Half-year Report - Part 2 of 4 - Overview

RNS Number : 5539W

Aviva PLC

02 August 2018

START PART 2 of 4

Page 1

Contents

In this section	Page
Overview
Key financial metrics	2

1 Operating profit	3

2 Cash	4
i Cash remittances	4
ii Operating capital generation: Solvency II basis	5

3 Expenses	6

4 New business	7
i Value of new business on an adjusted Solvency II basis	7
ii Sales, VNB and new business margin analysis	7

5 Combined operating ratio	8

6 Business unit performance	9
i United Kingdom	9
ii International	12
iii Asia	15
iv Aviva Investors	17

7 Profit drivers	18
i Life business	18
ii General insurance and health	20
iii Life business fund flows	23

8 Capital	24
i Solvency II	24
ii Net asset value	26
iii Analysis of return on equity	27
iv Group capital under IFRS basis	29

Financial supplement	31
A Income & expenses	31
B IFRS financial statements and notes	36
C Analysis of assets	82

Other information	90

Alternative Performance Measures	91
Shareholder services	96

As a reminder

Throughout this report we use a range of financial metrics to measure our performance and financial strength. These metrics include Alternative Performance Measures (APMs), which are non-GAAP measures that are not bound by the requirements of IFRS. Further guidance in respect of the APMs used by the Group, including a reconciliation to the financial statements (where possible), can be found within the Other Information section.

All references to 'Operating profit' represent 'Group adjusted operating profit'.

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

All currency movements are calculated on unrounded numbers so minor rounding differences may exist.

A glossary explaining key terms used in this report is available on www.aviva.com/glossary

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Operating profit^‡#

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m
Life business¹	1,392	1,296	7%	2,852
General insurance and health¹	302	418	(28)%	704
Fund management	74	69	7%	164
Other^1,2	(330)	(318)	(4)%	(652)
Total	1,438	1,465	(2)%	3,068

Operating earnings per share

26.8p

25.8p

54.8p

Cash remittances^3,‡#

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m
United Kingdom³	1,226	930	32%	1,800
Canada	13	13	-	55
Europe³	217	190	14%	485
Asia & Aviva Investors	37	37	-	58
Total	1,493	1,170	28%	2,398

Operating capital generation (OCG): Solvency II basis^3#

	6 months 2018 £bn	6 months 2017 £bn	Sterling % change	Full year 2017 £bn
United Kingdom³	0.9	0.8	13%	2.8
Canada	-	0.1	(100)%	(0.1)
Europe³	0.4	0.4	-	0.9
Asia & Aviva Investors	-	0.1	(100)%	0.1
Other⁴	(0.4)	(0.3)	(33)%	(1.1)
Total	0.9	1.1	(18)%	2.6

Expenses

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m
Operating expenses	1,929	1,851	4%	3,778
Integration & restructuring costs	-	52	(100)%	141
Expense base	1,929	1,903	1%	3,919

Operating expense ratio

54.9%

53.3%

1.6pp

52.7%

Value of new business: Adjusted Solvency II basis^‡

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency % change	Full year 2017 £m
United Kingdom⁵	198	267	(26)%	(26)%	527
Europe⁵	307	246	25%	24%	533
Asia & Aviva Investors	98	83	18%	21%	183
Total	603	596	1%	1%	1,243

General insurance combined operating ratio^‡

	6 months 2018	6 months 2017	Change	Full year 2017
United Kingdom⁵	94.3%	93.2%	1.1pp	93.9%
Canada	104.6%	98.9%	5.7pp	102.2%
Europe⁵	93.5%	91.0%	2.5pp	93.3%
Combined operating ratio^‡	97.4%	94.5%	2.9pp	96.6%

Profit after tax

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m
IFRS profit after tax	376	716	(47)%	1,646
Basic earnings per share	7.9p	14.9p	(47)%	35.0p

Interim dividend

	6 months 2018	6 months 2017	Sterling % change
Interim dividend per share	9.25p	8.40p	10%

Capital position

	30 June 2018	31 December 2017	Sterling % change	30 June 2017
Estimated Shareholder Solvency II cover ratio^‡,6	187%	198%	(11.0)pp	193%
Estimated Solvency II surplus	£11.0bn	£12.2bn	(10)%	£11.4bn
Net asset value per share	411p	423p	(3)%	412p

1 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per note B5 'Segmental Information'.

2 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).

3 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 the new management structure within Europe, but they are reported within United Kingdom.

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

5 Following the launch of UK Insurance which brings together UK Life, UK General Insurance and UK Health into a combined business, the Ireland Life and General Insurance businesses have been aligned to the new management structure and reported within Europe. As a result, comparative balances for HY17 have been restated.

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

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1 - Operating profit^‡#

For the six month period ended 30 June 2018

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Operating profit before tax attributable to shareholders' profits
Life business
United Kingdom^1,2	831	727	1,728
Europe²	414	439	873
Asia	143	120	235
Other	4	10	16
Total life business	1,392	1,296	2,852
General insurance and health
United Kingdom^1,2	209	222	447
Canada	(13)	71	46
Europe²	112	123	223
Asia	(11)	(5)	(8)
Other	5	7	(4)
Total general insurance and health	302	418	704
Fund management
Aviva Investors	76	71	168
Asia	(2)	(2)	(4)
Total fund management	74	69	164
Other
Other operations^1,3	(83)	(76)	(143)
Market operating profit	1,685	1,707	3,577
Corporate centre	(99)	(83)	(184)
Group debt costs and other interest	(148)	(159)	(325)
Operating profit before tax attributable to shareholders' profits	1,438	1,465	3,068
Tax attributable to shareholders' profit	(303)	(311)	(639)
Non-controlling interests	(46)	(73)	(134)
Preference dividends and other⁴	(15)	(32)	(82)
Operating profit attributable to ordinary shareholders	1,074	1,049	2,213

Operating earnings per share	26.8p	25.8p	54.8p

1 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 B5. The impact of this change was to reduce UK Life operating profit for HY18 by £37 million (HY17: £23 million, 2017: £30 million). The impact of this change on General insurance and Health is not significant.

2 Following the launch of UK Insurance which brings together UK Life, UK General Insurance and UK Health into a combined business, the Ireland Life and General Insurance businesses have been aligned to the new management structure and reported within Europe. As a result, comparative balances for HY17 have been restated.

3 Other operations relate to non-insurance activities and include costs associated with our Group and regional head offices, pension scheme expenses, as well as non-insurance income.

4 Other includes coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax).

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Page 4

2.i - Cash remittances^‡#

The flow of sustainable cash remittances from the Group's businesses is a key financial priority. We use a wholly owned, UK domiciled reinsurance subsidiary for internal capital and cash management purposes. Some of the remittances otherwise attributable to the operating businesses arise from this internal reinsurance vehicle.

The table below reflects actual remittances received by the Group, comprising dividends and interest on internal loans paid by our operating segments. Cash remittances are eliminated on consolidation and hence are not directly reconcilable to the Group's IFRS statement of cash flows.

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
United Kingdom^1,2	1,226	930	1,800
Canada	13	13	55
Europe²	217	190	485
Asia & Aviva Investors	37	37	58
Total	1,493	1,170	2,398

1 Full year 2017 cash remittances include £337 million received from UK General Insurance in February 2018 in respect of 2017 activity.

2 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland were not aligned to the new management structure within Europe, but they are reported within United Kingdom.

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2.ii - Operating capital generation: Solvency II (SII) basis^#

The active management of the generation and utilisation of capital is a primary Group focus, balancing new business investment and shareholder distribution to deliver cash flow plus growth for our shareholders.

Solvency II Operating Capital Generation (OCG) measures the amount of Solvency II capital the Group generates from operating activities. Capital generated enhances Solvency II surplus which can be used to fund business unit remittances and, in turn, the Group dividend as well as for investment in initiatives that provide potential future growth.

	Life business SII operating capital generation				Non-life SII operating capital generation
6 months 2018 £bn	Impact of new business	Earnings from existing business	Other¹	Life SII operating capital generation	GI, Health, FM & other SII operating capital generation	Total SII operating capital generation
United Kingdom & Ireland Life²	(0.1)	0.5	0.2	0.6	-	0.6
United Kingdom & Ireland General Insurance and Health²					0.3	0.3
Canada					-	-
Europe²	-	0.3	-	0.3	0.1	0.4
Asia & Aviva Investors³	-	-	-	-	-	-
Group centre costs and Other¹	-	-	-	-	(0.4)	(0.4)
Total Group Solvency II operating capital generation	(0.1)	0.8	0.2	0.9	-	0.9

	Life business SII operating capital generation				Non-life SII operating capital generation
6 months 2017 £bn	Impact of new business	Earnings from existing business	Other¹	Life SII operating capital generation	GI, Health, FM & other SII operating capital generation	Total SII operating capital generation
United Kingdom & Ireland Life²	-	0.4	0.2	0.6	-	0.6
United Kingdom & Ireland General Insurance and Health²					0.2	0.2
Canada					0.1	0.1
Europe²	-	0.3	-	0.3	0.1	0.4
Asia & Aviva Investors	-	-	-	-	0.1	0.1
Group centre costs and Other¹	-	-	-	-	(0.3)	(0.3)
Total Group Solvency II operating capital generation	-	0.7	0.2	0.9	0.2	1.1

	Life business SII operating capital generation				Non-life SII operating capital generation
Full Year 2017 £bn	Impact of new business	Earnings from existing business	Other¹	Life SII operating capital generation	GI, Health, FM & other SII operating capital generation	Total SII operating capital generation
United Kingdom & Ireland Life²	(0.1)	0.9	1.6	2.4	-	2.4
United Kingdom & Ireland General Insurance and Health²					0.4	0.4
Canada					(0.1)	(0.1)
Europe²	-	0.6	0.1	0.7	0.2	0.9
Asia & Aviva Investors	-	0.1	-	0.1	-	0.1
Group centre costs and Other¹	-	-	(0.8)	(0.8)	(0.3)	(1.1)
Total Group Solvency II operating capital generation	(0.1)	1.6	0.9	2.4	0.2	2.6

1 Other includes the effect of non-recurring capital actions, non-economic assumption changes and Group diversification benefit.

2 Solvency II operating capital generation is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, Solvency II operating capital generation from Ireland was not aligned to the new management structure within Europe, but it was reported within United Kingdom.

3 The methodology used to calculate OCG for our UK Fund Management business, Aviva Investors, has been changed such that profit is now recognised as it is earned (in line with the insurance businesses) rather than at the point at which it is audited. This represents a difference to regulatory Solvency II own funds. Due to roundings, there is no impact on reported OCG at HY17 and FY17 as a result of this change.

Solvency II OCG was £0.9 billion during HY18 (HY17: £1.1 billion).

The life business OCG remains stable at £0.9 billion. In the UK, OCG remained at £0.6 billion, where a slight increase in earnings from existing business was offset by the adverse impact on OCG from increased volumes of Bulk Purchase Annuities (BPAs). It is expected that monies received in respect of BPAs will be invested in appropriate higher yielding assets in the second half of 2018, at which point additional operational capital will be generated. Other OCG of £0.2 billion includes the benefit of operating assumption changes, primarily longevity, in the first half of 2018.

The general insurance, health, fund management and other business OCG reduced by £0.2 billion to nil at HY18. This was mainly due to a reduction of £0.1 billion in Canada due to adverse weather claims experience and challenges in the motor market and a reduction of £0.1 billion due to a lower benefit arising from Group diversification. These reductions were partially offset by higher surplus generation in the UK general insurance business.

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3 - Expenses

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
United Kingdom¹	789	720	1,493
Canada	237	234	478
Europe¹	402	408	820
Asia	91	101	207
Aviva Investors	208	202	409
Other Group activities	202	186	371
Operating cost base	1,929	1,851	3,778
Integration & restructuring costs	-	52	141
Expense base	1,929	1,903	3,919
Operating expense ratio	54.9%	53.3%	52.7%

As communicated at the Capital Markets day in November 2017, we have improved our quality of earnings by more strictly applying the criteria used to determine whether integration and restructuring costs should be excluded from operating profit. As these costs are not material in the period to 30 June 2018, they have been absorbed within operating profit. It is possible that significant integration and restructuring activity undertaken in the future may result in the related costs being excluded from operating profit.

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4 - New business

4.i - Value of new business on an adjusted Solvency II basis (VNB)^‡

Adjusted Solvency II VNB reflects Solvency II assumptions and allowance for risk, and is defined as the increase in Solvency II own funds resulting from business written in the period, including the impacts of interactions between in-force and new business, adjusted to:

· Remove the impact of the contract boundary restrictions under Solvency II;

· Allow for businesses which are not within the scope of Solvency II own funds (e.g. UK and Asia Healthcare business, Retail fund management business and UK equity release business); and

· Include the impacts of tax and 'look through profits' in service companies (where not included in Solvency II) and deduct the impacts of non-controlling interests.

The methodology underlying the calculation of VNB remains unchanged from the prior year. Consistent with the prior year, new business written since the introduction of Solvency II has been reflected in the calculation of UK Life's transitional measures (in line with the clarification issued by the PRA in 2017). Further details of the methodology are included in the Other Information section.

