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 (VNB) |
7 |
ii Sales, VNB and new business margin analysis |
7 |
|
|
5 Combined operating ratio (COR) |
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 |
27 |
iii Analysis of return on equity |
28 |
iv Group capital under IFRS basis |
30 |
|
|
Financial supplement |
31 |
A Income & expenses |
32 |
B IFRS financial statements and notes |
37 |
C Analysis of assets |
88 |
|
|
Other information |
97 |
Alternative performance measures |
98 |
Shareholder services |
104 |
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'.
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.
# denotes key financial performance indicators used as a base to determine or modify remuneration.
All percentages, including 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.
Page 2
Operating profit‡#
|
6 months |
6 months |
Sterling % change |
Full year |
Life business |
1,282 |
1,392 |
(8)% |
2,999 |
General insurance and health |
391 |
302 |
29% |
704 |
Fund management |
61 |
74 |
(18)% |
146 |
Other1 |
(286) |
(330) |
13% |
(733) |
Total |
1,448 |
1,438 |
1% |
3,116 |
Operating earnings per share‡# |
27.3p |
26.8p |
2% |
58.4p |
Cash remittances2,‡#
|
6 months |
6 months |
Sterling % change |
Full year |
United Kingdom2 |
983 |
1,216 |
(19)% |
2,513 |
Canada |
15 |
13 |
15% |
28 |
Europe2 |
503 |
227 |
122% |
483 |
Asia, Aviva Investors and Other |
81 |
37 |
119% |
113 |
Total |
1,582 |
1,493 |
6% |
3,137 |
Operating capital generation (OCG): Solvency II basis2,#
|
6 months |
6 months |
Sterling % change |
Full year |
United Kingdom2 |
0.5 |
0.9 |
(44)% |
2.2 |
Canada |
0.1 |
- |
N/A |
0.1 |
Europe2 |
0.5 |
0.4 |
25% |
0.9 |
Asia & Aviva Investors |
- |
- |
N/A |
0.1 |
Other |
(0.3) |
(0.4) |
25% |
(0.1) |
Total |
0.8 |
0.9 |
(11)% |
3.2 |
Expenses
|
6 months |
6 months |
Sterling % change |
Full year |
Operating expenses |
1,964 |
1,929 |
2% |
4,026 |
Operating expense ratio |
55.5% |
54.9% |
0.6pp |
54.2% |
Value of new business: Adjusted Solvency II basis (VNB)‡
|
6 months |
6 months |
Sterling % change |
Full year |
United Kingdom |
196 |
198 |
(1)% |
481 |
Europe |
237 |
307 |
(23)% |
517 |
Asia & Aviva Investors |
102 |
98 |
4% |
204 |
Total |
535 |
603 |
(11)% |
1,202 |
General insurance combined operating ratio (COR)‡
|
6 months |
6 months |
Change |
Full year |
United Kingdom |
95.7% |
94.3% |
1.4pp |
93.8% |
Canada |
97.5% |
104.6% |
(7.1)pp |
102.4% |
Europe |
92.9% |
93.5% |
(0.6)pp |
93.4% |
Asia & Other |
111.2% |
125.0% |
(13.8)pp |
122.1% |
Total |
95.9% |
97.4% |
(1.5)pp |
96.6% |
Profit after tax
|
6 months |
6 months |
Sterling % change |
Full year |
IFRS profit after tax |
1,180 |
376 |
214% |
1,687 |
Basic earnings per share |
28.2p |
7.9p |
257% |
38.2p |
Interim dividend
|
6 months |
6 months |
Sterling % change |
Interim dividend per share |
9.50p |
9.25p |
3% |
Capital position
|
30 June |
31 December 2018 |
Sterling % change |
30 June |
Estimated shareholder Solvency II cover ratio3,‡ |
194% |
204% |
(10)pp |
187% |
Estimated Solvency II surplus3 |
£11.8bn |
£12.0bn |
(2)% |
£11.0bn |
Net asset value per share |
432p |
424p |
2% |
411p |
1 Other includes other operations, corporate centre costs and group debt and other interest costs.
2 Following the UK's decision to leave the European Union, the Ireland branches of the UK business have been transferred to Ireland effective March 2019. As a result the Ireland business is now reported within Europe instead of the United Kingdom for all metrics. Comparative balances have been restated accordingly.
3 The estimated Solvency II position represents the shareholder view only. See section 8i for more details.
Page 3
1 - Operating profit‡#
For the six month period ended 30 June 2019
|
6 months |
6 months |
Full year |
Operating profit before tax attributable to shareholders' profits |
|
|
|
Life business |
|
|
|
United Kingdom |
722 |
831 |
1,871 |
Europe |
403 |
414 |
831 |
Asia |
161 |
143 |
300 |
Other |
(4) |
4 |
(3) |
Total life business |
1,282 |
1,392 |
2,999 |
General insurance and health |
|
|
|
United Kingdom |
187 |
209 |
453 |
Canada |
98 |
(13) |
46 |
Europe |
112 |
112 |
220 |
Asia |
- |
(11) |
(16) |
Other |
(6) |
5 |
1 |
Total general insurance and health |
391 |
302 |
704 |
Fund management |
|
|
|
Aviva Investors |
62 |
76 |
150 |
Asia |
(1) |
(2) |
(4) |
Total fund management |
61 |
74 |
146 |
Other1 |
|
|
|
Europe |
(17) |
(18) |
(40) |
Asia |
(9) |
(12) |
(18) |
Other Group operations |
(34) |
(53) |
(179) |
Total other operations |
(60) |
(83) |
(237) |
Market operating profit |
1,674 |
1,685 |
3,612 |
Corporate centre |
(97) |
(99) |
(216) |
Group debt costs and other interest |
(129) |
(148) |
(280) |
Operating profit before tax attributable to shareholders' profits |
1,448 |
1,438 |
3,116 |
Tax attributable to shareholders' profits |
(319) |
(303) |
(647) |
Non-controlling interests |
(47) |
(46) |
(100) |
Preference dividends and other2 |
(15) |
(15) |
(53) |
Operating profit attributable to ordinary shareholders |
1,067 |
1,074 |
2,316 |
|
|
|
|
Operating earnings per share‡# |
27.3p |
26.8p |
58.4p |
1 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.
2 Other includes coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax).
Operating profit increased by 1% to £1,448 million (HY18: £1,438 million). The life business delivered operating profit of £1,282 million
(HY18: £1,392 million). In the United Kingdom, life operating profit decreased by 13% to £722 million (HY18: £831 million) as the first half of 2018 included a beneficial impact of £200 million from longevity assumption changes which is not repeated in the first half of 2019. Longevity assumptions will be reassessed in the second half of the year. In Europe, operating profit decreased by £11 million to £403 million (HY18: £414 million). The decrease was driven by lower profits in France partly offset by Italy with the continued success of our hybrid savings product in 2018 increasing fee income on assets under management (AUM), and increased operating profit in Ireland following the acquisition of Friends First Life Assurance Company (Friends First). In Asia, operating profit increased to £161 million (HY18: £143 million). Excluding FPI, Asia life operating profit increased by £4 million.
The general insurance and health business operating profit increased by 29% to £391 million (HY18: £302 million). In the United Kingdom, operating profit decreased by 11% to £187 million (HY18: £209 million) reflecting the alignment of UK digital business costs within UK General Insurance combined with lower prior year releases partly offset by lower weather costs. In Canada, operating profit improved to £98 million (HY18: loss of £13 million) as the benefits from the on-going profit remediation plans around pricing and risk selection that were put in place from late 2017 are starting to materialise, as well as favourable prior year development and favourable weather conditions when compared with the prior period. In Asia, operating profit improved as a result of improved performance in Singapore.
Fund management operating profit decreased to £61 million (HY18: £74 million) mainly due to Aviva Investors where fee income reduced due to the disposal of businesses in 2018 combined with lower average assets under management in 2019 compared to prior period.
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 business. Total net loss in relation to non-insurance activities was £60 million (HY18: net loss of £83 million).
Operating earnings per share increased by 0.5p to 27.3p (HY18: 26.8p) mainly due to a decrease in the weighted average number of shares in issue.
Page 4
2.i - Cash remittances‡#
Sustainable cash remittances from the Group's businesses are a key financial priority. 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 |
6 months |
Full year |
United Kingdom1,2,3 |
983 |
1,216 |
2,513 |
Canada |
15 |
13 |
28 |
Europe1,2,3 |
503 |
227 |
483 |
Asia, Aviva Investors & Other |
81 |
37 |
113 |
Total |
1,582 |
1,493 |
3,137 |
1 Full year 2018 cash remittances for the United Kingdom include £314 million received from UK General Insurance and for Europe include £17 million received from Ireland General Insurance in February 2019 in respect of 2018 activity.
2 Following the UK's decision to leave the European Union, the Ireland branches of the UK business have been transferred to Ireland effective March 2019. As a result the Ireland business is now reported within Europe instead of the United Kingdom for all metrics. Comparative balances have been restated accordingly.
3 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.
Page 5
2.ii - Operating capital generation: Solvency II 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 funding investment in initiatives that provide potential future growth.
|
Life business OCG |
GI, Health, FM & Other OCG |
Total OCG |
|||
6 months 2019 |
Impact of new business |
Earnings from existing business |
Other1 |
Total Life |
||
United Kingdom Life2 |
(0.1) |
0.5 |
- |
0.4 |
- |
0.4 |
United Kingdom General Insurance and Health2,3 |
|
|
|
|
0.1 |
0.1 |
Canada |
|
|
|
|
0.1 |
0.1 |
Europe2 |
- |
0.2 |
0.2 |
0.4 |
0.1 |
0.5 |
Asia & Aviva Investors |
- |
- |
- |
- |
- |
- |
Group centre costs and Other |
- |
- |
- |
- |
(0.3) |
(0.3) |
Total Group Solvency II operating capital generation |
(0.1) |
0.7 |
0.2 |
0.8 |
- |
0.8 |
|
Life business OCG |
GI, Health, FM & Other OCG |
Total OCG |
|||
6 months 2018 |
Impact of new business |
Earnings from existing business |
Other1 |
Total Life |
||
United Kingdom Life2 |
(0.1) |
0.5 |
0.2 |
0.6 |
- |
0.6 |
United Kingdom General Insurance and Health2 |
|
|
|
|
0.3 |
0.3 |
Canada |
|
|
|
|
- |
- |
Europe2 |
- |
0.3 |
- |
0.3 |
0.1 |
0.4 |
Asia & Aviva Investors |
- |
- |
- |
- |
- |
- |
Group centre costs and Other |
- |
- |
- |
- |
(0.4) |
(0.4) |
Total Group Solvency II operating capital generation |
(0.1) |
0.8 |
0.2 |
0.9 |
- |
0.9 |
|
Life business OCG |
GI, Health, FM & Other OCG |
Total OCG |
|||
Full year 2018 |
Impact of new business |
Earnings from existing business |
Other1 |
Total Life |
||
United Kingdom Life2 |
(0.1) |
1.0 |
0.9 |
1.8 |
- |
1.8 |
United Kingdom General Insurance and Health2 |
|
|
|
|
0.4 |
0.4 |
Canada |
|
|
|
|
0.1 |
0.1 |
Europe2 |
(0.1) |
0.5 |
0.3 |
0.7 |
0.2 |
0.9 |
Asia & Aviva Investors |
- |
0.1 |
- |
0.1 |
- |
0.1 |
Group centre costs and Other |
- |
- |
0.6 |
0.6 |
(0.7) |
(0.1) |
Total Group Solvency II operating capital generation |
(0.2) |
1.6 |
1.8 |
3.2 |
- |
3.2 |
1 Other includes the impact of capital actions and non-economic assumption changes.
2 Following the UK's decision to leave the European Union, the Ireland branches of the UK business have been transferred to Ireland effective March 2019. As a result, the Ireland business is now reported within Europe instead of the United Kingdom for all metrics. Comparative balances have been restated accordingly.
3 Included in GI, Health, FM & Other is £(0.1) billion due to an increase in the solvency capital requirement as a result of the alignment of UK digital business costs within the UK General Insurance business. This is excluded from underlying OCG of £0.7 billion for the 6 months ended 30 June 2019 (HY18: £0.7 billion). The additional capital requirement arises from differential capital treatment for insurance and non-insurance entities.
Solvency II OCG was £0.8 billion for the 6 months ended 30 June 2019 (HY18: £0.9 billion).
In the UK, life business OCG has reduced by £0.2 billion to £0.4 billion as the first half of 2018 included a beneficial impact of £0.2 billion from longevity assumptions changes which is not included in the first half of 2019. Longevity assumptions will be reassessed in the second half of 2019.
In Europe, life business OCG has increased by £0.1 billion to £0.4 billion. Earnings from existing business has reduced by £0.1 billion in France partly due to the transfer of pensions business into a supplementary occupational pension fund (FRPS) in the second half of 2018. Other OCG increased by £0.2 billion due to modelling and assumptions changes in Italy and additional equity hedging in France.
The general insurance, health, fund management and other OCG remains unchanged at £nil. In Canada, there was an increase of £0.1 billion due to the impact of the profit remediation plan, including rate increases, from late 2017 starting to materialise and favourable weather experience relative to the first half of 2018. In the UK, there has been a reduction of £0.2 billion, which is partly offset in Group centre costs, primarily due to the alignment of UK digital business costs within the UK General Insurance business. This is due to an increase in the solvency capital requirement arising from differential capital treatment for insurance and non-insurance entities.
