Half-year Report Part 2 of 4

RNS Number : 9576M

Aviva PLC

03 August 2017

Part 2 of 4

Page 1

Contents

In this section	Page
Overview
Key financial metrics	2

1 Operating profit	3

2 Cash	5
i Cash remitted to Group	5
ii Operating capital generation: Solvency II basis	6

3 Expenses	7

4 Value of new business	8

5 General insurance combined operating ratio	9

6 Business unit performance	10
i United Kingdom and Ireland Life	10
ii United Kingdom and Ireland General Insurance & Health	12
iii Canada	14
iv Europe	15
v Asia	17
vi Aviva Investors	18

7 Profit drivers	19
i Life business	19
ii General insurance and health	22
iii Fund flows	25

8 Capital & assets summary	26
i Summary of assets	26
ii Net asset value	28
iii Return on equity	29
iv Solvency II	30

Financial supplement	33
A Income & expenses	34
B IFRS financial statements and notes	39
C Capital & liquidity	87
D Analysis of assets	93
E VNB & sales analysis	109

Other information	117

Page 2

Operating profit

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016³ £m
Life business	1,319	1,226	8%	2,642
General insurance and health	417	334	25%	833
Fund management	69	49	41%	138
Other¹	(340)	(284)	(20)%	(603)
Total²	1,465	1,325	11%	3,010

Operating earnings per share^2,4

25.8p

22.4p

15%

51.1p

Cash remittances and Operating capital generation: Solvency II basis

	6 months 2017		6 months 2016		Full year 2016
	Cash Remittances £m	Operating Capital Generation £bn	Cash Remittances £m	Operating Capital Generation £bn	Cash Remittances £m	Operating Capital Generation £bn
United Kingdom & Ireland Life	922	0.6	577	0.7	1,096	2.5
United Kingdom & Ireland General Insurance and Health	8	0.2	-	0.1	91	0.3
Canada	13	0.1	4	0.1	130	0.3
Europe	190	0.4	169	0.6	449	1.0
Asia, Aviva Investors & Other	37	(0.2)	2	(0.3)	39	(0.6)
Total	1,170	1.1	752	1.2	1,805	3.5

Expenses

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
Operating expenses	1,851	1,696	9%	3,408
Integration & restructuring costs	52	105	(50)%	212
Expense Base	1,903	1,801	6%	3,620

Operating expense ratio

53.3%

53.4%

(0.1)pp

50.5%

Value of new business: Adjusted SII basis

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
United Kingdom & Ireland	270	205	32%	441
Europe	243	188	29%	417
Asia & Aviva Investors	83	55	51%	134
Total	596	448	33%	992

General insurance combined operating ratio⁵

	6 months 2017	6 months 2016	Change	Full Year 2016
United Kingdom & Ireland⁶	92.5%	93.8%	(1.3)pp	105.2%
Canada	98.9%	95.9%	3.0pp	93.0%
Europe	92.7%	98.9%	(6.2)pp	95.8%
Combined operating ratio	94.5%	95.7%	(1.2)pp	100.1%

Profit after tax

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
Profit after tax²	716	201	256%	859
Basic earnings per share²	14.9p	2.5p	496%	15.3p

Interim dividend

	6 months 2017	6 months 2016	Sterling % change
Interim dividend per share	8.40p	7.42p	13%

Capital position

	30 June 2017	31 December 2016	Sterling change	30 June 2016
Estimated Solvency II cover ratio^7,8,9	193%	189%	4.0pp	174%
Estimated Solvency II surplus^8,9	£11.4bn	£11.3bn	1%	£9.5bn
Net asset value per share	412p	414p	(0)%	412p

1 Other includes other operations, corporate centre costs and group debt and other interest costs.

2 Operating profit is a non-GAAP measure used by management. Refer to the 'Financial supplement' for the reconciliation of Group operating profit to profit after tax and refer to note B7 - Earnings per share for a reconciliation of operating earnings per share to basic earnings per share.

3 FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL) and the impact of the exceptional Ogden charge.

4 Operating EPS is shown net of tax, non-controlling interests, preference dividends, and coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax).

5 The combined operating ratio is now reported on an earned basis. Comparatives have been realigned to reflect this change. See note 5 for details.

6 FY16 includes the impact of the change in the Ogden discount rate, which had an impact of 5.9pp, and excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

7 The estimated Solvency II position represents the shareholder view. This excludes the contribution to Group Solvency Capital Requirement (SCR) and Group Own Funds of fully ring fenced with-profits funds £3.2 billion (FY16: £2.9 billion; HY16: £2.7 billion) and staff pension schemes in surplus £1.2 billion (FY16: £1.1 billion; HY16: £0.9 billion) - these exclusions have no impact on Solvency II surplus.

8 The estimated Solvency II position includes an estimated adverse impact of a notional reset of the transitional measure on technical provisions ('TMTP') to reflect interest rates at 30 June 2017, £0.5 billion decrease to surplus (FY16: £0.4 billion; HY16: £nil). Also included are the pro forma impacts of the disposal of the Spanish joint ventures Unicorp Vida and Caja Espana Vida and its retail life insurance business Aviva Vida y Pensiones (£0.1 billion increase to surplus), the disposal of Friends Provident International Limited (£0.1 billion increase to surplus), and the remaining £0.2 billion of the share buy-back announced on 25 May 2017.

9 The 31 December 2016 Solvency II position includes the pro forma impacts of the disposal of Aviva's 50% shareholding in Antarius to Sogecap which completed on 5 April 2017 (£0.2 billion increase to surplus) and an anticipated future change to UK tax rules restricting the tax relief that can be claimed in respect of tax losses (£0.4 billion decrease to surplus). However, under the amended tax rules published on 13 July 2017, this restriction will not be material, and as a result no corresponding pro forma impact is included in the estimated 30 June 2017 Solvency II position. The 30 June 2016 Solvency position includes the pro forma impact of acquiring the RBC General Insurance business (£(0.3) billion).

Page 3

Overview

The Group has delivered an increase in operating profit, grown cash remittances to the Group and continued to maintain a strong Solvency II capital position. The operating result reflects improved performance in the UK & Ireland, Europe and Aviva Investors in addition to the benefits from foreign exchange movements and the contribution from RBC General Insurance Company (RBC) in Canada.

In France we completed the sale of Antarius to Sogecap, a subsidiary of Société Générale in April 2017. In Spain, we announced the sale on 10 May 2017 of our 50% shareholding in our life insurance and pension joint ventures Unicorp Vida and Caja España Vida, as well as our retail life insurance business Aviva Vida y Pensiones to Santalucía. On 19 July 2017 we also announced the sale of Friends Provident International Limited (FPI) to RL360 Holding Company Limited, a subsidiary of International Financial Group Limited.

1 - Operating profit

Group operating profit

For the six month period ended 30 June 2017

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Operating profit before tax attributable to shareholders' profits
Life business
United Kingdom & Ireland	756	711	1,555
France	217	212	429
Poland	77	60	132
Italy	83	74	170
Spain	51	47	107
Turkey	5	2	6
Europe	433	395	844
Asia	120	118	241
Other	10	2	2
Total life business (note 7.i)	1,319	1,226	2,642
General insurance and health
United Kingdom & Ireland¹	259	231	471
Canada	71	88	269
Europe	85	35	120
Asia	(5)	(6)	(13)
Other	7	(14)	(14)
Total general insurance and health¹ (note 7.ii)	417	334	833
Fund management
Aviva Investors	71	49	139
Asia	(2)	-	(1)
Total fund management	69	49	138
Other
Other operations (note A1)	(98)	(49)	(94)
Market operating profit¹	1,707	1,560	3,519
Corporate centre (note A2)	(83)	(80)	(184)
Group debt costs and other interest (note A3)	(159)	(155)	(325)
Operating profit before tax attributable to shareholders' profits¹	1,465	1,325	3,010
Tax attributable to shareholders' profit	(311)	(323)	(706)
Non-controlling interests	(73)	(67)	(147)
Preference dividends and other²	(32)	(30)	(85)
Operating profit attributable to ordinary shareholders¹	1,049	905	2,072

Operating earnings per share^1,3	25.8p	22.4p	51.1p

1 FY16 excludes the impact of the change in the Ogden discount rate of £475 million, which has been recognised as an exceptional non-operating item. FY16 also excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

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

3 Net of tax, non-controlling interests, preference dividends, coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax). The calculation of earnings per share uses a weighted average of 4,061 million (HY16: 4,046 million; FY16: 4,051 million) ordinary shares in issue, after deducting treasury shares.

Page 4

1 - Operating Profit continued

Operating profit was £1,465 million (HY16: £1,325 million) and includes a favourable impact from foreign exchange movements of £61 million.

The life business operating profit increased to £1,319 million (HY16: £1,226 million), mainly driven by the UK & Ireland. UK & Ireland's performance reflected increased contributions from both protection and retirement with the result underpinned by growth in long-term savings assets under management. In Europe, excluding the results of our French joint venture with Crédit du Nord ('Antarius') which was sold in April 2017, life operating profit is up on a constant currency basis. Asia's contribution remained broadly stable whilst continuing to strengthen its distribution channels.

The general insurance and health business operating profit increased to £417 million (HY16: £334 million) mainly due to improved performance and benign weather in the UK & Ireland, and favourable prior year development and weather experience in France. In Canada, favourable foreign exchange and the contribution from RBC, acquired in July 2016, was more than offset by higher claims experience and unfavourable prior year development.

Fund management operating profit of £69 million (HY16: £49 million) reflected continued growth in the AIMS range of funds, a benefit from the transfer of Friends Life assets in the second half of 2016 and increased income from the origination of infrastructure assets.

Other operations related to non-insurance activities of the Group had total losses of £98 million (HY16: £49 million) which included further investment in the UK digital business to establish a centre of excellence for digital expertise, results from the savings platform business in the UK and investment in organisation and culture initiatives.

Page 5

2.i - Cash remitted to Group

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

Cash remittances increased to £1,170 million (HY16: £752 million) and includes cash paid by our operating businesses to the Group, comprising dividends and interest on internal loans.

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
United Kingdom & Ireland Life^1,2	922	577	1,096
United Kingdom & Ireland General Insurance & Health¹	8	-	91
Canada	13	4	130
Europe¹	190	169	449
Aviva Investors & Other³	37	2	39
Total⁴	1,170	752	1,805

1 FY16 cash remittances include £100 million received from UK & Ireland Life and £83 million received from UK & Ireland GI in February 2017 in respect of 2016 activity. FY16 cash remittances also include £159 million received from France in January 2017 in respect of 2016 activity.

2 UK Life HY17 remittance includes £115 million of cash received from our internal reinsurance vehicle.

3 Other includes Group Reinsurance.

4 Cash remittances are eliminated on consolidation and are hence not directly reconcilable to the Group's IFRS statement of cash flows.

The increase in cash remittances to the Group was primarily driven by the UK & Ireland Life business which includes £315 million, the second instalment of the overall planned £1 billion Friends Life integration additional remittance (taking the total received to date to £565 million).

Cash remittances in France and Aviva Investors increased, as dividends were not remitted until the second half of 2016.

We report excess centre cash flow annually following receipt of all cash remittances. Excess centre cash flow represents cash remitted by business units to the Group centre less central operating expenses and debt financing costs. It is an important measure of the cash that is available to pay dividends, reduce debt, pay exceptional charges or invest back into our business units. It does not include non-operating cash movements such as disposal proceeds or cash injections.

Page 6

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 our "cash flow plus growth" investment thesis.

Solvency II operating capital generation (OCG) was £1.1 billion during HY17 (HY16: £1.2 billion), incorporating £1.3 billion (HY16: £1.5 billion) from our operating business units, net of £0.2 billion (HY16: £0.3 billion) of debt and corporate centre costs. The business unit OCG reduced by £0.2 billion in the period reflecting a lower benefit from non-recurring capital actions in Europe in 2017.

	Life business SII Operating Capital Generation				Non-Life SII Operating Capital Generation		6 months 2016
6 months 2017 £bn	Impact of New Business¹	Earnings from Existing Business	Other	Life SII Operating Capital Generation	GI, Health, FM & Other SII Operating Capital Generation	Total SII Operating Capital Generation	Total SII Operating Capital Generation⁴
United Kingdom & Ireland Life	-	0.4	0.2	0.6	-	0.6	0.7
United Kingdom & Ireland General Insurance and Health					0.2	0.2	0.1
Canada					0.1	0.1	0.1
Europe	-	0.3	-	0.3	0.1	0.4	0.6
Asia, Group centre costs and Other²	-	-	-	-	(0.2)	(0.2)	(0.3)
Total Group Solvency II operating capital generation³	-	0.7	0.2	0.9	0.2	1.1	1.2

1 Impact of new business (Life) as set out in note 4 Solvency II Surplus impact of new business.

2 Other includes changes in Group diversification benefit.

3 As reported in the movement in Group Solvency II surplus disclosure in note 8iv.

4 A split of life business OCG into the impact of new business, earnings from existing business and other is not available for HY16.

	Life business SII Operating Capital Generation				Non-Life SII Operating Capital Generation
Full Year 2016 £bn	Impact of New Business¹	Earnings from Existing Business	Other²	Life SII Operating Capital Generation	GI, Health, FM & Other SII Operating Capital Generation	Total SII Operating Capital Generation
United Kingdom & Ireland Life	(0.1)	1.4	1.2	2.5	-	2.5
United Kingdom & Ireland General Insurance and Health					0.3	0.3
Canada					0.3	0.3
Europe	(0.1)	0.6	0.4	0.9	0.1	1.0
Asia, Group centre costs and Other²	-	-	0.2	0.2	(0.8)	(0.6)
Total Group Solvency II operating capital generation³	(0.2)	2.0	1.8	3.6	(0.1)	3.5

1 Impact of new business (Life) as set out in note 4 Solvency II Surplus impact of new business.

2 Other includes changes in Group diversification benefit.

3 As reported in the movement in Group Solvency II surplus disclosure in note 8iv.

Solvency II OCG is the Solvency II surplus movement in the period due to operating items including the impact of new business, expected investment returns on existing business, operating variances, operating assumption changes and management actions. It excludes economic variances, economic assumption changes and integration and restructuring costs which are included in non-operating capital generation. The expected investment returns are consistent with the returns used in IFRS (as set out in notes A4 and A5 in the financial supplement), except in UK Life where a risk-free curve plus an allowance for expected real-world returns (less an adjustment for credit risk, where required) is applied. Total Group OCG is a component of the movement in Group Solvency II surplus over the period as set out in note 8.iv and is not reconcilable to IFRS.