A reconciliation between adjusted Solvency II VNB and the Solvency II own funds impact of new business is provided below.

6 months 2018	UK £m	Europe £m	Asia & Other £m	Group £m
Adjusted Solvency II VNB (gross of tax and non-controlling interests)	198	307	98	603
Allowance for Solvency II contract boundary restrictions	55	(26)	(9)	20
Allowance for businesses which are not in the scope of the Solvency II own funds	(65)	(1)	(15)	(81)
Tax & Other²	(40)	(130)	(12)	(182)
Solvency II own funds impact of new business (net of tax and non-controlling interests)	148	150	62	360

6 months 2017	UK¹ £m	Europe¹ £m	Asia & Other £m	Group £m
Adjusted Solvency II VNB (gross of tax and non-controlling interests)	267	246	83	596
Allowance for Solvency II contract boundary restrictions	32	(42)	2	(8)
Allowance for businesses which are not in the scope of the Solvency II own funds	(85)	(22)	(14)	(121)
Tax & Other²	(45)	(89)	(12)	(146)
Solvency II own funds impact of new business (net of tax and non-controlling interests)	169	93	59	321

Full year 2017	UK £m	Europe £m	Asia & Other £m	Group £m
Adjusted Solvency II VNB (gross of tax and non-controlling interests)	527	533	183	1,243
Allowance for Solvency II contract boundary restrictions	54	(64)	4	(6)
Allowance for businesses which are not in the scope of the Solvency II own funds	(167)	(45)	(34)	(246)
Tax & Other²	(105)	(184)	(25)	(314)
Solvency II own funds impact of new business (net of tax and non-controlling interests)	309	240	128	677

2 Other includes the impact of 'look through profits' in service companies (where not included in Solvency II) of £(34) million at HY18 and the reduction in value when moving to a net of non-controlling interests basis of £(51) million at HY18.

4.ii - Sales, VNB and new business margin analysis

The table below sets out the present value of new business premiums (PVNBP) written by the life and related businesses, VNB and the resulting margin, gross of tax and non-controlling interests, on an adjusted Solvency II basis. PVNBP is calculated using assumptions consistent with those used to determine VNB.

			PVNBP			VNB	New business margin
Gross of tax and non-controlling interests	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m	6 months 2018 %	6 months 2017 %	Full year 2017 %
United Kingdom¹	12,550	11,191	23,764	198	267	527	1.6%	2.4%	2.2%
Europe¹	6,799	6,244	12,065	307	246	533	4.5%	3.9%	4.4%
Asia & Other	2,160	2,590	4,966	98	83	183	4.5%	3.2%	3.7%
Total	21,509	20,025	40,795	603	596	1,243	2.8%	3.0%	3.0%

New business margins have reduced slightly to 2.8% (HY17: 3.0%). This reduction was primarily driven by a fall in new business margin in the UK from 2.4% to 1.6%. Despite the five-fold increase in volumes for BPAs, new business margin reduced due to the lead time required to achieve the asset mix assumed at pricing. It is expected that monies already received in respect of BPAs will be invested in appropriate higher yielding investments in the second half of 2018, at which point additional VNB will be generated. Additionally, we experienced margin reduction due to economic factors impacting the annuity business and lower volumes in the protection business as we maintained pricing discipline in a competitive market.

In Europe new business margins increased over the first half of the year mainly driven by Italy and France. In Italy this was due to the growth of the new unit-linked/with-profits product with a higher profit margin. In France this was due to increased volumes of unit-linked products with higher margins as a result of favourable economic assumptions and a decrease in acquisition costs.

The new business margin in Asia & Other increased to 4.5% (HY17: 3.2%) reflecting an improved product mix in Singapore towards higher margin protection business.

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5 - General insurance combined operating ratio (COR)^‡

	Net earned premiums			Claims ratio			Commission and expense ratio			Combined operating ratio
	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %
United Kingdom¹	2,014	1,996	4,015	61.6	59.9	61.0	32.7	33.3	32.9	94.3	93.2	93.9
Canada	1,450	1,429	2,944	74.1	69.5	72.2	30.5	29.4	30.0	104.6	98.9	102.2
Europe¹	991	980	2,001	64.7	61.2	63.1	28.8	29.8	30.2	93.5	91.0	93.3
Other²	11	6	16	80.4	87.3	85.9	44.6	44.1	37.3	125.0	131.4	123.2
Total	4,466	4,411	8,976	66.3	63.2	65.3	31.1	31.3	31.3	97.4	94.5	96.6

2 Includes Asia and Aviva Re.

Normalised accident year COR

The normalised accident year combined operating ratio represents the combined operating ratio adjusted to exclude the impact of prior year reserve development and weather variations versus expectations, gross of the impact of profit sharing arrangements. Dealing with each of these adjustments in turn:

· Prior year reserve development represents the change in the ultimate cost of the claims incurred in prior years.

· Weather claims over/(under) long-term average represents the difference between the reported net incurred cost of claims that have occurred as a result of weather events and the equivalent long-term average expected net costs.

These adjustments are made so that the underlying performance of the Group can be assessed excluding factors that might distort the trend in the claims ratio on a year on year basis. A reconciliation between the reported and normalised accident year COR is provided below.

	UK¹			Canada			Europe¹			Total
	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %
Normalised accident year COR	96.1	96.5	96.9	101.9	96.9	100.7	91.9	93.2	94.1	97.1	96.0	97.8
Prior year reserve development	(2.0)	(0.5)	(1.0)	0.5	1.6	1.3	0.1	(3.1)	(0.9)	(0.8)	(0.6)	(0.3)
Weather claims over/(under) long-term average	0.2	(2.8)	(2.0)	2.2	0.4	0.2	1.5	0.9	0.1	1.1	(0.9)	(0.9)
Combined operating ratio	94.3	93.2	93.9	104.6	98.9	102.2	93.5	91.0	93.3	97.4	94.5	96.6

The Group normalised COR increased to 97.1% (HY17: 96.0%). This increase was mainly due to Canada where the normalised COR increased to 101.9% (HY17: 96.9%) as a result of adverse claims experience and challenges in the motor market which continued into 2018. An extensive profit remediation plan is in progress with ongoing actions around pricing, indemnity management and risk selection. The performance in Canada was partially offset by an improvement in the normalised COR in the UK to 96.1% (HY17: 96.5%) due to growth in high margin channels of the commercial book and the benefit of underwriting actions taken in 2017 in commercial motor (including exiting underperforming lines of business and rate increases) and a focus on managing large losses. The normalised COR in Europe has improved to 91.9% (HY17: 93.2%) primarily due to lower large losses in France, remediation actions in Italy and improved underlying performance in Ireland.

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6 - Business unit performance

6.i - United Kingdom

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m
Operating profit^{1,2, ‡#}
Life	831	727	14%	1,728
General Insurance	195	214	(9)%	411
Health	14	8	75%	36
	1,040	949	10%	2,175
Cash remitted to Group^{3,4, ‡#}
Life	1,217	922	32%	1,366
General Insurance and Health	9	8	13%	434
	1,226	930	32%	1,800
Expenses
Operating expenses¹	789	720	10%	1,493
Integration and restructuring costs	-	32	(100)%	76
	789	752	5%	1,569
New business
PVNBP	12,550	11,191	12%	23,764
Solvency II VNB^{1, ‡}	198	267	(26)%	527

General Insurance
COR^{1, ‡}	94.3%	93.2%	1.1pp	93.9%
Net written premium (NWP)¹	2,110	2,105	-	4,078

2 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per note B5 'Segmental Information'. UK Life operating profit reduced by £23 million at HY17 and £30 million at 2017; UK General Insurance operating profit increased by £1 million at HY17 and £3 million at 2017; UK Health increased by £1 million at 2017 (HY17: nil).

3 In 2017 cash remittances include amounts of £337 million received from UK General Insurance in February 2018 in respect of 2017 activity.

4 Cash remitted to Group is managed at legal entity level. As Ireland constitutes a branch of the United Kingdom business, cash remittances from Ireland were not aligned to the new management structure within Europe, but they were reported within United Kingdom.

Overview

UK Insurance's operating profit increased by 10% to £1,040 million (HY17: £949 million). Our position as the UK's leading multi-line insurer has allowed us to deliver year on year increase in operating profit. We have benefitted from continued positive longevity developments, growth in long-term savings and annuities, stable performance in general insurance while absorbing the costs of investment in growth and simplification initiatives.

The Friends Life Part VII transfer was completed on 1 October 2017. Cash remittances of £1,226 million include a special cash remittance of £500 million (HY17: £315 million) arising as a result of the transfer, taking the total remittances from the transfer to £1.25 billion, exceeding the targeted £1 billion.

UK Insurance operating entities remain in a strong capital position.

Operating and financial performance

Operating profit^{1, ‡#}

	6 months 2018 £m			6 months 2017 £m			Full year 2017 £m
Operating profit	New business	Existing business	Total £m	New business	Existing business	Total £m	Sterling % change	New business	Existing business	Total £m
Long-term savings²	(41)	147	106	(40)	129	89	19%	(74)	259	185
Annuities and equity release	108	214	322	109	200	309	4%	335	390	725
Protection	51	57	108	67	66	133	(19)%	130	97	227
Legacy³	-	188	188	-	187	187	1%	-	331	331
Other⁴	-	107	107	-	9	9	1089%	-	260	260
Life	118	713	831	136	591	727	14%	391	1,337	1,728
Underwriting result			115			135	(15)%			246
Longer-term investment return			79			78	1%			163
Other⁵			1			1	-			2
General Insurance			195			214	(9)%			411
Health			14			8	75%			36
Total operating profit			1,040			949	10%			2,175

1 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per note B5 'Segmental Information'.

2 Includes pensions and the savings Platform.

3 Legacy represents products no longer actively marketed, including with-profits and bonds.

4 Other Life represents changes in assumptions and modelling, non-recurring items and non-product specific items.

5 Other General Insurance includes unwind of discount and pension scheme net finance costs.

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

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Page 10

6.i - United Kingdom continued

UK Life operating profit increased by 14% to £831 million (HY17: £727 million) due to further benefits from changes in longevity assumptions and the continued growth of our long-term savings franchise. Annuity new business profit reflect the yield on assets actually held at the reporting date rather than the asset mix assumed at pricing, with reported profit adversely impacted by the increased volume of BPAs in the period. It is expected that monies already received in respect of BPAs will be invested in appropriate higher yielding investments in the second half of 2018, at which point additional operating profit will be generated.

UK General Insurance operating profit decreased by 9% to £195 million (HY17: £214 million) despite improved underlying performance, because of higher weather-related costs than in 2017, primarily from adverse weather conditions in March.

UK Health operating profit increased by 75% to £14 million (HY17: £8 million) due to strong underlying margins.

Long-term savings

Long-term savings operating profit increased by 19% to £106 million (HY17: £89 million) with positive net inflows of £2.5 billion (HY17: £2.1 billion) leading to an increase in assets under management (AUM) to £121 billion (HY17: £109 billion), while maintaining a stable in-force profit margin. Along with growth in workplace pension net flows, we delivered continued positive platform net flows of £2.2 billion (HY17: £3.0 billion) despite a temporary impact that affected independent financial adviser and customer functionality as we migrated between platform service providers. Platform assets under administration grew by 12% in the year to £22.7 billion (2017: £20.2 billion).

Annuities and Equity Release

Annuities and equity release operating profit increased by 4% to £322 million (HY17: £309 million) with new business being broadly in line with the prior year, despite the adverse impact of increased BPA volumes. It is expected that monies already received in respect of BPAs will be invested in appropriate higher yielding investments in the second half of 2018, at which point additional operating profit will be generated. PVNBP increased by 83% to £2,631 million (HY17: £1,435 million) as a result of BPA growth, including Aviva's largest bulk annuity deal to date of £925 million with Marks & Spencer as well as two other large deals towards the end of June 2018. Existing business operating profit increased by £14 million to £214 million due to favourable longevity experience variances, offset by the non-recurrence of a £54 million benefit recognised in HY17 from optimising the asset mix.

Protection

Protection operating profit decreased by 19% to £108 million (HY17: £133 million) reflecting a reduction in new business volumes as PVNBP fell by 11% to £892 million (HY17: £1,006 million) as we maintained pricing discipline in a competitive Individual Protection market.

Legacy

Legacy contributed operating profit of £188 million (HY17: £187 million). The expected reduction in assets under management as policies matured was partly offset by favourable market movements and an increase in backbook management actions. We continue to expect operating profit from the legacy business to decline by approximately 10% per annum over the medium term.

Other

Other of £107 million includes the impact of a refinement in the application of our bulk annuity assumptions and an update for recent experience on individual annuities that has led to a positive change to base mortality (£200 million), partly offset by an additional £90 million provision relating to potential redress for advised sales by Friends Provident, with over 90% of cases being pre-2002 (refer to note B14 for further details of this provision).

Other of £9 million in HY17 mainly relates to a change in the allocation strategy for assets backing annuities (£55 million), partly offset by various other reserving and modelling impacts.

