REG - Aviva PLC - Final Results - PART 2 OF 4 <Origin Href="QuoteRef">AV.L</Origin> - Part 2
09/03/2017 07:08
- Part 2: For the preceding part double click ID:nRSI9297Ya
benefitting from an additional quarter of Friends Life, synergy savings as we migrated to our new digital
platform, and the launch of new products with an increased contribution from the direct channel. Ireland VNB increased 50%
to £24 million (2015: £16 million), with increases in volumes and margins across most product lines.
Page 13
6.ii - United Kingdom & Ireland general insurance and health
2016 2015 Sterling % change
£m £m
Operating profit1 471 430 10%
Cash remitted to Group2 91 358 (75)%
Expenses
Operating expenses 665 697 (5)%
Integration and restructuring costs 15 26 (42)%
680 723 (6)%
Combined operating ratio1,3 106.3% 95.0% 11.3pp
Combined operating ratio excluding impact of change in Ogden discount rate1,3 94.9% 95.0% (0.1)pp
General insurance net written premiums1 4,308 3,967 9%
1 2016 excludes the impact of the change in the Ogden discount rate of £475 million, which has been recognised as an
exceptional non-operating item. 2016 and 2015 exclude the impact from an outward quota share reinsurance agreement written
in 2015 and completed in 2016 in Aviva Insurance Limited (AIL). See note A10 for further details.
2 Cash remittances include amounts of £83 million received from UK & Ireland General Insurance in February 2017 in
respect of 2016 activity and £351 million received in February 2016 in respect of 2015 activity.
3 General insurance business only.
2016 overview
The 2016 UK general insurance underwriting result, which excludes the impact of the change in the Ogden discount rate, was
the best for ten years, as we developed our core pricing, underwriting and claims management capabilities. The 2016 results
also include more benign weather after the floods of December 2015.
Improvement in our performance was also reflected in premium growth, as we incorporated new partnerships with HomeServe and
TSB, as well as expansion of our Digital offering, while further benefitting from our continued focus on cost control
despite the impact of the new Flood Re levy. Ireland's growth in profitability due to strong rate increases and improved
underlying performance enables us to continue to invest in growing the business.
The impact of the change in the Ogden discount rate is the main driver of the deterioration in combined operating ratio. We
have separately disclosed the impact of this to combined operating ratio.
Operating and financial performance
Operating profit1
United Kingdom and Ireland 2016 2015 Sterling %
£m £m change
General insurance
Underwriting result 259 163 59%
Longer-term investment return 176 236 (25)%
Other (2) (1) (100)%
433 398 9%
Health
Underwriting result 35 27 30%
Longer-term investment return 3 5 (40)%
38 32 19%
General insurance & health operating profit 471 430 10%
1 2016 excludes the impact of the change in the Ogden discount rate of £475 million, which has been recognised as an
exceptional non-operating item. 2016 and 2015 exclude the impact from an outward quota share reinsurance agreement written
in 2015 and completed in 2016 in Aviva Insurance Limited (AIL). See note A10 for further details.
UK & Ireland general insurance and health operating profit increased by 10% to £471 million. The general insurance
underwriting result increased 59% to £259 million (2015: £163 million) with lower weather claims in 2016 compared to the
December 2015 floods and an improvement in underlying performance, from our continued focus on portfolio rebalancing and
cost initiatives.
UK & Ireland general insurance longer-term investment return declined by £60 million to £176 million (2015: £236 million),
of which £46 million is due to the impact of the reduction in the internal loan (Group net neutral) and £10 million due to
a reduction in assets through the completion of an outwards reinsurance contract in 2015 for £0.7 billion of latent
exposures. Excluding the internal loan impact, the UK & Ireland general insurance operating profit was up 23% to £471
million.
Cash
Total cash remitted to Group was £91 million (2015: £358 million), as cash was used to fund an increase in the internal
reinsurance arrangement.
Expenses
UK & Ireland general insurance and health expenses were lower at £680 million (2015: £723 million), reflecting the
continued focus on cost control in the UK and a reduction in integration and restructuring costs, partly offset by the new