For life business, the impact of new business is the change in Solvency II surplus resulting from new business written in the period. In the current period, the contribution from new business is neutral; however, this business is expected to generate an operating surplus through earnings from existing business in future periods.

Life business earnings from existing business is the Solvency II surplus movement in the period due to operating items excluding the impacts of New Business and Other OCG. Life business Other OCG includes non-recurring capital actions and operating assumption changes.

Our principal source of Group centre liquidity is cash remittances in the form of dividends and debt interest receipts from our businesses. OCG measures the amount of Solvency II capital the Group generates from operating activities. Capital generated enhances Solvency II surplus which can be used to fund business unit remittances and, in turn, the group dividend as well as for investment in initiatives that provide potential future growth.

Page 7

3 - Expenses

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
United Kingdom and Ireland Life	431	439	867
United Kingdom and Ireland General Insurance & Health	346	372	665
Canada	234	167	396
Europe	351	318	641
Asia	101	88	177
Aviva Investors	202	192	367
Other Group activities	186	120	295
Operating cost base	1,851	1,696	3,408
Integration & restructuring costs¹	52	105	212
Expense base	1,903	1,801	3,620
Operating expenses ratio²	53.3%	53.4%	50.5%

1 As reported within other expenses of £1,669 million (HY16: £2,071 million; FY16: £3,853 million) in the consolidated income statement.

2 Group operating expenses expressed as a percentage of operating profit before operating expenses and group debt costs.

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Claims handling costs¹	163	139	290
Non-commission acquisition costs²	431	423	846
Other expenses³	1,257	1,134	2,272
Operating cost base	1,851	1,696	3,408

1 Operating expenses as reported within net claims and benefits paid of £12,501 million (HY16: £11,453 million; FY16: £23,782 million) in the consolidated income statement.

2 Operating expenses as reported within fee and commission expense of £2,200 million (HY16: £1,654 million; FY16: £3,885 million) in the consolidated income statement.

3 Operating expenses as reported within other expenses of £1,669 million (HY16: £2,071 million; FY16: £3,853 million) in the consolidated income statement.

The operating expense ratio is broadly flat despite investment in digital and other growth initiatives.

Operating expenses were £1,851 million (HY16: £1,696 million). The increase in operating expenses was primarily driven by £75 million adverse foreign exchange movements, a full six months of RBC operating costs and targeted investment.

Integration & restructuring costs halved to £52 million (HY16: £105 million) as a result of lower integration spend on the Friends Life acquisition and completion of the Solvency II project in 2016, partially offset by integration spend on the RBC acquisition.

Page 8

4 - Value of new business (VNB) on an adjusted Solvency II basis

Following the introduction of Solvency II, the new prudential regulatory framework that came into force on 1 January 2016, the Group has calculated VNB on an adjusted Solvency II basis.

Adjusted Solvency II VNB reflects Solvency II assumptions and allowance for risk and is defined as the increase in Solvency II Own Funds resulting from business written in the period, adjusted to:

· Include business which is not included in the Solvency II best estimate liability (BEL) valuation (e.g. UK and Asia Healthcare business, Retail fund management business and the UK Equity release business);

· Remove the impact of contract boundaries; and

· Include look through profits in service companies (where not included in Solvency II).

A reconciliation between adjusted Solvency II VNB, Solvency II Own Funds impact of new business and Solvency II surplus impact of new business is provided below. The trend analysis of adjusted Solvency II VNB and adjusted Solvency II present value of new business premiums (PVNBP) is included in the financial supplement, section E: VNB & sales analysis.

6 months 2017	UK & Ireland £m	Europe £m	Asia & Other £m	Group £m
Adjusted Solvency II VNB (gross of tax and non-controlling interests)¹	270	243	83	596
Allowance for Solvency II contract boundary rules	30	(40)	2	(8)
Differences due to change in business in scope	(85)	(22)	(14)	(121)
Tax & Other²	(49)	(85)	(12)	(146)
Solvency II Own Funds impact of new business (net of tax and non-controlling interests)	166	96	59	321

6 months 2016	UK & Ireland £m	Europe £m	Asia & Other £m	Group £m
Adjusted Solvency II VNB (gross of tax and non-controlling interests)^1,4	205	188	55	448

Full Year 2016	UK & Ireland £m	Europe £m	Asia & Other £m	Group £m
Adjusted Solvency II VNB (gross of tax and non-controlling interests)^1,3	441	417	134	992
Allowance for Solvency II contract boundary rules	51	(55)	(9)	(13)
Differences due to change in business in scope	(131)	(41)	(51)	(223)
Tax & Other²	(78)	(146)	(13)	(237)
Solvency II Own Funds impact of new business (net of tax and non-controlling interests)	283	175	61	519

1 The principal methodologies and assumptions underlying the calculation of adjusted Solvency II VNB are set out in section E1 and E14 respectively.

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

3 UK Life VNB includes £(12) million relating to the internal transfer of annuities from a with-profits fund to a non-profit fund during the second half of 2016.

4 A reconciliation between Adjusted Solvency II VNB and Solvency II Own Funds impact of new business is not available for HY16.

The Group's VNB increased by 33% to £596 million (HY16: £448 million). This was primarily driven by growth of new business in the UK, Europe and Asia and a favourable impact from foreign exchange movements of £21 million.

The UK benefitted from an increase in VNB primarily reflecting higher volumes of long-term savings business and the introduction of transitional relief. A clarification to the Solvency II rules made by the Prudential Regulation Authority (PRA) in 2017, relating to new business written since the introduction of Solvency II, has been reflected in the calculation of UK Life's transitional measures. This increased the adjusted Solvency II VNB (and Solvency II Own Funds impact of new business and Solvency II Surplus from life new business within OCG) by £24 million gross of tax and non-controlling interests as at HY17.

The increase in Europe was mainly driven by a change in business mix towards more profitable unit-linked and protection business in France and Italy and favourable foreign exchange movements, partly offset by lower volumes of with-profits business in France and the sale of Antarius. VNB in Asia benefitted from a more profitable business mix and higher volumes of protection business in China and higher volumes of with-profits business in Singapore, as well as favourable foreign exchange movements.

The life new business written during the period has increased the Solvency II Capital Requirement by £0.3 billion, split £0.2 billion for UK & Ireland, £0.1 billion for Europe and £nil for Asia & Other business. This has resulted in a net £nil impact on Solvency II Surplus from life new business across the Group.

Solvency II Surplus impact of new business is set out in section 2.ii Life business Solvency II Operating Capital Generation impact of new business.

Page 9

5 - General insurance combined operating ratio (COR)¹

	Net earned premiums			Claims ratio³			Commission and expense ratio⁴			Combined operating ratio⁵
	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m	6 months 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %⁷
United Kingdom^2,7	1,996	1,884	3,821	59.9	60.5	73.8	33.3	33.4	32.5	93.2	93.9	106.3
Ireland	202	159	351	52.8	62.4	63.3	31.9	29.5	29.1	84.7	91.9	92.4
United Kingdom & Ireland	2,198	2,043	4,172	59.3	60.6	73.0	33.2	33.2	32.2	92.5	93.8	105.2
Canada	1,429	1,020	2,420	69.5	64.6	63.5	29.4	31.3	29.5	98.9	95.9	93.0
Europe	778	658	1,396	63.4	68.5	66.7	29.3	30.4	29.1	92.7	98.9	95.8
Asia⁶	6	6	12	87.3	66.9	72.0	44.1	41.7	37.9	131.4	108.6	109.9
Total^2,7	4,411	3,727	8,000	63.2	63.5	69.2	31.3	32.2	30.9	94.5	95.7	100.1

1 COR is now reported on an earned basis. Comparatives have been realigned to reflect this change.

2 FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

3 Claims ratio: incurred claims expressed as a percentage of net earned premiums.

4 Commission and expense ratio: earned commissions and expenses expressed as a percentage of net earned premiums.

5 Combined operating ratio: aggregate of claims ratio and commission and expense ratio.

6 Includes Aviva Re net earned premiums.

7 FY16 COR includes the impact of the change in the Ogden discount rate which had an impact of 5.9pp.

Group COR for the period improved 1.2pp to 94.5% (HY16: 95.7%), with the claims ratio improving 0.3pp, and commission and expense ratio decreasing by 0.9pp.

The claims ratio decreased to 63.2pp (HY16: 63.5%), primarily due to more benign weather across the Group and underwriting initiatives in the UK and Ireland. This was partly offset by increased claims frequency and unfavourable prior year development in Canada.

The 0.9pp decrease in the Group's commission and expense ratio was mainly attributable to the contribution from RBC in Canada, which has a lower commission ratio.

We continue to apply our reserving policy consistently and to focus on understanding the cost of claims to ensure that reserves are maintained at an appropriate level. Prior year reserve movements will vary year to year but our business is predominantly short tail in nature and the loss development experience is generally stable. At HY17, we had lower prior year releases in our general insurance business of £32 million (HY16: £57 million), which had a beneficial impact of 0.6pp (HY16: 1.6pp). The impact of Ogden on our HY17 results is not material.

Normalised accident year combined operating ratio (COR)

	UK & Ireland¹			Canada			Europe			Total
	6 months 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %
Normalised accident year claims ratio²	63.1	64.5	66.0	67.5	67.5	68.2	64.0	66.5	68.6	64.7	65.7	67.1
Impact of change in Ogden discount rate	-	-	11.4	-	-	-	-	-	-	-	-	5.9
Prior year reserve release³	(0.9)	(1.5)	(2.1)	1.6	(3.8)	(5.4)	(2.7)	(0.7)	(2.5)	(0.6)	(1.6)	(2.9)
Weather over/(under) long-term average⁴	(2.9)	(2.4)	(2.3)	0.4	0.9	0.7	2.1	2.7	0.6	(0.9)	(0.6)	(0.9)
Claims ratio	59.3	60.6	73.0	69.5	64.6	63.5	63.4	68.5	66.7	63.2	63.5	69.2
Commission and expense ratio⁵	33.2	33.2	32.2	29.4	31.3	29.5	29.3	30.4	29.1	31.3	32.2	30.9
Normalised accident year combined operating ratio	96.3	97.7	98.2	96.9	98.8	97.7	93.3	96.9	97.7	96.0	97.9	98.0
Combined operating ratio	92.5	93.8	105.2	98.9	95.9	93.0	92.7	98.9	95.8	94.5	95.7	100.1

1 FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

2 Normalised accident year claims ratio represents the claims ratio adjusted to exclude prior year claims development and weather variations vs. expectations, gross of the impact of profit sharing agreements and the impact of the change in the Ogden discount rate in FY16.

3 Prior year reserve release represents the changes in the ultimate cost of the claims incurred in prior years, gross of the impact of profit sharing arrangements.

4 Weather over/(under) long-term average represents the difference between the reported net incurred cost of general insurance claims that have occurred as a result of weather events and the equivalent long-term average expected net costs, gross of the impact of profit sharing arrangements.

5 The commission and expense ratio includes the impact of profit sharing arrangements.

The definition of COR has been changed to an earned basis. It was previously calculated on a hybrid basis: the claims ratio was on an earned basis with the incurred claims expressed as a percentage of net earned premiums; while the commission and expense ratio was on a written basis with written commissions and written expenses expressed as a percentage of net written premiums. This did not consider the impact of deferred commissions and expenses, which are included in the underwriting result. The new method is calculated as claims incurred, earned commission and earned expenses as a percentage of net earned premiums which aligns better to our underwriting result. Comparatives have been realigned for HY16 and FY16 on an earned basis.

Page 10

6.i - United Kingdom & Ireland Life

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
Life operating profit	756	711	6%	1,555
Cash remitted to Group¹	922	577	60%	1,096
Expenses
Operating expenses	431	439	(2)%	867
Integration and restructuring costs	32	61	(48)%	119
	463	500	(7)%	986
Value of new business: Adjusted SII basis	270	205	32%	441

1 HY17 includes £115 million of cash received from the Group's internal reinsurance vehicle. FY16 cash remittances include amounts of £100 million received from UK & Ireland Life in February 2017 in respect of 2016 activity.

Overview

Our franchises across long-term savings, protection and retirement have continued to grow, delivering a 6% year on year increase in operating profit to £756 million. Growth was underpinned by an increase in long-term savings assets under administration (up to £109 billion) and a 32% increase in Solvency II value of new business to £270 million.

The payment of a further £315 million Friends Life integration special remittance takes the total to date to £565 million of the targeted £1 billion.

Operating and financial performance

Operating profit

UK & Ireland Life operating profit for the first half of 2017 increased 6% to £756 million (HY16: £711 million).

In the UK, operating profit increased 7% to £750 million (HY16: £699 million). New business grew, offsetting the expected reduction in Legacy profits as the book continues to run off and the reduction in Other.

Ireland operating profit was £6 million (HY16: £12 million).

	6 months 2017 £m			6 months 2016 £m				Full Year 2016 £m
Life Operating Profit	New Business¹	Existing Business	Total £m	New Business¹	Existing Business	Total £m	Sterling % change	New Business¹	Existing Business	Total £m
Long-term savings²	(40)	129	89	(45)	109	64	39%	(77)	219	142
Annuities & equity release	109	200	309	88	158	246	26%	305	351	656
Protection	67	66	133	46	68	114	17%	118	124	242
Legacy³	-	187	187	-	192	192	(3)%	-	332	332
Other⁴	-	32	32	-	83	83	(61)%	-	151	151
UK Life	136	614	750	89	610	699	7%	346	1,177	1,523
Ireland Life			6			12	(50)%			32
Total			756			711	6%			1,555

1 New business represents the income earned on new business written during the period reflecting premiums less initial reserves and initial expenses (including commission) less deferred costs along with any changes to existing contracts, which were not anticipated at the outset of the contract that generate additional shareholder risk.

2 Includes pensions and the savings Platforms.

3 Legacy represents products no longer actively marketed, including With-Profits and Bonds.

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

Long-term savings

Long-term savings generated £89 million of operating profit (HY16: £64 million) comprising £129 million from existing business net of a £40 million new business strain. The increase compared to HY16 is driven by assets under administration increasing to £109 billion (HY16: £95 billion) due to positive net flows and favourable investment market movements. Net fund flows increased to £2.1 billion (HY16: £2.0 billion).