General insurance

UK General Insurance operating profit decreased by 9% to £195 million (HY17: £214 million).

The underwriting result decreased by 15% to £115 million (HY17: £135 million), reflecting higher weather costs related to the March freeze but in line with long-term weather expectations compared to the benign experience at HY17. This has been partly offset by an improvement in underlying performance as a result of more disciplined underwriting and higher prior year reserve releases.

Longer-term investment return (LTIR) remained stable at £79 million (HY17: £78 million), with the reduction in the internal loan return (net neutral to Group) offset by improved investment returns.

Cash^‡#

Cash remitted to Group was £1,226 million (HY17: £930 million) including an additional £500 million (HY17: £315 million) of Friends Life integration remittance taking instalments to date to £1.25 billion, exceeding the target of £1 billion.

Expenses

Total expenses increased by 5% to £789 million (HY17: £752 million), as we continue to invest in growth and simplification initiatives including building our bulk purchase annuity capability and improvements to customer experience. Excluding these initiatives, UKI expenses were broadly flat.

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Page 11

6.i - United Kingdom continued

New business

	PVNBP				Solvency II VNB^‡
	6 months 2018 £m	6 months 2017 £m	Sterling % change¹	Full year 2017 £m	6 months 2018 £m	6 months 2017 £m	Sterling % change¹	Full year 2017 £m
Long-term savings	8,729	8,372	4%	16,813	81	82	(1)%	153
Annuities and equity release	2,631	1,435	83%	4,287	32	77	(58)%	157
Protection	892	1,006	(11)%	1,964	68	88	(23)%	183
Health and Other	298	378	(21)%	700	17	20	(15)%	34
Total	12,550	11,191	12%	23,764	198	267	(26)%	527

PVNBP was up by 12% to £12,550 million (HY17: £11,191 million). At the same time VNB decreased by 26% to £198 million (HY17: £267 million). The increase in PVNBP is primarily due to BPA growth, including Aviva's largest bulk annuity deal to date of £925 million with Marks & Spencer as well as two other large deals transacted towards the end of June 2018.

Long-term savings VNB was broadly flat year on year at £81 million (HY17: £82 million), with lower Platform volumes reflecting the impact of transition offset by increased workplace pension volumes and improved margins.

Annuities and equity release VNB decreased by 58% to £32 million (HY17: £77 million), with the growth in BPAs offset by the adverse impact of a timing difference as we invest monies received in appropriate higher yielding investments in the second half of 2018, at which point additional VNB is expected to be generated. Margins have also been impacted by asset mix and lower spreads.

Protection VNB reduced by 23% to £68 million (HY17: £88 million) driven by reduced sales as we maintained pricing discipline in a competitive market.

Health and other VNB decreased by 15% to £17 million (HY17: £20 million) with a fall in volumes offset by increased margins.

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

	Net written premiums				Combined operating ratio
United Kingdom General insurance	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m	6 months 2018 %	6 months 2017 %	Change	Full year 2017 %
Personal motor	559	580	(4)%	1,142
Personal non-motor	687	689	-	1,359
UK personal lines	1,246	1,269	(2)%	2,501	95.2%	92.9%	2.3pp	92.0%

Commercial motor	270	269	-	514
Commercial non-motor	594	567	5%	1,063
UK commercial lines	864	836	3%	1,577	93.0%	93.6%	(0.6)pp	96.7%
Total	2,110	2,105	-	4,078	94.3%	93.2%	1.1pp	93.9%

NWP

NWP increased to £2,110 million as we continue to grow in our preferred channels of Commercial non-motor and Personal lines direct, while maintaining discipline in Motor as market rates reduce.

UK Personal motor decreased by 4%, reflecting lower average premiums as a result of the softening motor market. New business rates are in line with the market. UK Personal non-motor was broadly flat, but includes growth in direct home.

UK Commercial lines were up by 3%, driven by a 5% increase in Commercial non-motor, reflecting growth in both SME and Global Corporate Speciality (GCS). Commercial motor was flat as we maintained disciplined underwriting, taking growth opportunities as they arise.

COR^‡

The COR of 94.3% was 1.1pp higher than prior year, due to higher weather costs as a result of the March freeze, but broadly in line with long-term weather expectations compared to the benign weather experience in HY17. This was partly offset by improved underlying performance and higher prior year reserve releases.

UK Personal lines COR of 95.2% was 2.3pp higher year on year, reflecting the impact of the March freeze, partly offset by higher prior year reserve releases and improved business mix from growth in our preferred personal lines channels.

UK Commercial lines COR of 93.0% was 0.6pp lower year on year, reflecting growth in preferred Commercial lines channels and the earning through of underwriting actions taken in 2017 in Commercial motor.

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Page 12

6.ii - International

(a) Canada

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency %	Full year 2017 £m
Operating (loss)/profit^‡	(13)	71	(118)%	(119)%	46
Cash remitted to Group^‡	13	13	-	4%	55
Expenses
Operating expenses	237	234	2%	6%	478
Integration and restructuring costs	-	9	(100)%	(100)%	15
	237	243	(2)%	2%	493
COR^‡	104.6%	98.9%	5.7pp	5.7pp	102.2%
NWP	1,483	1,477	-	5%	3,028

Overview

During 2018, operating profit fell significantly compared to the prior year due to adverse weather and challenges in the Canadian motor market experienced in the second half of 2017 which continued into the current year. Losses from natural catastrophes were £31 million worse than the long-term average and £25 million higher than the prior year. An extensive profit remediation plan is well underway with ongoing actions around pricing, indemnity management and risk selection. The impacts of these actions are starting to flow through our results. While the overall COR shows a deterioration from the prior year, the normalised COR has improved from 104.4% in the second half of 2017 to 101.9%, with recent rate increases yet to earn through.

All percentage movements below are quoted in constant currency unless otherwise stated.

Operating and financial performance

Operating profit^‡#

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency %	Full year 2017 £m
Underwriting result	(67)	16	(510)%	(527)%	(64)
Longer-term investment return	56	57	(1)%	3%	115
Other¹	(2)	(2)	(41)%	(47)%	(5)
Total	(13)	71	(118)%	(119)%	46

1 Includes unwind of discount and pension scheme net finance costs

In 2018, the underwriting result decreased to a loss of £67 million (HY17: profit of £16 million), mainly driven by adverse weather experience, and increased claims frequency and severity in our personal auto line of business. This result should be set against the fact that there have been persistent extreme weather events over the period, particularly in Ontario following significant snow, wind and ice storms.

The longer-term investment result was broadly in line with the prior year.

Cash^‡#

Cash remittances during the period of £13 million (HY17: £13 million) were in line with the comparable period.

Expenses

Operating expenses increased modestly to £237 million (HY17: £234 million) mostly due to an increase in claims handling costs, premium taxes and project spend. £6 million (HY17: £9 million) of RBC integration costs were incurred within operating expenses as we complete systems migration and staff relocation. The integration of RBC is due to be completed in 2018.

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

	Net written premiums					Combined operating ratio
	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency %	Full year 2017 £m	6 months 2018 %	6 months 2017 %	Change	Full year 2017 %
Personal lines	1,066	1,047	2%	6%	2,171	107.3%	99.4%	7.9pp	102.5%
Commercial lines	417	430	(3)%	1%	857	97.8%	97.6%	0.2pp	101.2%
Total	1,483	1,477	-	5%	3,028	104.6%	98.9%	5.7pp	102.2%

NWP

NWP were £1,483 million (HY17: £1,477 million), a slight increase from HY17 due to growth in personal lines from rate increases. Commercial lines premiums reduced slightly over the prior year as rate increases were offset by lower new business sales and retention as we tightened our underwriting risk appetite.

COR^‡

The COR increased to 104.6% (HY17: 98.9%) due to increased claims frequency and severity, particularly in motor, as well as heightened natural catastrophe losses.

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

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Page 13

6.ii - International continued

(b) Europe¹

	6 months 2018 £m	6 months 2017¹ £m	Sterling % change	Constant currency %	Full year 2017 £m
Operating profit^‡#
Life	414	439	(6)%	(8)%	873
General insurance & health	112	123	(8)%	(10)%	223
	526	562	(6)%	(8)%	1,096

Cash remitted to Group^{1, ‡#}	217	190	14%	12%	485
Expenses
Operating expenses	402	408	(2)%	(4)%	820
Integration and restructuring costs	-	9	(100)%	(100)%	36
	402	417	(4)%	(6)%	856
New business
PVNBP	6,799	6,244	9%	8%	12,065
Solvency II VNB^‡	307	246	25%	24%	533

General Insurance
COR^‡	93.5%	91.0%	2.5pp	2.5pp	93.3%
NWP	1,092	1,100	(1)%	(3)%	2,018

1 Following the launch of UK Insurance which brings together UK Life, UK General Insurance and UK Health into a combined business, the Ireland Life and General Insurance businesses have been aligned to the new management structure and reported within Europe. As a result, comparative balances for HY17 have been restated. This realignment was not implemented for cash remitted to Group, as this metric is managed at legal entity level and Ireland constitutes a branch of the United Kingdom business.

Overview

On a reported basis, operating profit in Europe was down by 6% to £526 million (HY17: £562 million). However, excluding disposals, Europe demonstrated continued strong operating profit growth of 9% to £518 million (HY17: £474 million), driven primarily by our Life businesses which continue to grow revenue, improve product mix and drive expense efficiencies.

In France, we completed the sale of Antarius in April 2017 to Sogecap, a subsidiary of Société Générale. In Spain, we completed the sale of our shareholdings in our life insurance and pension joint ventures, Unicorp Vida and Caja España Vida, in September 2017 as well as our retail life insurance business, Aviva Vida y Pensiones. We also announced the sale of our shareholding in Caja Murcia Vida and Caja Granada Vida, which completed in July 2018. In Italy, we completed the sale of our shareholdings in Avipop Assicurazioni S.p.A and Avipop Vita S.p.A. (collectively known as Avipop) in March 2018. In Ireland, we completed our acquisition of Friends First Life Assurance Company in June 2018.

All percentage movements below are quoted in constant currency unless otherwise stated.

Operating and financial performance

Operating profit^‡#

	Life					General insurance & health
	6 months 2018 £m	6 months 2017¹ £m	Sterling % change	Constant currency %	Full year 2017 £m	6 months 2018 £m	6 months 2017¹ £m	Sterling % change	Constant currency %	Full year 2017 £m
France (excl. Antarius)	229	196	17%	15%	403	50	54	(7)%	(8)%	104
Poland	86	77	12%	8%	156	9	11	(13)%	(16)%	21
Italy (excl. Avipop)	68	67	1%	(1)%	136	14	8	71%	69%	26
Ireland	13	6	109%	106%	33	37	38	(2)%	(4)%	53
Other Europe (excl. Unicorp, Caja España and Aviva Vida)²	12	17	(29)%	(26)%	40	-	-	-	-	-
Total (excl. Antarius, Avipop, Unicorp, Caja España & Aviva Vida)	408	363	12%	10%	768	110	111	-	(2)%	204
Antarius	-	21	(100)%	(100)%	22	-	-	-	-	-
Avipop	6	16	(63)%	(63)%	32	2	12	(83)%	(84)%	19
Unicorp, Caja España and Aviva Vida	-	39	(100)%	(100)%	51	-	-	-	-	-
Total	414	439	(6)%	(8)%	873	112	123	(8)%	(10)%	223

2 Includes Spain and Turkey.

Excluding the impact of disposals, the operating profit of our Life businesses grew by 10% to £408 million (HY17: £363 million) demonstrating continued strong underlying growth. Dealing with each of the markets in turn:

· In France, operating profit was £229 million (HY17: £196 million), representing an increase of 15% due to continued mix improvement towards higher margin unit-linked products and improved expense efficiencies.

· In Poland, operating profit was £86 million (HY17: £77 million), an increase of 8% as a result of the favourable impact of equity market movements on pension assets and the subsequent increase in fee income and an increased shift towards protection business.

· In Italy, operating profit was broadly flat, with significant new business growth in our hybrid product and initiatives to broaden distribution reach, offset by one-off reserve adjustments.

· In Ireland, operating profit increased to £13 million (HY17: £6 million) due to management actions taken to improve profitability including a review of annuity pricing and experience. The acquisition of Friends First received final regulatory approval in June 2018 and the benefit to the Group's results of this will be seen in the second half of 2018.

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

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Page 14

6.ii - International continued

Operating profit continued

Excluding Avipop, the profit of our General Insurance businesses remained broadly flat at £110 million (HY17: £111 million). Dealing with each of the markets in turn:

· In France, operating profit was £50 million (HY17: £54 million), with a change in the trend of prior year development partially offset by lower large losses.

· In Poland, operating profit was £9 million (HY17: £11 million) with the slight decrease mainly due to a reduction in the underwriting result of our motor business.

· In Italy, operating profit increased to £14 million (HY17: £8 million) due to improved claims experience and investment return. We expect action taken on this book in 2017 to continue to show positive results in the second half of 2018.

Cash^‡#

Cash remitted to the Group was £217 million (HY17: £190 million) mainly reflecting the impact of timing differences from an earlier remittance from France compared to HY17, partially offset by a delay in the remittance from Poland.

