Start of Part 2 of 5
Page 1
Contents
In this section |
Page |
Overview |
|
Key financial metrics |
2 |
|
|
1 Cash |
3 |
i Cash remitted to Group |
3 |
ii Operating capital generation |
3 |
iii Free surplus emergence |
5 |
|
|
2 Operating profit: IFRS basis |
6 |
|
|
3 Expenses |
7 |
|
|
4 Value of new business |
8 |
|
|
5 Combined operating ratio |
9 |
|
|
6 Business unit performance |
10 |
i United Kingdom and Ireland Life |
10 |
ii United Kingdom and Ireland General insurance & health |
11 |
iii Europe |
12 |
iv Canada |
13 |
v Asia |
14 |
vi Fund management |
15 |
|
|
7 Profit drivers: IFRS basis |
16 |
i Life business |
16 |
ii General insurance and health |
19 |
iii Net flows |
20 |
|
|
8 Capital & assets summary |
21 |
i Summary of assets |
21 |
ii External leverage |
22 |
iii Net asset value |
23 |
iv Return on equity |
24 |
v European Insurance Groups Directive (IGD) |
24 |
vi Economic capital |
25 |
|
|
Financial supplement |
27 |
Income & expenses |
28 |
|
|
IFRS financial statements |
33 |
|
|
Capital & assets |
77 |
Capital & liquidity |
78 |
Analysis of assets |
87 |
|
|
VNB & Sales analysis |
103 |
|
|
MCEV financial statements |
109 |
|
|
Other information |
149 |
Page 2
Key financial metrics
Cash
|
Cash remitted to Group |
|
Operating capital generation |
||||
Continuing operations, excluding Delta Lloyd |
6 months |
6 months |
Sterling% |
|
6 months |
Restated1 6 months |
Sterling% |
United Kingdom & Ireland life |
300 |
150 |
100% |
|
261 |
370 |
(29)% |
United Kingdom & Ireland general insurance & health |
- |
115 |
- |
|
216 |
198 |
9% |
Europe |
209 |
160 |
31% |
|
321 |
271 |
18% |
Canada |
63 |
- |
- |
|
108 |
114 |
(5)% |
Asia and Other |
1 |
16 |
(94)% |
|
30 |
(47) |
164% |
Total |
573 |
441 |
30% |
|
936 |
906 |
3% |
Operating profit before tax: IFRS basis
Continuing operations, excluding Delta Lloyd |
6 months |
Restated1 6 months |
Sterling% |
Life business |
910 |
897 |
1% |
General insurance and health |
428 |
462 |
(7)% |
Fund management |
42 |
18 |
133% |
Other* |
(372) |
(418) |
11% |
Total |
1,008 |
959 |
5% |
* Includes other operations, Corporate Centre costs and Group debt and other interest costs.
Expenses
Continuing operations |
6 months |
6 months |
Sterling% |
Operating expenses |
1,528 |
1,675 |
(9)% |
Integration and restructuring costs |
164 |
182 |
(10)% |
Expense base |
1,692 |
1,857 |
(9)% |
Value of new business
Continuing operations |
6 months |
6 months |
Sterling% |
United Kingdom |
211 |
182 |
16% |
Ireland |
1 |
(6) |
117% |
France |
86 |
62 |
39% |
Poland |
21 |
18 |
17% |
Italy |
6 |
14 |
(57)% |
Spain |
13 |
21 |
(38)% |
Turkey & Other Europe |
21 |
15 |
40% |
Asia - excluding Malaysia and Sri Lanka |
41 |
29 |
41% |
Value of new business - pro forma basis |
400 |
335 |
19% |
Effect of disposals (Malaysia and Sri Lanka) |
1 |
8 |
|
Value of new business |
401 |
343 |
17% |
General insurance combined operating ratio
Continuing operations |
6 months |
6 months |
|
United Kingdom |
96.9% |
98.0% |
(1.1)pp |
Europe |
97.0% |
97.9% |
(0.9)pp |
Canada |
92.4% |
89.8% |
2.6pp |
General insurance combined operating ratio |
96.2% |
95.5% |
0.7pp |
IFRS Profit after tax
|
6 months |
Restated |
Sterling% |
IFRS profit/(loss) after tax |
776 |
(624) |
n/a |
Interim dividend
6 months 2013 |
6 months 2012 |
|
Interim dividend per share |
5.6p |
10.0p |
Capital position
|
Pro forma3 30 June |
Pro forma3 31 December |
30 June |
31 December £bn |
Estimated economic capital surplus2 |
7.6 |
7.1 |
7.1 |
5.3 |
Estimated IGD solvency surplus |
3.7 |
3.9 |
4.2 |
3.8 |
IFRS net asset value per share |
|
|
281p |
278p |
MCEV4 net asset value per share |
|
|
441p |
422p |
1 The Group adopted the amendments to IAS19 and IFRS10 during the period and the requirements of the revised standards have been applied retrospectively. See note B2 for details.
2 The economic capital surplus represents an estimated position. The capital requirement is based on Aviva's own internal assessment and capital management policies. The term 'economic capital' does not imply capital as required by regulators or other third parties.
3 The pro forma economic capital and IGD surpluses at HY13 include the impact of the US Life transaction and, for economic capital only, an increase in pension scheme risk allowance from five to ten years of stressed contributions (pro forma FY12: includes the benefit of completing the US Life, Aseval, Delta Lloyd and Malaysia transactions and, for economic capital only, an increase in pension scheme risk allowance from five to ten years of stressed contributions).
4 In preparing the MCEV information, the directors have done so in accordance with the European Insurance CFO Forum MCEV Principles with the exception of stating held for sale operations at their expected fair value, as represented by expected sale proceeds, less cost to sell.
Page 3
Cash
1.i - Cash remitted to Group
The flow of sustainable cash remittances from the Group's businesses is a key financial priority. The cash remittances for HY13 from continuing operations, excluding Delta Lloyd, were £573 million (HY12: £441 million).
|
6 months |
6 months |
Full year |
United Kingdom & Ireland life |
300 |
150 |
150 |
United Kingdom & Ireland general insurance & health |
- |
115 |
150 |
France |
103 |
52 |
202 |
Poland |
83 |
63 |
70 |
Italy |
- |
- |
- |
Spain |
17 |
42 |
68 |
Other Europe |
6 |
3 |
3 |
Europe |
209 |
160 |
343 |
Canada |
63 |
- |
136 |
Asia |
- |
1 |
25 |
Other |
1 |
15 |
100 |
Group - continuing operations (excluding Delta Lloyd) |
573 |
441 |
904 |
Delta Lloyd |
- |
29 |
40 |
Group as reported |
573 |
470 |
944 |
The improvement in cash remitted to Group is primarily driven by increased remittances from UK Life, France and Canada. Following the restructure of the internal loan with UKGI at the start of 2013, the timing of dividend flows from this business to Group has been moved to the second half of the year.
1.ii - Operating capital generation
The active management of the generation and utilisation of capital is a primary Group focus, balancing new business investment and shareholder distribution to deliver our "Cash flow plus growth" investment thesis.
|
6 months |
Restated |
Restated |
Operating capital generation: |
|
|
|
Life in-force business1 |
798 |
878 |
1,703 |
General insurance, fund management and other operations |
306 |
288 |
534 |
Operating capital generated before investment in new business - continuing operations |
1,104 |
1,166 |
2,237 |
Capital invested in new business |
(168) |
(260) |
(378) |
Operating capital generated after investment in new business - continuing operations |
936 |
906 |
1,859 |
United States and Delta Lloyd |
83 |
(15) |
123 |
Group as reported |
1,019 |
891 |
1,982 |
1 The Life in-force business in FY12 excludes the negative impact from a true up relating to a prior estimate of required capital. The change in estimate of £88 million is included in MCEV note F12, but excluded from above as it does not impact the actual capital generated in 2012.
Operating capital generation comprises the following components:
- Operating free surplus emergence, including release of required capital, for the life in-force business (net of tax and non-controlling interests);
- Operating profits for the general insurance and other non-life businesses net of tax and non-controlling interests from non-covered business only, where non-covered business is that which is outside the scope of life MCEV methodology.
- Capital invested in new business. For life business this is the impact of initial and required capital on free surplus. For general insurance business this reflects the movement in required capital, which has been assumed to equal the regulatory minimum multiplied by the local management target level. Where appropriate movements in capital requirements exclude the impact of foreign exchange and other movements deemed to be non-operating in nature.
- Post deconsolidation on 6 May 2011, all Delta Lloyd business (including its life, general insurance, fund management and non insurance segments) has been included in OCG on an IFRS basis (net of taxation and non-controlling interests).
- Post classification as held for sale in Q4 2012, the United States business (including its life, fund management and non insurance segments that have been announced to be sold) is no longer managed on a MCEV basis so it has been included in OCG on an IFRS basis (net of taxation).
The amount of operating capital remitted to Group is dependent upon a number of factors including non-operating items and local regulatory requirements.
Page 4
1.ii - Operating capital generation continued
The analysis of OCG by market and product and service is set out below.
