Half-year Report - Part 3 of 4 - IFRS

RNS Number : 3223I

Aviva PLC

08 August 2019

START PART 3 of 4

Page 37

IFRS financial statements

In this section	Page
B IFRS financial statements and notes
Condensed consolidated financial statements
Condensed consolidated income statement	38
Condensed consolidated statement of comprehensive income	39
Condensed consolidated statement of changes in equity	40
Condensed consolidated statement of financial position	41
Condensed consolidated statement of cash flows	42

Notes to the condensed consolidated financial statements	43
B1 Basis of preparation	43
B2 Presentation changes	44
B3 Exchange rates	45
B4 Subsidiaries, joint ventures and associates - acquisitions	45
B5 Subsidiaries, joint ventures and associates - disposals and held for sale	46
B6 Segmental information	47
B7 Tax	56
B8 Earnings per share	58
B9 Dividends and appropriations	59
B10 Contract liabilities and associated reinsurance	60
B11 Insurance liabilities	62
B12 Liabilities for investment contracts	64
B13 Reinsurance assets	65
B14 Effect of changes in assumptions and estimates during the period	67
B15 Unallocated divisible surplus	68
B16 Borrowings	69
B17 Pension obligations and other provisions	70
B18 Related party transactions	71
B19 Fair value	72
B20 Risk management	79
B21 Cash and cash equivalents	84
B22 Contingent liabilities and other risk factors	84
B23 Acquired value of in-force business and intangible assets	85
B24 Subsequent events	85

Directors' responsibility statement	86
Independent review report to Aviva plc	87

Page 38

Condensed consolidated income statement

For the six month period ended 30 June 2019

	Note	6 months 2019 £m	Restated¹ 6 months 2018 £m	Restated¹ full year 2018 £m
Income
Gross written premiums		15,211	15,180	28,659
Premiums ceded to reinsurers		(1,442)	(1,096)	(2,326)
Premiums written net of reinsurance		13,769	14,084	26,333
Net change in provision for unearned premiums		(273)	(299)	(81)
Net earned premiums		13,496	13,785	26,252
Fee and commission income		1,011	1,042	2,178
Net investment income/(expense)		28,014	(801)	(10,912)
Share of profit after tax of joint ventures and associates		62	24	112
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	B5(a)	(13)	31	102
		42,570	14,081	17,732
Expenses
Claims and benefits paid, net of recoveries from reinsurers		(11,824)	(11,506)	(23,142)
Change in insurance liabilities, net of reinsurance	B10(b)	(5,448)	1,832	6,246
Change in investment contract provisions		(15,927)	(1,703)	5,321
Change in unallocated divisible surplus		(2,838)	1,508	3,237
Fee and commission expense		(2,648)	(1,808)	(3,326)
Other expenses		(1,552)	(1,706)	(3,843)
Finance costs		(285)	(266)	(573)
		(40,522)	(13,649)	(16,080)
Profit before tax		2,048	432	1,652
Tax attributable to policyholders' returns	B7	(525)	94	477
Profit before tax attributable to shareholders' profits		1,523	526	2,129
Tax (expense)/credit	B7	(868)	(56)	35
Less: tax attributable to policyholders' returns	B7	525	(94)	(477)
Tax attributable to shareholders' profits	B7	(343)	(150)	(442)
Profit for the period		1,180	376	1,687

Attributable to:
Equity holders of Aviva plc		1,116	330	1,568
Non-controlling interests		64	46	119
Profit for the period		1,180	376	1,687
Earnings per share	B8
Basic (pence per share)		28.2p	7.9p	38.2p
Diluted (pence per share)		27.9p	7.8p	37.8p

Page 39

Condensed consolidated statement of comprehensive income

For the six month period ended 30 June 2019

	Note	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Profit for the period		1,180	376	1,687

Other comprehensive income:
Items that may be reclassified subsequently to income statement
Investments classified as available for sale
Fair value gains/(losses)		48	(3)	57
Fair value gains transferred to profit on disposals		(3)	(2)	(78)
Share of other comprehensive income of joint ventures and associates		9	(9)	(10)
Foreign exchange rate movements		79	(81)	5
Aggregate tax effect - shareholder tax on items that may be reclassified subsequently to income statement	B7(b)	(18)	4	8

Items that will not be reclassified to income statement
Owner-occupied properties - fair value gains		1	-	1
Remeasurements of pension schemes	B17(b)	70	137	(279)
Aggregate tax effect - shareholder tax on items that will not be reclassified subsequently to income statement	B7(b)	(20)	(24)	43
Total other comprehensive income, net of tax		166	22	(253)
Total comprehensive income for the period		1,346	398	1,434

Attributable to:
Equity holders of Aviva plc		1,282	362	1,310
Non-controlling interests		64	36	124
		1,346	398	1,434

Page 40

Condensed consolidated statement of changes in equity

For the six month period ended 30 June 2019

	Note	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Balance at 1 January as reported		18,455	19,135	19,135
Adjustment at 1 January for adoption of IFRS 16¹		(110)	-	-
Balance at 1 January restated¹		18,345	19,135	19,135
Profit for the period		1,180	376	1,687
Other comprehensive income		166	22	(253)
Total comprehensive income for the period		1,346	398	1,434
Dividends and appropriations	B9	(828)	(780)	(1,189)
Non-controlling interests' share of dividends declared in the period		(50)	(46)	(90)
Shares purchased in buy-back²		-	(197)	(600)
Transfer to profit on disposal of subsidiaries, joint ventures and associates		-	(31)	(4)
Changes in non-controlling interests in subsidiaries		(1)	(178)	(312)
Reserves credit for equity compensation plans		30	35	64
Shares issued under equity compensation plans		6	-	2
Capital contributions from non-controlling interests		-	2	3
Forfeited dividend income		-	-	4
Aggregate tax effect - shareholder tax		2	2	8
Balance at 30 June/31 December		18,850	18,340	18,455

1 The Group has adopted IFRS 16 Leases from 1 January 2019. In line with the transition options available, prior period comparatives have not been restated and the impact of the adoption has been shown as an adjustment to opening retained earnings. See note B1 for further information.

2 On 1 May 2018 the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to £600 million. This was completed in 2018. In the period ended 30 June 2019 £nil (HY18: £197 million, 2018: £600 million) was purchased and shares with a nominal value of £nil (HY18: £10 million, 2018: £30 million) cancelled, giving rise to additional capital redemption reserve of an equivalent amount.

Page 41

Condensed consolidated statement of financial position

As at 30 June 2019

	Note	30 June 2019 £m	Restated¹ 30 June 2018 £m	Restated¹ 31 December 2018 £m
Assets
Goodwill		1,871	1,881	1,872
Acquired value of in-force business and intangible assets	B23	3,024	3,375	3,201
Interests in, and loans to, joint ventures		1,226	1,226	1,214
Interests in, and loans to, associates		311	362	304
Property and equipment		972	531	548
Investment property		11,471	11,151	11,482
Loans		39,452	36,413	36,184
Financial investments		343,858	328,410	319,825
Reinsurance assets	B13	12,414	13,831	11,755
Deferred tax assets		171	156	185
Current tax assets		81	118	76
Receivables		9,767	9,120	8,639
Deferred acquisition costs		3,215	2,943	2,965
Pension surpluses and other assets		3,522	3,626	3,341
Prepayments and accrued income		3,050	3,303	3,149
Cash and cash equivalents		15,296	16,992	15,926
Assets of operations classified as held for sale	B5	8,524	9,665	8,855
Total assets		458,225	443,103	429,521
Equity
Capital
Ordinary share capital		979	996	975
Preference share capital		200	200	200
		1,179	1,196	1,175
Capital reserves
Share premium		1,225	1,210	1,214
Capital redemption reserve		44	24	44
Merger reserve		8,974	8,974	8,974
		10,243	10,208	10,232
Treasury shares		(18)	(16)	(15)
Currency translation reserve		1,192	1,028	1,122
Other reserves		(251)	(289)	(279)
Retained earnings		4,795	4,437	4,523
Equity attributable to shareholders of Aviva plc		17,140	16,564	16,758
Direct capital instrument and tier 1 notes		731	731	731
Equity excluding non-controlling interests		17,871	17,295	17,489
Non-controlling interests		979	1,045	966
Total equity		18,850	18,340	18,455
Liabilities
Gross insurance liabilities	B11	150,413	147,811	144,077
Gross liabilities for investment contracts	B12	218,881	208,397	202,468
Unallocated divisible surplus	B15	8,841	7,605	5,949
Net asset value attributable to unitholders		16,764	17,078	16,338
Pension deficits and other provisions		1,338	1,406	1,399
Deferred tax liabilities		2,305	2,342	1,885
Current tax liabilities		526	128	254
Borrowings	B16	9,234	9,786	9,420
Payables and other financial liabilities		19,818	18,085	17,681
Other liabilities		3,065	3,029	3,074
Liabilities of operations classified as held for sale	B5	8,190	9,096	8,521
Total liabilities		439,375	424,763	411,066
Total equity and liabilities		458,225	443,103	429,521

Page 42

Condensed consolidated statement of cash flows

For the six month period ended 30 June 2019

	Note	6 months 2019 £m	Restated¹ 6 months 2018 £m	Restated¹ full year 2018 £m
Cash flows from operating activities²
Cash generated from operating activities		824	5,044	5,848
Tax paid		(173)	(292)	(447)
Total net cash from operating activities		651	4,752	5,401
Cash flows from investing activities
Acquisitions of, and additions to, subsidiaries, joint ventures and associates, net of cash acquired		(13)	191	192
Disposals of subsidiaries, joint ventures and associates, net of cash transferred		12	218	381
Repayment of loans to joint ventures and associates		5	-	-
Purchases of property and equipment		(52)	(21)	(87)
Proceeds on sale of property and equipment		3	1	15
Purchases of intangible assets		(32)	(20)	(64)
Total net cash (used in)/from investing activities		(77)	369	437
Cash flows from financing activities
Proceeds from issue of ordinary shares		12	6	8
Shares purchased in buy-back		-	(197)	(600)
Treasury shares purchased for employee trusts		(6)	-	(4)
New borrowings drawn down, net of expenses		187	900	3,148
Repayment of borrowings³		(358)	(1,377)	(4,181)
Net repayment of borrowings		(171)	(477)	(1,033)
Interest paid on borrowings		(274)	(253)	(551)
Preference dividends paid	B9	(9)	(9)	(17)
Ordinary dividends paid	B9	(812)	(764)	(1,128)
Forfeited dividend income		-	-	4
Coupon payments on direct capital instrument and tier 1 notes	B9	(7)	(7)	(44)
Capital contributions from non-controlling interests of subsidiaries		-	2	3
Dividends paid to non-controlling interests of subsidiaries		(50)	(46)	(90)
Other⁴		-	-	(13)
Total net cash used in financing activities		(1,317)	(1,745)	(3,465)
Total net (decrease)/increase in cash and cash equivalents		(743)	3,376	2,373
Cash and cash equivalents at 1 January¹		16,051	13,617	13,617
Effect of exchange rate changes on cash and cash equivalents		11	4	61
Cash and cash equivalents at 30 June/31 December	B21	15,319	16,997	16,051

2 Cash flows from operating activities includes interest received of £2,876 million (HY18: £2,720 million restated, 2018: £5,469 million restated) and dividends received of £2,748 million (HY18: £2,608 million restated, 2018: £4,881 million restated).

3 The first half of 2018 includes the redemption of €500 million 6.875% subordinated notes. Full year 2018 includes, in addition, the redemption of $575 million 7.875% undated subordinated notes and the maturity of €350 million 0.100% senior notes.

4 Full year 2018 includes £10 million related to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs and a £3 million donation of forfeited dividend income to a charitable foundation.

Page 43

B1 - Basis of preparation

The condensed consolidated interim financial statements for the six months to 30 June 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting, as endorsed by the European Union (EU), and the Disclosure Rules and Transparency Rules of the Financial Conduct Authority.

The results for the six months to 30 June 2019 are unaudited but have been reviewed by the Auditor, PricewaterhouseCoopers LLP. The interim results do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The comparative results for the full year 2018 have been taken from the Group's 2018 annual report and accounts as amended for prior period restatements which are described in note B2. Therefore, these interim financial statements should be read in conjunction with the 2018 annual report and accounts that were prepared in accordance with IFRS, as endorsed by the EU, and those parts of the Companies Act 2006 applicable to those reporting under IFRS. PricewaterhouseCoopers LLP reported on the 2018 financial statements and their report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The Group's 2018 annual report and accounts has been filed with the Registrar of Companies.

After making enquiries, the directors have a reasonable expectation that the Company and the Group as a whole have adequate resources to continue in operational existence over a period of at least twelve months from the date of approval of the interim financial statements. For this reason, they continue to adopt the going concern basis in preparing the interim financial statements.

Items included in the financial statements of each of the Group's entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The condensed consolidated financial statements are stated in pounds sterling, which is the Company's functional and presentational currency. Unless otherwise noted, the amounts shown in the financial statements are in millions of pounds sterling (£m).

Except as described below, the accounting policies applied in the condensed consolidated interim financial statements are the same as those applied in Aviva plc's 2018 annual report and accounts.

IFRS 16 Leases

In January 2016, the IASB published IFRS 16 Leases. This standard replaces IAS 17 Leases and applies to annual reporting periods beginning on or after 1 January 2019. The standard has been endorsed by the EU.

The adoption of IFRS 16 has resulted in an update to the Group's stated accounting policy for lessees. The standard has introduced a definition of a lease with a single lessee accounting model, eliminating the previous classification as either operating or finance leases. Lessees are required to recognise lease assets and liabilities in the statement of financial position for all leases, with the exception of short-term and low-value leases. Depreciation on lease assets and interest on lease liabilities is recognised in the income statement, replacing the previous model whereby expenses on operating leases were recognised on a straight-line basis over the life of the lease.

The Group has chosen to adopt the modified retrospective approach on transition as permitted under IFRS 16. This approach does not require prior period comparatives to be restated, and the impact of adoption of the standard on retained earnings is shown as an adjustment to opening retained earnings. This has resulted in a reduction of retained earnings of £110 million at 1 January 2019. This reflects the fact that the right of use assets and lease liabilities amortise to nil at different rates over the lease term. A higher initial amortisation of the right of use asset compared to the lease liability results in the asset value being lower than the lease liability during the lease term, with the difference between the two generally converging to nil as the lease term ends. There have been corresponding increases in the value of assets (£434 million) and liabilities (£544 million), representing the right of use assets and lease liabilities, net of any associated tax impacts, not previously recognised on the balance sheet in accordance with IAS 17. There has been no material impact on profit before tax.

The weighted average discount rate applied to the lease liabilities recognised as at 1 January 2019 was 2.95%.

Future contractual aggregate minimum lease payments under non-cancellable operating leases, as disclosed in note 56 of the Group's 2018 annual report and accounts, were £728 million at 31 December 2018. Lease liabilities in respect of the Group's operating leases brought onto the balance sheet at 1 January 2019 following the adoption of IFRS 16 were £550 million. The balance shown at 1 January 2019 represents a present value of lease payments, whereas the figure disclosed at 31 December 2018 is the aggregated undiscounted payments. Other differences between the commitments disclosed and the opening IFRS 16 lease liabilities recognised relate primarily to amounts payable under service contracts that were included as a commitment in prior periods, but do not meet the definition of a lease under IFRS 16.

The Group has made use of the election available under IFRS 16 to not recognise any amounts on the balance sheet associated with leases that are either deemed to be short-term, or where the underlying asset is of low value. A short-term lease in this context is defined as any arrangement that has a lease term of 12 months or less. Lease payments associated with such arrangements continue to be recognised in the Income Statement as an expense on a straight-line basis.

Lessor accounting remains similar to the previous approach set out in IAS 17. The Group's lessor accounting policies have not changed as a result of the introduction of IFRS 16.

Leased property classified as investment property is held at fair value and measured in accordance with IAS 40 Investment Property. This is consistent with the approach adopted under IAS 17.

Page 44

B2 - Presentation changes

Following a review of the Group's presentation of consolidated investment funds, corrections to previous reported values in the consolidated statement of financial position and consolidated income statement have been identified (with corresponding impacts on the consolidated statement of cash flows) and comparative amounts have been restated. There has been no impact on profit for the period or equity for any of the periods presented. The nature of the restatements are as follows:

· fixed maturity securities, loans, derivatives and receivables held indirectly through certain majority-owned fund investments in the UK and France, which in 2018 were presented as cash and cash equivalents, are now presented as financial investments, loans, receivables and payables and other financial liabilities which reflect the classification of the underlying holdings;

· corrections to the calculation of minority ownership of certain fund investments have resulted in a restatement of net asset value attributable to unitholders and an adjustment to de-consolidate two investment funds where the Group was incorrectly deemed to have been the controlling entity in 2018;

· corrections to the calculation of minority ownership have resulted in a restatement of the investment income attributable to minority shareholders recorded within fee and commission expense, net investment expense and fee and commission income for the periods ended 30 June 2018 and 31 December 2018; and,

· accrued interest on certain fixed maturity securities held indirectly through certain majority owned funds, which in 2018 was presented within financial investments, is now presented in prepayments and accrued income (consistent with accrued interest on the Group's directly held fixed maturity securities).

The impact of the changes above on the following captions in the income statement for the prior periods presented is shown below:

	6 months 2018			Full year 2018
	As reported £m	Effect of changes £m	Restated £m	As reported £m	Effect of changes £m	Restated £m
Fee and commission income	1,042	-	1,042	2,180	(2)	2,178
Net investment expense	(492)	(309)	(801)	(10,847)	(65)	(10,912)
Fee and commission expense	(2,117)	309	(1,808)	(3,393)	67	(3,326)

The impact of the changes above on the statement of financial position for the prior periods presented is shown below:

	30 June 2018			31 December 2018
	As reported £m	Effect of changes £m	Restated £m	As reported £m	Effect of changes £m	Restated £m
Assets
Loans	27,717	8,696	36,413	28,785	7,399	36,184
Financial investments	309,403	19,007	328,410	297,585	22,240	319,825
Receivables	9,352	(232)	9,120	8,879	(240)	8,639
Prepayments and accrued income	3,129	174	3,303	2,947	202	3,149
Cash and cash equivalents	44,443	(27,451)	16,992	46,484	(30,558)	15,926
Other	48,865	-	48,865	45,798	-	45,798
Total assets	442,909	194	443,103	430,478	(957)	429,521
Liabilities
Net asset value attributable to unitholders	17,778	(700)	17,078	18,125	(1,787)	16,338
Payables and other financial liabilities	17,271	814	18,085	16,882	799	17,681
Other liabilities	2,949	80	3,029	3,043	31	3,074
Other	386,571	-	386,571	373,973	-	373,973
Total liabilities	424,569	194	424,763	412,023	(957)	411,066
Total equity	18,340	-	18,340	18,455	-	18,455

The impact of the changes above on the following captions in the statement of cash flows for the prior periods presented is shown below:

	6 months 2018			Full year 2018
	As reported £m	Effect of changes £m	Restated £m	As reported £m	Effect of changes £m	Restated £m
Cash generated from operating activities	2,572	2,472	5,044	6,405	(557)	5,848
Total net cash from operating activities	2,280	2,472	4,752	5,958	(557)	5,401
Total net increase in cash and cash equivalents	904	2,472	3,376	2,930	(557)	2,373
Cash and cash equivalents at 1 January¹	43,587	(29,970)	13,617	43,587	(29,970)	13,617
Effect of exchange rate changes on cash and cash equivalents	(43)	47	4	92	(31)	61
Cash and cash equivalents at 30 June/31 December¹	44,448	(27,451)	16,997	46,609	(30,558)	16,051

1 Cash and cash equivalents shown in the statement of cash flows above include cash and cash equivalents of operations classified as held for sale and bank overdrafts.