Page 6
3 - Expenses
|
6 months |
6 months |
Full year |
UK Life1 |
442 |
440 |
918 |
UK General Insurance and Health1 |
407 |
349 |
695 |
Canada |
238 |
237 |
477 |
Europe |
431 |
402 |
847 |
Asia |
95 |
91 |
186 |
Aviva Investors |
203 |
208 |
447 |
Other Group activities1 |
148 |
202 |
456 |
Operating expenses |
1,964 |
1,929 |
4,026 |
Operating expense ratio |
55.5% |
54.9% |
54.2% |
1 As a result of the alignment of the UK digital business costs within UK Life and UK General Insurance business, UK includes an additional £54 million of expenses while there is a corresponding reduction of £54 million expenses in Other Group activities. This has no impact on overall Group operating expenses.
Operating expenses have increased by 2%, to £1,964 million (HY18: £1,929 million) but have decreased by 6% compared with the second half of 2018. The increase in operating expenses from the first half of 2018 mainly reflects higher expenditure on targeted simplification initiatives in IT and finance change, mandatory requirements such as IFRS 17, and increased regulatory levies in the UK and Ireland. These increases were partially offset by savings, including cost reduction programmes in the UK businesses.
The Group has commenced a programme to reduce expenses by £300 million, net of inflation, by 2022.
Page 7
4 - New business
4.i - Value of new business on an adjusted Solvency II basis (VNB)‡
VNB reflects Solvency II assumptions and allowance for risk, and is defined as the increase in Solvency II own funds resulting from life business written in the period, including the impact of interactions between in-force and new business, adjusted to:
· Remove the impact of the contract boundary restrictions under Solvency II;
· Include businesses which are not within the scope of Solvency II own funds (e.g. UK and Asia Healthcare, Retail fund management and UK equity release); and
· Reflect a gross of tax and non-controlling interests basis and to include the impact of 'look through profits' in service companies (where not included in Solvency II).
The methodology underlying the calculation of VNB remains unchanged from the prior year. For 2018, new business written contributed to the calculation of UK Life's transitional measures (in line with the clarification issued by the PRA in 2017), but this is no longer applicable to the Group in 2019. Further details of the methodology are included in the Other information section.
A reconciliation between VNB and the Solvency II own funds impact of new business is provided below.
6 months 2019 |
UK |
Europe |
Asia & Other £m |
Group |
VNB (gross of tax and non-controlling interests) |
196 |
237 |
102 |
535 |
Solvency II contract boundary restrictions - new business |
(23) |
(64) |
(16) |
(103) |
Solvency II contract boundary restrictions - increments/renewals on in-force business |
68 |
39 |
9 |
116 |
Businesses which are not in the scope of Solvency II own funds |
(60) |
- |
(14) |
(74) |
Tax and Other1 |
(51) |
(96) |
(15) |
(162) |
Solvency II own funds impact of new business (net of tax and non-controlling interests) |
130 |
116 |
66 |
312 |
6 months 2018 |
UK |
Europe |
Asia & Other |
Group |
VNB (gross of tax and non-controlling interests) |
198 |
307 |
98 |
603 |
Solvency II contract boundary restrictions - new business |
(22) |
(80) |
(13) |
(115) |
Solvency II contract boundary restrictions - increments/renewals on in-force business |
77 |
54 |
4 |
135 |
Businesses which are not in the scope of Solvency II own funds |
(65) |
(1) |
(15) |
(81) |
Tax and Other1 |
(40) |
(130) |
(12) |
(182) |
Solvency II own funds impact of new business (net of tax and non-controlling interests) |
148 |
150 |
62 |
360 |
Full year 2018 |
UK |
Europe |
Asia & Other |
Group |
VNB (gross of tax and non-controlling interests) |
481 |
517 |
204 |
1,202 |
Solvency II contract boundary restrictions - new business |
(51) |
(131) |
(31) |
(213) |
Solvency II contract boundary restrictions - increments/renewals on in-force business |
126 |
83 |
21 |
230 |
Businesses which are not in the scope of Solvency II own funds |
(117) |
(4) |
(36) |
(157) |
Tax and Other1 |
(92) |
(212) |
(23) |
(327) |
Solvency II own funds impact of new business (net of tax and non-controlling interests) |
347 |
253 |
135 |
735 |
1 Other includes the impact of 'look through profits' in service companies (where not included in Solvency II) of £(29) million at HY19 (HY18: £(34) million, 2018: £(63) million) and the reduction in value when moving to a net
of non-controlling interests basis of £(37) million at HY19 (HY18: £(51) million, 2018: £(81) million).
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 2019 |
6 months 2018 |
Full year 2018 |
6 months 2019 |
6 months 2018 |
Full year 2018 |
6 months 2019 |
6 months 2018 |
Full year 2018 |
United Kingdom |
11,831 |
12,550 |
23,946 |
196 |
198 |
481 |
1.7% |
1.6% |
2.0% |
Europe |
7,398 |
6,783 |
12,625 |
237 |
304 |
514 |
3.2% |
4.5% |
4.1% |
Asia and Aviva Investors |
1,881 |
1,948 |
3,728 |
105 |
100 |
206 |
5.5% |
5.1% |
5.5% |
Total (excl. disposals) |
21,110 |
21,281 |
40,299 |
538 |
602 |
1,201 |
2.5% |
2.8% |
3.0% |
Disposals1 |
181 |
228 |
464 |
(3) |
1 |
1 |
(1.5)% |
0.3% |
0.2% |
Total |
21,291 |
21,509 |
40,763 |
535 |
603 |
1,202 |
2.5% |
2.8% |
2.9% |
1 Avipop (Italy) and Friends Provident International (FPI) (Asia).
Total new business margin has reduced to 2.5% (HY18: 2.8%). In the UK, new business margin increased slightly to 1.7% (HY18: 1.6%) primarily driven by higher new business margin on bulk purchase annuities.
In Europe new business margins reduced to 3.2% (HY18: 4.5%) primarily reflecting higher volumes of lower margin with-profits savings business in France and lower margins on with-profits business in Italy.
Page 8
5 - General insurance combined operating ratio (COR)‡
|
Net earned premiums |
|
|
Claims ratio |
Commission and expense ratio |
Combined operating ratio |
||||||
|
6 months 2019 |
6 months 2018 |
Full year |
6 months 2019 |
6 months 2018 |
Full year |
6 months 2019 |
6 months 2018 |
Full year |
6 months 2019 |
6 months 2018 |
Full year |
United Kingdom |
2,084 |
2,014 |
4,106 |
61.9 |
61.6 |
62.5 |
33.8 |
32.7 |
31.3 |
95.7 |
94.3 |
93.8 |
Canada |
1,449 |
1,450 |
2,955 |
66.3 |
74.1 |
71.8 |
31.2 |
30.5 |
30.6 |
97.5 |
104.6 |
102.4 |
Europe |
992 |
991 |
1,963 |
63.3 |
64.7 |
64.4 |
29.6 |
28.8 |
29.0 |
92.9 |
93.5 |
93.4 |
Asia & Other1 |
7 |
11 |
6 |
71.2 |
80.4 |
81.7 |
40.0 |
44.6 |
40.4 |
111.2 |
125.0 |
122.1 |
Total |
4,532 |
4,466 |
9,030 |
63.8 |
66.3 |
66.0 |
32.1 |
31.1 |
30.6 |
95.9 |
97.4 |
96.6 |
1 Includes Asia and Aviva Re.
Normalised accident year COR
The normalised accident year COR represents the COR 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; and
· Weather claims (under)/over 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.
|
|
|
UK |
|
|
Canada |
|
|
Europe |
|
|
Total |
|
6 months 2019 |
6 months 2018 |
Full year 2018 |
6 months 2019 |
6 months 2018 |
Full year 2018 |
6 months 2019 |
6 months 2018 |
Full year 2018 |
6 months 2019 |
6 months 2018 |
Full year 2018 |
Normalised accident year COR |
99.3 |
96.1 |
97.0 |
98.2 |
101.9 |
103.4 |
94.5 |
91.9 |
94.5 |
97.9 |
97.1 |
98.8 |
Prior year reserve development |
(0.8) |
(2.0) |
(2.5) |
(0.3) |
0.5 |
(1.3) |
(0.3) |
0.1 |
(2.8) |
(0.3) |
(0.8) |
(2.3) |
Weather claims (under)/over long-term average |
(2.8) |
0.2 |
(0.7) |
(0.4) |
2.2 |
0.3 |
(1.3) |
1.5 |
1.7 |
(1.7) |
1.1 |
0.1 |
Combined operating ratio |
95.7 |
94.3 |
93.8 |
97.5 |
104.6 |
102.4 |
92.9 |
93.5 |
93.4 |
95.9 |
97.4 |
96.6 |
The Group normalised COR increased to 97.9% (HY18: 97.1%) of which 0.8pp relates to the alignment of UK digital business costs within the UK General Insurance business. This, together with a slight increase in large losses compared to the first half of 2018, contributed to the deterioration of the normalised COR in the UK to 99.3% (HY18: 96.1%). The normalised COR in Europe has deteriorated to 94.5% (HY18: 91.9%) primarily due to large claim costs in France and a softening market and increased levies in Ireland. The performance in the UK and Europe was partially offset by an improvement in the normalised COR in Canada to 98.2% (HY18: 101.9%) due to the impact of the profit remediation plan, including rate increases, from late 2017 starting to materialise.
Page 9
6 - Business unit performance
6.i - United Kingdom
|
6 months |
6 months |
Sterling % change |
Full year |
Operating profit‡# |
|
|
|
|
Life |
722 |
831 |
(13)% |
1,871 |
General Insurance |
172 |
195 |
(12)% |
415 |
Health |
15 |
14 |
7% |
38 |
|
909 |
1,040 |
(13)% |
2,324 |
|
|
|
|
|
Cash remitted to Group1,2,‡# |
|
|
|
|
Life |
892 |
1,207 |
(26)% |
2,152 |
General Insurance and Health |
91 |
9 |
911% |
361 |
|
983 |
1,216 |
(19)% |
2,513 |
Operating expenses |
|
|
|
|
Life |
442 |
440 |
- |
918 |
General Insurance and Health |
407 |
349 |
17% |
695 |
|
849 |
789 |
8% |
1,613 |
New business |
|
|
|
|
PVNBP |
11,831 |
12,550 |
(6)% |
23,946 |
VNB‡ |
196 |
198 |
(1)% |
481 |
|
|
|
|
|
General Insurance |
|
|
|
|
COR‡ |
95.7% |
94.3% |
1.4pp |
93.8% |
Net written premium (NWP) |
2,158 |
2,110 |
2% |
4,193 |
1 In 2018 cash remittances include amounts of £314 million received from UK General Insurance in February 2019 in respect of 2018 activity.
2 Following the UK's decision to leave the European Union, the Ireland branches of the UK business have been transferred to Ireland effective March 2019. As a result the Ireland business is now reported within Europe instead of the United Kingdom for all metrics. Comparative balances have been restated accordingly.
Overview
UK Insurance operating profit decreased by 13% to £909 million (HY18: £1,040 million). In the first half of 2019 there has been reduced benefit from one-off items, including no longevity releases. The first half of 2018 included a net £110 million benefit from longevity and provision movements. Longevity assumptions will be reassessed in the second half of the year. The headline result also reflects the alignment of UK digital business costs to UK General Insurance and UK Life, which is broadly neutral at Group level. Excluding the impact of these drivers, profitability in UK Life is broadly level and increased by 6% in UK General Insurance.
We continue to be selective in bulk purchase annuities (BPAs) and, as a result, sales are lower in the first half of 2019. Savings and protection markets are challenging due to adverse economic conditions and market uncertainties and legacy business profits have decreased slightly ahead of expectations.
Cash remittances of £983 million reflect ongoing capital generation and dividend payments from UK Life and UK General Insurance. Cash remittances for the first half of 2018 included a special cash remittance of £500 million arising as a result of the Friends Life Part VII transfer. After excluding the special remittances, the increase in cash remittances is due to an acceleration in the timing of cash dividends.
UK Insurance operating entities remain in a strong capital position.
Life - operating and financial performance
Operating profit‡# and new business
|
6 months 2019 |
6 months 2018 |
|
Full year 2018 |
||||||
Operating profit‡# |
New business |
Existing business |
Total |
New business |
Existing business |
Total |
Sterling % change |
New business |
Existing business |
Total |
Long-term savings1 |
(52) |
146 |
94 |
(41) |
147 |
106 |
(11)% |
(96) |
294 |
198 |
Annuities and equity release |
121 |
209 |
330 |
108 |
214 |
322 |
2% |
363 |
416 |
779 |
Protection |
40 |
64 |
104 |
51 |
57 |
108 |
(4)% |
91 |
135 |
226 |
Legacy2 |
- |
157 |
157 |
- |
188 |
188 |
(16)% |
- |
318 |
318 |
Other3 |
- |
37 |
37 |
- |
107 |
107 |
(65)% |
- |
350 |
350 |
Total life operating profit |
109 |
613 |
722 |
118 |
713 |
831 |
(13)% |
358 |
1,513 |
1,871 |
1 Includes pensions and the savings platform.
2 Legacy represents products no longer actively marketed, including with-profits and bonds.
3 Other life represents changes in assumptions and modelling, non-recurring items and non-product specific items.
UK Life operating profit decreased by 13% to £722 million (HY18: £831 million) reflecting the reduced benefit from reserve reassessments in the first half of 2019, including longevity.
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.