|
Life OCG |
|
Non-life OCG |
|
|||||||
6 months 2013 |
Free |
New business strain |
Other/ manage-ment actions |
Life OCG |
|
General insurance and health1 |
Fund manage- ment1 |
Non- insurance1 |
Non-life usage2 |
Non-life OCG |
Total OCG |
United Kingdom & Ireland life |
205 |
17 |
41 |
263 |
|
(9) |
9 |
(3) |
1 |
(2) |
261 |
United Kingdom & Ireland general insurance & health |
- |
- |
- |
- |
|
195 |
- |
(3) |
24 |
216 |
216 |
Europe |
369 |
(146) |
74 |
297 |
|
32 |
- |
(2) |
(6) |
24 |
321 |
Canada |
- |
- |
- |
- |
|
111 |
- |
- |
(3) |
108 |
108 |
Asia |
46 |
(35) |
63 |
74 |
|
(1) |
1 |
(8) |
(3) |
(11) |
63 |
Fund management |
- |
- |
- |
- |
|
- |
14 |
- |
(2) |
12 |
12 |
Other |
- |
- |
- |
- |
|
(25) |
- |
(5) |
(15) |
(45) |
(45) |
Total continuing operations |
620 |
(164) |
178 |
634 |
|
303 |
24 |
(21) |
(4) |
302 |
936 |
United States |
|
|
|
|
|
|
|
|
|
|
83 |
Total Group operating capital generation |
|
|
|
|
|
|
|
|
|
|
1,019 |
|
Life OCG |
|
Non-life OCG |
|
|||||||
Restated |
Free |
New |
Other/ manage-ment actions |
Life OCG |
|
General insurance and health1 |
Fund ment1 |
Non- insurance1 |
Non-life usage2 |
Non-life OCG |
Total OCG |
United Kingdom & Ireland life |
260 |
(51) |
153 |
362 |
|
1 |
2 |
2 |
3 |
8 |
370 |
United Kingdom & Ireland general insurance & health |
- |
- |
- |
- |
|
175 |
- |
(6) |
29 |
198 |
198 |
Europe |
344 |
(159) |
67 |
252 |
|
24 |
- |
4 |
(9) |
19 |
271 |
Canada |
- |
- |
- |
- |
|
129 |
- |
- |
(15) |
114 |
114 |
Asia |
46 |
(40) |
5 |
11 |
|
(1) |
- |
(10) |
(4) |
(15) |
(4) |
Fund management |
1 |
- |
- |
1 |
|
- |
- |
- |
(4) |
(4) |
(3) |
Other |
2 |
- |
- |
2 |
|
14 |
- |
(46) |
(10) |
(42) |
(40) |
Total continuing operations (excluding Delta Lloyd) |
653 |
(250) |
225 |
628 |
|
342 |
2 |
(56) |
(10) |
278 |
906 |
United States and Delta Lloyd |
|
|
|
|
|
|
|
|
|
|
(15) |
Total Group operating capital generation |
|
|
|
|
|
|
|
|
|
|
891 |
|
Life OCG |
|
Non-life OCG |
|
|||||||
Restated |
Free surplus emergence |
New business strain |
Other/ management actions3 |
Life OCG |
|
General insurance and health1 |
Fund ment1 |
Non- insurance1 |
Non-life usage2 |
Non-life OCG |
Total OCG |
United Kingdom & Ireland life |
407 |
(37) |
303 |
673 |
|
10 |
8 |
(4) |
1 |
15 |
688 |
United Kingdom & Ireland general insurance & health |
- |
- |
- |
- |
|
343 |
- |
(17) |
50 |
376 |
376 |
Europe |
662 |
(268) |
147 |
541 |
|
43 |
- |
6 |
(19) |
30 |
571 |
Canada |
- |
- |
- |
- |
|
202 |
- |
- |
(10) |
192 |
192 |
Asia |
117 |
(84) |
64 |
97 |
|
(1) |
1 |
(13) |
(4) |
(17) |
80 |
Fund management |
3 |
- |
- |
3 |
|
- |
11 |
- |
(7) |
4 |
7 |
Other |
- |
- |
- |
- |
|
31 |
(2) |
(84) |
- |
(55) |
(55) |
Total continuing operations (excluding Delta Lloyd) |
1,189 |
(389) |
514 |
1,314 |
|
628 |
18 |
(112) |
11 |
545 |
1,859 |
United States and Delta Lloyd |
|
|
|
|
|
|
|
|
|
|
123 |
Total Group operating capital generation |
|
|
|
|
|
|
|
|
|
|
1,982 |
1 Operating profit net of tax and non-controlling interests from non-covered businesses only, where non-covered business is that which is outside the scope of life MCEV methodology.
2 This reflects the movement in required capital, which has been assumed to equal the regulatory minimum multiplied by the local management target level. Where appropriate movements in capital requirements exclude the impact
of foreign exchange and other movements deemed to be non-operating in nature.
3 The FY12 'other/management actions' figure in Europe excludes the negative impact of a true-up relating to a prior estimate of required capital. The change in estimate of £88 million is included in MCEV Note F12, but excluded from Life OCG as it does not impact the actual capital generated in 2012.
Operating capital generation (OCG) on a continuing basis, excluding the US and Delta Lloyd, is £936 million, up 3% compared to prior year (HY12: £906 million). The increase in OCG is driven by the expense savings seen throughout the Group and by the continuing focus on managing new business volumes and value. Life OCG includes the benefit of some management actions (including a financial reinsurance transaction) but at a lower level than in the previous years. The expected free surplus emergence (shown in note 1.iii) taken with the expected contribution from new life business and non-life business, demonstrates that the current level of OCG is sustainable and underpins the future cash remittances from businesses to Group.
Page 5
1.iii - Free surplus emergence
Maturity profile of undiscounted free surplus emergence equivalent embedded value cash flows
Total in-force business
Release of future profits and required capital |
30 June 2013 £m |
31 December 2012 £m |
Year 1 |
1,161 |
1,190 |
Year 2 |
1,133 |
1,156 |
Year 3 |
1,088 |
1,175 |
Year 4 |
1,114 |
1,168 |
Year 5 |
1,091 |
1,003 |
Year 6 |
1,091 |
977 |
Year 7 |
1,046 |
917 |
Year 8 |
1,038 |
857 |
Year 9 |
988 |
952 |
Year 10 |
940 |
952 |
Years 11-15 |
4,215 |
4,312 |
Years 16-20 |
3,630 |
3,541 |
Years 20+ |
8,857 |
8,335 |
Total net of non controlling interests1 |
27,392 |
26,535 |
1 HY13 excludes £132 million (FY12: £385 million), in respect of held for sale operations.
The table above shows the expected future emergence of profits from the existing business implicit in the equivalent embedded value calculation for life covered in-force business. The cashflows have been split for the first ten years followed by five year tranches depending on the date when the profit is expected to emerge. These profits, which arise from the release of margins in the regulatory reserves as the business runs-off over time, are expected to emerge through operating capital generation (OCG) in future years. The cashflows are based on the non-economic assumptions used in the MCEV and normalised investment returns.
For existing business, the cashflows will generally reduce over time due to lapses, maturities and other benefit payments. Each year new business will increase these profits, following the initial strain at point of sale. This table only includes the business currently in-force.
At 31 December 2012, the anticipated year 1 cashflow was £1,190 million, which includes the expected transfer from the value in force (VIF) and required capital to free surplus in the first half of 2013 of £610 million (MCEV section, note F8). The OCG expected return will also include the free surplus component of the expected return on net worth. The expected return in the OCG of £620 million (see note 1.ii) is broadly half of this total.
The total real world cashflows have increased slightly over 2013, largely reflecting the expected future cashflows from new business and the benefit of exchange rates, partly offset by the expected run-off of the existing business. Economic and other variances have had a relatively small impact during the period.
The free surplus emergence in the table above excludes any business written in the RIEESA until conditions for its release to shareholders have been met.
Page 6
Operating profit: IFRS basis
2 - Operating Profit: IFRS basis
Group operating profit before tax from continuing operations, excluding Delta Lloyd: IFRS basis
For the six month period ended 30 June 2013
Continuing operations, excluding Delta Lloyd |
6 months 2013 £m |
Restated 6 months 2012 £m |
Restated Full Year 2012 £m |
Operating profit before tax attributable to shareholders' profits |
|
|
|
Life business |
|
|
|
United Kingdom & Ireland |
446 |
477 |
892 |
Europe |
425 |
391 |
869 |
Asia |
38 |
30 |
69 |
Other |
1 |
(1) |
1 |
Total life business (note 7.i) |
910 |
897 |
1,831 |
General insurance and health |
|
|
|
United Kingdom & Ireland |
259 |
235 |
502 |
Europe |
47 |
45 |
98 |
Canada |
147 |
174 |
277 |
Asia |
(1) |
(1) |
(5) |
Other |
(24) |
9 |
22 |
Total general insurance and health (note 7.ii) |
428 |
462 |
894 |
Fund management |
|
|
|
Aviva Investors |
31 |
14 |
39 |
United Kingdom |
10 |
4 |
11 |
Asia |
1 |
- |
1 |
Total fund management |
42 |
18 |
51 |
Other |
|
|
|
Other operations (note A1) |
(49) |
(87) |
(177) |
Market operating profit |
1,331 |
1,290 |
2,599 |
Corporate centre (note A2) |
(72) |
(64) |
(136) |
Group debt costs and other interest (note A3) |
(251) |
(267) |
(537) |
Operating profit before tax attributable to shareholders' profits (excluding Delta Lloyd as an associate) |
1,008 |
959 |
1,926 |
Overall, operating profit has increased by £49 million to £1,008 million (HY12: £959 million), with the main movements being operating expense savings of £147 million offset by the non-recurrence of one-off items in the UK, included in the 2012 results, of £74 million.
Within the UK general insurance business, long term investment return has reduced by £45 million mainly reflecting the lower interest rate on the internal loan balance, following the restructure at the start of 2013. The impact of this is neutral at an overall Group level.
The Group adopted the amendments to IAS 19 during the period (see note B2(e) for details) and the requirements of the revised standard have been applied retrospectively in accordance with the transition provision. This has resulted in an increase in operating profit for the 6 month period ended 30 June 2012 of £74 million, with a corresponding decrease in other comprehensive income. The impact for the full year 2012 is to increase operating profit by £150 million with a corresponding decrease in other comprehensive income.
Page 7
Expenses
3 - Expenses
a) Expense base
Continuing operations |
6 months |
6 months |
Operating expenses |
1,528 |
1,675 |
Integration and restructuring costs |
164 |
182 |
Expense base |
1,692 |
1,857 |
b) Operating expenses1
Continuing operations |
6 months |
6 months |
UK & Ireland life |
326 |
378 |
UK & Ireland general insurance & health |
418 |
452 |
Europe |
333 |
353 |
Canada |
196 |
199 |
Asia |
40 |
49 |
Aviva Investors |
136 |
140 |
Other Group activities |
79 |
104 |
Operating cost base - continuing operations |
1,528 |
1,675 |
1 Operating expenses includes expenses from life, general insurance & health, fund management and other operations.
The table below shows the lines of the IFRS consolidated income statement in which operating expenses have been included:
|
6 months |
6 months |
Claims handling costs2 |
186 |
189 |
Non-commission acquisition costs3 |
468 |
552 |
Other expenses |
874 |
934 |
Operating cost base - continuing operations |
1,528 |
1,675 |
2 As reported within Net claims and benefits paid of £11,458 million (HY12: £12,290 million).
3 As reported within Fee and commission expense of £2,309 million (HY12: £2,259 million).
Overall operating expenses for the period were £1,528 million (HY12: £1,675 million), a reduction of £147 million compared with prior year. The overall 2011 base-line for the Group-wide expense reduction target is £3,366 million4- if the total for FY13 is assumed to be twice the HY13 operating expenses, then £310 million of savings (out of the £400 million target) have been realised to date.
Significant cost reductions have been made in the United Kingdom and Ireland. Both the life and general insurance businesses have achieved savings by reducing headcount for both permanent staff and contractor positions, lowered levels of property spend through renegotiation of leases or exiting property and reduced consultancy spend.
The cost base of our European markets has reduced by 6%, or 9% on a constant currency basis, benefitting from lower costs in the majority of markets. The improvement has been driven by a strong focus on expense management. Other Group activities, which include Group centre costs, have improved as a result of regional head office closures in 2012, including Aviva Europe and Aviva North America.
c) Integration and restructuring costs
Integration and restructuring costs from continuing operations at HY13 were £164 million (HY12: £182 million) and mainly include expenses associated with the Group's transformation programme. Compared with the prior period, integration and restructuring costs reduced by 10% as transformation activity in Ireland's general insurance business in 2012 was not repeated and Solvency II implementation costs reduced to £44 million (HY12: £70 million), as the project moves towards completion.