Annuities and equity release

Annuities and equity release generated £309 million of operating profit (HY16: £246 million) comprising £200 million from existing business and £109 million from new business. This was underpinned by a 75% increase in PVNBP to £1,435 million (HY16: £818 million) with an increase in bulk annuities to £320 million (HY16: £64 million). We have continued to optimise our asset mix, increasing our investment in illiquid assets which has resulted in a £54 million benefit for existing business in the first half of 2017.

Protection

Protection generated £133 million of operating profit (HY16: £114 million) including £66 million from existing business and £67 million from new business. Operating profit benefitted from solid growth in individual protection sales together with expense efficiencies.

Legacy

Legacy contributed £187 million of operating profit (HY16: £192 million). The reduction in operating profit is driven by the expected run-off of the business, partly offset by favourable investment market movements as 2017 assets under management reduced 4% to £80 billion (HY16: £83 billion).

Other

£32 million of Other includes a £55 million benefit from a change in the allocation strategy for those assets backing annuities and the net impact of various reserve movements and non product specific items. There were no material assumption changes in HY17. In HY16 Other mainly related to a £63 million benefit in relation to annuitant mortality assumption changes.

Page 11

6.i - United Kingdom & Ireland Life continued

Cash

Cash remitted to Group was £922 million (HY16: £577 million) including £315 million, the second instalment of the targeted £1 billion Friends Life integration additional remittance, taking instalments to date to £565 million. Excluding the integration remittance, underlying remittances have increased 5% year on year.

Expenses

Operating expenses reduced 2% to £431 million (HY16: £439 million).

UK Life operating expenses reduced to £412 million (HY16: £418 million) with the reduction year on year reflecting continued cost control, whilst also investing in growth.

Ireland operating expenses have decreased due to reduced project spend and continued focus on cost control.

Integration and restructuring expenses reduced by 48% to £32 million (HY16: £61 million) due to lower integration spend on the Friends Life acquisition.

Value of new business: Adjusted SII Basis (VNB)

	6 months 2017 £m	6 months 2016 £m	Sterling % change¹	Full Year 2016 £m
UK Life
Long-term savings	82	37	122%	108
Annuities and equity release	77	71	8%	141
Protection	88	79	11%	151
Health & Other	20	13	54%	29
	267	200	34%	429
Ireland Life	3	5	(42)%	12
Total	270	205	32%	441

1 Currency movements are calculated on unrounded numbers so minor rounding differences may exist.

UK & Ireland Life VNB increased 32% to £270 million (HY16: £205 million).

UK Life VNB increased to £267 million (HY16: £200 million), including a £24 million benefit following a clarification to Solvency II rules on the calculation of transitional measures.

Long-term savings VNB increased to £82 million (HY16: £37 million), driven by continued growth from the savings platforms, and new workplace pension schemes.

Annuities and equity release VNB increased to £77 million (HY16: £71 million) driven by an allowance for transitional relief on new business and higher volumes, partially offset by reduced margins on annuities.

Protection VNB increased to £88 million (HY16: £79 million), benefitting from growth in individual protection new business volumes as we see the continued benefit of our digital platform.

Health & Other VNB increased 54% to £20 million, benefitting from increased volumes.

Ireland VNB decreased to £3 million (HY16: £5 million), due to a change in business mix and reduced annuity margins driven by a reduction in asset yields.

Page 12

6.ii - United Kingdom & Ireland general insurance and health

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
Operating profit^1,2	259	231	12%	471
Cash remitted to Group³	8	-	100%	91
Expenses
Operating expenses	346	372	(7)%	665
Integration and restructuring costs	-	8	(100)%	15
	346	380	(9)%	680
Combined operating ratio^2,4,5	92.5%	93.8%	(1.3)pp	105.2%
Combined operating ratio excluding impact of projected change in Ogden rate^1,2,4,5				93.8%

General insurance net written premiums²	2,326	2,180	7%	4,308

1 FY16 excludes the impact of the change in the Ogden discount rate of £475 million, which has been recognised as an exceptional non-operating item.

2 FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

3 FY16 cash remittances include amounts of £83 million received from UK & Ireland General Insurance in February 2017 in respect of 2016 activity.

4 General insurance business only.

5 The combined operating ratio is now reported on an earned basis. Comparatives have been realigned to reflect this change. See note 5 for details.

Overview

Our continued focus on disciplined pricing and underwriting, claims and indemnity management and control of expenses has contributed to our results in HY17.

Premium growth has been in our chosen channels and products, particularly in Digital Motor and Commercial Property and Specialty, which has given us the opportunity to reduce volumes in our underperforming segments within our Commercial Motor book. We continue to make good progress in controlling our costs. Ireland's growth in profitability due to strong rate increases and improved performance enables us to continue to invest in growing the business.

Operating and financial performance

Operating profit¹

United Kingdom and Ireland	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
General insurance
Underwriting result	166	127	31%	259
Longer-term investment return	85	93	(9)%	176
Other	-	(1)	100%	(2)
	251	219	15%	433
Health
Underwriting result	7	10	(30)%	35
Longer-term investment return	1	2	(50)%	3
	8	12	(33)%	38
General insurance and health operating profit	259	231	12%	471

UK & Ireland general insurance and health operating profit increased 12% to £259 million. Excluding Ireland health, which was disposed of in August 2016, general insurance and health operating profit is up 15%.

The general insurance underwriting result increased 31% to £166 million (HY16: £127 million) with improved performance from a continued focus on portfolio rebalancing and cost initiatives, and lower weather claims, despite lower prior year releases.

UK & Ireland general insurance longer-term investment return reduced by £8 million to £85 million (HY16: £93 million), mostly due to the impact of the reduction in the internal loan (Group net neutral). Excluding the internal loan impact, the UK & Ireland general insurance operating profit was up 20%.

Cash

Cash remitted to the Group was £8 million (HY16: £nil).

Expenses

UK & Ireland general insurance and health expenses were 9% lower at £346 million (HY16: £380 million), partially due to the disposal of Ireland health.

Page 13

6.ii - United Kingdom & Ireland general insurance and health continued

	Net written premiums				Combined operating ratio²
United Kingdom and Ireland General insurance¹	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m	6 months 2017 £m	6 months 2016 £m	Change	Full Year 2016 £m
Personal Motor	580	530	9%	1,076
Personal Home and Specialty	689	658	5%	1,332
UK Personal Lines	1,269	1,188	7%	2,408	92.9%	93.3%	(0.4)pp	92.5%

Commercial Motor	269	280	(4)%	538
Commercial Property and Specialty	567	533	6%	984
UK Commercial Lines	836	813	3%	1,522	93.6%	94.9%	(1.3)pp	96.1%
UK general insurance excluding impact of change in Ogden discount rate	2,105	2,001	5%	3,930	93.2%	93.9%	(0.7)pp	93.9%
Impact of change in Ogden discount rate								12.4%
UK general insurance	2,105	2,001	5%	3,930	93.2%	93.9%	(0.7)pp	106.3%
Ireland general insurance	221	179	23%	378	84.7%	91.9%	(7.2)pp	92.4%
Total	2,326	2,180	7%	4,308	92.5%	93.8%	(1.3)pp	105.2%

1 FY16 excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

2 The combined operating ratio is now reported on an earned basis. Comparatives have been realigned to reflect this change. See note 5 for details.

General insurance net written premiums

UK & Ireland general insurance net written premiums increased 7%. UK premiums were up 5%, in our chosen channels and products, particularly in Digital Motor and Commercial Property and Specialty.

UK Personal Motor increased 9%, particularly in our Digital channel which grew 15%, from both rate and volume. Our rating has been in line with the market, which has experienced significant increases to match increased claims inflation as a consequence of the change in Ogden rate. Rate hardening and higher levels of switching have allowed us to improve our risk mix reflected in growth in policies in the Digital channel.

UK Personal Home and Specialty grew 5%, driven by additional premiums in Specialty lines, and supported by growth in the Home book due to Digital and Partnerships.

UK Commercial was up 3%, reflecting growth in Property and Specialty, partly offset by rating actions and other underwriting actions taken in underperforming segments in Commercial Motor, in a continued soft market.

Ireland saw a 23% increase (12% in constant currency), with growth across all lines of business from both rate and volume.

General insurance combined operating ratio (COR)

UK & Ireland COR was lower at 92.5% (HY16: 93.8%), reflecting underwriting initiatives, and the continued benefit from growth in targeted markets. Weather experience was more benign in HY17, benefitting both personal and commercial lines, offset by lower levels of prior year releases.

UK Personal Lines COR improved by 0.4pp to 92.9%, as a result of growth in Digital and improved performance in the Broker channel.

UK Commercial Lines COR of 93.6% was 1.3pp lower, as we grow in Property and Specialty, whilst remediating in sectors of Commercial Motor.

Ireland COR of 84.7% was 7.2pp better, with claims initiatives driving a lower claims ratio.

Page 14

6.iii - Canada

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m
General Insurance operating profit	71	88	(19)%	(28)%	269
Cash remitted to Group	13	4	225%	-	130
Expenses
Operating expenses	234	167	40%	25%	396
Integration and restructuring costs	9	3	200%	180%	18
	243	170	43%	27%	414
Combined operating ratio¹	98.9%	95.9%	3.0pp	3.0pp	93.0%
Net written premiums	1,477	1,049	41%	25%	2,453

1 The combined operating ratio is now reported on an earned basis. Comparatives have been realigned to reflect this change. See note 5 for details.

Overview

In 2017, operating profit fell 28% in constant currency and the combined operating ratio worsened to 98.9% impacted by prior year development which went from significantly favourable to modestly unfavourable. Catastrophe losses were above the long-term average. Excluding the impact of the RBC acquisition, net written premiums grew 3% in constant currency despite lacklustre economic conditions and continued challenges in the personal motor industry.

The integration of RBC Insurance is progressing well, with the completion of a major new system implementation.

Operating and financial performance

Operating profit

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m
Underwriting result	16	42	(62)%	(66)%	168
Longer-term investment return	57	47	21%	8%	105
Other	(2)	(1)	(100)%	(38)%	(4)
Total	71	88	(19)%	(28)%	269

The lower underwriting result was mainly driven by higher claims frequency and unfavourable prior year development, partly offset by the contribution from RBC. Frequency was worse year-on-year but broadly similar to the three year average and partly a reflection of a more typical Canadian winter. The moderately unfavourable prior year development reflects the absence in HY17, of the large releases that benefitted the prior year (much of which were due to Ontario motor insurance), coupled with revisions in case reserves for a modest number of large claims spread across both motor and property.

Net catastrophe losses are broadly in line with prior year despite having one of the largest Canadian insured events in history, the Alberta wildfires, in the prior year. The longer-term investment result increased due to the contribution from the RBC acquisition.

Cash

Cash remittances during the period were £13 million (HY16: £4 million) reflecting increased loan interest.

Expenses

Operating expenses increased to £234 million (HY16: £167 million) and integration and restructuring costs increased to £9 million (HY16: £3 million) mainly driven by the RBC acquisition and the impact of foreign exchange movements.

	Net written premiums					Combined operating ratio¹
	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m	6 months 2017 £m	6 months 2016 £m	Change	Full Year 2016 £m
Personal Lines	1,047	680	54%	37%	1,680	99.4%	96.9%	2.5pp	93.4%
Commercial Lines	430	369	17%	4%	773	97.6%	94.0%	3.6pp	92.2%
Total	1,477	1,049	41%	25%	2,453	98.9%	95.9%	3.0pp	93.0%

1 The combined operating ratio is now reported on an earned basis. Comparatives have been realigned to reflect this change. See note 5 for details.

Net written premiums

Net written premiums were £1,477 million (HY16: £1,049 million), up 25% excluding the impact of foreign exchange rate movements, mostly due to the RBC acquisition. Net written premiums increased 3% in constant currency, excluding RBC.

Combined operating ratio

The combined operating ratio was 98.9% (HY16: 95.9%). Excluding prior year development and weather, the claims ratio was stable, despite increased claims frequency. The commission and expense ratio was lower, as a result of the shift in business mix following the RBC acquisition.

Page 15

6.iv - Europe¹

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m
Operating profit
Life	433	395	10%	(1)%	844
General insurance and health	85	35	143%	117%	120
	518	430	20%	9%	964

Cash remitted to Group²	190	169	12%	-	449
Expenses
Operating expenses	351	318	10%	-	641
Integration and restructuring costs	9	5	80%	82%	9
	360	323	11%	1%	650

Value of new business: Adjusted SII basis	243	188	29%	18%	417
Combined operating ratio³	92.7%	98.9%	(6.2)pp	(6.2)pp	95.8%
Net written premiums³	879	757	16%	5%	1,438

1 Our European business includes life and general insurance business written in France, Poland and Italy, life business in Spain and Turkey and health business in France.

2 Cash remittances include amounts of £159 million received from Europe in January 2017 in respect of 2016 activity.

3 General insurance business only.

Overview

Our businesses have shown continued resilient performance, with a 9% increase in operating profit in constant currency, reflecting the strength and diversity of our European franchise. We reported year-on-year volume growth, with value of new business (VNB) and net written premiums (NWP) increasing by 18% and 5% on a constant currency basis respectively. This is despite persistently low interest rates and continued volatility in financial markets, impacted in part by political uncertainty. The business has benefitted from foreign exchange movements following the strengthening of the euro and Polish zloty by 9% and 11% respectively against sterling.

In line with our strategy of allocating capital where we can deliver higher returns, our European businesses announced three disposals in the period. In France, we completed the sale of Antarius in April 2017, to Sogecap, a subsidiary of Société Générale. In Spain, we announced the sale of our 50% shareholding in our life insurance and pension joint ventures Unicorp Vida and Caja España Vida, as well as our retail life insurance business Aviva Vida y Pensiones to Santalucía. In Italy, we have been notified of the termination of our distribution agreement with Banco Popolare.

