity releases to accelerate investment in digital, IT and finance change initiatives and to strengthen provisions in areas related to past practices. In late 2018, the Civil Liability Bill, which determines how personal injury compensation awards are set in the UK, received Royal Assent. While confirmation of the new "Ogden" rate will be provided in 2019, following passage of the legislation we have revised the discount rate used in determining our personal injury claims reserves in the UK to 0%, from -0.75% previously, giving rise to non-operating profit of £190 million. Offsetting this are adverse investment variances due to widening sovereign and corporate credit spreads and a mark-to-market impact from our hedging programme, which protects Solvency II capital4. Despite heightened investment market volatility in late 2018, investment variances were broadly flat in the second half of the year despite an increase in the Brexit related property allowance to c.£400 million (2017: c.£300 million) in addition to other customary reserves. During 2018, we repaid £0.9 billion of subordinated debt and completed a £0.6 billion share repurchase programme, leading to the cancellation of approximately 3% of our shares in issue. Despite this £1.5 billion of capital deployment, our Solvency II capital surplus remained robust at £12.0 billion (2017: £12.2 billion) and Solvency II cover ratio‡,4 increased to 204% (2017: 198%). As we embark on the next phase under a new Chief Executive, we do so from strong foundations, with businesses that are well established in their respective markets, a capital position that provides security for today and flexibility for the future and a well funded, sustainable dividend. However, there are opportunities to reignite the self-help agenda, focusing on cost efficiency, business complexity and prioritising further reduction in debt leverage.

United Kingdom

Aviva is the UK's largest insurer and is unique in operating at scale across life insurance, savings, general insurance, health insurance and retirement markets. In 2018, operating profit1,‡,# from our UK Insurance businesses increased 7% to £2,324 million (2017: £2,164 million). The UK Insurance result continued to benefit from elevated levels of reserve releases relating to the slowing rate of improvement in life expectancy in our annuity portfolio and this is reflected in a higher contribution from "other". Excluding the contribution from "other", our five main operating segments in the UK delivered aggregate operating profit of £1,974 million (2017: £1,904 million), an increase of 4%. Annuity and equity release provides significant long-term growth opportunities as companies look to transfer their defined benefit pension obligations to the insurance sector and individuals seek to secure income and unlock equity in their retirement. In 2018, annuity and equity release sales rose 12% to £4.8 billion (2017: £4.3 billion) due to higher volumes in bulk purchase annuities. The increase in sales helped to deliver a 7% increase in operating profit to £779 million (2017: £725 million). The result benefitted from favourable experience variances relating to longevity trends though this was offset by lower income from asset mix optimisation. While we have increased our annuity and equity release sales volumes in 2018, we have been selective in expanding our appetite and reflected the uncertain political and economic backdrop in our investment portfolio. We will maintain a prudent approach in 2019. In long-term savings, operating profit rose 7% to £198 million (2017: £185 million). Net fund inflows3 were £5.0 billion (2017: £5.6 billion) equating to 4.2% of opening assets under administration3. Having integrated digital features into our workplace pension propositions, we increased new scheme wins with large corporates and delivered higher net fund flows. This was offset by lower net fund flows into the adviser platform, as migration to a new IT service provider caused disruption for both IFAs and customers. Weak investment markets towards the end of 2018 constrained growth in assets under administration, which ended the year at £116 billion (2017: £118 billion). As fee income is linked to assets under administration, this may weigh on operating profit growth in 2019. Nonetheless, we see compelling long-term growth opportunities from rising participation and higher contribution rates in workplace savings.

‡    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 Alternative Performance Measure (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    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.

3    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.