4 Target baseline will be adjusted for any subsequent disposals not already announced.
Page 8
Value of new business
4 - Value of new business by market
Gross of tax and non-controlling interests - continuing operations |
6 months 2013 £m |
6 months 2012 £m |
Full year 2012 £m |
United Kingdom |
211 |
182 |
420 |
Ireland |
1 |
(6) |
(8) |
United Kingdom & Ireland |
212 |
176 |
412 |
France |
86 |
62 |
119 |
Poland |
21 |
18 |
35 |
Italy |
6 |
14 |
29 |
Spain |
13 |
21 |
56 |
Turkey |
20 |
13 |
30 |
Other Europe |
1 |
2 |
2 |
Europe |
147 |
130 |
271 |
Asia - excluding Malaysia and Sri Lanka |
41 |
29 |
55 |
Value of new business - pro forma basis |
400 |
335 |
738 |
Effect of disposals (Malaysia and Sri Lanka) |
1 |
8 |
8 |
Total |
401 |
343 |
746 |
The Group's value of new business1 (VNB) increased by 17% to £401 million (HY12: £343 million). The growth was primarily driven by strong performances in the UK & Ireland, France, Turkey and Asia, partially offset by reductions in Italy and Spain. However, we expect the 17% growth rate in VNB, compared with the prior year, to moderate during the second half of 2013.
Overall new business volumes reduced by 6% (on a PVNBP basis) and new business margin increased to 3.9% (HY12: 3.1%) (on a PVNBP basis) as businesses continued to focus on value over volume.
In the UK, VNB growth was achieved through improved margins, mainly as a result of pricing actions taken in the second half of 2012 in the UK annuity book. Volumes in the UK reduced in the period, reflecting the strong focus on improving value and capital efficiency. Ireland's VNB also improved reflecting the sale of the Ark business, which produced negative VNB in the prior period, together with some margin improvements across all product lines, particularly annuities.
In Europe improvements were largely driven by growth in France and Turkey, offset by reductions in Italy and Spain. In France, the VNB increased by 39%, driven by improved volumes across all products and a movement in product mix to more profitable protection and unit linked products. Turkey's VNB increased by 54%, due to an increase in sales of higher margin protection products and pensions (reflecting the ongoing benefit from government reforms). In Italy, lower risk free rates impacted margins and the results included a negative contribution of £8 million from the Eurovita business, which is held for sale. Excluding Eurovita, VNB for Italy was £14 million (HY12: £16 million). In Spain, market conditions remain difficult with VNB impacted by lower volumes, particularly for protection and unit linked products, together with an adverse mix impact due to the continuing contraction of the mortgage market.
VNB in Asia increased by 14% reflecting an increase in sales of higher margin products, including protection products in Singapore and traditional protection in China and India. Excluding Malaysia and Sri Lanka, which have both now been sold, VNB increased by 41% to £41 million (HY12: £29 million).
1 The trend analysis of VNB and present value of new business premiums (PVNBP) are included in Financial supplement, section E: VNB & sales analysis.
Page 9
Combined operating ratio
5 - General insurance combined operating ratio (COR)
|
Net written premiums |
Claims ratio2 |
Commission and expense ratio3 |
Combined operating ratio4 |
||||||||
|
6 months 2013 £m |
6 months 2012 £m |
Full Year 2012 £m |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
United Kingdom1 |
1,963 |
2,087 |
4,062 |
61.3 |
61.4 |
63.3 |
35.0 |
35.8 |
35.0 |
96.3 |
97.2 |
98.3 |
Ireland |
146 |
174 |
326 |
70.3 |
71.9 |
69.7 |
33.7 |
34.6 |
32.6 |
104.0 |
106.5 |
102.3 |
United Kingdom & Ireland |
2,109 |
2,261 |
4,388 |
62.0 |
62.3 |
63.8 |
34.9 |
35.7 |
34.8 |
96.9 |
98.0 |
98.6 |
Europe |
764 |
726 |
1,295 |
70.5 |
69.8 |
70.2 |
26.5 |
28.1 |
29.2 |
97.0 |
97.9 |
99.4 |
Canada |
1,126 |
1,081 |
2,176 |
60.8 |
57.9 |
61.0 |
31.6 |
31.9 |
32.4 |
92.4 |
89.8 |
93.4 |
Asia |
7 |
11 |
22 |
94.4 |
70.0 |
68.5 |
25.5 |
34.5 |
37.1 |
119.9 |
104.5 |
105.6 |
Other5 |
20 |
51 |
67 |
|
|
|
|
|
|
|
|
|
Total |
4,026 |
4,130 |
7,948 |
63.9 |
62.4 |
64.2 |
32.3 |
33.1 |
32.8 |
96.2 |
95.5 |
97.0 |
1 United Kingdom excluding Aviva Re and agencies in run-off.
2 Claims ratio: Incurred claims expressed as a percentage of net earned premiums.
3 Commission and Expense ratio: Written commissions and expenses expressed as a percentage of net written premiums.
4 Combined operating ratio: Aggregate of claims ratio and commission and expense ratio.
5 Other includes Aviva Re and agencies in run off.
Group combined operating ratio (COR) for the period is 96.2% with improvements in the UK & Ireland and Europe, partially offset by an adverse movement in Canada.
During June there was extreme flooding in Alberta, Canada. This 1 in 100 year event has impacted the group result at HY13 by £70 million (net of reinsurance). At the start of July 2013, there was also flooding in Toronto - the impact of this will be included in the results for the second half of 2013. Of the total impact of the Alberta floods, £32 million is included in the results for Canada and £38 million is in the results of our internal reinsurance company, Aviva Re. The impact on Group COR of this event is 1.8pp. Excluding this event, the Canadian COR was stable at 89.5% (HY12: 89.8%).
In the UK and Ireland, GI COR has improved by 1.1pp to 96.9% (HY12: 98.0%), reflecting an improvement across all components. In the UK, favourable movements in the claims ratio are largely driven by favourable weather experience, partly offset by some small adverse prior year development. Performance in Ireland continues to be unsatisfactory, but there has been an improvement in the commission and expense ratio as a result of management actions. The claims ratio has also improved due to good weather and favourable prior year claims experience.
Europe's GI COR of 97.0% (HY12: 97.9%), has benefitted from an improvement in the commission and expense ratio mainly reflecting the focus on expense efficiencies. This has been partly offset by a higher claims ratio largely due to a small strengthening of prior year reserves in France compared with a release at HY12. Both Poland and Italy benefitted from improved underwriting discipline and lower losses.
We continue to apply our reserving policy consistently and to focus on understanding the true cost of claims to ensure that reserves are maintained at a robust level. Prior year reserve movements will vary year to year but our business is predominantly short tail in nature and the loss development experience is generally stable. In HY13 we have had a small positive prior year development in our GI & health business, benefitting operating profit by £4 million (HY12: £37 million benefit to operating profit). This has had a minimal impact on the Group's COR.
Page 10
Business unit performance
6.i - United Kingdom and Ireland Life
|
6 months 2013 £m |
6 months 2012 £m |
Full year 2012 £m |
Cash remitted to Group |
300 |
150 |
150 |
Operating capital generation |
261 |
370 |
688 |
Life Operating profit: IFRS basis |
446 |
477 |
892 |
Expenses |
|
|
|
Operating expenses |
326 |
378 |
736 |
Integration and restructuring costs |
19 |
14 |
71 |
|
345 |
392 |
807 |
Value of new business |
212 |
176 |
412 |
Cash
During the period the UK Life business paid a dividend of £300 million to the Group, an increase from £150 million in 2012.
Operating Capital Generation
Operating Capital Generation (OCG) in the first half of 2013 is £261 million (HY12: £370 million).
Within this total, OCG generated in the UK was stable after adjusting for a prior year reinsurance transaction which benefitted the UK by c.£100 million. Changes made to the mix of business and actions taken on pricing have reduced our total new business strain, in particular for annuity business, which has contributed £33 million to OCG (HY12: £32 million strain).
Operating profit: IFRS basis
UK & Ireland life operating profit for HY13 was £446 million (HY12: £477 million), a reduction of £31 million compared with the prior period.
Within this total the UK operating profit was £438 million (HY12: £469 million). After adjusting for a net benefit of £74 million from non-recurring items, including the release of a longevity transaction reserve, the profit in UK Life increased by 11%. This increase was due to expense reductions, which benefitted operating profit by £50 million, and improved pricing. Ireland life operating profit was stable at £8 million (HY12: £8 million).
The operating profit of UK Life reflects a strong performance from our core risk businesses. Individual annuities performed strongly as we continued to focus on capital efficiency and value. In Protection an increased contribution from group protection products was offset by some weakening of the individual protection business.
In our pension and savings business the key focus is managing our existing book of business for value with selective participation in new business. Within our total funds under management, our savings business increased by 9% to £50.3 billion largely due to market movements and this book of business represents a stable source of profits.
Expenses
UK operating expenses decreased 14% to £296 million (HY12: £346 million). Cost reduction actions include the de-layering of management structures, distribution rationalisation and prioritisation of IT and change initiatives. UK restructuring costs were £16 million (HY12: £10 million), including the costs of Solvency II implementation and other project costs.
Ireland operating expenses were stable at £30 million (HY12: £32 million). Restructuring and integration costs were £3 million (HY12: £4 million).
Value of new business
VNB increased 20% to £212 million (HY12: £176 million). In the UK, VNB was up 16% to £211 million (HY12: £182 million) reflecting the focus on value through disciplined pricing, cost reduction and capital efficiency, rather than sales volume. PVNBP reduced by 18% to £4,441 million, but was more than offset by significantly increased new business margin, reflecting pricing actions and withdrawal from less profitable segments of BPA business.
In Ireland, VNB improved to £1 million (HY12: £(6) million) as a result of improved margins and the sale of Ark Life in March 2013.
Page 11
6.ii - United Kingdom and Ireland general insurance & health
|
6 months 2013 £m |
6 months 2012 £m |
Full year 2012 £m |
Cash remitted to Group |
- |
115 |
150 |
Operating capital generation |
216 |
198 |
376 |
Operating profit: IFRS basis |
259 |
235 |
502 |
Expenses |
|
|
|
Operating expenses |
418 |
452 |
826 |
Integration and restructuring costs |
12 |
48 |
170 |
|
430 |
500 |
996 |
Combined operating ratio1 |
96.9% |
98.0% |
98.6% |
Cash
Following the inter-company loan restructure at the start of 2013, dividends from the business will be received in Q4 2013.
Operating Capital Generation
Operating Capital Generation (OCG) in the first half of 2013 was £216 million (HY12: £198 million) reflecting an increase in operating profit compared with the previous year.
Operating profit: IFRS basis
Operating profit increased to £259 million (HY12: £235 million), despite a £53 million reduction in overall investment return. The underwriting result of £85 million (HY12: £17 million) benefitted from benign weather and lower expenses as we continue to improve the efficiency of our book. These improvements have been partially offset by a £17 million reserve strengthening in UKGI (HY12: £12 million release). The reduction in investment return was primarily due to the intercompany loan restructure in UKGI.
In UK general insurance, our personal lines business continues to perform well in challenging markets and while overall commercial profitability continues to show an improvement, performance by class is mixed. We continue to monitor the impact of regulatory reforms in the UK and their implication for future claims costs and pricing.