# denotes key financial performance indicators used as a base to determine or modify remuneration.
Page 10
6.i - United Kingdom continued
|
|
|
|
PVNBP |
|
|
|
VNB‡ |
Gross of tax and non-controlling interests |
6 months |
6 months |
Sterling % change |
Full year |
6 months |
6 months |
Sterling % change |
Full year |
Long-term savings |
8,377 |
8,729 |
(4)% |
16,829 |
64 |
81 |
(21)% |
111 |
Annuities and equity release |
2,218 |
2,631 |
(16)% |
4,784 |
33 |
32 |
3% |
196 |
Protection |
914 |
892 |
2% |
1,799 |
76 |
68 |
12% |
140 |
Health and Other |
322 |
298 |
8% |
534 |
23 |
17 |
35% |
34 |
Total |
11,831 |
12,550 |
(6)% |
23,946 |
196 |
198 |
(1)% |
481 |
PVNBP decreased 6% to £11,831 million (HY18: £12,550 million) as growth in workplace pensions, group protection, and health was more than offset by lower annuities, platform and individual protection volumes. VNB decreased by 1% to £196 million (HY18: £198 million), with the overall reduction driven by a fall in long-term savings.
Long-term savings
Long-term savings operating profit decreased by 11% to £94 million (HY18: £106 million) as new business strain increased, including the impact of increased workplace volumes. Existing business profits were also impacted by weak investment markets towards the end of 2018 reducing the asset values on which fees are based. Net inflows remained broadly stable at £2.4 billion (HY18: £2.5 billion). Assets under management (AUM) in the first half of 2019 increased to £129 billion (2018: £116 billion). We have delivered growth in workplace pension net flows, driven by new scheme wins with large corporates and improved retention, along with continued positive platform net flows of £1.6 billion (HY18: £2.2 billion). Platform assets under management grew by 16% to £26.3 billion (2018: £22.6 billion) despite the uncertain market environment.
The reduction in long-term savings VNB is mainly driven by a reduction in savings platform VNB, as volumes were impacted by uncertain investment markets.
Annuities and equity release
Annuities and equity release operating profit increased by 2% to £330 million (HY18: £322 million). BPA volumes remained strong, although lower than the first half of 2018 which included Aviva's largest BPA deal to date. While BPA margins have reduced, new business profit improved reflecting the non-recurrence of the asset volume shortfall at half year 2018 that was addressed in the second half of 2018. Volumes in both individual annuities and equity release were marginally lower as we took a selective approach to trading to focus on margins. Existing business operating profit fell by £5 million to £209 million (HY18: £214 million) as there has been no repeat of the favourable longevity experience recognised in the first half of 2018.
Annuities and equity release VNB increased 3% to £33 million (HY18: £32 million) which reflects the timing difference at HY18 as we invested monies received in appropriate higher yielding investments in the second half of 2018 partly offset by lower BPA volumes in the first half of 2019. The result for individual annuities and BPAs has been adversely impacted in the first half of 2019 by the expected loss of temporary new business transitional benefits.
Protection
Protection operating profit decreased by 4% to £104 million (HY18: £108 million) reflecting continued competitive trading conditions, impacting both volumes and margins in the individual protection market, including the impact of hardening reinsurance rates. The first half of 2019 has also seen the stabilisation of claims experience following a period of benign claims experience in 2018 in group protection.
Protection VNB increased 12% to £76 million (HY18: £68 million) reflecting a 2% increase in volumes to £914 million (HY18: £892 million) and improved margins. This was driven by group protection demonstrating our focus on growth in products and customer segments with superior returns.
Legacy
Legacy contributed operating profit of £157 million (HY18: £188 million). This decrease is slightly ahead of expectations from lower assets under management as policies mature. As per long-term savings, 2019 fee income was impacted by reduced asset values following weak investment markets towards the end of 2018.
Other
Other operating profit of £37 million in HY19 includes the net impact of reassessment of other liabilities. Other operating profit of £107 million in HY18 included the impact of a refinement in the application of our bulk annuity assumptions and an update for experience on individual annuities that 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.
Health and Other VNB improved to £23 million (HY18: £17 million), despite a reduction in volumes, due to improved health margins.
Cash‡#
Cash remitted to Group was £892 million (HY18: £1,207 million). HY18 included a £500 million special Friends Life integration remittance. Cash remittances reflect ongoing capital generation and the acceleration of timing of dividend payments.
Expenses
Operating expenses were broadly flat at £442 million (HY18: £440 million), including the effect of the alignment of UK digital business costs to UK Life insurance. We have benefitted from a continued focus on efficiency while we continue to invest in growth and simplification initiatives including improvements to customer experience.
Page 11
6.i - United Kingdom continued
General Insurance and Health - operating and financial performance
Operating profit‡#
|
6 months |
6 months |
Sterling % change |
Full year |
Underwriting result |
90 |
115 |
(22)% |
253 |
Long-term investment return |
83 |
79 |
5% |
161 |
Other1 |
(1) |
1 |
N/A |
1 |
Total general insurance operating profit |
172 |
195 |
(12)% |
415 |
Total health operating profit |
15 |
14 |
7% |
38 |
1 Other general insurance includes unwind of discount and pension scheme net finance costs.
UK General Insurance operating profit was down 12% at £172 million (HY18: £195 million). This reflects the alignment of UK digital business costs to UK General Insurance (£34 million earned impact), which is broadly neutral at Group level, combined with lower prior year releases, partly offset by lower weather costs (after adverse weather conditions in the first half of 2018). Excluding the impact of the UK digital business, operating profit improved by 6%.
Long-term investment return (LTIR) was up 5% at £83 million (HY18: £79 million).
Following the announcement by the Lord Chancellor on 15 July 2019 to increase the Ogden discount rate from the minus 0.75% set in 2017 to minus 0.25%, balance sheet reserves in the UK have been calculated using a discount rate of minus 0.25% at 30 June 2019. At December 2018, balance sheet reserves were calculated using a rate of 0.00%. This has resulted in a strengthening of claims reserves of £45 million. The negative impact of this reserve change has been excluded from the operating result, a treatment which is consistent with the previous rate change. The Ogden discount rate is expected to be reviewed by the Lord Chancellor within five years.
Cash‡#
Cash remitted to Group was £91 million (HY18: £9 million), with the increase reflecting the acceleration of dividend payments into the first half of 2019.
Expenses
Operating expenses increased by 17% to £407 million (HY18: £349 million), with the main drivers of the increase being the alignment of UK digital business costs to UK General Insurance, higher levy costs, as well as the impact of continued investment in simplification initiatives including improvements to customer experience.
Net written premiums (NWP) and combined operating ratio (COR)‡
|
Net written premiums |
Combined operating ratio‡ |
||||||
United Kingdom General Insurance |
6 months |
6 months |
Sterling % change |
Full year |
6 months |
6 months |
Change |
Full year |
Personal motor |
547 |
559 |
(2)% |
1,125 |
|
|
|
|
Personal non-motor |
682 |
687 |
(1)% |
1,369 |
|
|
|
|
UK personal lines |
1,229 |
1,246 |
(1)% |
2,494 |
97.3% |
95.2% |
2.1pp |
92.4% |
|
|
|
|
|
|
|
|
|
Commercial motor |
283 |
270 |
5% |
532 |
|
|
|
|
Commercial non-motor |
646 |
594 |
9% |
1,167 |
|
|
|
|
UK commercial lines |
929 |
864 |
7% |
1,699 |
93.4% |
93.0% |
0.4pp |
96.1% |
Total |
2,158 |
2,110 |
2% |
4,193 |
95.7% |
94.3% |
1.4pp |
93.8% |
NWP
NWP increased 2% to £2,158 million (HY18: £2,110 million).
UK personal lines fell 1% reflecting slightly lower average premiums for motor and the continued run-off of the creditor book. Home premiums were stable.
UK commercial lines increased 7%, driven by a 9% increase in commercial non-motor with solid growth in SME and Global Corporate Specialty (GCS), while commercial motor increased 5%.
COR‡
UK General Insurance COR of 95.7% is a 1.4pp worsening on prior year, of which 1.6pp reflects the impact of the alignment of UK digital costs. The remaining difference reflects lower weather costs (after adverse weather conditions in the first half of 2018) partly offset by lower prior year reserve releases.
UK personal lines COR of 97.3% was 2.1pp higher year-on-year, of which 2.8pp reflects the alignment of UK digital costs. Excluding this, the difference reflects lower weather costs offset by lower prior year reserve releases.
UK commercial lines COR of 93.4% was 0.4pp higher year-on-year, as investment in growth and simplification initiatives were partly offset by lower weather costs.
Page 12
6.ii - International
(a) Canada
|
6 months |
6 months |
Sterling % change |
Constant currency |
Full year |
Operating profit/(loss)‡#
|
98 |
(13) |
N/A |
N/A |
46 |
Cash remitted to Group‡#
|
15 |
13 |
15% |
13% |
28 |
Operating expenses
|
238 |
237 |
- |
(1)% |
477 |
COR‡
|
97.5% |
104.6% |
(7.1)pp |
(7.1)pp |
102.4% |
NWP |
1,458 |
1,483 |
(2)% |
(3)% |
2,928 |
Overview
During the first half of 2019, operating profit of £98 million has significantly improved compared with the prior period (HY18: loss of £13 million). The benefits from the extensive profit remediation plans around pricing, indemnity management and risk selection are now flowing through the results. Catastrophe experience in the first half was favourable to prior period, and slightly better than our long-term average. The COR has improved from 104.6% in the first half of 2018 to 97.5% in the first half of 2019.
All percentage movements below are quoted in constant currency unless otherwise stated.
Operating and financial performance
Operating profit‡#
|
6 months |
6 months |
Sterling % change |
Constant currency |
Full year |
Underwriting result |
36 |
(67) |
154% |
153% |
(70) |
Long-term investment return |
65 |
56 |
16% |
14% |
121 |
Other1 |
(3) |
(2) |
3% |
5% |
(5) |
Total operating profit/(loss) |
98 |
(13) |
N/A |
N/A |
46 |
1 Includes unwind of discount and pension scheme net finance costs.
In the first half of 2019, the underwriting result was a profit of £36 million (HY18: loss of £67 million), mainly driven by favourable current year claims experience. The result has benefitted from profitability actions including premium rate increases, claims operational improvements and better risk selection, as well as favourable prior year development as a result of improved claims settlement outcomes, and more favourable catastrophe claims experience. Long-term investment return improved 14% due to higher yields on short-duration securities and actions to optimise returns within our fixed income portfolio.
Cash‡#
Cash remittances during the period of £15 million (HY18: £13 million) were broadly in line with prior year.
Expenses
Operating expenses remained broadly flat at £238 million (HY18: £237 million) as increased investment in claims personnel and processes as well as personal lines pricing sophistication were partially offset by savings as we fully migrated RBC insurance business to Aviva systems.
Net written premiums (NWP) and combined operating ratio (COR)‡
|
Net written premiums |
Combined operating ratio‡ |
|||||||
|
6 months |
6 months |
Sterling % change |
Constant currency |
Full year |
6 months |
6 months |
Change |
Full year |
Personal lines |
1,018 |
1,066 |
(4)% |
(6)% |
2,107 |
96.8% |
107.3% |
(10.5)pp |
104.2% |
Commercial lines |
440 |
417 |
6% |
4% |
821 |
99.3% |
97.8% |
1.5pp |
97.8% |
Total |
1,458 |
1,483 |
(2)% |
(3)% |
2,928 |
97.5% |
104.6% |
(7.1)pp |
102.4% |
NWP
Net written premiums were down 3% to £1,458 million (HY18: £1,483 million), mainly due to a decline in personal lines new business volume as approved rate increases impacted our price competitiveness. Premium retention remains above 80% in personal lines. Commercial lines net written premiums increased slightly over the prior period due to hard market conditions, offset by a decline in retention as we tightened our underwriting risk appetite.
COR‡
The COR improved to 97.5% (HY18: 104.6%) due to the effect of profitability actions implemented from late 2017, favourable prior year development and lower natural catastrophe losses.
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.
# denotes key financial performance indicators used as a base to determine or modify remuneration.
Page 13
6.ii - International continued
(b) Europe
|
6 months |
6 months |
Sterling % change |
Constant currency |
Full year |
Operating profit‡# |
|
|
|
|
|
Life |
403 |
414 |
(2)% |
(2)% |
831 |
General insurance & health |
112 |
112 |
- |
- |
220 |
Other operations1 |
(17) |
(18) |
7% |
7% |
(40) |
|
498 |
508 |
(2)% |
(1)% |
1,011 |
|
|
|
|
|
|
Cash remitted to Group2,3,‡# |
503 |
227 |
122% |
122% |
483 |
|
|
|
|
|
|
Operating expenses |
431 |
402 |
7% |
8% |
847 |
|
|
|
|
|
|
New business |
|
|
|
|
|
PVNBP |
7,398 |
6,799 |
9% |
10% |
12,641 |
VNB‡ |
237 |
307 |
(23)% |
(22)% |
517 |
|
|
|
|
|
|
General Insurance |
|
|
|
|
|
COR‡ |
92.9% |
93.5% |
(0.6)pp |
(0.6)pp |
93.4% |
NWP |
1,102 |
1,092 |
1% |
1% |
1,985 |
1 Mainly relates to regional holding company activities.
2 Following the UK's decision to leave the European Union, the Ireland branches of the UK business have been transferred to Ireland effective March 2019. As a result, the Ireland business is now reported within Europe instead of the United Kingdom for all metrics. Comparative balances have been restated accordingly.
3 In 2018 cash remittances include amounts of £17 million received from Ireland General Insurance in February 2019 in respect of 2018 activity.
Overview
On a reported basis, operating profit in Europe was down by 2% to £498 million (HY18: £508 million). However, excluding disposals, Europe operating profit was up 2% to £498 million (HY18: £491 million). In our life businesses, there was growth in Italy and a full period from Friends First in Ireland partly offset by lower life profits in France and Poland. In our general insurance businesses, growth in France was broadly offset by a decrease in profits in our other businesses.