The above items have also resulted in a number of corresponding reclassifications in the Group's fair value hierarchy level disclosures included in note B19. The primary changes reflect:

· the inclusion of fixed maturity securities in level 2 and loans in amortised cost (the assets were previously classified as cash and cash equivalents and therefore not included in the fair value hierarchy); and

· a reduction in financial investments reflecting the de-consolidation of two investment funds where the Group was incorrectly deemed to have been the controlling entity.

Additionally, following the review, £33,050 million of fixed maturity securities previously included within level 1 have been reclassified to level 2 at 31 December 2018 (HY18: £38,621 million).

Page 45

B3 - Exchange rates

The Group's principal overseas operations during the period were located within the eurozone, Canada and Poland. The results and cash flows of these operations have been translated into pounds sterling at the average rates for the period and the assets and liabilities have been translated at the period end rates as follows:

	6 months 2019	6 months 2018	Full year 2018
Eurozone
Average rate (€1 equals)	£0.88	£0.88	£0.88
Period end rate (€1 equals)	£0.89	£0.88	£0.90
Canada
Average rate ($CAD1 equals)	£0.58	£0.57	£0.58
Period end rate ($CAD1 equals)	£0.60	£0.58	£0.57
Poland
Average rate (PLN1 equals)	£0.20	£0.21	£0.21
Period end rate (PLN1 equals)	£0.21	£0.20	£0.21

B4 - Subsidiaries, joint ventures and associates - acquisitions

The Group completed minor acquisitions in Canada and the UK in the first half of 2019. The aggregate consideration paid in these transactions was £13 million. With the exception of the acquisition of an associate in Canada, the acquired entities are all consolidated subsidiaries.

Friends First

During 2019, an adjustment of £2 million was made to the acquisition balance sheet of Friends First which became a wholly owned subsidiary on 1 June 2018. This resulted in a £2 million reduction to the £36 million of negative goodwill that arose on acquisition. The negative goodwill was recognised immediately in the 2018 income statement as required by IFRS 3 Business Combinations. The £2 million adjustment has been recognised in the income statement for the period ended 30 June 2019. This amendment to the acquisition balance sheet is permitted under IFRS 3 as it falls within 12 months of the acquisition date.

Page 46

B5 - Subsidiaries, joint ventures and associates - disposals and held for sale

This note provides details of the disposals of subsidiaries, joint ventures and associates that the Group has made during the period, together with the details of business held for sale at the period end.

(a) Summary

The profit on disposal and remeasurement of subsidiaries, joint ventures and associates comprises:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Disposals	6	33	113
Held for sale remeasurements	(19)	(4)	(13)
Remeasurements due to change in control status	-	2	2
Total (loss)/profit on disposal and remeasurements	(13)	31	102

The loss on the disposal and remeasurement of subsidiaries, joint ventures and associates during the period of £13 million (HY18: profit of £31 million) consists of £6 million of gains relating to small disposals and a £19 million remeasurement loss relating to Friends Provident International (FPI). See note B5 (b).

(b) Assets and liabilities of operations classified as held for sale

The assets and liabilities of operations classified as held for sale as at 30 June 2019 are as follows:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Assets
Goodwill, acquired value of in-force business and intangible assets	576	950	660
Property and equipment	5	5	5
Financial investments	6,909	7,747	7,251
Reinsurance assets	53	46	45
Other assets	283	210	206
Cash and cash equivalents	698	707	688
Total assets	8,524	9,665	8,855
Liabilities
Gross insurance liabilities	118	509	121
Gross liabilities for investment contracts	8,022	8,437	8,341
Unallocated divisible surplus	-	19	-
Other liabilities	50	131	59
Total liabilities	8,190	9,096	8,521
Net assets	334	569	334

Assets and liabilities of operations classified as held for sale as at 30 June 2019 and 31 December 2018 relate to the expected disposal of the international operations of FPI. Assets and liabilities of operations classified as held for sale as at 30 June 2018 relate to Spain, which was disposed of in 2018, and FPI.

On 19 July 2017, Aviva announced the sale of FPI to RL360 Holding Company Limited, a subsidiary of International Financial Group Limited, for a total consideration of £340 million. The conditions defined in IFRS 5 Non-current Assets Held for Sale and Discontinued Operations for a subsidiary to be classified as held for sale include the presumption that the sale will be completed within 12 months of the date of reclassification. The transaction remains subject to regulatory approvals and is now expected to complete in the second half of 2019. As such, the subsidiary continues to be classified as held for sale and has been remeasured at fair value based on the expected sales price less costs to sell, calculated as £334 million. This resulted in losses on remeasurement of £118 million in 2017, £13 million in 2018 and an additional remeasurement loss of £19 million at 30 June 2019. The business remains a consolidated subsidiary of Aviva at the balance sheet date.

In 2018 a £2 million remeasurement gain arose due to the change in control status of the Hong Kong business. There were no such remeasurements in 2019.

Page 47

B6 - Segmental information

The Group's results can be segmented either by activity or by geography. Our primary reporting format is along market reporting lines, with supplementary information provided by business activity. This note provides segmental information on the income statement and the statement of financial position.

(a) Operating segments

United Kingdom

The United Kingdom comprises two operating segments; Life and General insurance. The principal activities of our UK Life operations are life insurance, long-term health and accident insurance, savings, pensions and annuity business. UK General Insurance provides insurance cover to individuals and businesses, for risks associated mainly with motor vehicles, property and liability (such as employers' liability and professional indemnity liability) and medical expenses.

Canada

The principal activity of our operation in Canada is general insurance. In particular it provides personal and commercial lines insurance products principally distributed through insurance brokers.

France

The principal activities of our operations in France are long-term business and general insurance. The long-term business offers a range of long-term insurance and savings products, primarily for individuals, with a focus on the unit-linked market. The general insurance business predominantly sells personal and small commercial lines insurance products through agents and a direct insurer.

Poland

Activities in Poland comprise long-term business and general insurance and includes our long-term business in Lithuania.

Italy, Ireland and Other

These countries are not individually significant at a Group level, so have been aggregated into a single reporting segment in line with IFRS 8 Operating Segments. The principal activities of our operations in Italy and Ireland are long-term business and general insurance. Our 'Other' operations include our life operations in Turkey. This segment includes Friends First, which was acquired on 1 June 2018. The comparative results include our operations within Spain, the principal activity of which was the sale of accident and health insurance and a selection of savings products. The comparative results include the entities within Spain up to the date of disposal (Caja Murcia Vida and Caja Granada Vida on 11 July 2018 and Pelayo Vida on 1 October 2018) and the results of Avipop, part of our operations in Italy, up to the date of disposal on 29 March 2018.

Asia

Our activities in Asia principally comprise our long-term business operations in China, India, Singapore, Hong Kong, Vietnam, Indonesia and FPI (see note B5(b)). This segment also includes general insurance and health operations in Singapore and health operations in Indonesia.

Aviva Investors

Aviva Investors operates in most of the markets in which the Group operates, in particular the UK, France, North America and Asia Pacific. Aviva Investors manages policyholders' and shareholders' invested funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products. These include investment funds, unit trusts, open-ended investment companies and individual savings accounts.

Other Group activities

Investment return on centrally held assets and head office expenses, such as Group treasury and finance functions, together with certain taxes and financing costs arising on central borrowings are included in 'Other Group activities', along with central core structural borrowings and certain tax balances in the segmental statement of financial position. The results of our internal reinsurance and digital broker operations and the Group's interest in Wealthify are also included in this segment, as are the elimination entries for certain inter-segment transactions and group consolidation adjustments.

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Measurement basis

The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are subject to normal commercial terms and market conditions. The Group evaluates performance of operating segments on the basis of:

(i) profit or loss from operations before tax attributable to shareholders

(ii) profit or loss from operations before tax attributable to shareholders, adjusted for non-operating items outside the segment management's control, including investment market performance and fiscal policy changes.

(a) (i) Segmental income statement for the six month period ended 30 June 2019

	United Kingdom					Europe
	Life £m	GI £m	Canada £m	France £m	Poland £m	Italy, Ireland and Other £m	Asia £m	Aviva Investors £m	Other Group activities² £m	Total £m
Gross written premiums	3,509	2,338	1,525	3,407	311	3,377	744	-	-	15,211
Premiums ceded to reinsurers	(814)	(180)	(67)	(40)	(5)	(70)	(266)	-	-	(1,442)
Internal reinsurance revenue	-	-	-	-	-	-	(4)	-	4	-
Premiums written net of reinsurance	2,695	2,158	1,458	3,367	306	3,307	474	-	4	13,769
Net change in provision for unearned premiums	(37)	(74)	(9)	(121)	-	(12)	(20)	-	-	(273)
Net earned premiums	2,658	2,084	1,449	3,246	306	3,295	454	-	4	13,496
Fee and commission income	450	60	10	142	50	30	109	159	1	1,011
	3,108	2,144	1,459	3,388	356	3,325	563	159	5	14,507
Net investment income	19,469	181	128	4,582	67	2,561	353	35	638	28,014
Inter-segment revenue	-	-	-	-	-	-	-	118	-	118
Share of profit of joint ventures and associates	33	-	-	4	-	6	32	-	(13)	62
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	6	-	-	-	(19)	-	-	(13)
Segmental income¹	22,610	2,325	1,593	7,974	423	5,892	929	312	630	42,688
Claims and benefits paid, net of recoveries from reinsurers	(4,844)	(1,329)	(928)	(2,434)	(200)	(1,588)	(480)	-	(21)	(11,824)
Change in insurance liabilities, net of reinsurance	(3,696)	(59)	(36)	(792)	2	(814)	(60)	-	7	(5,448)
Change in investment contract provisions	(11,948)	-	-	(2,018)	1	(2,043)	116	(35)	-	(15,927)
Change in unallocated divisible surplus	311	-	-	(1,994)	(1)	(970)	(184)	-	-	(2,838)
Fee and commission expense	(255)	(624)	(401)	(418)	(77)	(164)	(114)	(15)	(580)	(2,648)
Other expenses	(506)	(174)	(79)	(122)	(51)	(90)	(134)	(204)	(192)	(1,552)
Inter-segment expenses	(104)	(3)	(3)	(2)	(2)	(4)	-	-	-	(118)
Finance costs	(69)	(2)	(4)	(1)	-	(3)	(2)	-	(204)	(285)
Segmental expenses	(21,111)	(2,191)	(1,451)	(7,781)	(328)	(5,676)	(858)	(254)	(990)	(40,640)
Profit/(loss) before tax	1,499	134	142	193	95	216	71	58	(360)	2,048
Tax attributable to policyholders' returns	(519)	-	-	-	-	(6)	-	-	-	(525)
Profit/(loss) before tax attributable to shareholders' profits	980	134	142	193	95	210	71	58	(360)	1,523
Adjusting items:
Reclassification of corporate costs and unallocated interest	-	(9)	17	24	-	-	-	2	(34)	-
Life business: Investment variances and economic assumption changes	(400)	-	-	86	(2)	(39)	(17)	-	-	(372)
Non-life business: Short-term fluctuation in return on investments	-	(70)	(77)	(71)	(1)	(28)	-	-	102	(145)
General insurance and health business: Economic assumption changes	-	54	3	16	-	-	-	-	-	73
Impairment of goodwill, joint ventures, associates and other amounts expensed	-	-	2	-	-	-	9	-	-	11
Amortisation and impairment of intangibles	36	18	17	2	3	2	6	2	21	107
Amortisation and impairment of AVIF	121	-	-	1	-	5	63	-	1	191
(Profit)/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	(6)	-	-	-	19	-	-	13
Other³	-	45	-	-	-	2	-	-	-	47
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	737	172	98	251	95	152	151	62	(270)	1,448

1 Total reported income, excluding inter-segment revenue, includes £25,004 million from the United Kingdom (Aviva plc's country of domicile). Income is attributed on the basis of geographical origin which does not differ materially from revenue by geographical destination, as most risks are located in the countries where the contracts are written.

2 Other Group activities include Group reinsurance and net expenses of £11 million in relation to the UK Digital business.

3 Other includes a charge of £45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note B11(c)) and a charge of £2 million relating to the negative goodwill that arose on acquisition of Friends First (see note B4).

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(a) (ii) Segmental income statement for the six month period ended 30 June 2018 - restated¹

	United Kingdom					Europe
	Life £m	GI £m	Canada³ £m	France £m	Poland £m	Italy, Ireland, Spain and Other £m	Asia £m	Aviva Investors £m	Other Group activities⁴ £m	Total £m
Gross written premiums	3,941	2,266	1,535	2,828	297	3,769	544	-	-	15,180
Premiums ceded to reinsurers	(737)	(150)	(52)	(38)	(5)	(51)	(63)	-	-	(1,096)
Internal reinsurance revenue	-	(6)	-	-	-	(1)	(4)	-	11	-
Premiums written net of reinsurance	3,204	2,110	1,483	2,790	292	3,717	477	-	11	14,084
Net change in provision for unearned premiums	(34)	(96)	(33)	(124)	6	(6)	(12)	-	-	(299)
Net earned premiums	3,170	2,014	1,450	2,666	298	3,711	465	-	11	13,785
Fee and commission income	447	59	8	137	46	45	114	186	-	1,042
	3,617	2,073	1,458	2,803	344	3,756	579	186	11	14,827
Net investment income/(expense)	143	25	22	(138)	(95)	(441)	(269)	28	(76)	(801)
Inter-segment revenue	-	-	-	-	-	-	-	118	-	118
Share of profit/(loss) of joint ventures and associates	71	-	-	(5)	-	3	1	-	(46)	24
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	-	1	-	25	5	-	-	31
Segmental income²	3,831	2,098	1,480	2,661	249	3,343	316	332	(111)	14,199
Claims and benefits paid, net of recoveries from reinsurers	(5,150)	(1,357)	(962)	(2,231)	(183)	(1,333)	(271)	-	(19)	(11,506)
Change in insurance liabilities, net of reinsurance	1,915	144	(112)	124	143	(348)	(51)	-	17	1,832
Change in investment contract provisions	672	-	-	(581)	-	(1,947)	183	(30)	-	(1,703)
Change in unallocated divisible surplus	130	-	-	590	6	680	102	-	-	1,508
Fee and commission expense	(336)	(620)	(377)	(254)	(66)	(191)	(87)	(21)	144	(1,808)
Other expenses	(710)	(117)	(95)	(133)	(50)	(55)	(135)	(209)	(202)	(1,706)
Inter-segment expenses	(106)	(3)	(3)	-	(2)	(3)	-	-	(1)	(118)
Finance costs	(78)	(1)	(3)	-	-	(2)	(3)	-	(179)	(266)
Segmental expenses	(3,663)	(1,954)	(1,552)	(2,485)	(152)	(3,199)	(262)	(260)	(240)	(13,767)
Profit/(loss) before tax	168	144	(72)	176	97	144	54	72	(351)	432
Tax attributable to policyholders' returns	95	-	-	-	-	-	(1)	-	-	94
Profit/(loss) before tax attributable to shareholders' profits	263	144	(72)	176	97	144	53	72	(351)	526
Adjusting items:
Reclassification of corporate costs and unallocated interest	-	(8)	16	24	-	-	-	2	(34)	-
Life business: Investment variances and economic assumption changes	401	-	-	44	2	35	-	-	-	482
Non-life business: Short-term fluctuation in return on investments	-	71	23	23	(1)	26	-	-	64	206
General insurance and health business: Economic assumption changes	-	(27)	(1)	(6)	-	-	-	-	-	(34)
Impairment of goodwill, joint ventures, associates and other amounts expensed	-	-	-	-	-	-	-	-	-	-
Amortisation and impairment of intangibles	38	15	22	1	3	1	6	2	13	101
Amortisation and impairment of AVIF	143	-	-	1	-	-	64	-	2	210
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	-	(1)	-	(25)	(5)	-	-	(31)
Other⁵	-	-	-	-	-	(36)	-	-	14	(22)
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	845	195	(12)	262	101	145	118	76	(292)	1,438

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group Activities segment. These consolidation adjustment reclassifications relate to UK property funds (£46 million reclassified to Other Group Activities, which predominantly includes net investment expense (£23 million) and finance costs (£25 million)). This segmental restatement has had no impact on the condensed consolidated income statement.

2 Total reported income, excluding inter-segment revenue, includes £6,054 million from the United Kingdom (Aviva plc's country of domicile). Income is attributed on the basis of geographical origin which does not differ materially from revenue by geographical destination, as most risks are located in the countries where the contracts are written.

3 Canada adjusted operating profit includes £1 million profit relating to non-insurance activities.

4 Other Group activities include Group reinsurance and net expenses of £70 million in relation to the UK Digital business.