Over the six month period, net written premiums (NWP) from UK general insurance declined 6% to £1,963 million (HY12: £2,087 million), mostly due to increased competition in UK motor, where we have exercised discipline in our underwriting and seen a £71 million reduction in NWP.
Expenses
Total expenses (including integration and restructuring costs) have fallen by £70 million to £430 million (HY12: £500 million).
UKGI operating expenses have improved by 5% to £360 million (HY12: £378 million) including the impact of a reduction in headcount, while restructuring and integration costs are modest at £1 million (HY12: £3 million).
Ireland GI and health expenses improved materially, reducing 42% to £69 million (HY12: £119 million) including restructuring and integration costs. We believe that the reduction in cost base forms a key component of our turnaround strategy and the recent appointment of new leadership will add further momentum to this process.
Combined operating ratio1
|
Claims ratio |
Commission and expense ratio |
Combined operating ratio |
||||||
United Kingdom & Ireland |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
Personal |
59.0 |
59.3 |
59.6 |
35.9 |
36.2 |
34.7 |
94.9 |
95.5 |
94.3 |
Commercial |
65.9 |
66.4 |
69.7 |
33.5 |
35.0 |
34.9 |
99.4 |
101.4 |
104.6 |
Total - continuing operations |
62.0 |
62.3 |
63.8 |
34.9 |
35.7 |
34.8 |
96.9 |
98.0 |
98.6 |
1 General insurance business only.
The overall UK & Ireland general insurance combined operating ratio (COR) has improved to 96.9% (HY12: 98.0%).
UK general insurance COR improved to 96.3% (HY12: 97.2%) with the positive impact of lower weather-related claims, compared with HY12, partially offset by the prior-year reserve strengthening.
Market conditions in the UK for personal motor remain challenging, with increased competition during the period and uncertainty caused by the implementation of regulatory reforms - within this environment personal motor business COR has been stable at 96% (HY12: 96%). Homeowner COR has improved to 90% (HY12: 95%), reflecting good weather and our continued focus on risk selection and pricing.
Conditions in commercial lines continue to be challenging. In UK & Ireland profitability has improved with a combined operating ratio of 99.4% (HY12: 101.4%), benefitting from favourable claims experience in commercial property as a result of benign weather. This has been partly offset by a modest strengthening of prior year reserves in commercial motor.
Performance in Ireland continues to be unsatisfactory with an overall COR of 104.0% (HY12: 106.5%). Within this total there has been an improvement in the commission and expense ratio as a result of management actions. The claims ratio has also improved due to good weather and favourable prior year claims experience.
Page 12
6.iii - Europe1
|
6 months 2013 £m |
6 months 2012 £m |
Full year 2012 £m |
Cash remitted to Group |
209 |
160 |
343 |
Operating capital generation |
321 |
271 |
571 |
Operating profit: IFRS basis |
|
|
|
Life |
425 |
391 |
869 |
General insurance & health |
47 |
45 |
98 |
|
472 |
436 |
967 |
Expenses |
|
|
|
Operating expenses |
333 |
353 |
662 |
Integration and restructuring costs |
7 |
10 |
27 |
|
340 |
363 |
689 |
Value of new business |
147 |
130 |
271 |
Combined operating ratio |
97.0% |
97.9% |
99.4% |
1 Our European businesses include life and general insurance business written in France, Poland, Italy, and Turkey, life business in Spain and health business in France.
Cash
Cash remitted to group during the first half of 2013 was £209 million (HY12: £160 million), with increased remittances from France and Poland partly offset by a reduction from Spain, reflecting an additional dividend received from this business in 2012 together with the impact of the disposal of Aseval.
Operating capital generation
Operating capital generation (OCG) has increased by 18% to £321 million (HY12: £271 million) with improvements across all European markets. OCG in France increased to £174 million (HY12: £153 million) and Poland reported an increase of 14% to £65 million, as a result of expense savings and improved profitability.
Life operating profit: IFRS basis
Life operating profit increased 9% to £425 million (HY12: £391 million) despite continued challenging market conditions. In France, operating profits increased by 26% to £190 million (HY12: £151 million) as a result of higher volumes and increased margins. This includes the benefit of management actions to reduce the cost of guaranteed death benefits of £20 million (HY12: £8 million). Life operating profit in Poland improved 5% to £78 million (HY12: £74 million) due to lower expenses and higher assets under management. In Spain profits were 10% lower than HY12 but 11% higher when adjusted for the sale of Aseval. In Italy profits were down by 6% as HY12 benefitted from a one-off reinsurance transaction.
General insurance & health operating profit: IFRS basis
Operating profits were stable at £47 million (HY12: £45 million). In Italy profits improved by 78% to £16 million (HY12: £9 million) through pricing actions and reduced claims frequency. In Poland, profit increased 25% to £5 million (HY12: £4 million) benefiting from reduced claims frequency. In France, operating profits were £10 million below HY12 as reduced investment income and a lower level of reserve releases were partly offset by pricing actions and favourable weather experience.
Expenses
Operating expenses reduced by £20 million (6%) to £333 million (HY12: £353 million), with a stronger reduction measured in local currencies.
Value of new business
Value of new business (VNB) for Europe improved to £147 million (HY12: £130 million). Strong growth in France, Turkey and Poland was partly offset by adverse movements in Euroswap rates impacting with-profit and guaranteed savings products in Italy and Spain. VNB in France and Turkey increased due to higher volumes, with France also benefiting from a favourable move in product mix toward unit linked and protection products. In Spain, VNB was adversely impacted by product mix changes due, in part, to the continuing contraction of the mortgage market.
Combined operating ratio2
|
Claims ratio |
Commission and expense ratio |
Combined operating ratio |
||||||
Europe |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
France |
71.1 |
65.2 |
66.6 |
24.9 |
27.2 |
28.3 |
96.0 |
92.4 |
94.9 |
Poland |
62.7 |
64.3 |
61.5 |
31.7 |
37.7 |
37.0 |
94.4 |
102.0 |
98.5 |
Italy |
68.3 |
76.1 |
73.1 |
27.7 |
25.9 |
26.7 |
96.0 |
102.0 |
99.8 |
Turkey |
78.9 |
86.8 |
95.0 |
34.6 |
38.3 |
42.1 |
113.5 |
125.1 |
137.1 |
Total |
70.5 |
69.8 |
70.2 |
26.5 |
28.1 |
29.2 |
97.0 |
97.9 |
99.4 |
2 General Insurance business only.
Combined operating ratio (COR) has improved to 97.0% (HY12: 97.9%). In Italy COR reduced to 96.0% (HY12: 102.0%) reflecting underwriting and pricing actions and reduced claims costs. Poland also reduced COR to 94.4% (HY12: 102.0%) due to lower claims frequency and expenses. In Turkey, COR has improved against HY12 but remains unsatisfactory at 113.5% (HY12: 125.1%). These improvements were partly offset by an increase in COR in France to 96.0% compared with 92.4% in HY12 (HY12 benefitted from positive reserve releases).
Page 13
6.iv - Canada
|
6 months 2013 £m |
6 months 2012 £m |
Full year 2012 £m |
Cash remitted to Group |
63 |
- |
136 |
Operating capital generation |
108 |
114 |
192 |
Operating profit: IFRS basis |
147 |
174 |
277 |
Expenses |
|
|
|
Operating expenses |
196 |
199 |
401 |
Integration and restructuring costs |
4 |
6 |
12 |
|
200 |
205 |
413 |
Combined operating ratio |
92.4% |
89.8% |
93.4% |
Cash
During the period Canada paid an interim dividend to Group of £63 million (HY12: nil). Further dividends from Canada are expected in the second half of 2013.
Operating capital generation
Operating capital generation in the first half of 2013 was broadly stable at £108 million (HY12: £114 million) despite the impact of floods in Alberta.
Operating profit: IFRS basis
General insurance operating profit for the half-year was £147 million (HY12: £174 million), a 16% reduction compared with the prior year. This is entirely driven by the impact of the severe floods that occurred in Alberta in June 2013, which reduced operating profit within the Canadian business by £32 million (with a further adverse impact of £38 million in the results of our internal reinsurance business). Excluding this 1 in 100 year event, the underlying profit for the business was broadly in line with HY12. The impact of these floods result in a higher COR for commercial property than HY 2012, but this was partially offset by improvements in commercial liability which has benefited from rating actions and technical pricing improvements.
Business volumes have continued to increase in the first half of 2013, with net written premiums up 4% to £1,126 million (HY12: £1,081 million), driven by rating increases and growth in volumes largely across commercial lines.
Expenses
Operating expenses are £196 million (HY12: £199 million). On a constant currency basis, operating expenses have reduced by 2% reflecting the continued focus on expense management and the realisation of some cost savings initiatives. Integration and restructuring costs were marginally lower than in the prior year at £4 million (HY12: £6 million).
Combined operating ratio
|
Claims ratio |
Commission and expense ratio |
Combined operating ratio |
||||||
Canada |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full Year 2012 % |
Personal |
60.6 |
58.0 |
60.6 |
29.1 |
29.1 |
29.9 |
89.7 |
87.1 |
90.5 |
Commercial |
61.3 |
57.7 |
61.7 |
35.6 |
36.6 |
36.4 |
96.9 |
94.3 |
98.1 |
Total |
60.8 |
57.9 |
61.0 |
31.6 |
31.9 |
32.4 |
92.4 |
89.8 |
93.4 |
Compared to the prior year, combined operating ratio is higher at 92.4% (HY12: 89.8%), driven primarily by the adverse impact of the Alberta floods. Excluding the Alberta floods the underlying COR was 89.5%. Within this, the expense ratio improved reflecting focus on cost control, partly offset by higher contingent profit commission levels, adversely impacting the commission ratio.
Page 14
6.v - Asia
|
6 months |
6 months |
Full year |
Cash remitted to Group |
- |
1 |
25 |
Operating capital generation |
63 |
(4) |
80 |
Operating profit: IFRS basis |
|
|
|
Life |
38 |
30 |
69 |
General insurance & health |
(1) |
(1) |
(5) |
|
37 |
29 |
64 |
Expenses |
|
|
|
Operating expenses |
40 |
49 |
93 |
Integration and restructuring costs |
3 |
2 |
3 |
|
43 |
51 |
96 |
Value of new business |
|
|
|
Value of new business - excluding Malaysia and Sri Lanka |
41 |
29 |
55 |
Effect of disposals (Malaysia and Sri Lanka) |
1 |
8 |
8 |
|
42 |
37 |
63 |
Combined operating ratio |
119.9% |
104.5% |
105.6% |
Cash
No dividends were paid to Group in the period but dividends are expected during the second half of the year.
Operating Capital Generation
Operating capital generation in the first half of 2013 was £63 million (HY12: £(4) million), which primarily reflects the positive impact of a reinsurance transaction in Singapore.
Operating profit: IFRS basis
Overall operating profit from Life and the general insurance and health business increased to £37 million (HY12: £29 million), primarily driven by improved performance in Singapore's Life business due to an improved business mix. Within this total, life business profits grew to £38 million (HY12: £30 million), with a £(1) million result from the non-life business (HY12: £(1) million).
