Part 3 of 4
Page 35
IFRS financial statements
In this section |
Page |
Condensed consolidated financial statements |
|
Condensed consolidated income statement |
36 |
Condensed consolidated statement of comprehensive income |
37 |
Condensed consolidated statement of changes in equity |
38 |
Condensed consolidated statement of financial position |
39 |
Condensed consolidated statement of cash flows |
40 |
|
|
Notes to the condensed consolidated financial statements |
41 |
B1 Basis of preparation |
41 |
B2 Prior period adjustments |
42 |
B3 Exchange rates |
42 |
B4 Subsidiaries, joint ventures and associates |
43 |
B5 Segmental information |
44 |
B6 Tax |
55 |
B7 Earnings per share |
57 |
B8 Dividends and appropriations |
59 |
B9 Insurance liabilities |
60 |
B10 Liability for investment contracts |
62 |
B11 Reinsurance assets |
63 |
B12 Effect of changes in assumptions and estimates during the period |
63 |
B13 Unallocated divisible surplus |
64 |
B14 Borrowings |
65 |
B15 Pension obligations and other provisions |
66 |
B16 Related party transactions |
67 |
B17 Fair value |
67 |
B18 Risk management |
74 |
B19 Cash and cash equivalents |
80 |
B20 Contingent liabilities and other risk factors |
80 |
B21 Acquired value of in-force business and intangible assets |
80 |
|
|
Directors' responsibility statement |
81 |
Independent review report to Aviva plc |
82 |
|
|
|
|
Page 36
Condensed consolidated income statement
For the six month period ended 30 June 2016
|
Note |
Reviewed |
Reviewed |
Restated1 Audited |
Income |
|
|
|
|
Gross written premiums |
|
12,593 |
11,058 |
21,925 |
Premiums ceded to reinsurers |
|
(1,160) |
(1,004) |
(2,890) |
Premiums written net of reinsurance |
|
11,433 |
10,054 |
19,035 |
Net change in provision for unearned premiums |
|
(348) |
(222) |
(111) |
Net earned premiums |
|
11,085 |
9,832 |
18,924 |
Fee and commission income |
|
996 |
753 |
1,797 |
Net investment income |
|
15,164 |
606 |
2,825 |
Share of profit after tax of joint ventures and associates |
|
195 |
88 |
180 |
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates |
B4 |
(18) |
- |
2 |
|
|
27,422 |
11,279 |
23,728 |
Expenses |
|
|
|
|
Claims and benefits paid, net of recoveries from reinsurers |
|
(11,453) |
(10,402) |
(21,985) |
Change in insurance liabilities, net of reinsurance |
B9a(ii) |
(5,926) |
2,761 |
6,681 |
Change in investment contract provisions |
|
(4,576) |
(605) |
(1,487) |
Change in unallocated divisible surplus |
B13 |
(792) |
743 |
984 |
Fee and commission expense |
|
(1,654) |
(1,933) |
(3,324) |
Other expenses |
|
(2,071) |
(1,062) |
(2,784) |
Finance costs |
|
(295) |
(271) |
(618) |
|
|
(26,767) |
(10,769) |
(22,533) |
Profit before tax |
|
655 |
510 |
1,195 |
Tax attributable to policyholders' returns |
B6 |
(318) |
280 |
218 |
Profit before tax attributable to shareholders' profits |
|
337 |
790 |
1,413 |
Tax expense |
B6 |
(454) |
35 |
(98) |
Less: tax attributable to policyholders' returns |
B6 |
318 |
(280) |
(218) |
Tax attributable to shareholders' profits |
|
(136) |
(245) |
(316) |
Profit for the period |
|
201 |
545 |
1,097 |
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of Aviva plc |
|
130 |
464 |
936 |
Non-controlling interests |
|
71 |
81 |
161 |
Profit for the period |
|
201 |
545 |
1,097 |
Earnings per share |
B7 |
|
|
|
Basic (pence per share) |
|
2.5p |
12.8p |
23.1p |
Diluted (pence per share) |
|
2.4p |
12.7p |
22.8p |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 37
Condensed consolidated statement of comprehensive income
For the six month period ended 30 June 2016
|
Note |
Reviewed |
Reviewed |
Restated1 Audited |
Profit for the period |
|
201 |
545 |
1,097 |
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
Items that may be reclassified subsequently to income statement |
|
|
|
|
Investments classified as available for sale |
|
|
|
|
Fair value gains/(losses) |
|
26 |
(15) |
(9) |
Share of other comprehensive income of joint ventures and associates |
|
3 |
(2) |
(14) |
Foreign exchange rate movements |
|
866 |
(496) |
(378) |
Aggregate tax effect - shareholder tax on items that may be reclassified subsequently to income statement |
|
(31) |
19 |
13 |
|
|
|
|
|
Items that will not be reclassified to income statement |
|
|
|
|
Owner-occupied properties - fair value gains/(losses) |
|
2 |
(4) |
27 |
Remeasurements of pension schemes |
B15 |
776 |
(338) |
(235) |
Aggregate tax effect - shareholder tax on items that will not be reclassified subsequently to income statement |
|
(170) |
71 |
93 |
Total other comprehensive income, net of tax |
|
1,472 |
(765) |
(503) |
Total comprehensive income for the period |
|
1,673 |
(220) |
594 |
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of Aviva plc |
|
1,488 |
(222) |
478 |
Non-controlling interests |
|
185 |
2 |
116 |
|
|
1,673 |
(220) |
594 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 38
Condensed consolidated statement of changes in equity
For the six month period ended 30 June 2016
|
Note |
Reviewed |
Restated1 Reviewed |
Restated1 Audited |
Balance at 1 January as reported |
|
18,270 |
12,276 |
12,276 |
Prior period adjustment1 |
|
- |
20 |
20 |
Balance at 1 January as restated |
|
18,270 |
12,296 |
12,296 |
Profit for the period |
|
201 |
545 |
1,097 |
Other comprehensive income |
|
1,472 |
(765) |
(503) |
Total comprehensive income for the period |
|
1,673 |
(220) |
594 |
Issue of share capital - acquisition of Friends Life |
|
- |
5,975 |
5,975 |
Non-controlling interests in acquired subsidiaries2 |
|
- |
504 |
504 |
Reclassification of non-controlling interests to financial liabilities3 |
|
- |
(272) |
(272) |
Dividends and appropriations |
B8 |
(605) |
(389) |
(724) |
Non-controlling interests share of dividends declared in the period |
|
(62) |
(67) |
(142) |
Transfer to profit on disposal of subsidiaries, joint ventures and associates |
|
- |
- |
1 |
Capital contributions from non-controlling interests |
|
8 |
- |
5 |
Changes in non-controlling interests in subsidiaries |
|
(1) |
3 |
(1) |
Treasury shares held by subsidiary companies |
|
- |
(20) |
(27) |
Reserves credit for equity compensation plans |
|
20 |
23 |
40 |
Shares issued under equity compensation plans |
|
3 |
1 |
6 |
Aggregate tax effect - shareholder tax |
|
5 |
4 |
15 |
Balance at 30 June/31 December |
|
19,311 |
17,838 |
18,270 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
2 2015 relates to Friends Life's Step-up Tier one Insurance Capital Securities (STICS) issuances which were classified as equity instruments within non-controlling interests at the date of acquisition.
3 On 29 May 2015 notification was given that the Group would redeem the 2005 STICS issuance. At that date the instrument was reclassified as a liability. The instrument was redeemed on 1 July 2015, £272 million represents the fair value of the instrument recognised on acquisition, made up of the £268 million outstanding principal redeemed on 1 July 2015 and £4 million amortised subsequent to the reclassification and included within finance costs in the income statement.
Page 39
Condensed consolidated statement of financial position
As at 30 June 2016
|
Note |
Reviewed |
Restated1 Reviewed |
Restated1 Audited |
Assets |
|
|
|
|
Goodwill |
|
1,979 |
1,923 |
1,955 |
Acquired value of in-force business and intangible assets |
B21 |
5,450 |
6,079 |
5,731 |
Interests in, and loans to, joint ventures |
|
1,765 |
1,222 |
1,590 |
Interests in, and loans to, associates |
|
449 |
383 |
329 |
Property and equipment |
|
482 |
390 |
449 |
Investment property |
|
11,106 |
11,567 |
11,301 |
Loans |
|
24,305 |
24,121 |
22,433 |
Financial investments |
|
288,460 |
274,811 |
274,217 |
Reinsurance assets |
B11 |
22,983 |
20,432 |
20,918 |
Deferred tax assets |
|
128 |
74 |
131 |
Current tax assets |
|
76 |
18 |
114 |
Receivables |
|
8,762 |
8,574 |
6,875 |
Deferred acquisition costs and other assets |
|
6,293 |
4,817 |
5,018 |
Prepayments and accrued income |
|
2,908 |
2,988 |
3,094 |
Cash and cash equivalents |
B19 |
34,911 |
33,186 |
33,676 |
Assets of operations classified as held for sale |
B4 |
14,193 |
9 |
- |
Total assets |
|
424,250 |
390,594 |
387,831 |
Equity |
|
|
|
|
Capital |
|
|
|
|
Ordinary share capital |
|
1,014 |
1,011 |
1,012 |
Preference share capital |
|
200 |
200 |
200 |
|
|
1,214 |
1,211 |
1,212 |
Capital reserves |
|
|
|
|
Share premium |
|
1,188 |
1,178 |
1,185 |
Merger reserve |
|
8,974 |
8,974 |
8,974 |
|
|
10,162 |
10,152 |
10,159 |
Treasury shares |
|
(28) |
(21) |
(29) |
Other reserves |
|
587 |
(194) |
(114) |
Retained earnings |
|
4,978 |
4,462 |
4,774 |
Equity attributable to shareholders of Aviva plc |
|
16,913 |
15,610 |
16,002 |
Direct capital instrument and tier 1 notes |
|
1,123 |
892 |
1,123 |
Equity excluding non-controlling interests |
|
18,036 |
16,502 |
17,125 |
Non-controlling interests |
|
1,275 |
1,336 |
1,145 |
Total equity |
|
19,311 |
17,838 |
18,270 |
Liabilities |
|
|
|
|
Gross insurance liabilities |
B9 |
147,977 |
143,288 |
140,556 |
Gross liabilities for investment contracts |
B10 |
186,006 |
179,390 |
181,082 |
Unallocated divisible surplus |
B13 |
9,624 |
8,815 |
8,811 |
Net asset value attributable to unitholders |
|
13,045 |
10,728 |
11,415 |
Provisions |
B15 |
1,484 |
1,615 |
1,416 |
Deferred tax liabilities |
|
2,207 |
2,058 |
2,084 |
Current tax liabilities |
|
484 |
169 |
177 |
Borrowings |
B14 |
9,681 |
9,590 |
8,770 |
Payables and other financial liabilities |
|
18,020 |
14,493 |
12,448 |
Other liabilities |
|
2,795 |
2,608 |
2,802 |
Liabilities of operations classified as held for sale |
B4 |
13,616 |
2 |
- |
Total liabilities |
|
404,939 |
372,756 |
369,561 |
Total equity and liabilities |
|
424,250 |
390,594 |
387,831 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 40
Condensed consolidated statement of cash flows
For the six month period ended 30 June 2016
|
Note |
Reviewed |
Reviewed |
Audited |
Cash flows from operating activities1 |
|
|
|
|
Cash generated from continuing operations |
|
1,347 |
3,013 |
5,197 |
Tax paid |
|
(219) |
(191) |
(442) |
Total net cash from operating activities |
|
1,128 |
2,822 |
4,755 |
Cash flows from investing activities |
|
|
|
|
Acquisitions of, and additions to, subsidiaries, joint ventures and associates, net of cash acquired |
|
(114) |
7,852 |
7,783 |
Disposals of subsidiaries, joint ventures and associates, net of cash transferred |
|
- |
- |
(3) |
New loans to joint ventures and associates |
|
- |
(9) |
(21) |
Repayment of loans to joint ventures and associates |
|
71 |
- |
- |
Net new loans to joint ventures and associates |
|
71 |
(9) |
(21) |
Purchases of property and equipment |
|
(25) |
(31) |
(58) |
Proceeds on sale of property and equipment |
|
44 |
4 |
51 |
Other cash flow related to intangible assets |
|
(35) |
(43) |
(111) |
Total net cash from/(used in) investing activities |
|
(59) |
7,773 |
7,641 |
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of ordinary shares |
|
6 |
8 |
16 |
Treasury shares distributed from/(purchased for) employee trusts |
|
1 |
(1) |
(1) |
New borrowings drawn down, net of expenses |
|
1,355 |
1,583 |
2,049 |
Repayment of borrowings2 |
|
(867) |
(546) |
(1,979) |
Net drawdown of borrowings |
|
488 |
1,037 |
70 |
Interest paid on borrowings |
|
(284) |
(263) |
(588) |
Preference dividends paid |
B8 |
(9) |
(9) |
(17) |
Ordinary dividends paid |
B8 |
(570) |
(362) |
(635) |
Coupon payments on direct capital instrument and tier 1 notes |
B8 |
(26) |
(18) |
(72) |
Capital contributions from non-controlling interests of subsidiaries |
|
- |
- |
5 |
Dividends paid to non-controlling interests of subsidiaries3 |
|
(62) |
(51) |
(142) |
Changes in controlling interest in subsidiaries |
|
(1) |
(3) |
(1) |
Total net cash from/(used in) financing activities |
|
(457) |
338 |
(1,365) |
Total net increase in cash and cash equivalents |
|
612 |
10,933 |
11,031 |
Cash and cash equivalents at 1 January |
|
33,170 |
22,564 |
22,564 |
Effect of exchange rate changes on cash and cash equivalents |
|
1,053 |
(808) |
(425) |
Cash and cash equivalents at 30 June/31 December |
B19 |
34,835 |
32,689 |
33,170 |
1 Cash flows from operating activities includes interest received of £3,207 million (FY15: £5,251 million; HY15: £2,623 million) and dividends received of £1,204 million (FY15: £2,353 million; HY15: £953 million).
2 In FY 2015 this included redemption of the 2005 STICS of £268 million.
3 Dividends paid to non-controlling interests of subsidiaries during HY15 included £7 million relating to the 2003 STICS which were reclassified from non-controlling interests to direct capital instruments and tier 1 notes in October 2015. Following reclassification, interest is included in coupon payments on direct capital instrument and tier 1 notes. Dividends paid to non-controlling interests of subsidiaries during HY15 also included £17 million relating to the 2005 STICS which were redeemed in July 2015.
The cash flows presented in this statement cover all the Group's activities and include flows from both policyholder and shareholder activities. Operating cash flows reflect the movement in both policyholder and shareholder controlled cash and cash equivalent balances.
Page 41
B1 - Basis of preparation
The condensed consolidated interim financial statements for the six months to 30 June 2016 have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB) and endorsed by the European Union (EU), and the Disclosure Rules and Transparency Rules of the Financial Conduct Authority.
The accounting policies applied in the condensed consolidated interim financial statements are the same as those applied in Aviva plc's 2015 Annual Report and Accounts. In addition, during the period ended 30 June 2016, Aviva plc ("the Group") adopted new amendments to International Financial Reporting Standards ("IFRS") that became effective on 1 January 2016, described in the 2015 Annual Report and Accounts, however these had no effect on reported profit or loss or equity, the statement of financial position or the statement of cash flows.
The results for the six months to 30 June 2016 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 results for the full year 2015 have been taken from the Group's 2015 Annual Report and Accounts and have been restated for adjustments detailed in Note B2. Therefore, these interim accounts should be read in conjunction with the 2015 Annual Report and Accounts that were prepared in accordance with IFRS as issued by the International Accounting Standards Board and endorsed by the European Union. PricewaterhouseCoopers LLP reported on the 2015 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 2015 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 12 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).
The long-term nature of much of the Group's operations means that, for management's decision-making and internal performance management, short-term realised and unrealised investment gains and losses are treated as non-operating items.
The Group focuses instead on an operating profit measure that incorporates an expected return on investments supporting its long-term and non-long-term businesses. Operating profit for long-term business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with allowance for the corresponding expected movements in liabilities. Variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside operating profit. For non-long-term business, the total investment income, including realised and unrealised gains, is analysed between that calculated using a longer-term return and short-term fluctuations from that level. Operating profit also excludes impairment of goodwill, associates and joint ventures; amortisation and impairment of other intangibles; amortisation and impairment of acquired value of in-force business; the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates; integration and restructuring costs; and other.