4    The estimated Solvency II position represents the shareholder view as defined in section 8.i of the Analyst Pack.

5    All percentage movements in this section are quoted in constant currency unless otherwise stated.

Chief Financial Officer's report continued

United Kingdom (continued)	In protection, we adapted to changing market conditions, resulting in operating profit1,‡,# remaining stable at £226 million (2017: £227 million). Results from Group protection improved in 2018 following actions taken to address adverse claims experience in 2017. This offset weaker results in individual protection, where new business volumes fell 8% in response to heightened competition while margins were compressed by higher reinsurance costs. We will continue to manage our protection business with a focus on maximising profit over the cycle rather than volume. Aviva's UK general insurance business maintained its track record of delivering consistent, attractive underwriting results in 2018. The combined operating ratio‡ was 93.8% (2017: 93.9%) as higher levels of prior year reserve releases offset an increase in weather related claims. Net written premiums rose 3% to £4,193 million (2017: £4,078 million) due to progress in Global Corporate and Specialty (GCS) and Small and Medium Sized Enterprise (SME) markets. The underwriting result rose 3% to £253 million (2017: £246 million), which in turn helped to underpin a 4% increase in operating profit to £415 million (2017: £400 million). Our legacy portfolio performed in line with expectations in 2018, with operating profit declining 4% to £318 million (2017: £331 million). The UK with-profits portfolio, which makes a significant contribution to the legacy performance, saw total assets decline to £48.9 billion (2017: £58.2 billion) reflecting the weak investment market environment. Each year, our UK results include the impact of assumption changes, adjustments to provisions and management actions to increase or accelerate value emergence from our capital-intensive businesses. We ordinarily expect this to provide between £150 million and £200 million per annum benefit to our results. In 2018, the contribution remained above this range at £350 million (2017: £260 million). The largest driver of this result was the release of longevity provisions totalling £728 million (2017: £710 million) due to changes in life expectancy trends. This was partially offset by increased provisions and remediation costs, including those pertaining to historical advised sales by Friends Provident, with over 90% of cases identified being pre-2002, where we increased the amount set aside for customer redress to £250 million (2017: £75 million).
International	Aviva's International markets comprise Europe, where we have focused multi-line franchises, and Canada, where we are the second largest general insurer by premiums written. Excluding the impact of businesses divested in 2017 and 2018, operating profit1,‡,# from our International businesses increased 9% to £1,080 million (2017: £990 million). In France, we maintained our operating momentum in 2018, delivering higher sales, improved product mix and better efficiency. Operating profit in France was £546 million (2017: £507 million), up 7% in local currency terms. In our life insurance business, increased demand for savings products helped to deliver 6% growth in new business volumes to £4.3 billion (2017: £4.0 billion). With higher average asset balances supporting fee revenues and operating expense3 growth of just 1%, our French life insurance business grew operating profit 7% to £436 million (2017: £403 million). In general insurance, operating profit rose 5% to £110 million (2017: £104 million). Net written premiums were £1,118 million (2017: £1,053 million) with growth mainly derived from commercial lines. The combined operating ratio‡ was maintained at 94.5% (2017: 94.5%) despite higher claims from weather and natural catastrophe events. Our French leadership team have begun to align our distribution channels under the Aviva brand and we expect to increase investment in brand, distribution and digitisation in 2019. In Poland, Aviva responded to subdued trends in the life insurance market by implementing a targeted product strategy with our distribution partners, delivering record levels of customer retention and managing expenses tightly. As a result, despite lower industry sales, our life insurance business increased new business volumes by 3% and operating profit rose 8% to £170 million. The higher life insurance result helped propel our total operating profit in Poland to £190 million (2017: £177 million), an increase of 6% in local currency terms. In general insurance, operating profit was £20 million (2017: £21 million) due to lower profitability in motor insurance. Our general insurance business lacks scale, though we are targeting growth through multi-cover policies, encouraging digital engagement, utilising our existing distribution scale in life insurance and developing the price comparison website market. In Canada, the focus of our team in 2018 was on setting the business on the path to recovery following the challenges experienced in 2017, where results were adversely affected by heightened claims inflation in motor insurance. We have taken a range of actions including increases in premium rates, cancellation of some broker relationships and adjustments to underwriting appetite. While these actions have begun to yield results, operating profit in Canada was flat at £46 million (2017: £46 million). Elevated weather and large loss experience, persistent challenges in motor insurance and costs relating to the completion of the RBC Insurance integration kept the combined operating ratio elevated at 102.4% (2017: 102.2%), despite an improvement in prior year development.