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

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(a) (iii) Segmental income statement for the year ended 31 December 2018 - restated¹

	United Kingdom					Europe
	Life £m	GI £m	Canada³ £m	France £m	Poland £m	Italy, Ireland, Spain and Other £m	Asia £m	Aviva Investors⁴ £m	Other Group activities⁵ £m	Total £m
Gross written premiums	7,302	4,504	3,047	5,584	616	6,504	1,102	-	-	28,659
Premiums ceded to reinsurers	(1,666)	(317)	(119)	(77)	(12)	(113)	(20)	-	(2)	(2,326)
Internal reinsurance revenue	-	6	-	-	-	(2)	(7)	-	3	-
Premiums written net of reinsurance	5,636	4,193	2,928	5,507	604	6,389	1,075	-	1	26,333
Net change in provision for unearned premiums	14	(87)	27	(38)	7	9	(13)	-	-	(81)
Net earned premiums	5,650	4,106	2,955	5,469	611	6,398	1,062	-	1	26,252
Fee and commission income	939	122	24	313	94	113	202	368	3	2,178
	6,589	4,228	2,979	5,782	705	6,511	1,264	368	4	28,430
Net investment (expense)/income	(6,771)	16	51	(2,302)	(73)	(1,111)	(286)	37	(473)	(10,912)
Inter-segment revenue	-	-	-	-	-	-	-	259	-	259
Share of profit of joint ventures and associates	144	-	1	9	-	10	14	-	(66)	112
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	-	-	-	89	(5)	27	(9)	102
Segmental income²	(38)	4,244	3,031	3,489	632	5,499	987	691	(544)	17,991
Claims and benefits paid, net of recoveries from reinsurers	(10,184)	(2,731)	(1,989)	(4,659)	(356)	(2,595)	(570)	-	(58)	(23,142)
Change in insurance liabilities, net of reinsurance	6,184	351	(133)	557	148	(872)	(40)	-	51	6,246
Change in investment contract provisions	7,540	-	-	27	-	(2,249)	42	(39)	-	5,321
Change in unallocated divisible surplus	270	-	-	1,754	12	1,063	138	-	-	3,237
Fee and commission expense	(738)	(1,225)	(791)	(484)	(146)	(343)	(199)	(33)	633	(3,326)
Other expenses	(1,663)	(220)	(182)	(256)	(106)	(188)	(272)	(449)	(507)	(3,843)
Inter-segment expenses	(232)	(5)	(6)	(1)	(6)	(7)	-	-	(2)	(259)
Finance costs	(172)	(1)	(5)	(1)	-	(5)	(3)	-	(386)	(573)
Segmental expenses	1,005	(3,831)	(3,106)	(3,063)	(454)	(5,196)	(904)	(521)	(269)	(16,339)
Profit/(loss) before tax	967	413	(75)	426	178	303	83	170	(813)	1,652
Tax attributable to policyholders' returns	469	-	-	-	-	1	7	-	-	477
Profit/(loss) before tax attributable to shareholders' profits	1,436	413	(75)	426	178	304	90	170	(813)	2,129
Adjusting items:
Reclassification of corporate costs and unallocated interest	-	(16)	31	48	-	(1)	-	5	(67)	-
Life business: Investment variances and economic assumption changes	115	-	-	(6)	10	57	21	-	-	197
Non-life business: Short-term fluctuation in return on investments	-	172	45	44	2	57	-	-	156	476
General insurance and health business: Economic assumption changes	-	4	-	(5)	-	-	-	-	-	(1)
Impairment of goodwill, joint ventures, associates and other amounts expensed	-	-	-	-	2	-	3	-	8	13
Amortisation and impairment of intangibles	73	32	46	2	7	3	13	3	30	209
Amortisation and impairment of AVIF	285	-	-	2	-	6	130	-	3	426
(Profit)/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	-	-	-	(89)	5	(27)	9	(102)
Other⁶	-	(190)	-	-	-	(36)	-	-	(5)	(231)
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	1,909	415	47	511	199	301	262	151	(679)	3,116

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group Activities segment. These consolidation adjustment reclassifications relate to UK property funds (£66 million reclassified to Other Group Activities, which predominantly includes net investment expense (£78 million), other expenses (£24 million credit) and finance costs (£15 million)). This segmental restatement has had no impact on the condensed consolidated income statement.

2 Total reported income, excluding inter-segment revenue, includes £4,412 million from the United Kingdom (Aviva plc's country of domicile). Income is attributed on the basis of geographical origin which does not differ materially from revenue by geographical destination, as most risks are located in the countries where the contracts are written.

3 Canada adjusted operating profit includes £1 million profit relating to non-insurance activities.

4 Aviva Investors adjusted operating profit includes £1 million profit relating to the Aviva Investors Pensions Limited business.

5 Other Group activities include Group reinsurance and net expenses of £152 million in relation to the UK Digital business.

6 Other includes a movement in the discount rate used for estimating lump sum payments in settlement of bodily injury claims which resulted in a gain of £190 million, a provision release of £78 million relating to the sale of Aviva USA in 2013, a gain of £36 million relating to negative goodwill on the acquisition of Friends First, a charge of £63 million relating to the UK defined benefit pension scheme as a result of the requirement to equalise members' benefits for the effects of Guaranteed Minimum Pension (see note B17) and a charge of £10 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs.

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(a) (iv) Segmental statement of financial position as at 30 June 2019

	United Kingdom					Europe
	Life £m	GI £m	Canada £m	France £m	Poland £m	Italy, Ireland and Other £m	Asia £m	Aviva Investors £m	Other Group activities¹ £m	Total £m
Goodwill	663	927	79	-	27	124	51	-	-	1,871
Acquired value of in-force business and intangible assets	2,270	148	217	100	70	94	24	3	98	3,024
Interests in, and loans to, joint ventures and associates	1,442	-	9	117	-	51	530	-	(612)	1,537
Property and equipment	62	79	126	271	17	28	17	7	365	972
Investment property	5,432	407	-	3,758	-	767	-	530	577	11,471
Loans	28,620	-	145	678	-	295	36	-	9,678	39,452
Financial investments	187,637	4,004	5,019	81,513	3,382	37,425	5,591	353	18,934	343,858
Deferred acquisition costs	1,443	535	385	392	135	312	13	-	-	3,215
Other assets	35,563	5,065	1,301	4,440	289	4,784	1,026	1,253	(9,420)	44,301
Assets of operations classified as held for sale	-	-	-	-	-	-	8,524	-	-	8,524
Total assets	263,132	11,165	7,281	91,269	3,920	43,880	15,812	2,146	19,620	458,225
Insurance liabilities
Long-term business and outstanding claims provisions	97,926	4,978	3,640	17,498	3,088	13,456	4,482	-	5	145,073
Unearned premiums	250	2,192	1,603	624	110	426	119	-	-	5,324
Other insurance liabilities	-	16	-	-	-	-	-	-	-	16
Gross liabilities for investment contracts	136,006	-	-	56,048	3	25,881	-	943	-	218,881
Unallocated divisible surplus	1,932	-	-	5,542	56	911	400	-	-	8,841
Net asset value attributable to unitholders	-	-	-	3,350	-	-	-	-	13,414	16,764
External borrowings	1,278	-	-	-	-	43	-	-	7,913	9,234
Other liabilities, including inter-segment liabilities	14,832	106	1,069	5,672	274	1,284	798	618	2,399	27,052
Liabilities of operations classified as held for sale	-	-	-	-	-	-	8,190	-	-	8,190
Total liabilities	252,224	7,292	6,312	88,734	3,531	42,001	13,989	1,561	23,731	439,375
Total equity										18,850
Total equity and liabilities										458,225

1 Other Group activities includes elimination entries for certain inter-segment transactions and group consolidation adjustments.

(a) (v) Segmental statement of financial position as at 30 June 2018 - restated¹

	United Kingdom					Europe
	Life £m	GI £m	Canada £m	France £m	Poland £m	Italy, Ireland, Spain and Other £m	Asia £m	Aviva Investors £m	Other Group activities² £m	Total £m
Goodwill	663	924	82	-	28	123	53	-	8	1,881
Acquired value of in-force business and intangible assets	2,602	144	236	88	73	103	27	6	96	3,375
Interests in, and loans to, joint ventures and associates	1,511	-	9	134	-	55	462	-	(583)	1,588
Property and equipment	1	29	46	253	4	5	7	4	182	531
Investment property	5,626	329	-	3,339	-	643	-	774	440	11,151
Loans	26,066	-	199	701	-	211	35	-	9,201	36,413
Financial investments	180,116	3,960	4,490	78,427	3,466	32,079	5,099	384	20,389	328,410
Deferred acquisition costs	1,351	505	378	356	116	226	11	-	-	2,943
Other assets	38,983	5,524	1,355	3,291	310	4,787	754	1,193	(9,051)	47,146
Assets of operations classified as held for sale	-	-	-	-	-	706	8,959	-	-	9,665
Total assets	256,919	11,415	6,795	86,589	3,997	38,938	15,407	2,361	20,682	443,103
Insurance liabilities
Long-term business and outstanding claims provisions	97,888	5,188	3,447	17,031	2,982	11,973	4,125	-	16	142,650
Unearned premiums	263	2,111	1,576	581	107	417	91	-	-	5,146
Other insurance liabilities	-	15	-	-	-	-	-	-	-	15
Gross liabilities for investment contracts	130,131	-	-	53,917	4	23,176	-	1,169	-	208,397
Unallocated divisible surplus	2,383	-	-	4,625	60	300	237	-	-	7,605
Net asset value attributable to unitholders	-	-	-	2,611	-	-	-	-	14,467	17,078
External borrowings	1,352	-	-	-	-	34	-	-	8,400	9,786
Other liabilities, including inter-segment liabilities	13,640	(96)	948	5,384	255	989	664	575	2,631	24,990
Liabilities of operations classified as held for sale	-	-	-	-	-	470	8,626	-	-	9,096
Total liabilities	245,657	7,218	5,971	84,149	3,408	37,359	13,743	1,744	25,514	424,763
Total equity										18,340
Total equity and liabilities										443,103

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group Activities segment. These consolidation adjustment reclassifications relate to UK property funds (net assets of £927 million reclassified to Other Group Activities, which predominantly includes loans (£505 million), investment property (£534 million) and borrowings (£222 million)). This segmental restatement has had no impact on the condensed consolidated statement of financial position.

2 Other Group activities includes elimination entries for certain inter-segment transactions and group consolidation adjustments.

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(a) (vi) Segmental statement of financial position as at 31 December 2018 - restated¹

	United Kingdom					Europe
	Life £m	GI £m	Canada £m	France £m	Poland £m	Italy, Ireland, Spain and Other £m	Asia £m	Aviva Investors £m	Other Group activities² £m	Total £m
Goodwill	663	924	82	-	27	125	51	-	-	1,872
Acquired value of in-force business and intangible assets	2,424	154	220	98	72	96	25	5	107	3,201
Interests in, and loans to, joint ventures and associates	1,475	-	8	117	-	55	479	-	(616)	1,518
Property and equipment	-	29	50	258	4	5	5	4	193	548
Investment property	5,595	380	-	3,595	-	746	-	616	550	11,482
Loans	26,914	-	164	710	-	255	37	-	8,104	36,184
Financial investments	169,778	3,673	4,696	76,941	3,423	32,893	5,422	343	22,656	319,825
Deferred acquisition costs	1,361	489	367	354	124	259	11	-	-	2,965
Other assets	38,129	5,306	1,225	3,317	304	4,834	525	1,267	(11,836)	43,071
Assets of operations classified as held for sale	-	-	-	-	-	-	8,855	-	-	8,855
Total assets	246,339	10,955	6,812	85,390	3,954	39,268	15,410	2,235	19,158	429,521
Insurance liabilities
Long-term business and outstanding claims provisions	94,181	4,914	3,455	16,778	3,068	12,646	4,069	-	4	139,115
Unearned premiums	214	2,104	1,517	501	109	410	91	-	-	4,946
Other insurance liabilities	-	16	-	-	-	-	-	-	-	16
Gross liabilities for investment contracts	123,406	-	-	54,159	4	23,874	-	1,025	-	202,468
Unallocated divisible surplus	2,244	-	-	3,518	55	(78)	210	-	-	5,949
Net asset value attributable to unitholders	-	-	-	2,427	-	-	-	-	13,911	16,338
External borrowings	1,448	-	-	-	-	35	-	-	7,937	9,420
Other liabilities, including inter-segment liabilities	13,661	(260)	1,011	5,350	230	939	801	589	1,972	24,293
Liabilities of operations classified as held for sale	-	-	-	-	-	-	8,521	-	-	8,521
Total liabilities	235,154	6,774	5,983	82,733	3,466	37,826	13,692	1,614	23,824	411,066
Total equity										18,455
Total equity and liabilities										429,521

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group Activities segment. These consolidation adjustment reclassifications relate to UK property funds (net assets of £1,219 million reclassified to Other Group Activities, which predominantly includes loans (£705 million), investment property (£585 million) and borrowings (£222 million)) and Europe property funds (net assets of £51 million reclassified to Other Group Activities which predominantly includes investment property (£61 million)). This segmental restatement has had no impact on the condensed consolidated statement of financial position.

2 Other Group activities includes elimination entries for certain inter-segment transactions and group consolidation adjustments.

(b) Further analysis by products and services

The Group's results can be further analysed by products and services which comprise long-term business, general insurance and health, fund management and other activities.

Long-term business

Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business. Long-term business also includes our share of the other life and related business written in our associates and joint ventures, as well as lifetime mortgage business written in the UK.

General insurance and health

Our general insurance and health business provides insurance cover to individuals and to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses.

Fund management

Our fund management business invests policyholders' and shareholders' funds and provides investment management services for institutional pension fund mandates. It manages a range of retail investment products, including investment funds, unit trusts, open-ended investment companies and individual savings accounts. Clients include Aviva Group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors.

Other

'Other' includes service companies, head office expenses, such as Group treasury and finance functions and certain financing costs and taxes not allocated to business segments and elimination entries for certain inter-segment transactions and group consolidation adjustments.

Page 53

B6 - Segmental information continued

(b) (i) Segmental income statement - products and services for the six month period ended 30 June 2019

	Long-term business £m	General insurance and health² £m	Fund management £m	Other³ £m	Total £m
Gross written premiums¹	9,649	5,562	-	-	15,211
Premiums ceded to reinsurers	(1,126)	(316)	-	-	(1,442)
Premiums written net of reinsurance	8,523	5,246	-	-	13,769
Net change in provision for unearned premiums	-	(273)	-	-	(273)
Net earned premiums	8,523	4,973	-	-	13,496
Fee and commission income	687	65	158	101	1,011
	9,210	5,038	158	101	14,507
Net investment income/(expense)	26,973	427	-	614	28,014
Inter-segment revenue	-	-	120	-	120
Share of profit of joint ventures and associates	75	-	-	(13)	62
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	(19)	6	-	-	(13)
Segmental income	36,239	5,471	278	702	42,690
Claims and benefits paid, net of recoveries from reinsurers	(8,613)	(3,211)	-	-	(11,824)
Change in insurance liabilities, net of reinsurance	(5,325)	(123)	-	-	(5,448)
Change in investment contract provisions	(15,927)	-	-	-	(15,927)
Change in unallocated divisible surplus	(2,838)	-	-	-	(2,838)
Fee and commission expense	(691)	(1,304)	(14)	(639)	(2,648)
Other expenses	(748)	(349)	(207)	(248)	(1,552)
Inter-segment expenses	(112)	(7)	-	(1)	(120)
Finance costs	(72)	(6)	-	(207)	(285)
Segmental expenses	(34,326)	(5,000)	(221)	(1,095)	(40,642)
Profit/(loss) before tax	1,913	471	57	(393)	2,048
Tax attributable to policyholders' returns	(525)	-	-	-	(525)
Profit/(loss) before tax attributable to shareholders' profits	1,388	471	57	(393)	1,523
Adjusting items	(106)	(80)	4	107	(75)
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	1,282	391	61	(286)	1,448

1 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £79 million relating to property and liability insurance.

2 General insurance and health business segment includes gross written premiums of £541 million relating to health business. The remaining business relates to property and liability insurance.

3 Other includes net expenses of £11 million in relation to the UK Digital business.

(b) (ii) Segmental income statement - products and services for the six month period ended 30 June 2018 - restated¹

	Long-term business £m	General insurance and health³ £m	Fund management £m	Other⁴ £m	Total £m
Gross written premiums²	9,731	5,449	-	-	15,180
Premiums ceded to reinsurers	(836)	(260)	-	-	(1,096)
Premiums written net of reinsurance	8,895	5,189	-	-	14,084
Net change in provision for unearned premiums	-	(299)	-	-	(299)
Net earned premiums	8,895	4,890	-	-	13,785
Fee and commission income	715	61	184	82	1,042
	9,610	4,951	184	82	14,827
Net investment (expense)/income	(742)	42	(2)	(99)	(801)
Inter-segment revenue	-	-	120	-	120
Share of profit/(loss) of joint ventures and associates	71	(1)	-	(46)	24
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	30	1	-	-	31
Segmental income	8,969	4,993	302	(63)	14,201
Claims and benefits paid, net of recoveries from reinsurers	(8,267)	(3,239)	-	-	(11,506)
Change in insurance liabilities, net of reinsurance	1,843	(11)	-	-	1,832
Change in investment contract provisions	(1,703)	-	-	-	(1,703)
Change in unallocated divisible surplus	1,508	-	-	-	1,508
Fee and commission expense	(619)	(1,275)	(20)	106	(1,808)
Other expenses	(911)	(307)	(213)	(275)	(1,706)
Inter-segment expenses	(113)	(7)	-	-	(120)
Finance costs	(81)	(3)	-	(182)	(266)
Segmental expenses	(8,343)	(4,842)	(233)	(351)	(13,769)
Profit/(loss) before tax	626	151	69	(414)	432
Tax attributable to policyholders' returns	94	-	-	-	94
Profit/(loss) before tax attributable to shareholders' profits	720	151	69	(414)	526
Adjusting items	672	151	5	84	912
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	1,392	302	74	(330)	1,438

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other segment. These consolidation adjustment reclassifications relate to property funds (£46 million reclassified from Long-term business to Other, which predominantly includes net investment expense (£23 million) and finance costs (£25 million)). This segmental restatement has had no impact on the condensed consolidated income statement.

2 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £51 million relating to property and liability insurance.

3 General insurance and health business segment includes gross written premiums of £507 million relating to health business. The remaining business relates to property and liability insurance.

