Information  X 
Enter a valid email address

Aviva PLC (AV.)

  Print      Mail a friend       Annual reports

Thursday 06 August, 2020

Aviva PLC

Aviva plc HY20 results - 2 of 4

RNS Number : 2924V
Aviva PLC
06 August 2020
 

START PART 2 of 4

Page 1

Contents

In this section

 

Overview

Page

Key financial metrics

02

1  Solvency II return on equity

03

2  Solvency II capital and cash

05

i  Operating capital generation: Solvency II basis

05

ii  Cash remittances

06

3  Solvency II position

07

i  Solvency II position (shareholder view)

07

ii  Movement in Solvency II surplus

08

iii  Diversified SCR analysis

08

iv  Solvency II sensitivities

09

v  Solvency II net asset value

10

vi  Solvency II regulatory own funds and debt leverage

10

4  Controllable costs

11

5  Profit and earnings per share

12

6  Divisional performance

13

i  UK Life and Investments, Savings & Retirement

13

ii  General Insurance

18

iii  Europe Life

24

iv  Asia Life

26

7  Life business profit drivers

28

Financial supplement

30

A  Income & expenses and IFRS capital

31

B  IFRS financial statements and notes

41

C  Analysis of assets

89

Other information

98

Alternative Performance Measures

99

Shareholder services

108

As a reminder

 

Throughout this report we use a range of financial metrics to measure our performance and financial strength. These metrics include Alternative Performance Measures (APMs), which are non-GAAP measures that are not bound by the requirements of IFRS and Solvency II. Further guidance in respect of the APM's used by the Group, including a reconciliation to the financial statements (where possible), can be found within the Other Information section.

All references to 'Operating profit' represent 'Group adjusted operating profit'.

denotes APMs which are key performance indicators. Following a review of the Group's APM's in 2019, we have made certain changes to ensure that they remain relevant and useful to shareholders. These changes are outlined within the Other Information section.

# symbol denotes key financial performance indicators used as a base to determine or modify remuneration.

All percentages, including currency movements, are calculated on unrounded numbers so minor rounding differences may exist.

Following the announcement at the November 2019 Capital Markets Day, Section 6.i - UK Life and Investments, Savings & Retirement includes additional disclosures on the Savings & Retirement business.

A glossary explaining key terms used in this report is available on www.aviva.com/glossary

 

 

Page 2

 

Profit

 

6 months
2020
£m

Restated1  

6 months
2019
£m

Sterling % change

Full year
2019
£m

Operating profit2,‡#

1,225

1,386

(12)%

3,184

Operating earnings per share2,3‡#

23.4p

26.1p

(10)%

60.5p

IFRS profit before tax attributable to shareholders

1,076

1,523

(29)%

3,374

Basic earnings per share

20.0p

28.2p

(29)%

63.8p

Capital Position

 

30 June
2020

31 December 2019

Change

30 June
2019

Estimated shareholder Solvency II cover ratio4,‡#

194%

206%

(12)pp

194%

Estimated Solvency II surplus4

£12.0bn

£12.6bn

(5)%

£11.8bn

Solvency II net asset value per share4

416p

423p

(2)%

407p

Solvency II debt leverage

33%

31%

2pp

33%

Dividend

 

6 months
2020

Interim dividend per share

6.00p

Solvency II basis: Operating capital generation (OCG)‡# and Cash remittances‡#

 

Solvency II Operating capital generation

Cash Remittances

 

6 months
2020
£m

6 months
2019
£m

Sterling % change

Full year
2019
£m

6 months
2020
£m

6 months
2019
£m

Sterling % change

Full year
2019
£m

Group

890

780

14%

2,259

150

1,582

(91)%

2,597

Solvency II basis: Operating own funds generation and Return on capital/equity

 

Solvency II Operating own funds generation

Solvency II Return on capital/equity

 

6 months
2020
£m

6 months
2019
£m

Sterling % change

Full year
2019
£m

6 months
2020 
%

6 months
2019 
%

Change

Full year
2019 
%

UK Life and Investments, Savings & Retirement

356

449

(21)%

1,314

5.0%

6.5%

(1.5)pp

9.5%

General Insurance

194

298

(35)%

628

8.0%

13.3%

(5.3)pp

14.0%

Europe Life

217

304

(29)%

574

7.1%

11.0%

(3.9)pp

10.3%

Asia Life

97

76

28%

187

12.7%

10.4%

2.3pp

12.7%

Group5

632

864

(27)%

2,257

7.1%

11.0%

(3.9)pp

14.3%

Controllable costs

 

6 months
2020
£m

Restated1,6  

6 months 
2019 
£m 

Sterling % change

Restated6

Full year
2019
£m

Controllable costs

1,912

1,966 

(3)%

4,022

Value of new business: Adjusted Solvency II basis (VNB) and Present value of new business premiums (PVNBP)

 

VNB

PVNBP

 

6 months
2020
£m

6 months
2019
£m

Sterling % change

Full Year
2019
£m

6 months
2020
£m

6 months
2019
£m

Sterling % change

Full Year
2019
£m

323

202

60%

604

14,386

12,416

16%

28,836

Europe Life

188

237

(21)%

414

5,425

7,398

(27)%

13,772

Asia Life

90

96

(6)%

206

1,403

1,477

(5)%

3,057

Total

601

535

12%

1,224

21,214

21,291

-

45,665

General insurance combined operating ratio (COR) and Net written premiums (NWP)

 

COR

NWP

 

6 months
2020 
%

Restated1  

6 months
2019
%

Change

Full year
2019 
%

6 months
2020
£m

6 months
2019
£m

Sterling % change

Full year
2019
£m

106.3%

97.2%

9.1pp

97.9%

2,140

2,158

(1)%

4,218

Canada

95.5%

98.1%

(2.6)pp

97.8%

1,502

1,458

3%

3,061

Europe

92.6%

92.9%

(0.3)pp

95.7%

1,099

1,102

-

2,017

Group7

99.8%

96.8%

3.0pp

97.5%

4,748

4,725

-

9,309

Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#  Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1   On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in a reduction in the prior period Group adjusted operating profit of £62 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, COR, controllable costs and operating earnings per share were also restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in an increase in prior period COR of 0.9%, an increase in prior period controllable costs of £62 million and a reduction in prior period operating earnings per share of 1.2 pence.

2  Group adjusted operating profit is a non-GAAP APM which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

3  This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

4  The estimated Solvency II position represents the shareholder view only. See section 3 for more details.

5  Includes Group centre, debt costs and other items not allocated to the markets.

6  Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £41 million for the 6 month period ended 30 June 2019 and £83 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.

7  Group includes Asia & Other net written premiums of £7 million (HY19: £7 million, 2019: £13 million).

 

 

Page 3

 

1 - Solvency II return on capital/equity

Solvency II return on capital/equity was introduced at our Capital Markets Day in November 2019 to measure return generated on shareholder capital at business division and Group level and is used by the Group to assess performance and growth, as we look to deliver long-term value for our shareholders.

 

Operating own funds generation

 

 

6 months 2020


New
business (life)
£m


Existing business (life)
£m

Non-life
capital generation
£m

Other1

£m


Total
£m

Opening
own funds
£m

Return on capital/equity
%

UK Life and Investments, Savings & Retirement

225

92

26

13

356

14,126

5.0%

General Insurance

-

-

191

3

194

4,827

8.0%

Europe Life

87

91

-

39

217

6,119

7.1%

Asia Life

49

56

-

(8)

97

1,524

12.7%

Group centre costs and Other

-

(4)

(90)

6

(88)

(2,048)

N/A

Solvency II return on capital (unlevered) at 30 June

361

235

127

53

776

24,548

6.3%

Less: Senior debt

 

 

 

 

(6)

-

-

Subordinated debt

 

 

 

 

(138)

(6,942)

-

Solvency II operating own funds generation at 30 June

 

 

 

 

632

 

 

Direct capital instrument and Tier 1 notes

 

 

 

 

(27)

(500)

-

Preference shares2

 

 

 

 

(19)

(450)

-

Net deferred tax assets

 

 

 

 

-

(78)

-

Solvency II return on equity at 30 June

 

 

 

 

586

16,578

7.1%

Less: Management actions and other1

 

 

 

 

(53)

-

(0.6)%

Solvency II return on equity (excl. management actions)

 

 

 

 

533

16,578

6.5%

1  Other includes the impact of capital actions and non-economic assumption changes.

2  Preference shares includes £9 million of dividends and £250 million of capital in respect of General Accident plc.

 

Operating own funds generation

 

 

6 months 2019



New
business (life)
£m



Existing business (life)
£m

Non-life
capital generation
£m

Other1

£m




Total
£m

Opening
own funds
£m

Return on capital/equity
%

UK Life and Investments, Savings & Retirement

130

76

49

194

449

13,835

6.5%

General Insurance

-

-

298

-

298

4,498

13.3%

Europe Life

116

79

-

109

304

5,548

11.0%

Asia Life

59

11

-

6

76

1,470

10.4%

Group centre costs and Other

-

7

(119)

(12)

(124)

(1,800)

N/A

Solvency II return on capital (unlevered) at 30 June

305

173

228

297

1,003

23,551

8.5%

Less: Senior debt

 

 

 

 

(6)

-

-

Subordinated debt

 

 

 

 

(133)

 (6,979)

-

Solvency II operating own funds generation at 30 June

 

 

 

 

864

 

 

Direct capital instrument and Tier 1 notes

 

 

 

 

(6)

 (731)

-

Preference shares2

 

 

 

 

(19)

 (450)

-

Net deferred tax assets

 

 

 

 

-

 (95)

-

Solvency II return on equity at 30 June

 

 

 

 

839

15,296

 11.0%

Less: Management actions and other1

 

 

 

 

(297)

-

(3.9)%

Solvency II return on equity (excl. management actions)

 

 

 

 

542

15,296

7.1%

1  Other included the impact of capital actions and non-economic assumption changes.

2  Preference shares included £9 million of dividends and £250 million of capital in respect of General Accident plc.

 

 

Page 4

 

1 - Solvency II return on capital/equity continued

 

Operating own funds generation

 

 

Full year 2019



New
business (life)
£m



Existing business (life)
£m

Non-life
capital generation
£m

Other1

£m




Total
£m

Opening
own funds
£m

Return on capital/equity
%

UK Life and Investments, Savings & Retirement

381

194

70

669

1,314

13,835

9.5%

General Insurance

-

-

548

80

628

4,498

14.0%

Europe Life

167

240

-

167

574

5,548

10.3%

Asia Life

111

57

-

19

187

1,470

12.7%

Group centre costs and Other

-

16

(187)

9

(162)

(1,800)

N/A

Solvency II return on capital (unlevered) at 31 December

659

507

431

944

2,541

23,551

10.8%

Less: Senior debt

 

 

 

 

(12)

-

-

Subordinated debt

 

 

 

 

(272)

(6,979)

-

Solvency II operating own funds generation at 31 December

 

 

 

 

2,257

 

 

Direct capital instrument and Tier 1 notes

 

 

 

 

(34)

(731)

-

Preference shares2

 

 

 

 

(38)

(450)

-

Net deferred tax assets

 

 

 

 

-

(95)

-

Solvency II return on equity at 31 December

 

 

 

 

2,185

15,296

14.3%

Less: Management actions and other1

 

 

 

 

(944)

-

(6.2)%

Solvency II return on equity (excl. management actions)

 

 

 

 

1,241

15,296

8.1%

1  Other included the impact of capital actions and non-economic assumption changes.

2  Preference shares included £21 million of dividends and £250 million of capital in respect of General Accident plc.

In line with targets presented at Capital Markets Day (and how capital is managed by the business), we have presented a combined Solvency II return on capital for the UK Life and Investments, Savings & Retirement business divisions.

Solvency II return on equity has decreased by 3.9pp to 7.1% (HY19: 11.0%), primarily due to:

· In UK Life and Investments, Savings & Retirement, return on capital has reduced by 1.5pp to 5.0% (HY19: 6.5%) and own funds generation has reduced by £93 million to £356 million. Improved new business operating own funds generation as a result of increased bulk purchase annuity volumes and higher margins was more than offset by less benefit from management actions on own funds in the first half of 2020 and reduced fee income from Aviva Investors.

· In the General Insurance business division, return on capital has reduced by 5.3pp to 8.0% (HY19: 13.3%) and own funds generation has reduced by £104 million to £194 million mainly due to a £153 million reduction driven by the impact of COVID-19 which resulted in additional claims on business interruption and travel lines, partly offset by reduced motor claims. In the UK there is also a reduction due to higher weather costs compared to the prior period and adverse prior year reserve developments. This is partially offset by strong underlying performance in Canada where benefits from the extensive profit remediation plan put in place towards the end of 2017 are materialising .

· In the Europe Life business division, return on capital has reduced by 3.9pp to 7.1% (HY19: 11.0%) and own funds generation has reduced by £87 million to £217 million. The reduction is primarily due to lower new business volumes reflecting managed reductions in with-profit volumes as well as a reduction due to the impacts of COVID-19 on trading and less benefit from management actions than the first half of 2019 which included favourable modelling and assumption changes in Italy.

· In the Asia Life business division, return on capital has increased by 2.3pp to 12.7% (HY19: 10.4%) and own funds generation has increased by £21 million to £97 million. The strong growth was primarily driven by improvements to morbidity experience on health business and lapse experience on protection business in Singapore.

· In addition, the return on equity has reduced by a further 0.9pp due to the higher opening own funds for 2020 which were driven by strong own funds generation in excess of dividends and debt repayments during 2019.