Expenses
Overall expenses have reduced to £43 million (HY12: £51 million), with lower operating expenses, mainly due to the disposal of Sri Lanka, offset by a marginal increase in integration and restructuring costs reflecting the restructuring of Asia's head office.
Value of New Business
Value of new business (VNB) for the period was £42 million (HY12: £37 million), with the growth driven by Singapore, China and India. Singapore's VNB increased as a result of an improved business mix with strong protection sales and the success of new product lines launched earlier in the year. Despite a reduction in volumes, both India and China's sales mix shifted towards higher margin traditional protection products, contributing to an increase in VNB. Excluding disposals (Malaysia and Sri Lanka), VNB for Asia is £41 million (HY12: £29 million), an increase of 41% compared with the previous year.
Combined Operating Ratio
Overall COR for the Asia businesses was 119.9% (HY12: 104.5%), with the deterioration driven by a one-off increase in reserve margin in Singapore. Overall net written premiums for GI and Health business reduced to £54 million, reflecting the withdrawal from unprofitable health products in Singapore and the disposal of our Sri Lankan business in Q4 2012.
Page 15
6.vi - Fund management
|
6 months 2013 £m |
6 months 2012 £m |
Full year 2012 £m |
Cash remitted to Group1 |
1 |
15 |
15 |
Operating capital generation1 |
12 |
(3) |
7 |
Operating profit: IFRS basis |
|
|
|
Aviva Investors |
31 |
14 |
39 |
United Kingdom |
10 |
4 |
11 |
Asia |
1 |
- |
1 |
|
42 |
18 |
51 |
Expenses1 |
|
|
|
Operating expenses |
136 |
140 |
306 |
Integration and restructuring costs |
15 |
19 |
33 |
|
151 |
159 |
339 |
1 Only includes Aviva Investors
Cash
During the period a dividend of £1 million was paid to Group with the majority of the dividends expected in the second half of the year.
Operating Capital Generation
Aviva Investors operating capital generation has increased compared with the same period last year primarily as a result of higher operating profits.
Operating profit: IFRS basis
Operating profit generated by Aviva Investors was £31 million (HY12: £14 million), an increase of £17 million compared with the prior year. This improvement was driven by higher revenues, reflecting positive market movements and performance fees, and lower costs as a result of the cost saving initiatives undertaken over the last year.
Expenses
Overall operating expenses have fallen by £4 million compared with the first half of 2012, with reductions in staff and recruitment expenditure. Restructuring costs have also fallen by £4 million due to lower transformation and Solvency II spend.
Net flows and funds under management - Aviva Investors
|
Internal £m |
External £m |
Total £m |
Aviva Investors |
|
|
|
Funds under management at 1 January 2013 |
185,027 |
51,309 |
236,336 |
Gross Sales |
7,539 |
5,364 |
12,903 |
Gross claims/redemptions |
(9,061) |
(6,075) |
(15,136) |
Market movements and other |
9,505 |
1,180 |
10,685 |
Funds under management at 30 June 2013 |
193,010 |
51,778 |
244,788 |
Aviva Investors funds under management have increased by £8.5 billion over the first half of the year. This is driven by market movements and the impact of FX movements.
While we have seen significant external sales in the half year, these have been more than offset by outflows. Sales have included strong inflows in our UK Liquidity funds, our on-going Aviva Investors business in the US, and our High Yield and Emerging Market Debt capabilities.
Within internal assets we have seen overall net outflows in our UK continuing business.
Page 16
Profit drivers: IFRS basis
7.i - Life business
Life business operating profit before shareholder tax for continuing operations increased by 1% to £910 million (HY12: £897 million).
Total income reduced by 3% to £1,661 million (HY12: £1,721 million) while total expenses fell by 11% to £808 million (HY12: £904 million), giving an improvement in cost/income ratio to 49% (HY12: 53%). There was a reduction in the overall contribution from DAC and AVIF amortisation and other items and business, with an aggregate £57 million positive impact for the period from these items (HY12: £80 million).
In the UK & Ireland, life operating profit reduced by 6%. The prior period result included a £74 million net benefit from non-recurring items, including the release of a longevity transaction reserve. Excluding these items, the operating profit increased by 11%, with lower new business income more than offset by lower acquisition and administration expenses.
Life operating profit increased by 9% in Europe, driven by increased participating business income and lower acquisition expenses, and the positive effect of exchange rate movements.
In Asia, an increase in life operating profit of 27% was driven by growth in new business income in Singapore and an overall reduction in expenses.
|
United Kingdom & Ireland |
Europe |
Asia |
Total Continuing Operations |
||||||||
|
6 months 2013 £m |
Restated 6 months 2012 £m |
Restated Full Year 2012 £m |
6 months 2013 £m |
6 months 2012 £m |
Full Year 2012 £m |
6 months 2013 £m |
6 months 2012 £m |
Full Year 2012 £m |
6 months 2013 £m |
Restated 6 months 2012 £m |
Restated Full Year 2012 £m |
New business income |
231 |
272 |
619 |
106 |
126 |
267 |
50 |
47 |
101 |
387 |
445 |
987 |
Underwriting margin |
101 |
123 |
261 |
159 |
162 |
339 |
33 |
31 |
58 |
293 |
316 |
658 |
Investment return |
385 |
390 |
822 |
570 |
538 |
1,076 |
26 |
32 |
66 |
981 |
960 |
1,964 |
Total Income |
717 |
785 |
1,702 |
835 |
826 |
1,682 |
109 |
110 |
225 |
1,661 |
1,721 |
3,609 |
Acquisition expenses |
(171) |
(230) |
(451) |
(152) |
(168) |
(317) |
(46) |
(51) |
(100) |
(369) |
(449) |
(868) |
Administration expenses |
(193) |
(218) |
(426) |
(231) |
(218) |
(450) |
(15) |
(19) |
(43) |
(439) |
(455) |
(919) |
Total Expenses |
(364) |
(448) |
(877) |
(383) |
(386) |
(767) |
(61) |
(70) |
(143) |
(808) |
(904) |
(1,787) |
DAC, AVIF and other |
93 |
140 |
67 |
(27) |
(49) |
(46) |
(10) |
(10) |
(13) |
56 |
81 |
8 |
|
446 |
477 |
892 |
425 |
391 |
869 |
38 |
30 |
69 |
909 |
898 |
1,830 |
Other business1 |
|
|
|
|
|
|
|
|
|
1 |
(1) |
1 |
Total - continuing operations |
|
|
|
|
|
|
|
|
910 |
897 |
1,831 |
1 Other business includes the total result for Aviva Investors Pooled Pensions and Aviva Life Reinsurance
Income: New business income and underwriting margin
|
United Kingdom & Ireland |
Europe |
Asia |
Total |
|||||
|
6 months |
Restated 6 months |
6 months |
6 months |
6 months |
6 months |
6 months |
Restated 6 months |
Restated Full year |
New business income (£m) |
231 |
272 |
106 |
126 |
50 |
47 |
387 |
445 |
987 |
APE (£m) |
649 |
772 |
558 |
508 |
156 |
168 |
1,363 |
1,448 |
2,728 |
As margin on APE (%) |
36% |
35% |
19% |
25% |
32% |
28% |
28% |
31% |
36% |
Underwriting margin (£m) |
101 |
123 |
159 |
162 |
33 |
31 |
293 |
316 |
658 |
Analysed by: |
|
|
|
|
|
|
|
|
|
Expenses |
23 |
32 |
41 |
43 |
17 |
18 |
81 |
93 |
197 |
Mortality and longevity |
53 |
52 |
105 |
106 |
14 |
11 |
172 |
169 |
360 |
Persistency |
25 |
39 |
13 |
13 |
2 |
2 |
40 |
54 |
101 |
|
|
|
|
|
|
|
|
|
|
(a) New business income
New business income reduced to £387 million (HY12: £445 million), due to lower sales volumes in the UK & Ireland and a reduction in the new business margin on APE in Europe.
In the UK & Ireland, while new business volumes (based on APE) reduced by 16% the margin on APE was stable at 36% (HY12: 35%). Increased profitability from annuity business was offset by lower protection volumes.
In Europe, while new business volume increased (driven by growth in France and Turkey), new business margin on APE reduced, mainly driven by lower interest rates in Italy. As a result, overall new business income reduced by 16%.
The net contribution from new business is the new business income less associated acquisition expenses. This net contribution increased to £18 million (HY12: £4 million negative).
(b) Underwriting margin
The underwriting margin reduced to £293 million (HY12: £316 million). The reduced margin in the UK & Ireland was driven by a lower profit in Ireland following the sale of Ark Life. In Europe, an increased mortality margin in France was primarily driven by management actions to reduce the cost of guaranteed death benefits which generated additional profits of around £20 million (HY12: £8 million). This positive variance was more than offset by reduced profits due to the sale of Aseval in Spain during the current period and the sale of certain smaller European businesses in 2012.
Page 17
7.i - Life business continued
Income: Investment return
|
United Kingdom |
Europe |
Asia |
Total |
|||||
|
6 months |
Restated 6 months |
6 months |
6 months |
6 months |
6 months |
6 months |
Restated 6 months |
Restated Full year |
Unit-linked margin (£m) |
208 |
212 |
227 |
219 |
12 |
12 |
447 |
443 |
882 |
As annual management charge |
90 |
96 |
120 |
124 |
184 |
192 |
104 |
110 |
107 |
Average reserves (£bn) |
46.5 |
44.2 |
37.8 |
35.2 |
1.3 |
1.3 |
85.6 |
80.7 |
82.1 |
Participating business (£m) |
41 |
34 |
254 |
228 |
(5) |
- |
290 |
262 |
547 |
As bonus on average reserves (bps) |
22 |
17 |
82 |
75 |
n/a |
n/a |
58 |
51 |
54 |
Average reserves (£bn) |
37.3 |
40.6 |
61.9 |
60.6 |
1.5 |
1.3 |
100.7 |
102.5 |
101.4 |
Spread margin (£m) |
69 |
66 |
18 |
22 |
13 |
14 |
100 |
102 |
197 |
As spread margin on average |
34 |
35 |
85 |
96 |
139 |
148 |
43 |
46 |
43 |
Average reserves (£bn) |
40.5 |
37.9 |
4.3 |
4.6 |
1.9 |
1.9 |
46.7 |
44.4 |
45.3 |
Expected return on shareholder assets (£m) |
67 |
78 |
71 |
69 |
6 |
6 |
144 |
153 |
338 |
Total (£m) |
385 |
390 |
570 |
538 |
26 |
32 |
981 |
960 |
1,964 |
(c) Unit-linked margin
The unit-linked margin was stable at £447 million (HY12: £443 million). The margin as a proportion of average unit-linked reserves was 104 bps (HY12: 110 bps), on average reserves of £86 billion (HY12: £81 billion). The reduced margin on reserves was driven by the UK, with an on-going shift in business mix from bonds to pensions which have lower average fund charges, and reduced charges on pensions business in Poland due to a legislative restriction.