Page 42
B2 - Prior period adjustments
During 2016, UK Life reviewed its accounting and modelling for annual management charge rebates relating to unit-linked investment contracts. It was concluded that an associated liability should be released partly offset by a reduction in deferred acquisition costs in accordance with IFRS. This has been presented as a prior year adjustment and has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in closing equity at 31 December 2015 of £38 million. The impact on the consolidated income statement, statement of financial position and equity are shown in the tables below. There is no impact on the consolidated statement of cash flows.
|
|
|
Full Year 2015 |
||||
|
|
|
|
|
As reported |
Effect of prior period adjustments £m |
Restated |
Operating profit before tax attributable to shareholders' profits |
|
|
|
|
2,665 |
23 |
2,688 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
(22,556) |
23 |
(22,533) |
Effect analysed as: |
|
|
|
|
|
|
|
Fee and commission expense |
|
|
|
|
(3,347) |
23 |
(3,324) |
Profit before tax |
|
|
|
|
1,172 |
23 |
1,195 |
Tax expense |
|
|
|
|
(93) |
(5) |
(98) |
Profit for the period |
|
|
|
|
1,079 |
18 |
1,097 |
Profit attributable to equity holders of Aviva plc |
|
|
|
|
918 |
18 |
936 |
Operating earnings per share |
|
|
|
|
|
|
|
Basic (pence per share) |
|
|
|
|
49.2p |
0.5p |
49.7p |
Diluted (pence per share) |
|
|
|
|
48.7p |
0.5p |
49.2p |
Earnings per share |
|
|
|
|
|
|
|
Basic (pence per share) |
|
|
|
|
22.6p |
0.5p |
23.1p |
Diluted (pence per share) |
|
|
|
|
22.3p |
0.5p |
22.8p |
|
|
|
|
|
|
|
|
|
30 June 2015 |
|
31 December 2015 |
||||
|
As reported |
Effect of prior period adjustments £m |
Restated |
|
As reported |
Effect of prior period adjustments £m |
Restated |
Total assets |
390,660 |
(66) |
390,594 |
|
387,874 |
(43) |
387,831 |
Effect analysed as: |
|
|
|
|
|
|
|
Deferred acquisition costs and other assets |
4,883 |
(66) |
4,817 |
|
5,061 |
(43) |
5,018 |
Total liabilities |
372,842 |
(86) |
372,756 |
|
369,642 |
(81) |
369,561 |
Effect analysed as: |
|
|
|
|
|
|
|
Gross liabilities for investment contracts |
179,481 |
(91) |
179,390 |
|
181,173 |
(91) |
181,082 |
Deferred tax liabilities |
2,053 |
5 |
2,058 |
|
2,074 |
10 |
2,084 |
|
30 June 2015 |
|
31 December 2015 |
||||
|
As reported |
Effect of prior period adjustments £m |
Restated |
|
As reported |
Effect of prior period adjustments £m |
Restated |
Total equity |
|
|
|
|
|
|
|
Balance at 1 January |
12,276 |
20 |
12,296 |
|
12,276 |
20 |
12,296 |
Total comprehensive income for the period |
(220) |
- |
(220) |
|
576 |
18 |
594 |
Other equity movements |
5,762 |
- |
5,762 |
|
5,380 |
- |
5,380 |
Balance at 30 June/31 December |
17,818 |
20 |
17,838 |
|
18,232 |
38 |
18,270 |
As a result of this adjustment, comparative information in Note B5 Segmental information, Note B6 Tax, Note B7 Earnings per Share, Note B10 Liability for investment contracts and Note B17 Fair Value has been restated.
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 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 |
6 months |
Full Year |
Eurozone |
|
|
|
Average rate (€1 equals) |
£0.78 |
£0.74 |
£0.72 |
Period end rate (€1 equals) |
£0.83 |
£0.71 |
£0.74 |
Canada |
|
|
|
Average rate ($CAD1 equals) |
£0.53 |
£0.53 |
£0.51 |
Period end rate ($CAD1 equals) |
£0.58 |
£0.51 |
£0.49 |
Poland |
|
|
|
Average rate (PLN1 equals) |
£0.18 |
£0.18 |
£0.17 |
Period end rate (PLN1 equals) |
£0.19 |
£0.17 |
£0.17 |
Page 43
B4 - Subsidiaries, joint ventures and associates
This note provides details of the acquisitions and disposals of subsidiaries, joint ventures and associates that the Group has made during the period, together with details of businesses held for sale at the period end.
(a) Acquisitions
On 29 April 2016, Aviva plc completed the acquisition of an additional 23% share in Aviva Life Insurance Company India Limited ("Aviva India") from its partner Dabur Invest Corp (a part of the Dabur Group). Aviva's increased shareholding in Aviva India of 49% will continue to be equity accounted as an associate.
(b) Disposal and re-measurements of subsidiaries, joint ventures and associates
The (loss)/profit on the disposal and re-measurement of subsidiaries, joint ventures and associates comprises:
|
6 months |
6 months |
Full Year |
Ireland - health |
(11) |
- |
- |
Turkey - long-term business |
- |
- |
1 |
Other small operations |
(7) |
- |
1 |
Total (loss)/profit on disposal and remeasurement |
(18) |
- |
2 |
The loss on the disposal and remeasurement of subsidiaries, joint ventures and associates of £18 million (HY15: £nil) relates to remeasurement losses following the classification of small operations as held for sale. See Note B4(c)(ii) for further details.
(c) 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 2016 are as follows:
|
30 June |
30 June |
31 December |
Assets |
|
|
|
Goodwill, AVIF and other intangibles |
25 |
- |
- |
Investment property |
44 |
- |
- |
Loans |
64 |
- |
- |
Financial investments |
10,715 |
- |
- |
Reinsurance assets |
972 |
- |
- |
Other assets |
1,698 |
- |
- |
Cash and cash equivalents |
683 |
9 |
- |
|
14,201 |
9 |
- |
Additional impairment to write down the disposal group to fair value less cost to sell |
(8) |
- |
- |
Total assets |
14,193 |
9 |
- |
Liabilities |
|
|
|
Insurance liabilities |
(4,717) |
(1) |
- |
Liability for investment contracts |
(7,655) |
- |
- |
Unallocated divisible surplus |
(852) |
- |
- |
Other liabilities |
(392) |
(1) |
- |
Total liabilities |
(13,616) |
(2) |
- |
Net assets |
577 |
7 |
- |
Assets and liabilities of operations classified as held for sale as at 30 June 2016 relate to Antarius S.A. ("Antarius") and other small operations in the Group.
(i) Antarius
On 25 February 2015, Crédit du Nord, the Group's partner in Antarius, exercised its call option to purchase Aviva France's 50% share of Antarius. In accordance with the shareholders agreement, the exercise of the call option started a period of approximately two years to complete the disposal. In accordance with IFRS 5, the subsidiary has been classified as held for sale from May 2016, the date when the transaction was expected to complete within 12 months. The business is measured at its carrying amount.
(ii) Other small operations
Other small operations relate to the Group's sale of its entire stake in its Irish private medical insurance business and a closed book of offshore bonds business. As at 30 June 2016, the proposed transactions were subject to customary closing conditions including receipt of regulatory approvals and were expected to complete in the third quarter of 2016. The businesses have been re-measured at fair value based on the expected sales prices less costs to sell resulting in a total loss on re-measurement of £18 million in the first half of 2016 following their classification as held for sale.
(d) Subsequent events
On 21 January 2016 Aviva announced its Canadian business, Aviva Canada would acquire RBC General Insurance Company, the existing home and motor insurance business of RBC Insurance. On 1 July 2016, Aviva Canada announced the acquisition had completed. Under the agreement, Aviva paid RBC Insurance CAD$582 million on completion.
The disposal of other small operations (see Note B4(c)(ii)) completed in late July to early August 2016.
Page 44
B5 - 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 being given by business activity. This note provides segmental information on the condensed consolidated income statement and condensed consolidated statement of financial position.
The Group has determined its operating segments along market reporting lines and internal management reporting.
United Kingdom and Ireland
The United Kingdom and Ireland comprises two operating segments - Life and General Insurance. The principal activities of our UK and Ireland Life operations are life insurance, long-term health (in the UK) and accident insurance, savings, pensions and annuity business and include the UK insurance operations acquired as part of the acquisition of Friends Life in 2015. UK and Ireland 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. UK and Ireland General Insurance includes the results of our Ireland Health business. As set out in note B4, the Group's entire stake in its Irish private medical insurance business and a closed book of offshore bonds business have been classified as held for sale as at 30 June 2016.
France
The principal activities of our French operations 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. As set out in note B4, the operations of Antarius have been classified as held for sale as at 30 June 2016.
Poland
Activities in Poland comprise long-term business and general insurance operations, including our long-term business in Lithuania.
Italy, Spain 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. The principal activities of our Italian operations are long-term business and general insurance. The long term business offers a range of long-term insurance and savings products and the general insurance business provides motor and home insurance products to individuals, as well as small commercial risk insurance to businesses. The principal activity of the Spanish operation is the sale of long-term business, accident and health insurance and a selection of savings products. Our 'Other' operations include our life operations in Turkey.
Canada
The principal activity of the Canadian operation is general insurance. In particular it provides personal and commercial lines insurance products principally distributed through insurance brokers.
Asia
Our activities in Asia principally comprise our long-term insurance business operations in China, India, Singapore, Hong Kong, Vietnam, Indonesia, Taiwan and the international operations of Friends Life. 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, Europe, North America, Asia Pacific and other international businesses, managing policyholders' and shareholders' invested funds, providing investment management services for institutional pension fund mandates and managing a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. This segment also includes Friends Life Investments.
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 reinsurance operations are also included in this segment.
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.
Page 45
B5 - Segmental information continued
(a) (i) Segmental income statement for the six month period ended 30 June 2016
|
United Kingdom & Ireland |
|
|
|
Europe |
|
|
|
|
|
|
|
Life |
GI |
France |
Poland |
Italy, Spain and Other £m |
Canada |
Asia |
Aviva Investors2 £m |
Other Group activities3 £m |
Total |
|
Gross written premiums |
2,439 |
2,454 |
3,499 |
237 |
2,413 |
1,091 |
460 |
- |
- |
12,593 |
|
Premiums ceded to reinsurers |
(751) |
(229) |
(41) |
(4) |
(19) |
(42) |
(74) |
- |
- |
(1,160) |
|
Internal reinsurance revenue |
(3) |
(2) |
- |
- |
(1) |
- |
(5) |
- |
11 |
- |
|
Premiums written net of reinsurance |
1,685 |
2,223 |
3,458 |
233 |
2,393 |
1,049 |
381 |
- |
11 |
11,433 |
|
Net change in provision for unearned premiums |
(34) |
(136) |
(117) |
(12) |
(7) |
(29) |
(13) |
- |
- |
(348) |
|
Net earned premiums |
1,651 |
2,087 |
3,341 |
221 |
2,386 |
1,020 |
368 |
- |
11 |
11,085 |
|
Fee and commission income |
453 |
78 |
115 |
28 |
50 |
8 |
103 |
162 |
(1) |
996 |
|
|
2,104 |
2,165 |
3,456 |
249 |
2,436 |
1,028 |
471 |
162 |
10 |
12,081 |
|
Net investment income |
13,431 |
132 |
704 |
3 |
416 |
42 |
316 |
39 |
81 |
15,164 |
|
Inter-segment revenue |
- |
- |
- |
- |
- |
- |
- |
117 |
- |
117 |
|
Share of profit of joint ventures and associates |
178 |
- |
13 |
4 |
- |
- |
- |
- |
- |
195 |
|
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates |
(8) |
(11) |
- |
- |
- |
- |
- |
- |
1 |
(18) |
|
Segmental income1 |
15,705 |
2,286 |
4,173 |
256 |
2,852 |
1,070 |
787 |
318 |
92 |
27,539 |
|
Claims and benefits paid, net of recoveries from reinsurers |
(5,637) |
(1,315) |
(2,423) |
(153) |
(1,114) |
(619) |
(178) |
- |
(14) |
(11,453) |
|
Change in insurance liabilities, net of reinsurance |
(4,459) |
(79) |
(479) |
30 |
(677) |
(41) |
(213) |
- |
(8) |
(5,926) |
|
Change in investment contract provisions |
(3,600) |
- |
(196) |
- |
(564) |
- |
(176) |
(40) |
- |
(4,576) |
|
Change in unallocated divisible surplus |
(14) |
- |
(568) |
4 |
(168) |
- |
(46) |
- |
- |
(792) |
|
Fee and commission expense |
(272) |
(629) |
(211) |
(38) |
(146) |
(285) |
(61) |
(18) |
6 |
(1,654) |
|
Other expenses |
(754) |
(162) |
(131) |
(34) |
(61) |
(53) |
(138) |
(205) |
(533) |
(2,071) |
|
Inter-segment expenses |
(106) |
(3) |
(3) |
(2) |
- |
(2) |
- |
- |
(1) |
(117) |
|
Finance costs |
(89) |
(1) |
(1) |
- |
(2) |
(1) |
(2) |
- |
(199) |
(295) |
|
Segmental expenses |
(14,931) |
(2,189) |
(4,012) |
(193) |
(2,732) |
(1,001) |
(814) |
(263) |
(749) |
(26,884) |
|
Profit/(loss) before tax |
774 |
97 |
161 |
63 |
120 |
69 |
(27) |
55 |
(657) |
655 |
|
Tax attributable to policyholders' returns |
(317) |
- |
- |
- |
- |
- |
(1) |
- |
- |
(318) |
|
Profit/(loss) before tax attributable to shareholders' profits |
457 |
97 |
161 |
63 |
120 |
69 |
(28) |
55 |
(657) |
337 |
|
Adjusted for non-operating items: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification of corporate costs and unallocated interest |
1 |
(1) |
22 |
- |
- |
4 |
- |
2 |
(28) |
- |
|
Investment return variances and economic assumption changes on long-term business |
(82) |
- |
32 |
- |
2 |
- |
42 |
- |
- |
(6) |
|
Short-term fluctuation in return on investments backing non-long-term business |
(17) |
(23) |
(1) |
(1) |
4 |
4 |
- |
- |
372 |
338 |
|
Economic assumption changes on general insurance and health business |
- |
123 |
- |
- |
- |
1 |
- |
- |
(1) |
123 |
|
Impairment of goodwill, joint ventures and associates and other amounts expensed |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Amortisation and impairment of intangibles |
35 |
11 |
- |
2 |
7 |
8 |
5 |
3 |
21 |
92 |
|
Amortisation and impairment of AVIF |
241 |
- |
2 |
1 |
1 |
- |
71 |
- |
2 |
318 |
|
Loss/(profit) on the disposal and remeasurement of subsidiaries, joint ventures and associates |
8 |
11 |
- |
- |
- |
- |
- |
- |
(1) |
18 |
|
Integration and restructuring costs |
61 |
8 |
4 |
- |
1 |
3 |
8 |
10 |
10 |
105 |
|
Other |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Operating profit/(loss) before tax attributable to shareholders |
704 |
226 |
220 |
65 |
135 |
89 |
98 |
70 |
(282) |
1,325 |
1 Total reported income, excluding inter-segment revenue, includes £17,606 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 Aviva Investors operating profit also includes £1 million profit relating to the Aviva Investors Pooled Pensions business.
3 Other Group activities include Group Reinsurance.
Page 46
B5 - Segmental information continued
(a) (ii) Segmental income statement for the six month period ended 30 June 2015
|
United Kingdom & Ireland |
|
|
|
Europe |
|
|
|
|
|
|
|
Life |
GI |
France |
Poland |
Italy, Spain |
Canada |
Asia |
Aviva Investors2 £m |
Other Group activities3 £m |
Total |
|
Gross written premiums |
2,501 |
2,266 |
3,011 |
244 |
1,439 |
1,077 |
519 |
- |
1 |
11,058 |
|
Premiums ceded to reinsurers |
(568) |
(238) |
(35) |
(3) |
(26) |
(64) |
(70) |
- |
- |
(1,004) |
|
Internal reinsurance revenue |
(2) |
(1) |
- |
- |
(2) |
- |
- |
- |
5 |
- |
|
Premiums written net of reinsurance |
1,931 |
2,027 |
2,976 |
241 |
1,411 |
1,013 |
449 |
- |
6 |
10,054 |
|
Net change in provision for unearned premiums |
(47) |
(49) |
(95) |
(7) |
(4) |
1 |
(21) |
- |
- |
(222) |
|
Net earned premiums |
1,884 |
1,978 |
2,881 |
234 |
1,407 |
1,014 |
428 |
- |
6 |
9,832 |
|
Fee and commission income |
289 |
78 |
109 |
13 |
46 |
14 |
65 |
139 |
- |
753 |
|
|
2,173 |
2,056 |
2,990 |
247 |
1,453 |
1,028 |
493 |
139 |
6 |
10,585 |
|
Net investment income/(expense) |
(1,637) |
76 |
1,726 |
58 |
111 |
41 |
(36) |
81 |
186 |
606 |
|
Inter-segment revenue |
- |
- |
- |
- |
- |
- |
- |
76 |
- |
76 |
|
Share of profit of joint ventures and associates |
54 |
- |
4 |
3 |
5 |
- |
22 |
- |
- |
88 |
|
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Segmental income1 |
590 |
2,132 |
4,720 |
308 |
1,569 |
1,069 |
479 |
296 |
192 |
11,355 |
|
Claims and benefits paid, net of recoveries from reinsurers |
(4,711) |
(1,311) |
(2,124) |
(163) |
(1,232) |
(627) |
(220) |
- |
(14) |
(10,402) |
|
Change in insurance liabilities, net of reinsurance |
3,671 |
23 |
(911) |
(45) |
170 |
8 |
(159) |
- |
4 |
2,761 |
|
Change in investment contract provisions |
1,355 |
- |
(1,485) |
11 |
(509) |
- |
105 |
(82) |
- |
(605) |
|
Change in unallocated divisible surplus |
(37) |
- |
519 |
11 |
263 |
- |
(13) |
- |
- |
743 |
|
Fee and commission expense |
(327) |
(607) |
(382) |
(25) |
(129) |
(292) |
(52) |
(14) |
(105) |
(1,933) |
|
Other expenses |
(469) |
(139) |
(108) |
(26) |
(56) |
(43) |
(101) |
(175) |
55 |
(1,062) |
|
Inter-segment expenses |
(66) |
(2) |
(3) |
(3) |
- |
(2) |
- |
- |
- |
(76) |
|
Finance costs |
(82) |
(3) |
(1) |
- |
(3) |
(2) |
(1) |
- |
(179) |
(271) |
|
Segmental expenses |
(666) |
(2,039) |
(4,495) |
(240) |
(1,496) |
(958) |
(441) |
(271) |
(239) |
(10,845) |
|
Profit/(loss) before tax |
(76) |
93 |
225 |
68 |
73 |
111 |
38 |
25 |
(47) |
510 |
|
Tax attributable to policyholders' returns |
280 |
- |
- |
- |
- |
- |
- |
- |
- |
280 |
|
Profit/(loss) before tax attributable to shareholders' profits |
204 |
93 |
225 |
68 |
73 |
111 |
38 |
25 |
(47) |
790 |
|
Adjusted for non-operating items: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification of corporate costs and unallocated interest |
1 |
- |
7 |
- |
- |
2 |
- |
2 |
(12) |
- |
|
Investment return variances and economic assumption changes on long-term business |
106 |
- |
(10) |
1 |
13 |
- |
(35) |
- |
- |
75 |
|
Short-term fluctuation in return on investments backing non-long-term business |
31 |
78 |
(9) |
(1) |
15 |
10 |
- |
- |
(290) |
(166) |
|
Economic assumption changes on general insurance and health business |
- |
51 |
- |
- |
- |
2 |
- |
- |
1 |
54 |
|
Impairment of goodwill, joint ventures and associates |
- |
- |
- |
- |
9 |
- |
13 |
- |
- |
22 |
|
Amortisation and impairment of intangibles |
27 |
6 |
- |
1 |
8 |
5 |
4 |
4 |
6 |
61 |
|
Amortisation and impairment of AVIF |
106 |
- |
4 |
1 |
4 |
- |
47 |
- |
- |
162 |
|
(Profit)/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Integration and restructuring costs |
86 |
13 |
8 |
- |
2 |
2 |
- |
2 |
59 |
172 |
|
Other |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Operating profit/(loss) before tax attributable to shareholders |
561 |
241 |
225 |
70 |
124 |
132 |
67 |
33 |
(283) |
1,170 |
1 Total reported income, excluding inter-segment revenue, includes £2,304 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 Aviva Investors operating profit also includes £1 million profit relating to the Aviva Investors Pooled Pensions business.