 

 

 

Page 5

 

2 - Solvency II capital and cash

2.i - Operating capital generation: Solvency II basis‡#

Solvency II operating capital generation (OCG) measures the amount of Solvency II capital the Group generates from operating activities. Capital generated enhances Solvency II surplus which can be used to support sustainable cash remittances from our business, which in turn, supports the Group's progressive dividend policy.

 

Operating capital generation‡#

 

Of which:

6 months 2020

Impact of new business (life)
£m

Earnings from existing business (life)
£m

Non-life capital generation
£m



Other OCG1

£m



Total OCG
£m

 


Own funds OCG
£m


SCR
OCG

£m

UK Life and Investments, Savings & Retirement

(15)

358

23

215

581

 

356

225

General Insurance

-

-

114

49

163

 

194

(31)

Europe Life

(38)

263

-

239

464

 

217

247

Asia Life

1

51

-

(9)

43

 

97

(54)

Total market Solvency II operating capital generation

(52)

672

137

494

1,251

 

864

387

Group centre costs and Other

-

2

(225)

(138)

(361)

 

(232)

(129)

Total Group Solvency II operating capital generation

(52)

674

( 88 )

356

890

 

632

258

1  Other includes the impact of capital actions and non-economic assumption changes.

 

Operating capital generation‡#

 

Of which:

6 months 2019

Impact of new business (life)
£m

Earnings from existing business (life)
£m

Non-life capital generation
£m

Other OCG1

£m

Total OCG
£m

 

Own funds
OCG

£m

SCR
OCG

£m

UK Life and Investments, Savings & Retirement2

(91)

414

75

124

522

 

449

73

General Insurance

315

(99)

216

 

298

(82)

Europe Life

(37)

236

-

125

324

 

304

20

Asia Life

23

1

-

(6)

18

 

76

(58)

Total market Solvency II operating capital generation

(105)

651

390

144

1,080

 

1,127

(47)

Group centre costs and Other2

2

(259)

(43)

(300)

 

(263)

(37)

Total Group Solvency II operating capital generation

(105)

653

131

101

780

 

864

(84)

1  Other included the impact of capital actions and non-economic assumption changes.

2  Following a review of the presentation of intercompany loan interest, comparative amounts for the 6 months ended 30 June 2019 have been amended to reclassify net interest expense from UK Life and Investments, Savings & Retirement to Group centre costs and Other of £34 million as a non-operating item. The change has no impact on the Group's operating capital generation.

 

Operating capital generation ‡#

 

Of which:

Full year 2019

Impact of new business (life)
£m

Earnings from existing business (life)
£m

Non-life capital generation
£m



Other OCG1

£m



Total OCG
£m

 


Own funds
OCG
£m


SCR
OCG

£m

UK Life and Investments, Savings & Retirement2

(45)

814

90

470

1,329

 

1,314

15

General Insurance

-

-

615

(41)

574

 

628

(54)

Europe Life

(189)

515

-

428

754

 

574

180

Asia Life

(7)

64

-

3

60

 

187

(127)

Total market Solvency II operating capital generation

(241)

1,393

705

860

2,717

 

2,703

14

Group centre costs and Other2

-

(5)

(419)

(34)

(458)

 

(446)

(12)

Total Group Solvency II operating capital generation

(241)

1,388

286

826

2,259

 

2,257

2

1  Other included the impact of capital actions and non-economic assumption changes.

2  Following a review of the presentation of intercompany loan interest, comparative amounts for the 12 months ended 31 December 2019 have been amended to reclassify net interest expense from UK Life and Investments, Savings & Retirement to Group centre costs and Other of £69 million as a non-operating item. The change has no impact on the Group's operating capital generation.

Solvency II OCG was £890 million for the 6 months ended 30 June 2020 (HY19: £780 million).

UK Life and Investments, Savings & Retirement OCG has increased by £59 million to £581 million for the 6 months ended 30 June 2020, primarily due to improved new business strain as a result of higher margins on annuity business and also a capital action to change the mix of business included in our internal reinsurance vehicle. The increase is partially offset by a reduction in earnings from existing business and a reduced contribution from Aviva Investors.

General Insurance OCG has reduced by £53 million to £163 million for the 6 months ended 30 June 2020, driven by the impact of COVID-19 which resulted in additional claims on business interruption and travel lines and an increase in solvency capital requirement which were partly offset by reduced motor claims. There was a further reduction to OCG due to higher weather costs compared to the prior period and adverse prior year reserves development in the UK partially offset by a strong performance in Canada as a result of rate increases and actions on indemnity management taken as part of the profit remediation plan .

Europe Life OCG has increased by £140 million to £464 million due to an increase in Other OCG in the 6 months ended 30 June 2020, primarily as a result of strategic asset allocation, de-risking and hedging activity in France, Ireland and Italy to protect the capital position against further adverse economic movements in the current market environment.

Asia Life OCG has increased by £25 million to £43 million primarily due to improvements in morbidity experience on health business and lapse experience on protection business in Singapore.

 

 

Page 6

 

2.ii - Cash remittances‡#

The table below reflects actual remittances received by the Group from our businesses, comprising dividends and interest on internal loans. Cash remittances are eliminated on consolidation and hence are not directly reconcilable to the Group's IFRS statement of cash flows.

 

6 months
2020
£m

6 months
2019
£m

Full year
2019
£m

UK Life and Investments, Savings & Retirement

 

 

 

UK Life Including Savings & Retirement1

84

892

1,387

Aviva Investors

-

81

86

General Insurance1,2

24

191

584

Europe Life

32

418

414

Asia Life

-

-

51

Other

10

-

75

Total

150

1,582

2,597

1  We use a wholly-owned, UK domiciled reinsurance subsidiary for internal capital and cash management purposes. Some remittances otherwise attributable to the operating businesses arise from this internal reinsurance vehicle.

2  2019 General Insurance cash remittances include £83 million received from UK General Insurance and £141 million received from Canada in February 2020 in respect of 2019 activity.

A cautious approach on cash remittances is being taken across the Group with markets retaining cash rather than remitting to the Group in the wake of the unprecedented challenges the COVID-19 pandemic presents for businesses, households and customers, and the adverse and highly uncertain impact on the global economy.

 

 

Page 7

 

3 - Solvency II position

3.i - Solvency II position (shareholder view)

Shareholder view

30 June 2020
£m

30 June
2019
£m

31 December
2019
£m

Own funds

24,626

24,364

24,548

Solvency capital requirement

(12,674)

(12,543)

(11,910)

Estimated Solvency II surplus at 30 June/31 December

11,952

11,821

12,638

Estimated Solvency II shareholder cover ratio‡#

194%

194%

206%

The estimated Solvency II shareholder cover ratio is 194% at 30 June 2020. The Solvency II position disclosed is based on a 'shareholder view'. The shareholder view is considered by management to be more representative of the shareholders' risk exposure and the Group's ability to cover the solvency capital requirement with eligible own funds and aligns with management's approach to dynamically manage its capital position. In arriving at the shareholder position, the following adjustments are made to the regulatory Solvency II position:

· The contribution to the Group's SCR and own funds of the most material fully ring fenced with-profits funds of £2.4 billion at 30 June 2020 (2019: £2.5 billion) and staff pension schemes in surplus of £1.1 billion at 30 June 2020 (2019: £1.2 billion) are excluded. These exclusions have no impact on Solvency II surplus as these funds are self-supporting on a Solvency II capital basis with any surplus capital above SCR not recognised.

· A change in regulations announced in December 2019 allows French insurers to place a part of the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At December 2019 PPE was included in the France local regulatory own funds but was excluded from the estimated Group regulatory and shareholder own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE of £0.4 billion is included within Group regulatory own funds at 30 June 2020 but remains excluded from the shareholder position.

· A notional reset of the transitional measure on technical provisions (TMTP), calculated using the same method as used for formal TMTP resets. This presentation avoids step changes to the Solvency II position that arise only when the formal TMTP reset points are triggered. The 30 June 2020 Solvency II position includes a notional reset (£0.2 billion increase in surplus) while the 31 December 2019 Solvency II position included a formal, rather than notional, reset of the TMTP in line with the regulatory requirement to reset the TMTP at least every two years and hence no adjustment was required.

· The 30 June 2020 Solvency II position includes the following pro forma adjustments: the disposals of Friends Provident International Limited (FPI), Hong Kong and Indonesia (total impact of £0.1 billion increase in surplus), the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion decrease in surplus as a result of an increase in SCR), and an adjustment for potential future corporate bond credit rating downgrades, equivalent to a full letter downgrade on 10% of BBB rated bonds and 5% on bonds rated A and above, in our UK annuity portfolio (£0.1 billion decrease in surplus as a result of an increase in SCR). Even though actual downgrades to our portfolio to date, already incorporated in our Solvency II surplus, has been minimal (£35 million reduction to surplus), this allowance reflects continued uncertainty in the external environment as a result of the COVID-19 pandemic. We will look to realign to actual observed experience within the current financial year. The 31 December 2019 Solvency II position includes the pro forma adjustments for the disposals of FPI (£nil impact on surplus) and Hong Kong (£nil impact on surplus) and the potential impact of an expected change to Solvency II regulations on the treatment of equity release mortgages (£0.2 billion reduction in surplus as a result of an increase in SCR).

 

 

30 June 2020

30 June 2019

31 December 2019

 

Own funds
£m

SCR
£m

Surplus
£m

Own funds
£m

SCR
£m

Surplus
£m

Own funds
£m

SCR
£m

Surplus
£m

Estimated Solvency II regulatory surplus1

28,376

(16,039)

12,337

27,997

(16,228)

11,769

28,347

(15,517)

12,830

Adjustments for:

 

 

 

 

 

 

 

 

 

Fully ring-fenced with-profit funds

(2,430)

2,430

-

(2,630)

2,630

-

(2,501)

2,501

-

Staff pension schemes in surplus

(1,085)

1,085

-

(1,078)

1,078

-

(1,181)

1,181

-

PPE

(369)

-

(369)

-

-

-

-

-

-

Notional reset of TMTP

211

-

211

208

-

208

-

-

-

Pro forma adjustments

(77)

(150)

(227)

(133)

(23)

(156)

(117)

(75)

(192)

Estimated Solvency II shareholder surplus

24,626

(12,674)

11,952

24,364

(12,543)

11,821

24,548

(11,910)

12,638

1  Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At 31 December 2019 PPE was included in the France local regulatory own funds but was excluded from the estimated Group regulatory own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE is included estimated Group regulatory own funds at 30 June 2020.

 

 

Page 8

 

3.ii - Movement in Solvency II surplus

 

30 June 2020

30 June 2019

31 December 2019

Shareholder view

Own funds
£m

SCR
£m

Surplus
£m

Own funds
£m

SCR
£m

Surplus
£m

Own funds
£m

SCR
£m

Surplus
£m

Group Solvency II surplus at 1 January

24,548

(11,910)

12,638

23,551

(11,569)

11,982

23,551

(11,569)

11,982

Opening restatements1

78

(202)

(124)

58

6

64

58

6

64

Operating capital generation

632

258

890

864

(84)

780

2,257

2

2,259

Non-operating capital generation

(671)

(823)

(1,494)

722

(896)

(174)

120

(368)

(248)

Dividends2

(19)

-

(19)

(831)

-

(831)

(1,222)

-

(1,222)

Hybrid debt issuance/(repayment)

-

-

-

-

-

-

(210)

-

(210)

Acquired/divested business

58

3

61

-

-

-

(6)

19

13

Estimated Solvency II surplus at 30 June/31 December

24,626

(12,674)

11,952

24,364

(12,543)

11,821

24,548

(11,910)

12,638

1  Opening restatements allows for adjustments to the estimated position presented in the preliminary announcement and the final position in the SFCR.

2  Dividends includes £9 million (HY19: £9 million, 2019: £17 million) of Aviva plc preference dividends and £10 million (HY19: £10 million, 2019: £21 million) of General Accident plc preference dividends.

The estimated Solvency II surplus is £11,952 million at 30 June 2020 (2019: £12,638 million), with a shareholder cover ratio of 194% (2019: 206%). The reduction in surplus of £686 million since 31 December 2019 is mainly due to the adverse impact of £(1.5) billion from non-operating capital generation partially offset by operating capital generation of £890 million over the period.

Non-operating capital generation is primarily due to significant falls in interest rates and equity markets, as well as widening credit spreads, as a result of the global economic downturn driven by the COVID-19 pandemic.

At 30 June 2019 and 31 December 2019 we included a specific allowance for the possible adverse impacts of the UK's exit from the European Union on UK commercial and residential property, which we have now removed. Our future property growth assumptions are updated on a quarterly basis and as at 30 June 2020 they include a cumulative 5-year growth rate assumption, from 2020-24 of ‑15% for UK commercial property and a 12% reduction followed by long-term growth rate for residential property.

3.iii - Diversified SCR analysis

 

30 June 2020
£bn

30 June
2019
 bn

31 December
2019
£bn

Credit risk

2.8

3.3

2.7

Equity risk

1.2

1.6

1.4

Interest rate risk

1.1

1.0

0.4

Other market risk

1.7

1.5

1.7

Life insurance risk

3.1

2.7

3.1

General insurance risk

0.8

0.7

0.8

Operational risk

1.1

1.1

1.1

Other risk

0.9

0.7

0.7

Total

12.7

12.6

11.9

The SCR has increased by £0.8 billion to £12.7 billion since 31 December 2019. The change in risk profile is predominantly driven by the economic downturn as a result of the impact of the COVID-19 pandemic during 2020. Interest rate risk increased by £0.7 billion primarily due to the significant reduction in interest rates over the period. This is partly offset by equity risk which has reduced by £0.2 billion due to the reduced exposure as a result of market falls over the period.