(d) Participating business
Income from participating business increased to £290 million (HY12: £262 million). In the UK & Ireland, the shareholder transfer from with-profit funds increased to £41 million (HY12: £34 million), reflecting increases to bonus rates. In Europe, income increased to £254 million (HY12: £228 million), driven by higher income in France and Italy and the effect of exchange rate movements. The majority of participating business income is earned in France, where there is a fixed management charge of around 50bps on AFER business, which is the largest single component of the business. In Asia, losses were incurred on our businesses in China and Hong Kong.
(e) Spread margin
Spread business income was stable at £100 million (HY12: £102 million). Spread margins relate mainly to UK immediate annuity and equity release business. The spread margin in the UK & Ireland increased to £69 million (HY12: £66 million), reflecting growth in annuity assets under management. In Europe the spread margin reduced due to the sale of Aseval in Spain. The spread margin on average reserves was 43 bps (HY12: 46 bps), on average reserves of £47 billion (HY12: £44 billion).
(f) Expected return on shareholder assets
Expected returns reduced to £144 million (HY12: £153 million), representing investment income on surplus funds. The reduction in income relates mainly to the UK, reflecting lower bond yields and a greater proportion of cash assets within surplus funds.
Page 18
7.i - Life business continued
Expenses
|
United Kingdom |
Europe |
Asia |
Total |
|||||
|
6 months |
Restated 6 months |
6 months |
6 months |
6 months |
6 months |
6 months |
Restated 6 months |
Restated Full year |
Acquisition expenses (£m) |
(171) |
(230) |
(152) |
(168) |
(46) |
(51) |
(369) |
(449) |
(868) |
APE (£m) |
649 |
772 |
558 |
508 |
156 |
168 |
1,363 |
1,448 |
2,728 |
As acquisition expense ratio on APE (%) |
26% |
30% |
27% |
33% |
29% |
31% |
27% |
31% |
32% |
Administration expenses (£m) |
(193) |
(218) |
(231) |
(218) |
(15) |
(19) |
(439) |
(455) |
(919) |
As existing business expense ratio on average |
31 |
36 |
44 |
43 |
62 |
85 |
38 |
40 |
40 |
Average reserves (£bn) |
124.3 |
122.7 |
104.0 |
100.4 |
4.7 |
4.5 |
233.0 |
227.6 |
228.8 |
(g) Acquisition expenses
Acquisition expenses reduced to £369 million (HY12: £449 million), driven by lower acquisition costs in the UK and Europe reflecting the focus on cost efficiency and the impact of lower new business volumes. In the UK, commission payments reduced due to lower protection volumes and the absence of commission on post-RDR new savings business. The overall group-wide ratio of acquisition expenses to APE was 27% (HY12: 31%).
(h) Administration expenses
Administration expenses reduced to £439 million (HY12: £455 million), driven by cost efficiencies in the UK & Ireland. The expense ratio was 38 bps (HY12: 40 bps) on average reserves of £233 billion (HY12: £228 billion). The overall reduction in life business acquisition and administration expenses was £96 million.
(i) DAC, AVIF and other
DAC, AVIF and other items amounted to an overall positive contribution of £57 million (HY12: £80 million). This includes a profit of £1 million (HY12: £1 million loss) in respect of minor operations reported under Other business. A reduction in the positive contribution from other items was partly offset by lower DAC and AVIF amortisation charges. In the UK, the prior period included a £74 million benefit from the release of a £90 million annuity longevity transaction reserve no longer required, offset by a £16 million adverse impact from capital management actions.
Page 19
7.ii - General insurance and health
|
Underwriting result |
Longer-term investment return |
Operating profit1 |
||||||
|
6 months 2013 £m |
6 months 2012 £m |
Full Year 2012 £m |
6 months 2013 £m |
6 months 2012 £m |
Full Year 2012 £m |
6 months 2013 £m |
Restated4 6 months 2012 £m |
Restated4 Full Year 2012 £m |
General insurance |
|
|
|
|
|
|
|
|
|
United Kingdom & Ireland1,3 |
77 |
17 |
42 |
173 |
224 |
458 |
248 |
230 |
480 |
Europe |
8 |
2 |
9 |
36 |
44 |
81 |
44 |
46 |
90 |
Canada1 |
82 |
105 |
139 |
69 |
73 |
146 |
147 |
174 |
277 |
Asia |
(1) |
- |
(2) |
- |
1 |
2 |
(1) |
1 |
- |
Other2 |
(27) |
3 |
12 |
3 |
6 |
10 |
(24) |
9 |
22 |
|
139 |
127 |
200 |
281 |
348 |
697 |
414 |
460 |
869 |
Health insurance |
|
|
|
|
|
|
|
|
|
United Kingdom & Ireland |
8 |
- |
12 |
3 |
5 |
10 |
11 |
5 |
22 |
Europe |
3 |
(2) |
8 |
- |
1 |
- |
3 |
(1) |
8 |
Asia |
- |
(2) |
(6) |
- |
- |
1 |
- |
(2) |
(5) |
|
11 |
(4) |
14 |
3 |
6 |
11 |
14 |
2 |
25 |
Total |
150 |
123 |
214 |
284 |
354 |
708 |
428 |
462 |
894 |
1 Continuing operating profit also includes an unfavourable impact of £6 million resulting from a combination of unwind of discount and pension scheme net finance costs (HY12: £15 million). £2 million unfavourable impact relates to the UK & Ireland (HY12: £11 million), £4 million unfavourable impact relates to Canada (HY12: £4 million).
2 Other includes Aviva Re and agencies in run-off.
3 In the United Kingdom & Ireland, longer-term investment return of £173 million (HY12: £224 million) has reduced mainly reflecting the change in the intercompany loan.
4 Canada restated for revised IAS19.
|
United Kingdom & Ireland |
Europe |
Canada |
||||||
|
6 months 2013 % |
6 months 2012 % |
Full year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full year 2012 % |
6 months 2013 % |
6 months 2012 % |
Full year 2012 % |
Claims ratio |
|
|
|
|
|
|
|
|
|
Personal |
59.0 |
59.3 |
59.6 |
73.8 |
72.0 |
74.7 |
60.6 |
58.0 |
60.6 |
Commercial |
65.9 |
66.4 |
69.7 |
64.5 |
65.7 |
61.4 |
61.3 |
57.7 |
61.7 |
Total |
62.0 |
62.3 |
63.8 |
70.5 |
69.8 |
70.2 |
60.8 |
57.9 |
61.0 |
|
|
|
|
|
|
|
|
|
|
Commission and expense ratio |
|
|
|
|
|
|
|
|
|
Personal |
35.9 |
36.2 |
34.7 |
26.6 |
28.0 |
28.9 |
29.1 |
29.1 |
29.9 |
Commercial |
33.5 |
35.0 |
34.9 |
26.4 |
28.2 |
29.8 |
35.6 |
36.6 |
36.4 |
Total |
34.9 |
35.7 |
34.8 |
26.5 |
28.1 |
29.2 |
31.6 |
31.9 |
32.4 |
|
|
|
|
|
|
|
|
|
|
Combined operating ratio |
|
|
|
|
|
|
|
|
|
Personal |
94.9 |
95.5 |
94.3 |
100.4 |
100.0 |
103.6 |
89.7 |
87.1 |
90.5 |
Commercial |
99.4 |
101.4 |
104.6 |
90.9 |
93.9 |
91.2 |
96.9 |
94.3 |
98.1 |
Combined operating ratio total |
96.9 |
98.0 |
98.6 |
97.0 |
97.9 |
99.4 |
92.4 |
89.8 |
93.4 |
General insurance and health operating profit
General insurance and health underwriting result has improved to £150 million (HY12: £123 million) with an increase in the UK offset by a reduction in Canada, as a result of the Alberta floods in June 2013. Long term investment return has reduced by £70 million to £284 million (HY12: £354 million), partly as a result of lower returns within the UKGI business (reduction of £45 million compared to HY12) mainly driven by reduced income on the internal loan balance and lower reinvestment rates.
Page 20
7.iii - Net flows
|
Restated1 Managed assets |
Premiums and deposits, |
Claims and |
Net flows2 £m |
Effect of disposals, |
Managed |
Life business - continuing operations |
|
|
|
|
|
|
UK - non-profit |
80,499 |
2,828 |
(2,646) |
182 |
644 |
81,325 |
Ireland |
8,781 |
227 |
(478) |
(251) |
(2,601) |
5,929 |
United Kingdom & Ireland (excluding UK with-profits) |
89,280 |
3,055 |
(3,124) |
(69) |
(1,957) |
87,254 |
Europe |
94,874 |
4,420 |
(4,546) |
(126) |
3,890 |
98,638 |
Asia |
2,893 |
234 |
(219) |
15 |
64 |
2,972 |
Other |
1,893 |
13 |
(87) |
(74) |
60 |
1,879 |
|
188,940 |
7,722 |
(7,976) |
(254) |
2,057 |
190,743 |
UK - with-profits |
42,534 |
|
|
|
|
40,961 |
Total life business - continuing operations |
231,474 |
|
|
|
|
231,704 |
1 Restated for the impact of IFRS10 - see note B2 for details. Managed assets reflect IFRS investments, loans, investment property and cash and cash equivalents.
2 Life business net flows in the table above are net of reinsurance and exclude flows related to UK equity release products.
United Kingdom & Ireland (excluding UK with-profits)
During the first half of 2013, net inflows in UK Life (non-profit) were £182 million. Whilst volumes in the UK reduced in the period, reflecting the strong focus towards improving value and capital efficiency, there were also lower claims and redemptions compared to HY12. In Ireland, net outflows were £251 million, with the fall in managed assets at HY13 reflecting the sale of Ark Life in March 2013.
Europe
Net outflows were £126 million, reflecting increased volumes and lower redemptions in France which were more than offset by net outflows in Italy and Spain. Other movements include favourable market and foreign exchange movements (driven by the strengthening of the euro against the sterling), partly offset by the effect of the disposal of Aseval, Russia and Romania Pensions.
Asia and other
Net flows in Asia were stable during the first half of 2013. Other business net outflows of £74 million mainly relates to Aviva Investors' Pooled Pensions business.
Page 21
Capital & assets summary
8.i - Summary of assets
The Group asset portfolio is invested to generate competitive investment returns for both policyholders and shareholders whilst remaining within the Group's appetite for market and credit risk.
The Group has a low appetite for interest rate risk and currency risk which means that the asset portfolios are well matched by duration and currency to the liabilities they cover. The Group also runs a low level of liquidity risk which results in a high proportion of income generating assets and a preference for more liquid assets where there is the potential need to realise those assets before maturity.
The Group seeks to diversify its asset portfolio in order to reduce risk and provide more attractive risk-adjusted returns. In order to achieve this there is a comprehensive risk limit framework in place. There is an allowance for diversification in our economic capital model, actions have been taken to reduce our exposure to the Eurozone periphery, and we are broadening the investment portfolio in individual businesses.