3 Other Group activities include Group Reinsurance.
Page 47
B5 - Segmental information continued
(a) (iii) Segmental income statement for the year ended 31 December 2015 - restated1
|
United Kingdom & Ireland |
|
|
|
Europe |
|
|
|
|
|
|
|
Life |
GI |
France |
Poland |
Italy, Spain |
Canada |
Asia |
Aviva Investors3 £m |
Other Group activities4 £m |
Total |
|
Gross written premiums |
5,402 |
4,503 |
5,777 |
484 |
2,733 |
2,109 |
917 |
- |
- |
21,925 |
|
Premiums ceded to reinsurers |
(1,355) |
(1,163) |
(75) |
(6) |
(42) |
(117) |
(132) |
- |
- |
(2,890) |
|
Internal reinsurance revenue |
(5) |
(1) |
- |
(1) |
(4) |
- |
(2) |
- |
13 |
- |
|
Premiums written net of reinsurance |
4,042 |
3,339 |
5,702 |
477 |
2,687 |
1,992 |
783 |
- |
13 |
19,035 |
|
Net change in provision for unearned premiums |
(1) |
(53) |
(11) |
(13) |
(7) |
(15) |
(14) |
- |
3 |
(111) |
|
Net earned premiums |
4,041 |
3,286 |
5,691 |
464 |
2,680 |
1,977 |
769 |
- |
16 |
18,924 |
|
Fee and commission income |
810 |
160 |
232 |
40 |
115 |
28 |
134 |
281 |
(3) |
1,797 |
|
|
4,851 |
3,446 |
5,923 |
504 |
2,795 |
2,005 |
903 |
281 |
13 |
20,721 |
|
Net investment income/(expense) |
448 |
159 |
1,949 |
(1) |
444 |
49 |
(325) |
155 |
(53) |
2,825 |
|
Inter-segment revenue |
- |
- |
- |
- |
- |
- |
- |
195 |
- |
195 |
|
Share of profit of joint ventures and associates |
149 |
- |
7 |
5 |
8 |
- |
11 |
- |
- |
180 |
|
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates |
2 |
- |
- |
- |
(1) |
- |
1 |
- |
- |
2 |
|
Segmental income2 |
5,450 |
3,605 |
7,879 |
508 |
3,246 |
2,054 |
590 |
631 |
(40) |
23,923 |
|
Claims and benefits paid, net of recoveries from reinsurers |
(10,663) |
(2,533) |
(4,454) |
(302) |
(2,343) |
(1,240) |
(415) |
- |
(35) |
(21,985) |
|
Change in insurance liabilities, net of reinsurance |
7,070 |
492 |
(1,093) |
17 |
264 |
(12) |
(68) |
- |
11 |
6,681 |
|
Change in investment contract provisions |
943 |
- |
(1,915) |
18 |
(702) |
- |
328 |
(159) |
- |
(1,487) |
|
Change in unallocated divisible surplus |
22 |
- |
841 |
12 |
93 |
- |
16 |
- |
- |
984 |
|
Fee and commission expense |
(562) |
(1,195) |
(623) |
(57) |
(252) |
(571) |
(114) |
(26) |
76 |
(3,324) |
|
Other expenses |
(1,369) |
(223) |
(205) |
(51) |
(111) |
(81) |
(250) |
(365) |
(129) |
(2,784) |
|
Inter-segment expenses |
(169) |
(5) |
(9) |
(6) |
- |
(4) |
- |
- |
(2) |
(195) |
|
Finance costs |
(214) |
(1) |
(1) |
- |
(4) |
(4) |
(3) |
- |
(391) |
(618) |
|
Segmental expenses |
(4,942) |
(3,465) |
(7,459) |
(369) |
(3,055) |
(1,912) |
(506) |
(550) |
(470) |
(22,728) |
|
Profit/(loss) before tax |
508 |
140 |
420 |
139 |
191 |
142 |
84 |
81 |
(510) |
1,195 |
|
Tax attributable to policyholders' returns |
232 |
- |
- |
- |
- |
- |
(14) |
- |
- |
218 |
|
Profit/(loss) before tax attributable to shareholders' profits |
740 |
140 |
420 |
139 |
191 |
142 |
70 |
81 |
(510) |
1,413 |
|
Adjusted for non-operating items: |
|
|
|
|
|
|
|
|
|
|
|
Reclassification of corporate costs and unallocated interest |
7 |
(1) |
20 |
- |
- |
6 |
- |
4 |
(36) |
- |
|
Investment return variances and economic assumption changes on long-term business |
- |
- |
(17) |
- |
14 |
- |
(11) |
- |
- |
(14) |
|
Short-term fluctuation in return on investments backing non-long-term business |
53 |
84 |
2 |
(2) |
31 |
47 |
- |
- |
(131) |
84 |
|
Economic assumption changes on general insurance and health business |
- |
98 |
- |
- |
- |
2 |
- |
- |
- |
100 |
|
Impairment of goodwill, joint ventures and associates and other amounts expensed |
- |
- |
- |
- |
9 |
- |
13 |
- |
- |
22 |
|
Amortisation and impairment of intangibles |
84 |
14 |
- |
2 |
14 |
10 |
9 |
10 |
12 |
155 |
|
Amortisation and impairment of AVIF |
350 |
- |
5 |
2 |
5 |
- |
136 |
- |
- |
498 |
|
(Profit)/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates |
(2) |
- |
- |
- |
1 |
- |
(1) |
- |
- |
(2) |
|
Integration and restructuring costs |
215 |
26 |
19 |
- |
3 |
7 |
7 |
11 |
91 |
379 |
|
Other5 |
- |
53 |
- |
- |
- |
- |
- |
- |
- |
53 |
|
Operating profit/(loss) before tax attributable to shareholders |
1,447 |
414 |
449 |
141 |
268 |
214 |
223 |
106 |
(574) |
2,688 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
2 Total reported income, excluding inter-segment revenue, includes £9,031 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 Aviva Investors operating profit includes £1 million profit relating to the Aviva Investors Pooled Pensions business.
4 Other Group activities include Group Reinsurance.
5 Other items represents a day one loss upon the completion of an outwards reinsurance contract by the UK General Insurance business, which provides significant protection against claims volatility from mesothelioma, industrial deafness and other long tail risks. The £53 million loss comprises £712 million in premiums ceded less £659 million in reinsurance recoverables recognised.
Page 48
B5 - Segmental information continued
(a) (iv) Segmental statement of financial position as at 30 June 2016
|
United Kingdom & Ireland |
|
|
|
Europe |
|
|
|
|
|
|
|
Life |
GI |
France |
Poland |
Italy, Spain |
Canada |
Asia |
Aviva |
Other Group |
Total |
|
Goodwill |
663 |
1,016 |
6 |
26 |
192 |
26 |
50 |
- |
- |
1,979 |
|
Acquired value of in-force business and intangible assets |
3,323 |
149 |
83 |
11 |
604 |
83 |
1,135 |
12 |
50 |
5,450 |
|
Interests in, and loans to, joint ventures and associates |
1,415 |
- |
166 |
46 |
78 |
10 |
499 |
- |
- |
2,214 |
|
Property and equipment |
89 |
27 |
254 |
3 |
5 |
15 |
9 |
2 |
78 |
482 |
|
Investment property |
7,165 |
205 |
2,336 |
- |
1 |
- |
- |
1,140 |
259 |
11,106 |
|
Loans |
23,338 |
5 |
732 |
1 |
29 |
164 |
36 |
- |
- |
24,305 |
|
Financial investments |
171,680 |
4,201 |
65,171 |
2,720 |
22,774 |
3,703 |
10,500 |
523 |
7,188 |
288,460 |
|
Deferred acquisition costs |
1,427 |
496 |
274 |
38 |
82 |
304 |
84 |
4 |
- |
2,709 |
|
Other assets |
47,874 |
6,461 |
7,743 |
246 |
1,687 |
1,603 |
1,565 |
989 |
5,184 |
73,352 |
|
Assets of operations classified as held for sale |
1,197 |
455 |
12,541 |
- |
- |
- |
- |
- |
- |
14,193 |
|
Total assets |
258,171 |
13,015 |
89,306 |
3,091 |
25,452 |
5,908 |
13,878 |
2,670 |
12,759 |
424,250 |
|
Insurance liabilities |
|
|
|
|
|
|
|
|
|
|
|
Long-term business and outstanding claims provisions |
104,326 |
5,414 |
15,036 |
2,509 |
9,382 |
2,716 |
3,614 |
- |
35 |
143,032 |
|
Unearned premiums |
260 |
2,268 |
567 |
63 |
273 |
1,215 |
77 |
- |
- |
4,723 |
|
Other insurance liabilities |
- |
77 |
50 |
- |
- |
92 |
- |
- |
3 |
222 |
|
Liability for investment contracts |
118,071 |
- |
47,196 |
2 |
11,298 |
- |
7,738 |
1,701 |
- |
186,006 |
|
Unallocated divisible surplus |
2,609 |
- |
5,324 |
56 |
1,359 |
- |
276 |
- |
- |
9,624 |
|
Net asset value attributable to unitholders |
84 |
- |
2,665 |
- |
471 |
- |
- |
- |
9,825 |
13,045 |
|
External borrowings |
1,914 |
- |
- |
- |
55 |
- |
- |
- |
7,712 |
9,681 |
|
Other liabilities, including inter-segment liabilities |
17,754 |
83 |
4,043 |
107 |
752 |
904 |
581 |
471 |
295 |
24,990 |
|
Liabilities of operations classified as held for sale |
1,171 |
395 |
12,050 |
- |
- |
- |
- |
- |
- |
13,616 |
|
Total liabilities |
246,189 |
8,237 |
86,931 |
2,737 |
23,590 |
4,927 |
12,286 |
2,172 |
17,870 |
404,939 |
|
Total equity |
|
|
|
|
|
|
|
|
|
19,311 |
|
Total equity and liabilities |
|
|
|
|
|
|
|
|
|
424,250 |
(a) (v) Segmental statement of financial position as at 30 June 2015 - restated1
|
United Kingdom & Ireland |
|
|
|
Europe |
|
|
|
|
|
|
|
Life |
GI |
France |
Poland |
Italy, Spain |
Canada |
Asia |
Aviva |
Other Group |
Total |
|
Goodwill |
663 |
1,022 |
- |
7 |
166 |
22 |
43 |
- |
- |
1,923 |
|
Acquired value of in-force business and intangible assets |
3,893 |
128 |
82 |
4 |
522 |
59 |
1,345 |
22 |
24 |
6,079 |
|
Interests in, and loans to, joint ventures and associates |
972 |
- |
133 |
36 |
73 |
3 |
388 |
- |
- |
1,605 |
|
Property and equipment |
103 |
33 |
199 |
2 |
5 |
9 |
8 |
1 |
30 |
390 |
|
Investment property |
8,203 |
140 |
1,707 |
- |
1 |
- |
- |
1,145 |
371 |
11,567 |
|
Loans |
23,162 |
73 |
692 |
- |
38 |
127 |
29 |
- |
- |
24,121 |
|
Financial investments |
169,195 |
5,147 |
62,318 |
2,653 |
18,036 |
3,220 |
9,880 |
657 |
3,705 |
274,811 |
|
Deferred acquisition costs |
1,278 |
440 |
222 |
26 |
76 |
261 |
25 |
6 |
- |
2,334 |
|
Other assets |
41,605 |
4,460 |
11,200 |
167 |
1,666 |
873 |
1,425 |
736 |
5,623 |
67,755 |
|
Assets of operations classified as held for sale |
- |
- |
- |
- |
- |
- |
- |
- |
9 |
9 |
|
Total assets |
249,074 |
11,443 |
76,553 |
2,895 |
20,583 |
4,574 |
13,143 |
2,567 |
9,762 |
390,594 |
|
Insurance liabilities |
|
|
|
|
|
|
|
|
|
|
|
Long-term business and outstanding claims provisions |
103,081 |
5,301 |
15,658 |
2,329 |
7,510 |
2,121 |
2,882 |
- |
34 |
138,916 |
|
Unearned premiums |
272 |
2,062 |
459 |
39 |
228 |
1,044 |
61 |
- |
2 |
4,167 |
|
Other insurance liabilities |
- |
80 |
42 |
- |
- |
81 |
- |
- |
2 |
205 |
|
Liability for investment contracts |
114,562 |
- |
45,540 |
5 |
9,356 |
- |
8,071 |
1,856 |
- |
179,390 |
|
Unallocated divisible surplus |
2,624 |
- |
5,073 |
55 |
843 |
- |
220 |
- |
- |
8,815 |
|
Net asset value attributable to unitholders |
251 |
- |
3,788 |
- |
324 |
- |
- |
- |
6,365 |
10,728 |
|
External borrowings |
2,037 |
- |
- |
- |
47 |
- |
- |
- |
7,506 |
9,590 |
|
Other liabilities, including inter-segment liabilities |
14,626 |
(1,676) |
4,077 |
115 |
625 |
508 |
495 |
347 |
1,826 |
20,943 |
|
Liabilities of operations classified as held for sale |
- |
- |
- |
- |
- |
- |
- |
- |
2 |
2 |
|
Total liabilities |
237,453 |
5,767 |
74,637 |
2,543 |
18,933 |
3,754 |
11,729 |
2,203 |
15,737 |
372,756 |
|
Total equity |
|
|
|
|
|
|
|
|
|
17,838 |
|
Total equity and liabilities |
|
|
|
|
|
|
|
|
|
390,594 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 49
B5 - Segmental information continued
(a) (vi) Segmental statement of financial position as at 31 December 2015 - restated1
|
United Kingdom & Ireland |
|
|
|
Europe |
|
|
|
|
|
|
|
Life |
GI |
France |
Poland |
Italy, Spain |
Canada |
Asia |
Aviva |
Other Group |
Total |
|
Goodwill |
663 |
1,026 |
5 |
23 |
172 |
21 |
45 |
- |
- |
1,955 |
|
Acquired value of in-force business and intangible assets |
3,600 |
139 |
86 |
12 |
539 |
69 |
1,206 |
15 |
65 |
5,731 |
|
Interests in, and loans to, joint ventures and associates |
1,291 |
- |
138 |
39 |
72 |
7 |
372 |
- |
- |
1,919 |
|
Property and equipment |
130 |
27 |
225 |
3 |
5 |
10 |
8 |
1 |
40 |
449 |
|
Investment property |
7,483 |
198 |
2,089 |
- |
1 |
- |
- |
1,146 |
384 |
11,301 |
|
Loans |
21,502 |
5 |
733 |
1 |
26 |
135 |
31 |
- |
- |
22,433 |
|
Financial investments |
163,987 |
4,715 |
65,413 |
2,575 |
19,176 |
3,187 |
9,684 |
515 |
4,965 |
274,217 |
|
Deferred acquisition costs |
1,351 |
418 |
227 |
32 |
77 |
255 |
57 |
4 |
- |
2,421 |
|
Other assets |
42,636 |
5,301 |
9,678 |
239 |
1,480 |
860 |
1,351 |
901 |
4,959 |
67,405 |
|
Assets of operations classified as held for sale |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Total assets |
242,643 |
11,829 |
78,594 |
2,924 |
21,548 |
4,544 |
12,754 |
2,582 |
10,413 |
387,831 |
|
Insurance liabilities |
|
|
|
|
|
|
|
|
|
|
|
Long-term business and outstanding claims provisions |
99,435 |
5,439 |
16,487 |
2,308 |
7,699 |
2,058 |
2,865 |
- |
18 |
136,309 |
|
Unearned premiums |
226 |
2,083 |
393 |
45 |
237 |
1,016 |
48 |
- |
- |
4,048 |
|
Other insurance liabilities |
- |
76 |
44 |
- |
- |
77 |
- |
- |
2 |
199 |
|
Liability for investment contracts |
114,052 |
- |
47,834 |
2 |
9,770 |
- |
7,681 |
1,743 |
- |
181,082 |
|
Unallocated divisible surplus |
2,575 |
- |
4,941 |
55 |
1,047 |
- |
193 |
- |
- |
8,811 |
|
Net asset value attributable to unitholders |
203 |
- |
2,863 |
- |
413 |
- |
- |
- |
7,936 |
11,415 |
|
External borrowings |
1,903 |
- |
- |
- |
49 |
- |
- |
- |
6,818 |
8,770 |
|
Other liabilities, including inter-segment liabilities |
12,271 |
(1,240) |
4,066 |
99 |
715 |
596 |
565 |
370 |
1,485 |
18,927 |
|
Liabilities of operations classified as held for sale |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Total liabilities |
230,665 |
6,358 |
76,628 |
2,509 |
19,930 |
3,747 |
11,352 |
2,113 |
16,259 |
369,561 |
|
Total equity |
|
|
|
|
|
|
|
|
|
18,270 |
|
Total equity and liabilities |
|
|
|
|
|
|
|
|
|
387,831 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
(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 and 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, provides investment management services for institutional pension fund mandates and manages a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. 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.