 

 

Page 9

 

3.iv - Solvency II sensitivities

Sensitivity analysis of Solvency II surplus

The following sensitivity analysis of Solvency II surplus allows for any consequential impact on the assets and liability valuations. All other assumptions remain unchanged for each sensitivity, except where these are directly affected by the revised economic conditions or where a management action that is allowed for in the SCR calculation is applicable for that sensitivity. For example, future bonus rates are automatically adjusted to reflect sensitivity changes to future investment returns.

TMTP are assumed to be recalculated in all sensitivities where its impact would be material.

All sensitivities are additional to the 30 June 2020 base shareholder solvency position shown in note 3(i). The table below shows the absolute change in cover ratio under each sensitivity, e.g. a 2% positive impact would result in a cover ratio of 196%.

Sensitivities

 

Impact on
surplus
30 June
2020
 bn

Impact on
cover ratio
30 June
2020
%

Impact on
surplus
31 December
2019
£bn

Impact on
cover ratio
31 December
2019
%

Changes in economic assumptions

25 bps increase in interest rate

0.1

2%

0.2

4%

 

50 bps increase in interest rate

0.1

4%

0.2

6%

 

100 bps increase in interest rate

0.1

7%

0.4

11%

 

25 bps decrease in interest rate

(0.1)

(3%)

(0.2)

(5%)

 

50 bps decrease in interest rate

(0.2)

(5%)

(0.6)

(11%)

 

50 bps increase in corporate bond spread1,2

(0.4)

(3%)

(0.5)

(4%)

 

100 bps increase in corporate bond spread1,2

(0.7)

(4%)

(1.1)

(10%)

 

50 bps decrease in corporate bond spread1,2

0.4

2%

0.4

3%

 

Credit downgrade on annuity portfolio3

(0.3)

(4%)

(0.3)

(4%)

 

10% increase in market value of equity

0.3

1%

0.3

2%

 

25% increase in market value of equity

0.6

3%

0.8

5%

 

10% decrease in market value of equity

(0.2)

(1%)

(0.4)

(2%)

 

25% decrease in market value of equity

(0.5)

(3%)

(0.9)

(7%)

 

20% increase in value of commercial property4

0.8

8%

0.7

7%

 

20% decrease in value of commercial property4

(1.0)

(9%)

(0.9)

(9%)

 

20% increase in value of residential property4

0.5

4%

0.4

4%

 

20% decrease in value of residential property4

(0.6)

(6%)

(0.6)

(6%)

Changes in non-economic assumptions

10% increase in maintenance and investment expenses

(0.9)

(8%)

(0.9)

(9%)

 

10% increase in lapse rates

(0.3)

(2%)

(0.4)

(3%)

 

5% increase in mortality/morbidity rates - life assurance

(0.2)

(2%)

(0.2)

(2%)

 

5% decrease in mortality rates - annuity business

(1.4)

(12%)

(1.3)

(13%)

 

5% increase in gross loss ratios

(0.3)

(3%)

(0.3)

(3%)

1  Credit spread movement for corporate bonds with credit rating A at a 10 year duration, with the other ratings and durations stressed by the same proportion relative to the solvency capital requirement.

2  A modelling refinement was implemented to the corporate bond credit sensitivities in the UK following a review of the 31 December 2019 methodology.

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

4  The property sensitivities are in addition to reduced property growth assumed over the next 5 years in the base solvency position.

During the first half of the year a number of de-risking actions were implemented across most of our markets in response to the global economic downturn as a result of the COVID-19 pandemic. These include a reduction in interest rate exposures, further hedging and changes to asset allocation. This has reduced our Solvency II surplus and cover ratio sensitivity to interest rates, credit risk and equity. Market falls over the period have also reduced the exposure and hence sensitivity to equities.

Limitations of sensitivity analysis

The table above demonstrates the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

The sensitivity analysis does not take into consideration that the Group's assets and liabilities are actively managed. Additionally, the Solvency II position of the Group may vary at the time that any actual market movement occurs. For example, the Group's financial risk management strategy aims to manage the exposure to market fluctuations.

As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocations, adjusting bonuses credited to policyholders and taking other protective action.

Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk that only represent the Group's view of possible near-term market changes that cannot be predicted with any certainty and the assumption that all interest rates move in an identical fashion.

 

 

Page 10

 

3.v - Solvency II net asset value

 

30 June
2020
£m

pence per

share1

30 June
2019
£m

pence per

share1

31 December
 2019
£m

pence per

share1

Solvency II shareholder unrestricted tier 1 own funds at 1 January

16,578

423p

15,296

392p

15,296

392p

Opening restatements2

78

2p

58

1p

58

1p

Operating own funds generation

632

16p

864

21p

2,257

57p

Non-operating own funds generation

(671)

(17)p

722

18p

120

3p

Dividends3

(19)

(0)p

(831)

 (21)p

(1,222)

(31)p

Acquired/divested business

58

1p

-

-

(6)

-

Impact of changes to the value of subordinated liabilities

(281)

(8)p

(129)

(3)p

58

1p

Impact of changes to the value of net deferred tax assets

(29)

(1)p

(26)

(1)p

17

-

Estimated Solvency II shareholder unrestricted Tier 1 own funds at 30 June/31 December

16,346

416p

15,954

407p

16,578

423p

Number of shares as at 30 June 2020: 3,928 million (HY19: 3,917 million, 2019: 3,921 million).

2  Opening restatements allows for adjustments made to the estimated position presented in the preliminary announcement and the final position in the SFCR.

3  Dividends includes £9 million (HY19: £9 million, 2019: £17 million) of Aviva plc preference dividends and £10 million (HY19: £10 million, 2019: £21 million) of General Accident plc preference dividends.

Solvency II net asset value per share decreased by 7 pence to 416 pence per share (HY19: 407 pence, 2019: 423 pence) mainly as a result of the impact of adverse market movements on non-operating capital generation and an increase in the value of subordinated liabilities due to interest falls and sterling depreciation against the Euro partly offset by operating own funds generation during the period.

3.vi - Solvency II regulatory own funds and debt leverage

Regulatory view

30 June
 2020
£m

30 June
 2019
 m

31 December 2019
£m

Solvency II regulatory debt1

8,173

8,289

7,892

Senior notes

1,129

1,110

1,052

Commercial paper

365

251

238

Direct capital instrument

499

-

-

Total debt

10,166

9,650

9,182

Unrestricted Tier 1

20,096

19,588

20,377

Restricted Tier 1

1,335

2,084

1,839

Tier 2

6,569

5,937

5,794

Tier 32

376

388

337

Estimated total regulatory own funds3

28,376

27,997

28,347

Solvency II debt leverage4

33%

33%

31%

Solvency II debt leverage excluding direct capital instrument5

32%

N/A

N/A

1  Solvency II regulatory debt consists of Restricted Tier 1 and Tier 2 regulatory own funds, and Tier 3 subordinated debt.

2  Tier 3 regulatory own funds at 30 June 2019 consists of £269 million subordinated debt (HY19: £268 million, 2019: £259 million) plus £107 million net deferred tax assets (HY19: £120 million, 2019: £78 million).

3  Regulation was introduced in France that allows French insurers to place the Provision pour Participation aux Excédents (PPE) into Solvency II own funds. At December 2019 PPE was included in the France local regulatory own funds but was excluded from the estimated Group regulatory own funds, subject to confirmation of the appropriate treatment at Group level. The treatment has since been confirmed and PPE is included in the estimated Group regulatory own funds at 30 June 2020.

4  Solvency II debt leverage is calculated as the total debt as a proportion of total regulatory own funds plus commercial paper and senior notes.

5  The direct capital instrument was redeemed in full at first call date on 27 July 2020.

Solvency II debt leverage has increased by 2pp to 33% (2019: 31%). This was due to an increase in debt in 2020. The increase was driven by the refinancing of the direct capital instrument prior to redemption in July, a larger holding of short-term commercial paper and adverse foreign exchange movements increasing the value of the Group's EUR and CAD denominated borrowings. Excluding the direct capital instrument solvency II debt leverage was 32%.

 

 

Page 11

 

4 - Controllable costs

 

6 months
2020
£m

Restated1,2

6 months 
2019 
£m 

Restated2

Full year
2019
 m

UK Life and Investments, Savings & Retirement

 

 

 

UK Life including Savings & Retirement

506

534 

1,123

Aviva Investors

207

204 

446

General Insurance

693

705 

1,420

Europe Life

280

281 

553

Asia Life

89

93 

198

Other Group activities

137

149 

282

Controllable costs

1,912

1,966 

4,022

1  Following the change in the definition of Group adjusted operating profit on 31 December 2019 (see note B2), controllable costs now include the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in an increase in the prior period controllable costs of £62 million.

2  Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £41 million for the 6 month period ended 30 June 2019 and £83 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to the Life & Health businesses from the UK, Ireland and Poland in controllable costs.

Controllable costs have decreased by 3% to £1,912 million (HY19 restated: £1,966 million) reflecting our focus on cost savings primarily driven by lower staff costs following a reduction in global headcount, partially offset by charitable donations made by Aviva to help those most affected by COVID-19.

The decrease in controllable costs in UK Life and General Insurance is mainly due to lower staff costs and lower project activity, partially offset by operational costs related to COVID-19 and continued investment in our IT infrastructure. The decrease in Other Group activities is mainly due to lower project spend following completion of a number of projects and deferral of certain project activities to the second half of 2020, partially offset by charitable contributions which includes a £10 million donation to our long-standing partner, the British Red Cross; a £5 million contribution to NHS Charities Together; and a £18.5 million contribution to the COVID-19 support fund established by the Association of British Insurers.

The reported controllable costs decrease of £54 million from HY19 has contributed towards £143 million of cumulative savings delivered against our 2018 baseline (£147 million on a constant currency basis).

 

 

Page 12

 

5 - Profit and earnings per share

 

6 months
2020
£m

Restated1

6 months
2019
£m

Full year
2019
£m

Operating profit before tax

 

 

 

UK Life and Investments, Savings & Retirement

 

 

 

UK Life including Savings & Retirement2

817

752

1,920

Aviva Investors

35

60

96

General Insurance

167

332

594

Europe Life

367

392

827

Asia Life

140

152

276

Other Group operations (note A3)

(6)

(44)

(26)

Market operating profit

1,520

1,644

3,687

Corporate centre (note A4)

(116)

(97)

(183)

Group debt costs and other interest (note A5)2

(179)

(161)

(320)

Operating profit before tax‡#

1,225

1,386

3,184

Tax attributable to shareholders' profit

(224)

(306)

(668)

Non-controlling interests

(48)

(47)

(98)

Preference dividends and other3

(36)

(15)

(51)

Operating profit attributable to ordinary shareholders

917

1,018

2,367

Operating earnings per share‡#

23.4p

26.1p

60.5p

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in a reduction in the prior period Group adjusted operating profit of £62 million. There is no impact on profit before tax attributable to shareholders' profit. Following the change in the definition of Group adjusted operating profit, the comparative amount for operating earnings per share for the 6 month period ended 30 June 2019 was also restated resulting in a reduction in prior period operating earnings per share of 1.2 pence.

2  Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been restated to reclassify net interest expense from UK Life including Savings & Retirement to Group debt costs and other interest, of £32 million for the 6 month period ended 30 June 2019 and £65 million for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group's operating profit.

3  Other includes coupon payments in respect of the direct capital instrument (DCI) (net of tax). On 23 June 2020, notification was given that the Group would redeem the 5.9021% £500 million DCI at its principal amount together with accrued interest to (but excluding) 27 July 2020. Interest payable up to 23 June 2020 has been recorded as an appropriation of retained profits with the remaining interest payable from 24 June 2020 to 30 June 2020 recorded within Group debt costs and other interest. In prior periods, the interest on the DCI and tier 1 notes was treated as an appropriation of retained profits and accordingly, accounted for when paid.

IFRS profit after tax

874

1,180

2,663

Basic earnings per share

20.0p

28.2p

63.8p

Operating profit decreased by 12% to £1,225 million (HY19 restated: £1,386 million), as the COVID-19 pandemic resulted in higher claims within the general insurance business from business interruption, travel, and other commercial insurance lines, and we experienced lower trading volumes due to disruption arising from the implementation of lockdown restrictions in the second quarter of 2020.

UK Life operating profit increased by 9% to £817 million (HY19 restated: £752 million), following BPA volume growth at higher margins, and stronger returns in Savings & Retirement reflecting improved revenue due to a higher asset base. This was partially offset by lower profitability in protection and individual annuities, and there was a net negative overall impact on claims from the COVID-19 pandemic.

Aviva Investors operating profit decreased by 42% to £35 million (HY19 restated: £60 million) due to lower fee income which was impacted by changes in the mix of assets under management, caused by market volatility in the underlying asset classes and de-risking by some clients towards assets which attract lower fees.

In our General Insurance businesses operating profit decreased by 50% to £167 million (HY19 restated: £332 million), primarily reflecting COVID-19 related claims of £165 million, net of reinsurance. This impact is based on estimated claims in business interruption insurance, other commercial lines and travel insurance and allows for favourable impacts in other product lines. In the UK the general insurance business recorded an operating loss of £66 million (HY19 restated: profit of £141 million) with £138 million attributable to COVID-19 related net claims experience. Higher weather costs relative to a benign first half of 2019 also had an adverse impact, along with less favourable prior year development. In Canada, operating profit increased to £129 million (HY19 restated: £89 million) as a favourable contribution from pricing, indemnity management and risk selection actions more than offset the adverse effect of COVID-19. E urope general insurance operating profit was broadly level at £104 million (HY19: 103 million).