4 Other includes net expenses of £70 million in relation to the UK Digital business.

Page 54

B6 - Segmental information continued

(b) (iii) Segmental income statement - products and services for the year ended 31 December 2018 - restated¹

	Long-term business £m	General insurance and health³ £m	Fund management £m	Other⁴ £m	Total £m
Gross written premiums²	18,140	10,519	-	-	28,659
Premiums ceded to reinsurers	(1,775)	(551)	-	-	(2,326)
Premiums written net of reinsurance	16,365	9,968	-	-	26,333
Net change in provision for unearned premiums	-	(81)	-	-	(81)
Net earned premiums	16,365	9,887	-	-	26,252
Fee and commission income	1,496	138	365	179	2,178
	17,861	10,025	365	179	28,430
Net investment (expense)/income	(10,453)	63	(1)	(521)	(10,912)
Inter-segment revenue	-	-	263	-	263
Share of profit of joint ventures and associates	178	-	-	(66)	112
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates	84	-	27	(9)	102
Segmental income	7,670	10,088	654	(417)	17,995
Claims and benefits paid, net of recoveries from reinsurers	(16,540)	(6,602)	-	-	(23,142)
Change in insurance liabilities, net of reinsurance	6,044	202	-	-	6,246
Change in investment contract provisions	5,321	-	-	-	5,321
Change in unallocated divisible surplus	3,237	-	-	-	3,237
Fee and commission expense	(1,245)	(2,592)	(31)	542	(3,326)
Other expenses	(2,128)	(596)	(461)	(658)	(3,843)
Inter-segment expenses	(249)	(12)	-	(2)	(263)
Finance costs	(179)	(6)	-	(388)	(573)
Segmental expenses	(5,739)	(9,606)	(492)	(506)	(16,343)
Profit/(loss) before tax	1,931	482	162	(923)	1,652
Tax attributable to policyholders' returns	477	-	-	-	477
Profit/(loss) before tax attributable to shareholders' profits	2,408	482	162	(923)	2,129
Adjusting items	591	222	(16)	190	987
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	2,999	704	146	(733)	3,116

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other segment. These consolidation adjustment reclassifications relate to property funds (£66 million reclassified from Long-term business to Other, which predominantly includes net investment expense (£78 million), other expenses (£24 million credit) and finance costs (£15 million)). This segmental restatement has had no impact on the condensed consolidated income statement.

2 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £56 million which all relates to property and liability insurance.

3 General insurance and health business segment includes gross written premiums of £879 million relating to health business. The remaining business relates to property and liability insurance.

4 Other includes net expenses of £152 million in relation to the UK Digital business.

(b) (iv) Segmental statement of financial position - products and services as at 30 June 2019

	Long-term business £m	General insurance and health £m	Fund management £m	Other¹ £m	Total £m
Goodwill	722	1,088	-	61	1,871
Acquired value of in-force business and intangible assets	2,525	395	3	101	3,024
Interests in, and loans to, joint ventures and associates	2,131	8	-	(602)	1,537
Property and equipment	278	282	7	405	972
Investment property	10,334	560	-	577	11,471
Loans	29,628	146	-	9,678	39,452
Financial investments	312,939	11,930	52	18,937	343,858
Deferred acquisition costs	2,034	1,181	-	-	3,215
Other assets	42,499	9,505	1,124	(8,827)	44,301
Assets of operations classified as held for sale	8,524	-	-	-	8,524
Total assets	411,614	25,095	1,186	20,330	458,225
Gross insurance liabilities	133,389	17,024	-	-	150,413
Gross liabilities for investment contracts	218,881	-	-	-	218,881
Unallocated divisible surplus	8,841	-	-	-	8,841
Net asset value attributable to unitholders	3,350	-	-	13,414	16,764
External borrowings	1,321	-	-	7,913	9,234
Other liabilities, including inter-segment liabilities	20,902	1,869	604	3,677	27,052
Liabilities of operations classified as held for sale	8,190	-	-	-	8,190
Total liabilities	394,874	18,893	604	25,004	439,375
Total equity					18,850
Total equity and liabilities					458,225

1 Other includes elimination entries for certain inter-segment transactions and group consolidation adjustments.

Page 55

B6 - Segmental information continued

(b) (v) Segmental statement of financial position - products and services as at 30 June 2018 - restated¹

	Long-term business £m	General insurance and health £m	Fund management £m	Other² £m	Total £m
Goodwill	721	1,082	3	75	1,881
Acquired value of in-force business and intangible assets	2,869	407	6	93	3,375
Interests in, and loans to, joint ventures and associates	2,146	8	-	(566)	1,588
Property and equipment	189	136	4	202	531
Investment property	10,252	459	-	440	11,151
Loans	27,013	199	-	9,201	36,413
Financial investments	296,530	11,581	66	20,233	328,410
Deferred acquisition costs	1,811	1,132	-	-	2,943
Other assets	44,817	9,739	1,095	(8,505)	47,146
Assets of operations classified as held for sale	9,665	-	-	-	9,665
Total assets	396,013	24,743	1,174	21,173	443,103
Gross insurance liabilities	130,996	16,815	-	-	147,811
Gross liabilities for investment contracts	208,397	-	-	-	208,397
Unallocated divisible surplus	7,605	-	-	-	7,605
Net asset value attributable to unitholders	2,611	-	-	14,467	17,078
External borrowings	1,386	-	-	8,400	9,786
Other liabilities, including inter-segment liabilities	18,874	1,645	561	3,910	24,990
Liabilities of operations classified as held for sale	9,096	-	-	-	9,096
Total liabilities	378,965	18,460	561	26,777	424,763
Total equity					18,340
Total equity and liabilities					443,103

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other segment. These consolidation adjustment reclassifications relate to property funds (net assets of £927 million reclassified from Long-term business to Other, which predominantly includes loans (£505 million), investment property (£534 million) and borrowings (£222 million)). This segmental restatement has had no impact on the condensed consolidated statement of financial position.

2 Other includes elimination entries for certain inter-segment transactions and group consolidation adjustments.

(b) (vi) Segmental statement of financial position - products and services as at 31 December 2018 - restated¹

	Long-term business £m	General insurance and health £m	Fund management £m	Other² £m	Total £m
Goodwill	722	1,083	-	67	1,872
Acquired value of in-force business and intangible assets	2,688	403	5	105	3,201
Interests in, and loans to, joint ventures and associates	2,118	8	-	(608)	1,518
Property and equipment	189	147	4	208	548
Investment property	10,405	528	-	549	11,482
Loans	27,915	165	-	8,104	36,184
Financial investments	285,776	11,325	66	22,658	319,825
Deferred acquisition costs	1,877	1,088	-	-	2,965
Other assets	44,161	9,238	1,117	(11,445)	43,071
Assets of operations classified as held for sale	8,855	-	-	-	8,855
Total assets	384,706	23,985	1,192	19,638	429,521
Gross insurance liabilities	127,709	16,368	-	-	144,077
Gross liabilities for investment contracts	202,468	-	-	-	202,468
Unallocated divisible surplus	5,949	-	-	-	5,949
Net asset value attributable to unitholders	2,427	-	-	13,911	16,338
External borrowings	1,483	-	-	7,937	9,420
Other liabilities, including inter-segment liabilities	19,112	1,368	574	3,239	24,293
Liabilities of operations classified as held for sale	8,521	-	-	-	8,521
Total liabilities	367,669	17,736	574	25,087	411,066
Total equity					18,455
Total equity and liabilities					429,521

1 Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group Activities segment. These consolidation adjustment reclassifications relate to property funds (net assets of £1,224 million have been reclassified from Long-term business to Other, which predominantly includes loans (£705 million), investment property (£590 million) and borrowings (£223 million). Net assets of £46 million have been reclassified from General insurance and Health to Other which predominantly includes investment property (£56 million)). This segmental restatement has had no impact on the condensed consolidated statement of financial position.

2 Other includes elimination entries for certain inter-segment transactions and group consolidation adjustments.

Page 56

B7 - Tax

This note analyses the tax charge for the period and explains the factors that affect it.

(a) Tax charged/(credited) to the income statement

(i) The total tax charge/(credit) comprises:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Current tax
For the period	532	144	559
Prior period adjustments	(54)	(4)	(49)
Total current tax	478	140	510
Deferred tax
Origination and reversal of temporary differences	393	(81)	(531)
Changes in tax rates or tax laws	(6)	-	(13)
Write down/(back) of deferred tax assets	3	(3)	(1)
Total deferred tax	390	(84)	(545)
Total tax charged/(credited) to income statement	868	56	(35)

(ii) The Group, as a proxy for policyholders in the UK, Ireland and Singapore, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Ireland and Singapore insurance policyholders' returns is included in the tax charge. The tax charge attributable to policyholders' returns included in the charge above is £525 million (HY18: £94 million credit, 2018: £477 million credit).

(iii) The tax charge above, comprising current and deferred tax, can be analysed as follows:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
UK tax	699	(39)	(236)
Overseas tax	169	95	201
	868	56	(35)

(b) Tax charged/(credited) to other comprehensive income

(i) The total tax charge/(credit) comprises:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Current tax
In respect of pensions and other post-retirement obligations	(29)	(26)	(59)
In respect of foreign exchange movements	4	(4)	(1)
	(25)	(30)	(60)
Deferred tax
In respect of pensions and other post-retirement obligations	49	50	16
In respect of unrealised gains/(losses) on investments	14	-	(7)
	63	50	9
Total tax charged/(credited) to other comprehensive income	38	20	(51)

(ii) The tax charge attributable to policyholders' returns included above is £nil (HY18: £nil, 2018: £nil).

Page 57

B7 - Tax continued

Tax credited directly to equity in the period in respect of coupon payments on the direct capital instrument and tier 1 notes amounted to £2 million (HY18: £2 million; 2018: £8 million).

(d) Tax reconciliation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	Shareholder £m	Policyholder £m	6 months 2019 £m	Shareholder £m	Policyholder £m	6 months 2018 £m	Shareholder £m	Policyholder £m	Full year 2018 £m
Total profit before tax	1,523	525	2,048	526	(94)	432	2,129	(477)	1,652

Tax calculated at standard UK corporation tax rate of 19.00% (2018: 19.00%)	289	100	389	100	(18)	82	405	(91)	314
Reconciling items
Different basis of tax - policyholders	-	426	426	-	(76)	(76)	-	(385)	(385)
Adjustment to tax charge in respect of prior periods	(3)	-	(3)	(8)	-	(8)	(16)	-	(16)
Non-assessable income and items not taxed at the full statutory rate	6	-	6	8	-	8	(4)	-	(4)
Non-taxable profit on sale of subsidiaries and associates	-	-	-	(3)	-	(3)	(59)	-	(59)
Disallowable expenses	17	-	17	37	-	37	50	-	50
Different local basis of tax on overseas profits	42	(1)	41	20	-	20	71	(1)	70
Movement in deferred tax not recognised	(3)	-	(3)	(6)	-	(6)	(3)	-	(3)
Tax effect of profit from joint ventures and associates	(6)	-	(6)	(1)	-	(1)	(6)	-	(6)
Other	1	-	1	3	-	3	4	-	4
Total tax charged/(credited) to income statement	343	525	868	150	(94)	56	442	(477)	(35)

The tax charge attributable to policyholders' returns is removed from the Group's total profit before tax in arriving at the Group's profit before tax attributable to shareholders' profits. As the net of tax profit attributable to with-profits and unit-linked policyholders is zero, the Group's pre-tax profit attributable to policyholders is an amount equal and opposite to the tax charge attributable to policyholders included in the total tax charge.

The rate of corporation tax in the UK will be reduced from 19% to 17% from 1 April 2020. In addition, the French government has introduced a stepped reduction to the French corporation tax rate from 34.43% to 25.83% from 1 January 2022. These reduced rates were used in the calculation of deferred tax assets and liabilities in the UK and France at 31 December 2018 and 30 June 2019.

Page 58

B8 - Earnings per share

This note shows how to calculate earnings per share on profit attributable to ordinary shareholders, based both on the present shares in issue (the basic earnings per share) and the potential future shares in issue, including conversion of share options granted to employees (the diluted earnings per share). We have also shown the same calculations based on our Group adjusted operating profit as we believe this gives an important indication of operating performance. Consideration of both these measures gives a full picture of the performance of the business in the period.

(a) Basic earnings per share

(i) The profit attributable to ordinary shareholders is:

			6 months 2019			6 months 2018			Full year 2018
	Group adjusted operating profit £m	Adjusting items £m	Total £m	Group adjusted operating profit £m	Adjusting items £m	Total £m	Group adjusted operating profit £m	Adjusting items £m	Total £m
Profit before tax attributable to shareholders' profits	1,448	75	1,523	1,438	(912)	526	3,116	(987)	2,129
Tax attributable to shareholders' profit	(319)	(24)	(343)	(303)	153	(150)	(647)	205	(442)
Profit for the period	1,129	51	1,180	1,135	(759)	376	2,469	(782)	1,687
Amount attributable to non-controlling interests	(47)	(17)	(64)	(46)	-	(46)	(100)	(19)	(119)
Cumulative preference dividends for the year	(9)	-	(9)	(9)	-	(9)	(17)	-	(17)
Coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax)	(6)	-	(6)	(6)	-	(6)	(36)	-	(36)
Profit attributable to ordinary shareholders	1,067	34	1,101	1,074	(759)	315	2,316	(801)	1,515

(ii) Basic earnings per share is calculated as follows:

			6 months 2019			6 months 2018			Full year 2018
	Before tax £m	Net of tax, NCI, preference dividends and DCI¹ £m	Per share p	Before tax £m	Net of tax, NCI, preference dividends and DCI¹ £m	Per share p	Before tax £m	Net of tax, NCI, preference dividends and DCI¹ £m	Per share p
Group adjusted operating profit attributable to ordinary shareholders	1,448	1,067	27.3	1,438	1,074	26.8	3,116	2,316	58.4
Adjusting items:
Investment variances and economic assumption changes	372	292	7.5	(482)	(419)	(10.5)	(197)	(198)	(5.0)
Non-life business: Short-term fluctuation in return on investments	145	121	3.1	(206)	(160)	(4.0)	(476)	(378)	(9.6)
General insurance and health business: Economic assumption changes	(73)	(58)	(1.4)	34	27	0.7	1	(1)	-
Impairment of goodwill, joint ventures, associates and other amounts expensed	(11)	(11)	(0.3)	-	-	-	(13)	(13)	(0.3)
Amortisation and impairment of intangibles	(107)	(91)	(2.3)	(101)	(82)	(2.0)	(209)	(172)	(4.3)
Amortisation and impairment of acquired value of in-force business	(191)	(167)	(4.3)	(210)	(178)	(4.4)	(426)	(371)	(9.4)
Profit on disposal and remeasurement of subsidiaries, joint ventures and associates	(13)	(14)	(0.4)	31	31	0.8	102	102	2.6
Other²	(47)	(38)	(1.0)	22	22	0.5	231	230	5.8
Profit attributable to ordinary shareholders	1,523	1,101	28.2	526	315	7.9	2,129	1,515	38.2

1 DCI includes the direct capital instrument and tier 1 notes.

2 Other includes a charge of £45 million (HY18: £nil, 2018: £190 million gain) in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see note B11), a charge of £2 million (HY18: £36 million gain, 2018: £36 million gain) relating to an adjustment to the Friends First acquisition balance sheet resulting in a corresponding decrease in the negative goodwill previously recognised, a charge of £nil (HY18: £nil, 2018: £63 million charge) relating to the UK defined pension scheme as a results of the requirement to equalise members' benefits for the effects of Guaranteed Minimum Pension, a gain of £nil relating to the sale of Aviva USA in 2013 (HY18:£nil, 2018: £78 million gain) and a charge of £nil (HY18: £14 million charge, 2018: £10 million charge) relating to goodwill payments to preference shareholders which were announced on 30 April 2018.

(iii) The calculation of basic earnings per share uses a weighted average of 3,907 million (HY18: 4,009 million, 2018: 3,963 million) ordinary shares in issue, after deducting treasury shares. The actual number of shares in issue at 30 June 2019 was 3,917 million
(HY18: 3,983 million, 2018: 3,902 million) or 3,913 million (HY18: 3,980 million, 2018: 3,899 million) excluding treasury shares.

(iv) On 1 May 2018 the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to £600 million, which was carried out in full during the period from 1 May 2018 to 17 September 2018. The number of shares in issue reduced by 119 million as at 31 December 2018 in respect of shares acquired and cancelled under the buy-back programme.

Page 59

B8 - Earnings per share continued

(b) Diluted earnings per share

(i) Diluted earnings per share is calculated as follows:

			6 months 2019			6 months 2018			Full year 2018
	Total £m	Weighted average number of shares million	Per share p	Total £m	Weighted average number of shares million	Per share p	Total £m	Weighted average number of shares million	Per share p
Profit attributable to ordinary shareholders	1,101	3,907	28.2	315	4,009	7.9	1,515	3,963	38.2
Dilutive effect of share awards and options	-	43	(0.3)	-	54	(0.1)	-	47	(0.4)
Diluted earnings per share	1,101	3,950	27.9	315	4,063	7.8	1,515	4,010	37.8

(ii) Diluted earnings per share on Group adjusted operating profit attributable to ordinary shareholders is calculated as follows:

			6 months 2019			6 months 2018			Full year 2018
	Total £m	Weighted average number of shares million	Per share p	Total £m	Weighted average number of shares million	Per share p	Total £m	Weighted average number of shares million	Per share p
Group adjusted operating profit attributable to ordinary shareholders	1,067	3,907	27.3	1,074	4,009	26.8	2,316	3,963	58.4
Dilutive effect of share awards and options	-	43	(0.3)	-	54	(0.4)	-	47	(0.6)
Diluted group adjusted operating profit per share	1,067	3,950	27.0	1,074	4,063	26.4	2,316	4,010	57.8

B9 - Dividends and appropriations

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Ordinary dividends declared and charged to equity in the period
Final 2018 - 20.75 pence per share, paid on 30 May 2019	812	-	-
Final 2017 - 19.00 pence per share, paid on 17 May 2018	-	764	764
Interim 2018 - 9.25 pence per share, paid on 24 September 2018	-	-	364
	812	764	1,128
Preference dividends declared and charged to equity in the period	9	9	17
Coupon payments on DCI and tier 1 notes	7	7	44
	828	780	1,189

Subsequent to 30 June 2019, the directors declared an interim dividend for 2019 of 9.50 pence per ordinary share (HY18: 9.25 pence), amounting to £372 million (HY18: £364 million). The dividend will be paid on 26 September 2019 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2019.

Interest on the DCI and tier 1 notes is treated as an appropriation of retained earnings and, accordingly, is accounted for when paid.
Tax relief is obtained at a rate of 19% (2018: 19%).

Page 60

B10 - Contract liabilities and associated reinsurance

The Group's liabilities for insurance and investment contracts it has sold, and the associated reinsurance, is covered in the following notes:

· Note B11 covers insurance liabilities

· Note B12 covers liabilities for investment contracts

· Note B13 details the associated reinsurance assets on these liabilities

· Note B14 shows the effects of changes in the assumptions on the liabilities

(a) Carrying amount

The following is a summary of the contract liabilities and related reinsurance assets as at 30 June/31 December.