Page 50
B5 - Segmental information continued
(b) (i) Segmental income statement - products and services for the six month period ended 30 June 2016
|
Long-term |
General and health2 £m |
Fund |
Other |
Total |
Gross written premiums1 |
7,733 |
4,860 |
- |
- |
12,593 |
Premiums ceded to reinsurers |
(845) |
(315) |
- |
- |
(1,160) |
Premiums written net of reinsurance |
6,888 |
4,545 |
- |
- |
11,433 |
Net change in provision for unearned premiums |
- |
(348) |
- |
- |
(348) |
Net earned premiums |
6,888 |
4,197 |
- |
- |
11,085 |
Fee and commission income |
638 |
20 |
139 |
199 |
996 |
|
7,526 |
4,217 |
139 |
199 |
12,081 |
Net investment income/(expense) |
14,905 |
209 |
(1) |
51 |
15,164 |
Inter-segment revenue |
- |
- |
119 |
- |
119 |
Share of profit of joint ventures and associates |
193 |
2 |
- |
- |
195 |
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates |
(8) |
(11) |
- |
1 |
(18) |
Segmental income |
22,616 |
4,417 |
257 |
251 |
27,541 |
Claims and benefits paid, net of recoveries from reinsurers |
(8,782) |
(2,671) |
- |
- |
(11,453) |
Change in insurance liabilities, net of reinsurance |
(5,739) |
(187) |
- |
- |
(5,926) |
Change in investment contract provisions |
(4,576) |
- |
- |
- |
(4,576) |
Change in unallocated divisible surplus |
(792) |
- |
- |
- |
(792) |
Fee and commission expense |
(451) |
(1,102) |
(17) |
(84) |
(1,654) |
Other expenses |
(976) |
(261) |
(206) |
(628) |
(2,071) |
Inter-segment expenses |
(113) |
(6) |
- |
- |
(119) |
Finance costs |
(112) |
(2) |
- |
(181) |
(295) |
Segmental expenses |
(21,541) |
(4,229) |
(223) |
(893) |
(26,886) |
Profit/(loss) before tax |
1,075 |
188 |
34 |
(642) |
655 |
Tax attributable to policyholder returns |
(318) |
- |
- |
- |
(318) |
Profit/(loss) before tax attributable to shareholders' profits |
757 |
188 |
34 |
(642) |
337 |
Adjusted for: |
|
|
|
|
|
Non-operating items |
469 |
146 |
15 |
358 |
988 |
Operating profit/(loss) before tax attributable to shareholders' profits |
1,226 |
334 |
49 |
(284) |
1,325 |
1 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £71 million, of which £29 million relates to property and liability insurance and £42 million relates to long-term business.
2 General insurance and health business segment includes gross written premiums of £646 million relating to health business. The remaining business relates to property and liability insurance.
Page 51
B5 - Segmental information continued
(b) (ii) Segmental income statement - products and services for the six month period ended 30 June 2015
|
Long-term |
General and health2 £m |
Fund |
Other |
Total |
Gross written premiums1 |
6,494 |
4,564 |
- |
- |
11,058 |
Premiums ceded to reinsurers |
(658) |
(346) |
- |
- |
(1,004) |
Premiums written net of reinsurance |
5,836 |
4,218 |
- |
- |
10,054 |
Net change in provision for unearned premiums |
- |
(222) |
- |
- |
(222) |
Net earned premiums |
5,836 |
3,996 |
- |
- |
9,832 |
Fee and commission income |
472 |
27 |
136 |
118 |
753 |
|
6,308 |
4,023 |
136 |
118 |
10,585 |
Net investment income/(expense) |
284 |
141 |
(2) |
183 |
606 |
Inter-segment revenue |
- |
- |
79 |
- |
79 |
Share of profit of joint ventures and associates |
87 |
1 |
- |
- |
88 |
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates |
- |
- |
- |
- |
- |
Segmental income |
6,679 |
4,165 |
213 |
301 |
11,358 |
Claims and benefits paid, net of recoveries from reinsurers |
(7,768) |
(2,634) |
- |
- |
(10,402) |
Change in insurance liabilities, net of reinsurance |
2,766 |
(5) |
- |
- |
2,761 |
Change in investment contract provisions |
(605) |
- |
- |
- |
(605) |
Change in unallocated divisible surplus |
743 |
- |
- |
- |
743 |
Fee and commission expense |
(609) |
(1,075) |
(13) |
(236) |
(1,933) |
Other expenses |
(698) |
(203) |
(175) |
14 |
(1,062) |
Inter-segment expenses |
(74) |
(5) |
- |
- |
(79) |
Finance costs |
(80) |
(5) |
- |
(186) |
(271) |
Segmental expenses |
(6,325) |
(3,927) |
(188) |
(408) |
(10,848) |
Profit/(loss) before tax |
354 |
238 |
25 |
(107) |
510 |
Tax attributable to policyholder returns |
280 |
- |
- |
- |
280 |
Profit/(loss) before tax attributable to shareholders' profits |
634 |
238 |
25 |
(107) |
790 |
Adjusted for: |
|
|
|
|
|
Non-operating items |
387 |
184 |
8 |
(199) |
380 |
Operating profit/(loss) before tax attributable to shareholders' profits |
1,021 |
422 |
33 |
(306) |
1,170 |
1 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £80 million, of which £37 million relates to property and liability insurance and £43 million relates to long-term business.
2 General insurance and health business segment includes gross written premiums of £630 million relating to health business. The remaining business relates to property and liability insurance.
Page 52
B5 - Segmental information continued
(b) (iii) Segmental income statement - products and services for the year ended 31 December 2015 - restated1
|
Long-term |
General and health3 £m |
Fund |
Other |
Total |
Gross written premiums2 |
13,187 |
8,738 |
- |
- |
21,925 |
Premiums ceded to reinsurers |
(1,529) |
(1,361) |
- |
- |
(2,890) |
Premiums written net of reinsurance |
11,658 |
7,377 |
- |
- |
19,035 |
Net change in provision for unearned premiums |
- |
(111) |
- |
- |
(111) |
Net earned premiums |
11,658 |
7,266 |
- |
- |
18,924 |
Fee and commission income |
1,161 |
61 |
274 |
301 |
1,797 |
|
12,819 |
7,327 |
274 |
301 |
20,721 |
Net investment income/(expense) |
2,667 |
240 |
(5) |
(77) |
2,825 |
Inter-segment revenue |
- |
- |
201 |
- |
201 |
Share of profit of joint ventures and associates |
177 |
3 |
- |
- |
180 |
Profit on the disposal and remeasurement of subsidiaries, joint ventures and associates |
1 |
1 |
- |
- |
2 |
Segmental income |
15,664 |
7,571 |
470 |
224 |
23,929 |
Claims and benefits paid, net of recoveries from reinsurers |
(16,809) |
(5,176) |
- |
- |
(21,985) |
Change in insurance liabilities, net of reinsurance |
6,205 |
476 |
- |
- |
6,681 |
Change in investment contract provisions |
(1,487) |
- |
- |
- |
(1,487) |
Change in unallocated divisible surplus |
984 |
- |
- |
- |
984 |
Fee and commission expense |
(1,098) |
(2,118) |
(23) |
(85) |
(3,324) |
Other expenses |
(1,663) |
(368) |
(367) |
(386) |
(2,784) |
Inter-segment expenses |
(190) |
(11) |
- |
- |
(201) |
Finance costs |
(202) |
(5) |
- |
(411) |
(618) |
Segmental expenses |
(14,260) |
(7,202) |
(390) |
(882) |
(22,734) |
Profit/(loss) before tax |
1,404 |
369 |
80 |
(658) |
1,195 |
Tax attributable to policyholder returns |
218 |
- |
- |
- |
218 |
Profit/(loss) before tax attributable to shareholders' profits |
1,622 |
369 |
80 |
(658) |
1,413 |
Adjusted for: |
|
|
|
|
|
Non-operating items |
820 |
396 |
26 |
33 |
1,275 |
Operating profit/(loss) before tax attributable to shareholders' profits |
2,442 |
765 |
106 |
(625) |
2,688 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
2 Gross written premiums include inward reinsurance premiums assumed from other companies amounting to £146 million, of which £80 million relates to property and liability insurance and £66 million relates to long-term business.
3 General insurance and health business segment includes gross written premiums of £1,092 million relating to health business. The remaining business relates to property and liability insurance.
Page 53
B5 - Segmental information continued
(c) (i) Segmental statement of financial position - products and services as at 30 June 2016
|
Long-term |
General |
Fund |
Other |
Total |
Goodwill |
887 |
1,025 |
- |
67 |
1,979 |
Acquired value of in-force business and intangible assets |
5,062 |
346 |
12 |
30 |
5,450 |
Interests in, and loans to, joint ventures and associates |
2,167 |
39 |
- |
8 |
2,214 |
Property and equipment |
280 |
107 |
2 |
93 |
482 |
Investment property |
10,479 |
368 |
- |
259 |
11,106 |
Loans |
24,135 |
170 |
- |
- |
24,305 |
Financial investments |
270,739 |
10,527 |
32 |
7,162 |
288,460 |
Deferred acquisition costs |
1,729 |
976 |
4 |
- |
2,709 |
Other assets |
56,016 |
9,680 |
901 |
6,755 |
73,352 |
Assets of operations classified as held for sale |
13,738 |
455 |
- |
- |
14,193 |
Total assets |
385,232 |
23,693 |
951 |
14,374 |
424,250 |
Gross insurance liabilities |
132,840 |
15,137 |
- |
- |
147,977 |
Gross liabilities for investment contracts |
186,006 |
- |
- |
- |
186,006 |
Unallocated divisible surplus |
9,624 |
- |
- |
- |
9,624 |
Net asset value attributable to unitholders |
3,221 |
- |
- |
9,824 |
13,045 |
External borrowings |
1,872 |
- |
- |
7,809 |
9,681 |
Other liabilities, including inter-segment liabilities |
20,694 |
1,416 |
455 |
2,425 |
24,990 |
Liabilities of operations classified as held for sale |
13,221 |
395 |
- |
- |
13,616 |
Total liabilities |
367,478 |
16,948 |
455 |
20,058 |
404,939 |
Total equity |
|
|
|
|
19,311 |
Total equity and liabilities |
|
|
|
|
424,250 |
(c) (ii) Segmental statement of financial position - products and services as at 30 June 2015 - restated1
|
Long-term |
General |
Fund |
Other |
Total |
Goodwill |
853 |
1,030 |
- |
40 |
1,923 |
Acquired value of in-force business and intangible assets |
5,738 |
285 |
22 |
34 |
6,079 |
Interests in, and loans to, joint ventures and associates |
1,570 |
32 |
- |
3 |
1,605 |
Property and equipment |
252 |
93 |
1 |
44 |
390 |
Investment property |
10,941 |
256 |
- |
370 |
11,567 |
Loans |
23,920 |
201 |
- |
- |
24,121 |
Financial investments |
260,499 |
10,634 |
25 |
3,653 |
274,811 |
Deferred acquisition costs |
1,485 |
843 |
6 |
- |
2,334 |
Other assets |
53,040 |
6,589 |
629 |
7,497 |
67,755 |
Assets of operations classified as held for sale |
- |
9 |
- |
- |
9 |
Total assets |
358,298 |
19,972 |
683 |
11,641 |
390,594 |
Gross insurance liabilities |
129,766 |
13,522 |
- |
- |
143,288 |
Gross liabilities for investment contracts |
179,390 |
- |
- |
- |
179,390 |
Unallocated divisible surplus |
8,815 |
- |
- |
- |
8,815 |
Net asset value attributable to unitholders |
4,362 |
- |
- |
6,366 |
10,728 |
External borrowings |
1,995 |
- |
- |
7,595 |
9,590 |
Other liabilities, including inter-segment liabilities |
17,556 |
(814) |
329 |
3,872 |
20,943 |
Liabilities of operations classified as held for sale |
- |
2 |
- |
- |
2 |
Total liabilities |
341,884 |
12,710 |
329 |
17,833 |
372,756 |
Total equity |
|
|
|
|
17,838 |
Total equity and liabilities |
|
|
|
|
390,594 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 54
B5 - Segmental information continued
(c) (iii) Segmental statement of financial position - products and services as at 31 December 2015 - restated1
|
Long-term |
General |
Fund |
Other |
Total |
Goodwill |
862 |
1,035 |
- |
58 |
1,955 |
Acquired value of in-force business and intangible assets |
5,369 |
309 |
15 |
38 |
5,731 |
Interests in, and loans to, joint ventures and associates |
1,878 |
34 |
- |
7 |
1,919 |
Property and equipment |
299 |
95 |
1 |
54 |
449 |
Investment property |
10,582 |
335 |
- |
384 |
11,301 |
Loans |
22,292 |
141 |
- |
- |
22,433 |
Financial investments |
258,995 |
10,280 |
23 |
4,919 |
274,217 |
Deferred acquisition costs |
1,604 |
812 |
5 |
- |
2,421 |
Other assets |
52,844 |
7,315 |
769 |
6,477 |
67,405 |
Assets of operations classified as held for sale |
- |
- |
- |
- |
- |
Total assets |
354,725 |
20,356 |
813 |
11,937 |
387,831 |
Gross insurance liabilities |
127,050 |
13,506 |
- |
- |
140,556 |
Gross liabilities for investment contracts |
181,082 |
- |
- |
- |
181,082 |
Unallocated divisible surplus |
8,811 |
- |
- |
- |
8,811 |
Net asset value attributable to unitholders |
3,479 |
- |
- |
7,936 |
11,415 |
External borrowings |
1,857 |
- |
- |
6,913 |
8,770 |
Other liabilities, including inter-segment liabilities |
15,397 |
(307) |
346 |
3,491 |
18,927 |
Liabilities of operations classified as held for sale |
- |
- |
- |
- |
- |
Total liabilities |
337,676 |
13,199 |
346 |
18,340 |
369,561 |
Total equity |
|
|
|
|
18,270 |
Total equity and liabilities |
|
|
|
|
387,831 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 55
B6 - 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 |
6 months |
Restated1 Full Year |
Current tax |
|
|
|
For the period |
602 |
284 |
500 |
Prior period adjustments |
(6) |
(20) |
(68) |
Total current tax |
596 |
264 |
432 |
Deferred tax |
|
|
|
Origination and reversal of temporary differences |
(131) |
(274) |
(222) |
Changes in tax rates or tax laws |
(11) |
- |
(82) |
Write back of deferred tax assets |
- |
(25) |
(30) |
Total deferred tax |
(142) |
(299) |
(334) |
Total tax charged/(credited) to income statement |
454 |
(35) |
98 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
(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 policyholder returns is included in the tax charge/(credit). The tax charge attributable to policyholders' returns included in the charge/(credit) above is £318 million (HY15: £280 million credit; FY15: £218 million credit).
(iii) The tax charge/(credit) can be analysed as follows:
|
6 months |
6 months |
Restated1 Full Year |
UK tax |
312 |
(234) |
(289) |
Overseas tax |
142 |
199 |
387 |
|
454 |
(35) |
98 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
(b) Tax charged/(credited) to other comprehensive income
(i) The total tax charge/(credit) comprises:
|
6 months |
6 months |
Full Year |
Current tax |
|
|
|
In respect of pensions and other post-retirement obligations |
(16) |
(36) |
(44) |
In respect of foreign exchange movements |
22 |
(13) |
(7) |
|
6 |
(49) |
(51) |
Deferred tax |
|
|
|
In respect of pensions and other post-retirement obligations |
185 |
(35) |
(49) |
In respect of fair value gains on owner-occupied properties |
1 |
- |
- |
In respect of unrealised gains/(losses) on investments |
9 |
(6) |
(6) |
|
195 |
(41) |
(55) |
Total tax charged/(credited) to other comprehensive income |
201 |
(90) |
(106) |
(ii) The tax charge attributable to policyholders' returns included above is £nil (HY15: £nil; FY15 £nil).
Page 56
B6 - Tax continued
(c) Tax credited to equity
Tax credited directly to equity in the period in respect of coupon payments on the direct capital instrument and tier 1 notes amounted to £5 million (HY15: £4 million; FY15: £15 million).