Europe Life operating profit decreased by 7% to £367 million (HY19 restated: £392 million), as trading was disrupted by lockdown restrictions. In France, operating profit of £165 million (HY19 restated: £195 million) was also adversely affected by higher protection claims. In Italy, operating profit increased to £100 million (HY19 restated: £82 million) as strong fee generation from a higher asset base offset the impact from the trading disruption, and in Poland actions were taken to reduce costs increasing operating profit to £88 million (HY19 restated: 85 million). In Ireland, operating profit reduced to £8 million (HY19 restated: £24 million), including the impact of de-risking actions taken to improve our solvency cover ratio.

In our Asia Life businesses, operating profit has decreased by 8% to £140 million (HY19: £152 million ) . Excluding held for sale entities, operating profit was £67 million (HY19 restated: £68 million) despite a difficult trading environment primarily driven by the COVID-19 pandemic.

Other Group operations include investment return on centrally held assets, the results of our internal reinsurance business and the results of other operations. The reduced operating loss of £ 6 million (HY19: operating loss of £44 million) reflects lower project spend and the alignment of the UK digital business with the UK Life and UK General insurance businesses during 2019. 

Operating earnings per share decreased by 2.7p to 23.4p (HY19 restated: 26.1p) reflecting the decrease in operating profit.

 

 

Page 13

 

6 - Divisional performance

6.i - UK Life and Investments, Savings & Retirement

£m (unless otherwise stated)

6 months 2020
£m

6 months 2019
£m

Sterling % change

Constant currency
 %

Full year
 2019
£m

6 months 2020
£m

Restated1,3

6 months 
2019 
£m 

Sterling % change

Constant currency
%

Restated3

Full year
2019
 m

UK Life and Investments, Savings & Retirement

 

 

 

 

 

 

 

 

 

 

Solvency II operating own funds generation and return on capital

Solvency II operating own funds generation

Solvency II return on capital

UK Life including Savings & Retirement

330

399

(17)%

(17)%

1,244

4.8%

6.0% 

(1.2)pp

(1.2)pp

9.3%

Aviva Investors

26

50

(47)%

(47)%

70

10.7%

19.5% 

(8.8)pp

(8.8)pp

13.7%

 

356

449

(21)%

(21)%

1,314

5.0%

6.5% 

(1.5)pp

(1.5)pp

9.5%

 

 

 

 

 

 

 

 

 

 

 

Solvency II operating capital generation2,‡# and cash remittances‡#

Solvency II operating capital generation

Cash remittances

UK Life including Savings & Retirement

558

447

25%

25%

1,239

84

892 

(91)%

(91)%

1,387

Aviva Investors

23

75

(70)%

(70)%

90

-

81 

(100)%

(100)%

86

 

581

522

11%

11%

1,329

84

973 

(91)%

(91)%

1,473

 

 

 

 

 

 

 

 

 

 

 

UK Life including Savings & Retirement

 

 

 

 

 

 

 

 

 

 

Operating profit1,2,‡#

 

 

 

 

 

817

752 

9%

9%

1,920

Controllable costs3,‡

 

 

 

 

 

506

534 

(5)%

(5)%

1,123

New business

 

 

 

 

 

 

 

 

 

 

PVNBP

 

 

 

 

 

13,706

11,831 

16%

16%

27,570

VNB

 

 

 

 

 

316

196 

61%

61%

592

 

 

 

 

 

 

 

 

 

 

 

Of which: UK Life contribution

 

 

 

 

 

 

 

 

 

 

Operating profit1,2,‡#

 

 

 

 

 

741

732 

1%

1%

1,827

Controllable costs

 

 

 

 

 

336

369 

(9)%

(9)%

787

New business

 

 

 

 

 

 

 

 

 

 

PVNBP

 

 

 

 

 

5,166

3,401 

52%

52%

8,650

VNB

 

 

 

 

 

253

125 

103%

103%

438

 

 

 

 

 

 

 

 

 

 

 

Of which: Savings & Retirement contribution

 

 

 

 

 

 

 

 

 

 

Operating profit1,2,‡#

 

 

 

 

 

76

20 

280%

280%

93

Controllable costs

 

 

 

 

 

170

165 

3%

3%

336

New business

 

 

 

 

 

 

 

 

 

 

PVNBP

 

 

 

 

 

8,540

8,430 

1%

1%

18,920

VNB

 

 

 

 

 

63

71 

(11)%

(11)%

154

 

 

 

 

 

 

 

 

 

 

 

Aviva Investors

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

242

264 

(8)%

(8)%

542

Controllable costs

 

 

 

 

 

207

204 

1%

1%

446

Operating profit1,2,‡#

 

 

 

 

 

35

60 

(42)%

(42)%

96

Assets under management

 

 

 

 

 

£355bn

£346bn 

3%

3%

£346bn

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been restated to reclassify net interest expense from UK Life including Savings & Retirement to Group debt costs and other interest of £32 million for the 6 month period ended 30 June 2019 and £65 million for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group's operating profit. In addition, comparative amounts for operating capital generation of £34 million for the 6 month period ended 30 June 2019 and £69 million for the year ended 31 December 2019 have been restated. The change has no impact on the Group's operating capital generation.

Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £39 million for the 6 month period ended 30 June 2019 and £78 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to UK Life in controllable costs .

Overview

Aviva is one of the UK's largest insurers in the UK life and savings market. We are uniquely positioned to help our customers and are a trusted provider of a broad range of products to both individual and corporate customers covering their savings, retirement, insurance and health needs. Our UK Life division incorporates three lines of business: annuities & equity release, protection & health and heritage. This division is key in generating sustainable cash flows. Our Savings & Retirement business is a leading provider of mass market savings and retirement solutions in the UK which is maintaining its strong growth in the savings market through our workplace and retail platforms. Aviva Investors, our international asset management business, leverages its existing investment capabilities to provide active solutions to both retail and institutional clients. The trading environment during the first half of 2020 was impacted by the movement restrictions imposed by the UK Government from early March together with customer caution in the face of the significant uncertainty. UK Life including Savings & Retirement took actions during the first half of 2020 to protect its balance sheet from the impacts of volatile financial markets.

 

 

 

Page 14

 

6.i - UK Life and Investments, Savings & Retirement continued

Operating and financial performance

Solvency II operating own funds generation and return on capital

UK Life and Investments, Savings & Retirement Solvency II return on capital decreased by 1.5pp to 5.0% (HY19: 6.5%) and Solvency II own funds generation decreased by 21% to £356 million (HY19: £449 million). This is due to capital management actions taken in the first half of 2020 including back book de-risking, which have benefitted our solvency capital requirement, whereas actions taken in the prior period largely increased own funds generation.

Operating capital generation‡#

UK Life and Investments, Savings & Retirement Solvency II operating capital generation (OCG) has increased by 11% to £581 million (HY19: 522 million) due to higher margins and improved capital efficiency on our BPA business, capital optimisation actions relating to our back book, and an action to change the mix of business included in our internal reinsurance vehicle. The increase is partially offset by a reduction on earnings from existing business, including a reduced contribution from Aviva Investors as a result of lower fee income which was impacted by changes in the mix of assets under management.

Cash‡#

Cash remittances to Group during the period were £84 million (HY19: £973 million). While our solvency position remains strong, we have adopted a cautious approach and delayed cash remittances to Group in light of economic uncertainty created by the COVID-19 pandemic.

UK Life  

Operating profit‡#, new business and net flows

Operating profit‡#

6 months
2020
£m

Restated1  

6 months
2019
£m

Sterling % change

Full Year
2019
£m

Annuities and equity release

365

329

11%

866

Protection

70

99

(29)%

166

Heritage3

226

225

-

389

Health

11

15

(23)%

35

Other2,4

69

64

8%

371

Total UK Life (excluding Savings & Retirement) operating profit‡#

741

732

1%

1,827

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been restated to reclassify net interest expense from UK Life to Group debt costs and other interest, of £32 million at for the 6 month period ended 30 June 2019 and £65 million for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group's operating profit.

Heritage represents products no longer actively marketed. This includes with-profits and bonds formerly shown in legacy, and non-profit legacy pensions which were formerly shown in long-term savings .

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

UK Life operating profit increased by 1% to £741 million (HY19: 732 million). Strong growth in BPA was offset by lower profits in our individual annuity, equity release, and protection businesses. UK Life operating profit includes a net provision of £25 million to cover expected COVID-19 related claims within our protection business, net of expected favourable experience variances in our annuity business.

 

PVNBP

VNB

New Business Margin

Gross of tax and non controlling interests

6 months 2020
£m

6 months 2019
£m

Sterling % change

Full Year
2019
£m

6 months 2020
£m

6 months 2019
 m

Sterling % change

Full Year
2019
£m

6 Months 2020
%

6 months 2019
%

Full Year 2019
%

Annuities and equity release

3,838

2,218

73%

6,182

173

33

418%

284

4.5%

1.5%

4.6%

Protection

962

914

5%

1,875

67

76

(11)%

126

7.0%

8.3%

6.7%

Health and Other

366

269

36%

593

13

16

(18)%

28

3.6%

5.9%

4.7%

Total

5,166

3,401

52%

8,650

253

125

103%

438

5.0%

3.9%

5.2%

PVNBP increased by 52% to £5,166 million (HY19: 3,401 million) due to strong growth in BPA and health volumes, partly offset by a reduction in individual annuity and equity release sales. VNB increased by 103% to £253 million (HY19: 125 million), mainly reflecting growth in BPA volumes at improved margins, benefitting from higher asset yields as corporate bond spreads widened and efficiently deployed capital.

Managed assets and net flows

Annuities and equity release £m

Other UK
non-profit
£m

With profits and other
 m

Total
£m

Managed assets at 1 January 2020

67,143

48,425

47,471

163,039

Premiums and deposits, net of reinsurance

2,511

806

97

3,414

Claims and redemptions, net of reinsurance

(1,402)

(1,895)

(1,926)

(5,223)

Net flows

1,109

(1,089)

(1,829)

(1,809)

Market and other movements

3,142

(1,284)

1,427

3,285

Managed assets at 30 June 2020

71,394

46,052

47,069

164,515

 

 

 

Page 15

 

6.i - UK Life and Investments, Savings & Retirement continued

Operating and financial performance continued

UK Life continued

Annuities and equity release

Annuities and equity release operating profit increased by 11% to £365 million (HY19 restated: £329 million). Growth in BPA volumes more than offset the impact of lower individual annuity and equity release volumes. In the first half of 2020 BPA delivered new scheme wins of £3,083 million (HY19: 1,177 million) with margins benefitting from higher asset yields as corporate bonds spreads widened, and efficient deployment of capital. Individual annuity and equity release profit fell due to lower volumes as both businesses were adversely impacted by the COVID-19 driven market disruption, including advisers' inability to meet clients during lockdown.

Annuities and equity release VNB increased over 400% to £173 million (HY19: £33 million) driven by growth in BPA volumes. VNB margin strengthened to 4.5% (HY19: 1.5%) due to improved spreads on corporate bonds held to back our new business and our continued focus on capital efficiency.  

Protection

Overall protection PVNBP grew 5% to £962 million (HY19: £914 million). We saw growth in both our individual and group protection businesses, where a strong first quarter offset the impact of slower trading in the second quarter following the implementation of lockdown restrictions . VNB decreased by 11% to £67 million (HY19: £76 million) as margins fell compared to the first half of 2019 due to a highly competitive marketplace.

Protection operating profit reduced by 29% to £70 million (HY19 restated: £99 million) due to lower new business margins, and adverse claims experience during the first quarter.

Heritage

Heritage operating profit was stable at £226 million (HY19: £225 million) and contained a net benefit from non-recurring items and other gains. The expected impact of the portfolio run off was offset by cost savings in the first half of 2020.

Health

UK Health operating profit decreased by 23% to £11 million (HY19: 15 million). This includes the expected impact of the fair value pledge provided to policyholders, which reflects the extent to which claims levels were lower in the first half of 2020 as a result of the COVID-19 pandemic. Health and Other PVNBP increased to £366 million (HY19: 269 million) driven by higher large corporate business sales.

Other

Other operating profit increased by £5 million to £69 million (HY19: £64 million). We have recognised a provision of £25 million to meet expected COVID-19 related claims for our individual and group protection businesses, net of expected favourable experience variances on our annuity book. The provision represents our total expected net liabilities on in-force policies from the COVID-19 pandemic over the next two years. During the first half of 2020, COVID-19 related individual and group protection claims amounted to £16 million, net of reinsurance.

Controllable costs

UK Life controllable costs decreased by 9% to £336 million (HY19: £369 million) mainly due to reduced spending on project activity as well as the impact of cost reduction.

Investment, Savings & Retirement

The Investment, Savings & Retirement business consists of our long-term Savings & Retirement business (excluding legacy pensions) and Aviva Investors, our international asset management business.

£m (unless otherwise stated)

6 months
2020
£m

Restated1

 6 months
2019
£m

Sterling % change

Constant currency
%

Full year
2019
£m

Investment, Savings & Retirement

 

 

 

 

 

Operating profit‡#

111

80

39%

39%

189

Controllable costs  

377

369

2%

2%

782

New business2

 

 

 

 

 

PVNBP

9,220

9,015

2%

2%

20,186

VNB

70

77

(9)%

(9)%

166

 

 

 

 

 

 

Savings & Retirement contribution

 

 

 

 

 

Operating profit‡#

76

20

280%

280%

93

Controllable costs

170

165

3%

3%

336

 

 

 

 

 

 

Aviva Investors contribution

 

 

 

 

 

Revenue

242

264

(8)%

(8)%

542

Controllable costs

207

204

1%

1%

446

Operating profit‡#

35

60

(42)%

(42)%

96

Assets under management

£355bn

£346bn

3%

3%

£346bn

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

2  Investments, Savings & Retirement new business figures include Aviva Investors PVNBP of £680 million (HY19: £585 million, 2019: £1,266 million) and VNB of £7 million (HY19: £6 million, 2019: £12 million).