			30 June 2019			30 June 2018	31 December 2018
	Gross provisions £m	Reinsurance assets £m	Net £m	Gross provisions £m	Reinsurance assets £m	Net £m	Gross provisions £m	Reinsurance assets £m	Net £m
Long-term business
Insurance liabilities	(131,347)	6,202	(125,145)	(129,447)	5,494	(123,953)	(125,829)	5,836	(119,993)
Liabilities for participating investment contracts	(94,575)	1	(94,574)	(89,604)	1	(89,603)	(90,455)	1	(90,454)
Liabilities for non-participating investment contracts	(132,328)	4,285	(128,043)	(127,230)	6,356	(120,874)	(120,354)	4,009	(116,345)
	(358,250)	10,488	(347,762)	(346,281)	11,851	(334,430)	(336,638)	9,846	(326,792)
Outstanding claims provisions	(2,160)	81	(2,079)	(2,058)	91	(1,967)	(2,001)	89	(1,912)
	(360,410)	10,569	(349,841)	(348,339)	11,942	(336,397)	(338,639)	9,935	(328,704)
General insurance and health
Outstanding claims provisions	(9,130)	724	(8,406)	(9,127)	851	(8,276)	(9,046)	789	(8,257)
Provisions for claims incurred but not reported	(2,554)	891	(1,663)	(2,527)	832	(1,695)	(2,360)	822	(1,538)
	(11,684)	1,615	(10,069)	(11,654)	1,683	(9,971)	(11,406)	1,611	(9,795)
Provision for unearned premiums	(5,324)	283	(5,041)	(5,146)	252	(4,894)	(4,946)	254	(4,692)
Provision arising from liability adequacy tests¹	(16)	-	(16)	(15)	-	(15)	(16)	-	(16)
	(17,024)	1,898	(15,126)	(16,815)	1,935	(14,880)	(16,368)	1,865	(14,503)
Total	(377,434)	12,467	(364,967)	(365,154)	13,877	(351,277)	(355,007)	11,800	(343,207)
Less: Amounts classified as held for sale	8,140	(53)	8,087	8,946	(46)	8,900	8,462	(45)	8,417
	(369,294)	12,414	(356,880)	(356,208)	13,831	(342,377)	(346,545)	11,755	(334,790)

1 Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations, where applicable, are included in other line items. At 30 June 2019 this provision is £79 million (2018: £nil) for the life operations and has been included in unallocated divisible surplus.

Page 61

B10 - Contract liabilities and associated reinsurance continued

(b) Change in contract liabilities, net of reinsurance, recognised as an expense

The purpose of the following table is to reconcile the change in insurance liabilities, net of reinsurance, shown in the income statement, to the change in insurance liabilities recognised as an expense in the relevant movement tables in the following notes.

6 months 2019	Gross £m	Reinsurance £m	Net £m
Long-term business
Change in insurance liabilities (note B11(b))	5,517	(362)	5,155
Change in provision for outstanding claims	162	8	170
	5,679	(354)	5,325
General insurance and health
Change in insurance liabilities (note B11(c) and B13(c))¹	123	2	125
Less: Unwind of discount	(7)	5	(2)
	116	7	123
Total change in insurance liabilities	5,795	(347)	5,448

6 months 2018	Gross £m	Reinsurance £m	Net £m
Long-term business
Change in insurance liabilities (note B11(b))	(2,466)	390	(2,076)
Change in provision for outstanding claims	246	(13)	233
	(2,220)	377	(1,843)
General insurance and health
Change in insurance liabilities (note B11(c) and B13(c))	(23)	35	12
Less: Unwind of discount	(5)	4	(1)
	(28)	39	11
Total change in insurance liabilities	(2,248)	416	(1,832)

Full year 2018	Gross £m	Reinsurance £m	Net £m
Long-term business
Change in insurance liabilities (note B11(b))	(6,284)	61	(6,223)
Change in provision for outstanding claims	190	(11)	179
	(6,094)	50	(6,044)
General insurance and health
Change in insurance liabilities (note B11(c) and B13(c))²	(313)	111	(202)
Less: Unwind of discount	(8)	8	-
	(321)	119	(202)
Total change in insurance liabilities	(6,415)	169	(6,246)

1 Includes £45 million in the UK General Insurance and Health business relating to a change in the discount rate used for estimating lump sum payments of bodily injury claims from 0.00% to -0.25%.

2 Includes £(190) million in the UK General Insurance and Health business relating to a change in the discount rate used for estimating lump sum payments of bodily injury claims from -0.75% to 0.00%.

For non-participating investment contracts, deposits collected and amounts withdrawn are not shown on the income statement, but are accounted for directly through the statement of financial position as an adjustment to the gross liabilities for investment contracts. The associated change in the investment contract provisions shown on the income statement consists of the attributed investment return. For participating investment contracts, the change in the investment contract provisions on the income statement primarily consists of the movement in participating investment contract liabilities (net of reinsurance) over the reporting period.

Page 62

B11 - Insurance liabilities

(a) Carrying amount

Insurance liabilities (gross of reinsurance) comprised:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Long-term business
Participating insurance liabilities¹	48,204	47,716	46,768
Unit-linked non-participating insurance liabilities	15,147	15,977	14,480
Other non-participating insurance liabilities¹	67,996	65,754	64,581
	131,347	129,447	125,829
Outstanding claims provisions	2,160	2,058	2,001
	133,507	131,505	127,830
General insurance and health
Outstanding claims provisions	9,130	9,127	9,046
Provision for claims incurred but not reported	2,554	2,527	2,360
	11,684	11,654	11,406
Provision for unearned premiums	5,324	5,146	4,946
Provision arising from liability adequacy tests²	16	15	16
	17,024	16,815	16,368
Total	150,531	148,320	144,198
Less: Amounts classified as held for sale	(118)	(509)	(121)
	150,413	147,811	144,077

1 Comparative amounts at full year 2018 have been revised. In the UK, £5,928 million has been reclassified from other non-participating insurance liabilities to participating insurance liabilities.

2 Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations, where applicable, are included in other line items. At 30 June 2019 this provision is £79 million (2018: £nil) for the life operations and has been included in unallocated divisible surplus.

(b) Movements in long-term business liabilities

The following movements have occurred in the long-term business liabilities (gross of reinsurance) during the period:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Carrying amount at 1 January	125,829	130,972	130,972
Liabilities in respect of new business	2,816	3,353	6,190
Expected change in existing business	(3,628)	(4,082)	(7,952)
Variance between actual and expected experience	2,945	(67)	(1,844)
Impact of operating assumption changes	-	(199)	(1,456)
Impact of economic assumption changes	3,009	(1,389)	(959)
Other movements recognised as an expense¹	375	(82)	(263)
Change in liability recognised as an expense (note B10(b))	5,517	(2,466)	(6,284)
Effect of portfolio transfers, acquisitions and disposals²	-	1,144	788
Foreign exchange rate movements	2	(197)	413
Other movements³	(1)	(6)	(60)
Carrying amount at 30 June/31 December	131,347	129,447	125,829

1 Other movements during 2019 relate to a special bonus distribution to with-profits policyholders in UK Life and the reclassification of health liabilities in Singapore. The movement in 2018 relates to a special bonus distribution to with-profits policyholders in UK Life.

2 The movement during the first 6 months of 2018 includes the acquisition of Friends First in Ireland offset by the disposal of Avipop in Italy, while full year 2018 also includes the disposal of remaining business in Spain.

3 Other movements during 2018 include the reclassification in France from insurance to participating investment contracts (£(56) million).

For many types of long-term business, including unit-linked and participating funds, movement in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The gross long-term business liabilities increased by £5.5 billion in the first half of 2019 (HY18: £1.5 billion decrease, 2018: £5.1 billion decrease) mainly driven by the variance between actual and expected experience of £2.9 billion, which was mainly due to higher than expected equity returns in the UK and France; and economic assumption changes of £3.0 billion, which reflects a reduction in valuation interest rates in response to decreasing interest rates and narrowing credit spreads, primarily in respect of immediate annuity and participating insurance contracts in the UK.

For participating insurance liabilities, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact on profit. Where assumption changes impact profit, these are included in the effect of changes in assumptions and estimates during the period (shown in note B14), together with the impact of movements in related non-financial assets.

Page 63

B11 - Insurance liabilities continued

The following changes have occurred in the general insurance and health claims liabilities (gross of reinsurance) during the period:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Carrying amount at 1 January	11,406	11,801	11,801
Impact of changes in assumptions	115	(66)	(22)
Claim losses and expenses incurred in the current year	3,408	3,490	7,158
Decrease in estimated claim losses and expenses incurred in prior periods	(58)	(83)	(544)
Incurred claims losses and expenses	3,465	3,341	6,592
Less:
Payments made on claims incurred in the current year	(1,440)	(1,461)	(3,927)
Payments made on claims incurred in prior periods	(2,097)	(2,080)	(3,343)
Recoveries on claim payments	188	172	357
Claims payments made in the period, net of recoveries	(3,349)	(3,369)	(6,913)
Unwind of discounting	7	5	8
Changes in claims reserve recognised as an expense (note B10(b))	123	(23)	(313)
Effect of portfolio transfers, acquisitions and disposals¹	-	(29)	(29)
Foreign exchange rate movements	153	(96)	(53)
Other movements	2	1	-
Carrying amount at 30 June/31 December	11,684	11,654	11,406

1 The movement during 2018 relates to the disposal of Avipop in Italy.

Subsequent event

Lump sum payments in settlement of bodily injury claims that are decided by the UK courts are calculated in accordance with the Ogden Tables and discount rate. The Ogden discount rate is set by the Lord Chancellor and is applied when calculating the present value of future care costs and loss of earnings for claims settlement purposes. Following the announcement by the Lord Chancellor on 15 July 2019 to increase the Ogden discount rate from the minus 0.75% set in 2017 to minus 0.25%, balance sheet reserves in the UK have been calculated using a discount rate of minus 0.25% at 30 June 2019. This has resulted in a strengthening of claims reserves in the UK of £45 million. At December 2018, balance sheet reserves were calculated using a rate of 0.00%. The Ogden discount rate is expected to be reviewed by the Lord Chancellor within five years.

Page 64

B12 - Liabilities for investment contracts

(a) Carrying amount

The liabilities for investment contracts (gross of reinsurance) comprised:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Long-term business
Liabilities for participating investment contracts	94,575	89,604	90,455
Liabilities for non-participating investment contracts	132,328	127,230	120,354
Total	226,903	216,834	210,809
Less: Amounts classified as held for sale	(8,022)	(8,437)	(8,341)
	218,881	208,397	202,468

Of the non-participating investment contracts measured at fair value, £131,332 million at 30 June 2019 (HY18: £126,186 million, 2018: £119,402 million) are unit-linked in structure and the fair value liability is equal to the current fund value, including any unfunded units, plus if required additional non-unit reserves based on a discounted cash flow analysis.

(b) Movements in participating investment contracts

The following movements have occurred in these liabilities (gross of reinsurance) during the period:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Carrying amount at 1 January	90,455	87,654	87,654
Liabilities in respect of new business	3,795	3,743	6,301
Expected change in existing business	(2,660)	(2,112)	(4,491)
Variance between actual and expected experience	2,833	397	(1,441)
Impact of operating assumption changes	-	-	59
Impact of economic assumption changes	139	(443)	(40)
Other movements recognised as an expense¹	161	153	152
Change in liability recognised as an expense²	4,268	1,738	540
Effect of portfolio transfers, acquisitions and disposals³	-	428	427
Foreign exchange rate movements	(148)	(216)	774
Other movements⁴	-	-	1,060
Carrying amount at 30 June/31 December	94,575	89,604	90,455

1 Other movements during 2018 and 2019 primarily relate to a special bonus distribution to with-profits policyholders in UK Life.

2 Total interest expense for participating investment contracts recognised in profit or loss is £3,341 million (HY18: £189 million, 2018: £(419) million).

3 The movement during 2018 relates to the acquisition of Friends First in Ireland.

4 The movements during 2018 relate to the reclassification in France from non- participating investment contracts to participating investment contracts (£151 million) and from insurance to participating investment contracts
(£56 million) and to a reclassification from non-participating investment contracts to participating investment contracts in the UK (£853 million).

For many types of long-term business, including unit-linked and participating funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.

The variance between actual and expected experience of £2.8 billion in the period to 30 June 2019 is primarily the result of increased equity returns in the UK and France.

The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of participating investment contract liabilities. For participating business, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes do impact profit, these are included in the effect of changes in assumptions and estimates during the year (shown in note B14), together with the impact of movements in related non-financial assets.

The following movements have occurred in these liabilities (gross of reinsurance) during the period:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Carrying amount at 1 January	120,354	124,995	124,995
Liabilities in respect of new business	2,552	2,659	4,869
Expected change in existing business	(2,110)	(2,567)	(5,509)
Variance between actual and expected experience	11,545	(394)	(5,539)
Impact of operating assumption changes	-	-	(10)
Impact of economic assumption changes	-	6	(81)
Other movements recognised as an expense	2	21	6
Change in liability	11,989	(275)	(6,264)
Effect of portfolio transfers, acquisitions and disposals¹	-	2,494	2,494
Foreign exchange rate movements	(15)	(7)	133
Other movements²	-	23	(1,004)
Carrying amount at 30 June/31 December	132,328	127,230	120,354

1 The movement during 2018 relates to the acquisition of Friends First in Ireland.

2 Other movements during 2018 relate to the reclassification in France from non- participating investment contracts to participating investment contracts (£(151) million) and to a reclassification from non-participating investment contracts to participating investment contracts in the UK (£(853) million).

Page 65

B12 - Liabilities for investment contracts continued

For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The variance between actual and expected experience of £11.5 billion in the period to 30 June 2019 is primarily the result of the impact of positive equity returns in the UK.

The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of the non-participating investment contract liabilities. The impacts of assumption changes on profit are included in the effect of changes in assumptions and estimates during the year as set out in note B14, which combines participating and non-participating investment contracts together with the impact of movements in related non-financial assets.

B13 - Reinsurance assets

(a) Carrying amount

The reinsurance assets comprised:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Long-term business
Insurance contracts	6,202	5,494	5,836
Participating investment contracts	1	1	1
Non-participating investment contracts¹	4,285	6,356	4,009
	10,488	11,851	9,846
Outstanding claims provisions	81	91	89
	10,569	11,942	9,935
General insurance and health
Outstanding claims provisions	724	851	789
Provisions for claims incurred but not reported	891	832	822
	1,615	1,683	1,611
Provisions for unearned premiums	283	252	254
	1,898	1,935	1,865
	12,467	13,877	11,800
Less: Amounts classified as held for sale	(53)	(46)	(45)
Total	12,414	13,831	11,755

1 Balances in respect of all reinsurance treaties are included under reinsurance assets, regardless of whether they transfer significant insurance risk. The reinsurance assets classified as non-participating investment contracts are financial instruments measured at fair value through profit or loss. During the first half of 2019, £277 million of reinsurance assets (UK Life) have been reclassified as collective investments in unit-linked funds following a restructure of a reinsurance treaty. This is a continuation of activity undertaken in 2018 (£3,840 million).

(b) Movements in long-term business liabilities

The following movements have occurred in the reinsurance assets on our insurance and investment contracts liabilities during the period:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Carrying amount at 1 January	9,846	11,565	11,565
Assets in respect of new business	555	1,100	1,766
Expected change in existing business assets	22	90	(22)
Variance between actual and expected experience	(32)	(104)	431
Impact of non-economic assumption changes	-	-	(460)
Impact of economic assumption changes	131	(110)	21
Other movements¹	(38)	(1,105)	(3,877)
Change in assets²	638	(129)	(2,141)
Effect of portfolio transfers, acquisitions and disposals³	-	409	399
Foreign exchange rate movements	4	6	23
Carrying amount at 30 June/31 December	10,488	11,851	9,846

1 Other movements during 2019 primarily relate to the reclassification of health reinsurance assets in Singapore and collective investments in unit-linked funds following a restructure of a reinsurance treaty. The latter part is a continuation of activity undertaken in 2018 (£3,840 million).

2 Change in assets does not reconcile with values in note B10(b) due to the inclusion of reinsurance assets classified as non-participating investment contracts where, for such contracts, deposit accounting is applied on the income statement.

3 The movement during 2018 primarily relates to the acquisition of Friends First in Ireland.

The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of reinsurance assets, with corresponding movements in gross insurance contract liabilities. For participating businesses, a movement in reinsurance assets is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes impact profit, these are included in the effect of changes in assumptions and estimates during the period (shown in note B14), together with the impact of movements in related liabilities and other non-financial assets.

Page 66

B13 - Reinsurance assets continued

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Carrying amount at 1 January	1,611	1,729	1,729
Impact of changes in assumptions	41	(33)	(22)
Reinsurers' share of claim losses and expenses
Incurred in current year	89	86	176
Incurred in prior years	(2)	39	40
Reinsurers' share of incurred claim losses and expenses	87	125	216
Less:
Reinsurance recoveries received on claims
Incurred in current year	(6)	(7)	(54)
Incurred in prior years	(129)	(124)	(259)
Reinsurance recoveries received in the period	(135)	(131)	(313)
Unwind of discounting	5	4	8
Change in reinsurance asset recognised as income (note B10(b))	(2)	(35)	(111)
Effect of portfolio transfers, acquisitions and disposals¹	-	(9)	(9)
Foreign exchange rate movements	6	(2)	2
Carrying amount at 30 June/31 December	1,615	1,683	1,611

1 The movement during 2018 relates to the proportion of reinsurance assets held by Avipop which was sold in 2018.

Page 67

B14 - Effect of changes in assumptions and estimates during the period

This note analyses the impact of changes in estimates and assumptions on liabilities for insurance and investment contracts, and related assets and liabilities, such as unallocated divisible surplus, reinsurance, deferred acquisition costs and acquired value of in-force business, and does not allow for offsetting movements in the value of backing financial assets.

	Effect on profit 6 months 2019 £m	Effect on profit 6 months 2018 £m	Effect on profit Full year 2018 £m
Assumptions
Long-term insurance business
Interest rates	(2,504)	907	1,061
Expenses	-	(1)	9
Persistency rates	-	-	23
Mortality and morbidity for assurance contracts	-	-	24
Mortality for annuity contracts	-	200	780
Tax and other assumptions	-	-	18
Long-term investment business
Expenses	-	-	(1)
General insurance and health business
Change in discount rate assumptions	(73)	34	1
Total	(2,577)	1,140	1,915

In the first half of 2019 the impact of interest rates on long-term insurance business relates primarily to annuities in the UK (including any change in credit default and reinvestment risk provisions), where a reduction in the valuation interest rate, in response to decreasing risk-free rates and narrowing of credit spreads, has increased liabilities.

In the first half of 2018 the impact of mortality for annuity contracts on long-term insurance business related to the UK with a reduction in reserves of £200 million arising from changes in base mortality assumptions. These changes included a refined financial estimate of the impact of longevity experience for bulk annuities (£145 million) and the impact of completing our review of prior period longevity experience for individual annuities (£55 million).

In the general insurance and health business, a negative impact of £(73) million (HY18: £34 million positive) has arisen primarily as a result of a decrease in the interest rates used to discount claim reserves for both periodic payment orders (PPOs) and latent claims. During the first half of 2018, the estimated future inflation rate used to value PPOs decreased and there was an increase in the interest rates used to discount claim reserves for both PPOs and latent claims.