‡    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 Alternative Performance Measure (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    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. 3    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. 4    All percentage movements in this section are quoted in constant currency unless otherwise stated. Chief Financial Officer's report continued
International (continued)	Aviva recently received regulatory approval for further increases in premium rates in Ontario motor insurance which will move us toward rate adequacy. The regulatory approved premium rate increase of 8.6% in the Aviva portfolio and 16.8% in the RBC portfolio will be implemented from Q1 2019 and should begin to benefit results in the latter part of this year and in 2020. In addition, we will continue to work with provincial governments and regulators to drive much needed reform in the Canadian insurance market. In summary, we expect our actions to deliver progress in our financial results in 2019 and we remain confident that we can achieve our sub-96% combined operating ratio# goal in 2020. Aviva made further strategic and financial progress in Italy in 2018. Our focus on diversifying distribution and providing customers with innovative products has delivered higher sales, positive net flows3 and growth in operating profit1,‡,#. On a like-for-like basis (excluding the divested Avipop business), operating profit increased 16% to £188 million (2017: £162 million). In life insurance, sales rose 37% in local currency terms to £6.3 billion (2017: £4.5 billion). Hybrid products, which provide customers a combination of with-profit, unit linked and protection coverage, achieved growth of 161% and contributed 44% of our total life sales (2017: 23%). We also expanded our distribution capability; in 2018, non-bank channels accounted for greater than 40% of life insurance sales. The sustained strength in sales has taken our share of the Italian life insurance market to approximately 6% and generated significant positive net fund flows3. As a result, life insurance operating profit rose 14% to £156 million (2017: £136 million). In general insurance, Aviva has a niche position in the Italian market. Net written premiums in this business fell 7% to £317 million (2017: £337 million) as we took underwriting actions on the motor insurance portfolio. These actions contributed to improved underwriting margins, which helped lift operating profit to £32 million (2017: £26 million). In Ireland, operating profit was £100 million (2017: £86 million) and we extended our sponsorship of the Aviva Stadium, a key element of our Group brand strategy. The main driver of growth in operating profit was the Friends First business, which was acquired by Aviva on 1 June 2018. Benefits from the integration of Friends First supported higher operating profit in life insurance, compensating for lower sales in annuities. In general insurance, Aviva has continued to focus on protecting profitability as the pricing cycle has begun to soften. Net written premium fell 2% to £430 million (2017: £436 million) though underwriting margins remained attractive, with a combined operating ratio of 91.5% (2017: 91.4%). As a result, general insurance operating profit rose slightly to £56 million (2017: £53 million). During 2018, we also completed important structural changes in our Irish business, with the establishment of a locally incorporated legal entity. This was an important component of our Brexit preparations.
Aviva Investors	In a challenging year for the fund management industry, Aviva Investors top-line growth slowed, with revenue up 4% to £597 million (2017: £577 million). However, we chose to continue to invest in building a more valuable diversified long-term business, particularly in our Equities and Real Assets capabilities. This continued investment, together with the absorption of MiFID II costs, which we did not pass onto clients, resulted in operating profit1,‡,# of £150 million (2017: £168 million). We also realised a non-operating profit of £27 million on the sale of a part of our real estate business. Over the year, assets under management3 declined due to the aforementioned business disposal, adverse market movements and expected net outflows on Aviva's legacy life insurance books. The AIMS range of funds saw assets reduce to £10.3 billion (2017: £12.6 billion) as difficult market conditions weighed on performance.
Singapore	In Singapore, we continue to grow our distribution network, including Aviva Financial Advisors with 816 advisers (2017: 673) and Professional Investment Advisory Services Pte Ltd, with 724 advisers (2017: 593). As a result, we have maintained positive momentum in life insurance. New business volumes increased 11% to £1,279 million (2017: £1,164 million) and operating profit1,‡,# from our life insurance operations grew 21% in local currency terms to £141 million (2017: £118 million). We believe the financial advisory model provides enhanced flexibility and choice for both advisers and customers and we will continue to invest in its development in 2019. In general insurance and health, operating loss widened to £16 million (2017: £8 million) due to adverse claims experience in our health insurance portfolio. We are taking steps to improve the health insurance portfolio and this will continue in 2019.