 

 

Page 16

 

6.i - UK Life and Investments, Savings & Retirement continued

Operating and financial performance continued

Investment, Savings & Retirement continued

UK Savings & Retirement

Managed assets and net flows

Platform
£m

Pensions and other savings & retirement
£m

Total
savings and
retirement
£m

Managed assets at 1 January 2020

29,085

84,153

113,238

Premiums and deposits, net of reinsurance

2,932

4,636

7,568

Claims and redemptions, net of reinsurance

(1,020)

(2,382)

(3,402)

Net flows

1,912

2,254

4,166

Market and other movements

(816)

(3,214)

(4,030)

Managed assets at 30 June 2020

30,181

83,193

113,374

UK Savings & Retirement net flows increased by 28% to £4.2 billion (HY19: £3.2 billion) due to higher group pension net flows driven by regular premiums on group pension business, where we saw the benefit of higher levels of auto-enrolment contributions. Inflows onto our platform increased to £2.9 billion (HY19: £2.7 billion), where our flexible pension drawdown capability and comprehensive range of investments saw us increase our share of the advised market on both a gross and net flows basis in the first quarter of 2020.  

Controllable costs increased by 3% to £170 million (HY19: £165 million) as we continue to invest in our growth strategy.

Operating profit grew strongly to £76 million (HY19: £20 million), driven by growing revenue from an asset base which has increased to £113 billion (HY19: £103 billion).

Aviva Investors

Considerable market volatility and investor activity was experienced in the first half as concerns over the economic disruption caused by COVID-19 impacted financial markets. Our investment performance was not immune from the turbulence, but as at the end of June 2020 55% of our funds were ahead of benchmark over three years, and 56% over five years. Fund performance compared to targets have been maintained, with 31% of assets under management exceeding targets over one year, consistent with the position at 31 December 2019. In terms of external client flows, our business has maintained the positive momentum experienced in the second half of 2019, with net positive external clients flows of £1.3 billion in the period, with significant new business wins in the UK and North America in the first half of 2020 demonstrating success in our diversification strategy.

Revenue

Revenue decreased by 8% to £242 million (HY19: 264 million) mainly driven by lower fee income as a result of changes in underlying asset mix towards lower margin assets arising from the widespread impact of COVID-19, de-risking by internal clients, the legacy internal client run off, and the impact of the expiry of a distribution agreement in the prior year resulting in lower revenue this year.

Controllable costs

Aviva Investors controllable costs increased by 1% to £207 million (HY19: 204 million), reflecting the impact of inflation and phasing of costs in the first half of the year compared to the prior period.

Operating profit‡#

Aviva Investors operating profit decreased by 42% to £35 million (HY19: 60 million restated) mainly due to the lower fee income during the first half of 2020.

 

 

Page 17

 

6.i - UK Life and Investments, Savings & Retirement continued

Operating and financial performance continued

Investment, Savings & Retirement continued

Aviva Investors continued

Net flows and assets under management and under administration

Assets under management represent all assets managed by Aviva Investors. These comprise assets which are included within the Group's statement of financial position and those belonging to external clients outside the Group which are not included in the statement of financial position. Internal assets are managed by Aviva Investors on behalf of Group companies, and includes assets managed for the UK Savings & Retirement business. Internal legacy relates to products that are no longer actively marketed.

 

Internal legacy £m

Internal core £m

External
 m

Total
 m

Assets under management at 1 January 2020

84,927

194,693

66,512

346,132

Total inflows

6,702

16,352

4,655

27,709

Total outflows

(9,864)

(15,639)

(3,388)

(28,891)

Net flows

(3,162)

713

1,267

(1,182)

Net flows into liquidity funds and cash

(435)

2,579

3,124

5,268

Market and foreign exchange movements

4,808

(1,348)

1,249

4,709

Assets under management at 30 June 2020

86,138

196,637

72,152

354,927

Externally managed assets under administration at 1 January 2020

 

 

 

36,292

Externally managed assets under administration net flows and other movements

 

 

 

(501)

Externally managed assets under administration at 30 June 2020

 

 

 

35,791

Assets under management and administration at 1 January 2020

 

 

 

382,424

Assets under management and administration at 30 June 2020

 

 

 

390,718

Assets under management increased by £8.8 billion to £354.9 billion (2019: 346.1 billion). This is due to £1.3 billion of external net inflows, £5.3 billion of net inflows into liquidity funds and cash and £4.7 billion of positive market and foreign exchange movements, offset by £2.4 billion of net outflows on our internal client. Assets under management and administration at 30 June 2020 were £390.7 billion (2019: 382.4 billion).

 

 

Page 18

 

6.ii - General Insurance

£m (unless otherwise stated)

6 months 2020
£m

Restated1,2

6 months 
 2019 
£m 

Sterling % change

Constant currency
%

Full year 2019
£m

6 months 2020
£m

Restated1,2

6 months 
 2019 
£m 

Sterling % change

Constant currency
%

Full year 2019
£m

Operating profit‡# and controllable costs

Operating profit

Controllable costs

UK

(66)

141 

(147)%

(147)%

250

341

361 

(6)%

(6)%

726

Canada

129

89 

45%

43%

191

194

195 

(1)%

(1)%

402

Europe

104

103 

1%

2%

154

156

147 

6%

6%

288

Asia

-

(1) 

(100)%

(100)%

(1)

2

-

-

4

 

167

332 

(50)%

(50)%

594

693

705 

(2)%

(2)%

1,420

 

 

 

NWP and COR

NWP

COR

UK

2,140

2,158 

(1)%

(1)%

4,218

106.3%

97.2% 

9.1pp

 

97.9%

Canada

1,502

1,458 

3%

2%

3,061

95.5%

98.1% 

(2.6)pp

 

97.8%

Europe

1,099

1,102 

-

-

2,017

92.6%

92.9% 

(0.3)pp

 

95.7%

Asia

7

-

-

13

N/A

N/A 

N/A

 

N/A

 

4,748

4,725 

-

-

9,309

99.8%

96.8% 

3.0pp

 

97.5%

 

 

 

 

 

 

 

 

 

 

 

Solvency II operating own funds generation

 

 

 

 

 

194

298 

(35)%

(39)%

628

Solvency II return on capital

 

 

 

 

 

8.0%

13.3% 

(5.3)pp

(5.3)pp

14.0%

 

 

 

 

 

 

 

 

 

 

 

Solvency II operating capital generation‡#

 

 

 

 

 

163

216 

(25)%

(24)%

574

Cash remittances‡#

 

 

 

 

 

24

191 

(87)%

(87)%

584

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

2  Comparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations of Europe and Asia to their respective market segments to better reflect the management of the underlying businesses.

Overview

Aviva's General Insurance business operates at scale in the UK and Canada. We have a European business that operates in France, Ireland, Poland and Italy, and an Asian business that operates in Singapore. In the first half of 2020 we have focussed on executing our market strategies, with disruption from a slowdown in trading activity during the second quarter of 2020 due to the global COVID-19 pandemic.

Our estimate for the impact of the COVID-19 pandemic incorporates estimated claims net of reinsurance in business interruption insurance, other commercial lines and travel insurance, and allows for favourable impacts in other product lines. The continuing nature of COVID-19 related events means that these figures are subject to a significant degree of uncertainty. Excluding these COVID-19 related impacts, higher weather costs and prior year reserve strengthening, General Insurance has delivered an improved performance compared to HY19. General Insurance operating profit decreased to £167 million (HY19 restated: £332 million), which translated to a COR of 99.8% (HY19 restated: 96.8%) due to the £165 million impact of the COVID-19 pandemic as defined above, a £10 million prior year reserve strengthening net of COVID-19 impact compared to a £21 million release at HY19, and weather costs £87 million higher than at HY19.

Net written premiums increased marginally to £4,748 million (HY19: £4,725 million), reflecting volume and rate increases in Global Corporate and Speciality commercial lines offset by a decline in personal lines due to worldwide government enforced lockdown measures.

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

Operating and financial performance

United Kingdom General Insurance

Operating profit ‡#

The UK recorded an operating loss of £66 million (HY19 restated: £141 million operating profit), with the decrease primarily reflecting COVID‑19 related claims, as defined above, higher weather costs and prior year reserve strengthening.

The impact of COVID-19 related claims was £138 million, weather costs were £47 million higher due to storms Ciara, Dennis and Jorge in February compared to a benign 2019, and there was a £21 million prior year reserve strengthening at HY20 (excluding the impact of COVID‑19) compared to a £16 million release at HY19. Long-term investment return was also £11 million lower due to reduced yields.

Excluding these impacts, the UK delivered an improved performance compared to HY19. Personal Lines benefited from the continued simplification of our business and remediation or exit of poor performing segments and Commercial Lines benefited from above inflation rate increases and targeted volume growth.

NWP and COR

UK Commercial Lines NWP grew 8% to £1,005 million (HY19: £929 million), reflecting a combination of above inflation rate increases and targeted volume growth in Specialty Lines and SME Digital. UK Personal Lines saw 4% growth in the first quarter of 2020 in Retail own brands, offset by targeted exits and the continued run-off of the Creditor book. Growth slowed in the second quarter primarily due to COVID-19 impacts, with Retail own brands proving most resilient, resulting in an 8% reduction in NWP to £1,135 million (HY19: £1,229 million). Overall NWP was 1% lower at £2,140 million (HY19: £2,158 million). Although NWP for the year will be below planned levels, we are starting to see increased activity levels as we support distributors and customers.

 

 

 

Page 19

 

6.ii - General Insurance continued

Operating and financial performance continued

UK General Insurance continued

NWP and COR continued

UK GI COR improved by 1.5pp excluding the impacts of COVID-19 claims as previously defined, weather and prior year reserve strengthening . The adverse net impact of 6.6pp COVID-19 claims related impacts, 2.2pp higher weather costs and 1.8pp adverse movement in prior year reserves resulted in a COR of 106.3% (HY19 restated: 97.2%) . Personal lines COR of 97.8% (HY19: 98.9%) was 1.1pp lower year-on-year, reflecting an improvement in underlying performance as we continue to simplify our Personal Lines business and remediate or exit poor performing segments. Commercial lines saw an improvement in underlying performance driven by above inflation rate increases and targeted volume growth but the COR of 116.6% (HY19: 94.8%) was 22.2pp higher year-on-year, reflecting COVID-19 claims impacts, higher prior year reserve strengthening and higher weather costs.

Controllable costs

Controllable costs decreased 6% to £341 million (HY19: £361 million), reflecting the simplification of our Personal Lines business and a reduction in project spend, while continuing to invest in our IT infrastructure and support growth in our Commercial lines business.

Canada

Operating profit‡#

During the first half of 2020, operating profit of £129 million (HY19 restated: £89 million) improved due to actions around pricing, indemnity management and risk selection. However, within this, Personal lines performed significantly better than expected while Commercial lines were impacted by COVID-19 claims. The economic shutdown due to COVID-19 has created significant disruption to our business but our financial stability and profitability has held up. Long-term investment return worsened by 1.4% due to   lower short-term reinvestment yields, increased broker loan paybacks in late 2019, and reduced preferred shares dividend income.

NWP and COR

Net written premiums were £1,502 million (HY19: £1,458 million). In Personal lines, NWP reduced to £1,012 million (HY19: £1,018 million) primarily as a result of the impact of COVID-19, as we offered more consumer relief in motor insurance. Commercial lines NWP increased to £490 million (HY19: £440 million) due to growth in Global Corporate and Specialty new business and rate increases put through during renewals.

The COR has improved to 95.5% at HY20 (HY19 restated: 98.1%) for the reasons described in relation to operating profit above . Personal lines COR of 86.4% was 11.2pp lower year-on-year, mainly driven by a milder winter, lower motor frequency before and after the COVID-19 shutdown and better pricing and underwriting. Commercial lines COR of 115.0% was 15.3pp higher year-on-year due to increased claims, mostly as a result of COVID-19.

Controllable costs

Controllable costs were broadly level at £194 million (HY19: £195 million) and reflect investment in claims personnel and processes, investment in our pricing capabilities and the Global Corporate and Specialty business, and continued investment in our IT infrastructure.

Europe

Operating profit‡#

Europe general insurance operating profit remained broadly level at £104 million (HY19 restated: £103 million) . In France, operating profit was £55 million (HY19 restated: £55 million) with operating profit growth from underlying activities offset by unfavourable prior year development and higher weather claims compared to HY19. In France the impact of the COVID-19 pandemic on commercial lines is expected to manifest in the second half of 2020. In Italy operating profit increased to £20 million (HY19 restated: £12 million) primarily driven by strong investment performance in the period. Operating profit was lower in Ireland in part due to COVID-19 claims and adverse large losses, partially offset by prior year development. In Ireland weather claims were favourable against longer term expectations, however this benefit was lower than at HY19.

NWP and COR

NWP remained stable at £1,099 million (HY19: £1,102 million) with growth in France, particularly in Commercial lines, offset by lower premiums in Poland and Ireland primarily due to the impact of the COVID-19 pandemic on new business, in addition to a soft Personal lines market in Ireland.

COR decreased by 0.3pp to 92.6% (HY19: 92.9%) for the reasons described in the operating profit section above.