Expenses

Operating expenses of £402 million (HY17: £408 million) were down by 4%, mainly due to the disposal of our Spanish businesses, supported by a continued focus on cost control.

New business

	PVNBP					Solvency II VNB^‡
	6 months 2018 £m	6 months 2017¹ £m	Sterling % change	Constant currency % change	Full year 2017 £m	6 months 2018 £m	6 months 2017¹ £m	Sterling % change	Constant currency % change	Full year 2017 £m
France (excl. Antarius)	2,159	2,000	8%	6%	4,042	123	111	10%	9%	216
Poland	217	202	8%	4%	468	25	28	(9)%	(12)%	57
Italy (excl. Avipop)	3,787	2,134	77%	74%	4,519	146	50	194%	189%	162
Ireland	433	495	(13)%	(14)%	1,050	2	3	(27)%	(28)%	11
Other Europe (excl. Unicorp, Caja España and Aviva Vida)²	187	336	(44)%	(34)%	322	8	15	(48)%	(41)%	30
Total (excl. Antarius, Avipop, Unicorp, Caja España & Aviva Vida)	6,783	5,167	31%	30%	10,401	304	207	47%	46%	476
Antarius	-	405	(100)%	(100)%	411	-	9	(100)%	(100)%	12
Avipop	16	57	(72)%	(72)%	98	3	10	(75)%	(75)%	17
Unicorp, Caja España and Aviva Vida	-	615	(100)%	(100)%	1,155	-	20	(100)%	(100)%	28
Total	6,799	6,244	9%	8%	12,065	307	246	25%	24%	533

2 Includes Spain and Turkey.

Excluding disposals, PVNBP was up by 30% to £6,783 million (HY17: £5,167 million) and VNB increased by 46% with a strong performance driven by Italy and France. In Italy, VNB growth of 189% was mainly due to continued growth in our unit-linked/with-profits hybrid product. In France, VNB growth of 9% was due to higher volumes of unit-linked products with higher margins and a decrease in acquisition costs.

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

	Net written premiums					Combined operating ratio¹
	6 months 2018 £m	6 months 2017¹ £m	Sterling % change	Constant currency %	Full year 2017 £m	6 months 2018 %	6 months 2017¹ %	Change	Full year 2017 %
France	641	605	6%	4%	1,053	95.5%	93.2%	2.3pp	94.5%
Poland	52	59	(13)%	(16)%	117	89.0%	86.2%	2.8pp	86.7%
Italy (excl. Avipop)	162	176	(8)%	(10)%	337	97.4%	98.7%	(1.3)pp	98.1%
Ireland	223	221	1%	-	436	87.1%	84.7%	2.4pp	91.4%
Total (excl. Avipop)	1,078	1,061	2%	-	1,943	93.6%	91.9%	1.7pp	93.9%
Avipop	14	39	(64)%	(65)%	75	87.8%	67.6%	20.2pp	72.4%
Total	1,092	1,100	(1)%	(3)%	2,018	93.5%	91.0%	2.5pp	93.3%

NWP

NWP was flat with growth in France and Ireland offset by a decrease in Poland and Italy as we look to improve the quality of our book. In France, NWP grew to £641 million (HY17: £605 million) with broad based growth across all major products, primarily reflecting underwriting actions undertaken in 2017. In Ireland, NWP increased slightly despite rate reductions in a softening motor market. In Poland, NWP decreased by 16% to £52 million (HY17: £59 million) reflecting a reduction in personal motor volumes as we refine our underwriting criteria. In Italy, NWP decreased by 10% due to continued underwriting action taken on segments of the motor book.

COR^‡

Excluding the disposal of Avipop, European COR has worsened by 1.7pp to 93.6% due to prior year reserve strengthening in France, adverse weather in Ireland in Q1 2018 and a softening personal motor market in Poland. This was partly offset by lower larger losses in France and underwriting action taken in the motor book in Italy.

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Page 15

6.iii - Asia

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency %	Full year 2017 £m
Operating profit^‡#
Life	143	120	19%	19%	235
General insurance & health	(11)	(5)	(139)%	(146)%	(8)
	132	115	14%	14%	227

Cash remitted to Group^‡#	-	-	-	-	-
Expenses
Operating expenses	91	101	(10)%	(8)%	207
Integration and restructuring costs	-	-	-	-	-
	91	101	(10)%	(8)%	207
New business
PVNBP	1,327	1,328	-	2%	2,719
Solvency II VNB^‡	91	71	28%	31%	162

General Insurance
COR^‡	125.0%	131.4%	(6.4)pp	(6.4)pp	123.2%
NWP	7	6	6%	9%	13

Overview

Investment in Asia's distribution channel, digital and analytic capabilities continued in 2018. Singapore continues to grow its core distribution platform, Aviva Financial Advisers, with 772 advisers now on board. In China, the combined agency and broker channel continues to expand with an increase in profitability from Aviva-COFCO, our joint venture in China, while Vietnam accelerates its business via a stronger partnership with Vietinbank. The business in Hong Kong received regulatory approval for a change in the shareholding structure in January 2018 and is expected to launch its first set of protection products in the second half of 2018 utilising a pure digital channel. In January 2018, Aviva announced the sale of its entire 49% shareholding in its joint venture in Taiwan, First Aviva Life to its JV partner, First Financial Holding Co. Ltd.

All percentage movements below are quoted in constant currency unless otherwise stated.

Operating and financial performance

Operating profit^‡#

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency %	Full year 2017 £m
Life operating profit
Singapore	57	47	19%	22%	118
Other Asia (excl. Friends Provident International Limited (FPIL))	15	3	487%	362%	(2)
Total (excl. FPIL)	72	50	43%	45%	116
FPIL¹	71	70	1%	1%	119
Total	143	120	19%	19%	235
General insurance & health operating profit	(11)	(5)	(139)%	(146)%	(8)
Total operating profit	132	115	14%	14%	227

1 In July 2017, Aviva announced the sale of FPIL. The subsidiary has been classified as held for sale from July 2017, when management were committed to a plan to sell the business. The transaction is subject to regulatory approvals and is expected to complete in the second half of 2018.

Operating profit increased by 14% to £132 million (HY17: £115 million) mainly due to a new business contribution of £10 million in Singapore generated from its financial advisory channel and the release of prudent margins in China as the existing business runs off, in addition to positive lapse experience.

The general insurance and health business reported a loss of £11 million (HY17: £5 million) as a result of higher claims experience from our health business in Singapore. A remediation plan for the business will be rolled out in the second half of 2018, including a review of pricing and underwriting guidelines, if appropriate.

Cash^‡#

No dividends were remitted to Group (HY17: £nil) as we continue to reallocate capital to support distribution and digital initiatives in the region.

Expenses

Operating expenses are 8% below the prior period mainly as a result of lower expenses for Hong Kong (following the change in shareholding structure) as only back book expenses are now consolidated, and lower expenses in the Asia regional office due to reduced JV support.

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

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Page 16

6.iii - Asia continued

New business

	PVNBP					Solvency II VNB^‡
	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency % change	Full year 2017 £m	6 months 2018 £m	6 months 2017 £m	Sterling % change	Constant currency % change	Full year 2017 £m
Singapore	583	533	9%	12%	1,164	62	44	43%	47%	123
Other Asia	532	570	(7)%	(4)%	1,088	31	28	8%	8%	45
Total (excl. FPIL)	1,115	1,103	1%	4%	2,252	93	72	30%	32%	168
FPIL¹	212	225	(6)%	(6)%	467	(2)	(1)	(113)%	(113)%	(6)
Total	1,327	1,328	-	2%	2,719	91	71	28%	31%	162

PVNBP has remained stable at £1,327 million (HY17: £1,328 million), while VNB increased by 31% to £91 million (HY17: £71 million). This was primarily driven by Singapore where VNB increased by 47% due to higher business volumes from its financial advisory channel and an improved product mix towards protection products.

COR^‡

The COR improved by 6.4pp to 125.0% (HY17: 131.4%) due to more favourable claims experience following a shift in focus away from motor to travel business.

NWP

NWP contribution from Singapore remains broadly flat at £7 million (HY17: £6 million) as the business continues to invest to build scale.

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Page 17

6.iv - Aviva Investors

	6 months 2018 £m	6 months 2017 £m	Sterling % change	Full year 2017 £m
Revenue: Fee income	284	273	4%	577
Expenses
Operating expenses	208	202	3%	409
Integration and restructuring costs	-	-	-	3
	208	202	3%	412
Operating profit^‡#
Fund management	76	71	7%	168
Other operations	-	25	(100)%	32
	76	96	(21)%	200
Cash remitted to Group^‡#	37	37	-	58

Overview

Fund management operating profit increased by 7% to £76 million from HY17. We continue to invest in growing the business and further progress has been made in developing our global distribution capability and product range resulting in a more diverse client base. During the period, we diversified our illiquid product range and continue to promote our Aviva Investors Multi-Strategy (AIMS) Fixed Income funds.

Operating and financial performance

Revenue

Revenue increased by 4% to £284 million driven by sales across the business and a transfer of £2.3 billion in respect of Stewardship fund in the first half of 2018. Revenue from external clients generated 35% of total revenue (HY17: 35%).

Expenses

Operating expenses were £208 million (HY17: £202 million) as we continue to control our recurring business expenditure. The increase during the period reflects the support required to finance growth initiatives.

Operating profit^‡#

Fund management operating profit increased by £5 million to £76 million (HY17: £71 million). Targeted investment in the business has led to an increase in the operating profit margin, up 1pp to 27% (HY17: 26%) as revenues have grown faster than the increase in expenses.

Operating profit from other operations of £25 million in HY17 related to insurance recoveries.

Cash^‡^#

Cash remitted to Group was £37 million during the first half of 2018, in line with the prior period.

Net flows and assets under management and under administration

Assets under management represent all assets managed by Aviva Investors and third parties. These comprise assets which are included within the Group's statement of financial position and those belonging to external clients outside the Group which are not included in the statement of financial position. Internal legacy relates to assets managed by Aviva Investors on behalf of the Group relating to products that are no longer actively marketed.

Assets under administration comprise assets managed by Aviva Investors and by third parties on platforms administered by Aviva Investors.

	Internal legacy £m	Internal core £m	External £m¹	Total £m
Aviva Investors
Assets under management at 1 January 2018	90,939	187,542	72,246	350,727
Total inflows	7,680	17,223	3,618	28,521
Total outflows	(10,034)	(17,976)	(4,188)	(32,198)
Net Flows	(2,354)	(753)	(570)	(3,677)
Net flows into liquidity funds	(88)	(742)	270	(560)
Transfer in from external managers	-	2,329	-	2,329
Transfer out to external managers	(1,400)	(800)	-	(2,200)
Market and foreign exchange movements	(226)	1,464	(586)	652
Assets under management at 30 June 2018	86,871	189,040	71,360	347,271
Externally managed assets under administration at 1 January 2018				30,483
Externally managed assets under administration net flows and other movements				(2,609)
Externally managed assets under administration at 30 June 2018				27,874
Assets under management and administration at 1 January 2018				381,210
Assets under management and administration at 30 June 2018				375,145

1 Following a review of external funds under management, comparative amounts have been amended from those previously reported to reflect the fact that certain crossholdings had not been correctly eliminated on consolidation. The effect of this change is to reduce external funds under management previously reported at 1 January 2018 by £2.5 billion.

Assets under management decreased by £3.5 billion to £347.3 billion (2017: £350.7 billion) during the period as net inflows from transfers and market movements of £0.1 billion were more than offset by net fund outflows of £3.7 billion. Assets under management and administration at 30 June 2018 are £375.1 billion (2017: £381.2 billion).