(d) Tax reconciliation
The tax on the Group's profit/(loss) before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:
|
Shareholder |
Policyholder £m |
6 months |
Shareholder £m |
Policyholder £m |
6 months |
Shareholder £m |
Policyholder |
Restated1 Full Year |
Total profit/(loss) before tax |
337 |
318 |
655 |
790 |
(280) |
510 |
1,413 |
(218) |
1,195 |
|
|
|
|
|
|
|
|
|
|
Tax calculated at standard UK corporation tax rate of 20.00% (2015: 20.25%) |
67 |
64 |
131 |
160 |
(57) |
103 |
286 |
(44) |
242 |
Reconciling items |
|
|
|
|
|
|
|
|
|
Different basis of tax - policyholders |
- |
254 |
254 |
- |
(223) |
(223) |
- |
(174) |
(174) |
Adjustment to tax charge in respect of prior periods |
(1) |
- |
(1) |
1 |
- |
1 |
(46) |
- |
(46) |
Non-assessable income and items not taxed at the full statutory rate |
9 |
- |
9 |
21 |
- |
21 |
19 |
- |
19 |
Non-taxable loss/(profit) on sale of subsidiaries and associates |
2 |
- |
2 |
- |
- |
- |
1 |
- |
1 |
Disallowable expenses |
26 |
- |
26 |
28 |
- |
28 |
67 |
- |
67 |
Different local basis of tax on overseas profits |
50 |
- |
50 |
62 |
- |
62 |
126 |
- |
126 |
Change in future local statutory tax rates |
(11) |
- |
(11) |
- |
- |
- |
(82) |
- |
(82) |
Movement in deferred tax not recognised |
(1) |
- |
(1) |
(26) |
- |
(26) |
(52) |
- |
(52) |
Tax effect of profit from joint ventures and associates |
- |
- |
- |
(6) |
- |
(6) |
(6) |
- |
(6) |
Other |
(5) |
- |
(5) |
5 |
- |
5 |
3 |
- |
3 |
Total tax charged/(credited) to income statement |
136 |
318 |
454 |
245 |
(280) |
(35) |
316 |
(218) |
98 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
The tax charge/(credit) 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-profit and unit-linked policyholders is zero, the Group's pre-tax profit/(loss) attributable to policyholders is an amount equal and opposite to the tax charge/(credit) attributable to policyholders included in the total tax charge. The difference between the policyholder tax charge/(credit) and the impact of this item in the tax reconciliation can be explained as follows:
|
6 months |
6 months |
Full Year |
Tax attributable to policyholder returns |
318 |
(280) |
(218) |
UK corporation tax at a rate of 20.00% (2015: 20.25%) in respect of the policyholder tax deduction |
(64) |
57 |
44 |
Different basis of tax - policyholders per tax reconciliation |
254 |
(223) |
(174) |
Finance (No 2) Act 2015 introduced legislation reducing the rate of corporation tax from 20% at 1 April 2016 to 19% from 1 April 2017 and to 18% from 1 April 2020. These reduced rates were used in the calculation of the UK's deferred tax assets and liabilities as at 31 December 2015 and 30 June 2016. On 16 March 2016, the UK government announced that the rate of corporation tax will be further reduced to 17% from 1 April 2020. A 1% reduction in the rate applied to the UK deferred tax liability at 30 June 2016 would reduce the liability by approximately £48 million.
Page 57
B7 - Earnings per share
(a) Basic earnings per share
(i) The profit attributable to ordinary shareholders is:
|
6 months 2016 |
6 months 2015 |
Restated1 Full Year 2015 |
||||||
|
Operating profit |
Non-operating items |
Total |
Operating profit |
Non- |
Total |
Operating profit |
Non- |
Total |
Profit before tax attributable to shareholders' profits |
1,325 |
(988) |
337 |
1,170 |
(380) |
790 |
2,688 |
(1,275) |
1,413 |
Tax attributable to shareholders' profit |
(323) |
187 |
(136) |
(304) |
59 |
(245) |
(603) |
287 |
(316) |
Profit for the period |
1,002 |
(801) |
201 |
866 |
(321) |
545 |
2,085 |
(988) |
1,097 |
Amount attributable to non-controlling interests |
(67) |
(4) |
(71) |
(82) |
1 |
(81) |
(152) |
(9) |
(161) |
Cumulative preference dividends for the period |
(9) |
- |
(9) |
(9) |
- |
(9) |
(17) |
- |
(17) |
Coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax) |
(21) |
- |
(21) |
(14) |
- |
(14) |
(57) |
- |
(57) |
Profit attributable to ordinary shareholders |
905 |
(805) |
100 |
761 |
(320) |
441 |
1,859 |
(997) |
862 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
(ii) Basic earnings per share is calculated as follows:
|
6 months 2016 |
6 months 2015 |
Restated1 Full Year 2015 |
||||||
|
Before tax £m |
Net of tax, non-controlling interests, preference dividends and DCI2 £m |
Per share |
Before tax |
Net of tax, non-controlling interests, preference dividends and DCI2 £m |
Per share |
Before tax |
Net of tax, non-controlling interests, preference dividends and DCI2 £m |
Per share |
Operating profit attributable to ordinary shareholders |
1,325 |
905 |
22.4 |
1,170 |
761 |
22.1 |
2,688 |
1,859 |
49.7 |
Non-operating items: |
|
|
|
|
|
|
|
|
|
Investment return variances and economic assumption changes on long-term business |
6 |
(2) |
- |
(75) |
(59) |
(1.7) |
14 |
(37) |
(1.0) |
Short-term fluctuation in return on investments backing non-long-term business |
(338) |
(267) |
(6.6) |
166 |
132 |
3.9 |
(84) |
(62) |
(1.7) |
Economic assumption changes on general insurance and health business |
(123) |
(98) |
(2.4) |
(54) |
(43) |
(1.3) |
(100) |
(80) |
(2.1) |
Impairment of goodwill, joint ventures and associates and other amounts expensed |
- |
- |
- |
(22) |
(22) |
(0.6) |
(22) |
(22) |
(0.6) |
Amortisation and impairment of intangibles |
(92) |
(68) |
(1.7) |
(61) |
(47) |
(1.4) |
(155) |
(121) |
(3.2) |
Amortisation and impairment of acquired value of in-force business |
(318) |
(270) |
(6.7) |
(162) |
(136) |
(4.0) |
(498) |
(376) |
(10.1) |
(Loss)/profit on disposal and remeasurement of subsidiaries, joint ventures and associates |
(18) |
(18) |
(0.4) |
- |
- |
- |
2 |
2 |
0.1 |
Integration and restructuring costs and other |
(105) |
(82) |
(2.1) |
(172) |
(145) |
(4.2) |
(432) |
(301) |
(8.0) |
Profit attributable to ordinary shareholders |
337 |
100 |
2.5 |
790 |
441 |
12.8 |
1,413 |
862 |
23.1 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
2 DCI includes the direct capital instrument and tier 1 notes.
(iii) The calculation of basic earnings per share uses a weighted average of 4,046 million (HY15: 3,437 million; FY15: 3,741 million) ordinary shares in issue, after deducting treasury shares. The actual number of shares in issue at 30 June 2016 was 4,058 million (HY15: 4,046 million; FY15: 4,048 million) and 4,051 million (HY15: 4,040 million; FY15: 4,042 million) excluding treasury shares.
Page 58
B7 - Earnings per share continued
(b) Diluted earnings per share
(i) Diluted earnings per share is calculated as follows:
|
6 months 2016 |
6 months 2015 |
Restated1 Full Year 2015 |
||||||
|
Total |
Weighted average number of shares million |
Per share |
Total |
Weighted average number of shares million |
Per share |
Total |
Weighted average number of shares |
Per share |
Profit attributable to ordinary shareholders |
100 |
4,046 |
2.5 |
441 |
3,437 |
12.8 |
862 |
3,741 |
23.1 |
Dilutive effect of share awards and options |
- |
39 |
(0.1) |
- |
43 |
(0.1) |
- |
39 |
(0.3) |
Diluted earnings per share |
100 |
4,085 |
2.4 |
441 |
3,480 |
12.7 |
862 |
3,780 |
22.8 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
(ii) Diluted earnings per share on operating profit attributable to ordinary shareholders is calculated as follows:
|
6 months 2016 |
6 months 2015 |
Restated1 Full Year 2015 |
||||||
|
Total |
Weighted average number of shares million |
Per share |
Total |
Weighted average number of shares million |
Per share |
Total |
Weighted average number of shares |
Per share |
Operating profit attributable to ordinary shareholders |
905 |
4,046 |
22.4 |
761 |
3,437 |
22.1 |
1,859 |
3,741 |
49.7 |
Dilutive effect of share awards and options |
- |
39 |
(0.2) |
- |
43 |
(0.2) |
- |
39 |
(0.5) |
Diluted operating profit per share |
905 |
4,085 |
22.2 |
761 |
3,480 |
21.9 |
1,859 |
3,780 |
49.2 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for full year 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.
Page 59
B8 - Dividends and appropriations
|
6 months |
6 months |
Full Year |
Ordinary dividends declared and charged to equity in the period |
|
|
|
Final 2015 - 14.05 pence per share, paid on 17 May 2016 |
570 |
- |
- |
Final 2014 - 12.25 pence per share, paid on 15 May 2015 |
- |
362 |
362 |
Interim 2015 - 6.75 pence per share, paid on 17 November 2015 |
- |
- |
273 |
|
570 |
362 |
635 |
Preference dividends declared and charged to equity in the period |
9 |
9 |
17 |
Coupon payments on direct capital instrument and tier 1 notes |
26 |
18 |
72 |
|
605 |
389 |
724 |
Subsequent to 30 June 2016, the directors declared an interim dividend for 2016 of 7.42 pence per ordinary share (HY15: 6.75 pence), amounting to £301 million (HY15: £273 million) in total. The dividend will be paid on 17 November 2016 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2016.
Interest on the direct capital instrument and tier 1 notes is treated as an appropriation of retained profits and, accordingly, is accounted for when paid. Tax relief is obtained at a rate of 20.00% (2015: 20.25%).
Page 60
B9 - Insurance liabilities
(a) Carrying amount
(i) Insurance liabilities (gross of reinsurance) at 30 June/31 December comprised:
|
30 June 2016 |
Restated1 30 June 2015 |
Restated1 31 December 2015 |
||||||
|
Long-term |
General |
Total |
Long-term |
General |
Total |
Long-term |
General |
Total |
Long-term business provisions |
|
|
|
|
|
|
|
|
|
Participating |
55,145 |
- |
55,145 |
51,094 |
- |
51,094 |
50,558 |
- |
50,558 |
Unit-linked non-participating |
15,031 |
- |
15,031 |
15,776 |
- |
15,776 |
14,768 |
- |
14,768 |
Other non-participating |
65,172 |
- |
65,172 |
61,183 |
- |
61,183 |
60,022 |
- |
60,022 |
|
135,348 |
- |
135,348 |
128,053 |
- |
128,053 |
125,348 |
- |
125,348 |
Outstanding claims provisions |
1,980 |
7,780 |
9,760 |
1,713 |
7,047 |
8,760 |
1,702 |
7,063 |
8,765 |
Provision for claims incurred but not reported |
- |
2,851 |
2,851 |
- |
2,299 |
2,299 |
- |
2,383 |
2,383 |
|
1,980 |
10,631 |
12,611 |
1,713 |
9,346 |
11,059 |
1,702 |
9,446 |
11,148 |
Provision for unearned premiums |
- |
4,723 |
4,723 |
- |
4,166 |
4,166 |
- |
4,048 |
4,048 |
Provision arising from liability adequacy tests |
- |
12 |
12 |
- |
11 |
11 |
- |
12 |
12 |
Total |
137,328 |
15,366 |
152,694 |
129,766 |
13,523 |
143,289 |
127,050 |
13,506 |
140,556 |
Less: Amounts classified as held for sale |
(4,488) |
(229) |
(4,717) |
- |
(1) |
(1) |
- |
- |
- |
|
132,840 |
15,137 |
147,977 |
129,766 |
13,522 |
143,288 |
127,050 |
13,506 |
140,556 |
1 Restated following a reclassification from participating to other non-participating long-term business provisions in the UK of £3,635 million at HY15 and £3,317 million at FY15.
(ii) Change in insurance liabilities 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 this note. The components of the reconciliation are the change in provision for outstanding claims on long-term business (which is not included in a separate movement table), and the unwind of discounting on general insurance reserves (which is included within finance costs in the income statement). For general insurance and health business, the change in the provision for unearned premiums is not included in the reconciliation as, within the income statement, this is included within earned premiums.
30 June 2016 |
Gross |
Reinsurance |
Net |
Long-term business |
|
|
|
Change in long-term business provisions (note B9(b)) |
6,144 |
(564) |
5,580 |
Change in provision for outstanding claims |
171 |
(12) |
159 |
|
6,315 |
(576) |
5,739 |
General insurance and health |
|
|
|
Change in insurance liabilities (note B9(c)) |
498 |
(310) |
188 |
Less: Unwind of discount on GI reserves and other |
(5) |
4 |
(1) |
|
493 |
(306) |
187 |
Total change in insurance liabilities |
6,808 |
(882) |
5,926 |
30 June 2015 |
Gross |
Reinsurance |
Net |
Long-term business |
|
|
|
Change in long-term business provisions (note B9(b)) |
(2,809) |
(184) |
(2,993) |
Change in provision for outstanding claims |
226 |
1 |
227 |
|
(2,583) |
(183) |
(2,766) |
General insurance and health |
|
|
|
Change in insurance liabilities (note B9(c)) |
(126) |
133 |
7 |
Less: Unwind of discount on GI reserves and other |
(5) |
3 |
(2) |
|
(131) |
136 |
5 |
Total change in insurance liabilities |
(2,714) |
(47) |
(2,761) |
31 December 2015 |
Gross |
Reinsurance1 £m |
Net |
Long-term business |
|
|
|
Change in long-term business provisions (note B9(b)) |
(6,640) |
252 |
(6,388) |
Change in provision for outstanding claims |
179 |
4 |
183 |
|
(6,461) |
256 |
(6,205) |
General insurance and health |
|
|
|
Change in insurance liabilities (note B9(c)) |
29 |
(504) |
(475) |
Less: Unwind of discount on GI reserves and other |
(10) |
9 |
(1) |
|
19 |
(495) |
(476) |
Total change in insurance liabilities |
(6,442) |
(239) |
(6,681) |
1 The change in reinsurance assets for general insurance and health business includes the impact of the £659 million reinsurance asset recognised on completion of an outward reinsurance contract by the UK general insurance business, which provides significant protection against claims volatility from mesothelioma, industrial deafness and other long tail risks.
Page 61
B9 - Insurance liabilities continued
(b) Movements in long-term business liabilities
The following movements have occurred in the long-term business provisions (gross of reinsurance) during the period:
|
6 months |
6 months |
Full Year |
Carrying amount at 1 January |
125,348 |
98,110 |
98,110 |
Provisions in respect of new business |
2,596 |
1,994 |
4,059 |
Expected change in existing business provisions |
(3,778) |
(3,430) |
(8,180) |
Variance between actual and expected experience |
942 |
738 |
428 |
Impact of operating assumption changes |
(125) |
(28) |
(735) |
Impact of economic assumption changes |
6,529 |
(2,119) |
(2,242) |
Other movements |
(20) |
36 |
30 |
Change in liability recognised as an expense (note B9 a(ii)) |
6,144 |
(2,809) |
(6,640) |
Effect of portfolio transfers, acquisitions and disposals1 |
- |
35,105 |
35,099 |
Foreign exchange rate movements |
3,861 |
(2,353) |
(1,221) |
Other movements |
(5) |
- |
- |
Carrying amount at 30 June/31 December |
135,348 |
128,053 |
125,348 |
1 The movement during 2015 primarily relates to Friends Life, as at the acquisition date.
(c) Movements in general insurance and health liabilities
The following changes have occurred in the general insurance and health claims provisions (gross of reinsurance) during the period:
|
6 months |
6 months |
Full Year |
Carrying amount at 1 January |
9,446 |
9,876 |
9,876 |
Impact of changes in assumptions |
239 |
31 |
115 |
Claim losses and expenses incurred in the current period |
3,266 |
2,845 |
5,889 |
Decrease in estimated claim losses and expenses incurred in prior periods |
(179) |
(231) |
(463) |
Incurred claims losses and expenses |
3,326 |
2,645 |
5,541 |
Less: |
|
|
|
Payments made on claims incurred in the current period |
(1,260) |
(1,339) |
(3,153) |
Payments made on claims incurred in prior periods |
(1,716) |
(1,559) |
(2,650) |
Recoveries on claim payments |
143 |
122 |
281 |
Claims payments made in the period, net of recoveries |
(2,833) |
(2,776) |
(5,522) |
Unwind of discounting |
5 |
5 |
10 |
Changes in claims reserve recognised as an expense (note B9 a(ii)) |
498 |
(126) |
29 |
Effect of portfolio transfers, acquisitions and disposals |
(38) |
(2) |
(64) |
Foreign exchange rate movements |
725 |
(402) |
(395) |
Carrying amount at 30 June/31 December |
10,631 |
9,346 |
9,446 |
Page 62
B10 - Liability for investment contracts
(a) Carrying amount
The liability for investment contracts (gross of reinsurance) at 30 June/31 December comprised:
|
30 June |
Restated1 30 June |
Restated1 Full Year |
Long-term business |
|
|
|
Participating contracts |
87,709 |
76,038 |
78,048 |
Non-participating contracts at fair value |
105,952 |
103,352 |
103,034 |
Total |
193,661 |
179,390 |
181,082 |
Less: Amounts classified as held for sale |
(7,655) |
- |
- |
|
186,006 |
179,390 |
181,082 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.
(b) Movements in participating investment contracts
The following movements have occurred in the provisions (gross of reinsurance) during the period:
|
6 months |
6 months |
Full Year |
Carrying amount at 1 January |
78,048 |
67,232 |
67,232 |
Provisions in respect of new business |
2,332 |
1,937 |
3,710 |
Expected change in existing business provisions |
(2,176) |
(1,776) |
(4,219) |
Variance between actual and expected experience |
1,011 |
1,287 |
1,590 |
Impact of operating assumption changes |
- |
(2) |
43 |
Impact of economic assumption changes |
236 |
(50) |
97 |
Other movements |
(5) |
(16) |
49 |
Change in liability recognised as an expense1 |
1,398 |
1,380 |
1,270 |
Effect of portfolio transfers, acquisitions and disposals2 |
- |
12,245 |
12,245 |
Foreign exchange rate movements |
6,992 |
(4,819) |
(2,699) |
Other movements3 |
1,271 |
- |
- |
Carrying amount at 30 June/31 December |
87,709 |
76,038 |
78,048 |
1 Total interest expense for participating investment contracts recognised in profit or loss is £2,082 million (HY15: £1,751 million, FY15: £1,931 million).