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

Operating and financial performance

Operating profit

	Life						General insurance & health
	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m
France (excluding Antarius)¹	196	173	13%	2%	351	54	16	238%	202%	70
Poland²	77	60	28%	15%	132	11	3	267%	223%	8
Italy	83	74	12%	1%	170	20	16	25%	13%	42
Spain	51	47	9%	(1)%	107	-	-	-	-	-
Turkey	5	2	150%	245%	6	-	-	-	-	-
Total (excluding Antarius)	412	356	16%	5%	766	85	35	143%	117%	120
Antarius¹	21	39	(46)%	(51)%	78	-	-	-	-	-
Total	433	395	10%	(1)%	844	85	35	143%	-	120

1 In April 2017, Aviva sold its 50% shareholding in Antarius. The Antarius figures shown represent a full 6 months in HY16, a full year for FY16, and up to completion of the disposal in 2017.

2 Poland operating profit benefits from an additional £7 million due to consolidating our joint ventures with Bank Zachodni WBK SA for the first time in 2017.

Life operating profit was broadly stable at £433 million (HY16: £395 million). Excluding Antarius, life operating profit was up 5%. In France, operating profit excluding Antarius was £196 million (HY16: £173 million), an increase of 2%, due to growth in protection and unit-linked products, and higher unit-linked fee income supported by favourable equity market movements. Poland operating profit of £77 million (HY16: £60 million) increased 15% as a result of the favourable impact of equity market movements on pension assets, and the benefit of consolidating the joint venture with Bank Zachodni WBK SA for the first time in HY17. Italy operating profit of £83 million (HY16: £74 million) was up 1% with volume growth supported by the launch of hybrid with-profits and unit-linked products. Spain operating profit fell 1% to £51 million (HY16: £47 million) due to lower sales on savings products, partially offset by an improved performance on protection business.

General insurance operating profits increased by 117% to £85 million (HY16: £35 million). This was mainly driven by France operating profit growth to £54 million (HY16: £16 million), primarily due to favourable prior year development and better weather experience. In Poland, operating profit increased to £11 million (HY16: £3 million) due to lower commercial large losses and decreased motor claims frequency along with the joint venture consolidation. Operating profit in Italy of £20 million (HY16: £16 million) increased 13% driven by volume growth and claims initiatives.

Page 16

6.iv - Europe continued

Cash remitted to Group

Cash remitted to Group was £190 million, with higher remittances in France as dividends were not remitted until the second half of 2016.

Expenses

Expenses were up 1% to £360 million (HY16: £323 million) due to the consolidation of the joint ventures in Poland, mostly offset by lower expenses in France despite investment to grow and reorganise the business.

Value of new business: Adjusted SII basis (VNB)

	6 months 2017 £m	6 months 2016 £m	Sterling % change¹	Constant currency % change	Full Year 2016 £m
France	120	101	19%	8%	225
Poland	28	22	24%	10%	54
Italy	60	42	43%	29%	83
Spain	25	12	107%	87%	34
Turkey	10	11	(1)%	8%	21
Total	243	188	29%	18%	417

1 Currency movements are calculated on unrounded numbers so minor rounding differences may exist.

VNB increased by 18% with strong performance across all markets. VNB in France increased 8%, up 25% excluding Antarius, with higher unit-linked and protection volumes, partly offset by lower with-profits volumes. In Poland, VNB increased by 10% due to the consolidation of the joint venture. VNB in Italy was up by 29% as a result of higher unit-linked volumes and improved margin on with-profits products. Spain VNB increased 87%, reflecting growth in higher margin unit-linked and protection products. Turkey's VNB increased 8% due to volume growth on protection and pensions.

	Net written premiums¹					Combined operating ratio^1,2
	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m	Sterling % change	Constant currency %	6 months 2017 £m	6 months 2016 £m	Change	Full Year 2016 £m
France	605	526	957	15%	4%	93.2%	100.4%	(7.2)pp	97.0%
Poland³	59	43	86	37%	23%	86.2%	100.1%	(13.9)pp	97.8%
Italy	215	188	395	14%	4%	93.4%	94.8%	(1.4)pp	92.5%
Total	879	757	1,438	16%	5%	92.7%	98.9%	(6.2)pp	95.8%

1 General insurance business only.

2 The combined operating ratio is now reported on an earned basis. Comparatives have been realigned to reflect this change. See note 5 for details.

3 Poland net written premium and combined operating ratio excludes the joint venture in 2016 but has been consolidated for the first time in 2017.

Net written premiums

General insurance NWP of £879 million has increased by 5% with growth in all our markets. In France, general insurance NWP was £605 million (HY16: £526 million), an increase of 4% primarily reflecting rating actions. In Poland, NWP increased by 23% to £59 million (HY16: £43 million) with benefits from the consolidation of the joint venture partly offset by a reduction in motor volumes as part of underwriting action taken. Italy's NWP grew by 4% to £215 million (HY16: £188 million), primarily in non-motor.

Combined operating ratio (COR)

The European COR has improved by 6.2pp primarily due to France's COR reducing 7.2pp to 93.2%. Our claims ratio has decreased by 5.1pp to 63.4% (HY16: 68.5%) due to favourable prior year development and better weather experience in France. Continued pricing actions across the markets, notably on motor in both France and Poland, and underwriting discipline when selecting risks have also improved the claims ratio.

Page 17

6.v - Asia

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m
Operating profit
Life	120	118	2%	(3)%	241
General insurance & health	(5)	(6)	17%	33%	(13)
	115	112	3%	(1)%	228
Expenses
Operating expenses	101	88	15%	7%	177
Integration and restructuring costs	-	8	(100)%	(100)%	17
	101	96	5%	(2)%	194
Value of new business: Adjusted SII basis	71	43	63%	49%	106
Combined operating ratio¹	131.4%	108.6%	22.8pp	22.8pp	109.9%
Net written premiums¹	6	5	20%	1%	11

1 General insurance business only.

Overview

Asia continues to invest in and strengthen its distribution channels and digital and analytics capabilities to support business growth. In Singapore, subsequent to the successful launch of Aviva Financial Advisers in 2016, the owned financial advisory firm - Professional Investment Advisory Services (PIAS), expanded in May 2017. In China, both the agency and broker channels continued to grow.

On 19 July 2017 we announced the sale of Friends Provident International Limited (FPI) to RL360 Holding Company Limited, a subsidiary of International Financial Group Limited.

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

Operating and financial performance

Operating profit

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Constant currency %	Full Year 2016 £m
Life operating profit
Singapore	47	50	(6)%	(15)%	112
FPI	70	70	-	1%	140
Other Asia	3	(2)	-	-	(11)
	120	118	2%	(3)%	241
General insurance & health operating profit	(5)	(6)	17%	33%	(13)
Total operating profit	115	112	3%	(1)%	228

Operating profit decreased 1% to £115 million (HY16: £112 million) due to a tax recovery benefit in Singapore in HY16. Excluding this, operating profit improved 7% reflecting new business growth generated from the financial advisory channel in Singapore in addition to higher profits generated from existing business and favourable claims and expense experiences in China. The contribution of FPI post amortisation of acquired value in-force business was £2 million (HY16: £1 million loss).

Cash

No dividends were remitted to Group (HY16: £nil) as we continue to reallocate capital to support distribution and digital initiatives in the region.

Expenses

Expenses were broadly flat at £101 million (HY16: £96 million) with the increase in operating expenses driven by higher distribution costs in Singapore and investment in digital and analytics capabilities offset by a reduction in integration and restructuring costs.

Value of new business: Adjusted SII basis (VNB)

	6 months 2017 £m	6 months 2016 £m	Sterling % change¹	Constant currency % change¹	Full Year 2016 £m
Singapore	44	34	27%	14%	95
FPI	(1)	-	-	-	4
Other Asia	28	9	211%	207%	7
Total	71	43	63%	49%	106

1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

VNB in Asia improved 49% to £71million (HY16: £43 million) reflecting growth in Singapore's core financial advisory channel and China. China increased to £31 million (HY16: £13 million) driven by the improvement in product mix towards higher margin protection business, growth in agency and broker channels and higher interest rates.

Combined operating ratio

The combined operating ratio increased 22.8pp to 131.4% (HY16: 108.6%) due to unfavourable claims experience and continuing softening of market premium rates for motor insurance in Singapore.

Page 18

6.vi - Aviva Investors

	6 months 2017 £m	6 months 2016 £m	Sterling % change	Full Year 2016 £m
Revenue: Fee income	273	241	13%	506
Expenses
Operating expenses	202	192	5%	367
Integration and restructuring costs	-	10	(100)%	19
	202	202	-	386
Operating profit
Fund management	71	49	45%	139
Other operations	25	20	25%	19
	96	69	39%	158
Cash remitted to Group	37	2	-	39
Value of new business: Adjusted SII basis	12	12	-	28

Overview

Fund management operating profit increased by 45% to £71 million from HY16. Fund management operating profit margin* increased by 6pp to 26% (HY16: 20%). Progress has been made in broadening our range of outcome oriented propositions, and we continue to invest in the growth of the business.

Operating and financial performance

Revenue

Revenue increased by 13% to £273 million driven by the continued growth of Aviva Investors Multi-Strategy (AIMS) assets under management to £12 billion (HY16: £6 billion), the Friends Life assets on boarded in the second half of 2016 and increased income from the origination of infrastructure assets. Revenue from external clients generated 35% of total revenue (HY16: 30%).

Expenses

Operating expenses in Aviva Investors were £202 million (HY16: £192 million) reflecting increased investment in staff and systems as we support the growth of higher value-add products and further development of the business.

Operating profit

Fund management operating profit increased by £22 million to £71 million (HY16: £49 million). This increase was driven by growth in revenue, with operating expenses increasing at a slower rate. This led to an improved operating profit margin.

Operating profit from other operations of £25 million related to insurance recoveries (HY16: £20 million of which £16 million was from the Group's internal reinsurer).

Cash

Cash remitted to Group was £37 million (HY16: £2 million) as dividends were not remitted until the second half of 2016.

Value of new business: Adjusted SII basis

Value of new business in Aviva Investors was £12 million, in line with prior year.

Net flows and assets under management - Aviva Investors¹

	Internal Legacy² £m	Internal Core £m	External £m	Total £m
Aviva Investors
Assets under management at 1 January 2017	97,290	190,667	56,561	344,518
Total Inflows	1,966	11,304	6,099	19,369
Total Outflows	(4,342)	(9,624)	(4,869)	(18,835)
Net Flows	(2,376)	1,680	1,230	534
Net Flows into Liquidity Funds	(573)	(138)	955	244
Reallocation³	-	(13,414)	13,414	-
Disposals⁴	-	-	(714)	(714)
Market and foreign exchange movements	3,148	2,541	1,046	6,735
Assets under management at 30 June 2017	97,489	181,336	72,492	351,317

1 Assets under management represents all assets managed by Aviva Investors. These comprise Aviva (internal) assets which are included within the Group's statement of financial position and those belonging to external clients outside the Aviva Group which are therefore not included in the Group's statement of financial position. These assets under management exclude those funds that are managed by third parties.

2 Assets managed by Aviva Investors on behalf of internal Aviva Clients relating to products that are no longer actively marketed.

3 Retention of assets under management following sale of Antarius, resulting in a switch from Internal to External.

4 Disposal of Real Estate fund in February 2017.

Aviva Investors assets under management increased by £6.8 billion to £351.3 billion (FY16: £344.5 billion) in HY17 with net external inflows of £1.2 billion. Internal Core net inflows were £1.7 billion while net outflows on the Internal Legacy book were £2.4 billion. Net flows into liquidity funds were £0.2 billion. The remaining increase of £6.0 billion comprised favourable market movements of £3.9 billion and favourable foreign exchange rate movements of £2.8 billion, offset by the disposal of a Real Estate fund (£0.7 billion).

* Operating profit margin is calculated as operating profit expressed as a percentage of revenue.

Page 19

7.i - Life business profit drivers

Life business operating profit before shareholder tax increased by 8% to £1,319 million (HY16: £1,226 million), up 3% on a constant currency basis.

Overall, total income increased by 8% to £2,290 million (HY16: £2,114 million) and total expenses increased by 5% to £1,117 million (HY16: £1,059 million). This increase in net income of £118 million has been partially offset by a lower benefit from DAC and other items, giving a total increase in life operating profit of £93 million for the half year, which includes favourable currency movements of £49 million.

	United Kingdom & Ireland			Europe			Asia			Total
	6 months 2017 £m	6 months 2016 £m	Full year 2016 £m	6 months 2017 £m	6 months 2016 £m	Full year 2016 £m	6 months 2017 £m	6 months 2016 £m	Full year 2016 £m	6 months 2017 £m	6 months 2016 £m	Full year 2016 £m
New business income¹	370	316	801	129	130	267	101	74	184	600	520	1,252
Underwriting margin²	164	158	326	124	115	223	36	37	76	324	310	625
Investment return³	676	677	1,352	605	545	1,134	85	62	159	1,366	1,284	2,645
Total Income	1,210	1,151	2,479	858	790	1,624	222	173	419	2,290	2,114	4,522
Acquisition expenses⁴	(213)	(210)	(396)	(135)	(144)	(274)	(91)	(68)	(158)	(439)	(422)	(828)
Administration expenses⁵	(325)	(332)	(652)	(300)	(258)	(520)	(53)	(47)	(96)	(678)	(637)	(1,268)
Total Expenses	(538)	(542)	(1,048)	(435)	(402)	(794)	(144)	(115)	(254)	(1,117)	(1,059)	(2,096)
DAC and other	84	102	124	10	7	14	42	60	76	136	169	214
	756	711	1,555	433	395	844	120	118	241	1,309	1,224	2,640
Other business⁶										10	2	2
Total life business operating profit										1,319	1,226	2,642

1 Represents the income earned on new business written during the period reflecting premiums less initial reserves.

2 Underwriting margin represents the release of reserves held to cover claims, surrenders and expenses less the cost of actual claims and surrenders in the period.

3 Represents the expected income on existing business (other than the underwriting margin). Life investment return comprises unit-linked margin, shareholders' return on participating business, spread margin and the expected return on shareholder assets.