Strategic investments	Aviva's strategic investments include our Digital operations together with our joint venture businesses in China, Hong Kong, India, Turkey, Vietnam and Indonesia. In 2018, the aggregate operating loss1,‡,# from these businesses widened to £142 million (2017: £85 million). The primary driver of this was our digital business in the UK, where we invested further in digital innovation, and customer proposition development and engagement. This has given rise to a sharp uplift in customer activity levels; UK MyAviva active customer registrations have risen 48% and we are seeing higher volumes of online customer traffic. However, this did not translate through to higher levels of profitability reflecting the soft market conditions in 2018. Excluding Digital, results from our Strategic Investment markets improved. In China and Turkey, we delivered growth in operating profit in local currency terms while losses narrowed in our less mature businesses in South East Asia.
‡    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 Alternative Performance Measure (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    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. 3    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. 4    All percentage movements in this section are quoted in constant currency unless otherwise stated. Chief Financial Officer's report continued
Capital & cash	At the end of 2018, our Solvency II cover ratio2,‡ was 204% (2017: 198%). The increase in the ratio was achieved despite significant capital management actions undertaken during the year, with the £0.9 billion repayment of subordinated debt and £0.6 billion share repurchase equating to a 13 percentage point drag on the opening solvency position. Operating capital generation# totalled £3.2 billion (2017: £2.6 billion). Underlying operating capital generation was £1.5 billion (2017: £1.7 billion), the decline resulting from business disposals, higher capital strain from new business growth and increased business investment spend. Other operating capital generation of £1.7 billion (2017: £0.9 billion) comprised UK longevity releases together with capital benefits from the inclusion of dynamic volatility adjustment in our Group Solvency II position and model changes in France, Poland and the UK. Net cash remittances‡,# increased to £3.1 billion (2017: £2.4 billion) on the back of a significant uplift in dividends from the UK Insurance business. Special remittances from UK Insurance were £1.25 billion (2017: £500 million) and comprised £500 million related to Friends Life integration synergies and an additional £750 million that was made possible by the strength of our local entity solvency position. At our Capital Markets Day in November 2017, we upgraded our target for cumulative cash remittances over the three year period ending in December 2018 to £8 billion (from £7 billion previously). We fell slightly short of the upgraded target, achieving £7.9 billion of cumulative cash flows to Group centre from remittances and divestiture proceeds. This reflects the delay in completing the sale of Friends Provident International and our decision to retain the £0.2 billion of proceeds from the sale of Avipop in our Italian subsidiary to support capital given growth in the business and recent trends in Italian Government bond spreads. In conjunction with the higher remittances, excess centre cash flow3 in 2018 was £2,437 million (2017: £1,656 million). Even after adjusting for special remittances, recurring excess centre cash flow was sufficient to fund Aviva's ordinary dividend. At the end of February 2019, Group centre liquidity was £1.6 billion (2017: £2.0 billion). Our intention is to maintain the Group centre liquidity balance in a range of £1 billion to £2 billion over time. Additional cash may also be set aside at Group centre for the purpose of decreasing subordinated debt maturities in 2020 and beyond. In 2018, we raised €750 million of senior debt with maturity in 2027 and a coupon of 1.875%. This was used to redeem €350 million of maturing senior debt and reduce commercial paper balances and was therefore neutral to our net debt position, while extending our liability profile. In November 2017, we outlined an ambition to deploy £3 billion of cash by the end of 2019. In 2018, our deployment initiatives totalled £1.7 billion, comprising £0.9 billion of subordinated debt retirement, £0.6 billion of capital returned to shareholders via a share repurchase programme and £0.2 billion on M&A initiatives, the largest of which was the acquisition of Friends First in Ireland. Of the remaining £1.3 billion of cash we had anticipated deploying, we are extending the time-line beyond 2019 and will prioritise reinvestment in our existing operations and debt deleveraging. Based on our current outlook, there is less appetite for bolt-on acquisitions in 2019. Between 2019 and 2022, Aviva has c£3 billion of maturing debt, of which we currently expect to repay without refinancing £1.5 billion. On a pro forma basis, this would reduce our outstanding debt balances by approximately 20%, reduce our ratio of debt to Solvency II own funds by 4 percentage points to 29%, and reduce our Solvency II cover ratio, by 10 percentage points to 194%. We estimate this would give rise to cash interest expense savings of approximately £90 million per annum, improving operating profit1,‡,#, capital generation and centre cash flow. We continue to manage the company consistent with double-A financial metrics. We expect to fund the reduction of debt balances from internal sources, including regular cash remittances from our business units, special remittances associated with our capital structure optimisation initiatives and proceeds from divestiture activity.