Asset allocation decisions are taken at legal entity level and in many cases by fund within a legal entity in order to reflect the nature of the liabilities, customer expectations, the local accounting and regulatory treatment, and any local constraints. These asset allocation decisions are made in accordance with a Group-wide framework that takes into account consensus investment views across the Group, prioritised Group objectives and metrics and Group risk limits and constraints. This framework is overseen by the Group ALCO (Asset Liability Committee) and facilitates a consistent approach to asset allocation across the business units in line with Group risk appetite and shareholder objectives.
The asset allocation as at 30 June 2013 across the Group, split according to the type of liability the assets are covering, is shown in the table below. Further information on these assets is given in the analysis of assets section.
|
Shareholder business assets |
|
Participating fund assets |
|
|
|
||
30 June 2013 £m |
General insurance & health & other1 |
Annuity and non-profit |
Policyholder |
UK style with profits |
Continental European- |
Total |
Less assets |
Carrying value in the statement of financial position |
Debt securities |
|
|
|
|
|
|
|
|
Government bonds |
6,224 |
9,845 |
6,536 |
15,170 |
27,643 |
65,418 |
(3,860) |
61,558 |
Corporate bonds |
3,662 |
36,486 |
6,165 |
9,389 |
28,498 |
84,200 |
(25,341) |
58,859 |
Other |
212 |
5,376 |
2,079 |
612 |
3,571 |
11,850 |
(3,878) |
7,972 |
|
10,098 |
51,707 |
14,780 |
25,171 |
59,712 |
161,468 |
(33,079) |
128,389 |
Loans |
|
|
|
|
|
|
|
|
Mortgage loans |
249 |
20,684 |
- |
923 |
169 |
22,025 |
(3,345) |
18,680 |
Other loans |
190 |
527 |
461 |
3,746 |
1,060 |
5,984 |
(439) |
5,545 |
|
439 |
21,211 |
461 |
4,669 |
1,229 |
28,009 |
(3,784) |
24,225 |
Equity securities |
547 |
548 |
22,442 |
8,445 |
2,689 |
34,671 |
(107) |
34,564 |
Investment property |
154 |
105 |
4,060 |
4,154 |
1,365 |
9,838 |
(6) |
9,832 |
Other investments |
200 |
2,080 |
25,578 |
2,201 |
1,356 |
31,415 |
(1,698) |
29,717 |
Total as at 30 June 2013 |
11,438 |
75,651 |
67,321 |
44,640 |
66,351 |
265,401 |
(38,674) |
226,727 |
Total as at 31 December 2012 (Restated) |
11,508 |
75,894 |
67,417 |
45,625 |
62,879 |
263,323 |
(39,830) |
223,493 |
1. Of the £11.4 billion of assets 3% relates to other shareholder business assets.
There is an internal loan between Aviva Insurance Limited (AIL) and Aviva Group Holdings Limited (AGH) that has a net value of zero at a consolidated level.
General insurance and health
All the investment risk is borne by shareholders and the portfolio held to cover these liabilities contains a high proportion of fixed and variable income securities, of which 88% are rated A or above. The assets are relatively short duration reflecting the short average duration of the liabilities. Liquidity, interest rate and FX risks are maintained at a low level.
Annuity and other non-profit
All the investment risk is borne by shareholders. The annuity liabilities have a long duration but are also illiquid as customers cannot surrender their policies. The assets are chosen to provide stable income with a good cash flow, FX and interest rate match to the liabilities. We are able to invest part of the portfolio in less liquid assets in order to improve risk-adjusted returns given the illiquid nature of the liabilities. The asset portfolio is principally comprised of long maturity bonds and loans including a material book of commercial mortgage loans. The bond portfolios have performed well in the context of recent increases in interest rates. As at 30 June 2013, unrealised losses and impairments on the bond portfolio of £51.7 billion amounted to £1.6 billion or 3% of the portfolio. The equivalent figure for 31 December 2012 was 1%. Unrealised gains on the portfolio were £5 billion as at 30 June 2013 or 10% of the portfolio. The equivalent unrealised gains figure for 31 December 2012 was 12%. The other non-profit business assets are a smaller proportion of this portfolio and are generally shorter in duration and have a high proportion invested in fixed income.
Page 22
8.i - Summary of assets continued
The current asset value of the commercial mortgage portfolio (including Healthcare and PFI mortgages) backing the UK Annuity book is £12.2 billion. While these commercial mortgages are held at fair value on the asset side of the statement of financial position, we also carry an allowance against the risk of default on our riskier mortgages of £1.5 billion (FY12: £1.2 billion, including the implicit reinvestment margin of £0.2 billion). This includes a net increase of £0.3 billion and explicit recognition of the £0.2 billion margin previously held implicitly. This provision increases the liability value through a reduction in the anticipated yield. The valuation allowance (including supplementary allowances) for commercial mortgages, including Healthcare and PFI mortgages of £1.5 billion equates to 128bps at 30 June 2013 (FY12: 89bps). Further detail on this portfolio is shown in section D3.2.
Policyholder assets
These assets are invested in line with the fund choices made by our unit-linked policyholders and the investment risk is borne by the policyholder. This results in a high allocation to growth assets such as equity and property. Aviva's shareholder exposure to these assets arises from the fact that the income we receive is a proportion of the assets under management.
UK style with profits (WP)
UK style with profit funds hold relatively long term contracts with policyholders participating in pooled investment performance subject to some minimum guarantees. Smoothed returns are used to declare bonuses to policyholders which increase the level of the guarantees through time. The part of the portfolio to which policyholder bonuses are linked is invested in line with their expectations and includes growth assets such as equity and property as well as fixed income. The remainder of the portfolio is invested to mitigate the resultant shareholder risk. This leads us to an overall investment portfolio that holds a higher proportion of growth assets (such as equity and property) than our other business lines although there are still material allocations to fixed income assets.
Continental European style participating funds
Continental European style participating funds hold relatively long term contracts with policyholders participating in pooled investment performance subject to some minimum guarantees. Smoothed returns are used to declare bonuses to policyholders which increase the level of the guarantees through time. There is less discretion in how guarantees increase through time compared to the UK style equivalent funds and more of the bonus accrues each year rather than being allocated at maturity. The investment portfolio holds a higher proportion of fixed income assets than the UK style equivalent. Fixed income assets also give rise to less volatility on the local statutory balance sheet than growth assets.
In total we have made gross disposals1 of Italian sovereign debt of £1.0 billion this year from our shareholder and participating funds, the majority of
which was from the Continental European style participating funds. After taking into account market movements and new business, the value of our net direct shareholder and participating fund holdings (net of NCI) in Italian sovereign debt is now £4.9 billion (FY12: £4.9 billion). Of the £4.9 billion of Italian sovereign debt (net of NCI) 73% is held in Italy.
8.ii - External leverage
Group capital |
30 June |
31 December |
Subordinated debt |
4,435 |
4,337 |
External debt |
1,026 |
802 |
DCI, fixed rate tier 1 notes and preference shares |
1,832 |
1,832 |
External debt and preference shares |
7,293 |
6,971 |
Total tangible capital employed2 |
14,575 |
13,976 |
Tangible debt leverage |
50% |
50% |
2 Tangible capital employed is total IFRS equity (including DCI, fixed rate Tier 1 Rate Notes, preference shares and non-controlling interests) and non equity items such as core structural borrowings.
At HY13 the tangible debt leverage ratio was 50% (FY12: 50%) as a short term increase in group debt was offset by an increase
in tangible capital employed.
1 Gross of non-controlling interests, purchases and redemptions.
Page 23
8.iii - Net asset value
At the end of HY13, IFRS net asset value per share was 281 pence (FY12: 278 pence). This movement was driven by operating profits principally offset by integration and restructuring costs, strengthening of the default provision in relation to UK life commercial mortgages, payment of the final 2012 dividend to shareholders and remeasurements on pension schemes.
Total IFRS investment return variances were flat. For continuing operations, IFRS investment return variances were £281 million adverse. In the life business, investment return variances were neutral, with narrowing credit spreads on government and corporate bonds in France, Italy and Spain offset by the credit default experience and subsequent default provision strengthening in the UK Life business of £300 million. There were adverse investment variances on general insurance and other business of £279 million, primarily reflecting an increase in gilt yields in the UK, France and Canada.
The adverse movement on the group's staff pension schemes of £229 million post tax is principally due to the main UK staff pension scheme where the surplus has decreased over the period largely as a result of an increase in long-term inflation rates partly offset by an increase in long term AA corporate bond yield. These adverse changes were slightly mitigated by improvements to the scheme deficits in the Irish and Canadian pension schemes.
IFRS |
30 June 2013 £m |
pence per share2 |
Restated £m |
pence per share2 |
Equity attributable to shareholders of Aviva plc at 1 January1 |
8,204 |
278p |
12,643 |
435p |
Operating profit - continuing operations |
1,008 |
35p |
2,038 |
70p |
Operating profit - discontinued operations |
125 |
4p |
239 |
8p |
Investment return variances and economic assumption changes on life and non life business |
(2) |
- |
(815) |
(28)p |
Profit/(loss) on the disposal and remeasurements of subsidiaries and associates |
271 |
9p |
(2,523) |
(86)p |
Goodwill impairment and amortisation of intangibles |
(126) |
(4)p |
(1,099) |
(37)p |
Integration and restructuring costs |
(166) |
(6)p |
(468) |
(16)p |
Tax on operating profit and on other activities |
(334) |
(11)p |
(306) |
(10)p |
Non-controlling interests |
(83) |
(3)p |
(168) |
(6)p |
Profit after tax attributable to shareholders of Aviva plc |
693 |
24p |
(3,102) |
(105)p |
AFS securities (fair value) & other reserve movements |
(271) |
(9)p |
323 |
11p |
Ordinary dividends net of scrip |
(264) |
(9)p |
(630) |
(21)p |
Direct capital instruments and fixed rate tier 1 notes interest and preference share dividend |
(22) |
(1)p |
(72) |
(2)p |
Foreign exchange rate movements |
139 |
5p |
(184) |
(6)p |
Remeasurements of pension schemes |
(229) |
(8)p |
(792) |
(27)p |
Other net equity movements3 |
26 |
1p |
18 |
(7)p |
Equity attributable to shareholders of Aviva plc at 30 June / 31 December1 |
8,276 |
281p |
8,204 |
278p |
1 Excluding preference shares
2 Number of shares as at 30 June 2013: 2,947 million (31 December 2012: 2,946 million).
3 Other net equity movements per share includes the dilution effect of the increase in number of shares during the period.
MCEV net asset value per share increased to 441 pence (FY12: 422 pence). This movement has been principally driven by operating profits and positive investment variances offset by integration and restructuring costs, payment of the final 2012 dividend to shareholders and remeasurements on pension schemes.
MCEV investment return variances of £555 million were primarily generated by the group's life businesses, which contributed £834 million, offset by the adverse investment return variances in the non life businesses of £279 million. The life investment return variances were largely generated by narrowing credit spreads on corporate bonds in the UK and Spain together with narrowing government bond spreads in Italy and Spain and changes in the prospective UK tax rate.