2 The movement during 2015 relates to the acquisition of Friends Life.
3 Other movements during 2016 comprise liabilities in the UK of £1,271 million reclassified from non-participating investment contracts.
(c) Movements in non-participating investment contracts
The following movements have occurred in the provisions (gross of reinsurance) during the period:
|
6 months |
Restated1 6 months |
Restated1 Full Year |
Carrying amount at 1 January |
103,034 |
49,922 |
49,922 |
Provisions in respect of new business |
1,455 |
1,744 |
2,644 |
Expected change in existing business provisions |
(1,775) |
(1,594) |
(2,726) |
Variance between actual and expected experience |
3,660 |
(2,476) |
(2,906) |
Impact of operating assumption changes |
- |
- |
32 |
Impact of economic assumption changes |
1 |
- |
3 |
Other movements |
(2) |
2 |
38 |
Change in liability |
3,339 |
(2,324) |
(2,915) |
Effect of portfolio transfers, acquisitions and disposals2 |
- |
56,404 |
56,401 |
Foreign exchange rate movements |
850 |
(650) |
(374) |
Other movements3 |
(1,271) |
- |
- |
Carrying amount at 30 June/31 December |
105,952 |
103,352 |
103,034 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.
2 The movement during 2015 primarily relates to the acquisition of Friends Life.
3 Other movements during 2016 comprise liabilities in the UK of £1,271 million reclassified to participating investment contracts.
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 investment contract provisions shown on the income statement consists of the attributed investment return. Participating investment contracts are treated consistently with insurance contracts with the change in investment contract provisions primarily consisting of the movement in participating investment contract liabilities (net of reinsurance) over the reporting period.
Page 63
B11 - Reinsurance assets
The reinsurance assets at 30 June/31 December comprised:
|
30 June |
30 June |
31 December |
Long-term business |
|
|
|
Insurance contracts |
5,712 |
5,405 |
5,018 |
Participating investment contracts |
12 |
13 |
11 |
Non-participating investment contracts1,2 |
15,859 |
13,773 |
13,967 |
|
21,583 |
19,191 |
18,996 |
Outstanding claims provisions |
66 |
39 |
38 |
|
21,649 |
19,230 |
19,034 |
General insurance and health |
|
|
|
Outstanding claims provisions3 |
1,055 |
725 |
988 |
Provisions for claims incurred but not reported3 |
911 |
223 |
607 |
|
1,966 |
948 |
1,595 |
Provisions for unearned premiums |
340 |
254 |
289 |
|
2,306 |
1,202 |
1,884 |
|
23,955 |
20,432 |
20,918 |
Less: Amounts classified as held for sale |
(972) |
- |
- |
Total |
22,983 |
20,432 |
20,918 |
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.
2 Reinsurance assets in 2016 include the reclassification of £1,016 million of UK Life investments in certain life insurance funds from unit trusts and other investment vehicles (financial investments) to reinsurance assets.
3 Reinsurance assets at 31 December 2015 for General insurance and health business include the impact of the £659 million reinsurance asset recognised on completion of an outward reinsurance contract by the UK general insurance business, which provides significant protection against claims volatility from mesothelioma, industrial deafness and other long tail risks. The reinsurance assets at 30 June 2016 for General Insurance and health business also include recoveries expected in respect of the Alberta fires in Canada.
B12 - Effect of changes in assumptions and estimates during the period
This disclosure only allows for the impact on liabilities and related assets, such as unallocated divisible surplus, reinsurance, deferred acquisition costs and AVIF, and does not allow for offsetting movements in the value of backing financial assets.
|
Effect on profit |
Effect on |
Effect on |
Assumptions |
|
|
|
Long-term insurance business |
|
|
|
Interest rates |
(4,269) |
1,798 |
2,053 |
Expenses |
- |
22 |
248 |
Persistency rates |
- |
- |
(2) |
Mortality for assurance contracts |
- |
- |
1 |
Mortality for annuity contracts |
63 |
- |
17 |
Tax and other assumptions |
89 |
- |
48 |
Investment contracts |
|
|
|
Expenses |
- |
- |
(4) |
General insurance and health business |
|
|
|
Change in discount rate assumptions |
(123) |
(54) |
(100) |
Change in expense ratio and other assumptions |
- |
- |
1 |
Total |
(4,240) |
1,766 |
2,262 |
The impact of interest rates on long-term business relates primarily to annuities in the UK (including any change in credit default and reinvestment risk provisions), where a decrease in the valuation interest rate, in response to decreasing risk free rates partially offset by a widening of credit spreads, has increased liabilities. The overall impact on profit also depends on movements in the value of assets backing the liabilities, which is not included in this disclosure.
There has been a release of annuitant mortality reserves in the UK following the adoption of the CMI_2015 mortality improvement assumptions and a review of exposure to anti-selection, partially offset by a change in base mortality assumptions in response to revisions in the calculation of mortality exposure.
Tax and other assumptions include the profit arising from a change in estimate related to the recoverability testing of the deferred acquisition cost assets (DAC) in the UK. The allowance for risk for non-participating investment contracts and the level of prudence for insurance contracts, has been re-assessed. Any amortisation or impairment of DAC is not included in this disclosure and may be reversed in subsequent reporting periods, subject to the original amortisation profile. The profit in the period includes £28 million in the UK relating to DAC net of amortisation.
The adverse change in discount rate assumptions on general insurance and health business of £123 million (HY15: £54 million adverse) arises mainly as a result of a decrease in the real interest rates used to discount claim reserves for periodic payment orders and latent claims. Market interest rates used to discount periodic payment orders and latent claims have reduced and the estimated future inflation rate used to value periodic payment orders has been increased to be consistent with market expectations. This has, in part, been offset by a change in estimate for the interest rate used to discount periodic payment orders to allow for the illiquid nature of these liabilities.
Page 64
B13 - 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 not defined.
This note shows the movements in the UDS during the period.
|
6 months |
6 months |
Full Year |
Carrying amount at 1 January |
8,811 |
9,467 |
9,467 |
Change in participating contract assets |
802 |
(612) |
(935) |
Change in participating contract liabilities |
(10) |
34 |
(36) |
Other movements |
- |
(165) |
(13) |
Change in liability recognised as an expense |
792 |
(743) |
(984) |
Effect of portfolio transfers, acquisition and disposals1 |
- |
724 |
724 |
Foreign exchange rate movements |
873 |
(633) |
(396) |
Carrying amount at 30 June/31 December |
10,476 |
8,815 |
8,811 |
Less: Amounts classified as held for sale |
(852) |
- |
- |
|
9,624 |
8,815 |
8,811 |
1 The movement during 2015 relates to the acquisition of Friends Life.
The amount of UDS at 30 June 2016 has increased to £10.5 billion including amounts classified as held for sale, and £9.6 billion excluding amounts classified as held for sale (HY15: £8.8 billion, FY15: £8.8 billion). The increase is mainly due to the decrease in Eurozone corporate and government bond yields during the period and the weakening of sterling against the euro.
Page 65
B14 - Borrowings
The Group's borrowings are either core structural borrowings or operational borrowings. This note shows the carrying values of each type.
(a) Analysis of total borrowings:
Total borrowings comprise:
|
30 June |
30 June |
31 December |
Core structural borrowings, at amortised cost |
7,809 |
7,593 |
6,912 |
Operational borrowings, at amortised cost |
566 |
695 |
550 |
Operational borrowings, at fair value |
1,306 |
1,302 |
1,308 |
|
1,872 |
1,997 |
1,858 |
Total |
9,681 |
9,590 |
8,770 |
(b) Core structural borrowings
The carrying amounts of these borrowings are:
|
30 June |
30 June |
31 December |
Subordinated debt |
|
|
|
6.125% £700 million subordinated notes 2036 |
693 |
692 |
693 |
5.70% €500 million undated subordinated notes |
- |
354 |
- |
6.125% £800 million undated subordinated notes |
795 |
794 |
795 |
6.292% £268 million undated STICS |
- |
268 |
- |
6.875% £600 million subordinated notes 2058 |
594 |
594 |
594 |
6.875% €500 million subordinated notes 2018 |
415 |
353 |
368 |
12.00% £162 million subordinated notes 2021 |
219 |
229 |
221 |
8.25% £500 million subordinated notes 2022 |
607 |
623 |
615 |
6.625% £450 million subordinated notes 2041 |
447 |
447 |
447 |
8.25% $400 million subordinated notes 2041 |
298 |
251 |
269 |
7.875% $575 million undated subordinated notes |
463 |
422 |
430 |
6.125% €650 million subordinated notes 2043 |
538 |
458 |
477 |
3.875% €700 million subordinated notes 2044 |
577 |
492 |
512 |
5.125% £400 million subordinated notes 2050 |
394 |
394 |
394 |
3.375% €900 million subordinated notes 2045 |
738 |
628 |
654 |
4.50% C$450 million subordinated notes 2021 |
256 |
- |
- |
|
7,034 |
6,999 |
6,469 |
Debenture loans |
|
|
|
9.5% guaranteed bonds 2016 |
- |
200 |
- |
Commercial paper |
815 |
450 |
485 |
|
7,849 |
7,649 |
6,954 |
Less: Amount held by Group companies |
(40) |
(56) |
(42) |
Total |
7,809 |
7,593 |
6,912 |
On 9 May 2016 Aviva plc issued C$450 million of subordinated debt which qualifies as tier 3 capital under current regulatory rules. The instrument was issued at 99.646% of the nominal amount and bears interest at 4.50% per annum. Maturity is on 10 May 2021.
(c) Operational borrowings
The carrying amounts of these borrowings are:
|
30 June |
30 June |
31 December |
Amounts owed to financial institutions |
|
|
|
Loans |
566 |
695 |
550 |
Securitised mortgage loan notes |
|
|
|
UK lifetime mortgage business |
1,306 |
1,302 |
1,308 |
Total |
1,872 |
1,997 |
1,858 |
Page 66
B15 - 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 2016 |
30 June 2015 |
31 December 2015 |
|
£m |
£m |
£m |
Total IAS 19 obligations to the main staff pension schemes |
786 |
825 |
686 |
Deficits in other staff pension schemes |
52 |
42 |
46 |
Total IAS 19 obligations to staff pension schemes |
838 |
867 |
732 |
Restructuring provisions |
170 |
156 |
166 |
Other provisions |
476 |
592 |
518 |
Total |
1,484 |
1,615 |
1,416 |
(ii) Pension obligations
The assets and liabilities of the Group's material defined benefit schemes as at 30 June/31 December are shown below.
|
30 June 2016 |
30 June 2015 |
31 December 2015 |
|
£m |
£m |
£m |
Total fair value of assets |
19,726 |
17,062 |
16,707 |
Present value of scheme liabilities |
(16,399) |
(14,812) |
(14,324) |
Net surplus in the schemes |
3,327 |
2,250 |
2,383 |
Less: consolidation elimination for non-transferable Group insurance policy1 |
(605) |
(606) |
(546) |
Net IAS 19 surplus in the schemes |
2,722 |
1,644 |
1,837 |
|
|
|
|
Surplus included in other assets |
3,508 |
2,469 |
2,523 |
Deficits included in provisions |
(786) |
(825) |
(686) |
Net IAS 19 surplus in the schemes |
2,722 |
1,644 |
1,837 |
1 As at 30 June 2016, the scheme assets in the Friends Provident Pension Scheme include an insurance policy of £605 million (30 June 2015: £606 million, 31 December 2015: £546 million) issued by a Group company that is not transferable under IAS 19 and consequently is eliminated from the IAS 19 net surplus balance. The IAS 19 fair value of scheme assets at 30 June 2016, excluding this policy is £19,121 million (30 June 2015: £16,456 million, 31 December 2015: £16,161 million).
(b) Movements in the schemes' surpluses and deficits
Movements in the pension schemes' surpluses and deficits comprise:
|
6 months 2016 |
6 months 2015 |
Full Year 2015 |
|
£m |
£m |
£m |
Net IAS 19 surplus in the schemes at 1 January |
1,837 |
2,304 |
2,304 |
|
|
|
|
Past service costs - amendments |
(1) |
(1) |
1 |
Administrative expenses1 |
(7) |
(12) |
(15) |
Total pension cost charged to net operating expenses |
(8) |
(13) |
(14) |
Net interest credited/(charged) to investment income /(finance costs)2 |
37 |
41 |
80 |
Total recognised in income statement |
29 |
28 |
66 |
|
|
|
|
Remeasurements: |
|
|
|
Actual return on these assets |
3,090 |
113 |
99 |
Less: Interest income on scheme assets |
(298) |
(290) |
(584) |
Return on scheme assets excluding amounts in interest income |
2,792 |
(177) |
(485) |
(Losses)/gains from change in financial assumptions |
(2,022) |
(166) |
234 |
Gains from change in demographic assumptions |
- |
- |
3 |
Experience gains |
6 |
5 |
13 |
Total remeasurements recognised in other comprehensive income |
776 |
(338) |
(235) |
|
|
|
|
Acquisitions - gross surplus3 |
- |
68 |
68 |
Acquisitions - consolidation elimination for non-transferable Group insurance policy3 |
- |
(631) |
(631) |
Acquisitions - net deficit |
- |
(563) |
(563) |
Employer contributions |
123 |
183 |
240 |
Foreign exchange rate movements |
(43) |
30 |
25 |
Net IAS 19 surplus in the schemes at 30 June/31 December |
2,722 |
1,644 |
1,837 |
1 Administrative expenses are expensed as incurred.
2 Net interest income of £48 million (HY15: £50 million, FY15: £105 million) has been credited to investment income and net interest expense of £11 million (HY15: £9 million, FY15: £25 million) has been charged to finance costs in HY16.
3 The gross surplus of £68 million on acquisition in 2015 relates to Friends Life. As the Friends Provident Pension scheme assets included an insurance policy of £631 million at acquisition date, issued by a Group company that is not transferable under IAS 19, it is eliminated from the scheme assets.
The increase in the surplus during the period is primarily due to remeasurements recognised in other comprehensive income which reflect increased asset values mainly driven by a reduction in interest rates in the UK partly offset by an increase in the defined benefit obligation following a decrease in the UK discount rate.
Page 67
B16 - 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 2015. There were no transactions with related parties that had a material effect on the result for the period ended 30 June 2016, 30 June 2015 or 31 December 2015.
B17 - 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, certain private equity investments and private placements.
The majority of the Group's assets and liabilities measured at fair value are based on quoted market information or observable market data. 15.9% of assets and 4.7% 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 technique
There were no changes in the valuation techniques during the period compared to those described in the 2015 annual report and accounts.
Page 68
B17 - Fair value continued
(c) Comparison of the carrying amount and fair values of financial instruments
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 2016 |
30 June 2015 |
31 December 2015 |
|||
|
Fair value |
Carrying amount |
Fair value |
Carrying amount |
Fair value |
Carrying amount |
|
£m |
£m |
£m |
£m |
£m |
£m |
Financial assets |
|
|
|
|
|
|
Loans1 |
24,259 |
24,305 |
23,954 |
24,121 |
22,307 |
22,433 |
Financial Investments |
288,460 |
288,460 |
274,811 |
274,811 |
274,217 |
274,217 |
Fixed maturity securities |
173,798 |
173,798 |
162,146 |
162,146 |
162,964 |
162,964 |
Equity securities |
63,331 |
63,331 |
65,057 |
65,057 |
63,558 |
63,558 |
Other investments (including derivatives) |
51,331 |
51,331 |
47,608 |
47,608 |
47,695 |
47,695 |
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Non-participating investment contracts (restated)2,3 |
105,243 |
105,243 |
103,352 |
103,352 |
103,034 |
103,034 |
Net asset value attributable to unitholders |
13,045 |
13,045 |
10,728 |
10,728 |
11,415 |
11,415 |
Borrowings1 |
9,866 |
9,681 |
10,052 |
9,590 |
9,091 |
8,770 |
Derivative liabilities4 |
8,127 |
8,127 |
3,432 |
3,432 |
3,881 |
3,881 |
1 Within the fair value, the estimated fair value has been provided for the portion of loans and borrowings that are carried at amortised cost as disclosed in note B17(d).
2 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.
3 Non-participating investment contracts are included within gross liabilities for investment contracts on the condensed consolidated statement of financial position and disclosed in note B10.
4 Derivative liabilities are included within payables and other financial liabilities on the condensed consolidated statement of financial position.
Fair value of the following assets and liabilities approximate to their carrying amounts:
· Receivables
· Cash and cash equivalents
· Payables and other financial liabilities
· The equivalent assets to those above, which are classified as held for sale
(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. Financial instruments relating to operations classified as held for sale have been excluded from the individual asset and liability line items and have been disclosed separately.
|
Fair value hierarchy |
|
|
|
||
|
Level 1 |
Level 2 |
Level 3 |
Sub-total |
Amortised cost |
Total |
At 30 June 2016 |
£m |
£m |
£m |
£m |
£m |
£m |
Recurring fair value measurements |
|
|
|
|
|
|
Investment Property |
- |
- |
11,106 |
11,106 |
- |
11,106 |
Loans |
- |
1,000 |
19,781 |
20,781 |
3,524 |
24,305 |
Financial investments measured at fair value |
|
|
|
|
|
|
Fixed maturity securities |
94,715 |
63,214 |
15,869 |
173,798 |
- |
173,798 |
Equity securities |
62,341 |
- |
990 |
63,331 |
- |
63,331 |
Other investments (including derivatives) |
39,265 |
8,043 |
4,023 |
51,331 |
- |
51,331 |
Financial assets of operations classified as held for sale |
9,462 |
445 |
852 |
10,759 |
64 |
10,823 |
Total |
205,783 |
72,702 |
52,621 |
331,106 |
3,588 |
334,694 |
Financial liabilities measured at fair value |
|
|
|
|
|
|
Non-participating investment contracts1 |
101,612 |
300 |
3,331 |
105,243 |
- |
105,243 |
Net asset value attributable to unit holders |
13,022 |
- |
23 |
13,045 |
- |
13,045 |
Borrowings |
- |
809 |
497 |
1,306 |
8,375 |
9,681 |
Derivative liabilities2 |
274 |
5,722 |
2,131 |
8,127 |
- |
8,127 |
Financial liabilities of operations classified as held for sale |
705 |
4 |
- |
709 |
- |
709 |
Total |
115,613 |
6,835 |
5,982 |
128,430 |
8,375 |
136,805 |
1 In addition to the balances in this table, included within reinsurance assets in the statement of condensed consolidated financial position and note B11 are £15,859 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.