In 2018, we completed the sales of our Spanish business and our shareholdings in Avipop Assicurazioni S.p.A and Avipop Vita S.p.A (collectively known as Avipop) in Italy. In Ireland, we completed our acquisition of Friends First 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 2019 |
6 months 2018 |
Sterling % change |
Constant currency |
Full year 2018 |
6 months 2019 |
6 months 2018 |
Sterling % change |
Constant currency |
Full year 2018 |
France |
199 |
229 |
(13)% |
(13)% |
436 |
64 |
50 |
28% |
28% |
110 |
Poland |
83 |
86 |
(3)% |
(1)% |
170 |
9 |
9 |
(6)% |
(4)% |
20 |
Italy (excl. Avipop) |
89 |
68 |
32% |
32% |
156 |
12 |
14 |
(13)% |
(13)% |
32 |
Ireland |
26 |
13 |
104% |
104% |
44 |
27 |
37 |
(27)% |
(27)% |
56 |
Other Europe (excl. Spain)1 |
6 |
3 |
107% |
166% |
10 |
- |
- |
- |
- |
- |
Total (excl. Avipop, Spain) |
403 |
399 |
1% |
2% |
816 |
112 |
110 |
1% |
1% |
218 |
Disposals |
|
|
|
|
|
|
|
|
|
|
Avipop |
- |
6 |
N/A |
N/A |
6 |
- |
2 |
N/A |
N/A |
2 |
Spain |
- |
9 |
N/A |
N/A |
9 |
- |
- |
- |
- |
- |
Total |
403 |
414 |
(2)% |
(2)% |
831 |
112 |
112 |
- |
- |
220 |
1 Includes Turkey.
Life operating profit
Excluding the impact of disposals, the operating profit of our life businesses grew by 2% to £403 million (HY18: £399 million). Dealing with each of the markets in turn:
· In France, operating profit was £199 million (HY18: £229 million), a decrease of 13%, mainly due to adverse protection claims experience and weak investment markets towards the end of 2018 impacting savings business.
· In Poland, operating profit was £83 million (HY18: £86 million), with the reduction in profits mainly due to adverse mortality experience on protection and lower fee income on AUM as a result of weak equity markets towards the end of 2018.
· In Italy, operating profit grew by 32% to £89 million (HY18: £68 million), with strong net inflows in 2018 increasing AUM driving higher fee income particularly due to the continued success of our hybrid savings product.
· In Ireland, operating profit increased to £26 million (HY18: £13 million), mainly due to inclusion of a full period of contribution from Friends First and realisation of synergies arising from the acquisition.
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.
# denotes key financial performance indicators used as a base to determine or modify remuneration.
Page 14
6.ii - International continued
General insurance operating profit
Excluding Avipop, the profit of our general insurance businesses grew by 1% to £112 million (HY18: £110 million). Dealing with each of the markets in turn:
· In France, operating profit was £64 million (HY18: £50 million), an increase of 28%, with growth in earned premiums, particularly in commercial lines. The result also benefitted from favourable weather which was offset partly by an increase in large losses.
· In Poland, operating profit was flat at £9 million (HY18: £9 million). During the period there was premium growth in commercial lines, offset by higher large loss experience.
· In Italy, operating profit decreased to £12 million (HY18: £14 million) with lower long-term investment return, partially offset by an improved underwriting result benefitting from actions on our motor book.
· In Ireland, operating profit decreased to £27 million (HY18: £37 million) due to a softening market in motor lines driving average premiums down, and less favourable prior year development.
Cash‡#
Cash remitted to the Group was £503 million (HY18: £227 million) mainly reflecting higher dividends from France and phasing of the annual dividend from Poland, which was remitted in the first half of 2019 (2018: remitted in the second half).
Expenses
Operating expenses of £431 million (HY18: £402 million) increased by 8%, mainly due to the inclusion of a full period of Friends First expenses and increased regulatory levies in Ireland, and higher expenses in France including a government mandated staff payment.
New business
|
|
|
|
|
PVNBP |
|
|
|
|
VNB1 |
Gross of tax and non-controlling interests |
6 months 2019 |
6 months 2018 |
Sterling % change |
Constant currency % |
Full year |
6 months 2019 |
6 months 2018 |
Sterling % change |
Constant currency % |
Full year |
France |
2,710 |
2,159 |
26% |
26% |
4,335 |
95 |
123 |
(23)% |
(23)% |
210 |
Poland |
307 |
217 |
41% |
44% |
486 |
31 |
25 |
21% |
23% |
58 |
Italy (excl. Avipop) |
3,468 |
3,787 |
(8)% |
(8)% |
6,263 |
99 |
146 |
(32)% |
(32)% |
222 |
Ireland |
753 |
433 |
74% |
74% |
1,208 |
2 |
2 |
4% |
4% |
11 |
Other Europe1 |
160 |
187 |
(15)% |
10% |
333 |
10 |
8 |
24% |
60% |
13 |
Total (excl. Avipop) |
7,398 |
6,783 |
9% |
10% |
12,625 |
237 |
304 |
(22)% |
(22)% |
514 |
Avipop |
- |
16 |
N/A |
N/A |
16 |
- |
3 |
N/A |
N/A |
3 |
Total |
7,398 |
6,799 |
9% |
10% |
12,641 |
237 |
307 |
(23)% |
(22)% |
517 |
1 Includes Turkey.
Excluding disposals, PVNBP was up by 10% to £7,398 million (HY18: £6,783 million) and VNB decreased by 22% to £237 million (HY18: £304 million). In France, PVNBP increased to £2,710 million (HY18: £2,159 million) but VNB decreased to £95 million (HY18: £123 million) due to higher sales of lower margin savings products. In Italy, VNB decreased to £99 million (HY18: £146 million). We reduced volumes of standalone with-profits savings products, offsetting growth in volumes of our hybrid savings product. In Poland, VNB increased to £31 million (HY18: £25 million) driven by the performance of our protection product. In Ireland PVNBP increased mainly due to the inclusion of a full period of contribution from Friends First.
Net written premiums (NWP) and combined operating ratio (COR)‡
|
Net written premiums |
Combined operating ratio‡ |
|||||||
|
6 months 2019 |
6 months |
Sterling % change |
Constant currency |
Full year |
6 months 2019 |
6 months |
Change |
Full year |
France |
669 |
641 |
4% |
4% |
1,118 |
93.2% |
95.5% |
(2.3)pp |
94.5% |
Poland |
56 |
52 |
8% |
11% |
106 |
88.7% |
89.0% |
(0.3)pp |
87.0% |
Italy (excl. Avipop) |
159 |
162 |
(2)% |
(2)% |
317 |
96.6% |
97.4% |
(0.8)pp |
95.1% |
Ireland |
218 |
223 |
(3)% |
(3)% |
430 |
90.6% |
87.1% |
3.5pp |
91.5% |
Total (excl. Avipop) |
1,102 |
1,078 |
2% |
2% |
1,971 |
92.9% |
93.6% |
(0.7)pp |
93.5% |
Avipop |
- |
14 |
N/A |
N/A |
14 |
- |
87.8% |
N/A |
87.8% |
Total |
1,102 |
1,092 |
1% |
1% |
1,985 |
92.9% |
93.5% |
(0.6)pp |
93.4% |
NWP
Excluding disposals, NWP increased by 2% to £1,102 million (HY18: £1,078 million), with growth in France and Poland more than offsetting lower premiums in Italy and Ireland. In France, NWP grew to £669 million (HY18: £641 million) with growth across all major products and particularly in commercial lines. In Ireland, NWP decreased slightly due to rate reductions in a softening motor market. In Poland, NWP increased by 11% to £56 million (HY18: £52 million) primarily reflecting growth in commercial lines. In Italy, NWP decreased by 2% due to continued underwriting action taken on segments of the motor book.
COR‡
Excluding the disposal of Avipop, COR in Europe has improved by 0.7pp to 92.9%, due to favourable weather in France and the benefit of underwriting action on the motor book in Italy. This was partly offset by a higher COR in Ireland, which was impacted by rate reductions in a softening motor market.
Page 15
6.iii - Asia
|
6 months |
6 months |
Sterling % change |
Constant currency |
Full year |
Operating profit‡# |
|
|
|
|
|
Life |
161 |
143 |
13% |
11% |
300 |
General insurance & health |
- |
(11) |
N/A |
N/A |
(16) |
Other operations1 |
(9) |
(12) |
18% |
21% |
(18) |
|
152 |
120 |
27% |
25% |
266 |
|
|
|
|
|
|
Cash remitted to Group‡# |
- |
- |
- |
- |
6 |
|
|
|
|
|
|
Operating expenses2 |
95 |
91 |
4% |
2% |
186 |
|
|
|
|
|
|
New business |
|
|
|
|
|
PVNBP |
1,477 |
1,327 |
11% |
9% |
2,656 |
VNB‡ |
96 |
91 |
6% |
4% |
189 |
|
|
|
|
|
|
General Insurance |
|
|
|
|
|
COR‡ |
111.2% |
125.0% |
(13.8)pp |
(13.8)pp |
122.1% |
NWP |
7 |
7 |
2% |
(2)% |
13 |
1 Mainly relates to regional holding company activities.
2 Operating expenses relate to subsidiaries only and exclude joint ventures and associates.
Overview
During the first half of 2019, Asia delivered growth in operating profit and continues to expand and strengthen its multi-distribution platform. Singapore has grown its distribution network with a total of 1,653 advisers on board at 30 June 2019. Aviva-COFCO, our joint venture in China, continues to strengthen its core agency channel and has made a positive start to 2019, recovering from regulatory tightening in 2018. Vietnam has maintained its focus on growth and continues to strengthen its relationship with Vietinbank and expand its agency channel with over 3,900 agents now on board.
All percentage movements below are quoted in constant currency unless otherwise stated.
Operating and financial performance
Operating profit‡#
|
6 months |
6 months |
Sterling % change |
Constant currency |
Full year |
Life operating profit |
|
|
|
|
|
Singapore |
54 |
57 |
(5)% |
(8)% |
141 |
Other Asia (excl. Friends Provident International Limited (FPI)) |
22 |
15 |
49% |
49% |
8 |
Total life (excl. FPI) |
76 |
72 |
7% |
4% |
149 |
General insurance & health operating profit |
- |
(11) |
N/A |
N/A |
(16) |
Total life, general insurance & health operating profit from continuing operations |
76 |
61 |
27% |
24% |
133 |
Other operations1 |
(9) |
(12) |
18% |
21% |
(18) |
FPI2 |
85 |
71 |
19% |
19% |
151 |
Total operating profit |
152 |
120 |
27% |
25% |
266 |
1 Mainly relates to regional holding company activities.
2 In July 2017, Aviva announced the sale of FPI. 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 2019.
Operating profit was £152 million (HY18: £120 million). Excluding FPI and other operations, operating profit from our life, general insurance and health businesses increased by 24% to £76 million (HY18: £61 million). Within this, overall profit in Singapore increased to £54 million (HY18: £47 million) with a significantly improved performance in general insurance and health, partially offset by slightly reduced profits from the life portfolio. China and India have both increased life operating profits.
Cash‡#
No dividends were remitted to Group (HY18: £nil) as we continue to reallocate capital to support business growth in the region.
Expenses
Total operating expenses for Asia were £95 million (HY18: £91 million). Excluding FPI, operating expenses were £72 million (HY18: £68 million) as the business continues to support growth in distribution capabilities.
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.
# denotes key financial performance indicators used as a base to determine or modify remuneration.
Page 16
6.iii - Asia continued
New business
|
|
|
|
|
PVNBP |
|
|
|
|
VNB‡ |
Gross of tax and non-controlling interests |
6 months 2019 |
6 months |
Sterling % change |
Constant currency % |
Full year |
6 months 2019 |
6 months |
Sterling % change |
Constant currency % |
Full year |
Singapore |
724 |
583 |
24% |
20% |
1,279 |
71 |
62 |
14% |
10% |
152 |
Other Asia |
572 |
532 |
7% |
7% |
929 |
28 |
31 |
(6)% |
(2)% |
39 |
Total life (excl. FPI) |
1,296 |
1,115 |
16% |
14% |
2,208 |
99 |
93 |
7% |
6% |
191 |
FPI1 |
181 |
212 |
(15)% |
(15)% |
448 |
(3) |
(2) |
(45)% |
(45)% |
(2) |
Total |
1,477 |
1,327 |
11% |
9% |
2,656 |
96 |
91 |
6% |
4% |
189 |
1 In July 2017, Aviva announced the sale of FPI. 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 2019.
PVNBP increased by 9% to £1,477 million (HY18: £1,327 million) and VNB increased by 4% to £96 million (HY18: £91 million). Excluding FPI, PVNBP increased by 14% to £1,296 million (HY18: £1,115 million), and VNB increased by 6% to £99 million (HY18: £93 million), mainly driven by the performance in Singapore with PVNBP growth from savings and VNB growth from protection lines.
NWP
NWP contribution remains flat at £7 million (HY18: £7 million).
COR‡
The COR improved by 13.8pp to 111.2% (HY18: 125.0%) mainly as a result of a change in business mix from loss making motor lines to travel and commercial lines of business.
Page 17
6.iv - Aviva Investors
|
6 months |
6 months |
Sterling % change |
Full year |
Revenue |
264 |
284 |
(7)% |
597 |
|
|
|
|
|
Operating expenses1 |
202 |
208 |
(3)% |
447 |
|
|
|
|
|
Operating profit‡# |
|
|
|
|
Fund management |
62 |
76 |
(19)% |
150 |
|
|
|
|
|
Cash remitted to Group‡# |
81 |
37 |
119% |
92 |
1 Operating expenses exclude £1 million (HY18: £nil) of operating expenses relating to Aviva Investors Pensions Limited business.