Page 68

B15 - Unallocated divisible surplus

An unallocated divisible surplus (UDS) is established where the nature of policy benefits is such that the division between shareholder reserves and policyholder liabilities is uncertain at the reporting date. Therefore, the expected duration for settlement of the UDS is undefined.

The amount of UDS at 30 June 2019 has increased to £8.8 billion (HY18: £7.6 billion, 2018: £5.9 billion). The increase is mainly due to market movements in Europe as a result of decreasing interest rates, narrowing credit spreads and increasing equity returns.

Where the aggregate amount of participating assets is less than the participating liabilities within a fund then the shortfall may be held as negative UDS, subject to recoverability testing as part of the liability adequacy requirements of IFRS 4. There are no negative UDS balances at the participating fund-level within each life entity in the current period, whereas there was negative UDS in one fund in UK Life (HY18: £15 million, 2018: no negative UDS) and five funds in Italy (HY18: £30 million, 2018: £355 million) in the comparative periods.

Page 69

B16 - Borrowings

Our borrowings are classified as either core structural borrowings, which are included within the Group's capital employed, or operational borrowings drawn by operating subsidiaries. This note shows the carrying values of each type.

(a) Analysis of total borrowings:

Total borrowings comprise:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Core structural borrowings, at amortised cost	7,694	8,170	7,699
Operational borrowings, at amortised cost	313	417	496
Operational borrowings, at fair value	1,227	1,199	1,225
	1,540	1,616	1,721
	9,234	9,786	9,420

(b) Core structural borrowings

The carrying amounts of these borrowings are:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Subordinated debt
6.125% £700 million subordinated notes 2036	694	694	694
6.125% £800 million undated subordinated notes	797	796	797
6.875% £600 million subordinated notes 2058	594	594	594
12.000% £162 million subordinated notes 2021	185	197	191
8.250% £500 million subordinated notes 2022	555	572	563
6.625% £450 million subordinated notes 2041	449	448	449
7.875% $575 million undated subordinated notes	-	441	-
6.125% €650 million subordinated notes 2043	580	573	582
3.875% €700 million subordinated notes 2044	623	615	625
5.125% £400 million subordinated notes 2050	395	395	395
3.375% €900 million subordinated notes 2045	797	787	799
4.500% C$450 million subordinated notes 2021	270	257	257
4.375% £400 million subordinated notes 2049	394	394	394
	6,333	6,763	6,340
Senior notes
0.100% €350 million senior notes 2018	-	309	-
0.625% €500 million senior notes 2023	445	440	446
1.875% €750 million senior notes 2027	665	-	667
	1,110	749	1,113
Commercial paper	251	666	251
	7,694	8,178	7,704
Less: Amount held by Group companies	-	(8)	(5)
Total	7,694	8,170	7,699

The carrying amounts of these borrowings are:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Amounts owed to financial institutions
Loans	313	417	496
Securitised mortgage loan notes
UK lifetime mortgage business¹	1,227	1,199	1,225
Total	1,540	1,616	1,721

1 The fair value of these loan notes is calculated using similar techniques to the related securitised mortgage assets discussed in note C5.

Page 70

B17 - Pension obligations and other provisions

(a) Carrying amounts

(i) Provisions in the condensed consolidated statement of financial position

In the condensed consolidated statement of financial position, provisions include pension scheme deficits and comprise:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Total IAS 19 obligations to the main staff pension schemes	692	662	693
Deficits in other staff pension schemes	66	63	65
Total IAS 19 obligations to staff pension schemes	758	725	758
Restructuring provisions	60	71	64
Other provisions	520	617	577
	1,338	1,413	1,399
Less: Amounts classified as held for sale	-	(7)	-
Total	1,338	1,406	1,399

Other provisions shown above primarily include amounts set aside throughout the Group relating to product governance rectification and staff entitlements.

(ii) Pension obligations

The Group operates a number of defined benefit and defined contribution pension schemes. The material defined benefit schemes are in the UK, Ireland and Canada. The assets and liabilities of these schemes as at 30 June/31 December are shown below.

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Total fair value of scheme assets	19,472	18,388	18,083
Present value of defined benefit obligation	(16,696)	(15,473)	(15,520)
Net IAS 19 surplus in the schemes	2,776	2,915	2,563

Surpluses included in other assets¹	3,468	3,577	3,256
Deficits included in provisions	(692)	(662)	(693)
Net IAS 19 surplus in the schemes	2,776	2,915	2,563

1 Pension surpluses and other assets totalling £3,522 million (HY18: £3,626 million, 2018: £3,341 million) includes pension surpluses of £3,468 million (HY18: £3,577 million, 2018: £3,256 million) and other assets of £54 million
(HY18: £49 million, 2018: £85 million).

Page 71

B17 - Pension obligations and other provisions continued

(b) Movements in the schemes' surpluses and deficits

Movements in the pension schemes' surpluses and deficits since 31 December comprise:

	6 months 2019 £m	6 months 2018 £m	Full year 2018 £m
Net IAS 19 surplus in the schemes at 1 January	2,563	2,635	2,635

Past service costs - amendments¹	-	-	(63)
Administrative expenses	(9)	(10)	(19)
Total pension cost charged to net operating expenses	(9)	(10)	(82)
Net interest credited to investment income/(finance costs)²	34	31	67
Total recognised in income statement	25	21	(15)

Remeasurements:
Actual return on these assets	1,575	(79)	(182)
Less: Interest income on scheme assets	(240)	(220)	(442)
Return on scheme assets excluding amounts in interest income	1,335	(299)	(624)
(Losses)/gains from change in financial assumptions	(1,277)	449	622
Losses from change in demographic assumptions	(10)	-	(185)
Experience gains/(losses)	22	(13)	(93)
Total remeasurements recognised in other comprehensive income³	70	137	(280)

Acquisitions	-	(8)	(9)
Employer contributions	119	129	236
Administrative expenses paid from scheme assets	-	(2)	(4)
Foreign exchange rate movements	(1)	3	-
Net IAS 19 surplus in the schemes at 30 June/31 December	2,776	2,915	2,563

1 2018 past service costs included a charge of £63 million relating to the estimated additional liability arising in the UK defined benefit pension schemes as a result of the requirement to equalise members' benefits for the effects of Guaranteed Minimum Pension (GMP). This additional liability arose following the High Court judgement in October 2018 in the case involving Lloyds Banking Group.

2 Net interest income of £46 million (HY18: £43 million, 2018: £89 million) has been credited to investment income and net interest expense of £12 million (HY18: £12 million, 2018: £22 million) has been charged to finance costs in HY19.

3 Net remeasurements of pension schemes recorded in the consolidated statement of comprehensive income of £70 million gain (HY18: £137 million gain, 2018: £279 million loss) includes £70 million of remeasurement gains (HY18: £137 million gain, 2018: £280 million loss) on the main pension schemes and £nil gains in relation to other schemes (HY18: £nil, 2018: £1 million gain).

Under the IAS 19 valuation basis, the Group applies the principles of IFRIC 14, IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, whereby a surplus is only recognised to the extent that the Company is able to access the surplus either through an unconditional right of refund to the surplus or through reduced future contributions relating to ongoing service, which have been substantively enacted or contractually agreed. The Group has determined that it can derive economic benefit from the surplus in the Aviva Staff Pension Scheme (ASPS) via a reduction to future employer contributions for defined contribution members, which could theoretically be paid from the surplus funds in the ASPS. In the RAC 2003 Pension Scheme (RAC) and Friends Provident Pension Scheme (FPPS), the Group has determined that the rules set out in the schemes' governing documentation provide for an unconditional right to a refund from any future surplus funds in the schemes.

The increase in the surplus during the period is primarily due to employer contributions into the schemes and remeasurements recognised in other comprehensive income. The remeasurements recognised are principally a result of positive equity and property performance in the UK, as well as falling interest rates over the period. This has been partly offset by narrowing corporate bond spreads in the UK.

B18 - Related party transactions

During the period, there have been no changes in the nature of the related party transactions from those described in the Group's annual report and accounts for the year ended 31 December 2018. There were no transactions with related parties that had a material effect on the result for the period ended 30 June 2019, 30 June 2018 or 31 December 2018.

Page 72

B19 - Fair value

This note explains the methodology for valuing our assets and liabilities measured at fair value, and for fair value disclosures. It also provides an analysis of these according to a 'fair value hierarchy', determined by the market observability of valuation inputs.

(a) Basis for determining fair value hierarchy

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1

Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets and liabilities that the entity can access at the measurement date.

Level 2

Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the instrument. Level 2 inputs include the following:

· Quoted prices for similar assets and liabilities in active markets.

· Quoted prices for identical or similar assets and liabilities in markets that are not active, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly.

· Inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, implied volatilities, and credit spreads).

· Market-corroborated inputs.

Where we use broker quotes and no information as to the observability of inputs is provided by the broker, the investments are classified as follows:

· Where the broker price is validated by using internal models with market observable inputs and the values are similar, we classify the investment as Level 2.

· In circumstances where internal models are not used to validate broker prices, or the observability of inputs used by brokers is unavailable, the investment is classified as Level 3.

Level 3

Inputs to Level 3 fair values are unobservable inputs for the asset or liability. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs reflect the assumptions the business unit considers that market participants would use in pricing the asset or liability. Examples are investment properties, and commercial and equity release mortgage loans.

The majority of the Group's assets and liabilities measured at fair value are based on quoted market information or observable market data. 16.6% of assets and 3.1% of liabilities measured at fair value are based on estimates and recorded as Level 3. Where estimates are used, these are based on a combination of independent third-party evidence and internally developed models, calibrated to market observable data where possible. Third-party valuations using significant unobservable inputs validated against Level 2 internally modelled valuations are classified as Level 3, where there is a significant difference between the third-party price and the internally modelled value. Where the difference is insignificant, the instrument would be classified as Level 2.

(b) Changes to valuation techniques

There were no changes in the valuation techniques during the period compared to those described in the 2018 annual report and accounts.

Page 73

B19 - Fair value continued

Set out below is a comparison of the carrying amounts and fair values of financial assets and liabilities, excluding those classified as held for sale. These amounts may differ where the asset or liability is carried on a measurement basis other than fair value, e.g. amortised cost.

		30 June 2019		Restated¹ 30 June 2018	Restated¹ 31 December 2018
	Fair value £m	Carrying amount £m	Fair value £m	Carrying amount £m	Fair value £m	Carrying amount £m
Financial assets
Loans²	39,417	39,452	36,362	36,413	36,130	36,184
Financial investments	343,858	343,858	328,410	328,410	319,825	319,825
Fixed maturity securities	204,307	204,307	193,276	193,276	193,876	193,876
Equity securities	94,743	94,743	94,395	94,395	88,227	88,227
Other investments (including derivatives)	44,808	44,808	40,739	40,739	37,722	37,722

Financial liabilities
Non-participating investment contracts	124,306	124,306	118,793	118,793	112,013	112,013
Net asset value attributable to unitholders	16,764	16,764	17,078	17,078	16,338	16,338
Borrowings²	10,213	9,234	10,456	9,786	9,826	9,420
Derivative liabilities	7,041	7,041	6,520	6,520	6,478	6,478

2 Within the fair value total, the estimated fair value has been provided for the portion of the loans and borrowings that are carried at amortised cost.

Fair value of the following assets and liabilities approximate to their carrying amounts:

· Receivables

· Cash and cash equivalents

· Payables and other financial liabilities

(d) Fair value hierarchy analysis

An analysis of assets and liabilities measured at amortised cost and fair value categorised by fair value hierarchy is given below.

	Fair value hierarchy
At 30 June 2019	Level 1 £m	Level 2 £m	Level 3 £m	Sub-total Fair value £m	Amortised cost £m	Total carrying value £m
Recurring fair value measurements
Investment property	-	-	11,471	11,471	-	11,471
Loans	-	-	27,279	27,279	12,173	39,452
Financial investments measured at fair value
Fixed maturity securities	70,238	114,929	19,140	204,307	-	204,307
Equity securities	94,267	-	476	94,743	-	94,743
Other investments (including derivatives)	32,296	8,161	4,351	44,808	-	44,808
Financial assets of operations classified as held for sale	5,075	20	1,814	6,909	-	6,909
Total	201,876	123,110	64,531	389,517	12,173	401,690
Financial liabilities measured at fair value
Non-participating investment contracts¹	124,260	46	-	124,306	-	124,306
Net asset value attributable to unit holders	16,742	-	22	16,764	-	16,764
Borrowings	-	-	1,227	1,227	8,007	9,234
Derivative liabilities	304	6,054	683	7,041	-	7,041
Financial liabilities of operations classified as held for sale	5,075	20	2,927	8,022	-	8,022
Total	146,381	6,120	4,859	157,360	8,007	165,367

1 In addition to the balances in this table, included within reinsurance assets in the condensed statement of financial position and note B13 are £4,285 million of non-participating investment contracts, which are legally reinsurance but do not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments measured at fair value through profit and loss and are classified as Level 1 assets.

	Fair value hierarchy
At 30 June 2019	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Non-recurring fair value measurement
Properties occupied by group companies	-	-	362	362
Total	-	-	362	362

IFRS 13, Fair Value Measurement, permits assets and liabilities to be measured at fair value on either a recurring or non-recurring basis. Recurring fair value measurements are those that other IFRSs require or permit in the statement of financial position at the end of each reporting period, whereas non-recurring fair value measurements of assets or liabilities are those that other IFRSs require or permit in the statement of financial position in particular circumstances. The value of owner-occupied properties measured on a non-recurring basis at 30 June 2019 was £362 million (HY18: £337 million; 2018: £352 million), stated at their revalued amounts in line with the requirements of IAS 16, Property, Plant and Equipment.

Page 74

B19 - Fair value continued

(d) Fair value hierarchy analysis continued

	Fair value hierarchy
Restated¹ At 30 June 2018	Level 1 £m	Level 2 £m	Level 3 £m	Sub-total Fair value £m	Amortised cost £m	Total carrying value £m
Recurring fair value measurements
Investment property	-	-	11,151	11,151	-	11,151
Loans	-	437	23,885	24,322	12,091	36,413
Financial investments measured at fair value
Fixed maturity securities	64,409	112,936	15,931	193,276	-	193,276
Equity securities	93,886	1	508	94,395	-	94,395
Other investments (including derivatives)	30,001	7,105	3,633	40,739	-	40,739
Financial assets of operations classified as held for sale	5,740	7	2,000	7,747	-	7,747
Total	194,036	120,486	57,108	371,630	12,091	383,721
Financial liabilities measured at fair value
Non-participating investment contracts²	118,594	199	-	118,793	-	118,793
Net asset value attributable to unit holders	17,057	-	21	17,078	-	17,078
Borrowings	-	-	1,199	1,199	8,587	9,786
Derivative liabilities	435	5,674	411	6,520	-	6,520
Financial liabilities of operations classified as held for sale	5,283	23	3,147	8,453	-	8,453
Total	141,369	5,896	4,778	152,043	8,587	160,630

1 Following a review of the Group's presentation of the consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the period or equity. See note B2 for further information.

2 In addition to the balances in this table, included within reinsurance assets in the condensed statement of financial position and note B13 are £6,356 million of non-participating investment contracts, which are legally reinsurance but do not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments measured at fair value through profit and loss and are classified as Level 1 assets.

	Fair value hierarchy
At 30 June 2018	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Non-recurring fair value measurement
Properties occupied by group companies	-	-	337	337
Total	-	-	337	337

	Fair value hierarchy
Restated¹ At 31 December 2018	Level 1 £m	Level 2 £m	Level 3 £m	Sub-total Fair value £m	Amortised cost £m	Total carrying value £m
Recurring fair value measurements
Investment property	-	-	11,482	11,482	-	11,482
Loans	-	518	25,008	25,526	10,658	36,184
Financial investments measured at fair value
Fixed maturity securities	65,996	110,302	17,578	193,876	-	193,876
Equity securities	87,813	-	414	88,227	-	88,227
Other investments (including derivatives)	26,237	7,378	4,107	37,722	-	37,722
Financial assets of operations classified as held for sale	5,240	19	1,992	7,251	-	7,251
Total	185,286	118,217	60,581	364,084	10,658	374,742
Financial liabilities measured at fair value
Non-participating investment contracts²	111,966	47	-	112,013	-	112,013
Net asset value attributable to unit holders	16,313	-	25	16,338	-	16,338
Borrowings	-	-	1,225	1,225	8,195	9,420
Derivative liabilities	466	5,478	534	6,478	-	6,478
Financial liabilities of operations classified as held for sale	5,241	-	3,100	8,341	-	8,341
Total	133,986	5,525	4,884	144,395	8,195	152,590

2 In addition to the balances in this table, included within reinsurance assets in the condensed statement of financial position and note B13 are £4,009 million of non-participating investment contracts, which are legally reinsurance but do not meet the definition of a reinsurance contract under IFRS. These assets are financial instruments measured at fair value through profit and loss and are classified as Level 1 assets.

	Fair value hierarchy
At 31 December 2018	Level 1 £m	Level 2 £m	Level 3 £m	Total fair value £m
Non-recurring fair value measurement
Properties occupied by group companies	-	-	352	352
Total	-	-	352	352

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B19 - Fair value continued

(e) Transfers between Levels of the fair value hierarchy

For financial instruments that are recognised at fair value on a recurring basis, the Group determines whether transfers have occurred between levels of the fair value hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting period.

Transfers between Level 1 and Level 2

There were no significant transfers between Level 1 and Level 2 investments during the six month period ended 30 June 2019.

Transfers to/from Level 3

The table below shows the movement in the Level 3 assets and liabilities measured at fair value.

Transfers into Level 3 of £0.8 billion and transfers out of Level 3 of £0.2 billion relate principally to debt securities held in the UK. These are transferred between Levels 2 and 3 depending on the availability of observable inputs and whether the counterparty and broker quotes are corroborated using valuation models with observable inputs.

There were also transfers into Level 3 of £0.5 billion relating to commercial mortgage loans held by our UK business which are valued using discounted cash flow models.