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

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Page 18

7.i - Life business profit drivers

	United Kingdom^1,2			Europe¹			Asia⁵			Total
	6 months 2018 £m	6 months 2017 £m¹	Full year 2017 £m	6 months 2018 £m	6 months 2017 £m¹	Full year 2017 £m	6 months 2018 £m	6 months 2017 £m	Full Year 2017 £m	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
New business income	342	362	868	163	137	335	141	101	252	646	600	1,455
Underwriting margin	191	151	280	92	137	215	57	36	85	340	324	580
Investment return	684	677	1,324	559	621	1,171	119	138	227	1,362	1,436	2,722
Total income	1,217	1,190	2,472	814	895	1,721	317	275	564	2,348	2,360	4,757
Acquisition expenses	(219)	(228)	(473)	(152)	(141)	(326)	(106)	(91)	(191)	(477)	(460)	(990)
Administration expenses	(356)	(316)	(689)	(262)	(318)	(558)	(46)	(53)	(99)	(664)	(687)	(1,346)
Total expenses	(575)	(544)	(1,162)	(414)	(459)	(884)	(152)	(144)	(290)	(1,141)	(1,147)	(2,336)
Other³	189	81	418	14	3	36	(22)	(11)	(39)	181	73	415
	831	727	1,728	414	439	873	143	120	235	1,388	1,286	2,836
Net income from other Group activities⁴										4	10	16
Total life business operating profit										1,392	1,296	2,852

New business income (£m) (A)	342	362	868	163	137	335	141	101	252	646	600	1,455
APE (£m)⁶	1,659	1,495	3,140	902	689	1,327	174	180	358	2,735	2,364	4,825
As margin on APE (%)	21%	24%	28%	18%	20%	25%	81%	56%	70%	24%	25%	30%
Acquisition expenses (£m) (B)	(219)	(228)	(473)	(152)	(141)	(326)	(106)	(91)	(191)	(477)	(460)	(990)
As acquisition expense ratio on APE (%)	13%	15%	15%	17%	20%	25%	61%	51%	53%	17%	19%	21%
Administration expenses (£m)	(356)	(316)	(689)	(262)	(318)	(558)	(46)	(53)	(99)	(664)	(687)	(1,346)
As existing business expense ratio on total average reserves (bps)	29	26	29	46	56	49	59	73	66	35	37	37
Net contribution (A-B)	123	134	395	11	(4)	9	35	10	61	169	140	465
Underwriting margin (£m)	191	151	280	92	137	215	57	36	85	340	324	580
Analysed by:
Expenses	31	31	63	15	34	65	40	28	65	86	93	193
Mortality and longevity	160	120	217	71	103	157	18	8	21	249	231	395
Persistency	-	-	-	6	-	(7)	(1)	-	(1)	5	-	(8)

Unit-linked margin (£m)	446	443	891	291	299	585	110	121	202	847	863	1,678
As annual management charge on average reserves (bps)	64	70	68	135	143	138	227	257	213	88	97	92
Average reserves (£bn)⁷	138.9	126.4	130.1	43.0	41.9	42.3	9.7	9.4	9.5	191.6	177.7	181.9
Participating business (£m)⁸	86	88	164	220	270	487	(4)	1	(4)	302	359	647
As bonus on average reserves (bps)	38	36	34	66	80	73	(20)	5	(10)	52	60	55
Average reserves (£bn)⁷	45.3	48.6	48.1	66.2	67.9	66.4	4.0	3.9	3.9	115.5	120.4	118.4
Spread margin (£m)	124	128	271	1	4	6	3	7	12	128	139	289
As spread margin on average reserves (bps)	38	40	43	5	17	13	30	108	80	36	40	42
Average reserves (£bn)⁷	64.5	64.0	62.4	4.3	4.6	4.5	2.0	1.3	1.5	70.8	69.9	68.4
Expected return on shareholder assets (£m)⁹	28	18	(2)	47	48	93	10	9	17	85	75	108
Total (£m)	684	677	1,324	559	621	1,171	119	138	227	1,362	1,436	2,722
Total average reserves (£bn)⁷	248.7	239.0	240.6	113.5	114.4	113.2	15.7	14.6	14.9	377.9	368.0	368.7

3 Other represents changes in assumptions and modelling, non-recurring items and non-product specific items.

4 Other Group activities includes the total result for Aviva Investors' Pooled Pensions and Aviva Life Reinsurance.

5 Following a change in the methodology applied by Friends Provident International, the deferred actuarial funding which forms part of the deferred expense for Investment return was included in the Unit-linked margin and not 'Other'. Comparatives have been restated resulting in an increase in the Investment return and a decrease in DAC and other for Asia by £53 million at HY17.

6 APE excludes UK Retail Fund Management and Health business in UK & Ireland and Asia.

7 An average of the insurance or investment contract liabilities over the reporting period, including managed pension business which is not consolidated within the statement of financial position.

8 The shareholders' share of the return on with-profits and other participating business.

9 The expected investment return based on opening economic assumptions applied to expected surplus assets over the reporting period that are not backing policyholder liabilities.

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Page 19

7.i - Life business profit drivers continued

Life business operating profit before shareholder tax increased by 7% to £1,392 million (HY17: £1,296 million), up by 5% on a constant currency basis.

Overall, total income decreased by 1% to £2,348 million (HY17: £2,360 million) and total expenses decreased by 1% to £1,141 million (HY17: £1,147 million). The resulting decrease in net income was partly offset by a higher benefit from 'Other' items, driven by changes in actuarial assumptions in the UK, to give a total increase in life operating profit of £96 million for the period.

(a) Net contribution from new business

The net contribution from new business increased by 21% to a profit of £169 million (HY17: profit of £140 million). In the UK, the net contribution decreased to a profit of £123 million (HY17: profit of £134 million) mainly as a result of lower protection volumes offsetting growth in the sales of annuities. New business margin on APE decreased slightly to 21% (HY17: 24%) due to lower protection margins. In Europe, the net contribution increased to a profit of £11 million (HY17: loss of £4 million) due to growth in Italy and Poland and higher fee income in France, offset by the impact of disposals. New business margin on APE decreased slightly to 18% (HY17: 20%). In Asia, the net contribution increased to a profit of £35 million (HY17: profit of £10 million) as a result of higher sales in Singapore (protection) and China. New business margin on APE increased to 81% (HY17: 56%) due to the favourable impact of changes in product mix on acquisition expenses.

(b) Administration expenses

The overall expense ratio remained stable at 35 bps (HY17: 37 bps) on average reserves of £378 billion (HY17: £368 billion) with offsetting movements across markets. The increase in the UK is driven by increased investment in growth. The decrease in Europe is due to higher protection volumes in Poland offset by a fall in commission as a result of the impact of disposals. The decrease in Asia is due to a focus on cost control as we continue to invest in growth.

The overall increase in the underwriting margin was driven by the UK, which increased to £191 million (HY17: £151 million) mainly due to favourable annuity experience. In Europe, the underwriting margin decreased to a profit of £92 million (HY17: £137 million) due to a reduction in persistency margins in Italy and the impact of disposals in Spain. In Asia, the underwriting margin increased to £57 million (HY17: £36 million) due to favourable margins on in-force business in China.

(d) Unit-linked margin

The unit-linked margin decreased to £847 million (HY17: £863 million) and the margin as a proportion of average reserves decreased to 88 bps (HY17: 97 bps). In the UK, the unit-linked margin has increased mainly due to favourable market movements and growth in the sales of Group pensions business. At the same time, the margin on average reserves decreased to 64 bps (HY17: 70 bps) due to the expected run-off of the higher margin back book combined with sales of lower margin Group pensions business. In Europe, the unit-linked margin decreased to £291 million (HY17: £299 million) due to growth in Italy and Poland offset by a decrease in France as a result of the disposal of Antarius. In Asia, the decrease in margin to £110 million (HY17: £121 million) is mainly due to lower reserve releases in China.

(e) Participating business

Participating average reserves have decreased to £116 billion (HY17: £120 billion). Income from participating business decreased to £302 million (HY17: £359 million). In the UK, income from participating business decreased to £86 million (HY17: £88 million), mainly due to expected run-off offset by an increase in maturing endowments. In Europe, income decreased to £220 million (HY17: £270 million) as the profitability of participating business in Italy fell due to various reserving adjustments required by local regulations and lower income as a result of disposals in Spain.

(f) Spread margin

Spread business income mainly relates to UK in-force immediate annuity and equity release business and decreased during the period to £128 million (HY17: £139 million), as a result of the adverse impact of an increase in BPA volumes. It is expected that monies already received in respect of BPAs will be invested in appropriate higher yielding investments in the second half of 2018, at which point additional spread margin will be generated.

(g) Expected return on shareholder assets

Expected returns, representing investment income on surplus funds, increased to £85 million (HY17: £75 million) due mainly to the impact of reduced capital optimisation (hedging) activity in the UK.

(h) Other

Other made a positive contribution of £181 million (HY17: £73 million), mainly as a result of longevity assumption changes in the UK.

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Page 20

7.ii - General insurance and health

6 months 2018	UK Personal £m	UK Commercial £m	Total UK £m	Canada Personal £m	Canada Commercial £m	Total Canada £m	Europe £m	Asia & Other¹ £m	Total £m
General insurance
Gross written premiums	1,285	981	2,266	1,082	453	1,535	1,135	6	4,942
Net written premiums	1,246	864	2,110	1,066	417	1,483	1,092	12	4,697
Net earned premiums	1,229	785	2,014	1,039	411	1,450	991	11	4,466
Net claims incurred	(769)	(472)	(1,241)	(825)	(250)	(1,075)	(641)	(5)	(2,962)
Of which claims handling costs			(78)			(56)	(30)	-	(164)
Earned commission	(312)	(164)	(476)	(185)	(85)	(270)	(189)	(1)	(936)
Earned expenses	(88)	(94)	(182)	(106)	(66)	(172)	(97)	(3)	(454)
Underwriting result	60	55	115	(77)	10	(67)	64	2	114
Longer-term investment return (LTIR)²			79			56	44	2	181
Other³			1			(2)	-	-	(1)
Operating profit (GI)			195			(13)	108	4	294
Health insurance
Gross written premiums			285			-	122	100	507
Net written premiums			285			-	122	85	492
Underwriting result			11			-	4	(10)	5
Longer-term investment return (LTIR)			3			-	-	-	3
Operating profit (Health)			14			-	4	(10)	8
Total operating profit (GI and Health)			209			(13)	112	(6)	302
Total gross written premiums			2,551			1,535	1,257	106	5,449
Total net written premiums			2,395			1,483	1,214	97	5,189
General insurance combined operating ratio
Claims ratio	62.6%	60.1%	61.6%	79.4%	60.9%	74.1%	64.7%		66.3%
Commission ratio	25.4%	20.9%	23.6%	17.7%	20.9%	18.6%	19.1%		20.9%
Expense ratio	7.2%	12.0%	9.1%	10.2%	16.0%	11.9%	9.7%		10.2%
Combined operating ratio	95.2%	93.0%	94.3%	107.3%	97.8%	104.6%	93.5%		97.4%
Assets supporting general insurance and health business
Debt securities			2,745			4,186	2,470	175	9,576
Equity securities			489			234	108	-	831
Investment property			329			-	130	-	459
Cash and cash equivalents			475			163	428	28	1,094
Other⁴			1,795			269	376	1	2,441
Assets at 30 June 2018			5,833			4,852	3,512	204	14,401
Debt securities			3,020			4,273	2,592	169	10,054
Equity securities			492			247	33	-	772
Investment property			323			-	176	-	499
Cash and cash equivalents			546			140	399	30	1,115
Other⁴			1,763			252	481	2	2,498
Assets at 31 December 2017			6,144			4,912	3,681	201	14,938
Average assets			5,989			4,882	3,597	203	14,670
Annualised LTIR as % of average assets			2.7%			2.3%	2.4%	2.0%	2.5%

1 Asia & Other includes Aviva Re.

2 LTIR includes UK £19 million (HY17: £25 million) and Ireland £2 million (HY17: £3 million) relating to the internal loan.

3 Includes the result of non-insurance operations, unwind of discount rate and pension scheme net finance costs.

4 Includes loans and other financial investments.

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Page 21

7.ii - General insurance and health continued

6 months 2017	UK Personal £m	UK Commercial £m	Total UK¹ £m	Canada Personal £m	Canada Commercial £m	Total Canada £m	Europe¹ £m	Asia & Other² £m	Total £m
General insurance
Gross written premiums	1,300	934	2,234	1,066	463	1,529	1,140	6	4,909
Net written premiums	1,269	836	2,105	1,047	430	1,477	1,100	6	4,688
Net earned premiums	1,218	778	1,996	1,019	410	1,429	980	6	4,411
Net claims incurred	(719)	(477)	(1,196)	(742)	(250)	(992)	(600)	2	(2,786)
Of which claims handling costs			(72)			(58)	(31)	-	(161)
Earned commission	(327)	(159)	(486)	(174)	(87)	(261)	(198)	-	(945)
Earned expenses	(87)	(92)	(179)	(94)	(66)	(160)	(94)	(3)	(436)
Underwriting result	85	50	135	9	7	16	88	5	244
Longer-term investment return (LTIR)³			78			57	35	1	171
Other^4,5			1			(2)	-	-	(1)
Operating profit (GI)			214			71	123	6	414
Health insurance
Gross written premiums			293			-	165	95	553
Net written premiums			293			-	165	78	536
Underwriting result			7			-	-	(4)	3
Longer-term investment return (LTIR)			1			-	-	-	1
Operating profit (Health)			8			-	-	(4)	4
Total operating profit (GI and Health)			222			71	123	2	418
Total gross written premiums			2,527			1,529	1,305	101	5,462
Total net written premiums			2,398			1,477	1,265	84	5,224
General insurance combined operating ratio
Claims ratio	59.0%	61.4%	59.9%	72.8%	61.0%	69.5%	61.2%		63.2%
Commission ratio	26.8%	20.4%	24.3%	17.2%	20.9%	18.2%	20.2%		21.4%
Expense ratio	7.1%	11.8%	9.0%	9.4%	15.7%	11.2%	9.6%		9.9%
Combined operating ratio	92.9%	93.6%	93.2%	99.4%	97.6%	98.9%	91.0%		94.5%
Assets supporting general insurance and health business
Debt securities			3,255			4,247	2,553	174	10,229
Equity securities			6			249	41	-	296
Investment property			207			-	137	-	344
Cash and cash equivalents			902			145	366	38	1,451
Other⁶			1,808			213	380	2	2,403
Assets at 30 June 2017			6,178			4,854	3,477	214	14,723
Debt securities			3,718			4,349	2,535	197	10,799
Equity securities			7			235	25	-	267
Investment property			208			-	133	-	341
Cash and cash equivalents			757			115	267	23	1,162
Other⁶			1,464			256	309	3	2,032
Assets at 31 December 2016			6,154			4,955	3,269	223	14,601
Average assets			6,165			4,904	3,374	219	14,662
Annualised LTIR as % of average assets			2.6%			2.3%	2.1%	0.9%	2.3%

1 Following the launch of UK Insurance which brings together UK Life, UK General Insurance and UK Health into a combined business, the Ireland Life and General insurance businesses have been aligned to the new management structure and reported within Europe. As a result, comparatives balances at HY17 have been restated.