Controllable costs

Controllable costs increased 6% to £156 million (HY19: £147 million), including charitable contributions to the France solidarity fund and increased project implementation costs in Ireland, offset by BAU cost savings and asset levy refunds in Poland .

 

 

 

Page 20

 

6.ii - General Insurance continued

Solvency II and cash remittances

Solvency II operating own funds generation and return on capital

General Insurance delivered improved own funds generation and Solvency II return on capital in HY20 compared to prior year after excluding the impacts of COVID-19 related claims, adverse prior year development and higher weather costs. Including these impacts, Solvency II own funds generation decreased to £194 million (HY19: £298 million), which translated to a Solvency II return on capital of 8% (HY19: 13.3%).

Operating capital generation‡#

General Insurance Solvency II operating capital generation reduced to £163 million (HY19: £216 million) reflecting the reduction in own funds generation described above, partially offset by the non-repeat of the one-off impact of the alignment of UK Digital costs which increased the Solvency II capital requirement at HY19.

Cash‡#

Cash remittances to Group are £24 million (HY19: £191 million). Cash remittances in HY20 relate to interest payments as dividends were not received from our GI businesses, as we look to maintain balance sheet strength during the period of uncertainty as a result of the COVID-19 pandemic.

 

 

Page 21

 

6.ii - General Insurance continued

6 months 2020

UK
Personal
£m

UK Commercial £m

Total
UK
£m

Canada Personal
£m

Canada Commercial £m

Total
Canada
£m

Europe
£m

Asia
 m

Total
£m

General insurance

 

 

 

 

 

 

 

 

 

Gross written premiums

1,172

1,143

2,315

1,029

551

1,580

1,152

7

5,054

Net written premiums

1,135

1,005

2,140

1,012

490

1,502

1,099

7

4,748

Net earned premiums

1,150

942

2,092

1,027

481

1,508

1,008

6

4,614

Net claims incurred

(695)

(788)

(1,483)

(565)

(372)

(937)

(633)

(4)

(3,057)

Of which claims handling costs

 

 

(69)

 

 

(56)

(33)

-

(158)

Earned commission

(278)

(189)

(467)

(210)

(109)

(319)

(190)

(1)

(977)

Earned expenses

(152)

(122)

(274)

(112)

(72)

(184)

(109)

(1)

(568)

Underwriting result

25

(157)

(132)

140

(72)

68

76

-

12

Long-term investment return (LTIR)

 

 

72

 

 

64

37

-

173

Other1

 

 

(6)

 

 

(3)

(9)

-

(18)

Operating profit

 

 

(66)

 

 

129

104

-

167

General insurance combined operating ratio2

 

 

 

 

 

 

 

 

 

Claims ratio

60.5%

83.6%

70.9%

55.0%

77.3%

62.1%

62.8%

 

66.3%

Of which:

 

 

 

 

 

 

 

 

 

Prior year reserve development (%)

 

 

2.7%

 

 

(0.5)%

(0.3)%

 

1.0%

Weather claims (under)/over long-term average (%)

 

 

(0.6)%

 

 

1.6%

(0.3)%

 

0.2%

Commission ratio

24.1%

20.1%

22.3%

20.4%

22.7%

21.2%

18.9%

 

21.2%

Expense ratio

13.2%

12.9%

13.1%

11.0%

15.0%

12.2%

10.9%

 

12.3%

Combined operating ratio

97.8%

116.6%

106.3%

86.4%

115.0%

95.5%

92.6%

 

99.8%

Assets supporting general insurance business

 

 

 

 

 

 

 

 

 

Debt securities

 

 

2,264

 

 

5,026

2,358

99

9,747

Equity securities

 

 

559

 

 

220

15

-

794

Investment property

 

 

406

 

 

-

186

-

592

Cash and cash equivalents

 

 

1,481

 

 

161

308

35

1,985

Other3

 

 

1,577

 

 

186

423

-

2,186

Assets at 30 June 2020

 

 

6,287

 

 

5,593

3,290

134

15,304

Debt securities

 

 

2,323

 

 

4,633

2,209

81

9,246

Equity securities

 

 

744

 

 

231

161

-

1,136

Investment property

 

 

414

 

 

-

170

-

584

Cash and cash equivalents

 

 

609

 

 

158

160

23

950

Other3

 

 

1,882

 

 

150

387

-

2,419

Assets at 31 December 2019

 

 

5,972

 

 

5,172

3,087

104

14,335

Average assets

 

 

6,130

 

 

5,383

3,189

119

14,821

LTIR as % of average assets

 

 

2.3%

 

 

2.4%

2.3%

-

2.3%

1  Includes the result of non-insurance operations, unwind of discount rate, pension scheme net finance costs and IFRS 16 leases expense interest.

2  General Insurance ratios include Aviva Re.

3  Includes loans and other financial investments.

 

 

 

Page 22

 

6.ii - General insurance continued

Restated1,2,3  6 months 2019

UK
Personal
£m

UK Commercial £m

Total
UK
£m

Canada Personal
£m

Canada Commercial £m

Total
Canada
 m

Europe
£m

Asia
£m

Total
£m

General insurance

 

 

 

 

 

 

 

 

 

Gross written premiums

1,266

1,072

2,338

1,035

490

1,525

1,151

7

5,021

Net written premiums

1,229

929

2,158

1,018

440

1,458

1,102

7

4,725

Net earned premiums

1,233

851

2,084

1,033

416

1,449

992

7

4,532

Net claims incurred

(775)

(514)

(1,289)

(707)

(254)

(961)

(629)

(5)

(2,884)

Of which claims handling costs

 

 

(78)

 

 

(58)

(34)

2

(168)

Earned commission

(298)

(178)

(476)

(186)

(93)

(279)

(186)

-

(941)

Earned expenses

(146)

(114)

(260)

(115)

(67)

(182)

(107)

(2)

(551)

Underwriting result

14

45

59

25

2

27

70

-

156

Long-term investment return (LTIR)

 

 

83

 

 

65

36

-

184

Other4

 

 

(1)

 

 

(3)

(3)

(1)

(8)

Operating profit

 

 

141

 

 

89

103

(1)

332

General insurance combined operating ratio5

 

 

 

 

 

 

 

 

 

Claims ratio

62.9%

60.4%

61.9%

68.4%

61.2%

66.3%

63.3%

 

63.8%

Of which:

 

 

 

 

 

 

 

 

 

Prior year reserve development (%)

 

 

(0.8)%

 

 

(0.3)%

(0.3)%

 

(0.3)%

Weather claims (under)/over long-term average (%)

 

 

(2.8)%

 

 

(0.4)%

(1.3)%

 

(1.7)%

Commission ratio

24.2%

20.9%

22.8%

18.0%

22.3%

19.2%

18.8%

 

20.8%

Expense ratio

11.8%

13.5%

12.5%

11.2%

16.2%

12.6%

10.8%

 

12.2%

Combined operating ratio

98.9%

94.8%

97.2%

97.6%

99.7%

98.1%

92.9%

 

96.8%

Assets supporting general insurance business

 

 

 

 

 

 

 

 

 

Debt securities

 

 

2,428

 

 

4,755

2,218

72

9,473

Equity securities

 

 

720

 

 

236

23

-

979

Investment property

 

 

407

 

 

-

153

-

560

Cash and cash equivalents

 

 

478

 

 

139

308

22

947

Other6

 

 

1,859

 

 

174

596

-

2,629

Assets at 30 June 2019

 

 

5,892

 

 

5,304

3,298

94

14,588

Debt securities

 

 

2,367

 

 

4,445

2,179

72

9,063

Equity securities

 

 

568

 

 

208

90

-

866

Investment property

 

 

380

 

 

-

148

-

528

Cash and cash equivalents

 

 

700

 

 

130

371

15

1,216

Other6

 

 

1,776

 

 

207

615

-

2,598

Assets at 31 December 2018

 

 

5,791

 

 

4,990

3,403

87

14,271

Average assets

 

 

5,842

 

 

5,147

3,351

91

14,431

LTIR as % of average assets

 

 

2.8%

 

 

2.5%

2.1%

-

2.6%

1  Following a review of the Group's presentation of consolidated investment funds, comparative amounts as at 30 June 2019 have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity. See note B2 for further information.

2  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.  

3  Comparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations for Europe and Asia to their respective market segments to better reflect the management of the underlying businesses.

4  Includes the result of non-insurance operations, unwind of discount rate, pension scheme net finance costs and IFRS 16 leases expense interest.

5  General Insurance ratios include Aviva Re.

6  Includes loans and other financial investments.

 

 

 

Page 23

 

6.ii - General insurance continued

Full year 2019

UK  
Personal
£m

UK Commercial
£m

Total
UK
 m

Canada Personal
£m

Canada Commercial £m

Total
Canada
£m

Europe
£m

Asia
£m

Total
£m

General insurance

 

 

 

 

 

 

 

 

 

Gross written premiums

2,470

2,154

4,624

2,134

1,070

3,204

2,121

15

9,964

Net written premiums

2,399

1,819

4,218

2,100

961

3,061

2,017

13

9,309

Net earned premiums

2,440

1,721

4,161

2,078

884

2,962

1,982

15

9,120

Net claims incurred

(1,545)

(1,049)

(2,594)

(1,421)

(531)

(1,952)

(1,306)

(12)

(5,864)

Of which claims handling costs

 

 

(155)

 

 

(116)

(64)

-

(335)

Earned commission

(599)

(364)

(963)

(378)

(194)

(572)

(365)

(2)

(1,902)

Earned expenses

(279)

(239)

(518)

(233)

(140)

(373)

(225)

(3)

(1,119)

Underwriting result

17

69

86

46

19

65

86

(2)

235

Long-term investment return (LTIR)

 

 

166

 

 

133

76

1

376

Other1

 

 

(2)

 

 

(7)

(8)

-

(17)

Operating profit (GI)

 

 

250

 

 

191

154

(1)

594

General insurance combined operating ratio2

 

 

 

 

 

 

 

 

 

Claims ratio

63.3%

60.9%

62.3%

68.4%

60.0%

65.9%

65.9%

 

64.4%

Of which:

 

 

 

 

 

 

 

 

 

Prior year reserve development (%)

 

 

(2.6)%

 

 

(0.6)%

(1.8)%

 

(1.7)%

Weather claims (under)/over long-term average (%)

 

 

(2.4)%

 

 

(0.7)%

1.2%

 

(1.0)%

Commission ratio

24.6%

21.2%

23.1%

18.2%

22.0%

19.3%

18.4%

 

20.8%

Expense ratio

11.4%

13.9%

12.5%

11.2%

15.8%

12.6%

11.4%

 

12.3%

Combined operating ratio

99.3%

96.0%

97.9%

97.8%

97.8%

97.8%

95.7%

 

97.5%

Assets supporting general insurance business

 

 

 

 

 

 

 

 

 

Debt securities

 

 

2,323

 

 

4,633

2,209

81

9,246

Equity securities

 

 

744

 

 

231

161

-

1,136

Investment property

 

 

414

 

 

-

170

-

584

Cash and cash equivalents

 

 

609

 

 

158

160

23

950

Other3

 

 

1,882

 

 

150

387

-

2,419

Assets at 31 December 2019

 

 

5,972

 

 

5,172

3,087

104

14,335

Debt securities

 

 

2,367

 

 

4,445

2,179

72

9,063

Equity securities

 

 

568

 

 

208

90

-

866

Investment property

 

 

380

 

 

-

148

-

528

Cash and cash equivalents

 

 

700

 

 

130

371

15

1,216

Other3

 

 

1,776

 

 

207

615

-

2,598

Assets at 31 December 2018

 

 

5,791

 

 

4,990

3,403

87

14,271

Average assets

 

 

5,882

 

 

5,081

3,245

96

14,304

LTIR as % of average assets

 

 

2.8%

 

 

2.6%

2.3%

1.0%

2.6%

1  Includes the result of non-insurance operations, unwind of discount rate, pension scheme net finance costs and IFRS 16 leases expense interest.

2  General Insurance ratios include Aviva Re.

2  Includes loans and other financial investments.

 

 

Page 24

 

6.iii - Europe Life

£m (unless otherwise stated)

6 months 2020
£m

6 months 2019
£m

Sterling % change

Constant currency
%

Full year 2019
£m

6 months 2020
£m

Restated1,2  

6 months   
2019 
 m 

Sterling % change

Constant currency
%

Restated3

Full year 2019
£m

Solvency II operating own funds generation

 

 

 

 

 

217

304 

(29)%

(28)%

574

Solvency II return on capital

 

 

 

 

 

7.1%

11.0% 

(3.9)pp

(4.4)pp

10.3%

 

 

 

 

 

 

 

 

 

 

 

Solvency II operating capital generation‡#

 

 

 

 

 

464

324 

43%

45%

754

Cash remittances‡#

 

 

 

 

 

32

418 

(92)%

(92)%

414

 

 

 

 

 

 

 

 

 

 

 

Operating profit‡#

 

 

 

 

 

 

 

 

 

 

France

 

 

 

 

 

165

195 

(16)%

(16)%

408

Poland

 

 

 

 

 

88

85 

2%

5%

174

Italy

 

 

 

 

 

100

82 

20%

20%

173

Other Europe

 

 

 

 

 

14

30 

(54)%

(53)%

72

 

 

 

 

 

 

367

392 

(7)%

(6)%

827

 

 

 

 

 

 

 

 

 

 

 

Controllable costs3,‡

 

 

 

 

 

280

281 

1%

2%

553

 

 

 

 

 

 

 

 

 

 

 

New business

PVNBP

VNB

France

2,158

2,710

(20)%

(20)%

5,702

100

95 

6%

6%

168

Poland

234

307

(24)%

(23)%

624

26

31 

(16)%

(14)%

64

Italy

2,142

3,468

(38)%

(38)%

5,537

51

99 

(49)%

(49)%

147

Other Europe

891

913

(2)%

-

1,909

11

12 

(10)%

(1)%

35

 

5,425

7,398

(27)%

(26)%

13,772

188

237 

(21)%

(20)%

414

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

2  Comparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations to their respective market segments to better reflect the management of the underlying businesses.