Overview
Despite challenging external market conditions, our investments in growing investment capabilities are making positive progress and we have experienced consistently improving investment performance in 2019. We also experienced significant new external client wins, which had not yet funded at 30 June, particularly in Real Assets and a win of $2.15 billion in US Credit which funded in July 2019. We expect this momentum to continue. Lower revenues and operating profit in the first half of 2019 were mainly caused by lower average assets under management compared to prior period and a business disposal in 2018.
Operating and financial performance
Revenue
Revenue decreased by 7% to £264 million driven by lower average assets under management compared to the prior period and the effect of the 2018 disposals of an indirect real estate multi-manager business and our interest in the management of a pan-European commercial property fund.
Expenses
Operating expenses decreased to £202 million (HY18: £208 million). We continue to invest in growth initiatives while strictly controlling
non-critical business expenditure.
Operating profit‡#
Fund management operating profit decreased by £14 million to £62 million (HY18: £76 million) due mainly to the reduction in revenue described above. Strict cost control by the business helped mitigate the impact on profitability.
Cash‡#
Cash remitted to Group was £81 million during the first half of 2019 (HY18: £37 million).
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 the platform administered by Aviva Investors.
|
Internal legacy £m |
Internal core £m |
External |
Total |
Aviva Investors |
|
|
|
|
Assets under management at 1 January 2019 |
83,615 |
183,011 |
64,080 |
330,706 |
Total inflows |
5,109 |
16,719 |
3,056 |
24,884 |
Total outflows |
(7,735) |
(18,030) |
(3,970) |
(29,735) |
Net flows |
(2,626) |
(1,311) |
(914) |
(4,851) |
Net flows into liquidity funds and cash |
(1,805) |
(238) |
1,404 |
(639) |
Transfers out to external managers |
- |
- |
(3,223) |
(3,223) |
Market and foreign exchange movements |
6,917 |
13,304 |
3,858 |
24,079 |
Assets under management at 30 June 2019 |
86,101 |
194,766 |
65,205 |
346,072 |
Externally managed assets under administration at 1 January 2019 |
|
|
|
29,104 |
Externally managed assets under administration net flows and other movements |
|
|
|
4,485 |
Externally managed assets under administration at 30 June 2019 |
|
|
|
33,589 |
Assets under management and administration at 1 January 2019 |
|
|
|
359,810 |
Assets under management and administration at 30 June 2019 |
|
|
|
379,661 |
Assets under management increased by £15.4 billion to £346.1 billion (2018: £330.7 billion). This is due to £24.1 billion of favourable market and foreign exchange movements partly offset by net outflows of £5.5 billion and £3.2 billion of assets transferred to an external manager. Assets under management and administration at 30 June 2019 were £379.7 billion (2018: £359.8 billion).
‡ denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.
# denotes key financial performance indicators used as a base to determine or modify remuneration.
Page 18
7.i - Life business
Life business operating profit before shareholder tax decreased by 8% to £1,282 million (HY18: £1,392 million), down by 8% on a constant currency basis.
Overall, total income decreased by 3% to £2,284 million (HY18: £2,348 million) and total expenses increased by 6% to £1,208 million (HY18: £1,141 million). The resulting decrease in net income was partly offset by a higher benefit from 'Other' items.
|
United Kingdom |
|
|
Europe |
|
|
Asia |
|
|
Total |
||
|
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
New business income |
297 |
342 |
772 |
148 |
163 |
309 |
161 |
141 |
300 |
606 |
646 |
1,381 |
Underwriting margin |
165 |
191 |
382 |
98 |
92 |
196 |
41 |
57 |
103 |
304 |
340 |
681 |
Investment return |
648 |
684 |
1,406 |
607 |
559 |
1,131 |
119 |
119 |
233 |
1,374 |
1,362 |
2,770 |
Total income |
1,110 |
1,217 |
2,560 |
853 |
814 |
1,636 |
321 |
317 |
636 |
2,284 |
2,348 |
4,832 |
Acquisition expenses |
(192) |
(219) |
(425) |
(171) |
(152) |
(335) |
(121) |
(106) |
(217) |
(484) |
(477) |
(977) |
Administration expenses |
(384) |
(356) |
(798) |
(286) |
(262) |
(523) |
(54) |
(46) |
(100) |
(724) |
(664) |
(1,421) |
Total expenses |
(576) |
(575) |
(1,223) |
(457) |
(414) |
(858) |
(175) |
(152) |
(317) |
(1,208) |
(1,141) |
(2,398) |
Other1 |
188 |
189 |
534 |
7 |
14 |
53 |
15 |
(22) |
(19) |
210 |
181 |
568 |
|
722 |
831 |
1,871 |
403 |
414 |
831 |
161 |
143 |
300 |
1,286 |
1,388 |
3,002 |
Other business2 |
|
|
|
|
|
|
|
|
|
(4) |
4 |
(3) |
Total life business operating profit |
|
|
|
|
|
|
|
|
|
1,282 |
1,392 |
2,999 |
1 Other represents changes in assumptions and modelling, non-recurring items and non-product specific items.
2 Other business includes the total result for Aviva Investors Pensions Limited and Aviva Life Reinsurance.
Income: New business income and underwriting margin
|
United Kingdom |
|
|
Europe2 |
|
|
Asia |
|
|
Total2 |
||
|
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 £m2 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 £m2 |
Full Year 2018 |
New business income |
297 |
342 |
772 |
148 |
163 |
309 |
161 |
141 |
300 |
606 |
646 |
1,381 |
Acquisition expenses |
(192) |
(219) |
(425) |
(171) |
(152) |
(335) |
(121) |
(106) |
(217) |
(484) |
(477) |
(977) |
Net contribution |
105 |
123 |
347 |
(23) |
11 |
(26) |
40 |
35 |
83 |
122 |
169 |
404 |
APE1 |
1,798 |
1,659 |
3,444 |
796 |
740 |
1,381 |
217 |
174 |
359 |
2,811 |
2,573 |
5,184 |
As margin on APE (%) |
6% |
7% |
10% |
(3)% |
1% |
(2)% |
18% |
20% |
23% |
4% |
7% |
8% |
Underwriting margin |
165 |
191 |
382 |
98 |
92 |
196 |
41 |
57 |
103 |
304 |
340 |
681 |
Analysed by: |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
32 |
31 |
63 |
27 |
15 |
67 |
42 |
40 |
75 |
101 |
86 |
205 |
Mortality and longevity |
133 |
160 |
319 |
60 |
71 |
122 |
6 |
18 |
30 |
199 |
249 |
471 |
Persistency |
- |
- |
- |
11 |
6 |
7 |
(7) |
(1) |
(2) |
4 |
5 |
5 |
1 APE excludes UK Retail Fund Management and Health business in UK & Ireland and Asia.
2 Following a review of regular and single premiums in Ireland, Europe APE has been restated for HY18.
(a) Net contribution from new business
The net contribution from new business decreased by 28% to a profit of £122 million (HY18: profit of £169 million). In the UK, the net contribution decreased to a profit of £105 million (HY18: profit of £123 million) mainly as a result of lower individual protection volumes partly offset by increased profits in annuities and group protection. In Europe, the net contribution decreased to a loss of £23 million (HY18: profit of £11 million) mainly due to a change in product mix in France as a result of higher sales of lower margin savings products and new business strain in Ireland due to increased volumes. In Asia, the net contribution increased to a profit of £40 million (HY18: profit of £35 million) as a result of higher sales of protection products in Singapore and China.
(b) Underwriting margin
The overall decrease in the underwriting margin was driven by the UK, which decreased to £165 million (HY18: £191 million) mainly as HY18 included favourable annuity experience which did not recur in 2019. In Europe, the underwriting margin increased to a profit of £98 million (HY18: £92 million) due to an increase in persistency and expense margins in Ireland partly offset by unfavourable mortality and morbidity experience in France. In Asia, the underwriting margin decreased to £41 million (HY18: £57 million) partly due to higher lapses than expected in Singapore.
Page 19
7.i - Life business continued
Income: Investment return
|
United Kingdom |
|
|
Europe |
|
|
Asia |
|
|
Total |
||
|
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
Unit-linked margin |
413 |
446 |
903 |
301 |
291 |
581 |
108 |
110 |
204 |
822 |
847 |
1,688 |
As annual management charge on average reserves (bps) |
59 |
64 |
66 |
140 |
135 |
136 |
248 |
227 |
217 |
86 |
88 |
89 |
Average reserves (£bn)1 |
140.3 |
138.9 |
137.6 |
42.9 |
43.0 |
42.8 |
8.7 |
9.7 |
9.4 |
191.9 |
191.6 |
189.8 |
Participating business2 |
68 |
86 |
165 |
257 |
220 |
461 |
(4) |
(4) |
4 |
321 |
302 |
630 |
As bonus on average reserves (bps) |
35 |
38 |
39 |
72 |
66 |
68 |
(19) |
(20) |
10 |
56 |
52 |
55 |
Average reserves (£bn)1 |
39.0 |
45.3 |
42.4 |
71.2 |
66.2 |
67.5 |
4.3 |
4.0 |
4.1 |
114.5 |
115.5 |
114.0 |
Spread margin |
149 |
124 |
266 |
4 |
1 |
2 |
3 |
3 |
7 |
156 |
128 |
275 |
As spread margin on average reserves (bps) |
44 |
38 |
40 |
16 |
5 |
4 |
30 |
30 |
37 |
42 |
36 |
38 |
Average reserves (£bn)1 |
68.1 |
64.5 |
65.8 |
4.9 |
4.3 |
4.5 |
2.0 |
2.0 |
1.9 |
75.0 |
70.8 |
72.2 |
Expected return on shareholder assets3 |
18 |
28 |
72 |
45 |
47 |
87 |
12 |
10 |
18 |
75 |
85 |
177 |
Total |
648 |
684 |
1,406 |
607 |
559 |
1,131 |
119 |
119 |
233 |
1,374 |
1,362 |
2,770 |
Total Average reserves (£bn)1 |
247.4 |
248.7 |
245.8 |
119.0 |
113.5 |
114.8 |
15.0 |
15.7 |
15.4 |
381.4 |
377.9 |
376.0 |
1 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.
2 The shareholders' share of the return on with-profits and other participating business.
3 The expected investment return based on opening economic assumptions applied to expected surplus assets over the reporting period that are not backing policyholder liabilities.
(c) Unit-linked margin
The unit-linked margin decreased to £822 million (HY18: £847 million) and the margin as a proportion of average reserves decreased to 86 bps (HY18: 88 bps). In the UK, the unit-linked margin has decreased mainly due to adverse market movements towards the end of 2018. At the same time, the margin on average reserves decreased to 59 bps (HY18: 64 bps) due to a change in product mix. In Europe, the unit-linked margin increased to £301 million (HY18: £291 million) largely due the inclusion of Friends First and higher fee income in Italy due to the hybrid savings business. In Asia, the margin of £108 million (HY18: £110 million) is broadly stable.
(d) Participating business
Participating average reserves have decreased slightly to £115 billion (HY18: £116 billion). Income from participating business increased to £321 million (HY18: £302 million). In the UK, income from participating business decreased to £68 million (HY18: £86 million), mainly due to higher than expected run-off and a higher number of maturing policies in 2018. In Europe, income increased to £257 million (HY18: £220 million) driven mainly by Italy, due to large positive net inflows since HY18 partly offset by weak investment markets in France.
(e) Spread margin
Spread business income mainly relates to annuities in the UK which increased during the period to £149 million (HY18: £124 million), driven by higher yields on bulk purchase annuities, which increased the margin as a proportion of average reserves to 44 bps (HY18: 38 bps).
(f) Expected return on shareholder assets
Expected returns, representing investment income on surplus funds, decreased to £75 million (HY18: £85 million) due mainly to the impact of increased hedging in the UK.
Expenses
|
United Kingdom |
|
|
Europe3 |
|
|
Asia |
|
|
Total3 |
||
|
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 £m3 |
Full Year 2018 |
6 months 2019 |
6 months 2018 |
Full Year 2018 |
6 months 2019 |
6 months 2018 £m3 |
Full Year 2018 |
Acquisition expenses |
(192) |
(219) |
(425) |
(171) |
(152) |
(335) |
(121) |
(106) |
(217) |
(484) |
(477) |
(977) |
APE1 |
1,798 |
1,659 |
3,444 |
796 |
740 |
1,381 |
217 |
174 |
359 |
2,811 |
2,573 |
5,184 |
As acquisition expense ratio on APE (%) |
11% |
13% |
12% |
21% |
21% |
24% |
56% |
61% |
60% |
17% |
19% |
19% |
Administration expenses |
(384) |
(356) |
(798) |
(286) |
(262) |
(523) |
(54) |
(46) |
(100) |
(724) |
(664) |
(1,421) |
As existing business expense ratio on average reserves (bps) |
31 |
29 |
32 |
48 |
46 |
46 |
72 |
59 |
65 |
38 |
35 |
38 |
Total Average reserves (£bn)2 |
247.4 |
248.7 |
245.8 |
119.0 |
113.5 |
114.8 |
15.0 |
15.7 |
15.4 |
381.4 |
377.9 |
376.0 |
1 APE excludes Retail Fund Management and Health business in Asia.
2 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.
3 Following a review of regular and single premiums in Ireland, Europe APE and acquisition expense ratio on APE, have been restated for HY18.