2 Asia & Other includes Aviva Re.

3 LTIR includes UK £25 million (HY16: £33 million) and Ireland £3 million (HY16: £4 million) relating to the internal loan.

4 Includes the result of non-insurance operations, unwind of discount rate and pension scheme net finance costs.

5 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per note B5 'Segmental Information'.

6 Includes loans and other financial investments.

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Page 22

7.ii - General insurance and health continued

Full year 2017	UK Personal £m	UK Commercial £m	Total UK £m	Canada Personal £m	Canada Commercial £m	Total Canada £m	Europe £m	Asia & Other¹ £m	Total £m
General insurance
Gross written premiums	2,567	1,788	4,355	2,209	929	3,138	2,104	13	9,610
Net written premiums	2,501	1,577	4,078	2,171	857	3,028	2,018	17	9,141
Net earned premiums	2,461	1,554	4,015	2,103	841	2,944	2,001	16	8,976
Net claims incurred	(1,457)	(992)	(2,449)	(1,583)	(543)	(2,126)	(1,262)	(19)	(5,856)
Of which claims handling costs			(149)			(119)	(59)	-	(327)
Earned commission	(647)	(324)	(971)	(372)	(178)	(550)	(390)	(1)	(1,912)
Earned expenses	(161)	(188)	(349)	(201)	(132)	(333)	(213)	(6)	(901)
Underwriting result	196	50	246	(53)	(12)	(65)	136	(10)	307
Longer-term investment return (LTIR)²			163			115	79	3	360
Other^3,4			2			(4)	-	-	(2)
Operating profit (GI)			411			46	215	(7)	665
Health insurance
Gross written premiums			509			-	240	164	913
Net written premiums			509			-	240	145	894
Underwriting result			33			-	7	(5)	35
Longer-term investment return (LTIR)			3			-	1	-	4
Operating profit (Health)			36			-	8	(5)	39
Total operating profit (GI and Health)			447			46	223	(12)	704
Total gross written premiums			4,864			3,138	2,344	177	10,523
Total net written premiums			4,587			3,028	2,258	162	10,035
General insurance combined operating ratio
Claims ratio	59.2%	63.8%	61.0%	75.3%	64.5%	72.2%	63.1%		65.3%
Commission ratio	26.3%	20.8%	24.2%	17.7%	21.1%	18.7%	19.5%		21.3%
Expense ratio	6.5%	12.1%	8.7%	9.5%	15.6%	11.3%	10.7%		10.0%
Combined operating ratio	92.0%	96.7%	93.9%	102.5%	101.2%	102.2%	93.3%		96.6%
Assets supporting general insurance and health business
Debt securities			3,020			4,273	2,592	169	10,054
Equity securities			492			247	33	-	772
Investment property			323			-	176	-	499
Cash and cash equivalents			546			140	399	30	1,115
Other⁵			1,763			252	481	2	2,498
Assets at 31 December 2017			6,144			4,912	3,681	201	14,938
Debt securities			3,718			4,349	2,535	197	10,799
Equity securities			7			235	25	-	267
Investment property			208			-	133	-	341
Cash and cash equivalents			757			115	267	23	1,162
Other⁵			1,464			256	309	3	2,032
Assets at 31 December 2016			6,154			4,955	3,269	223	14,601
Average assets			6,149			4,934	3,475	212	14,770
LTIR as % of average assets			2.7%			2.3%	2.3%	1.4%	2.5%

1 Asia & Other includes Aviva Re.

2 LTIR includes UK £52 million (2016: £62 million) and Ireland £6 million (2016: £7 million) relating to the internal loan.

3 Includes the result of non-insurance operations, unwind of discount rate and pension scheme net finance costs.

4 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per note B5 'Segmental Information'.

5 Includes loans and other financial investments.

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Page 23

7.iii - Life business fund flows

Net flows is one of the measures of growth used by management and is a component of the movement in Life and platform business managed assets (excluding UK with-profits) during the period. It is the difference between the inflows (being net written premiums plus deposits received under investment contracts) and outflows (being net paid claims plus redemptions and surrenders under investment contracts). It excludes market and other movements.

The table shown below sets out the Life and platform business managed assets of the Group and excludes managed assets relating to our general insurance and health businesses. It includes managed assets of £19.7 billion (2017: £17.5 billion) which are excluded from the Group's statement of financial position, mainly due to the platform business. For these reasons, the amounts disclosed are not directly reconcilable to the Aviva Investors assets under management and administration set out in section 6.iv.

	Managed assets at 1 January 2018 £m	Premiums and deposits, net of reinsurance £m	Claims and redemptions, net of reinsurance £m	Net flows^1,2 £m	Market and other movements £m	Managed assets at 30 June 2018 £m
Life and platform business
UK - non-profit:
- platform	20,238	2,988	(799)	2,189	244	22,671
- pensions and other long-term savings	97,970	3,808	(3,471)	337	303	98,610
- long-term savings³	118,208	6,796	(4,270)	2,526	547	121,281
- annuities and equity release	60,797	1,891	(1,372)	519	(848)	60,468
- other	24,727	789	(1,238)	(449)	(1,114)	23,164
United Kingdom(excluding UK with-profits)	203,732	9,476	(6,880)	2,596	(1,415)	204,913
Europe	114,068	6,069	(3,533)	2,536	2,461	119,065
Asia	14,526	386	(203)	183	(189)	14,520
Other	1,290	12	(106)	(94)	35	1,231
	333,616	15,943	(10,722)	5,221	892	339,729
UK - with-profits and other	58,200					54,425
Total life and platform business	391,816					394,154

1 Life business net flows in the table above are net of reinsurance.

2 For the period to 30 June 2018, net flows of £5.2 billion includes net flows of £3.5 billion that are included in the IFRS income statement within net written premiums and net paid claims.

3 Includes platform and pensions business and externally reinsured non-participating investment contracts

United Kingdom (excluding UK with-profits)

UK long-term savings managed assets have increased to £121.3 billion (2017: £118.2 billion) during the period. Within this, net inflows were £2.5 billion with growth in workplace pension and continued growth in the platform business with net inflows of £2.2 billion. Platform assets under administration grew by 12% in the year to £22.7 billion (2017 £20.2 billion).

UK annuities and equity release inflows were £0.5 billion, reflecting increased BPA volumes in 2018. Other non-profit outflows were £0.4 billion driven by Bonds & Savings as the book continues to run off as expected. Market and other movements include the adverse impact of widening spreads and increasing interest rates.

Europe

Net inflows in Europe of £2.5 billion were mainly driven by the growth in sales of our new unit-linked with-profits hybrid product in Italy. Market and other movements in Europe includes £4.0 billion of investment assets following the acquisition of Friends First, partly offset by the disposal of £0.3 billion of investment assets following the sale of Avipop in Italy.

Asia and other

Net inflows in Asia were £0.2 billion arising mainly in Singapore. Other business net outflows of £0.1 billion primarily relate to Aviva Investors' Pooled Pensions business.

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Page 24

8.i - Solvency II

The estimated Solvency II shareholder cover ratio is 187% at 30 June 2018. The Solvency II position disclosed is based on a 'shareholder view'. The shareholder view is considered by management to be more representative of the shareholders' risk exposure and the Group's ability to cover the Solvency Capital Requirement (SCR) with eligible own funds, and aligns with management's approach to dynamically manage its capital position. In arriving at the shareholder position, the following adjustments are made to the regulatory Solvency II position:

· The contribution to the Group's SCR and own funds of fully ring fenced with-profits funds of £3.1 billion at 30 June 2018 (HY17: £3.2 billion, 2017: £3.3 billion) and staff pension schemes in surplus of £1.4 billion at 30 June 2018 (HY17: £1.2 billion, 2017: £1.5 billion) are excluded. These exclusions have no impact on Solvency II surplus as these funds are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised.

· The 30 June 2018 Solvency II position includes a notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP resets (£0.2 billion decrease to surplus). This presentation avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The 31 December 2017 Solvency II position includes a formal, rather than notional, reset of the TMTP in line with the regulatory requirement to reset the TMTP at least every two years or in the event of a material change in the risk profile. The 30 June 2017 Solvency II position includes a notional reset of the TMTP in respect of the impact of interest rate movements on the risk margin (£0.5 billion decrease to surplus). The TMTP is amortised on a straight-line basis over 16 years from 1 January 2016 in line with the Solvency II rules.

· The 30 June 2018 Solvency II position includes two pro forma adjustments to reflect known or highly likely events materially affecting the Group's solvency position post 30 June 2018. The pro forma adjustments consist of the disposal of Caja Murcia Vida, Caja Granada Vida and Pelayo Vida in Spain (£0.1 billion increase to surplus), and the disposal of FPIL (£0.1 billion increase to surplus). These adjustments have been made in order to show a more representative view of the Group's solvency position. The 31 December 2017 Solvency II position includes the pro forma impact of the disposals of FPIL (£0.1 billion increase to surplus) and Avipop in Italy (£0.1 billion increase to surplus). The 30 June 2017 Solvency II position includes the pro forma impacts of the disposal of the joint ventures Unicorp Vida and Caja España Vida and its retail life insurance business Aviva Vida y Pensiones in Spain (£0.1 billion increase to surplus), the disposal of FPIL (£0.1 billion increase to surplus), and the remaining £0.2 billion of the buy-back of ordinary shares announced on 25 May 2017.

Summary of Solvency II position

	30 June 2018 £bn	30 June 2017 £bn	31 December 2017 £bn
Own funds	23.6	23.7	24.7
Solvency capital requirement	(12.6)	(12.3)	(12.5)
Estimated Solvency II surplus at 30 June/31 December	11.0	11.4	12.2
Estimated Solvency II shareholder cover ratio^‡	187%	193%	198%

Movement in Group Solvency II surplus

	30 June 2018 £bn	30 June 2017 £bn	31 December 2017 £bn
Group Solvency II surplus at 1 January	12.2	11.3	11.3
Operating capital generation	0.9	1.1	2.6
Non-operating capital generation	(0.4)	(0.3)	(0.3)
Dividends	(0.8)	(0.7)	(1.1)
Share buy-back	(0.6)	(0.3)	(0.3)
Foreign exchange variances	-	0.1	0.1
Hybrid debt repayments	(0.4)	-	(0.5)
Acquired/divested business	0.1	0.2	0.4
Estimated Solvency II surplus at 30 June/31 December	11.0	11.4	12.2

The estimated Solvency II surplus at 30 June 2018 is £11.0 billion, with a shareholder cover ratio of 187%. The decrease in surplus of £1.2 billion from 31 December 2017 reflects our stated intent to deploy surplus capital to deliver sustainable benefits to our shareholders. During the first half of 2018 the beneficial impact from operating capital generation was therefore more than offset by the buy-back of ordinary shares of £(0.6) billion, hybrid debt repayments of £(0.4) billion and the payment of the Aviva plc dividend. Non-operating capital generation of £(0.4) billion arose primarily from the impact of widening sovereign and corporate bond spreads in Italy.

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Page 25

8.i - Solvency II continued

Summary of analysis of diversified Solvency Capital Requirement

	30 June 2018 £bn	30 June 2017 £bn	31 December 2017 £bn
Credit risk	3.6	3.4	3.4
Equity risk	1.6	1.4	1.6
Interest rate risk	0.3	0.4	0.4
Other market risk	1.4	1.5	1.4
Life insurance risk	2.6	3.1	2.8
General insurance risk	0.7	0.6	0.7
Operational risk	1.1	1.1	1.1
Other risk¹	1.3	0.8	1.1
Total	12.6	12.3	12.5

1 Capital held in respect of other risk recognises the Group's shareholder exposure to specific risks unique to particular business units and other items.

The profile of the diversified SCR is stable relative to 31 December 2017. Credit risk increased by £0.2 billion over the first half of 2018 due to a combination of exposure changes and market movements, primarily in Italy. Life insurance risk decreased by £0.2 billion primarily as a result of higher interest rates reducing longevity risk in the UK annuity portfolios.

Sensitivity analysis of Solvency II surplus

The following sensitivity analysis of Solvency II surplus allows for any consequential impact on the asset and liability valuations. All other assumptions remain unchanged for each sensitivity, except where these are directly affected by the revised economic conditions or where a management action that is allowed for in the SCR calculation is applicable for that sensitivity. For example, future bonus rates are automatically adjusted to reflect sensitivity changes to future investment returns.