4 Initial expenses and commission incurred in writing new business less deferred costs.

5 Expenses and renewal commissions incurred in managing existing business.

6 Other business includes the total result for Aviva Investors Pooled Pensions and Aviva Life Reinsurance.

Income: New business income and underwriting margin

	United Kingdom & Ireland			Europe		Asia		Total
	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m
New business income (£m)	370	316	129	130	101	74	600	520
APE (£m)¹	1,422	1,194	632	617	180	120	2,234	1,931
As margin on APE (%)	26%	26%	20%	21%	56%	62%	27%	27%
Underwriting margin (£m)	164	158	124	115	36	37	324	310
Analysed by:
Expenses	36	31	29	28	28	23	93	82
Mortality and longevity	125	135	98	82	8	12	231	229
Persistency	3	(8)	(3)	5	-	2	-	(1)

1 Used as a measure of life sales. It is calculated as the sum of new regular premiums plus 10% of new single premiums written in the period. APE excludes UK Retail Fund Management and Health business in UK & Ireland and Asia.

(a) New business income

New business income increased to £600 million (HY16: £520 million), mainly driven by UK & Ireland, Asia and favourable foreign exchange movements of £19 million.

The net contribution from new business is the new business income less associated acquisition expenses (see (g) below). This increased to a profit of £161 million (HY16: profit of £98 million). In the UK & Ireland, net contribution from new business increased to £157 million (HY16: £106 million) mainly driven by growth in sales of individual protection and annuities.

In Europe, the net contribution improved to a loss of £6 million (HY16: loss of £14 million) with an improved contribution in Poland due to consolidating the joint venture with Bank Zachodni WBK SA for the first time. Volumes based on APE decreased by 6% in constant currency, reflecting the sale of Antarius in France, partly offset by higher sales volumes in Spain and Turkey. New business margin on APE remained broadly stable in Europe at 20% (HY16: 21%).

In Asia, the net contribution increased 26% in constant currency to a profit of £10 million (HY16: profit of £6 million) mainly as a result of higher sales in Singapore for with-profits business and higher sales volumes in China, with changes in business mix reducing the new business margin.

(b) Underwriting margin

The underwriting margin increased to £324 million (HY16: £310 million) mainly due to favourable currency movements, with the amount being broadly consistent on a constant currency basis. In the UK & Ireland, underwriting margin increased to £164 million (HY16: £158 million) with improved expenses and persistency margins being partially offset by a reduction in mortality margins. In Europe, underwriting margin increased to £124 million (HY16: £115 million) reflecting favourable foreign exchange movements, with a decrease of 2% on a constant currency basis, reflecting a lower persistency margin, partially offset by an improvement in the mortality margin, in Italy.

In Asia, underwriting margin decreased 9% in constant currency to £36 million (HY16: £37 million) mainly due to adverse mortality margins in Singapore, partly offset by an improved expenses margin in China.

Page 20

7.i - Life business profit drivers continued

Income: Investment return

	United Kingdom & Ireland			Europe		Asia		Total
	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m
Unit-linked margin¹ (£m)	439	429	285	236	68	52	792	717
As annual management charge on average reserves (bps)	74	80	150	146	145	127	95	97
Average reserves ⁵ (£bn)	118.4	107.2	38.1	32.4	9.4	8.2	165.9	147.8
Participating business² (£m)	89	79	269	258	1	(5)	359	332
As bonus on average reserves (bps)	36	30	80	83	5	n/a	60	57
Average reserves ⁵ (£bn)	49.5	51.9	67.1	62.2	3.9	3.3	120.5	117.4
Spread margin³ (£m)	129	135	3	3	7	8	139	146
As spread margin on average reserves (bps)	39	44	19	19	108	145	40	44
Average reserves⁵ (£bn)	65.4	61.4	3.2	3.2	1.3	1.1	69.9	65.7
Expected return on shareholder assets⁴ (£m)	19	34	48	48	9	7	76	89
Total (£m)	676	677	605	545	85	62	1,366	1,284

1 Unit-linked margin represents the annual management charges on unit-linked business based on expected investment return.

2 The shareholders' share of the return on with-profit and other participating business.

3 Spread margin represents the return made on annuity and other non-linked business, based on the expected investment return less amounts credited to policyholders.

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

5 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.

The unit-linked average reserves have increased to £166 billion (HY16: £148 billion), with the movement largely driven by favourable market performance. This increased the unit-linked margin to £792 million (HY16: £717 million). The margin as a proportion of average unit-linked reserves remained broadly stable at 95 bps (HY16: 97 bps).

The unit-linked margin in UK & Ireland has increased mainly due to favourable market movements and growth in the sales of group pensions. The margin on average reserves has decreased to 74 bps (HY16: 80 bps) due to the expected run-off in the higher margin back book and lower margins on group pensions. The unit-linked margin in Europe increased on a constant currency basis by £24 million, mainly driven by favourable market movements and the benefit of consolidating the Polish joint venture for the first time. The increase in unit-linked margin in Asia on a constant currency basis was £15 million, which is mainly due to higher sales volumes in Indonesia.

(d) Participating business

The participating average reserves have increased to £121 billion (HY16: £117 billion). Income from participating business increased to £359 million (HY16: £332 million). In the UK & Ireland, participating business income increased to £89 million (HY16: £79 million). In Europe, income has increased to £269 million (HY16: £258 million) reflecting favourable foreign currency movements of £27 million, partly offset by lower income in France due to the disposal of Antarius. The majority of participating business income continues to be earned in France, where there is a fixed management charge of around 50bps on AFER business, which is the largest single component of this business.

(e) Spread margin

Spread business income, which mainly relates to UK in-force immediate annuity and equity release business, decreased to £139 million (HY16: £146 million). The spread margin decreased to 40 bps (HY16: 44 bps) mainly due to the increase in average reserves to £70 billion (HY16: £66 billion), which is largely driven by lower interest rates in the UK. In Europe, spread margin remained stable at £3 million. In Asia, spread business income decreased £2 million on a constant currency basis to £7 million (HY16: £8 million) driven by lower investment margins in Singapore.

(f) Expected return on shareholder assets

Expected returns, representing investment income on surplus funds, have decreased to £76 million (HY16: £89 million). This is mainly due to the impact of the economic capital optimisation (hedging) activity in Friends Life and the fall in interest rates in the UK, both reducing the expected return on shareholder assets in UK Life.

Page 21

7.i - Life business profit drivers continued

Expenses

	United Kingdom & Ireland			Europe		Asia		Total
	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m	6 months 2017 £m	6 months 2016 £m
Acquisition expenses (£m)	(213)	(210)	(135)	(144)	(91)	(68)	(439)	(422)
APE (£m)¹	1,422	1,194	632	617	180	120	2,234	1,931
As acquisition expense ratio on APE (%)	15%	18%	21%	23%	51%	57%	20%	22%
Administration expenses (£m)	(325)	(332)	(300)	(258)	(53)	(47)	(678)	(637)
As existing business expense ratio on average reserves (bps)	28	30	55	53	73	75	38	39
Average reserves (£bn)	233.3	220.5	108.4	97.8	14.6	12.6	356.3	330.9

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

(g) Acquisition expenses

Acquisition expenses increased to £439 million (HY16: £422 million) primarily reflecting higher sales volumes in Asia and higher protection sales in the UK. Europe acquisition expenses have decreased 14% on a constant currency basis, mainly driven by the sale of Antarius in France and lower sales volumes in Italy.

The increase in Asia is due to higher new business sales in China and Indonesia. The group ratio of acquisition expenses to APE improved to 20% (HY16: 22%).

(h) Administration expenses

Administration expenses increased to £678 million (HY16: £637 million) with an expense ratio of 38 bps (HY16: 39 bps) on average reserves of £356 billion (HY16: £331 billion). The decrease in UK & Ireland to £325 million (HY16: £332 million) is driven by continued cost control, whilst also investing in growth. Administration expenses in Europe have increased to £300 million (HY16: £258 million) due to adverse exchange rate movements of £26 million, the consolidation of the joint venture in Poland and higher renewal commission costs in Italy, driven by business mix. On a constant currency basis, administration expenses in Asia increased by 8%, primarily due to increases in Hong Kong (where they were offset by a reduction in acquisition expenses).

The overall increase in life business acquisition and administration expenses was £58 million, with increased costs due to higher sales volumes and adverse foreign exchange rate movements.

(i) DAC and other

DAC and other items amounted to an overall positive contribution of £136 million (HY16: £169 million). In the UK, DAC and other includes a £55 million benefit from a change in the allocation strategy for those assets backing annuities, partly offset by an increase in DAC amortisation. There were no material assumption changes in HY17. Other in HY16 mainly related to a £63 million benefit in relation to annuitant mortality assumption changes.

In Asia, DAC and other items reduced to £42 million (HY16: £60 million) mainly due to a recovery of indirect tax in Singapore in HY16.

Page 22

7.ii - General insurance and health

6 months 2017	UK Personal £m	UK Commercial £m	Total UK £m	Ireland £m	Total UK & Ireland £m	Canada Personal £m	Canada Commercial £m	Total Canada £m	Europe £m	Asia & Other¹ £m	Total £m
General insurance
Gross written premiums	1,300	934	2,234	229	2,463	1,066	463	1,529	911	6	4,909
Net written premiums	1,269	836	2,105	221	2,326	1,047	430	1,477	879	6	4,688
Net earned premiums	1,218	778	1,996	202	2,198	1,019	410	1,429	778	6	4,411
Net claims incurred	(719)	(477)	(1,196)	(107)	(1,303)	(742)	(250)	(992)	(493)	2	(2,786)
Of which claims handling costs			(72)	(5)	(77)			(58)	(26)	-	(161)
Earned commission	(327)	(159)	(486)	(33)	(519)	(174)	(87)	(261)	(165)	-	(945)
Earned expenses²	(87)	(92)	(179)	(31)	(210)	(94)	(66)	(160)	(63)	(3)	(436)
Underwriting result	85	50	135	31	166	9	7	16	57	5	244
Longer-term investment return³			78	7	85			57	28	1	171
Other⁴			-	-	-			(2)	-	-	(2)
Operating profit			213	38	251			71	85	6	413
Health insurance
Underwriting result					7			-	-	(4)	3
Longer-term investment return					1			-	-	-	1
Operating profit					8			-	-	(4)	4
Total operating profit					259			71	85	2	417
General insurance combined operating ratio¹
Claims ratio	59.0%	61.4%	59.9%	52.8%	59.3%	72.8%	61.0%	69.5%	63.4%		63.2%
Commission ratio	26.8%	20.4%	24.3%	16.4%	23.6%	17.2%	20.9%	18.2%	21.2%		21.4%
Expense ratio	7.1%	11.8%	9.0%	15.5%	9.6%	9.4%	15.7%	11.2%	8.1%		9.9%
Combined operating ratio⁵	92.9%	93.6%	93.2%	84.7%	92.5%	99.4%	97.6%	98.9%	92.7%		94.5%
Assets supporting general insurance and health business
Debt securities			3,255	283	3,538			4,247	2,270	174	10,229
Equity securities			6	-	6			249	41	-	296
Investment property			207	-	207			-	137	-	344
Cash and cash equivalents			902	73	975			145	293	38	1,451
Other⁶			1,808	56	1,864			213	324	2	2,403
Assets at 30 June 2017			6,178	412	6,590			4,854	3,065	214	14,723
Debt securities			3,718	360	4,078			4,349	2,175	197	10,799
Equity securities			7	-	7			235	25	-	267
Investment property			208	-	208			-	133	-	341
Cash and cash equivalents			757	47	804			115	220	23	1,162
Other⁶			1,464	4	1,468			256	305	3	2,032
Assets at 31 December 2016			6,154	411	6,565			4,955	2,858	223	14,601
Average assets			6,165	412	6,577			4,904	2,962	219	14,662
LTIR as % of average assets			2.5%	3.4%	2.6%			2.3%	1.9%	0.9%	2.3%

1 Asia & Other includes Aviva Re.

2 Operating expenses shown in note 3 includes claims handling costs and earned expenses included in general insurance COR above, plus operating expenses of other non-insurance operations.

3 The UK & Ireland LTIR includes £28 million (HY16: £37 million) relating to the internal loan. This is lower than 2016 primarily as a result of the reduction in the loan balance in HY16.

4 Includes unwind of discount and pension scheme net finance costs.

5 COR is calculated as incurred claims, earned commission and earned expenses, expressed as a percentage of net earned premiums. COR is calculated using unrounded numbers so minor rounding differences may exist.

6 Includes loans and other financial investments.

Page 23

7.ii - General insurance and health continued

6 months 2016	UK Personal £m	UK Commercial £m	Total UK £m	Ireland £m	Total UK & Ireland £m	Canada Personal £m	Canada Commercial £m	Total Canada £m	Europe £m	Asia & Other¹ £m	Total £m
General insurance
Gross written premiums	1,225	921	2,146	185	2,331	692	399	1,091	786	6	4,214
Net written premiums	1,188	813	2,001	179	2,180	680	369	1,049	757	5	3,991
Net earned premiums	1,121	763	1,884	159	2,043	655	365	1,020	658	6	3,727
Net claims incurred	(666)	(473)	(1,139)	(99)	(1,238)	(447)	(212)	(659)	(451)	(19)	(2,367)
Of which claims handling costs			(68)	(5)	(73)			(41)	(22)	-	(136)
Earned commission	(273)	(154)	(427)	(25)	(452)	(127)	(74)	(201)	(132)	-	(785)
Earned expenses²	(106)	(97)	(203)	(23)	(226)	(61)	(57)	(118)	(65)	(3)	(412)
Underwriting result	76	39	115	12	127	20	22	42	10	(16)	163
Longer-term investment return³			85	8	93			47	28	1	169
Other⁴			(1)	-	(1)			(1)	-	-	(2)
Operating profit			199	20	219			88	38	(15)	330
Health insurance
Underwriting result					10			-	(3)	(5)	2
Longer-term investment return					2			-	-	-	2
Operating profit					12			-	(3)	(5)	4
Total operating profit					231			88	35	(20)	334
General insurance combined operating ratio
Claims ratio	59.4%	62.0%	60.5%	62.4%	60.6%	68.2%	58.1%	64.6%	68.5%		63.5%
Commission ratio	24.4%	20.2%	22.6%	15.3%	22.1%	19.4%	20.3%	19.7%	20.5%		21.2%
Expense ratio	9.5%	12.7%	10.8%	14.2%	11.1%	9.3%	15.6%	11.6%	9.9%		11.0%
Combined operating ratio⁵	93.3%	94.9%	93.9%	91.9%	93.8%	96.9%	94.0%	95.9%	98.9%		95.7%
Assets supporting general insurance and health business
Debt securities			3,474	413	3,887			3,500	2,168	202	9,757
Equity securities			8	-	8			201	16	-	225
Investment property			205	-	205			-	163	-	368
Cash and cash equivalents			811	71	882			462	236	43	1,623
Other⁶			1,535	102	1,637			166	235	2	2,040
Assets at 30 June 2016			6,033	586	6,619			4,329	2,818	247	14,013
Debt securities			3,993	470	4,463			2,999	1,937	209	9,608
Equity securities			8	-	8			188	21	-	217
Investment property			198	-	198			-	137	-	335
Cash and cash equivalents			639	79	718			107	118	26	969
Other⁶			2,559	104	2,663			135	209	1	3,008
Assets at 31 December 2015			7,397	653	8,050			3,429	2,422	236	14,137
Average assets			6,715	620	7,335			3,878	2,620	242	14,075
LTIR as % of average assets			2.5%	2.6%	2.6%			2.4%	2.1%	0.8%	2.4%

1 Asia & Other includes Aviva Re.

2 Operating expenses shown in note 3 includes claims handling costs and earned expenses included in general insurance COR above, plus operating expenses of other non-insurance operations.