3  Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated by £2 million for the 6 month period ended 30 June 2019 and £5 million for the year ended 31 December 2019 to include previously excluded claims handling costs attributable to Ireland and Poland, in controllable costs. 

Overview

Aviva operates in a number of markets in Europe with life insurance operations in France, Italy, Poland, and Other Europe markets (Ireland and Turkey). In the first half of 2020 we have focused on the development and implementation of our market strategies for organic growth while we navigated the operational and financial challenges presented by government responses to the COVID-19 pandemic across Europe. Operating profit decreased by 6% to £367 million(HY19 restated: £392 million) with growth in Italy and Poland offset by lower profits in other markets. The volatility in financial markets adversely impacted operating profit either directly through reduced assets under management and fee income or indirectly as a result of the balance sheet de-risking actions taken in most markets which has reduced investment return. In addition, France has seen an increase in protection claims.

Europe Life experienced lower trading volumes as a result of the movement restrictions imposed from early March together with customer caution in the face of the significant uncertainty, while we also actively sought to reduce with-profit inflows in France and Italy all of which resulted in a decrease in PVNBP by 26% to £5,425 million (HY19: £7,398 million) during the first half of 2020. Savings new business mix continued to shift towards unit-linked products in line with our strategy to shift new business towards capital-light products.

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

Operating and financial performance

Solvency II operating own funds generation and return on capital

Europe Life Solvency II return on capital has decreased by 3.9pp to 7.1% (HY19: 11.0%), on a sterling basis, and Solvency II operating own funds generation has reduced to £217 million (HY19: £304 million). This was primarily due to lower new business volumes over the period reflecting managed reductions in with-profit volumes and impacts of the COVID-19 pandemic on trading, and a lower contribution from management actions than the first half of 2019 which included favourable modelling and assumption changes in Italy.

Operating capital generation (OCG) ‡#

Europe Life Solvency II operating capital generation has increased by £140 million to £464 million (HY19: £324 million), primarily as a result of strategic asset allocation, de-risking and hedging activity in France, Ireland and Italy to protect the capital position against further adverse economic movements in the current market environment.

Cash‡#

Cash remitted to Group was £32 million(HY19: £418 million), the first half of 2019 included a France dividend of £240 million and a Poland dividend of £144 million, neither market has paid dividends during the first half of 2020 as we maintain balance sheet strength during this period of uncertainty.

Operating profit‡#

The operating profit of our life and health businesses reduced by 6% to £367 million (HY19 restated: 392 million). Dealing with each of the markets in turn:

· In France, operating profit decreased by 16% to £165 million (HY19 restated: £195 million) with improved product mix during the first half of the year more than offset by adverse protection claims experience . The operating profit in our health business was £11 million (HY19: 6 million) following low claims experience during the lockdown period.

 

 

Page 25

 

6.iii - Europe Life continued

Operating and financial performance continued

Operating profit‡# continued

· In Poland, operating profit increased by 5% to £88 million(HY19 restated: 85 million) with actions taken to reduce operating expenses offsetting trading disruption arising from lockdown restrictions which particularly affected our Bancassurance channels

· In Italy, operating profit increased by 20% to £100 million (HY19 restated: 82 million) as a result of higher fee income from assets under management that had grown strongly in previous periods offsetting the trading disruption experienced during the first half of 2020.

· Within Other Europe markets, Ireland operating profit reduced to £8 million (HY19 restated: £24 million), a decrease of 68% mainly driven by adverse income protection claims experience, the impact of balance sheet de-risking actions during the first half of 2020, and the absence of positive one-off methodology changes included in half-year 2019 result. In Turkey, operating profit was £6 million (HY19 restated: £6 million).

Managed assets and net flows

 

6 months
2020
£m

6 months
2019
£m

Full year
2019
 m

Managed assets at 1 January

125,580

118,502

118,502

Premiums and deposits, net of reinsurance

4,929

6,449

12,474

Claims and redemptions, net of reinsurance

(4,162)

(4,040)

(7,992)

Net flows

767

2,409

4,482

Market and other movements

6,224

7,209

2,596

Managed assets at 30 June/31 December

132,571

128,120

125,580

Net inflows in Europe of £0.8 billion (HY19: £2.4 billion) decreased mainly due to lower trading volumes as a result of the movement restrictions imposed in all markets from early March and our active reduction of with-profit inflows in France and Italy. Europe managed assets have benefitted from positive market and other movements of £6.2 billion (HY19: £7.2 billion) during the first half of 2020.

Controllable costs

Controllable costs for Europe Life were stable at £280 million (HY19 restated: £281 million) reflecting a reduction in run-rate expenses and change spend as a result of our cost saving programme, offset by inflationary increases and one-off costs incurred as a result of changes in operating environment during the first half of 2020 due to the COVID-19 pandemic.

New business

Europe Life PVNBP decreased by 26% to £5,425 million (HY19: £7,398 million) and VNB decreased by 20% to £188 million (HY19: 237 million). New business margin improved overall as a result of favourable business mix as we significantly increased our mix of unit-linked business.

In France, PVNBP was down by 20% to £2,158 million (HY19: £2,710 million) reflecting managed reductions in with-profit volumes and lower volumes due to the trading disruption caused by the lockdown in France from April onwards, which partially offsets strong growth in our unit-linked pension product. VNB increased by 6% to £100 million (HY19: £95 million) with an improvement in margin driven largely by a higher mix of more profitable unit-linked inflows.

In Poland PVNBP decreased by 23% to £234 million (HY19: £307 million) driven by lower volume due to the trading disruption in our distribution channels arising from movement restrictions and the closure of branches by our bancassurance partners. VNB margins improved slightly compared to the first half of 2019 as a result of favourable mix of business.

In Italy, PVNBP was down by 38% to £2,142 million (HY19: £3,468 million) due to a managed reduction in standalone with-profits volumes together with lower volume due to trading disruption from March onwards arising from movement restrictions. VNB margins were lower due to the impact of unfavourable interest rates movements partially offset by the introduction of our higher margin Formula 5 savings product.

Within Other Europe markets, Ireland PVNBP was up by 2% to £770 million (HY19: £753 million) as strong pension sales during the first half of 2020 was offset by the lower volumes due to the impact of trading disruption arising from lockdowns from April onwards. In Turkey PVNBP reduced by 14% to £121 million (HY19: £160 million) as a result of lower volumes due to the trading disruption from bank branch closures.

 

 

 

Page 26

 

6.iv - Asia Life

£m (unless otherwise stated)

6 months 2020
£m

6 months 2019
 m

Sterling % change

Constant currency
%

Full year 2019
£m

6 months 2020
 m

Restated1,2  

6 months 
 2019 
£m 

Sterling % change

Constant currency
%

Full year 2019
£m

Solvency II operating own funds generation

 

 

 

 

 

97

76 

28%

28%

187

Solvency II return on capital

 

 

 

 

 

12.7%

10.4% 

2.3pp

2.0pp

12.7%

 

 

 

 

 

 

 

 

 

 

 

Solvency II operating capital generation‡#

 

 

 

 

 

43

18 

139%

124%

60

Cash remittances‡#

 

 

 

 

 

-

-

-

51

 

 

 

 

 

 

 

 

 

 

 

Operating profit‡#

 

 

 

 

 

 

 

 

 

 

Singapore

 

 

 

 

 

53

52 

2%

3%

145

China

 

 

 

 

 

19

25 

(24)%

(22)%

25

Other Asia (excl FPI, Hong Kong & Indonesia)

 

 

 

 

 

(5)

(9) 

(44)%

44%

(12)

 

 

 

 

 

 

67

68 

(1)%

1%

158

Held for Sale (FPI, Hong Kong & Indonesia)

 

 

 

 

 

73

84 

(13)%

(13)%

118

 

 

 

 

 

 

140

152 

(8)%

(7)%

276

 

 

 

 

 

 

 

 

 

 

 

Controllable costs

 

 

 

 

 

89

93 

(3)%

(3)%

198

 

 

 

 

 

 

 

 

 

 

 

New business

PVNBP

VNB 

Singapore

693

724

(4)%

(4)%

1,580

72

71 

1%

2%

159

China

355

419

(15)%

(14)%

718

13

29 

(55)%

(55)%

43

Other Asia (excl FPI, Hong Kong & Indonesia)

162

102

59%

58%

300

6

(1) 

849%

1,231%

3

 

1,210

1,245

(3)%

(2)%

2,598

91

99 

(8)%

(7)%

205

Held for Sale (FPI, Hong Kong & Indonesia)

193

232

(17)%

(16)%

459

(1)

(3) 

67%

68%

1

 

1,403

1,477

(5)%

(4)%

3,057

90

96 

(6)%

(6)%

206

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

2  Comparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations to their respective market segments to better reflect the management of the underlying business.

Overview

Our businesses in Asia provide access to a combined population of over 2.8 billion people, with relatively low insurance penetration compared to Western markets. We provide life and health insurance solutions in Singapore, China, Vietnam and India. Across our markets we operate a multi-distribution channel strategy which includes tied-agency, financial advisers, bancassurance, affinity partnerships, telemarketing and direct sales force.

Our core strategy is to leverage strong partnerships and our distribution capability to grow long term value. We continue to place emphasis on earning customers' trust and delivering great customer outcomes. Investment in enhancing Asia's distribution, digital and analytics capabilities will continue throughout 2020.

In Singapore, as one of the biggest providers of employee benefits and healthcare insurance, we continued to grow our distribution networks. Our financial advisory subsidiaries, Aviva Financial Advisers and Professional Investment Advisory Services, now have a combined total of 1,901 advisers (HY19: 1,653 advisers). In China, building upon our excellent relationships with COFCO, our joint venture partner, we continued to invest in our core agency channel and further digitizing customer journeys and touch points.

As a result of the COVID-19 pandemic, many governments took rapid actions against the outbreak. Our businesses have implemented safeguards to ensure business continuity and support the wellbeing of our customers and communities. Looking ahead, we believe Asia's macro fundamentals remain sound, and regional insurance markets can recover relatively quickly post-COVID-19.

Our businesses in Friends Provident International (FPI), Hong Kong and Indonesia are classified as held for sale at 30 June 2020. We announced the disposal of our 76% stake in FPI was completed on 16 July 2020.

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

Operating and financial performance

Operating own funds generation, return on capital and operating capital generation

Asia Life Solvency II return on capital has improved by 2.3pp to 12.7% (HY19: 10.4%) on a sterling basis, and Solvency II operating capital generation has increased by £25 million to £43 million (HY19: £18 million), mainly attributable to improved persistency in Singapore, a strong back book in China and more capital efficient products sold in Vietnam.

Cash‡#

Cash remittances to Group were £nil during HY20 (HY19: £nil).

Operating profit‡#

Operating profit from our life and health businesses was £140 million (HY19 restated: £152 million). Excluding profit from held for sale entities, operating profit was £67 million (HY19 restated: £68 million). Within this, Singapore's operating profit remained stable at £53 million (HY19 restated: £52 million) reflecting improved claims experience and favourable modelling refinements, offset by lower new business volume due to the COVID-19 pandemic and expenses related to distribution channel development. Despite being the initial epicentre of the COVID-19 pandemic, China's operating profit remained resilient at £19 million (HY19 restated: £18 million, excluding £7 million one-off tax credit).

 

 

Page 27

 

6.iv - Asia Life continued

Operating and financial performance continued

Managed assets and net flows

 

6 months
2020
£m

6 months
2019
£m

Full year
2019
£m

Managed assets at 1 January

15,138

14,775

14,775

Premiums and deposits, net of reinsurance

527

356

927

Claims and redemptions, net of reinsurance

(321)

(401)

(838)

Net flows

206

(45)

89

Market and other movements

87

87

274

Managed assets at 30 June/31 December

15,431

14,817

15,138

Asia's managed assets increased to £15,431 million (HY19: £14,817 million). Net inflows of £206 million (HY19: £45 million outflow) were mainly attributable to Singapore's higher premium collections and improved claims experience.

Controllable costs

Total controllable costs were £89 million (HY19: £93 million). Excluding held for sale entities, controllable costs increased to £70 million (HY19: 68 million), as disciplined distribution development and investment in digital capabilities continued across the region.

New business

Excluding held for sale entities, PVNBP decreased by 2% to £1,210 million (HY19: £1,245 million). Sales volumes were impacted by lockdown measures imposed due to the COVID-19 pandemic, severely restricting sales activities across most channels.

Excluding held for sale entities, VNB decreased by 7% to £91 million (HY19: £99 million). Singapore and China sales were focussed towards lower margin savings products in early 2020 as we looked to boost sales volumes. Higher margin protection product sales planned for Q2 in Singapore and China were subsequently disrupted by the COVID-19 pandemic. Furthermore, as investment markets remained volatile during the COVID-19 outbreak, lower interest rates and dampened investor confidence negatively impacted VNB.