TMTP are assumed to be recalculated in all sensitivities where its impact would be material.

The table below shows the absolute change in cover ratio under each sensitivity, e.g. a 4% positive impact would result in a cover ratio of 191%.

Sensitivities		Impact on cover ratio %
Changes in economic assumptions	25 bps increase in interest rate	4%
	50 bps increase in interest rate	8%
	100 bps increase in interest rate	12%
	25 bps decrease in interest rate	(6%)
	50 bps decrease in interest rate	(12%)
	50 bps increase in corporate bond spread¹	(4%)
	100 bps increase in corporate bond spread¹	(8%)
	50 bps decrease in corporate bond spread¹	4%
	Credit downgrade on annuity portfolio²	(4%)
	10% increase in market value of equity	2%
	25% increase in market value of equity	5%
	10% decrease in market value of equity	(2%)
	25% decrease in market value of equity	(5%)
Changes in non-economic assumptions	10% increase in maintenance and investment expenses	(8%)
	10% increase in lapse rates	(3%)
	5% increase in mortality/morbidity rates - life assurance	(3%)
	5% decrease in mortality rates - annuity business	(12%)
	5% increase in gross loss ratios	(3%)

1 Credit spread movement for corporate bonds with credit rating A at 10 year duration, with the other ratings and durations stressed by the same proportion relative to the stressed capital requirement.

2 An immediate full letter downgrade on 20% of the annuity portfolio bonds (e.g. from AAA to AA, from AA to A).

Limitations of sensitivity analysis

The table above demonstrates the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

The sensitivity analysis does not take into consideration that the Group's assets and liabilities are actively managed. Additionally, the Solvency II position of the Group may vary at the time that any actual market movement occurs. For example, the Group's financial risk management strategy aims to manage the exposure to market fluctuations.

As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocations, adjusting bonuses credited to policyholders and taking other protective action.

Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk that only represent the Group's view of possible near-term market changes that cannot be predicted with any certainty and the assumption that all interest rates move in an identical fashion.

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Page 26

8.ii - Net asset value

	30 June 2018 £m	pence per share²	30 June 2017 £m	pence per share²	31 December 2017 £m	pence per share²
Equity attributable to shareholders of Aviva plc at 1 January¹	16,969	423p	16,803	414p	16,803	414p
Group adjusted operating profit	1,438	36p	1,465	37p	3,068	76p
Investment return variances and economic assumption changes on life and non-life business	(654)	(17)p	(396)	(10)p	(318)	(8)p
Profit on the disposal and remeasurements of subsidiaries, joint ventures and associates	31	1p	202	5p	135	3p
Goodwill impairment and amortisation of intangibles	(101)	(3)p	(110)	(3)p	(246)	(6)p
Amortisation and impairment of acquired value of in-force business	(210)	(5)p	(234)	(6)p	(495)	(12)p
Integration and restructuring costs	-	-	(52)	(1)p	(141)	(3)p
Other³	22	1p	-	-	-	-
Tax on operating profit and on other activities	(150)	(4)p	(159)	(4)p	(357)	(9)p
Non-controlling interests	(46)	(1)p	(79)	(2)p	(149)	(4)p
Profit after tax attributable to shareholders of Aviva plc	330	8p	637	16p	1,497	37p
AFS securities fair value & other reserve movements	(13)	-	(3)	-	7	-
Ordinary dividends	(764)	(19)p	(646)	(16)p	(983)	(25)p
Direct capital instrument and tier 1 notes interest and preference share dividend	(15)	-	(32)	(1)p	(82)	(2)p
Foreign exchange rate movements	(99)	(2)p	(21)	-	33	1p
Remeasurements of pension schemes	113	3p	(25)	-	(2)	-
Shares purchased in buy-back	(197)	(5)p	(73)	(2)p	(300)	(7)p
Other net equity movements	40	3p	51	1p	(4)	5p
Equity attributable to shareholders of Aviva plc at 30 June/31 December¹	16,364	411p	16,691	412p	16,969	423p

1 Excluding preference shares of £200 million (2017: £200 million).

2 Number of shares as at HY18: 3,983 million (HY17: 4,055 million, 2017: 4,013 million).

3 Other includes a gain of £36 million relating to negative goodwill on the acquisition of Friends First and a charge of £14 million relating to the goodwill payments to preference shareholders which were announced on 30 April 2018.

On 1 May 2018 Aviva announced a buy-back of ordinary shares for an aggregate purchase price of up to £600 million of which £197 million has been expended at HY18. In 2017, a £300 million buy-back was announced on 25 May 2017 which was completed on 19 September 2017.

At HY18 IFRS net asset value per share was 411 pence (2017: 423 pence). The main increases in net asset value related to operating profit and the remeasurement of pension schemes which were more than offset by the final 2017 dividend payment to shareholders, cost of ordinary shares purchased in the buy-back and adverse investment return variances. Further details of the investment return variances are shown in sections A4 and A5.

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Page 27

8.iii - Analysis of return on equity

	Operating return
6 months 2018	Before tax £m	After tax £m	Weighted average shareholders' funds including non-controlling interests £m	Return on equity %
United Kingdom	1,040	828	12,603	13.1%
Canada	(13)	(10)	1,325	(1.5)%
Europe	526	374	5,495	13.6%
Asia	132	128	1,596	16.0%
Fund management	74	53	527	20.1%
Corporate and other business¹	(132)	(85)	5,597	n/a
Return on total capital employed	1,627	1,288	27,143	9.5%
Subordinated debt	(188)	(152)	(6,988)	4.4%
Senior debt	(1)	(1)	(1,417)	0.1%
Return on total equity	1,438	1,135	18,738	12.1%
Less: Non-controlling interests		(46)	(1,141)	8.1%
Direct capital instrument and tier 1 notes		(6)	(730)	4.9%
Preference capital		(9)	(200)	8.5%
Return on equity shareholders' funds		1,074	16,667	12.7%

1 The Corporate and other business loss before tax of £132 million comprises corporate costs of £99 million, other business operating loss of £74 million, partly offset by interest on internal lending arrangements of £5 million and finance income on the main UK pension scheme of £36 million.

	Operating return
6 months 2017	Before tax £m	After tax £m	Weighted average shareholders' funds including non-controlling interests £m	Return on equity %
United Kingdom^2,3	949	767	12,976	11.8%
Canada	71	52	1,468	7.1%
Europe²	562	404	5,923	13.6%
Asia	115	107	1,661	12.9%
Fund management	69	55	481	22.9%
Corporate and other business^1,3	(108)	(75)	5,540	n/a
Return on total capital employed	1,658	1,310	28,049	9.3%
Subordinated debt	(191)	(154)	(7,223)	4.3%
Senior debt	(2)	(2)	(1,384)	0.3%
Return on total equity	1,465	1,154	19,442	11.9%
Less: Non-controlling interests		(73)	(1,372)	10.6%
Direct capital instrument and tier 1 notes		(23)	(1,123)	6.1%
Preference capital		(9)	(200)	8.5%
Return on equity shareholders' funds		1,049	16,747	12.4%

1 The Corporate and other business loss before tax of £108 million comprises corporate costs of £83 million, interest on internal lending arrangements of £3 million, other business operating loss of £59 million, partly offset by finance income on the main UK pension scheme of £37 million.

3 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per B5 'Segmental Information', resulting in a reclassification of operating return before tax of £22 million from other business to the UK reporting segments.

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Page 28

8.iii - Analysis of return on equity continued

	Operating return
Full year 2017	Before tax £m	After tax £m	Weighted average shareholders' funds including non-controlling interests £m	Return on equity %
United Kingdom¹	2,175	1,767	13,000	13.6%
Canada	46	34	1,442	2.4%
Europe	1,096	787	5,890	13.4%
Asia	227	212	1,638	12.9%
Fund management	164	127	495	25.7%
Corporate and other business^1,2	(247)	(181)	5,497	n/a
Return on total capital employed	3,461	2,746	27,962	9.8%
Subordinated debt	(389)	(314)	(7,224)	4.3%
Senior debt	(4)	(3)	(1,398)	0.2%
Return on total equity	3,068	2,429	19,340	12.6%
Less: Non-controlling interests		(134)	(1,325)	10.1%
Direct capital instrument and tier 1 notes		(65)	(1,025)	6.3%
Preference capital		(17)	(200)	8.5%
Return on equity shareholders' funds		2,213	16,790	13.2%

1 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per B5 'Segmental Information', resulting in a reclassification of operating return before tax of £26 million from other business to the UK reporting segment.

2 The Corporate and other business loss before tax of £247 million comprises corporate costs of £184 million, interest on internal lending arrangements of £7 million, other business operating loss of £131 million, partly offset by finance income on the main UK pension scheme of £75 million.

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Page 29

8.iv - Group capital under IFRS basis

The table below shows how our capital is deployed by market and how that capital is funded.

	30 June 2018 Capital employed £m	30 June 2017 Capital employed £m	31 December 2017 Capital employed £m
Life business
United Kingdom^1,2	10,274	10,799	11,493
France	2,644	2,769	2,704
Poland	409	283	352
Italy	605	967	954
Other Europe¹	584	818	422
Europe	4,242	4,837	4,432
Asia	1,624	1,650	1,558
	16,140	17,286	17,483
General insurance & health
United Kingdom General insurance^1,2,3	1,356	1,689	1,872
United Kingdom Health²	107	85	106
Canada	1,287	1,466	1,364
France	570	504	589
Poland	140	119	140
Italy	172	304	319
Other Europe¹	185	263	203
Europe	1,067	1,190	1,251
Asia	-	12	10
	3,817	4,442	4,603
Fund management	532	501	520
Corporate and other business^2,3,4	6,021	5,740	5,169
Total capital employed	26,510	27,969	27,775
Financed by
Equity shareholders' funds	16,364	16,691	16,969
Non-controlling interests	1,045	1,319	1,235
Direct capital instrument and tier 1 notes	731	1,123	731
Preference shares	200	200	200
Subordinated debt⁵	6,755	7,233	7,221
Senior debt	1,415	1,403	1,419
Total capital employed⁶	26,510	27,969	27,775

1 Following the launch of UK Insurance which brings together UK Life, UK General Insurance and UK Health into a combined business, the Ireland Life and General Insurance businesses have been aligned to the new management structure and reported within Other Europe which also includes Spain and Turkey. As a result, HY17 comparative balances have been restated.

3 Capital employed for United Kingdom General Insurance excludes c.£0.9 billion of goodwill which does not support the general insurance business for capital purposes and is included in Corporate and other business.

4 Corporate and other business includes centrally held tangible net assets, the main UK staff pension scheme surplus and also reflects internal lending arrangements. These internal lending arrangements, which net out on consolidation, include the formal loan arrangement between Aviva Group Holdings Limited and Aviva Insurance Limited.

5 Subordinated debt excludes amounts held by Group companies of £8 million (2017: £9 million).

6 Goodwill, AVIF and other intangibles are maintained within the capital base.

Total capital employed is financed by a combination of equity shareholders' funds, preference capital, subordinated debt and other borrowings. At 30 June 2018 the Group had £26.5 billion (2017: £27.8 billion) of total capital employed in our trading operations measured on an IFRS basis.

Aviva has significant excess capital and has committed to deploy £2 billion of this in 2018. The deployment includes £900 million of debt reduction, £500 million for bolt-on acquisitions and a £600 million ordinary share buy-back. In 2017 the Group redeemed the $650 million fixed rate tier 1 notes in full at the first call date on 3 November and completed in full a share buy-back of ordinary shares for an aggregate purchase price of £300 million (HY17: £73 million). The number of shares in issue reduced by 57,724,500 in respect of shares acquired and cancelled under the 2017 buy-back programme. On 1 May 2018 the Group announced a further share buy-back of ordinary shares for an aggregate purchase price of up to £600 million. As at 30 June 2018 a further 43,911,450 shares had been purchased and subsequently cancelled bringing the total cancelled under the programme to 101,635,950 shares. In addition, the Group redeemed its €500 million 6.875% fixed/floating rate notes in full at the first call date on 22 May 2018.

At 30 June 2018 the market value of our external debt (subordinated debt and senior debt), preference shares (including both Aviva plc preference shares of £200 million and General Accident plc preference shares, within non-controlling interests, of £250 million), and direct capital instrument and tier 1 notes was £10,139 million (2017: £11,311 million).

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Page 30

Financial supplement

	Page
A Income & expenses	31
B IFRS financial statements and notes	36
C Analysis of assets	82

In this section
A Income & expenses
Reconciliation of Group adjusted operating profit to profit for the period	31
A1 Other operations	32
A2 Corporate centre	32
A3 Group debt costs and other interest	32
A4 Life business: Investment variances and economic assumption changes	33
A5 Non-life business: Short-term fluctuation in return on investments	34
A6 General insurance and health business: Economic assumption changes	35
A7 Impairment of goodwill, joint ventures, associates and other amounts expensed	35
A8 Amortisation and impairment of intangibles	35
A9 Amortisation and impairment of acquired value of in-force business	35
A10 Profit/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates	35
A11 Other	35

# symbol denotes key performance indicators used as a base to determine or modify remuneration.

‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during period under review.