						Assets					Liabilities
At 30 June 2019	Investment property £m	Loans £m	Debt securities £m	Equity securities £m	Other investments (including derivatives) £m	Financial assets of operations classified as held for sale £m	Non-participating investment contracts £m	Net asset value attributable to unitholders £m	Derivative liabilities £m	Borrowings £m	Financial liabilities of operations classified as held for sale £m
Opening balance at 1 January 2019	11,482	25,008	17,578	414	4,107	1,992	-	(25)	(534)	(1,225)	(3,100)
Total net gains/(losses) recognised in the income statement¹	34	688	583	3	97	34	-	-	(168)	(10)	(34)
Total net gains/(losses) recognised in other comprehensive income	-	-	-	-	-	8	-	-	-	-	-
Purchases	753	1,802	1,200	95	493	36	(68)	-	(62)	-	(40)
Issuances	-	80	-	-	-	-	-	-	-	-	-
Disposals	(788)	(818)	(852)	(29)	(321)	(163)	68	3	83	8	162
Transfers into Level 3	-	519	848	(8)	8	1	-	-	-	-	(8)
Transfers out of Level 3	-	-	(197)	-	(32)	(94)	-	-	-	-	93
Foreign exchange rate movements	(10)	-	(20)	1	(1)	-	-	-	(2)	-	-
Balance at 30 June 2019	11,471	27,279	19,140	476	4,351	1,814	-	(22)	(683)	(1,227)	(2,927)

1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.

						Assets					Liabilities
At 30 June 2018	Investment property £m	Loans £m	Debt securities £m	Equity securities £m	Other investments (including derivatives) £m	Financial assets of operations classified as held for sale £m	Non-participating investment contracts £m	Net asset value attributable to unitholders £m	Derivative liabilities £m	Borrowings £m	Financial liabilities of operations classified as held for sale £m
Opening balance at 1 January 2018	10,797	23,949	15,137	776	2,863	2,093	-	(13)	(358)	(1,180)	(3,306)
Total net gains/(losses) recognised in the income statement¹	163	(309)	(80)	(11)	(6)	(37)	-	-	(89)	(20)	37
Total net gains/(losses) recognised in other comprehensive income	-	-	-	-	-	-	-	-	-	-	-
Purchases	531	631	798	124	940	56	-	-	-	-	(56)
Issuances	-	51	-	-	-	-	-	-	-	-	-
Disposals	(319)	(437)	(411)	(544)	(157)	(78)	-	(8)	36	1	144
Transfers into Level 3	5	-	1,322	165	158	15	-	-	-	-	(15)
Transfers out of Level 3	-	-	(802)	(2)	(161)	(49)	-	-	-	-	49
Foreign exchange rate movements	(26)	-	(33)	-	(4)	-	-	-	-	-	-
Balance at 30 June 2018	11,151	23,885	15,931	508	3,633	2,000	-	(21)	(411)	(1,199)	(3,147)

1 Total net (losses)/gains recognised in the income statement includes realised gains/(losses) on disposals.

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B19 - Fair value continued

(e) Transfers between Levels of the fair value hierarchy continued

						Assets					Liabilities
At 31 December 2018	Investment property £m	Loans £m	Debt securities £m	Equity securities £m	Other investments (including derivatives) £m	Financial assets of operations classified as held for sale £m	Non-participating investment contracts £m	Net asset value attributable to unitholders £m	Derivative liabilities £m	Borrowings £m	Financial liabilities of operations classified as held for sale £m
Opening balance at 1 January 2018	10,797	23,949	15,137	776	2,863	2,093	-	(13)	(358)	(1,180)	(3,306)
Total net gains/(losses) recognised in the income statement¹	376	(530)	(363)	(102)	(69)	(73)	-	-	(136)	(81)	74
Total net gains/(losses) recognised in other comprehensive income	-	-	-	-	-	-	-	-	-	-	-
Purchases	1,185	3,451	3,175	189	1,761	201	(108)	-	(59)	-	(95)
Issuances	-	200	-	-	-	-	-	-	-	-	-
Disposals	(927)	(2,065)	(1,221)	(544)	(554)	(191)	108	(12)	20	36	189
Transfers into Level 3	-	-	1,242	95	77	20	-	-	-	-	(20)
Transfers out of Level 3	-	-	(503)	(2)	-	(58)	-	-	-	-	58
Foreign exchange rate movements	51	3	111	2	29	-	-	-	(1)	-	-
Balance at 31 December 2018	11,482	25,008	17,578	414	4,107	1,992	-	(25)	(534)	(1,225)	(3,100)

1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.

(f) Further information on Level 3 assets and liabilities

Total net gains recognised in the income statement in the first half of 2019 in respect of Level 3 assets measured at fair value amounted to £1.4 billion (HY18: net losses of £0.3 billion) with net losses in respect of liabilities of £0.2 billion (HY18: net losses of £0.1 billion).

The principal assets classified as Level 3, and the valuation techniques applied to them, are described below.

(i) Investment property

Investment property is valued in the UK at least annually by external chartered surveyors in accordance with guidance issued by The Royal Institution of Chartered Surveyors, and using estimates during the intervening period. Outside the UK, valuations are produced by external qualified professional appraisers in the countries concerned. Investment properties are valued on an income approach that is based on current rental income plus anticipated uplifts at the next rent review, lease expiry, or break option taking into consideration lease incentives and assuming no further growth in the estimated rental value of the property. The uplift and discount rates are derived from rates implied by recent market transactions on similar properties. These inputs are deemed unobservable.

(ii) Loans

· Commercial mortgage loans and Primary Healthcare loans held by our UK Life business are valued using a Portfolio Credit Risk Model. This model calculates a Credit Risk Adjusted Value for each loan. The risk adjusted cash flows are discounted using a yield curve, taking into account the term dependent gilt yield curve and global assumptions for the liquidity premium. Loans valued using this model have been classified as Level 3 as the liquidity premium is deemed to be non-market observable. The liquidity premium used in the discount rate ranges between 65 bps and 195 bps (2018: between 65 bps and 195 bps).

· Equity release mortgage loans held by our UK Life business are valued using an internal model, with fair value initially being equal to the transaction price. The value of these loans is dependent on the expected term of the mortgage and the forecast property value at the end of the term, and is calculated by adjusting future cash flows for credit risk and discounting using a yield curve plus an allowance for illiquidity. At 30 June 2019 the illiquidity premium used in the discount rate was 180 bps (2018: 210 bps).

The mortgages have a no negative equity guarantee (NNEG) such that the cost of any potential shortfall between the value of the loan and the realised value of the property, at the end of the term, is recognised by a deduction to the value of the loan. Property valuations at the reporting date are obtained by taking the most recent valuation for the property and indexing using market observable regional house price indices.

NNEG is calculated using base property growth rates reduced for the cost of potential dilapidations, using a stochastic model. In addition, a cost of capital charge is applied to reflect the variability in these cash flows. The base property growth rate assumption is RPI +0.75% which equates to a long-term average growth rate of 4.2% pa at 30 June 2019 (2018: 4.3% pa). After applying the cost of capital charge, dilapidations and the stochastic distribution, the effective net long-term growth rate equates to 0.7% pa (2018: 0.6% pa).

· Mortgage loan assumptions for future property prices and rental income also include an allowance for the possible adverse impact of the decision for the UK to leave the European Union.

· Infrastructure and Private Finance Initiative (PFI) loans held by our UK Life business are valued using a discounted cash flow model. This adds spreads for credit and illiquidity to a risk-free discount rate. Credit spreads used in the discount rate are calculated using an internally developed methodology which depends on the credit rating of each loan, credit spreads on publicly traded bonds and an estimated recovery rate in event of default and are deemed to be unobservable. The liquidity premium used in the discount rate is 55 bps (2018: 65 bps).

(iii) Debt securities

· Structured bond-type and non-standard debt products held by our business in France and bonds held by our UK business have no active market. These debt securities are valued either using counterparty or broker quotes and validated against internal or third-party models. These bonds have been classified as Level 3 because either (i) the third-party models included a significant unobservable liquidity adjustment, or (ii) differences between the valuation provided by the counterparty and broker quotes and the validation model were sufficiently significant to result in a Level 3 classification.

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(f) Further information on Level 3 assets and liabilities continued

(iii) Debt securities

· Privately placed notes held by our UK Life business have been valued using broker quotes or a discounted cash flow model using discount rates based on swap curves of similar maturity, plus internally derived spreads for credit risk. As these spreads have been deemed to be unobservable these notes have been classified as Level 3.

· Debt securities held by our French, UK and Asia businesses, which are not traded in an active market, have been valued using third party or counterparty valuations. These prices are considered to be unobservable due to infrequent market transactions.

(iv) Equity securities

· Equity securities which primarily comprise of private equity holdings held in the UK are valued by a number of third party specialists. These are valued using a range of techniques, including earnings multiples, forecast cash flows and price/earnings ratios which are deemed to be unobservable.

(v) Property funds

· Property funds are valued based on external valuation reports received from fund managers.

(vi) Financial assets of operations classified as held for sale

· Financial assets of operations classified as held for sale are held by our Asia business and consist primarily of discretionary managed funds of £1.2 billion (2018: £1.4 billion) and debt securities which are not traded in an active market and have been valued using third party or counterparty valuations of £0.4 billion (2018: £0.4 billion). These assets are included within the relevant asset category within the sensitivity table below.

(vii) Liabilities

The principal liabilities classified as Level 3, and the valuation techniques applied to them, are:

· £2.9 billion (2018: £3.1 billion) of non-participating investment contract liabilities, classified as held for sale, are classified as Level 3, either because the underlying unit funds are classified as Level 3 assets or because the liability relates to unfunded units or other non-unit adjustments which are based on a discounted cash flow analysis using unobservable market data and assumptions.

· Securitised mortgage loan notes, presented within Borrowings, are valued using a similar technique to the related Level 3 securitised mortgage assets.

Where these valuations are at a date other than the balance sheet date, as in the case of some private equity funds, adjustments are made to reflect items such as subsequent drawdowns and distributions and the fund manager's carried interest.

Sensitivities

Where possible, the Group tests the sensitivity of the fair values of Level 3 assets and liabilities to changes in unobservable inputs to reasonable alternatives. Level 3 valuations are sourced from independent third parties when available and, where appropriate, validated against internally-modelled valuations, third-party models or broker quotes. Where third-party pricing sources are unwilling to provide a sensitivity analysis for their valuations, the Group undertakes, where feasible, sensitivity analysis on the following basis:

· For third-party valuations validated against internally-modelled valuations using significant unobservable inputs, the sensitivity of the internally-modelled valuation to changes in unobservable inputs to a reasonable alternative is determined.

· For third-party valuations either not validated or validated against a third-party model or broker quote, the third-party valuation in its entirety is considered an unobservable input. Sensitivities are determined by flexing inputs of internal models to a reasonable alternative, including the yield, NAV multiple or other suitable valuation multiples of the financial instrument implied by the third-party valuation. For example, for a fixed income security the implied yield would be the rate of return which discounts the security's contractual cash flows to equal the third-party valuation.

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(f) Further information on Level 3 assets and liabilities continued

The tables below show the sensitivity of the fair value of Level 3 assets and liabilities to changes in unobservable inputs to a reasonable alternative:

	30 June 2019 Fair value £bn				Sensitivities
	30 June 2019 Fair value £bn	Most significant unobservable input	Reasonable alternative	Positive Impact £bn	Negative Impact £bn
Investment property	11.5	Equivalent rental yields	+/- 5-10%	0.9	(0.9)
Loans
Commercial mortgage loans and Primary Healthcare loans	12.3	Illiquidity premium	+/- 20 bps	0.2	(0.2)
Equity release mortgage loans	10.5	Base property growth rate	+/- 10%	0.2	(0.2)
		Current property market values	+/- 10%	0.3	(0.4)
Infrastructure and Private Finance Initiative (PFI) loans	4.1	Illiquidity premium	+/- 25 bps¹	0.2	(0.2)
Other	0.4	Illiquidity premium	+/- 25 bps¹	-	-
Debt securities
Structured bond-type and non-standard debt products	6.8	Market spread (credit, liquidity and other)	+/- 25 bps	0.1	(0.1)
Privately placed notes	1.5	Credit spreads	+/- 25 bps¹	-	-
Other debt securities	11.2	Credit and liquidity spreads	+/- 20-25 bps	0.5	(0.5)
Equity securities	0.5	Market spread (credit, liquidity and other)	+/- 25 bps	-	-
Other investments
Property funds	0.8	Market multiples applied to net asset values	+/- 15-20%	0.1	(0.1)
Other investments (including derivatives)	4.9	Market multiples applied to net asset values	+/- 10-40%²	0.7	(0.5)
Liabilities
Non-participating investment contract liabilities	(2.9)	Fair value of the underlying unit funds	+/- 20-25%	0.4	(0.4)
Borrowings	(1.2)	Illiquidity premium	+/- 50 bps	-	-
Other liabilities (including derivatives)	(0.7)	Independent valuation vs counterparty	N/A	-	-
Total Level 3 investments	59.7			3.6	(3.5)

1 On discount spreads.

2 Dependent on investment category.

	31 December 2018 Fair value £bn				Sensitivities
	31 December 2018 Fair value £bn	Most significant unobservable input	Reasonable alternative	Positive Impact £bn	Negative Impact £bn
Investment property	11.6	Equivalent rental yields	+/- 5-10%	0.9	(0.9)
Loans
Commercial mortgage loans and Primary Healthcare loans	11.5	Illiquidity premium	+/- 20 bps	0.2	(0.2)
Equity release mortgage loans	9.7	Base property growth rate³	+/- 10%	0.3	(0.3)
		Current property market values	+/- 10%	0.3	(0.4)
Infrastructure and Private Finance Initiative (PFI) loans	3.4	Illiquidity premium	+/- 25 bps¹	0.1	(0.1)
Other	0.4	Illiquidity premium	+/- 25 bps¹	-	-
Debt securities
Structured bond-type and non-standard debt products	6.6	Market spread (credit, liquidity and other)	+/- 25 bps	0.1	(0.1)
Privately placed notes	1.6	Credit spreads	+/- 25 bps¹	0.1	-
Other debt securities	9.8	Credit and liquidity spreads	+/- 20-25 bps	0.4	(0.4)
Equity securities	0.3	Market spread (credit, liquidity and other)	+/- 25 bps	-	-
Other investments
Property funds	0.8	Market multiples applied to net asset values	+/- 15-20%	0.1	(0.1)
Other investments (including derivatives)	4.9	Market multiples applied to net asset values	+/- 10-40%²	0.7	(0.6)
Liabilities
Non-participating investment contract liabilities	(3.1)	Fair value of the underlying unit funds	+/- 20-25%	0.4	(0.4)
Borrowings	(1.2)	Illiquidity premium	+/- 50 bps	-	-
Other liabilities (including derivatives)	(0.6)	Independent valuation vs counterparty	N/A	-	-
Total Level 3 investments	55.7			3.6	(3.5)

1 On discount spreads.

2 Dependent on investment category.

3 Following a review of the sensitivities of equity release mortgage loans to base property growth rates, the 2018 comparative amounts have been restated from those previously reported.

The above tables demonstrate the effect of a change in one unobservable input while other assumptions remain unchanged. In reality, there may be a correlation between the unobservable inputs and other factors. It should also be noted that some of these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

Page 79

B20 - Risk management

As a global insurance group, risk management is at the heart of what we do and is a source of value creation as well as a vital form of control. It is an integral part of managing and maintaining financial strength and stability for our customers, shareholders and other stakeholders.

Our sustainability and financial strength are underpinned by an effective risk management process which helps us identify major risks to which we may be exposed, establish appropriate controls and take mitigating actions for the benefit of our customers and investors. The Group's risk strategy is to invest its available capital to optimise the balance between return and risk while maintaining an appropriate level of economic (i.e. risk-based) capital and regulatory capital. Consequently, our risk management goals are to:

· Embed rigorous risk management throughout the business, based on setting clear risk appetites and staying within these;

· Allocate capital where it will make the highest returns on a risk-adjusted basis; and

· Meet the expectations of our customers, investors and regulators that we will maintain sufficient capital surpluses to meet our liabilities even if a number of extreme risks materialise.

Aviva's risk management framework has been designed and implemented to support these objectives. The key elements of our risk management framework comprise our risk appetite; risk governance, including risk policies and business standards, risk oversight committees and roles and responsibilities; and the processes we use to identify, measure, manage, monitor and report risks, including the use of our risk models and stress and scenario testing.

Risk environment

During the first half of 2019 concerns over global economic growth have softened the monetary policy stance of Central Banks. Markets now expect the US Federal Reserve will cut interest rates in the second half of the year. This change in sentiment has helped boost US equity market indices to close on record highs, while underpinning equity values in Europe including the UK. However, negative yield curves for government treasury securities, which are normally a precursor to an economic recession, are now evident in many major developed economies. In the UK, constrained consumer spending, continued central government fiscal restraint and subdued investment spend due to on-going uncertainty over the outcome of the UK's decision to leave the EU continues to result in lacklustre economic growth and negatively impact the pound sterling exchange rate. Aviva regularly monitors our exposures and employs both formal and ad-hoc processes to evaluate changing market conditions which enables us to respond in a timely and appropriate manner.

The Group's operational preparations for the UK's withdrawal from the EU, currently due on 31 October 2019, are now largely complete. We have addressed the potential loss of our ability in the future to passport business into the EU through insurance portfolio transfers to our business in Ireland and expansion of our business in Luxembourg to serve our European Economic Area (EEA) asset management clients and funds, while we will have amended contractual terms for data sharing and transfers to allow continued uninterrupted flow of personal data between our EU businesses and the UK by 31 October 2019.

The European Commission's Solvency II review is expected to continue until 2021, covering among other things a review of the Long-Term Guarantee measures. We will continue to monitor developments in this area. The Prudential Regulation Authority (PRA) continues to publish consultations and supervisory statements that set out its expectations relating to elements of the Solvency II regime, recent consultations include papers on equity release mortgages (CP7/19) and transitional measures on technical provisions (CP11/19). The 30 June 2019 Solvency II shareholder position includes a proforma adjustment of a £0.2 billion reduction in surplus as a result of an increase in SCR for the potential impact of this expected change.

In the UK the Financial Conduct Authority (FCA) is currently undertaking a market study on general insurance pricing, with potential implications for renewal pricing in particular. With a view to ensuring existing Aviva customers are treated fairly on renewal over the last few years the Group has improved its renewal pricing practices, including in the first half of 2019 launching AvivaPlus, rewarding loyal customers. We expect fair treatment of customers and operational resilience to continue to be the focus of UK regulators during the remainder of 2019. Similarly, in the EU the European Insurance and Occupational Pension Authority (EIOPA) is focused on the convergence of supervision within the EU with the aim of achieving comparable levels of consumer protection.

The Group is in the process of implementing the new international accounting standard for insurance contracts, IFRS 17 Insurance Contracts. The standard currently applies to reporting periods beginning on or after 1 January 2021. However, while it is expected the International Accounting Standards Board (IASB) will defer the effective date to 1 January 2022 this remains subject to the IASB's consultation on recommended changes to the standard and has not yet been endorsed by the EU. Given that industry practice and interpretation of the standard is still developing, the likely full impact of implementing the standard remains uncertain.