3 The UK & Ireland LTIR includes £37 million (HY15: £59 million) relating to the internal loan. This is lower than 2015 primarily as a result of a reduction in the balance of this loan during 2015 and 2016.

4 Includes unwind of discount and pension scheme net finance costs.

5 COR is now reported on an earned basis and is calculated as incurred claims, earned commission and earned expenses, expressed as a percentage of net earned premiums. Comparatives have been realigned to reflect this change. See note 5 for details. COR is calculated using unrounded numbers so minor rounding differences may exist.

6 Includes loans and other financial investments.

Page 24

7.ii - General insurance and health continued

Full year 2016	UK Personal £m	UK Commercial £m	Total UK £m	Ireland £m	Total UK & Ireland £m	Canada Personal £m	Canada Commercial £m	Total Canada £m	Europe £m	Asia & Other² £m	Total £m
General insurance
Gross written premiums	2,476	1,743	4,219	392	4,611	1,711	831	2,542	1,499	12	8,664
Net written premiums¹	2,408	1,522	3,930	378	4,308	1,680	773	2,453	1,438	12	8,211
Net earned premiums¹	2,295	1,526	3,821	351	4,172	1,645	775	2,420	1,396	12	8,000
Net claims incurred¹	(1,602)	(1,220)	(2,822)	(222)	(3,044)	(1,104)	(433)	(1,537)	(931)	(24)	(5,536)
Of which claims handling costs			(137)	(9)	(146)			(93)	(45)	-	(284)
Earned commission	(570)	(310)	(880)	(53)	(933)	(283)	(160)	(443)	(268)	-	(1,644)
Earned expenses³	(180)	(182)	(362)	(49)	(411)	(150)	(122)	(272)	(133)	(6)	(822)
Impact of change in Ogden discount rate excluded from underwriting result	230	245	475	-	475	-	-	-	-	-	475
Underwriting result¹	173	59	232	27	259	108	60	168	64	(18)	473
Longer-term investment return⁴			162	14	176			105	55	3	339
Other⁵			(2)	-	(2)			(4)	-	-	(6)
Operating profit¹			392	41	433			269	119	(15)	806
Health insurance
Underwriting result					35			-	-	(12)	23
Longer-term investment return					3			-	1	-	4
Operating profit					38			-	1	(12)	27
Total operating profit¹					471			269	120	(27)	833
General insurance combined operating ratio¹
Claims ratio¹	69.8%	79.9%	73.8%	63.3%	73.0%	67.1%	55.9%	63.5%	66.7%		69.2%
Commission ratio	24.8%	20.3%	23.0%	15.1%	22.3%	17.2%	20.6%	18.3%	19.6%		20.6%
Expense ratio	7.8%	11.9%	9.5%	14.0%	9.9%	9.1%	15.7%	11.2%	9.5%		10.3%
Combined operating ratio⁶	102.4%	112.1%	106.3%	92.4%	105.2%	93.4%	92.2%	93.0%	95.8%		100.1%
Combined operating ratio, excluding the impact of change in Ogden discount rate⁶	92.5%	96.1%	93.9%	92.4%	93.8%	93.4%	92.2%	93.0%	95.8%		94.1%
Assets supporting general insurance and health business
Debt securities			3,718	360	4,078			4,349	2,175	197	10,799
Equity securities			7	-	7			235	25	-	267
Investment property			208	-	208			-	133	-	341
Cash and cash equivalents			757	47	804			115	220	23	1,162
Other⁷			1,464	4	1,468			256	305	3	2,032
Assets at 31 December 2016			6,154	411	6,565			4,955	2,858	223	14,601
Debt securities			3,993	470	4,463			2,999	1,937	209	9,608
Equity securities			8	-	8			188	21	-	217
Investment property			198	-	198			-	137	-	335
Cash and cash equivalents			639	79	718			107	118	26	969
Other⁷			2,559	104	2,663			135	209	1	3,008
Assets at 31 December 2015			7,397	653	8,050			3,429	2,422	236	14,137
Average assets			6,776	532	7,308			4,192	2,640	229	14,369
LTIR as % of average assets			2.4%	2.6%	2.4%			2.5%	2.1%	1.3%	2.4%

1 Excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

2 Asia & Other includes Aviva Re.

3 Operating expenses shown in note 3 includes claims handling costs and earned expenses included in general insurance COR above, plus operating expenses of other non-insurance operations.

4 The UK & Ireland LTIR includes £69 million (FY15: £115 million) relating to the internal loan. This is lower than 2015 primarily as a result of a reduction in the balance of this loan during 2016.

5 Includes unwind of discount and pension scheme net finance costs.

6 COR is now reported on an earned basis and is calculated as incurred claims, earned commission and earned expenses, expressed as a percentage of net earned premiums. Comparatives have been realigned to reflect this change. See note 5 for details. COR is calculated using unrounded numbers so minor rounding differences may exist.

7 Includes loans and other financial investments.

Page 25

7.iii - 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 IFRS net written premiums plus deposits received under investment contracts) and outflows (being IFRS net paid claims plus redemptions and surrenders under investment contracts). It excludes market and other movements.

	Managed assets at 1 January 2017 £m	Premiums and deposits, net of reinsurance £m	Claims and redemptions, net of reinsurance £m	Net flows^1,2 £m	Market and other movements £m	Managed assets at 30 June 2017³ £m
Life and platform business
UK - non-profit:
- platform	12,963	3,771	(807)	2,964	555	16,482
- pensions and other long term savings	91,589	3,376	(4,192)	(816)	2,181	92,954
- long term savings	104,552	7,147	(4,999)	2,148	2,736	109,436
- annuities and equity release	57,316	682	(1,231)	(549)	2,203	58,970
- other	25,851	887	(1,470)	(583)	991	26,259
Ireland	5,989	475	(314)	161	101	6,251
United Kingdom & Ireland (excluding UK with-profits)	193,708	9,191	(8,014)	1,177	6,031	200,916
Europe	113,842	5,202	(4,106)	1,096	(5,538)	109,400
Asia	13,456	362	(181)	181	383	14,020
Other	1,599	13	(154)	(141)	61	1,519
	322,605	14,768	(12,455)	2,313	937	325,855
UK - with-profits and other	61,796					59,187
Total life and platform business	384,401					385,042

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

2 For the period to 30 June 2017, net flows of £2.3 billion includes net flows of £1.0 billion that are included in the IFRS income statement within net written premiums and net paid claims.

3 Life and platform business managed assets at the balance sheet date includes financial investments, loans, investment property, externally reinsured non-participating investment contracts and cash and cash equivalents included on the IFRS statement of financial position, plus assets administered by the Group that are not included on the IFRS statement of financial position. At 30 June 2017, life and platform business managed assets of £385 billion (FY16: £384 billion) includes £371 billion (FY16: £373 billion) that is on the IFRS statement of financial position.

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

United Kingdom & Ireland (excluding UK with-profits)

UK long-term savings managed assets⁴ have increased to c.£109 billion (FY16: c.£105 billion) during the period. Within this, net inflows were £2.1 billion mainly reflecting continued growth from our platform business of £3.0 billion with managed assets increasing 27% in the period to £16.5 billion (FY16: £13.0 billion).

UK annuities and equity release and other non-profit outflows were £1.1 billion driven by net outflows in Bonds & Savings as the book continues to run off as expected. Market and other movements include favourable market movements driven by narrowing spreads and growth in equities.

Europe

Net inflows were £1.1 billion. This was mainly driven by unit-linked volumes in France and improved margin on with-profits products in Italy. Market and other movements in Europe reflect the disposal of £11.4 billion investment assets following the sale of Antarius, partly offset by favourable foreign exchange rate movements of £3.3 billion and investment market movements of £2.6 billion.

Asia and other

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

Page 26

8.i - Summary of assets

The Group asset portfolio is invested to generate competitive investment returns for both policyholders and shareholders whilst remaining within the Group's appetite for market, credit and liquidity risk.

The Group has a low appetite for interest rate risk and currency risk which means that the asset portfolios are well matched by duration and currency to the liabilities they cover. The Group also runs a low level of liquidity risk which results in a high proportion of income generating assets and a preference for more liquid assets where there is the potential need to realise those assets before maturity.

The Group seeks to diversify its asset portfolio in order to reduce risk and provide more attractive risk-adjusted returns. In order to achieve this there is a comprehensive risk limit framework in place. There is an allowance for diversification in our economic capital model and we continue to broaden the investment portfolio in individual businesses.

Asset allocation decisions are taken at legal entity level and in many cases by fund within a legal entity in order to reflect the nature of the liabilities, customer expectations, the local accounting and regulatory treatment, and any local constraints. These asset allocation decisions are made in accordance with a Group-wide framework that takes into account consensus investment views across the Group, prioritised Group objectives and metrics and Group risk limits and constraints. This framework is overseen by the Group Asset Liability Committee (ALCO) and facilitates a consistent approach to asset allocation across the business units in line with Group risk appetite and shareholder objectives.

The asset allocation as at 30 June 2017 across the Group, split according to the type of liability the assets are covering, is shown in the table below. Further information on these assets is given in the Analysis of Assets section.

	Shareholder business assets			Participating fund assets
Carrying value in the statement of financial position	General Insurance & health & other¹ £m	Annuity and non-profit £m	Policyholder (unit-linked assets) £m	UK style with-profits £m	Continental European-style Participating funds £m	Total assets analysed £m	Less assets of operation classified as held for sale £m	Carrying value in the statement of financial position £m
Debt securities
Government bonds	6,843	16,218	13,655	17,720	28,035	82,471	(1,811)	80,660
Corporate bonds	4,250	22,815	10,408	15,868	26,483	79,824	(1,239)	78,585
Other	366	2,226	2,836	1,169	6,220	12,817	(992)	11,825
	11,459	41,259	26,899	34,757	60,738	175,112	(4,042)	171,070
Loans
Mortgage loans	-	18,975	-	109	-	19,084	-	19,084
Other loans	164	3,170	8	2,301	792	6,435	(67)	6,368
	164	22,145	8	2,410	792	25,519	(67)	25,452
Equity securities	321	547	57,623	13,086	2,614	74,191	(616)	73,575
Investment property	354	172	6,595	2,342	1,257	10,720	(1)	10,719
Other investments	1,180	3,157	51,368	4,185	4,806	64,696	(119)	64,577
Total as at 30 June 2017	13,478	67,280	142,493	56,780	70,207	350,238	(4,845)	345,393
Total as at 31 December 2016	14,152	65,628	132,901	56,672	76,863	346,216	(10,829)	335,387

1 Of the £13.5 billion of assets 11% relates to other shareholder business assets.

There is an internal loan between Aviva Insurance Limited (AIL) and Aviva Group Holdings Limited (AGH) that has a net value of zero at a consolidated level.

General insurance and health

All the investment risk is borne by shareholders and the portfolio held to cover these liabilities contains a high proportion of fixed and variable income securities, of which 83% are rated A or above. The assets are relatively short duration reflecting the short average duration of the liabilities. Liquidity, interest rate and currency risks are maintained at a low level within risk appetite.

Annuity and other non-profit

All the investment risk is borne by shareholders. The annuity liabilities have a long duration but are also illiquid as customers cannot surrender their policies. The assets are chosen to provide stable income and cash flow. Currency and interest rate exposures are closely matched to the liabilities in line with risk appetite. We are able to invest part of the portfolio in less liquid assets in order to improve risk-adjusted returns given the illiquid nature of the liabilities. The asset portfolio is principally comprised of long maturity bonds and loans including a material book of commercial mortgage loans. The other non-profit business assets are a smaller proportion of this portfolio and are generally shorter in duration and have a high proportion invested in fixed income.

£11.7 billion of shareholder loan assets are backing UK annuity liabilities and comprise of commercial mortgage loans (£6.9 billion), Healthcare, Infrastructure and PFI mortgage loans (£3.5 billion) and Primary Healthcare, Infrastructure and PFI other loans (£1.3 billion). The Group carries a valuation allowance within the liabilities against the risk of default of commercial mortgages, including Healthcare and PFI mortgages, of £0.4 billion which equates to 39bps at 30 June 2017 (FY16: 50bps).

Page 27

8.i - Summary of assets continued

Policyholder assets

These assets are invested in line with the fund choices made by our unit-linked policyholders and the investment risk is borne by the policyholder. This results in a high allocation to growth assets such as equity and property. Aviva's shareholder exposure to these assets arises from the fact that the income we receive is a proportion of the assets under management.

UK style with-profits (WP)

UK style with-profits funds hold relatively long-term contracts with policyholders participating in pooled investment performance subject to some minimum guarantees. Smoothed returns are used to declare bonuses to policyholders which increase the level of the guarantees through time. The part of the portfolio to which policyholder bonuses are linked is invested in line with their expectations and includes growth assets as well as fixed income. The remainder of the portfolio is invested to mitigate the resultant shareholder risk. This leads us to an overall investment portfolio that holds a higher proportion of growth assets than our other business lines although there are still material allocations to fixed income assets.

Continental European style participating funds

Continental European style participating funds hold relatively long-term contracts with policyholders participating in pooled investment performance subject to some minimum guarantees. Smoothed returns are used to declare bonuses to policyholders. A certain portion of the guarantees are subject to annual discretion declared at the start of the year. Other guarantees are subject to revision downwards at contractual dates. The investment portfolio holds a higher proportion of fixed income assets than the UK style equivalent.