Dividend	In light of our results and the strength of our financial position, we have increased our total dividend per share by 9% to 30.0 pence (2017: 27.4 pence). This is the fifth consecutive year of significant annual growth in the dividend, with the 2018 level representing double the level paid for 2013 (15.0 pence). Having achieved our 50% dividend payout ratio target relative to operating EPS‡,# in 2017, this year we have increased the dividend payout ratio to 51.4%. Looking forward, the Board of Directors has decided to move from a policy targeting a pay-out ratio tied to operating EPS to a progressive dividend policy. This change will afford the new CEO greater flexibility to implement his strategic agenda while protecting the current dividend per share for our existing 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 Alternative Performance Measure (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    The estimated Solvency II position represents the shareholder view as defined in section 8.i of the Analyst Pack. 3    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. 4    All percentage movements in this section are quoted in constant currency unless otherwise stated. Chief Financial Officer's report continued
Dividend (continued)	At Aviva, a "progressive" dividend policy means that, under ordinary circumstances, the Board of Directors would at least maintain the then-current annual ordinary dividend per share, while seeking to grow the dividend per share over time based on the Board of Directors' periodic assessment of the Group's financial performance and future outlook. In practice, this might result in a higher or lower dividend pay-out ratio relative to earnings, which could fluctuate, while the dividend per share remains steady or grows under ordinary circumstances. Aviva's annual ordinary dividend per share has doubled from 2013 to 2018, and the Company expects that future percentage growth rates of the dividend per share will be more modest than those in the recent past.
Outlook	Given current uncertainties, including the unknown future impacts of Brexit on the economies of the United Kingdom and Europe, our near-term outlook entering 2019 is more muted than our outlook a year ago. While we achieved 7% operating EPS‡,#,2 growth in each of the past two years, it will be difficult to sustain this momentum in 2019. In terms of currently identifiable result drivers, we cite potential headwinds from weak investment markets in late 2018 on fee income in our asset gathering businesses including UK long-term savings, European life and Aviva Investors, and a possible increase in the blended tax rate due to changes in the business mix of operating profit1,‡,#. On the other side of the ledger, we expect results to benefit from improved profitability in Canada in addition to lower interest expense and a reduction in weighted average shares in issue following capital management initiatives undertaken in 2018. Our results will also depend on the degree of offset between benefits from changing longevity trends in the UK and costs associated with investment and change spend. In conjunction with the appointment of a new Chief Executive, we are reallocating resources and making changes to our priorities. This process has begun, though it will receive further impetus now that the new Chief Executive has been appointed. Areas of focus include potential changes to our business model to drive further efficiency, opportunities to optimise our product and market portfolio and the prioritisation of debt deleveraging announced in today's results. The new Chief Executive will expand on our plans and outline refreshed targets in the near future. In conclusion, we approach 2019 with strong fundamentals; our balance sheet is robust and resilient, our businesses are well positioned in their respective markets and overall performance has been steady. This provides a strong platform on which the incoming Chief Executive can build, with renewed focus on efficiency, complexity and customer to drive future performance.

Thomas D. Stoddard

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    Group adjusted operating profit is a non-GAAP Alternative Performance Measure (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    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.

3    All percentage movements in this section are quoted in constant currency unless otherwise stated.

Notes to editors

Notes to editors

All comparators are for the full year 2017 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 2018. The average rates employed in this announcement are 1 euro = £0.88 (2017: 1 euro = £0.88) and CAD$1 = £0.58 (2017: CAD$1 = £0.60).

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 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; regulatory approval of extension of use of the Group's internal model for calculation of regulatory capital under the European Union's Solvency II rules; 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] Helen Driver [phone]	Nigel Prideaux [phone] Andrew Reid [phone] Sarah Swailes [phone]	Presentation slides: 07:00 hrs GMT www.aviva.com Real time media conference call: 07:30 hrs GMT Analyst presentation: 08:30 hrs GMT Live webcast: 08:30hrs GMT https://www.avivawebcast.com/

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