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B20 - Risk management continued

Risk profile

We continue to manage our risk profile to reflect Aviva's objective of maintaining financial strength and reducing capital volatility, and reallocating capital in line with the Group's strategy. Measures to maintain the resilience of the Group's capital position include putting in place a number of foreign exchange, credit and equity hedges. These are used to mitigate the Group's foreign exchange, credit and equity risk exposure, and enable the Group to accept other credit risks offering better risk adjusted returns while remaining within appetite. In addition, we renewed our Group-wide catastrophe reinsurance programme to reduce the Group's potential loss to an extreme insurance loss event.

Going forward, the Group's focus will continue to be on sustainable growth in cash flow and capital generation, to invest in growth opportunities and increasing returns to shareholders, while maintaining a strong balance sheet with limited volatility and external leverage at a level commensurate with an AA financial strength rating.

Material risks and uncertainties

In accordance with the requirements of the FCA Handbook (DTR 4.2.7) we provide an update here on the material risks and uncertainties facing the Group. The types of risks to which the Group is exposed have not changed significantly during the first half of the year and remain credit, market, life insurance, general insurance (including health insurance), liquidity, asset management, operational and reputational risks. These risks are described below. Further detail on these risks is given within note 59 of the Aviva plc Annual Report and Accounts 2018.

(a) Credit risk

Credit risk is the risk of financial loss as a result of the default or failure of third parties to meet their payment obligations to Aviva, or variations in market values as a result in changes in expectations related to these risks. Aviva has a strong record of managing credit risk and we see credit as an area where we can make a good return for the benefit of both our policyholders and shareholders.

Our approach to managing credit risk recognises that there is a risk of adverse financial impact resulting from fluctuations in credit quality of third parties including default, rating transition and credit spread movements. Our credit risks arise principally through exposures to debt security investments, structured asset investments, bank deposits, derivative counterparties, mortgage lending and reinsurance counterparties.

The Group manages its credit risk at business unit and Group level. All business units are required to implement credit risk management processes (including limits frameworks), operate specific risk management committees, and ensure detailed reporting and monitoring of their exposures against pre-established risk criteria. At Group level, we manage and monitor all exposures across our business units on a consolidated basis, and operate a Group limit framework that must be adhered to by all. The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure.

During the first half of 2019 the credit rating profile of our debt securities portfolio has remained strong. At 30 June 2019, the proportion of our shareholder debt securities that are investment grade has increased slightly to 91.8% (2018: 91.4%). Of the remaining 8.2% of shareholder debt securities that do not have an external rating of BBB or higher, 85.7% have been internally assessed as being of investment grade quality applying an internal rating methodology largely consistent with that adopted by an external rating agency.

(b) Market risk

Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, inflation, foreign currency exchange rates, equity and property prices.

We continue to limit our direct equity exposure. A rolling central equity hedging strategy remains in place to help control the Group's overall direct and indirect exposure to equities. The Group continues to hold a series of macro equity hedges to reduce the overall shareholder equity risk exposure.

We have a limited appetite for interest rate risk as we do not believe it is currently adequately rewarded. Our conservative and disciplined approach to asset and liability management and pricing limit our exposure to interest rate and guarantee risk. Asset and liability durations across the Group are generally well matched and actions have been taken to manage guarantee risk in the current low interest rate environment. In particular, a key objective is to match the duration and expected cash flows of our annuity liabilities with assets of the same duration and cash flow. These assets include corporate bonds, residential mortgages and commercial mortgages. Should they default before maturity, it is assumed that the Group can reinvest in assets of a similar risk and return profile, which is subject to market conditions. Interest rate hedges are used to manage asymmetric interest rate exposures in some of our life insurance businesses as well as an efficient way to manage cash flow and duration matching (the most material examples relate to guaranteed annuity exposures in both UK and Ireland). These hedges are used to protect against interest rate falls and are sufficient in scale to materially reduce the Group's interest rate exposure.

At a Group level we actively seek to manage currency risk primarily by matching assets and liabilities in functional currencies at the business unit level. Planned foreign currency remittances from subsidiaries and disposal proceeds are often hedged using foreign exchange forwards to provide certainty regarding the sterling value to be received by the Group, while foreign exchange swaps are in place to hedge certain non-sterling borrowings. Hedges may also be used to protect the Group's capital against a significant depreciation in local currency versus sterling. At 30 June 2019, hedges with notional values of £1.7 billion (Canadian dollar £0.9bn, Euro £0.4bn and US dollar £0.4bn) were in place.

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B20 - Risk management continued

Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form or that can easily be turned into cash.

The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid assets such as commercial mortgages. The Group seeks to ensure that it maintains sufficient liquid financial resources to meet its obligations as they fall due through the application of a Group liquidity risk policy and business standard. At Group and business unit level, there is a liquidity risk appetite which requires that sufficient liquid resources be maintained to cover net outflows in a stress scenario. The Group centre's main sources of liquidity are liquid assets held within Aviva plc and its subsidiary, Aviva Group Holdings Limited (AGH), and dividends received from the Group's insurance and asset management businesses.

Sources of liquidity in normal markets also include a variety of short and long-term instruments including commercial papers and medium and long-term debt. In addition to the existing liquid resources and expected inflows, the Group and Company maintain significant undrawn committed borrowing facilities (30 June 2019: £1.65 billion) from a range of leading international banks to further mitigate this risk.

(d) Life insurance risk

The profile of our life insurance risks, primarily longevity, persistency, mortality and expense risk, has remained stable during the first half of 2019. Longevity risk remains the Group's most significant life insurance risk due to the Group's annuity portfolio and is amplified by the current low level of interest rates. We are also exposed to longevity risk through the Aviva Staff Pension Scheme, to which our economic exposure has been reduced since 2014 by entering into a longevity swap covering currently approximately £5 billion of pensioner in payment scheme liabilities. Persistency risk remains significant and continues to have a volatile outlook, with underlying performance linked to economic conditions. Businesses across the Group mitigate this risk through a range of customer retention activities. The Group has continued to write substantial volumes of life protection business, and to utilise reinsurance to reduce exposure to potential mortality losses. All life insurance risks benefit from significant diversification against other risks in the portfolio, limiting the impact on the Group's aggregate risk profile.

Provisions made for insurance liabilities are inherently uncertain. Due to this uncertainty, life insurance reserves are regularly reviewed by qualified and experienced actuaries at the business unit and Group level in accordance with the Group's reserving framework. This and other risks are subject to an overarching risk management framework and various mechanisms to govern and control our risks and exposures.

(e) General insurance and health insurance risk

The Group writes a balanced portfolio of general insurance risk (including personal motor; household; commercial motor; property and liability) across a geographically diversified spread of markets including UK; Ireland; Canada; France; Italy; Singapore and Poland, as well as a growing global exposure to corporate specialty risks. This risk is taken on, in line with our underwriting and pricing expertise, to provide an appropriate level of return for an acceptable level of risk. Underwriting discipline and a robust governance process is at the core of the Group's underwriting strategy.

The Group's health insurance business (including private health insurance, critical illness cover, income protection and personal accident insurance, as well as a range of corporate healthcare products) exposes the Group to morbidity risk (the proportion of our customers falling sick) and medical expense inflation.

Provisions made for insurance liabilities are inherently uncertain. Due to this uncertainty, general and health insurance reserves are regularly reviewed by qualified and experienced actuaries at the business unit and Group level in accordance with the Group's reserving framework. These and other key risks, including the occurrence of unexpected claims from a single source or cause and inadequate reinsurance protection/risk transfer, are subject to an overarching risk management framework and various mechanisms to govern and control our risks and exposures. We recognise that the severity and frequency of weather-related events has the potential to adversely impact provisions for insurance liabilities and our earnings, with the result that there is some seasonality in our results from period to period. Large catastrophic (CAT) losses arising as a result of these events are explicitly considered in our economic capital modelling to ensure we are resilient to such CAT scenarios.

During the first half of 2019, Aviva's general insurance and health insurance risk profile has remained stable. As with life insurance risks, general and health insurance risks also benefit from the significant diversification that arises from being part of a large and diverse portfolio, limiting the impact on the Group's aggregate risk profile.

(f) Asset management risk

Asset management risk is the failure to provide expected investment outcomes for clients resulting in reduced new business and loss of sustainable earnings. The risk arises through loss of client business due to poor investment performance or fund liquidity, product competitiveness, talent retention and capability.

Aviva is directly exposed to the risks associated with operating an asset management business through its ownership of Aviva Investors. The underlying risk profile of our asset management risk is managed via investment performance reviews, recruitment and retention of specialist investment professionals and leadership, product development capabilities, fund liquidity management, competitive margins, client retention strategies, and proactive responses to regulatory developments. Funds invested in illiquid assets such as real estate and infrastructure projects are particularly exposed to liquidity risk. These key risks are monitored on an ongoing basis with issues escalated to the Aviva Investors Risk Management Committee and ultimately to the Aviva Investors Holdings Limited Board Risk Committee.

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B20 - Risk management continued

(g) Operational risk

The Group continues to operate, validate and enhance its key operational controls and purchase insurance to minimise losses arising from inadequate or ineffective internal processes, people and systems or from external events. Aviva continues to invest in simplifying and strengthening our technology estate to improve the resilience of our systems and in our IT security to protect ours and our customers' data. The Group maintains constructive relationships with its regulators around the world and developments in relation to key regulatory changes, such as requirements for Global Systemically Important Insurers (G-SII), are monitored closely.

(h) Brand and reputation risk

Our success and results are, to a certain extent, dependent on the strength of our brands, the brands of our partners and our reputation with customers, agents, regulators, rating agencies, investors and analysts. While we are well recognised, we are vulnerable to adverse market and customer perception. Any of our brands or our reputation could also be affected if products or services recommended by us or any of our intermediaries do not perform as expected whether or not the expectations are well founded, or the customer's expectations for the product have changed. We monitor this risk and have controls in place to limit our exposure.

(i) Sensitivity test analysis

The Group uses a number of sensitivity tests to understand the volatility of its earnings and capital requirements and to manage its capital more efficiently. Sensitivities to economic and operating experience are regularly produced on the Group's key financial performance metrics to inform the Group's decision making and planning processes, and as part of the framework for identifying and quantifying the risks to which each of its business units, and the Group as a whole, are exposed.

Illustrative results of sensitivity testing for long-term business, general insurance and health business and the fund management and
non-insurance business are set out below. For each sensitivity test the impact of a reasonably possible change in a single factor is shown, with other assumptions left unchanged.

Sensitivity factor	Description of sensitivity factor applied
Interest rate and investment return	The impact of a change in market interest rates by a 1% increase or decrease. The test allows consistently for similar changes to investment returns and movements in the market value of backing fixed interest securities.
Credit spreads	The impact of a 0.5% increase in credit spreads over risk-free interest rates on corporate bonds and other non-sovereign credit assets. The test allows for any consequential impact on liability valuations.
Equity/property market values	The impact of a change in equity/property market values by ±10%.
Expenses	The impact of an increase in maintenance expenses by 10%.
Assurance mortality/morbidity (long-term insurance only)	The impact of an increase in mortality/morbidity rates for assurance contracts by 5%.
Annuitant mortality (long-term insurance only)	The impact of a reduction in mortality rates for annuity contracts by 5%.
Gross loss ratios (non-long-term insurance only)	The impact of an increase in gross loss ratios for general insurance and health business by 5%.

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B20 - Risk management continued

(i) Sensitivity test analysis continued

Long-term business sensitivities

30 June 2019 Impact on profit before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	20	(195)	(15)	(90)	100	(25)	5	(5)
Insurance non-participating	(975)	1,105	(790)	(115)	95	(200)	(120)	(895)
Investment participating	(40)	45	(5)	(5)	(5)	(10)	-	-
Investment non-participating	-	-	-	10	(10)	(5)	-	-
Assets backing life shareholders' funds	(95)	110	(25)	20	(20)	-	-	-
Total	(1,090)	1,065	(835)	(180)	160	(240)	(115)	(900)

30 June 2019 Impact on shareholders' equity before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	20	(195)	(15)	(90)	100	(25)	5	(5)
Insurance non-participating	(975)	1,105	(790)	(115)	95	(200)	(120)	(895)
Investment participating	(40)	45	(5)	(5)	(5)	(10)	-	-
Investment non-participating	-	-	-	10	(10)	(5)	-	-
Assets backing life shareholders' funds	(145)	155	(30)	25	(25)	-	-	-
Total	(1,140)	1,110	(840)	(175)	155	(240)	(115)	(900)

31 December 2018 Impact on profit before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	(75)	35	(15)	(105)	70	(20)	(5)	(5)
Insurance non-participating	(975)	1,130	(695)	(125)	105	(210)	(115)	(865)
Investment participating	(40)	40	(10)	(15)	(15)	(15)	-	-
Investment non-participating	-	-	-	10	(25)	(20)	-	-
Assets backing life shareholders' funds	(95)	105	(25)	20	(20)	-	-	-
Total	(1,185)	1,310	(745)	(215)	115	(265)	(120)	(870)

31 December 2018 Impact on shareholders' equity before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	(75)	35	(15)	(105)	70	(20)	(5)	(5)
Insurance non-participating	(975)	1,130	(695)	(125)	105	(210)	(115)	(865)
Investment participating	(40)	40	(10)	(15)	(15)	(15)	-	-
Investment non-participating	-	-	-	10	(25)	(20)	-	-
Assets backing life shareholders' funds	(145)	150	(25)	25	(25)	-	-	-
Total	(1,235)	1,355	(745)	(210)	110	(265)	(120)	(870)

Changes in sensitivities between 31 December 2018 and 30 June 2019 reflect underlying movements in the value of assets and liabilities, the relative duration of assets and liabilities and asset liability management actions. The sensitivities to economic and demographic movements relate mainly to business in the UK.

General insurance and health business sensitivities

30 June 2019 Impact on profit before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(250)	250	(120)	190	(190)	(75)	(150)
Net of reinsurance	(305)	290	(120)	190	(190)	(75)	(145)

30 June 2019 Impact on shareholders' equity before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(250)	250	(120)	190	(190)	(25)	(150)
Net of reinsurance	(305)	290	(120)	190	(190)	(25)	(145)

31 December 2018 Impact on profit before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(240)	235	(115)	165	(165)	(120)	(325)
Net of reinsurance	(305)	295	(115)	165	(165)	(120)	(315)

31 December 2018 Impact on shareholders' equity before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(240)	235	(115)	170	(170)	(25)	(325)
Net of reinsurance	(305)	295	(115)	170	(170)	(25)	(315)

For general insurance and health, the impact of the expense sensitivity on profit also includes the increase in ongoing administration expenses, in addition to the increase in the claims handling expense provision.

Page 84

B20 - Risk management continued

(i) Sensitivity test analysis continued

Fund management and non-insurance business sensitivities

30 June 2019 Impact on profit before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(25)	20	25	-	5

30 June 2019 Impact on shareholders' equity before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(20)	15	25	-	5

31 December 2018 Impact on profit before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(25)	20	30	(20)	35

31 December 2018 Impact on shareholders' equity before tax £m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(20)	15	30	(20)	30

Limitations of sensitivity analysis

The above tables demonstrate 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 analyses do not take into consideration that the Group's assets and liabilities are actively managed. Additionally, the financial 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.

A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, a change in the underlying assumptions may not have any impact on the liabilities, whereas assets held at market value in the statement of financial position will be affected. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and equity where explicit assumptions are made regarding interest (discount) rates or future inflation.

Other limitations in the above sensitivity analyses 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.

B21 - Cash and cash equivalents

Cash and cash equivalents in the statement of cash flows at 30 June/31 December comprised:

	30 June 2019 £m	Restated¹ 30 June 2018 £m	Restated¹ 31 December 2018 £m
Cash and cash equivalents	15,296	16,992	15,926
Cash and cash equivalents of operations classified as held for sale	698	707	688
Bank overdrafts	(675)	(702)	(563)
Net cash and cash equivalents at 30 June/31 December	15,319	16,997	16,051

B22 - Contingent liabilities and other risk factors

During the period, there have been no material changes in the main areas of uncertainty over the calculation of our liabilities from those described in note 55 of the Group's 2018 Annual report and accounts. An update on material risks is provided in note B20 Risk management.

Page 85

B23 - Acquired value of in-force business and intangible assets

Acquired value of in-force (AVIF) business and intangible assets presented in the statement of financial position is comprised of:

	30 June 2019 £m	30 June 2018 £m	31 December 2018 £m
Acquired value of in-force business on insurance contracts¹	1,339	1,510	1,418
Acquired value of in-force business on investment contracts²	1,367	1,631	1,498
Intangible assets	894	1,160	945
	3,600	4,301	3,861
Less: Amounts classified as held for sale	(576)	(926)	(660)
Total	3,024	3,375	3,201

1 On insurance and participating investment contracts.

2 On non-participating investment contracts.

The AVIF on insurance and investment contracts has reduced in the period primarily due to an amortisation charge of £191 million (HY18: £210 million charge, 2018: £426 million charge). There was also an impairment of AVIF on investment contracts of £19 million in the period relating to FPI (HY18: £4 million, 2018: £13 million) recorded as a remeasurement loss, as FPI is held for sale. See note B5 (b).

The decrease in intangible assets is mainly due to the amortisation charge of £107 million (HY18: £101 million charge, 2018: £209 million charge), partly offset by additions to intangible assets relating to the capitalisation of software costs.

B24 - Subsequent events

On 15 July 2019 the Lord Chancellor announced an increase in the Ogden rate from minus 0.75% set in 2017 to minus 0.25%. At 31 December 2018, balance sheet reserves were calculated using a rate of 0.00%. At 30 June 2019 balance sheet reserves in the UK have been calculated using a rate of minus 0.25%. Details of the impact are set out in note B11 (c).

Page 86

Directors' responsibility statement

The directors confirm that these condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as endorsed by the EU and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

· an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

Information on the current directors responsible for providing this statement can be found on the Company's website at: http://www.aviva.com/investor-relations/corporate-governance/board-of-directors/

By order of the Board

Sir Adrian Montague Maurice Tulloch

Chairman Group Chief Executive Officer

7 August 2019

Page 87

Independent review report to Aviva plc

Report on the condensed consolidated financial statements

Our conclusion

We have reviewed Aviva plc's condensed consolidated financial statements (the "interim financial statements") in the half year report of Aviva plc for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

· the condensed consolidated statement of financial position as at 30 June 2019;

· the condensed consolidated income statement and condensed consolidated statement of comprehensive income for the period then ended;

· the condensed consolidated statement of cash flows for the period then ended;

· the condensed consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the half year report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note B1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The half year report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

7 August 2019

END PART 3 of 4

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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