Page 28

8.ii - Net asset value

At HY17, the net asset value per share was 412 pence (FY16: 414 pence). Increases in operating profit and profit on disposal and remeasurements of subsidiaries, joint ventures and associates were offset by the payment of the final 2016 dividend to shareholders, adverse economic variances, the cost of shares purchased in the buy-back and impairment and amortisation of intangibles and acquired value of in-force business.

Total investment variances and economic assumption changes were £396 million adverse. This included £217 million adverse variances in the non-life business, primarily reflecting unfavourable short-term fluctuations. These short-term fluctuations were mainly due to interest rate increases reducing the value of fixed income securities and foreign exchange losses and adverse market movements on Group centre holdings, including the centre hedging programme.

In the life businesses, investment variances and economic assumption changes were £179 million adverse. The negative variance in HY17 primarily reflects the treatment on disposal of our French subsidiary Antarius and falling interest rates in Asia. Of the £180 million profit on disposal of Antarius, £147 million has been transferred under French reserving rules to insurance contract liabilities and is expected to be released over time in accordance with French reserving rules (see A4 for further details).

	30 June 2017 £m	pence per share²	30 June 2016 £m	pence per share²	31 December 2016 £m	pence per share²
Equity attributable to shareholders of Aviva plc at 1 January¹	16,803	414p	15,802	390p	15,802	390p
Operating profit	1,465	37p	1,325	32p	3,010	73p
Investment return variances and economic assumption changes on life and non-life business	(396)	(10)p	(455)	(11)p	(381)	(9)p
Profit/(loss) on the disposal and remeasurements of subsidiaries, joint ventures and associates	202	5p	(18)	-	(11)	-
Goodwill impairment and amortisation of intangibles	(110)	(3)p	(92)	(2)p	(175)	(4)p
Amortisation and impairment of acquired value of in-force business	(234)	(6)p	(318)	(8)p	(540)	(13)p
Integration and restructuring costs	(52)	(1)p	(105)	(3)p	(212)	(5)p
Other³	-	-	-	-	(498)	(13)p
Tax on operating profit and on other activities	(159)	(4)p	(136)	(3)p	(334)	(8)p
Non-controlling interests	(79)	(2)p	(71)	(2)p	(156)	(4)p
Profit after tax attributable to shareholders of Aviva plc	637	16p	130	3p	703	17p
AFS securities (fair value) & other reserve movements	(3)	-	21	-	4	-
Ordinary dividends	(646)	(16)p	(570)	(14)p	(871)	(22)p
Direct capital instruments and tier 1 notes interest and preference share dividend	(32)	(1)p	(30)	(1)p	(85)	(2)p
Foreign exchange rate movements	(21)	-	730	18p	945	23p
Remeasurements of pension schemes	(25)	-	607	15p	242	6p
Shares purchased in buy-back	(73)	(2)p	-	-	-	-
Other net equity movements	51	1p	23	1p	63	2p
Equity attributable to shareholders of Aviva plc at 30 June/31 December¹	16,691	412p	16,713	412p	16,803	414p

1 Excluding preference shares of £200 million (HY16: £200 million; FY16: £200 million).

2 Number of shares as at 30 June 2017: 4,055 million (30 June 2016: 4,058 million; 31 December 2016: 4,062 million).

3 Other items in FY16 include an exceptional charge of £475 million with a post tax impact of £380 million, relating to the impact of the change in Ogden discount rate from 2.5% set in 2001 to minus 0.75% announced by the Lord Chancellor on 27 February 2017. Other items also includes a loss upon the completion of an outwards reinsurance contract by the UK General Insurance business, which provides significant protection against claims volatility from mesothelioma, industrial deafness and other long tail risks. The £23 million loss comprises £107 million in premium ceded, less £78 million in reinsurance recoverables recognised and £6 million handling provisions released.

Page 29

8.iii - Return on equity¹

The return on equity calculation is based on operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity.

During HY17, return on equity has increased to 12.4% (HY16: 11.0%), reflecting the increase in operating profit in 2017.

	6 months 2017 %	6 months 2016 %	Full Year 2016 %
United Kingdom & Ireland Life	10.7%	9.9%	11.2%
United Kingdom & Ireland General Insurance and Health	23.2%	12.4%	15.6%
Canada	7.1%	12.3%	15.7%
Europe	13.2%	11.9%	13.1%
Asia	12.9%	14.3%	14.0%
Fund management	22.9%	18.8%	24.4%
Corporate and Other Business	n/a	n/a	n/a
Return on total capital employed	9.3%	8.8%	9.7%
Subordinated debt	4.3%	4.4%	4.5%
Senior debt	0.3%	-	0.1%
Return on total equity	11.9%	10.7%	12.1%
Less: Non-controlling interest	10.6%	11.1%	11.5%
Direct capital instrument and tier 1 notes	6.1%	5.6%	6.1%
Preference capital	8.5%	9.0%	8.5%
Return on equity shareholders' funds	12.4%	11.0%	12.5%

1 Please refer to note C1 for further analysis of return on equity.

Page 30

8.iv - Solvency II

The estimated pro forma shareholder cover ratio on a Solvency II basis is 193% at 30 June 2017. The Solvency II position disclosed is based on a 'shareholder view'. This excludes the contribution to Group Solvency Capital Requirement (SCR) and Group Own Funds of fully ring fenced with-profits funds (£3.2 billion at 30 June 2017) and staff pension schemes in surplus (£1.2 billion at 30 June 2017). These exclusions have no impact on Solvency II surplus. The most material fully ring fenced with-profit funds and staff pension schemes are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised in the Group position. The shareholder view is therefore considered by management to be more representative of the shareholders' risk exposure and the Group's ability to cover the SCR with eligible Own Funds.

The Solvency II risk margin is highly sensitive to movements in interest rates, which can be offset by a reset of the transitional measure on technical provisions ('TMTP'). The Solvency II position disclosed therefore assumes that the TMTP, approved for use by the PRA, has been notionally reset to reflect interest rates at 30 June 2017. This presentation is in line with the Group's preference to manage its capital position assuming a dynamic TMTP in respect of the impact of interest rate movements on the risk margin, as this avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered.

The 30 June 2017 Solvency II position disclosed includes three pro forma adjustments, to reflect known or highly likely events materially affecting the Group's solvency position post 30 June 2017. The adjustments consist of the disposal of the Spanish joint ventures Unicorp Vida and Caja Espana Vida and its retail life insurance business Aviva Vida y Pensiones, the disposal of Friends Provident International Limited, and the remaining share capital out of the £0.3 billion share buy-back announced on 25 May 2017. 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 2017 £bn	30 June 2016 £bn	31 December 2016 £bn
Own Funds^1,2,3,4	23.7	22.4	24.0
Solvency Capital Requirement before diversification^1,2,3,4	(17.6)	(17.8)	(18.1)
Diversification benefit	5.3	4.9	5.4
Diversified Solvency Capital Requirement^1,2,3,4	(12.3)	(12.9)	(12.7)
Estimated Solvency II Surplus at 30 June/31 December^2,3,4	11.4	9.5	11.3
Estimated Shareholder Cover Ratio^1,2,3,4	193%	174%	189%

1 The estimated Solvency II position represents the shareholder view. This excludes the contribution to Group Solvency Capital Requirement (SCR) and Group Own Funds of fully ring fenced with-profits funds £3.2 billion (HY16: £2.7 billion; FY16: £2.9 billion) and staff pension schemes in surplus £1.2 billion (HY16: £0.9 billion; FY16: £1.1 billion) - these exclusions have no impact on Solvency II surplus.

2 The estimated Solvency II position includes an estimated adverse impact of a notional reset of the transitional measure on technical provisions ('TMTP') to reflect interest rates at 30 June 2017 £0.5 billion decrease to surplus (HY16: £nil; FY16: £0.4 billion). Also included are the pro forma impacts of the disposal of the Spanish joint ventures Unicorp Vida and Caja Espana Vida and its retail life insurance business Aviva Vida y Pensiones (£0.1 billion increase to surplus), the disposal of Friends Provident International Limited (£0.1 billion increase to surplus), and the remaining £0.2 billion of the share buy-back announced on 25 May 2017.

3 The 31 December 2016 Solvency II position includes the pro forma impacts of the disposal of Aviva's 50% shareholding in Antarius to Sogecap which completed on 5 April 2017 (£0.2 billion increase to surplus) and an anticipated future change to UK tax rules restricting the tax relief that can be claimed in respect of tax losses (£0.4 billion decrease to surplus). However, under the amended tax rules published on 13 July 2017, this restriction will not be material, and as a result no corresponding pro forma impact is included in the estimated 30 June 2017 Solvency II position.

4 The 30 June 2016 Solvency II position includes the pro forma impact of acquiring the RBC General Insurance business (£(0.3) billion).

Movement in Group Solvency II Surplus

	30 June 2017 £bn	30 June 2016 £bn	31 December 2016 £bn
Group Solvency II Surplus at 1 January	11.3	9.7	9.7
Operating Capital Generation	1.1	1.2	3.5
Non-operating Capital Generation	(0.3)	(1.2)	(1.8)
Dividends	(0.7)	(0.6)	(1.0)
Share buy-back	(0.3)	-	-
Foreign exchange variances	0.1	0.4	0.6
Hybrid debt issuance	-	0.3	0.4
Acquired/divested business	0.2	(0.3)	(0.1)
Estimated Solvency II Surplus at 30 June/31 December	11.4	9.5	11.3

The estimated Solvency II surplus at 30 June 2017 is £11.4 billion, with a shareholder cover ratio of 193%. This is an increase of £0.1 billion compared to the 31 December 2016 surplus. The beneficial impacts of operating capital generation, disposals and foreign exchange variances have been partially offset by the impact of the Aviva plc dividend, share buy-back and the adverse non-operating capital generation. The non-operating capital generation includes a notional reset of the transitional measure on technical provisions ('TMTP') to reflect interest rates at 30 June 2017.

Page 31

8.iv - Solvency II continued

Summary of analysis of diversified Solvency Capital Requirement

	30 June 2017 £bn	30 June 2016 £bn	31 December 2016 £bn
Credit risk¹	3.4	2.8	3.3
Equity risk²	1.4	1.2	1.3
Interest rate risk³	0.4	0.9	0.4
Other market risk⁴	1.5	1.2	1.6
Life insurance risk⁵	3.1	3.7	3.3
General insurance risk⁶	0.6	0.9	0.6
Operational risk	1.1	1.1	1.1
Other risk⁷	0.8	1.1	1.1
Total	12.3	12.9	12.7

1 Capital held in respect of credit risk recognises the Group's shareholder exposure to changes in the market value of assets and defaults. A range of specific stresses are applied reflecting the difference in assumed risk relative to investment grade and duration.

2 Capital held in respect of equity risk recognises the Group's shareholder exposure to changes in the market value of assets.

3 Capital held in respect of interest rate risk recognises the Group's shareholder exposure to changes in the value of net assets as a result of movements in interest rates.

4 Capital held in respect of other market risk recognises the Group's shareholder exposure to changes in the market value of commercial mortgages and property, but also captures risk in association with inflation and foreign exchange.

5 Capital held in respect of life insurance risk recognises the Group's shareholder exposure to life insurance specific risks, such as longevity and lapse.

6 Capital held in respect of general insurance risk recognises the Group's shareholder exposure to general insurance specific risks, such as claims volatility and catastrophe.

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

Changes to the diversified Solvency Capital Requirement since 31 December 2016 primarily reflect the pro forma disposals of Spanish joint ventures Unicorp Vida and Caja Espana Vida and its retail life insurance business Aviva Vida y Pensiones, and Friends Provident International Limited. In addition, the 31 December 2016 other risk included the pro forma impact of the anticipated future change to UK tax rules restricting the tax relief that can be claimed in respect of tax losses. This pro forma adjustment is not present in the corresponding 30 June 2017 figure following the amended tax rules published on 13 July 2017.

Sensitivity analysis of Solvency II surplus

The following table shows the sensitivity of the Group's Solvency II surplus to:

Economic assumptions:

· 25 basis point increase and decrease, 50 basis point decrease and 100 basis point increase in the risk-free rate, including all consequential changes (including assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates);

· 50 basis point increase and decrease and 100 basis point increase in credit spreads for corporate bonds with credit rating A at 10 year duration, with the other ratings and durations stressed by the same proportion relative to the stressed capital requirement;

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

· 10% increase and decrease and 25% decrease in market values of equity assets.

Non-Economic assumptions:

· 10% increase in maintenance and investment expenses (a 10% sensitivity on a base expense assumption of £10 p.a. would represent an expense assumption of £11 p.a.);

· 10% increase in lapse rates (a 10% sensitivity on a base assumption of 5% p.a. would represent a lapse rate of 5.5% p.a.);

· 5% increase in both mortality and morbidity rates for life assurance;

· 5% decrease in mortality rates for annuity business;

· 5% increase in gross loss ratios for general insurance and health business.

Page 32

8.iv - Solvency II continued

The sensitivity 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 Solvency Capital Requirement calculation is applicable for that sensitivity. For example, future bonus rates are automatically adjusted to reflect sensitivity changes to future investment returns.

Transitional Measures on Technical Provisions is assumed to be recalculated in all sensitivities where its impact would be material.

The table below shows the absolute change in cover ratio under each sensitivity, e.g. a 4% positive impact would result in a cover ratio of 197%.

Sensitivities		Impact on cover ratio %
Changes in Economic assumptions	25 bps increase in interest rate	4%
	100 bps increase in interest rate	16%
	25 bps decrease in interest rate	(6%)
	50 bps decrease in interest rate	(12%)
	50 bps increase in corporate bond spread¹	0%
	100 bps increase in corporate bond spread	(1%)
	50 bps decrease in corporate bond spread	(2%)
	Credit downgrade on annuity portfolio	(4%)
	10% increase in market value of equity	2%
	10% decrease in market value of equity	(2%)
	25% decrease in market value of equity	(3%)
Changes in Non-Economic assumptions	10% increase in maintenance and investment expenses	(7%)
	10% increase in lapse rates¹	0%
	5% increase in mortality/morbidity rates - Life assurance	(2%)
	5% decrease in mortality rates - annuity business	(12%)
	5% increase in gross loss ratios	(3%)

1 A 50 bps increase in corporate bond spread and 10% increase in lapse rates result in a proportionate decrease in Group Own Funds and Group SCR with no overall impact on the rounded Group cover ratio.