2 Derivative liabilities are included within payables and other financial liabilities on the condensed consolidated statement of financial position.
|
Fair value hierarchy |
|
||
|
Level 1 |
Level 2 |
Level 3 |
Total fair value |
At 30 June 2016 |
£m |
£m |
£m |
£m |
Non-recurring fair value measurement1 |
|
|
|
|
Properties occupied by group companies |
- |
- |
347 |
347 |
Total |
- |
- |
347 |
347 |
1 Non-recurring fair value measurements of assets or liabilities are those fair value measurements that other IFRSs permit or require in particular circumstances.
Page 69
B17 - Fair value continued
|
Fair value hierarchy |
|
|
|
||
|
Level 1 |
Level 2 |
Level 3 |
Sub-total |
Amortised |
Total |
At 30 June 2015 |
£m |
£m |
£m |
£m |
£m |
£m |
Recurring fair value measurements |
|
|
|
|
|
|
Investment Property |
- |
- |
11,567 |
11,567 |
- |
11,567 |
Loans |
- |
988 |
19,775 |
20,763 |
3,358 |
24,121 |
Financial investments measured at fair value |
|
|
|
|
|
|
Fixed maturity securities |
86,371 |
62,617 |
13,158 |
162,146 |
- |
162,146 |
Equity securities |
63,991 |
- |
1,066 |
65,057 |
- |
65,057 |
Other investments (including derivatives) |
36,859 |
5,945 |
4,804 |
47,608 |
- |
47,608 |
Total |
187,221 |
69,550 |
50,370 |
307,141 |
3,358 |
310,499 |
Financial liabilities measured at fair value |
|
|
|
|
|
|
Non-participating investment contracts (restated)1,2 |
100,969 |
473 |
1,910 |
103,352 |
- |
103,352 |
Net asset value attributable to unit holders |
10,682 |
- |
46 |
10,728 |
- |
10,728 |
Borrowings |
- |
850 |
452 |
1,302 |
8,288 |
9,590 |
Derivative liabilities3 |
210 |
2,441 |
781 |
3,432 |
- |
3,432 |
Total |
111,861 |
3,764 |
3,189 |
118,814 |
8,288 |
127,102 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.
2 In addition to the balances in this table, included within reinsurance assets in the statement of condensed consolidated financial position and note B11 are £13,773 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.
3 Derivative liabilities are included within payables and other financial liabilities on the condensed consolidated statement of financial position.
|
Fair value hierarchy |
|
||
|
Level 1 |
Level 2 |
Level 3 |
Total |
At 30 June 2015 |
£m |
£m |
£m |
£m |
Non-recurring fair value measurement1 |
|
|
|
|
Properties occupied by group companies |
- |
- |
332 |
332 |
Total |
- |
- |
332 |
332 |
1 Non-recurring fair value measurements of assets or liabilities are those fair value measurements that other IFRSs permit or require in particular circumstances.
|
Fair value hierarchy |
|
|
|
||
|
Level 1 |
Level 2 |
Level 3 |
Sub-total |
Amortised |
Total |
At 31 December 2015 |
£m |
£m |
£m |
£m |
£m |
£m |
Recurring fair value measurements |
|
|
|
|
|
|
Investment Property |
- |
- |
11,301 |
11,301 |
- |
11,301 |
Loans |
- |
950 |
18,129 |
19,079 |
3,354 |
22,433 |
Financial investments measured at fair value |
|
|
|
|
|
|
Fixed maturity securities |
89,158 |
59,203 |
14,603 |
162,964 |
- |
162,964 |
Equity securities |
62,622 |
- |
936 |
63,558 |
- |
63,558 |
Other investments (including derivatives) |
39,485 |
4,057 |
4,153 |
47,695 |
- |
47,695 |
Total |
191,265 |
64,210 |
49,122 |
304,597 |
3,354 |
307,951 |
Financial liabilities measured at fair value |
|
|
|
|
|
|
Non-participating investment contracts (restated)1,2 |
99,368 |
245 |
3,421 |
103,034 |
- |
103,034 |
Net asset value attributable to unit holders |
11,393 |
- |
22 |
11,415 |
- |
11,415 |
Borrowings |
- |
781 |
527 |
1,308 |
7,462 |
8,770 |
Derivative liabilities3 |
304 |
2,484 |
1,093 |
3,881 |
- |
3,881 |
Total |
111,065 |
3,510 |
5,063 |
119,638 |
7,462 |
127,100 |
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.
2 In addition to the balances in this table, included within reinsurance assets in the statement of condensed consolidated financial position and note B11 are £13,967 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.
3 Derivative liabilities are included within payables and other financial liabilities on the condensed consolidated statement of financial position.
|
Fair value hierarchy |
|
||
|
Level 1 |
Level 2 |
Level 3 |
Total |
At 31 December 2015 |
£m |
£m |
£m |
£m |
Non-recurring fair value measurement1 |
|
|
|
|
Properties occupied by group companies |
- |
- |
337 |
337 |
Total |
- |
- |
337 |
337 |
1 Non-recurring fair value measurements of assets or liabilities are those fair value measurements that other IFRSs permit or require in particular circumstances.
Page 70
B17 - 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
During the six month period ended 30 June 2016, transfers of financial assets from Level 1 to Level 2 of £0.5 billion and transfers from Level 2 to Level 1 of £0.7 billion are primarily driven by changes in the level of market activity for certain investments funds.
Transfers to/from Level 3
Transfers out of Level 3 of £1.1 billion relate principally to debt securities held by our business in the UK, which were transferred to Level 2, as observable inputs became available or where the valuation provided by the counterparty and broker quotes are corroborated using valuation models with observable inputs.
Transfers into Level 3 of £1.4 billion includes £1.2 billion of debt securities held in the UK and France which were transferred due to the unavailability of significant observable market data or sufficiently significant differences between the valuation provided by the counterparty and broker quotes and the validation models.
(f) Valuation approach for fair value assets and liabilities classified as Level 2
Please see note B17(a) for a description of typical Level 2 inputs.
Debt securities, in line with market practice, are generally valued using an independent pricing service. These valuations are determined using independent external quotations from multiple sources and are subject to a number of monitoring controls, such as monthly price variances, stale price reviews and variance analysis. Pricing services, where available, are used to obtain the third-party broker quotes. Where pricing service providers are used, a single valuation is obtained and applied. When prices are not available from pricing services, quotes are sourced from brokers.
Over the counter derivatives are valued using broker quotes or models such as the option pricing model, simulation models or a combination of models. The inputs for these models include current market and contractual prices for underlying instruments, period to maturity, correlations, yield curves and volatility of the underlying instruments which are deemed to be observable.
Unit Trusts and other investment funds included under the Other investments category are valued using net assets values which are not subject to a significant adjustment for restrictions on redemption or for a limited trading activity.
(g) Further information on Level 3 assets and liabilities:
The table below shows movement in the Level 3 assets and liabilities measured at fair value:
|
|
|
|
|
|
Assets |
|
|
|
Liabilities |
|
Investment Property |
Loans |
Debt securities |
Equity securities |
Other investments (including derivatives) |
Financial assets of operations classified as held for sale |
Non participating investment contracts |
Net asset value attributable to unitholders |
Derivative liabilities |
Borrowings |
At 30 June 2016 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Opening balance at 1 January 2016 |
11,301 |
18,129 |
14,603 |
936 |
4,153 |
- |
(3,421) |
(22) |
(1,093) |
(527) |
Total net gains/(losses) recognised in the income statement1 |
38 |
1,043 |
517 |
51 |
19 |
(76) |
104 |
(1) |
(952) |
28 |
Purchases |
99 |
46 |
860 |
66 |
240 |
65 |
(61) |
- |
(107) |
- |
Issuances |
- |
1,004 |
4 |
- |
- |
- |
(22) |
- |
- |
- |
Disposals |
(604) |
(272) |
(590) |
(85) |
(421) |
(12) |
43 |
- |
25 |
- |
Settlements2 |
- |
(171) |
(5) |
- |
- |
- |
3 |
- |
- |
2 |
Transfers into Level 3 |
- |
- |
1,213 |
6 |
22 |
123 |
(22) |
- |
- |
- |
Transfers out of Level 3 |
- |
- |
(1,036) |
(1) |
(80) |
(5) |
51 |
- |
- |
- |
Reclassification to held for sale |
(40) |
- |
(590) |
- |
(36) |
666 |
- |
- |
- |
- |
Foreign exchange rate movements |
312 |
2 |
893 |
17 |
126 |
91 |
(6) |
- |
(4) |
- |
Balance at 30 June 2016 |
11,106 |
19,781 |
15,869 |
990 |
4,023 |
852 |
(3,331) |
(23) |
(2,131) |
(497) |
1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.
2 Settlements include effective settlements of Group holdings.
Page 71
B17 - Fair value continued
|
|
|
|
|
|
Assets |
|
|
|
Liabilities |
|
Investment Property |
Loans |
Debt |
Equity |
Other investments (including derivatives) |
Financial |
Non participating investment contracts |
Net asset |
Derivative liabilities |
Borrowings |
At 30 June 2015 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Opening balance at 1 January 2015 |
8,925 |
17,000 |
11,309 |
159 |
3,066 |
- |
- |
(19) |
(991) |
(560) |
Total net gains/(losses) recognised in the income statement1 |
330 |
(476) |
15 |
34 |
164 |
- |
- |
(19) |
146 |
19 |
Purchases2 |
3,103 |
376 |
2,723 |
912 |
2,074 |
- |
(1,910) |
(6) |
(35) |
- |
Issuances |
- |
828 |
19 |
- |
- |
- |
- |
(2) |
- |
- |
Disposals |
(593) |
(49) |
(405) |
(26) |
(669) |
- |
- |
- |
97 |
1 |
Settlements3 |
- |
(772) |
(88) |
- |
- |
- |
- |
- |
- |
88 |
Transfers into Level 3 |
- |
2,868 |
927 |
1 |
312 |
- |
- |
- |
- |
- |
Transfers out of Level 3 |
- |
- |
(670) |
(2) |
(42) |
- |
- |
- |
- |
- |
Foreign exchange movements |
(198) |
- |
(672) |
(12) |
(101) |
- |
- |
- |
2 |
- |
Balance at 30 June 2015 |
11,567 |
19,775 |
13,158 |
1,066 |
4,804 |
- |
(1,910) |
(46) |
(781) |
(452) |
1 Total net (losses)/gains recognised in the income statement includes realised gains/(losses) on disposals.
2 Purchases include Friends Life's Level 3 assets and liabilities at the date of acquisition.
3 Settlements include effective settlements of Group holdings.
|
|
|
|
|
|
Assets |
|
|
|
Liabilities |
|
Investment Property |
Loans |
Debt |
Equity |
Other investments (including derivatives) |
Financial |
Non participating investment contracts |
Net asset |
Derivative liabilities |
Borrowings |
At 31 December 2015 |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
Opening balance at 1 January 2015 |
8,925 |
17,000 |
11,309 |
159 |
3,066 |
- |
- |
(19) |
(991) |
(560) |
Total net gains/(losses) recognised in the income statement1 |
898 |
(467) |
172 |
29 |
236 |
- |
42 |
4 |
26 |
(60) |
Purchases2 |
3,627 |
- |
4,909 |
993 |
2,227 |
- |
(3,644) |
(5) |
(145) |
- |
Issuances |
- |
2,464 |
- |
- |
- |
- |
(79) |
(2) |
- |
- |
Disposals |
(2,042) |
(2,275) |
(1,916) |
(242) |
(1,373) |
- |
253 |
- |
16 |
1 |
Settlements3 |
- |
(1,461) |
(161) |
- |
- |
- |
69 |
- |
- |
92 |
Transfers into Level 3 |
- |
2,868 |
1,302 |
6 |
75 |
- |
(62) |
- |
- |
- |
Transfers out of Level 3 |
- |
- |
(624) |
(2) |
(22) |
- |
13 |
- |
- |
- |
Foreign exchange rate movements |
(107) |
- |
(388) |
(7) |
(56) |
- |
(13) |
- |
1 |
- |
Balance at 31 December 2015 |
11,301 |
18,129 |
14,603 |
936 |
4,153 |
- |
(3,421) |
(22) |
(1,093) |
(527) |
1 Total net gains/(losses) recognised in the income statement includes realised gains/(losses) on disposals.
2 Purchases include Friends Life's Level 3 assets and liabilities at the date of acquisition.
3 Settlements include effective settlements of Group holdings.
Total net gains recognised in the income statement in the first half of 2016 in respect of Level 3 assets measured at fair value amounted to £1,592 million (HY15: net gains of £67 million) with net losses in respect of liabilities of £821 million (HY15: net gains of £146 million). Included in this balance are £1,560 million of net gains (HY15: net losses of £6 million) attributable to those assets and £841 million net losses (HY15: net gains of £142 million) attributable to those liabilities still held at the end of the period.
The principal assets classified as Level 3, and the valuation techniques applied to them, are described below.
(i) Investment property
· Investment property amounting to £11.1 billion (FY15: £11.3 billion) 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, Primary Healthcare, Infrastructure and Private Finance Initiative (PFI) loans held by our UK Life business amounting to £11.9 billion (FY15: £10.8 billion), were valued using a Portfolio Credit Risk Model (PCRM). This model calculates a Credit Risk Adjusted Value (CRAV) 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 100 bps to 260 bps. Furthermore, assumptions regarding property growth and rental income forecasts have been revised in light of the UK referendum vote for the UK to leave the European Union, with short term reductions of c.12% for property growth and c.6% for rental income.
Page 72
B17 - Fair value continued
· Equity release and securitised mortgage loans held by our UK Life business amounting to £7.3 billion (FY15: £6.7 billion) comprise:
- £4.7 billion (FY15: £4.3 billion) of equity release mortgages held by our UK Life annuity business valued using an internal model. Inputs to the model include property growth rates, mortality and morbidity assumptions, cost of capital and liquidity premium which are not deemed to be market observable. Whilst the long-term property growth assumption is approximately 4% per annum, the valuation at 30 June 2016 reflects an immediate c.10% decrease in property value in light of the UK referendum vote for the UK to leave the European Union.
- £2.6 billion (FY15: £2.4 billion) of securitised and equity release mortgages are valued using a discounted cash flow model. The inputs include liquidity risk and property risk premium which are deemed unobservable. The liquidity premium used ranges between 183 bps to 214 bps.
· Collateralised non-recourse loans of £0.6 billion (FY15: £0.6 billion) have been valued using internally developed models incorporating a significant number of modelling assumptions including the probability of counterparty default and the expected loss in the event of counterparty default. These inputs are deemed unobservable.
(iii) Debt securities
· Privately placed notes held by our UK Life business of £4.0 billion (FY15: £3.3 billion) have been valued using broker quotes or a discounted cash flow model using discount factors 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.
· Structured bond-type and non-standard debt products held by our business in France amounting to £6.5 billion (FY15: £5.8 billion) and bonds held by our UK business of £2.5 billion (FY15: £2.2 billion) 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.
· Collateralised loan obligations of £0.4 billion (FY15: £0.4 billion) have been valued using internally developed discounted cash flow models incorporating a significant number of modelling assumptions and unobservable market data including assumptions regarding correlation among the underlying loans, a probability of default and liquidity premium.
· Corporate debt securities held by our French business of £1.4 billion (FY15: £1.5 billion) and debt securities of £0.9 billion held by our UK and Asia businesses (FY15: £0.9 billion) 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 private equity holdings of £0.8 billion (FY15: £0.8 billion) 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) Other investments
· The following Other investments are valued based on external valuation reports received from fund managers:
- Private equity investment funds amounting to £1.4 billion (FY15: £1.4 billion);
- Other investment funds including property funds amounting to £0.9 billion (FY15: £1.0 billion);
- External hedge funds held principally by businesses in the UK and France amounting to £0.4 billion (FY15: £0.5 billion); and
- Discretionary managed funds held in Asia amount to £1.3 billion (FY15: £1.2 billion).
Where these valuations are at a date other than balance sheet date, as in the case of some private equity funds, we make adjustments for items such as subsequent draw-downs and distributions and the fund manager's carried interest.
Remaining Level 3 investments amount to £0.9 billion (FY15: £0.7 billion) within debt securities, equity securities and other investments mainly held by Antarius, which has been classified as held for sale (see Note B4 for further details). These investments are mainly structured bond-type and non-standard debt products in France, valued using the techniques described above.
Where possible, the Group tests the sensitivity of the fair values of Level 3 investments to changes in unobservable inputs to reasonable alternatives. Valuations for Level 3 investments 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.
On the basis of the methodology outlined above, the Group is able to perform sensitivity analysis for £52.3 billion of the Group's Level 3 assets. For these Level 3 assets, changing unobservable valuation inputs to a reasonable alternative would result in a change in fair value by +£1.7 billion / -£1.9 billion. Of the £0.3 billion Level 3 assets for which sensitivity analysis is not provided, it is estimated that a 10% change in valuation assumptions downwards of these assets would result in a change in fair value of approximately £30 million.