(g) Acquisition expenses
Acquisition expenses increased to £484 million (HY18: £477 million). The increase in Europe is mainly due to the inclusion of Friends First expenses and the increase in Asia is due to new business growth and increased distribution costs in Singapore. This was partly offset by lower acquisition expenses in the UK, due to lower protection volumes which reduced commission levels.
(h) Administration expenses
The overall expense ratio increased to 38 bps (HY18: 35 bps) on average reserves of £381 billion (HY18: £378 billion). The increase is driven by an increased investment in growth initiatives in the UK, inclusion of Friends First in Europe and an increased investment in growth in Asia, particularly, Singapore.
Page 20
7.ii - General insurance and health
6 months 2019 |
UK Personal |
UK Commercial £m |
Total |
Canada Personal |
Canada Commercial |
Total |
Europe |
Asia & Other1 £m |
Total |
General insurance |
|
|
|
|
|
|
|
|
|
Gross written premiums |
1,266 |
1,072 |
2,338 |
1,035 |
490 |
1,525 |
1,151 |
7 |
5,021 |
Net written premiums |
1,229 |
929 |
2,158 |
1,018 |
440 |
1,458 |
1,102 |
7 |
4,725 |
Net earned premiums |
1,233 |
851 |
2,084 |
1,033 |
416 |
1,449 |
992 |
7 |
4,532 |
Net claims incurred |
(775) |
(514) |
(1,289) |
(707) |
(254) |
(961) |
(629) |
(11) |
(2,890) |
Of which claims handling costs |
|
|
(78) |
|
|
(58) |
(34) |
2 |
(168) |
Earned commission |
(298) |
(178) |
(476) |
(186) |
(93) |
(279) |
(186) |
- |
(941) |
Earned expenses |
(126) |
(103) |
(229) |
(107) |
(66) |
(173) |
(107) |
(2) |
(511) |
Underwriting result |
34 |
56 |
90 |
33 |
3 |
36 |
70 |
(6) |
190 |
Long-term investment return (LTIR)2 |
|
|
83 |
|
|
65 |
36 |
- |
184 |
Other3 |
|
|
(1) |
|
|
(3) |
- |
- |
(4) |
Operating profit (GI) |
|
|
172 |
|
|
98 |
106 |
(6) |
370 |
Health insurance |
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
|
284 |
|
|
- |
125 |
132 |
541 |
Net written premiums |
|
|
284 |
|
|
- |
125 |
112 |
521 |
Underwriting result |
|
|
14 |
|
|
- |
5 |
- |
19 |
Long-term investment return (LTIR) |
|
|
1 |
|
|
- |
1 |
- |
2 |
Operating profit (Health) |
|
|
15 |
|
|
- |
6 |
- |
21 |
Total operating profit (GI and Health) |
|
|
187 |
|
|
98 |
112 |
(6) |
391 |
Total gross written premiums |
|
|
2,622 |
|
|
1,525 |
1,276 |
139 |
5,562 |
Total net written premiums |
|
|
2,442 |
|
|
1,458 |
1,227 |
119 |
5,246 |
General insurance combined operating ratio |
|
|
|
|
|
|
|
|
|
Claims ratio |
62.9% |
60.4% |
61.9% |
68.4% |
61.2% |
66.3% |
63.3% |
|
63.8% |
Commission ratio |
24.2% |
20.9% |
22.8% |
18.0% |
22.3% |
19.2% |
18.8% |
|
20.8% |
Expense ratio |
10.2% |
12.1% |
11.0% |
10.4% |
15.8% |
12.0% |
10.8% |
|
11.3% |
Combined operating ratio |
97.3% |
93.4% |
95.7% |
96.8% |
99.3% |
97.5% |
92.9% |
|
95.9% |
Assets supporting general insurance and health business |
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
2,428 |
|
|
4,755 |
2,449 |
72 |
9,704 |
Equity securities |
|
|
720 |
|
|
236 |
23 |
- |
979 |
Investment property |
|
|
407 |
|
|
- |
153 |
- |
560 |
Cash and cash equivalents |
|
|
478 |
|
|
139 |
308 |
71 |
996 |
Other assets4 |
|
|
1,859 |
|
|
174 |
365 |
- |
2,398 |
Assets at 30 June 2019 |
|
|
5,892 |
|
|
5,304 |
3,298 |
143 |
14,637 |
Debt securities |
|
|
2,367 |
|
|
4,445 |
2,387 |
72 |
9,271 |
Equity securities |
|
|
568 |
|
|
208 |
90 |
- |
866 |
Investment property5 |
|
|
380 |
|
|
- |
148 |
- |
528 |
Cash and cash equivalents |
|
|
700 |
|
|
130 |
371 |
93 |
1,294 |
Other assets4,5 |
|
|
1,776 |
|
|
207 |
407 |
- |
2,390 |
Assets at 31 December 20185 |
|
|
5,791 |
|
|
4,990 |
3,403 |
165 |
14,349 |
Average assets |
|
|
5,842 |
|
|
5,147 |
3,350 |
154 |
14,493 |
Annualised LTIR as % of average assets |
|
|
2.9% |
|
|
2.5% |
2.2% |
- |
2.6% |
1 Asia & Other includes Aviva Re.
2 LTIR includes UK £22 million (HY18: £19 million) and Ireland £1 million (HY18: £2 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.
5 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information.
Page 21
7.ii - General insurance and health continued
6 months 2018 |
UK Personal £m |
UK Commercial £m |
Total |
Canada Personal |
Canada Commercial £m |
Total |
Europe |
Asia & Other1 £m |
Total |
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 |
Long-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 |
Long-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 |
Other assets4 |
|
|
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 |
Other assets4 |
|
|
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.
Page 22
7.ii - General insurance and health continued
Full year 2018 |
UK Personal £m |
UK Commercial £m |
Total |
Canada Personal |
Canada Commercial £m |
Total |
Europe |
Asia & Other1 £m |
Total |
General insurance |
|
|
|
|
|
|
|
|
|
Gross written premiums |
2,562 |
1,942 |
4,504 |
2,143 |
904 |
3,047 |
2,075 |
14 |
9,640 |
Net written premiums |
2,494 |
1,699 |
4,193 |
2,107 |
821 |
2,928 |
1,985 |
8 |
9,114 |
Net earned premiums |
2,493 |
1,613 |
4,106 |
2,116 |
839 |
2,955 |
1,963 |
6 |
9,030 |
Net claims incurred |
(1,546) |
(1,019) |
(2,565) |
(1,609) |
(513) |
(2,122) |
(1,264) |
(6) |
(5,957) |
Of which claims handling costs |
|
|
(159) |
|
|
(110) |
(60) |
(1) |
(330) |
Earned commission |
(601) |
(336) |
(937) |
(377) |
(172) |
(549) |
(368) |
1 |
(1,853) |
Earned expenses |
(156) |
(195) |
(351) |
(218) |
(136) |
(354) |
(203) |
(4) |
(912) |
Underwriting result |
190 |
63 |
253 |
(88) |
18 |
(70) |
128 |
(3) |
308 |
Long-term investment return (LTIR)2 |
|
|
161 |
|
|
120 |
82 |
- |
363 |
Other3 |
|
|
1 |
|
|
(4) |
- |
1 |
(2) |
Operating profit (GI) |
|
|
415 |
|
|
46 |
210 |
(2) |
669 |
Health insurance |
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
|
485 |
|
|
- |
204 |
190 |
879 |
Net written premiums |
|
|
485 |
|
|
- |
204 |
165 |
854 |
Underwriting result |
|
|
33 |
|
|
- |
9 |
(14) |
28 |
Long-term investment return (LTIR) |
|
|
5 |
|
|
- |
1 |
1 |
7 |
Operating profit (Health) |
|
|
38 |
|
|
- |
10 |
(13) |
35 |
Total operating profit (GI and Health) |
|
|
453 |
|
|
46 |
220 |
(15) |
704 |
Total gross written premiums |
|
|
4,989 |
|
|
3,047 |
2,279 |
204 |
10,519 |
Total net written premiums |
|
|
4,678 |
|
|
2,928 |
2,189 |
173 |
9,968 |
General insurance combined operating ratio |
|
|
|
|
|
|
|
|
|
Claims ratio |
62.0% |
63.2% |
62.5% |
76.1% |
61.1% |
71.8% |
64.4% |
|
66.0% |
Commission ratio |
24.1% |
20.8% |
22.8% |
17.8% |
20.5% |
18.6% |
18.7% |
|
20.5% |
Expense ratio |
6.3% |
12.1% |
8.5% |
10.3% |
16.2% |
12.0% |
10.3% |
|
10.1% |
Combined operating ratio |
92.4% |
96.1% |
93.8% |
104.2% |
97.8% |
102.4% |
93.4% |
|
96.6% |
Assets supporting general insurance and health business |
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
2,367 |
|
|
4,445 |
2,387 |
72 |
9,271 |
Equity securities |
|
|
568 |
|
|
208 |
90 |
- |
866 |
Investment property5 |
|
|
380 |
|
|
- |
148 |
- |
528 |
Cash and cash equivalents |
|
|
700 |
|
|
130 |
371 |
93 |
1,294 |
Other assets4,5 |
|
|
1,776 |
|
|
207 |
407 |
- |
2,390 |
Assets at 31 December 20185 |
|
|
5,791 |
|
|
4,990 |
3,403 |
165 |
14,349 |
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 |
Other assets4 |
|
|
1,763 |
|
|
252 |
481 |
2 |
2,498 |
Assets at 31 December 2017 |
|
|
6,144 |
|
|
4,912 |
3,681 |
201 |
14,938 |
Average assets |
|
|
5,968 |
|
|
4,951 |
3,542 |
183 |
14,644 |
Annualised LTIR as % of average assets |
|
|
2.8% |
|
|
2.4% |
2.3% |
0.5% |
2.5% |
1 Asia & Other includes Aviva Re.
2 LTIR includes UK £41 million (2017: £52 million) and Ireland £5 million (2017: £6 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.
5 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information.
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 £22.7 billion (2018: £19.5 billion) which are excluded from the Group's statement of financial position which mainly relates 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 |
Premiums and deposits, net of reinsurance £m |
Claims and redemptions, net of reinsurance £m |
Net flows1,2 £m |
Market and other movements £m |
Managed assets at |
Life and platform business |
|
|
|
|
|
|
UK - non-profit: |
|
|
|
|
|
|
- platform |
22,643 |
2,656 |
(1,066) |
1,590 |
2,055 |
26,288 |
- pensions and other long-term savings |
93,060 |
4,198 |
(3,384) |
814 |
9,084 |
102,958 |
- long-term savings3 |
115,703 |
6,854 |
(4,450) |
2,404 |
11,139 |
129,246 |
- annuities and equity release |
61,554 |
1,393 |
(1,394) |
(1) |
3,211 |
64,764 |
- other UK non-profit4 |
22,814 |
714 |
(1,323) |
(609) |
2,636 |
24,841 |
United Kingdom (excluding UK with-profits) |
200,071 |
8,961 |
(7,167) |
1,794 |
16,986 |
218,851 |
Europe4 |
118,502 |
6,449 |
(4,040) |
2,409 |
7,209 |
128,120 |
Asia |
14,775 |
356 |
(401) |
(45) |
87 |
14,817 |
Other markets |
1,080 |
9 |
(131) |
(122) |
48 |
1,006 |
|
334,428 |
15,775 |
(11,739) |
4,036 |
24,330 |
362,794 |
UK - with-profits and other4 |
48,167 |
|
|
|
|
48,816 |
Total life and platform business4 |
382,595 |
|
|
|
|
411,610 |
1 Life business net flows in the table above are net of reinsurance.
2 For the period to 30 June 2019, net flows of £4.0 billion includes net flows of £1.8 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.
4 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been amended from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information.
United Kingdom (excluding UK with-profits)
UK long-term savings managed assets have increased to £129.2 billion (2018: £115.7 billion) during the period. Within this, net inflows were £0.8 billion (HY18: £0.3 billion net inflows) for pensions and other long-term savings and £1.6 billion (HY18: £2.2 billion net inflows) for the platform business. Platform assets under administration grew by 16% in the period to £26.3 billion (2018: £22.6 billion).
UK annuities and equity release net flows were broadly flat (HY18: £0.5 billion net inflows), including the impact of lower BPA volumes in 2019. Other non-profit net outflows were £0.6 billion (HY18: £0.4 billion net outflows) driven by the expected run off of the bond and savings book. Market and other movements include the favourable impact of equity movements and decreasing interest rates.
Europe
Net inflows in Europe of £2.4 billion (HY18: £2.5 billion net inflows) include the growth in sales of our hybrid savings product in Italy and savings products in France. Favourable market and other movements in Europe were £7.2 billion.
Asia and other markets
Net outflows in Asia were less than £0.1 billion (HY18: £0.2 billion net inflows). Other business net outflows of £0.1 billion
(HY18: £0.1 billion net outflows) primarily relate to Aviva Investors Pensions Limited business.
UK with-profits and other
UK with-profits and other assets have remained stable as the expected net outflows have been broadly offset by market and other movements.
Page 24
8.i - Solvency II
The estimated Solvency II shareholder cover ratio is 194% at 30 June 2019. 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 typically made to the regulatory Solvency II position:
· The contribution to the Group's SCR and own funds of the most material fully ring fenced with-profits funds of £2.6 billion at 30 June 2019 (2018: £2.6 billion) and staff pension schemes in surplus of £1.1 billion at 30 June 2019 (2018: £1.1 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.