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 allocation, 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.

Reconciliation of IFRS total equity to Solvency II Own Funds

The reconciliation from total Group equity on an IFRS basis to Solvency II Own Funds is presented below. The valuation differences reflect moving from IFRS valuations to a Solvency II shareholder view of Own Funds.

	30 June 2017 £bn	30 June 2016 £bn	31 December 2016 £bn
Total Group equity on an IFRS basis	19.3	19.3	19.6
Elimination of goodwill and other intangible assets¹	(10.1)	(9.9)	(10.0)
Liability valuation differences (net of transitional deductions)^2,3	22.5	21.4	22.1
Inclusion of risk margin (net of transitional deductions)	(4.5)	(4.9)	(4.4)
Net deferred tax^3,4	(1.5)	(1.4)	(1.6)
Revaluation of subordinated liabilities	(0.8)	(1.1)	(0.9)
Estimated Solvency II Net Assets (gross of non-controlling interests)^2,3	24.9	23.4	24.8
Difference between Solvency II Net Assets and Own Funds^2,3,5	(1.2)	(1.0)	(0.8)
Estimated Solvency II Own Funds⁶	23.7	22.4	24.0

1 Includes £2.0 billion (HY16: £1.9 billion; FY16: £2.0 billion) of goodwill and £8.1 billion (HY16: £8.0 billion; FY16: £8.0 billion) of other intangible assets comprising acquired value of in-force business of £3.6 billion (HY16: £4.0 billion; FY16: £3.9 billion), deferred acquisition costs (net of deferred income) of £2.8 billion (HY16: £2.6 billion; FY16: £2.5 billion) and other intangibles of £1.7 billion (HY16: £1.4 billion; FY16: £1.6 billion).

2 The estimated Solvency II position includes an estimated adverse impact of a notional reset of the transitional measure on technical provisions ('TMTP') to reflect interest rates at 30 June 2017 £0.5 billion decrease to surplus (HY16: £nil; FY16: £0.4 billion). Also included are the pro forma impacts of the disposal of the Spanish joint ventures Unicorp Vida and Caja Espana Vida and its retail life insurance business Aviva Vida y Pensiones (£0.1 billion decrease to Own Funds), the disposal of Friends Provident International Limited (£0.1 billion decrease to Own Funds), and the remaining £0.2 billion of the share buy-back announced on 25 May 2017.

3 The 30 June 2016 Solvency II position includes the pro forma impact of acquiring the RBC General Insurance business £(0.3) billion. The 31 December 2016 Solvency II position includes pro forma impacts of the disposal of Aviva's 50% shareholding in Antarius to Sogecap completed on 05 April 2017 and an anticipated future change to UK tax rules restricting the tax relief that can be claimed in respect of tax losses (£0.1 billion decrease to Own Funds). However, under the amended tax rules published on 13 July 2017, this restriction will not be material, and as a result no corresponding pro forma impact in respect of tax losses is included in the estimated 30 June 2017 Solvency II position.

4 Net deferred tax includes the tax effect of all other reconciling items in the table above which are shown gross of tax.

5 Regulatory adjustments to bridge from Solvency II Net Assets to Own Funds include recognition of subordinated debt capital and non-controlling interests.

6 The estimated Solvency II position represents the shareholder view. This excludes the contribution to Group Solvency Capital Requirement (SCR) and Group Own Funds of fully ring fenced with-profits funds £3.2 billion (HY16: £2.7 billion; FY16: £2.9 billion) and staff pension schemes in surplus £1.2 billion (HY16: £0.9 billion; FY16: £1.1 billion) - these exclusions have no impact on Solvency II surplus.

Page 33

Financial supplement

	Page
A Income & expenses	34
B IFRS financial statements and notes	39
C Capital & liquidity	87
D Analysis of assets	93
E VNB & Sales analysis	109

In this section
A Income & expenses
Reconciliation of Group operating profit to profit after tax	34
A1 Other operations	35
A2 Corporate centre	35
A3 Group debt costs and other interest	35
A4 Life business: Investment return variances and economic assumption changes	36
A5 Non-life business: Short-term fluctuation in return on investments	37
A6 General insurance and health business: economic assumption changes	37
A7 Impairment of goodwill, associates, joint ventures and other amounts expensed	38
A8 Amortisation and impairment of acquired value of in-force business	38
A9 Profit/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates	38
A10 Other	38

Page 34

Reconciliation of Group operating profit to profit after tax

For the six month period ended 30 June 2017

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Operating profit before tax attributable to shareholders' profits
Life business
United Kingdom & Ireland	756	711	1,555
Europe	433	395	844
Asia	120	118	241
Other	10	2	2
Total life business	1,319	1,226	2,642
General insurance and health
United Kingdom & Ireland	259	231	471
Canada	71	88	269
Europe	85	35	120
Asia	(5)	(6)	(13)
Other	7	(14)	(14)
Total general insurance and health	417	334	833
Fund management
Aviva Investors	71	49	139
Asia	(2)	-	(1)
Total fund management	69	49	138
Other
Other operations (note A1)	(98)	(49)	(94)
Market operating profit	1,707	1,560	3,519
Corporate centre (note A2)	(83)	(80)	(184)
Group debt costs and other interest (note A3)	(159)	(155)	(325)
Operating profit before tax attributable to shareholders' profits	1,465	1,325	3,010
Integration and restructuring costs	(52)	(105)	(212)
Operating profit before tax attributable to shareholders' profits after integration and restructuring costs	1,413	1,220	2,798
Adjusted for the following:
Investment return variances and economic assumption changes on long-term business (note A4)	(179)	6	379
Short-term fluctuation in return on investments backing non-long-term business (note A5)	(205)	(338)	(518)
Economic assumption changes on general insurance and health business (note A6)	(12)	(123)	(242)
Impairment of goodwill, joint ventures and associates and other amounts expensed (note A7)	(19)	-	-
Amortisation and impairment of intangibles	(91)	(92)	(175)
Amortisation and impairment of acquired value of in-force business (note A8)	(234)	(318)	(540)
Profit/(loss) on the disposal and re-measurement of subsidiaries, joint ventures and associates (note A9)	202	(18)	(11)
Other (note A10)	-	-	(498)
Non-operating items before tax	(538)	(883)	(1,605)
Profit before tax attributable to shareholders' profits	875	337	1,193
Tax on operating profit	(311)	(323)	(706)
Tax on other activities	152	187	372
	(159)	(136)	(334)
Profit for the period	716	201	859

Page 35

Other Group Operating Profit Items

A1 - Other operations

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
United Kingdom & Ireland Life	(25)	(14)	(7)
United Kingdom & Ireland General Insurance	1	2	3
Europe	(17)	(10)	(19)
Asia	(17)	(14)	(26)
Other Group operations¹	(40)	(13)	(45)
Total	(98)	(49)	(94)

1 Other Group operations include Group and head office costs.

Other operations relate to non-insurance activities across the Group, with total losses increasing to £98 million (HY16: £49 million). Within UK & Ireland the result primarily relates to the losses on the savings platform businesses as they continue to grow to scale. Europe and Asia include holding company expenses and adverse foreign exchange movements of £4 million.

'Other Group operations' includes further investment in resources and talent in UK Digital to establish a centre of excellence for digital expertise and to support the growth in direct customer sales through MyAviva.

Additionally, there has been investment in organisation and culture initiatives within the Group in the first half of the year. Partly offsetting these overall costs was an income of £25 million relating to insurance recoveries (HY16: £20 million, of which £16 million was due from the Group's internal reinsurer and therefore had a neutral effect on overall Group operating profit).

A2 - Corporate centre

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Project spend	(4)	(12)	(30)
Central spend and share award costs	(79)	(68)	(154)
Total	(83)	(80)	(184)

Corporate costs of £83 million increased by £3 million (HY16: £80 million) mainly due to higher share scheme costs offset by a decrease in Group led projects.

A3 - Group debt costs and other interest

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
External debt
Subordinated debt	(191)	(184)	(387)
Other	(2)	-	(1)
Total external debt	(193)	(184)	(388)
Internal lending arrangements	(3)	(15)	(23)
Net finance income on main UK pension scheme	37	44	86
Total	(159)	(155)	(325)

Page 36

Non-operating profit items

A4 - Life business: Investment variances and economic assumption changes

(a) Definitions

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. Operating profit includes the effect of variance in experience for non-economic items, such as mortality, persistency and expenses, and the effect of changes in non-economic assumptions, where not treated as other items. 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 operating profit.

(b) Economic volatility

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

Life business	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Investment variances and economic assumptions	(179)	6	379

Investment variances and economic assumption changes were £179 million negative (HY16: £6 million positive; FY16: £379 million positive). The negative variance in 2017 primarily reflects the treatment on disposal of our French subsidiary Antarius and falling interest rates in Asia. The profit on sale of Antarius of £180 million is reported as a profit on disposal of subsidiaries (see note B4(b)(i) for further details). Under French reserving rules (applicable under grandfathering of French GAAP when IFRS was adopted), £147 million of the profit on disposal has been transferred to insurance liabilities at 30 June 2017, and is expected to be released over time in line with French rules governing the annual minimum allocation of bonuses to policyholders. The impact of the transfer at 30 June 2017 is shown in investment variances above.

The investment variances at HY16 were £6 million positive. Positive variances in the UK reflecting lower interest rates were partially offset by an adverse impact reflecting the Group's revised expectation of future property prices and rental income in light of the UK referendum vote for the UK to leave the European Union. The positive variance in the UK was broadly offset by negative variances in Asia and France due to decreasing interest rates and equity underperformance.

In 2016, investment variances and economic assumption changes were £379 million positive. Positive variances in the UK reflected lower interest rates and narrowing credit spreads, which increase asset values more than liabilities. The adverse impact of the Group's revised expectation of future property prices and rental income in light of the UK referendum vote for the UK to leave the European Union was broadly offset in the second half of the year as expectations for future property price and rental growth increased. In addition, in the UK the investment variance reflected a refined approach of assuming best estimate expected credit defaults on corporate bonds, with a resulting increase in operating profit in the period. The positive variance in the UK was partially offset by negative variances in France and Italy.

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 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %
United Kingdom	4.8%	5.5%	5.5%	3.3%	4.0%	4.0%
Eurozone	4.2%	4.5%	4.5%	2.7%	3.0%	3.0%

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

All territories	6 months 2017 %	6 months 2016 %	Full Year 2016 %
Equity risk premium	3.5%	3.5%	3.5%
Property risk premium	2.0%	2.0%	2.0%

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

Territories	2017 %	2016 %
United Kingdom	1.3%	2.0%
Eurozone	0.7%	1.0%

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 37

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

General Insurance and health	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Analysis of investment income:
- Net investment income	122	209	383
- Foreign exchange gains/losses and other charges	(17)	(15)	(35)
	105	194	348
Analysed between:
- Longer-term investment return, reported within operating profit	172	171	343
- Short-term fluctuations in investment return, reported outside operating profit	(67)	23	5
	105	194	348
Short-term fluctuations:
- General insurance and health	(67)	23	5
- Other operations¹	(138)	(361)	(523)
Total short-term fluctuations	(205)	(338)	(518)

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

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

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

The impact of realised and unrealised gains and losses on Group centre investments, including the centre hedging programme which is designed to economically protect the total Group's capital against adverse equity and foreign exchange movements, is included in short-term fluctuations on other operations.

The adverse short-term fluctuations during the first half of 2017 are mainly due to interest rate increases reducing the value of fixed income securities, and foreign exchange losses and adverse market movements on Group centre holdings, including the centre hedging programme.

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

	6 months 2017 £m	6 months 2016 £m	Full Year 2016 £m
Debt securities	10,229	9,757	10,799
Equity securities	296	225	267
Properties	344	368	341
Cash and cash equivalents	1,451	1,623	1,162
Other¹	2,403	2,040	2,032
Assets supporting general insurance and health business	14,723	14,013	14,601
Assets supporting other non-long-term business²	1,173	513	724
Total assets supporting non-long-term business	15,896	14,526	15,325

1 Includes the internal loan.

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

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

	Longer-term rates of return on equities			Longer-term rates of return on property
	6 months 2017 %	6 months 2016 %	Full Year 2016 %	6 months 2017 %	6 months 2016 %	Full Year 2016 %
United Kingdom	4.8%	5.5%	5.5%	3.3%	4.0%	4.0%
Eurozone	4.2%	4.5%	4.5%	2.7%	3.0%	3.0%
Canada	5.5%	5.4%	5.4%	4.0%	3.9%	3.9%

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

A6 - General insurance and health business: Economic assumption changes

Economic assumption changes of £12 million adverse (HY16: £123 million adverse) mainly arise as a result of an increase in the estimated future inflation rate used to value periodic payment orders partly offset by a slight increase in the interest rates used to discount claim reserves for periodic payment orders and latent claims. During the first half of 2016 market interest rates used to discount periodic payment orders and latent claims reduced and the estimated future inflation rate used to value periodic payment orders was increased to be consistent with market expectations. This was, in part, offset by a change in estimate for the interest rate used to discount periodic payment orders to allow for the illiquid nature of these liabilities.

Page 38

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

Impairment of goodwill, joint ventures and associates in the period is a charge of £19 million (HY16: £nil) in respect of the group's associate in India as management determined that the goodwill of this business is not fully recoverable.

A8 - Amortisation and impairment of acquired value of in-force business

Amortisation of acquired value of in-force business in the period is a charge of £234 million (HY16: £318 million charge). There were no impairments of acquired value of in-force business in the period (HY16: £nil).

A9 - Profit/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates

The profit on the disposal and remeasurement of subsidiaries, joint ventures and associates during the period of £202 million (HY16: loss of £18 million) consists of a £180 million profit on disposal of Antarius (see note B4(b)(i)) and £22 million of remeasurement gains in respect of the joint venture operations in Poland and Aviva Vietnam. See note B4(b)(ii) and note B4(a) for further details of Poland and Aviva Vietnam respectively.

A10 - 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. There were no such items in the first half of 2017 (HY16: £nil).

This information is provided by RNS

The company news service from the London Stock Exchange

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