MCEV4 |
30 June 2013 £m |
pence per share2 |
Restated £m |
pence per share2 |
Equity attributable to shareholders of Aviva plc at 1 January1 |
12,434 |
422p |
12,829 |
441p |
Operating profit - continuing operations |
1,287 |
46p |
2,393 |
82p |
Operating profit - discontinued operations |
125 |
4p |
(390) |
(13)p |
Investment return variances and economic assumption changes on life and non life business |
555 |
19p |
1,358 |
46p |
Profit on the disposal and remeasurements of subsidiaries and associates |
278 |
9p |
1,094 |
37p |
Goodwill impairment and amortisation of intangibles |
(138) |
(5)p |
(1,143) |
(39)p |
Integration and restructuring costs |
(165) |
(6)p |
(467) |
(16)p |
Exceptional items |
- |
- |
51 |
2p |
Tax on operating profit and on other activities |
(582) |
(20)p |
(1,021) |
(35)p |
Non-controlling interests |
(282) |
(10)p |
(855) |
(29)p |
Profit after tax attributable to shareholders of Aviva plc |
1,078 |
37p |
1,020 |
35p |
AFS securities (fair value) & other reserve movements |
(235) |
(8)p |
119 |
5p |
Ordinary dividends net of scrip |
(264) |
(9)p |
(630) |
(21)p |
Direct capital instruments and fixed rate tier 1 notes interest and preference share dividend |
(22) |
(1)p |
(72) |
(2)p |
Foreign exchange rate movements |
211 |
7p |
(58) |
(2)p |
Remeasurements of pension schemes |
(229) |
(8)p |
(792) |
(27)p |
Other net equity movements3 |
26 |
1p |
18 |
(7)p |
Equity attributable to shareholders of Aviva plc at 30 June / 31 December1 |
12,999 |
441p |
12,434 |
422p |
1 Excluding preference shares
2 Number of shares as at 30 June 2013: 2,947 million (31 December 2012: 2,946 million).
3 Other net equity movements per share includes the dilution effect of the increase in number of shares during the period.
4 In preparing the MCEV information, the directors have done so in accordance with the European Insurance CFO Forum MCEV Principles with the exception of stating held for sale operations at their expected fair value, as represented by expected sale proceeds, less cost to sell.
Page 24
8.iv - Return on equity
Return on equity shareholder funds is calculated as operating return (IFRS basis) net of tax expressed as a percentage of opening shareholders equity. This has increased to 17.0% (FY12: 11.2%) for HY13, reflecting the impact of the significant asset write downs experienced in 2012 which adversely impacted closing shareholders equity for that year.
|
6 months 2013 % |
Restated Full Year 2012 % |
United Kingdom & Ireland life |
12.9% |
15.9% |
United Kingdom & Ireland general insurance and health |
8.4% |
9.5% |
Europe |
11.0% |
12.4% |
Canada |
21.0% |
19.8% |
Asia |
8.0% |
6.1% |
Fund management |
26.7% |
19.5% |
Corporate and Other Business |
n/a |
n/a |
Return on total capital employed (excluding Delta Lloyd and United States) |
10.3% |
10.0% |
Delta Lloyd |
- |
10.8% |
United States |
55.6% |
5.1% |
Return on total capital employed |
11.3% |
9.3% |
Subordinated debt |
5.3% |
4.9% |
External debt |
2.0% |
2.4% |
Return on total equity |
14.3% |
10.9% |
Less: Non-controlling interests |
11.8% |
12.0% |
Direct capital instruments and fixed rate tier 1 notes |
1.9% |
5.6% |
Preference capital |
9.0% |
8.5% |
Return on equity shareholders' funds |
17.0% |
11.2% |
8.v - European Insurance Groups Directive (IGD)
|
UK life funds £bn |
Other business £bn |
30 June 2013 £bn |
31 December 2012 £bn |
Insurance Groups Directive (IGD) capital resources |
4.7 |
9.8 |
14.5 |
14.4 |
Less: capital resource requirement |
(4.7) |
(5.6) |
(10.3) |
(10.6) |
Insurance Group Directive (IGD) excess solvency |
- |
4.2 |
4.2 |
3.8 |
Cover over EU minimum (calculated excluding UK life funds) |
|
|
1.8 times |
1.7 times |
The EU Insurance Groups Directive (IGD) regulatory capital solvency surplus has increased by £0.4 billion since FY12 to £4.2 billion. On a pro forma basis the estimated IGD solvency surplus at 30 June 2013 is £3.7 billion. The pro forma 30 June 2013 position includes the impact of the announced disposal of the Aviva US Life and Annuities business and related asset management operations classified as held for sale in the Group IFRS balance sheet.
The key movements over the period are set out in the following table:
|
£bn |
IGD solvency surplus at 31 December 2012 |
3.8 |
Operating profits net of other income and expenses |
0.6 |
Dividends and appropriations |
(0.3) |
Market movements including foreign exchange1 |
(0.2) |
Pension scheme funding |
(0.1) |
Disposals |
0.6 |
Other regulatory adjustments |
(0.2) |
Estimated IGD solvency surplus at 30 June 2013 |
4.2 |
|
|
Pro forma IGD solvency surplus at 30 June 2013 |
3.7 |
1 Market movements include the impact of equity, credit spread, interest rate and foreign exchange movements net of the effect of hedging instruments.
Group IGD sensitivity
|
30 June 2013 £bn |
Equities down |
Interest rates up |
Sensitivities on pro forma IGD1 |
3.7 |
(0.1) |
(0.8) |
1 The impact of sensitivities on the pro forma position includes the announced disposal of the Aviva US Life and Annuities business and related asset management operations.
The Group proactively manages its balance sheet risk through monitoring, stress analysis and our hedging programme.
The Group's pro forma IGD surplus is resilient to global equity market falls or a 1% global interest rate rise. The Group's pro forma IGD surplus would be approximately £3.3 billion in the event of a 40% fall in equity markets from the 30 June 2013 position reflecting the hedging that the Group currently has in place.
The impact of a 1% rise in global interest rates is calculated with reference to the regulatory value of debt securities in continental Europe being capped to local minimum capital requirements in participating funds. This provides the Group's pro forma IGD surplus protection from immediate market losses on debt securities.
Page 25
8.vi - Economic capital
The estimated economic capital surplus represents the excess of Available Economic Capital over Required Economic Capital. Available Economic Capital is based on MCEV net assets, adjusted for items to convert to an economic basis. Required economic capital is based on Aviva's own internal assessment and capital management policies. The term 'economic capital' does not imply capital as required by regulators or other third parties.
Summary of estimated economic capital position
|
6 months |
Full year |
Available economic capital |
17.7 |
16.6 |
Standalone required economic capital |
(17.6) |
(18.1) |
Diversification benefit |
7.0 |
6.8 |
Diversified required economic capital |
(10.6) |
(11.3) |
Estimated economic capital position at 30 June/31 December |
7.1 |
5.3 |
Cover Ratio |
167% |
147% |
Pro forma impacts |
0.5 |
1.8 |
Estimated pro forma economic capital position at 30 June/31 December |
7.6 |
7.1 |
Pro forma cover ratio |
175% |
172% |
Analysis of change in economic capital
|
6 months |
Full Year |
Economic capital surplus position at 1 January |
5.3 |
3.6 |
MCEV operating earnings |
0.7 |
0.9 |
Economic variances |
0.5 |
0.7 |
Other non-operating items |
(0.1) |
(0.6) |
Dividend and appropriations, and shares issued in lieu of dividends |
(0.3) |
(0.7) |
Net impact of fixed rate note issuance/call |
- |
0.2 |
Available capital benefits from Delta Lloyd, Aseval & other disposals |
0.4 |
- |
Favourable movements in US |
0.6 |
- |
UK increase in commercial mortgage default allowance |
(0.3) |
- |
Other |
(0.4) |
0.4 |
Change in available economic capital |
1.1 |
0.9 |
Impact of trading operations and other |
0.5 |
0.4 |
Impact of changes in Group hedging |
(0.1) |
0.2 |
Capital requirement benefits from Delta Lloyd, Aseval & disposals |
0.3 |
0.2 |
Change in diversified required economic capital |
0.7 |
0.8 |
Estimated economic capital surplus position at 30 June/31 December |
7.1 |
5.3 |
Pro forma impacts |
0.5 |
1.8 |
Estimated pro forma economic capital surplus position at 30 June/31 December |
7.6 |
7.1 |
The estimated economic capital position has increased by £1.8 billion to £7.1 billion at 30 June 2013 with a corresponding increase in the cover ratio from 147% to 167%. The cover ratio is now within the Group's external target of between 160% and 175%. The improvement during the period has been driven by an increase in available economic capital (reflecting underlying profits, favourable market movements, the sale completion of Delta Lloyd, Aseval and other disposals, partly offset by payment of the final FY12 dividend and the adverse impact of the increase in the UK commercial mortgage default allowance) and a reduction in required capital (reflecting primarily the capital requirement benefits from the above disposals).
The pro forma position includes the benefit of the US transaction (announced in December 2012, which is expected to complete during the second half of the year) and the impact of strengthening pension schemes from a 5 year to a 10 year stressed contribution basis. The net impact of these increases the estimated economic capital surplus to £7.6 billion with a cover ratio of 175%. The reduction in pro forma impacts relative to FY12 mainly reflects the sale completion of Aseval, Delta Lloyd and Malaysia during the period.
Page 26
8.vi - Economic capital continued
Summary analysis of diversified required economic capital
|
6 months |
Full year |
Credit risk1 |
2.3 |
2.3 |
Equity risk2 |
1.9 |
1.7 |
Interest rate risk3 |
0.1 |
0.1 |
Other market risk4 |
1.6 |
1.5 |
Life insurance risk5 |
1.0 |
1.0 |
General insurance risk6 |
0.8 |
0.9 |
Other risk7 |
2.5 |
2.4 |
Total (HY13 pro forma basis) |
10.2 |
9.9 |
Total (HY13 base results) |
10.6 |
11.3 |
1 Capital held in respect of credit risk recognises the Group's shareholder exposure to changes in the market value of assets and defaults. Assets captured within this category include corporate bonds and non-domestic sovereigns.
A range of specific stresses are applied reflecting the difference in assumed risk relative to the investment grade and duration.
2 Capital held in respect of equity risk recognises the Group's shareholder exposure to changes in the market value of assets. The increase in equity risk during the period primarily reflects increases in equity values during the first
six months of 2013.
3 Capital held in respect of interest rate risk recognises the Group's shareholder exposure to changes in the market value of assets. A range of specific stresses are applied reflecting the difference in assumed risk relative to investment grade and duration.
4 Capital held in respect of other market risk recognises the Group's shareholder exposure to changes in the market value of commercial mortgages and property, but also captures risk in association with inflation and foreign exchange.
5 Capital held in respect of life insurance risk recognises the Group's shareholder exposure to life insurance specific risks, such as longevity and lapse.
6 Capital held in respect of general insurance risk recognises the Group's shareholder exposure to general insurance specific risks, such as claims volatility and catastrophe.
7 Capital held in respect of other risk recognises the Group's shareholder exposure to specific risks unique to particular business units and other items.
End of Part 2 of 5
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