· A notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP resets. This presentation avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The 30 June 2019 Solvency II position includes a notional reset (£0.2 billion increase in surplus) (2018: £0.1 billion decrease in surplus). A formal reset of the TMTP will be required at 31 December 2019. A formal reset is required at least every two years or in the event of a material change in risk profile. 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 2019 Solvency II position includes two pro forma adjustments to reflect known or highly likely events that could materially impact the Group's solvency position post 30 June 2019. These pro forma adjustments are unchanged from 31 December 2018 and relate to the disposal of FPI (nil impact on surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion reduction in surplus as a result of an increase in SCR). These adjustments have been made in order to show a more representative view of the Group's solvency position.
Summary of Solvency II position
|
30 June |
30 June |
31 December 2018 |
Own funds |
24.4 |
23.6 |
23.6 |
Solvency capital requirement |
(12.6) |
(12.6) |
(11.6) |
Estimated Solvency II surplus at 30 June/31 December |
11.8 |
11.0 |
12.0 |
Estimated Solvency II shareholder cover ratio‡ |
194% |
187% |
204% |
Movement in Group Solvency II surplus
|
6 months |
6 months |
Full year |
Group Solvency II surplus at 1 January |
12.0 |
12.2 |
12.2 |
Operating capital generation |
0.8 |
0.9 |
3.2 |
Non-operating capital generation |
(0.2) |
(0.4) |
(0.9) |
Dividends |
(0.8) |
(0.8) |
(1.2) |
Share buy-back |
- |
(0.6) |
(0.6) |
Foreign exchange variances |
- |
- |
- |
Hybrid debt repayments |
- |
(0.4) |
(0.9) |
Acquired/divested business |
- |
0.1 |
0.2 |
Estimated Solvency II surplus at 30 June/31 December |
11.8 |
11.0 |
12.0 |
The estimated Solvency II surplus is £11.8 billion at 30 June 2019 (2018: £12.0 billion), with a shareholder cover ratio of 194% (2018: 204%). The decrease since 31 December 2018 is due to the beneficial impact from operating capital generation offset by non-operating capital generation and the payment of the Aviva plc dividend. Non-operating capital generation is primarily due to the impact of a fall in interest rates over the first half of 2019.
Page 25
8.i - Solvency II continued
Summary of analysis of diversified Solvency Capital Requirement
|
30 June |
30 June 20181 £bn |
31 December 2018 |
Credit risk |
3.3 |
3.3 |
3.0 |
Equity risk |
1.6 |
1.7 |
1.2 |
Interest rate risk |
1.0 |
0.4 |
1.0 |
Other market risk |
1.5 |
1.6 |
1.4 |
Life insurance risk |
2.7 |
2.9 |
2.5 |
General insurance risk |
0.7 |
0.8 |
0.8 |
Operational risk |
1.1 |
1.1 |
1.1 |
Other risk |
0.7 |
0.8 |
0.6 |
Total |
12.6 |
12.6 |
11.6 |
1 The methodology to allocate capital to risks was updated during 2018. The change does not impact total SCR. The 30 June 2018 allocations have been restated to reflect the updated methodology. This allocation has resulted in a change to individual risks mainly due to the reallocation of "Other risk".
The SCR has increased by £1.0 billion since 31 December 2018. The change in risk profile is driven by economic movements over the first half of 2019 increasing credit and equity risks. Credit risk increased by £0.3 billion due to the narrowing of corporate bond spreads which increase the exposure and hence sensitivity to spreads widening in the SCR. Equity risk has increased by £0.4 billion primarily due to a higher exposure following positive market conditions which is partially offset by additional equity hedging in France. Life insurance risk increased by £0.2 billion primarily due to increased longevity risk as a consequence of lower interest rates and narrowing of credit spreads reducing the impact of discounting.
Sensitivity analysis of Solvency II surplus
The following sensitivity analysis of Solvency II surplus allows for any consequential impact on the assets 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 2% positive impact would result in a cover ratio of 196%.
Sensitivities |
|
Impact on |
Changes in economic assumptions |
25 bps increase in interest rate |
2% |
|
50 bps increase in interest rate |
4% |
|
100 bps increase in interest rate |
5% |
|
25 bps decrease in interest rate |
(3)% |
|
50 bps decrease in interest rate |
(9)% |
|
50 bps increase in corporate bond spread1 |
(3)% |
|
100 bps increase in corporate bond spread1 |
(6)% |
|
50 bps decrease in corporate bond spread1 |
2% |
|
Credit downgrade on annuity portfolio2 |
(4)% |
|
10% increase in market value of equity |
2% |
|
25% increase in market value of equity |
4% |
|
10% decrease in market value of equity |
(1)% |
|
25% decrease in market value of equity |
(4)% |
Changes in non-economic assumptions |
10% increase in maintenance and investment expenses |
(7)% |
|
10% increase in lapse rates |
(3)% |
|
5% increase in mortality/morbidity rates - life assurance |
(2)% |
|
5% decrease in mortality rates - annuity business |
(10)% |
|
5% increase in gross loss ratios |
(3)% |
1 Credit spread movement for corporate bonds with credit rating A at a 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).
The Group has kept under review the allowance in our long-term assumptions for future property prices and rental income for the possible adverse impact of the decision for the UK to leave the European Union. This allowance has been determined in line with previous periods and is estimated at £0.4 billion as at 30 June 2019 (2018: £0.4 billion). This allowance is already incorporated in our Solvency II surplus at 30 June 2019 and is equivalent to decreases in property values prevailing at 30 June 2019 of 12% for properties backing equity release mortgages and 14% for properties backing commercial mortgages, as a result the shareholder cover ratio is 5pp lower.
Page 26
8.i - Solvency II continued
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.
Page 27
8.ii - Net asset value
|
30 June |
pence per share2 |
30 June |
pence per share2 |
31 December 2018 |
pence per share2 |
Equity attributable to shareholders of Aviva plc at 1 January1 |
16,558 |
424p |
16,969 |
423p |
16,969 |
423p |
Adjustment at 1 January for adoption of IFRS 163 |
(110) |
(3)p |
- |
- |
- |
- |
Equity attributable to shareholders of Aviva plc at 1 January restated1 |
16,448 |
421p |
16,969 |
423p |
16,969 |
423p |
Group adjusted operating profit |
1,448 |
37p |
1,438 |
36p |
3,116 |
80p |
Investment return variances and economic assumption changes on life and non-life business |
444 |
11p |
(654) |
(17)p |
(672) |
(17)p |
(Loss)/profit on the disposal and remeasurements of subsidiaries, joint ventures and associates |
(13) |
- |
31 |
1p |
102 |
2p |
Goodwill impairment and amortisation of intangibles |
(118) |
(3)p |
(101) |
(3)p |
(222) |
(6)p |
Amortisation and impairment of acquired value of in-force business |
(191) |
(5)p |
(210) |
(5)p |
(426) |
(11)p |
Other4 |
(47) |
(1)p |
22 |
1p |
231 |
6p |
Tax on operating profit and on other activities |
(343) |
(10)p |
(150) |
(4)p |
(442) |
(11)p |
Non-controlling interests |
(64) |
(2)p |
(46) |
(1)p |
(119) |
(3)p |
Profit after tax attributable to shareholders of Aviva plc |
1,116 |
27p |
330 |
8p |
1,568 |
40p |
AFS securities fair value and other reserve movements |
40 |
1p |
(13) |
- |
(24) |
(1)p |
Ordinary dividends |
(812) |
(21)p |
(764) |
(19)p |
(1,128) |
(29)p |
Direct capital instrument and tier 1 notes interest and preference share dividend |
(15) |
- |
(15) |
- |
(53) |
(1)p |
Foreign exchange rate movements |
76 |
2p |
(99) |
(2)p |
(2) |
- |
Remeasurements of pension schemes |
50 |
1p |
113 |
3p |
(236) |
(6)p |
Shares purchased in buy-back |
- |
- |
(197) |
(5)p |
(600) |
(15)p |
Other net equity movements5 |
37 |
1p |
40 |
3p |
64 |
13p |
Equity attributable to shareholders of Aviva plc at 31 December1 |
16,940 |
432p |
16,364 |
411p |
16,558 |
424p |
1 Excluding preference shares of £200 million (2018: £200 million).
2 Number of shares as at 30 June 2019: 3,917 million (HY18: 3,983 million, 2018: 3,902 million).
3 The Group has adopted IFRS 16 Leases from 1 January 2019. In line with the transition options available, prior period comparatives have not been restated and the impact of the adoption has been shown as an adjustment to opening retained earnings. See note B1 for further information.
4 Other includes a charge of £45 million (HY18: £nil, 2018: £190 million gain) in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note B11), a charge of £2 million (HY18: £36 million gain, 2018: £36 million gain) relating to an adjustment to the Friends First acquisition balance sheet (see note A11), a charge of £nil (HY18: £nil, 2018: £63 million charge) relating to the UK defined pension scheme as a result of the requirement to equalise members' benefits for the effects of Guaranteed Minimum Pension, a gain of £nil relating to the sale of Aviva USA in 2013 (HY18: £nil, 2018: £78 million gain) and a charge of £nil (HY18: £14 million charge, 2018: £10 million charge) relating to goodwill payments to preference shareholders which were announced on 30 April 2018.
5 In 2018, Other net equity movements per share included the effect of the reduction of the number of shares in issue by 119,491,188 in respect of shares acquired and cancelled under the share buy-back programme.
At 30 June 2019, IFRS net asset value per share was 432 pence (2018: 424 pence). The increase was mainly due to operating profit and favourable investment return variances, offset by dividend payments to shareholders and tax on operating profit and on other activities. Further details of the investment return variances are shown in notes A4 and A5.
Page 28
8.iii - Analysis of return on equity
|
Operating return |
|
|
|
6 months 2019 |
Before tax |
After tax |
Weighted average shareholders' funds including non-controlling interests |
Return on equity |
United Kingdom |
909 |
732 |
11,534 |
12.7% |
Canada |
98 |
72 |
1,374 |
10.5% |
Europe |
515 |
370 |
5,330 |
13.9% |
Asia |
161 |
151 |
1,738 |
17.4% |
Fund management |
61 |
43 |
526 |
16.3% |
Corporate and other business1 |
(123) |
(100) |
5,848 |
N/A |
Return on total capital employed |
1,621 |
1,268 |
26,350 |
9.6% |
Subordinated debt |
(165) |
(133) |
(6,334) |
4.2% |
Senior debt |
(8) |
(6) |
(1,363) |
0.9% |
Return on total equity |
1,448 |
1,129 |
18,653 |
12.1% |
Less: Non-controlling interests |
|
(47) |
(972) |
9.7% |
Direct capital instrument and tier 1 notes |
|
(6) |
(730) |
4.9% |
Preference capital |
|
(9) |
(200) |
8.5% |
Return on equity shareholders' funds |
|
1,067 |
16,751 |
12.6% |
1 The Corporate and other business loss before tax of £123 million comprises corporate costs of £97 million, other business operating loss of £70 million, partly offset by interest on internal lending arrangements of £6 million and finance income on the main UK pension scheme of £38 million.
|
Operating return |
|
|
|
6 months 2018 |
Before tax |
After tax |
Weighted average shareholders' funds including non-controlling interests |
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.
Page 29
8.iii - Analysis of return on equity continued
|
Operating return |
|
|
|
Full year 2018 |
Before tax |
After tax |
Weighted average shareholders' funds including non-controlling interests |
Return on equity |
United Kingdom |
2,324 |
1,899 |
12,209 |
15.6% |
Canada |
46 |
34 |
1,306 |
2.6% |
Europe |
1,051 |
752 |
5,406 |
13.9% |
Asia |
284 |
263 |
1,627 |
16.2% |
Fund management |
146 |
100 |
533 |
18.8% |
Corporate and other business1 |
(367) |
(281) |
5,656 |
N/A |
Return on total capital employed |
3,484 |
2,767 |
26,737 |
10.3% |
Subordinated debt |
(364) |
(295) |
(6,767) |
4.4% |
Senior debt |
(4) |
(3) |
(1,403) |
0.2% |
Return on total equity |
3,116 |
2,469 |
18,567 |
13.3% |
Less: Non-controlling interests |
|
(100) |
(1,074) |
9.3% |
Direct capital instrument and tier 1 notes |
|
(36) |
(730) |
4.9% |
Preference capital |
|
(17) |
(200) |
8.5% |
Return on equity shareholders' funds |
|
2,316 |
16,563 |
14.0% |
1 The Corporate and other business loss before tax of £367 million comprises corporate costs of £216 million, other business operating loss of £239 million, partially offset by interest on internal lending arrangements of £13 million and finance income on the main UK pension scheme of £75 million.
Page 30
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 |
30 June |
31 December 2018 |
Life business |
|
|
|
United Kingdom |
9,934 |
10,274 |
10,266 |
France |
2,570 |
2,644 |
2,885 |
Poland |
226 |
409 |
319 |
Italy |
756 |
605 |
686 |
Other Europe |
622 |
584 |
380 |
Europe |
4,174 |
4,242 |
4,270 |
Asia |
1,787 |
1,624 |
1,691 |
|
15,895 |
16,140 |
16,227 |
General insurance & health |
|
|
|
United Kingdom General insurance1 |
1,107 |
1,356 |
1,509 |
United Kingdom Health |
132 |
107 |
122 |
Canada |
1,457 |
1,287 |
1,290 |
France |
600 |
570 |
585 |
Poland |
122 |
140 |
131 |
Italy |
168 |
172 |
148 |
Other Europe |
275 |
185 |
185 |
Europe |
1,165 |
1,067 |
1,049 |
|
3,861 |
3,817 |
3,970 |
Fund management |
505 |
532 |
545 |
Corporate and other business1,2 |
6,283 |
6,021 |
5,412 |
Total capital employed |
26,544 |
26,510 |
26,154 |
Financed by |
|
|
|
Equity shareholders' funds |
16,940 |
16,364 |
16,558 |
Non-controlling interests |
979 |
1,045 |
966 |
Direct capital instrument and tier 1 notes |
731 |
731 |
731 |
Preference shares |
200 |
200 |
200 |
Subordinated debt3 |
6,333 |
6,755 |
6,335 |
Senior debt |
1,361 |
1,415 |
1,364 |
Total capital employed4 |
26,544 |
26,510 |
26,154 |
1 Capital employed for United Kingdom General Insurance excludes c.£0.9 billion (2018: 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.