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Page 31

Reconciliation of Group adjusted operating profit^‡^# to profit for the period

For the six month period ended 30 June 2018

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Group adjusted operating profit before tax attributable to shareholders' profits
Life business
United Kingdom^1,2	831	727	1,728
Europe¹	414	439	873
Asia	143	120	235
Other	4	10	16
Total life business	1,392	1,296	2,852
General insurance and health
United Kingdom General insurance¹	195	214	411
United Kingdom Health	14	8	36
Canada	(13)	71	46
Europe¹	112	123	223
Asia	(11)	(5)	(8)
Other	5	7	(4)
Total general insurance and health	302	418	704
Fund management
Aviva Investors	76	71	168
Asia	(2)	(2)	(4)
Total fund management	74	69	164
Other
Other operations (note A1)²	(83)	(76)	(143)
Market adjusted operating profit	1,685	1,707	3,577
Corporate centre (note A2)	(99)	(83)	(184)
Group debt costs and other interest (note A3)	(148)	(159)	(325)
Group adjusted operating profit before tax attributable to shareholders' profits	1,438	1,465	3,068
Integration and restructuring costs	-	(52)	(141)
Group adjusted operating profit before tax attributable to shareholders' profits after integration and restructuring costs	1,438	1,413	2,927
Adjusted for the following:
Investment variances and economic assumption changes (note A4)	(482)	(179)	34
Non-life business: Short-term fluctuation in return on investments (note A5)	(206)	(205)	(345)
General insurance and health business: Economic assumption changes (note A6)	34	(12)	(7)
Impairment of goodwill, joint ventures, associates and other amounts expensed (note A7)	-	(19)	(49)
Amortisation and impairment of intangibles (note A8)	(101)	(91)	(197)
Amortisation and impairment of acquired value of in-force business (note A9)	(210)	(234)	(495)
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates (note A10)	31	202	135
Other (note A11)	22	-	-
Adjusting items before tax	(912)	(538)	(924)
Profit before tax attributable to shareholders' profits	526	875	2,003
Tax on Group adjusted operating profit	(303)	(311)	(639)
Tax on other activities	153	152	282
	(150)	(159)	(357)
Profit for the period	376	716	1,646

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 B5. The change resulted in reclassification losses of £22 million and £26 million for HY17 and 2017 respectively from other operations to UK Life businesses.

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Page 32

Other Group adjusted operating profit Items

A1 - Other operations

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Europe	(18)	(19)	(37)
Asia	(12)	(17)	(32)
Other Group operations¹	(53)	(40)	(74)
Total²	(83)	(76)	(143)

1 Other Group operations include Group and head office costs, expenditure on UK digital business and non-insurance Group adjusted operating profit relating to Aviva Re.

2 Non-insurance operations relating to the UK have been reclassified to their respective market segments to better align with the segmental note as per note B5 'Segmental Information'. As a result losses of £22 million at HY17 and £26 million at FY17 are now presented within the UK reporting segments in section 6.i "United Kingdom".

Other operations relate to non-insurance activities and include costs associated with our Group and regional head offices, pension scheme expenses, as well as non-insurance income. Total costs in relation to non-insurance activities were £83 million (HY17: £76 million).

'Other Group operations' includes increased investment in the development of the Group's digital business through its UK insurance intermediary which places business primarily on behalf of UK General Insurance.

A2 - Corporate centre

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Project spend	(24)	(4)	(29)
Central spend and share award costs	(75)	(79)	(155)
Total	(99)	(83)	(184)

Corporate centre costs of £99 million increased by £16 million (HY17: £83 million) mainly due to higher Group led project costs offset by a decrease in share schemes and central spend. The project spend increase relates to specific expenditure incurred as we look to upgrade and simplify our IT estate, the implementation of IFRS 17 and compliance costs relating to the General Data Protection Regulations which became effective in 2018.

A3 - Group debt costs and other interest

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
External debt
Subordinated debt	(188)	(191)	(391)
Other	(1)	(2)	(2)
Total external debt	(189)	(193)	(393)
Internal lending arrangements	5	(3)	(7)
Net finance income on main UK pension scheme	36	37	75
Total	(148)	(159)	(325)

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Page 33

Non-operating profit items

A4 - Life business: Investment variances and economic assumption changes

(a) Definitions

Group adjusted operating profit for life business is based on expected investment returns on financial investments backing shareholder funds over the period, with consistent allowance for the corresponding expected movements in liabilities. Group adjusted operating profit includes the effect of variance in experience for operating items, such as mortality, persistency and expenses, and the effect of changes in operating assumptions. Changes due to economic items, such as market value movements and interest rate changes, which give rise to variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside Group adjusted operating profit.

(b) Economic volatility

The investment variances and economic assumption changes excluded from the life adjusted operating profit are as follows:

Life business	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Investment variances and economic assumptions	(482)	(179)	34

Investment variances and economic assumption changes were £482 million negative in the period to 30 June 2018 (HY17: £179 million negative), primarily due to negative variances in the UK, France and Italy. In the UK, these variances were mainly due to an increase in yields, lower equity returns and the widening of fixed income spreads, reflecting that we hedge on an economic rather than an IFRS basis, together with the impact of updating our view of UK house price inflation based on current market conditions in our equity release mortgage portfolio. The negative variance in France was driven by lower than expected return on equities and an increase in spreads partly offset by a reduction in equity volatility. The negative variance in Italy was primarily driven by a widening of credit spreads and a fall in equity markets due to the recent volatile political climate.

The negative variance in the period to 30 June 2017 primarily reflected the treatment on disposal of our French subsidiary Antarius and falling interest rates in Asia. The profit on sale of Antarius of £180 million was reported as a profit on disposal of subsidiaries. Under French reserving rules (applicable under grandfathering of French GAAP when IFRS was adopted), £147 million of the profit arising on disposal was transferred to insurance liabilities and included within investment variances; with releases following during the second half of 2017 in accordance with French rules governing the annual minimum allocation of bonuses to policyholders.

The Group continues to keep its long-term assumptions for future property prices and rental income under review to allow for the possible future adverse impact of the decision for the UK to leave the European Union. No change has been made to this allowance in the period to 30 June 2018 as the impact of the Brexit process on the UK economy remains uncertain.

The expected rate of investment return is determined using consistent assumptions at the start of the period between operations, having regard to local economic and market forecasts of investment return and asset classification under IFRS.

The principal assumptions underlying the calculation of the expected investment return for equities and properties are:

	Equities			Properties
	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %
United Kingdom	4.8%	4.8%	4.8%	3.3%	3.3%	3.3%
Eurozone	4.4%	4.2%	4.2%	2.9%	2.7%	2.7%

The expected return on equities and properties has been calculated by reference to the 10 year mid-price swap rate for an AA rated bank in the relevant currency plus a risk premium. The use of risk premium reflects management's long-term expectations of asset return in excess of the swap yield from investing in different asset classes. The asset risk premiums are set out in the table below:

All territories	6 months 2018 %	6 months 2017 %	Full year 2017 %
Equity risk premium	3.5%	3.5%	3.5%
Property risk premium	2.0%	2.0%	2.0%

The 10 year mid-price swap rates at the start of the period are set out in the table below:

Territories	2018 %	2017 %
United Kingdom	1.3%	1.3%
Eurozone	0.9%	0.7%

For fixed interest securities classified as fair value through profit or loss, the expected investment returns are based on average prospective yields for the actual assets held less an adjustment for credit risk (assessed on a best estimate basis). This includes an adjustment for credit risk on all eurozone sovereign debt. Where such securities are classified as available for sale, the expected investment return comprises the expected interest or dividend payments and amortisation of the premium or discount at purchase.

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Page 34

A5 - Non-life business: Short-term fluctuation in return on investments

General Insurance and health	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Analysis of investment income:
- Net investment income	42	122	331
- Foreign exchange gains/losses and other charges	4	(17)	(24)
	46	105	307
Analysed between:
- Longer-term investment return, reported within operating profit	184	172	364
- Short-term fluctuations in investment return, reported outside operating profit	(138)	(67)	(57)
	46	105	307
Short-term fluctuations:
- General insurance and health	(138)	(67)	(57)
- Other operations¹	(68)	(138)	(288)
Total short-term fluctuations	(206)	(205)	(345)

1 Represents short-term fluctuation on assets backing non-life business in Group centre investments, including the centre hedging programme.

The longer-term investment return is calculated separately for each principal non-life business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longer-term rate of investment return. It is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income receivable for the period. Actual income and longer-term investment return both contain the amortisation of the discount/premium arising on the acquisition of fixed income securities.

Market value movements which give rise to variances between actual and longer-term investment returns are disclosed separately in short-term fluctuations outside operating profit.

The adverse short-term fluctuations during the first half of 2018 are due to interest rate increases, reducing the value of fixed income securities, and other adverse market movements on Group centre holdings, including the centre hedging programme.

At HY17, total short-term fluctuations of £205 million adverse are mainly due to interest rate increases reducing the value of fixed income securities, and foreign exchange losses and adverse market movements on Group centre holdings.

Total assets supporting the general insurance and health business, which contribute towards the longer-term return, are:

	6 months 2018 £m	6 months 2017 £m	Full year 2017 £m
Debt securities	9,576	10,229	10,054
Equity securities	831	296	772
Properties	459	344	499
Cash and cash equivalents	1,094	1,451	1,115
Other¹	2,441	2,403	2,498
Assets supporting general insurance and health business	14,401	14,723	14,938
Assets supporting other non-long-term business²	808	1,173	685
Total assets supporting non-long-term business	15,209	15,896	15,623

1 Includes the internal loan to Group from UKI.

2 Represents assets backing non-life business in Group centre investments, including the centre hedging programme.

The principal assumptions underlying the calculation of the longer-term investment return are:

	Longer-term rates of return on equities			Longer-term rates of return on property
	6 months 2018 %	6 months 2017 %	Full year 2017 %	6 months 2018 %	6 months 2017 %	Full year 2017 %
United Kingdom	4.8%	4.8%	4.8%	3.3%	3.3%	3.3%
Eurozone	4.4%	4.2%	4.2%	2.9%	2.7%	2.7%
Canada	5.9%	5.5%	5.5%	4.4%	4.0%	4.0%

The longer-term rates of return on equities and properties have been calculated by reference to the 10 year mid-price swap rate for an AA-rated bank in the relevant currency plus a risk premium. The underlying reference rates and risk premiums are shown in note A4(c).

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Page 35

A6 - General insurance and health business: Economic assumption changes

In the general insurance and health business, a positive impact of £34 million (HY17: £12 million adverse) has arisen as a result of a decrease in the estimated future inflation rate used to value periodic payment orders (PPOs) and an increase in the interest rates used to discount claim reserves for both PPOs and latent claims.

A7 - Impairment of goodwill, joint ventures, associates and other amounts expensed

There was no impairment of goodwill, associates or joint ventures expensed in the period (HY17: £19 million). Negative goodwill of £36 million has arisen relating to the acquisition of Friends First. This has been recognised in Other items (see Note A11).

A8 - Amortisation and impairment of intangibles

The amortisation and impairment of intangible assets increased to £101 million (HY17: £91 million) mainly due to an increase in the amortisation charge on software costs which were capitalised during the second half of 2017.

A9 - Amortisation and impairment of acquired value of in-force business

Amortisation and impairment of acquired value of in-force business (AVIF) is a charge of £210 million (HY17: £234 million charge), which relates solely to amortisation in respect of the Group's subsidiaries and joint ventures. Impairment charges of £4 million in relation to FPIL remeasurement losses are recorded within profit on disposal and remeasurement of subsidiaries, joint ventures and associates (see Note A10).

A10 - Profit/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates

The total Group profit on disposal and remeasurement of subsidiaries, joint ventures and associates is £31 million (HY17: £202 million profit). This consists of £35 million profit on the disposals of Italy, Taiwan and other small operations; offset by £4 million remeasurement loss in relation to FPIL. Further details of these items are provided in note B4.

A11 - Other

Other items are those items that, in the directors' view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group's financial performance. At half year 2018, other items is a net gain of £22 million (HY17: £nil), which comprises the following:

· A charge of £14 million relating to a provision for goodwill payments announced on 30 April 2018 to those preference shareholders who were adversely affected by the sale of shares between 8 March and 22 March 2018. The nature of these costs and the restricted time-period that defines eligibility to receive a payment demonstrates that they are non-recurrent and are not reflective of the Group's ongoing financial performance.

· A gain of £36 million relating to negative goodwill arising on the acquisition of Friends First (refer to Note B4 (a)), which arose primarily due to differences between the valuation of the pension scheme liability used to determine the transaction price and the recognition and measurement principles defined by IAS 19 Employee Benefits. The gain has been recognised immediately in the Income Statement as required by IFRS 3 Business Combinations and, in line with the treatment of impairments of goodwill, it has been treated as a non-operating item. The gain has been reported within 'other' as significant negative goodwill is unusual and its inclusion within alternative line items of the Reconciliation of Group adjusted operating profit to profit before tax would distort the year on year comparability.

END PART 2 of 4

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