 

 

Page 28

 

7 - Life business profit drivers

 

UK Life including
Savings & Retirement

Europe Life

Asia Life

Total

 

6 months 2020
£m

Restated1  

6 months 2019
£m

Full year 2019
 m

6 months 2020
£m

Restated1  

6 months 2019
£m

Full year 2019
£m

6 months 2020
£m

Restated1  

6 months 2019
£m

Full year 2019
£m

6 months 2020
£m

Restated1

 6 months 2019
 m

Full year 2019
£m

New business income

414

297

919

116

148

299

144

161

317

674

606

1,535

Underwriting margin

148

165

287

90

98

250

54

41

97

292

304

634

Investment return3

695

661

1,346

652

607

1,231

118

119

251

1,465

1,387

2,828

Total income

1,257

1,123

2,552

858

853

1,780

316

321

665

2,431

2,297

4,997

Acquisition expenses

(210)

(192)

(407)

(134)

(171)

(302)

(117)

(121)

(250)

(461)

(484)

(959)

Administration expenses1,3

(398)

(431)

(898)

(317)

(289)

(588)

(60)

(54)

(115)

(775)

(774)

(1,601)

Total expenses

(608)

(623)

(1,305)

(451)

(460)

(890)

(177)

(175)

(365)

(1,236)

(1,258)

(2,560)

Other2,3,4

157

237

638

(51)

(7)

(84)

(15)

5

(17)

91

235

537

Life business operating profit

806

737

1,885

356

386

806

124

151

283

1,286

1,274

2,974

Health business operating profit

11

15

35

11

6

21

16

1

(7)

38

22

49

Total divisional operating profit

817

752

1,920

367

392

827

140

152

276

1,324

1,296

3,023

1   On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated. There is no impact on profit before tax attributable to shareholders' profit.

2  Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts have been restated to reclassify net interest expense from UK Life (Other) to Group debt costs and other interest, of £32 million for the 6 month period ended 30 June 2019 and £65 million for the year ended 31 December 2019 as a non-operating item. The change has no impact on the Group's operating profit.

3   Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts for administration expenses have been restated by £30 million for the 6 month period ended
30 June 2019 and £59 million for the year ended 31 December 2019 to include claims handling costs attributable to the UK Life business. Previously these costs were included as a reduction to investment return (£13 million for the 6 month period ended 30 June 2019 and £25 million for the year ended 31 December 2019) and other (£17 million for the 6 month period ended 30 June 2019 and £34 million for the year ended 31 December 2019). Additionally, as part of this review the comparative amount for administration expenses for the year ended 31 December 2019 has been restated to include £42 million of amortisation of intangible assets, previously included in other.

4  Other represents DAC, changes in assumptions and modelling, non-recurring items and non-product specific items and excludes the total profit of £nil (HY19: loss of £4 million, 2019: profit of £27 million) for Aviva Investors' Pooled Pensions and Aviva Life Reinsurance. Additionally, comparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations for Europe and Asia to their respective market segments to better reflect the management of the underlying businesses.

Income: New business income and underwriting margin

 

UK Life including
Savings & Retirement

Europe Life

Asia Life

Total

 

6 months 2020
£m

6 months 2019
£m

Full year 2019
£m

6 months 2020
 m

6 months 2019
 m

Full year 2019
£m

6 months 2020
£m

6 months 2019
 m

Full year 2019
 m

6 months 2020
£m

6 months 2019
£m

Full year 2019
 m

New business income

414

297

919

116

148

299

144

161

317

674

606

1,535

Acquisition expenses

(210)

(192)

(407)

(134)

(171)

(302)

(117)

(121)

(250)

(461)

(484)

(959)

Net contribution

204

105

512

(18)

(23)

(3)

27

40

67

213

122

576

APE (£m)1

1,862

1,798

4,056

594

796

1,495

210

217

429

2,666

2,811

5,980

As margin on APE (%)

11%

6%

13%

(3)%

(3)%

-

13%

18%

16%

8%

4%

10%

Underwriting margin (£m)

148

165

287

90

98

250

54

41

97

292

304

634

Analysed by:

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

32

32

62

22

27

64

43

42

77

97

101

203

Mortality and longevity

116

133

225

58

60

157

15

6

34

189

199

416

Persistency

-

-

-

10

11

29

(4)

(7)

(14)

6

4

15

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

Income: Investment return

 

UK Life including
Savings & Retirement

Europe Life

Asia Life

Total

 

6 months 2020
£m

6 months 2019
£m

Full year 2019
£m

6 months 2020

£m

6 months 2019
£m

Full year 2019
£m

6 months 2020
£m

6 months 2019
£m

Full year 2019
 m

6 months 2020
 m

6 months 2019
£m

Full year 2019
£m

Unit-linked margin (£m)1

466

418

844

316

301

592

100

108

213

882

827

1,649

As annual management charge on average reserves (bps)

60

60

58

142

140

136

231

248

245

85

86

83

Average reserves (£bn)2

154.5

140.3

146.1

44.5

42.9

43.6

8.7

8.7

8.7

207.7

191.9

198.4

Participating business (£m)3

59

68

132

295

257

549

(1)

(4)

4

353

321

685

As bonus on average reserves (bps)

29

35

33

81

72

77

(5)

(19)

9

60

56

59

Average reserves (£bn)2

40.8

39.0

40.4

73.2

71.2

71.3

4.3

4.3

4.3

118.3

114.5

116.0

Spread margin (£m)1

147

157

302

1

4

2

3

3

7

151

164

311

As spread margin on average reserves (bps)

42

46

45

4

16

4

22

30

33

39

44

42

Average reserves (£bn)2

69.8

68.1

67.7

5.0

4.9

4.9

2.7

2.0

2.1

77.5

75.0

74.7

Expected return on shareholder assets (£m)4

23

18

68

40

45

88

16

12

27

79

75

183

Total (£m)

695

661

1,346

652

607

1,231

118

119

251

1,465

1,387

2,828

Total average reserves (£bn)2

265.1

247.4

254.2

122.7

119.0

119.8

15.7

15.0

15.1

403.5

381.4

389.1

1  Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts have been restated to reclassify all claims handling costs attributable to the UK Life business as administration expenses. For the 6 month period ended 30 June 2019, £5 million of these costs were previously included in unit-linked margin and £8 million in spread margin, and for the year ended 31 December 2019, £9 million were included in unit-linked margin and £16 million in spread margin.

2  An average of the insurance or investment contract liabilities over the reporting period, including managed pension business which is not consolidated within the statement of financial position.

3  The shareholders' share of the return on with- profits and other participating business.

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

 

 

Page 29

 

7 - Life business profit drivers continued

Expenses

 

UK Life including
Savings & Retirement

Europe Life

Asia Life

Total

 

6 months 2020
 m

Restated1

 6 months 2019
£m

Full year 2019
£m

6 months 2020
 m

Restated1  

6 months 2019
£m

Full year 2019
 m

6 months 2020
 m

Restated1  

6 months 2019
£m

Full year 2019
£m

6 months 2020
£m

Restated1  

6 months 2019
 m

Full year 2019
£m

Acquisition expenses (£m)

(210)

(192)

(407)

(134)

(171)

(302)

(117)

(121)

(250)

(461)

(484)

(959)

APE (£m)2

1,862

1,798

4,056

594

796

1,495

210

217

429

2,666

2,811

5,980

As acquisition expense ratio on APE (%)

11%

11%

10%

23%

21%

20%

56%

56%

58%

17%

17%

16%

Administration expenses (£m)3

(398)

(431)

(898)

(317)

(289)

(588)

(60)

(54)

(115)

(775)

(774)

(1,601)

As existing business expense ratio on average reserves (bps)

30

35

35

52

49

49

76

72

76

38

41

41

Total average reserves (£bn)4

265.1

247.4

254.2

122.7

119.0

119.8

15.7

15.0

15.1

403.5

381.4

389.1

1   On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. There is no impact on profit before tax. Following the change in the definition of Group adjusted operating profit, administration expenses were also restated to include the amortisation and impairment of internally generated intangible assets. Comparative amounts for the 6 month period ended 30 June 2019 have been restated.

2  APE excludes Retail Fund Management and Health business in Asia.

Following a review of the presentation of claims handling costs, to achieve consistency in our reporting, comparative amounts for administration expenses have been restated by £30 million for the 6 month period ended
30 June 2019 and £59 million for the year ended 31 December 2019 to include claims handling costs attributable to the UK Life business. Additionally, as part of this review the comparative amount for administration expenses for the year ended 31 December 2019 has been restated to include £42 million of amortisation of intangible assets, previously included in other.

4  An average of the insurance or investment contract liabilities over the reporting period, including managed pension business which is not consolidated within the statement of financial position.

 

 

Page 30

 

Financial supplement

 

 

Page

A

Income & expenses and IFRS capital

31

B

IFRS financial statements and notes

41

C

Analysis of assets

89

 

In this section

 

A

Income & expenses and IFRS capital

31

A1

Group adjusted operating profit

31

A2

Reconciliation of Group adjusted operating profit to profit for the period

32

A3

Other Group operations

33

A4

Corporate centre

33

A5

Group debt costs and other interest

33

A6

Life business: Investment variances
and economic assumption changes

34

A7

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

35

A8

General insurance and health business:
Economic assumption changes

36

A9

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

36

A10

Amortisation and impairment of intangibles

36

A11

Amortisation and impairment of acquired
value of in-force business

36

A12

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

36

A13

Other

36

A14

Net asset value

37

A15

Analysis of return on equity

38

A16

Group capital under IFRS basis

40

 

 

Page 31

 

A1 - Group adjusted operating profit‡#

The tables below reconcile Group adjusted operating profit as presented in section 6 Divisional performance to the IFRS presentation of Group adjusted operating profit in note B6(a) Segmental information.

 

United Kingdom

 

Europe

 

 

 

 

6 months 2020

UK Life
£m

UK GI
£m

Canada
 m

France
£m

Poland
£m

Italy, Ireland & Other
£m

Asia
£m

Aviva Investors £m

Other Group activities £m

Total
 m

UK Life and Investments, Savings & Retirement

817

-

-

-

-

-

-

35

-

852

General Insurance

-

(66)

129

55

13

36

-

-

-

167

Europe Life

-

-

-

165

88

114

-

-

-

367

Asia Life

-

-

-

-

-

-

140

-

-

140

Other Group operations (note A3)

-

-

-

-

-

-

-

-

(6)

(6)

 

817

(66)

129

220

101

150

140

35

(6)

1,520

Corporate centre (note A4)

 

 

 

 

 

 

 

 

 

(116)

Group debt costs and other interest (note A5)

 

 

 

 

 

 

 

 

 

(179)

Group adjusted operating profit before tax attributable to shareholders' profits

 

 

 

 

 

 

 

 

 

1,225

 

 

United Kingdom

 

Europe

 

 

 

 

Restated1,2 6 months 2019

UK Life3  

£m

UK GI
£m

Canada
 m

France
 m

Poland
£m

Italy, Ireland & Other
 m

Asia
£m

Aviva Investors £m

Other Group activities £m

Total
£m

UK Life and Investments, Savings & Retirement

752

-

-

-

-

-

-

60

-

812

General Insurance

-

141

89

55

9

39

(1)

-

-

332

Europe Life

-

-

-

195

85

112

-

-

-

392

Asia Life

-

-

-

-

-

-

152

-

-

152

Other Group operations (note A3)

-

-

-

-

-

-

-

-

(44)

(44)

 

752

141

89

250

94

151

151

60

(44)

1,644

Corporate centre (note A4)

 

 

 

 

 

 

 

 

 

(97)

Group debt costs and other interest (note A5)3

 

 

 

 

 

 

 

 

 

(161)

Group adjusted operating profit before tax attributable to shareholders' profits

 

 

 

 

 

 

 

 

 

1,386

1  On 31 December 2019 the Group adjusted operating profit APM was revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts for the 6 month period ended 30 June 2019 have been restated resulting in a reduction in the prior period Group adjusted operating profit of £62 million. There is no impact on profit before tax attributable to shareholders' profit.

2  C omparative amounts for the 6 month period ended 30 June 2019 have been restated to reallocate non-insurance operations of Europe and Asia to their respective market segments to better reflect the management of the underlying businesses.

3  Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts for the 6 month period ended 30 June 2019 have been amended to reclassify net interest expense from UK Life to Group debt costs and other interest of £32 million as a non-operating item. The change has no impact on the Group's adjusted operating profit before tax attributable to shareholders' profits.

 

United Kingdom

 

Europe

 

 

 

 

Full year 2019

UK Life1

£m

UK GI
£m

Canada
£m

France
£m

Poland
£m

Italy, Ireland & Other
£m

Asia
£m

Aviva Investors £m

Other Group activities £m

Total
£m

UK Life and Investments, Savings & Retirement

1,920

-

-

-

-

-

-

96

-

2,016

General Insurance

-

250

191

65

20

69

(1)

-

-

594

Europe Life

-

-

-

408

174

245

-

-

-

827

Asia Life

-

-

-

-

-

-

276

-

-

276

Other Group operations (note A3)

-

-

-

-

-

-

-

-

(26)

(26)

 

1,920

250

191

473

194

314

275

96

(26)

3,687

Corporate centre (note A4)

 

 

 

 

 

 

 

 

 

(183)

Group debt costs and other interest (note A5)1

 

 

 

 

 

 

 

 

 

(320)

Group adjusted operating profit before tax attributable to shareholders' profits

 

 

 

 

 

 

 

 

 

3,184

1  Following a review of the presentation of intercompany loan interest, to achieve consistency in our reporting, comparative amounts for the year ended 31 December 2019 have been amended to reclassify net interest expense from UK Life to Group debt costs and other interest of £65 million as a non-operating item. The change has no impact on the Group's adjusted operating profit before tax attributable to shareholders' profits.

 

 

Page 32

 

A2 - Reconciliation of Group adjusted operating profit‡# to profit for the period