2 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.
3 Subordinated debt excludes amounts held by Group companies of £nil million (2018: £5 million).
4 Goodwill, AVIF and other intangibles are maintained within the capital base. Goodwill includes goodwill in subsidiaries of £1,871 million (2018: £1,872 million) and goodwill in joint ventures of £12 million (2018: £13 million). AVIF and other intangibles comprise £3,024 million (2018: £3,201 million) of intangibles in subsidiaries and £30 million (2018: £33 million) of intangibles in joint ventures, net of deferred tax liabilities of £(445) million (2018: £(475) million) and the non-controlling interest share of intangibles of £(32) million (2018: £(31) million).
Total capital employed is financed by a combination of equity shareholders' funds, preference capital, subordinated debt and other borrowings. At 30 June 2019 the Group had £26.5 billion (2018: £26.2 billion) of total capital employed in our trading operations measured on an IFRS basis.
At 30 June 2019 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 was £9,911 million (2018: £9,278 million).
Page 31
Financial supplement
|
Page |
A Income & expenses |
32 |
B IFRS financial statements and notes |
37 |
C Analysis of assets |
88 |
|
|
In this section |
|
A Income & expenses |
|
Reconciliation of Group operating profit to |
32 |
A1 Other operations |
33 |
A2 Corporate centre |
33 |
A3 Group debt costs and other interest |
33 |
A4 Life business: Investment return variances |
34 |
A5 Non-life business: Short-term fluctuation in |
35 |
A6 General insurance and health business: |
36 |
A7 Impairment of goodwill, associates, joint |
36 |
A8 Amortisation and impairment of intangibles |
36 |
A9 Amortisation and impairment of acquired |
36 |
A10 Profit/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates |
36 |
A11 Other |
36 |
Page 32
Reconciliation of Group adjusted operating profit‡# to profit for the period
For the six month period ended 30 June 2019
|
6 months |
6 months |
Full year |
Group adjusted operating profit before tax attributable to shareholders' profits |
|
|
|
Life business |
|
|
|
United Kingdom |
722 |
831 |
1,871 |
Europe |
403 |
414 |
831 |
Asia |
161 |
143 |
300 |
Other |
(4) |
4 |
(3) |
Total life business |
1,282 |
1,392 |
2,999 |
General insurance and health |
|
|
|
United Kingdom General Insurance |
172 |
195 |
415 |
United Kingdom Health |
15 |
14 |
38 |
Canada |
98 |
(13) |
46 |
Europe |
112 |
112 |
220 |
Asia |
- |
(11) |
(16) |
Other |
(6) |
5 |
1 |
Total general insurance and health |
391 |
302 |
704 |
Fund management |
|
|
|
Aviva Investors |
62 |
76 |
150 |
Asia |
(1) |
(2) |
(4) |
Total fund management |
61 |
74 |
146 |
Other |
|
|
|
Europe |
(17) |
(18) |
(40) |
Asia |
(9) |
(12) |
(18) |
Other Group operations |
(34) |
(53) |
(179) |
Total other operations (note A1) |
(60) |
(83) |
(237) |
Market adjusted operating profit |
1,674 |
1,685 |
3,612 |
Corporate centre (note A2) |
(97) |
(99) |
(216) |
Group debt costs and other interest (note A3) |
(129) |
(148) |
(280) |
Group adjusted operating profit before tax attributable to shareholders' profits |
1,448 |
1,438 |
3,116 |
Adjusted for the following: |
|
|
|
Life business: Investment variances and economic assumption changes (note A4) |
372 |
(482) |
(197) |
Non-life business: Short-term fluctuation in return on investments (note A5) |
145 |
(206) |
(476) |
General insurance and health business: Economic assumption changes (note A6) |
(73) |
34 |
1 |
Impairment of goodwill, joint ventures, associates and other amounts expensed (note A7) |
(11) |
- |
(13) |
Amortisation and impairment of intangibles (note A8) |
(107) |
(101) |
(209) |
Amortisation and impairment of acquired value of in-force business (note A9) |
(191) |
(210) |
(426) |
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates (note A10) |
(13) |
31 |
102 |
Other (note A11) |
(47) |
22 |
231 |
Adjusting items before tax |
75 |
(912) |
(987) |
Profit before tax attributable to shareholders' profits |
1,523 |
526 |
2,129 |
Tax on Group adjusted operating profit |
(319) |
(303) |
(647) |
Tax on other activities |
(24) |
153 |
205 |
|
(343) |
(150) |
(442) |
Profit for the period |
1,180 |
376 |
1,687 |
Page 33
Other Group adjusted operating profit Items
A1 - Other operations
|
6 months |
6 months |
Full year |
Europe |
(17) |
(18) |
(40) |
Asia |
(9) |
(12) |
(18) |
Other Group operations1 |
(34) |
(53) |
(179) |
Total |
(60) |
(83) |
(237) |
1 Other Group operations include Group and head office costs and expenditure on UK digital business.
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 business. Total losses in relation to non-insurance activities were £60 million (HY18: £83 million).
Other Group operations includes net expenses of £11 million (HY18: £70 million, 2018: £152 million) in relation to the Group's UK digital business. The reduction of £59 million from 30 June 2018 reflects the alignment of the UK digital business with the UK Life and UK General Insurance businesses during the period.
A2 - Corporate centre
|
6 months |
6 months 20181 £m |
Full year |
Project spend |
(30) |
(36) |
(80) |
Central spend and share award costs |
(67) |
(63) |
(136) |
Total |
(97) |
(99) |
(216) |
1 Following a review of corporate centre costs, comparative amounts for the first half of 2018 have been amended from those previously reported. The effect of this change is an increase in project spend of £12 million with an equal and opposite decrease in central spend and share award costs.
Corporate centre costs of £97 million (HY18: £99 million) decreased by £2 million mainly due to lower Group led project costs.
A3 - Group debt costs and other interest
|
6 months |
6 months |
Full year |
External debt |
|
|
|
Subordinated debt |
(165) |
(188) |
(364) |
Other |
(8) |
(1) |
(4) |
Total external debt |
(173) |
(189) |
(368) |
Internal lending arrangements |
6 |
5 |
13 |
Net finance income on main UK pension scheme |
38 |
36 |
75 |
Total |
(129) |
(148) |
(280) |
The reduction in Group debt costs and other interest is mainly driven by the repayment of two subordinated debt instruments in full
during 2018.
Page 34
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 and policyholder funds over the period, with consistent allowance for the corresponding expected movements in liabilities. Group adjusted operating profit includes the effect of variance between actual and expected 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 |
6 months |
Full year |
Investment variances and economic assumptions |
372 |
(482) |
(197) |
Investment variances and economic assumption changes were £372 million positive in the period to 30 June 2019 (HY18: £482 million negative), primarily due to reductions in yields and a narrowing of fixed income spreads, partially offset by the impact of increases in equities that reflects the fact that we hedge on an economic rather than on an IFRS basis.
The negative variance in the period to 30 June 2018 primarily arose from an increase in yields and a widening of fixed income spreads.
The Group has kept under review the allowance in our long-term assumptions for future property prices and rental income for the possible adverse impact of the decision for the UK to leave the European Union. This allowance has been determined in line with previous periods and is estimated at £0.4 billion as at 30 June 2019, unchanged from 31 December 2018.
(c) Assumptions
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 |
6 months |
Full year |
6 months |
6 months |
Full year |
United Kingdom |
4.9% |
4.8% |
4.8% |
3.4% |
3.3% |
3.3% |
Eurozone |
4.3% |
4.4% |
4.4% |
2.8% |
2.9% |
2.9% |
The expected return on equities and properties has been calculated by reference to the ten-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 |
6 months |
Full year |
Equity risk premium |
3.5% |
3.5% |
3.5% |
Property risk premium |
2.0% |
2.0% |
2.0% |
The ten-year mid-price swap rates at the start of the period are set out in the table below:
Territories |
2019 |
2018 |
United Kingdom |
1.4% |
1.3% |
Eurozone |
0.8% |
0.9% |
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.
Page 35
A5 - Non-life business: Short-term fluctuation in return on investments
General Insurance and health |
6 months |
6 months |
Full year |
Analysis of investment income: |
|
|
|
- Net investment income |
427 |
42 |
63 |
- Foreign exchange (losses)/gains and other charges |
(4) |
4 |
(8) |
|
423 |
46 |
55 |
Analysed between: |
|
|
|
- Long-term investment return, reported within Group adjusted operating profit |
186 |
184 |
370 |
- Short-term fluctuations in investment return, reported outside Group adjusted operating profit |
237 |
(138) |
(315) |
|
423 |
46 |
55 |
Short-term fluctuations: |
|
|
|
- General insurance and health |
237 |
(138) |
(315) |
- Other operations1 |
(92) |
(68) |
(161) |
Total short-term fluctuations |
145 |
(206) |
(476) |
1 Other operations represents short-term fluctuation on assets backing non-life business in Group centre investments, including the centre hedging programme.
The long-term investment return is calculated separately for each principal non-life market. 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 long-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 long-term return for other investments is the actual income receivable for the period. Actual income and long-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 long-term investment returns are disclosed separately
in short-term fluctuations outside Group adjusted operating profit.
Short-term fluctuations during the first half of 2019 of £145 million favourable were driven by falling interest rates increasing the value of fixed income securities and rising equity markets. These fluctuations were partly offset by losses on hedges held by the Group, including the centre hedging programme.
The short-term fluctuations during the first half of 2018 of £206 million adverse were mainly due to interest rate increases reducing the value of fixed income securities, and adverse market movements on Group centre holdings, including the centre hedging programme.
Total assets supporting the general insurance and health business, which contribute towards the long-term return, are:
|
30 June |
30 June |
31 December |
Debt securities |
9,704 |
9,576 |
9,271 |
Equity securities |
979 |
831 |
866 |
Properties |
559 |
459 |
584 |
Cash and cash equivalents |
996 |
1,094 |
1,294 |
Other1 |
2,398 |
2,441 |
2,349 |
Assets supporting general insurance and health business |
14,636 |
14,401 |
14,364 |
Assets supporting other non-long-term business2 |
760 |
808 |
812 |
Total assets supporting non-long-term business |
15,396 |
15,209 |
15,176 |
1 Other includes the internal loan to Group from UK General Insurance.
2 Assets supporting other non-long-term business represents assets backing non-life business in Group centre investments, including the centre hedging programme.
The principal assumptions underlying the calculation of the long-term investment return are:
|
Long-term rates of return on equities |
Long-term rates of return on property |
||||
|
6 months |
6 months |
Full year |
6 months |
6 months |
Full year |
United Kingdom |
4.9% |
4.8% |
4.8% |
3.4% |
3.3% |
3.3% |
Eurozone |
4.3% |
4.4% |
4.4% |
2.8% |
2.9% |
2.9% |
Canada |
6.0% |
5.9% |
5.9% |
4.5% |
4.4% |
4.4% |
The long-term rates of return on equities and properties have been calculated by reference to the ten-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).
Page 36
A6 - General insurance and health business: Economic assumption changes
In the general insurance and health business, there is a negative impact of £73 million (HY18: £34 million positive) primarily as a result of a decrease in the interest rates used to discount claim reserves for both periodic payment orders and latent claims.
A7 - Impairment of goodwill, joint ventures, associates and other amounts expensed
Impairment of goodwill, joint ventures and associates is a charge of £11 million (HY18: £nil). This includes a £9 million impairment charge relating to the Group's associate in India.
A8 - Amortisation and impairment of intangibles
The amortisation and impairment of intangible assets increased to £107 million (HY18: £101 million), mainly due to an increase in the amortisation charge on software costs which were capitalised during the second half of 2018 and the first half of 2019.
A9 - Amortisation and impairment of acquired value of in-force business
Amortisation and impairment of acquired value of in-force business is a charge of £191 million (HY18: £210 million), which relates mainly to amortisation in respect of the Group's subsidiaries and joint ventures. Impairment charges of £19 million in relation to Friends Provident International (FPI) remeasurement losses are recorded within profit/loss 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 loss on disposal and remeasurement of subsidiaries, joint ventures and associates is £13 million (HY18: £31 million profit). This consists of £6 million of gains on small disposals, and a £19 million remeasurement loss in relation to FPI. See note A9. Further details of these items are provided in note B5.
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 30 June 2019, other items is a charge of £47 million (HY18: net gain of £22 million) and consists of the following:
· A charge of £45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims. Following the announcement by the Lord Chancellor on 15 July 2019 to increase the Ogden discount rate from the minus 0.75% set in 2017 to minus 0.25%, balance sheet reserves in the UK have been calculated using a discount rate of minus 0.25% at 30 June 2019. At 31 December 2018, balance sheet reserves were calculated using a rate of 0.00%. See note B11; and
A charge of £2 million relating to the negative goodwill which arose on the acquisition of Friends First on 1 June 2018. An adjustment to the acquisition balance sheet of £2 million has been made in 2019, resulting in a corresponding decrease in the negative goodwill previously recognised.
END PART 2 of 4