Page 73
B17 - Fair value continued
(vi) Liabilities
The principal liabilities classified as Level 3, and the valuation techniques applied to them, are:
· £3.3 billion (FY15: £3.4 billion) of non-participating investment contract liabilities 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.
· Derivative liabilities of £2.1 billion (FY15: £0.9 billion) comprising over the counter derivatives such as credit default swaps and inflation swaps. These swaps are valued using either discounted cash flow models or other valuation models. Cash flows within these models may be adjusted based on assumptions reflecting the underlying credit risk and liquidity risk, these assumptions are deemed to be non-market observable.
· £0.5 billion (FY15: £0.5 billion) of securitised mortgage loan notes, presented within Borrowings, are valued using a similar technique to the related Level 3 securitised mortgage assets.
· Remaining Level 3 liabilities amount to £0.1 billion (FY15: £0.3 billion) and relate to a range of liabilities held by a number of businesses throughout the Group.
Where possible, the Group tests the sensitivity of the fair values of Level 3 liabilities to changes in unobservable inputs to reasonable alternatives. 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.
On the basis of the methodology outlined above, the Group is able to perform sensitivity analysis for £5.8 billion of the Group's Level 3 liabilities. For these Level 3 liabilities, changing unobservable valuation inputs to a reasonable alternative would result in a change in fair value by approximately ±£0.5 billion. Of the £0.2 billion Level 3 liabilities for which sensitivity analysis is not provided, it is estimated that a 10% change in valuation assumptions downwards of these assets would result in a change in fair value of approximately £20 million.
Page 74
B18 - Risk management
As a global insurance group, risk management is at the heart of what we do and is the 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
The first half of 2016 began with concerns over an economic slowdown in China and its impact on the global economy, which have since partially abated, and culminated in the UK referendum vote for the UK to leave the European Union (EU). The outcome of the UK referendum resulted in sterling falling to a 31 year low against the US dollar and a reduction in yields on Eurozone and UK government treasuries to all time lows. In addition, expected falls in UK property prices following the referendum result have led to higher levels of redemptions in property funds and a need to close funds to redemptions or suspend dealing. This includes two Aviva Investors managed commercial property funds. Global equity markets had their worst start to the year on record, but have since recovered, while similarly there has been a pick-up in commodity prices since the beginning of the year, albeit still well below their historical highs. Supported by accommodative monetary policy, economic growth up to June in the Eurozone, UK and US remained relatively robust, albeit below the long term average prior to the 2008 financial crisis, while price inflation has remained around zero.
Looking forward, uncertainty over the future trading arrangement the UK will be able to negotiate with the European Union is likely to weigh negatively on UK macroeconomic growth and sterling, with an uplift to UK price inflation and potential contagion impact on growth in the rest of Europe. In response, the Bank of England is expected to further loosen monetary policy, resulting in continued exceptionally low long-term UK gilt yields and providing some support for bond, equity and other asset prices. Economic and regulatory risks are likely to remain elevated for a significant period following the UK's vote to leave the EU. In particular risks arise from the prospect of UK firms being subject to EU rules with limited ability to influence their development, while changes in legislation may impact Aviva's operations. Other possible shocks to global growth in the second half of 2016 include the outcome of the US Presidential election, a Eurozone banking crisis triggered by the Italian banking sector or a further slow down in growth in China.
In the UK, the introduction in the March 2016 Budget of Lifetime Investment Savings Accounts (LISA) together with further erosion in pension contribution tax relief may be a precursor to more significant changes to UK public policy on pensions and long-term savings, which will impact the demand for our products and the types of products we offer our customers. In April 2016 the Financial Conduct Authority began a consultation on the creation of a secondary annuity market, enabling annuitants to sell their annuity income to a third party for a cash lump sum, and in May 2016 began a consultation on capping early exit pension charges. In July 2016, the Polish government announced the part nationalisation of the country's remaining private pension funds, with residual funds being transferred to private retirement accounts.
On 1 January 2016, Solvency II the new capital regime for European insurers came into effect. The Group is in the process of applying for regulator approval to extend use of its partial internal model to calculate the capital requirements to the parts of the UK business, which were formerly part of the Friends Life Group. Once UK withdrawal from the European Union is complete, the timing of which is uncertain, there may be some subsequent divergence between the capital regime for UK insurers and that of the European Union.
The International Association of Insurance Supervisors (IAIS) continues to develop the higher loss absorbency capital requirements, which will apply from January 2019, should the Group remain a Global Systemically Important Insurer (G-SII) and a global Insurance Capital Standard. The International Accounting Standards Board (IASB) aims to issue a final standard for the accounting of insurance contracts around the end of 2016 with the implementation date to be determined.
Risk profile
We continue to manage our risk profile to reflect Aviva's objective of maintaining financial strength and reducing capital volatility. The Group's capital position has remained relatively resilient to credit and equity stresses partly due to additional hedging actions taken in 2015 which were extended and expanded in the first quarter of 2016, partly in anticipation of financial market uncertainty created by the UK referendum on EU membership. In the first half of 2016 the Group significantly increased the amount of business ceded to its primary on-shore internal reinsurance mixer vehicle, Aviva International Insurance Limited (AII), with the objective of promoting greater capital efficiency and realising the benefits of group diversification of risk through lower solo capital requirements in the ceding entities.
Going forward, the Group's focus will be on increasing cash flow and capital generation, while maintaining a strong balance sheet with limited volatility and external leverage at a level commensurate with a AA financial strength rating.
Page 75
B18 - Risk management continued
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 over the half-year to 30 June 2016 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 57 of the Aviva plc Annual Report and Accounts 2015.
(a) Credit risk
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. During the first half of 2016 limits to our sovereign and corporate debt exposure to Greece, Italy, Portugal and Spain, which have benefitted from an increase in market values and depreciation of sterling against the euro, remained in place. We have in place a comprehensive group-wide reporting system that consolidates credit exposures across geographies, business lines and exposure types. We have a robust framework of limits and controls to diversify the portfolio and enable the early identification of potential issues. Refer to section D.3.3.5 of this report for details of our sovereign exposures to Greece, Ireland, Portugal, Spain and Italy.
During the first half of 2016 the credit rating profile of our debt securities portfolio has remained strong, and the average rating has risen slightly in line with the general market's rating agency upgrades. At 30 June 2016, the proportion of our shareholder debt securities that are investment grade has increased slightly to 93.2% (31 December 2015: 92.9%). Of the remaining 6.8% of shareholder debt securities that do not have an external rating of BBB or higher 84% are not rated by the major rating agencies. However, most of these are allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to be of investment grade credit quality.
Revised expectations of future property prices and rental income in light of the UK referendum vote for the UK to leave the European Union have adversely impacted the valuation of the Group's UK mortgage portfolio by c.£250 million.
The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure.
(b) Market risk
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. At 30 June 2016 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. Foreign currency dividends from subsidiaries are hedged using foreign exchange forwards to provide certainty regarding the sterling value to be received by the Group. Hedges have also been used to protect the Group's capital against a significant depreciation in local currency versus sterling. At 30 June 2016 the Group had in place Canadian dollar hedges with notional values of £0.45 billion.
(c) Liquidity risk
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, Aviva Group Holdings Limited (AGH) and Friends Life Holdings plc, 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 2016: £1.65 billion) from a range of leading international banks to further mitigate this risk.
Page 76
B18 - Risk management continued
(d) Life insurance risk
The profile of our life insurance risks, primarily longevity, persistency, mortality and expense risk, has remained stable in the first half of 2016. The continuing reduction in individual annuity new business volumes, since the end to compulsory annuitisation in April 2015, compounded by record low annuity rates resulting from exceptionally low long term interest rates, will reduce our longevity risk exposure over the longer term to the extent not offset by increased bulk purchase annuity volumes. However, despite this, longevity risk remains the Group's most significant life insurance risk due to the Group's existing annuity portfolio and is amplified by the current low level of interest rates. 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. 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.
During the first half of 2016, 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.
Aviva successfully completed the renewal of its group-wide catastrophe protection on 1 April 2016, maintaining the level of reinsurance it purchases which includes both event and aggregate catastrophe protection on a group-wide basis. Processes are in place to manage catastrophe risk in individual business units and at a group level.
(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. Following the UK referendum result on EU membership one Aviva Investors commercial property funds deferred redemption requests and another suspended dealing to safeguard the interests of investors in these funds. These key risks are monitored on an on-going basis with issues escalated to the Aviva Investors Risk Management Committee and ultimately to the Aviva Investors Holdings Limited Board Risk Committee.
(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. 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. We continue to monitor the development of IFRS 4 Phase 2.
(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 founded, or the customer's expectations for the product have changed. We monitor this risk and have controls in place to limit our exposure.
Page 77
B18 - Risk management continued
(i) Risk and capital management
(i) Sensitivity test analysis
The Group uses a number of sensitivity tests to understand the volatility of earnings, the volatility of its 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.
(ii) Life insurance and investment contracts
The nature of long-term business is such that a number of assumptions are made in compiling these financial statements. Assumptions are made about investment returns, expenses, mortality rates, and persistency in connection with the in-force policies for each business unit. Assumptions are best estimates based on historic and expected experience of the business. A number of the key assumptions for the Group's central scenario are disclosed elsewhere in these statements.
(iii) General insurance and health business
General insurance and health claim liabilities are estimated by using standard actuarial claims projection techniques. These methods extrapolate the claims development for each accident year based on the observed development of earlier years. In most cases, no explicit assumptions are made as projections are based on assumptions implicit in the historic claims.
(iv) Sensitivity test results
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 (life insurance only) |
The impact of an increase in mortality/morbidity rates for assurance contracts by 5%. |
Annuitant mortality (life insurance only) |
The impact of a reduction in mortality rates for annuity contracts by 5%. |
Gross loss ratios (non-life insurance only) |
The impact of an increase in gross loss ratios for general insurance and health business by 5%. |
Long-term business
Sensitivities as at 30 June 2016
30 June 2016 Impact on profit before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Assurance |
Annuitant |
Insurance participating |
40 |
(90) |
(40) |
(160) |
80 |
(25) |
(10) |
(60) |
Insurance non-participating |
(130) |
80 |
(555) |
30 |
(30) |
(165) |
(80) |
(760) |
Investment participating |
- |
- |
- |
- |
- |
(5) |
- |
- |
Investment non-participating |
(15) |
15 |
(5) |
10 |
(30) |
(10) |
- |
- |
Assets backing life shareholders' funds |
(130) |
85 |
(90) |
(85) |
85 |
- |
- |
- |
Total |
(235) |
90 |
(690) |
(205) |
105 |
(205) |
(90) |
(820) |
30 June 2016 Impact on shareholders' equity before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Assurance |
Annuitant |
Insurance participating |
40 |
(90) |
(40) |
(160) |
80 |
(25) |
(10) |
(60) |
Insurance non-participating |
(130) |
80 |
(555) |
30 |
(30) |
(165) |
(80) |
(760) |
Investment participating |
- |
- |
- |
- |
- |
(5) |
- |
- |
Investment non-participating |
(15) |
15 |
(5) |
10 |
(30) |
(10) |
- |
- |
Assets backing life shareholders' funds |
(170) |
125 |
(95) |
(85) |
85 |
- |
- |
- |
Total |
(275) |
130 |
(695) |
(205) |
105 |
(205) |
(90) |
(820) |
Page 78
B18 - Risk management continued
Sensitivities as at 31 December 2015
31 December 2015 Impact on profit before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Assurance |
Annuitant |
Insurance Participating |
30 |
(65) |
(30) |
(135) |
130 |
(25) |
(10) |
(50) |
Insurance non-participating |
(75) |
80 |
(495) |
25 |
(25) |
(155) |
(115) |
(725) |
Investment participating |
5 |
(5) |
- |
- |
- |
(5) |
- |
- |
Investment non-participating |
(20) |
20 |
(5) |
35 |
(35) |
(20) |
- |
- |
Assets backing life shareholders' funds |
(140) |
85 |
(65) |
40 |
(40) |
- |
- |
- |
Total |
(200) |
115 |
(595) |
(35) |
30 |
(205) |
(125) |
(775) |
31 December 2015 Impact on shareholders' equity before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Assurance |
Annuitant |
Insurance Participating |
30 |
(65) |
(30) |
(135) |
130 |
(25) |
(10) |
(50) |
Insurance non-participating |
(75) |
80 |
(495) |
25 |
(25) |
(155) |
(115) |
(725) |
Investment participating |
5 |
(5) |
- |
- |
- |
(5) |
- |
- |
Investment non-participating |
(20) |
20 |
(5) |
35 |
(35) |
(20) |
- |
- |
Assets backing life shareholders' funds |
(175) |
120 |
(70) |
40 |
(40) |
- |
- |
- |
Total |
(235) |
150 |
(600) |
(35) |
30 |
(205) |
(125) |
(775) |
Changes in sensitivities between HY16 and FY15 reflect underlying movements in market interest rates, portfolio growth, changes to asset mix and the relative durations of assets and liabilities and asset liability management actions. The sensitivities to economic movements relate mainly to business in the UK. In general, a fall in market interest rates has a beneficial impact on non-participating business, due to the increase in market value of fixed interest securities and the relative durations of assets and liabilities; similarly a rise in interest rates has a negative impact. Mortality and expense sensitivities also relate primarily to the UK.
General insurance and health business sensitivities as at 30 June 2016
30 June 2016 Impact on profit before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Gross loss |
Gross of reinsurance |
(280) |
245 |
(140) |
80 |
(80) |
(70) |
(160) |
Net of reinsurance |
(340) |
300 |
(140) |
80 |
(80) |
(70) |
(140) |
30 June 2016 Impact on shareholders' equity before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Gross loss |
Gross of reinsurance |
(280) |
245 |
(140) |
85 |
(85) |
(20) |
(160) |
Net of reinsurance |
(340) |
300 |
(140) |
85 |
(85) |
(20) |
(140) |
Sensitivities as at 31 December 2015
31 December 2015 Impact on profit before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Gross loss |
Gross of reinsurance |
(225) |
210 |
(130) |
65 |
(65) |
(100) |
(270) |
Net of reinsurance |
(305) |
300 |
(130) |
65 |
(65) |
(100) |
(260) |
31 December 2015 Impact on shareholders' equity before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Expenses |
Gross loss |
Gross of reinsurance |
(225) |
210 |
(130) |
70 |
(70) |
(20) |
(270) |
Net of reinsurance |
(305) |
300 |
(130) |
70 |
(70) |
(20) |
(260) |
For general insurance, 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 79
B18 - Risk management continued
Fund management and non-insurance business sensitivities as at 30 June 2016
30 June 2016 Impact on profit before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Total |
- |
- |
25 |
(20) |
45 |
30 June 2016 Impact on shareholders' equity before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Total |
- |
- |
25 |
(20) |
45 |
Sensitivities as at 31 December 2015
31 December 2015 Impact on profit before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Total |
- |
- |
10 |
(30) |
45 |
31 December 2015 Impact on shareholders' equity before tax £m |
Interest |
Interest |
Credit |
Equity/ |
Equity/ |
Total |
- |
- |
10 |
(30) |
45 |
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.
Page 80
B19 - Cash and cash equivalents
Cash and cash equivalents in the statement of cash flows at 30 June/31 December comprised:
|
30 June |
30 June |
31 December |
Cash and cash equivalents |
34,911 |
33,186 |
33,676 |
Cash and cash equivalents of operations classified as held for sale |
683 |
9 |
- |
Bank overdrafts |
(759) |
(506) |
(506) |
Net cash and cash equivalents at 30 June/31 December |
34,835 |
32,689 |
33,170 |
B20 - 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 52 of the Group's 2015 Annual report and accounts. An update on material risks is provided in Note B18 Risk management.
B21 - Acquired value of in-force business and intangible assets
Acquired value of in-force business and intangible assets presented in the statement of financial position is comprised of:
|
30 June |
30 June |
31 December |
Acquired value of in-force business on insurance contracts |
1,870 |
2,185 |
2,002 |
Acquired value of in-force business on investment contracts |
2,199 |
2,533 |
2,381 |
Intangible assets |
1,394 |
1,361 |
1,348 |
|
5,463 |
6,079 |
5,731 |
Less: Amounts classified as held for sale |
(13) |
- |
- |
Total |
5,450 |
6,079 |
5,731 |
The acquired value of in-force business on insurance and investment contracts has reduced in the period due to an amortisation charge of £317 million (HY15: £161 million charge, FY15: £496 million charge), offset by £3 million of positive foreign exchange movements.
There were no impairments of acquired value of in-force business in the period (HY15: £nil, FY15: £nil).
Page 81
Directors' responsibility statement
The directors confirm that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and as issued by the IASB 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
Mark Wilson Thomas D. Stoddard
Group chief executive officer Chief financial officer
3 August 2016
Page 82
Independent review report to Aviva plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Aviva plc's condensed consolidated interim financial statements (the 'interim financial statements') in the half year report of Aviva plc for the six month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated 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 as issued by the International Accounting Standards Board, and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The Condensed consolidated interim financial statements, which are prepared by Aviva plc, comprise:
· the Condensed consolidated statement of financial position as at 30 June 2016;
· the Condensed consolidated income statement and 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 condensed consolidated interim financial statements.
The condensed consolidated 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 Rules and Transparency Rules 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 and as issued by the International Accounting Standards Board.
Responsibilities for the condensed consolidated interim financial statements and the review
Our responsibilities and those of the directors
The half year report, including the condensed consolidated 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 Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on the condensed consolidated 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 Rules and Transparency Rules 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 condensed consolidated 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 Ireland) 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 condensed consolidated interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
3 August 2016
London
Notes:
(a) The maintenance and integrity of the Aviva plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
End part 3 of 4