2016 Flood Re Levy costs (£23 million) and continued investment to grow the Ireland general insurance business.
Page 14
6.ii - United Kingdom & Ireland general insurance and health continued
Net written premiums Combined operating ratio
United Kingdom and Ireland General insurance1 2016 2015 Sterling % change 2016 2015 Change
£m £m % %
Personal Motor 1,076 1,062 1%
Personal Home and Specialty 1,332 1,106 20%
UK Personal Lines 2,408 2,168 11% 94.6% 94.5% 0.1pp
Commercial Motor 538 542 (1)%
Commercial Home and Specialty 984 975 1%
UK commercial Lines 1,522 1,517 - 96.2% 95.8% 0.4pp
UK general insurance excluding impact of change in Ogden discount rate 3,930 3,685 7% 95.3% 95.1% 0.2pp
Impact of change in Ogden discount rate - - - 12.4% - 12.4pp
UK general insurance 3,930 3,685 7% 107.7% 95.1% 12.6pp
Ireland general insurance 378 282 34% 91.2% 94.6% (3.4)pp
Total 4,308 3,967 9% 106.3% 95.0% 11.3pp
1 Excludes the one-off impact from an outward quota share reinsurance agreement completed in 2015 in Aviva Insurance
Limited (AIL). See note A10 for further details.
General insurance net written premiums
UK & Ireland general insurance net written premiums increased 9%. In the UK, premiums were up 7%, our highest growth in 11
years, with Personal Lines premiums up including the benefit from the HomeServe deal and Commercial Lines premiums stable.
UK Personal Motor was up slightly, with volumes stable as retention remained broadly flat. New business rating is
marginally ahead of market, and we have benefitted from increases in the Digital channel while we remediated our Broker
book. This rebalancing is reflected with lower average premiums across motor as we improve our risk mix.
UK Personal Home and Specialty grew 20%, driven by the impact of the new HomeServe deal on Specialty lines, while Home
declined slightly due to lower levels of new business activity.
UK Commercial was flat, reflecting rating action in the Motor book, and selective growth and exits across the book in
continued soft market conditions.
Ireland saw a 34% growth (19% in constant currency), driven by increases in both Personal Motor and Commercial, reflecting
continued rating and account improvement actions.
General insurance combined operating ratio (COR)
UK & Ireland COR was 106.3% (2015: 95.0%). Once adjusted for the impact of the change in the Ogden discount rate, which
added 11.4pp, COR was also affected by UK Flood Re Levy (0.4pp) and commission strain from the new HomeServe partnership
(1.2pp), which will have fully earned through by HY17. Excluding these impacts, UK & Ireland general insurance COR was
1.7pp better, reflecting lower absolute weather costs and improvements in underlying underwriting performance from
portfolio rebalancing, claims initiatives and efficiency savings.
UK Personal Lines COR increased to 104.6%. Excluding the impact of Ogden, UK Personal Lines COR was stable at 94.6%. Growth
in Digital and targeted remediation and higher prior year releases in Broker business were offset by the impact of
HomeServe and Flood Re.
UK Commercial Lines COR was 112.3%. Excluding the impact of Ogden, the UK Commercial Lines COR is marginally higher than
prior year at 96.2%, due to lower prior year releases, and the impact of a continued soft rate environment, offset by
favourable weather experience (2015 December floods and storms).
Ireland COR of 91.2% was 3.4pp better, reflecting a lower claims ratio and improvement in the expense ratio, due to rate
increases and improvement in underlying claims following management actions.
Page 15
6.iii - Europe1
2016 2015 Sterling % change Constant currency %
£m £m
Operating profit
Life 844 766 10% (2)%
General insurance & health 120 114 5% (6)%
964 880 10% (3)%
Cash remitted to Group2 449 431 4% -
Expenses
Operating expenses 641 526 22% 8%
Integration and restructuring costs 9 22 (59)% (64)%
650 548 19% 5%
Value of new business: MCEV basis 480 400 20% 7%
Combined operating ratio3 95.8% 95.4% 0.4pp 0.4pp
Net written premiums (General insurance and health) 1,673 1,410 19% 5%
1 Our European business includes life and general insurance business written in France, Poland and Italy, life business
in Spain and Turkey and health business in France.
2 Cash remittances include amounts of £159 million received from Europe in January 2017 in respect of 2016 activity.
3 General insurance business only.
2016 overview
Our European businesses have shown resilient performance during 2016 due to actions taken during the year resulting in an
increase in operating profit of 24% in the second half of 2016 when compared with the first. Italy has produced significant
profit and volume growth which have offset headwinds impacting primarily our French and Polish businesses. We have seen
increased volatility in financial markets, persistently low interest rates and regulatory changes which have negatively
impacted a number of our metrics.
Despite this, we reported year on year growth, with VNB and NWP increasing by 20% and 19% respectively, and broadly stable
levels of operating profit and cash remitted to Group, reflecting the strength and diversity of our European franchise. The
business has benefitted from foreign exchange movements following the strengthening of the euro and Polish zloty by 15% and
7% respectively against sterling.
All percentage movements below are quoted in constant currency unless otherwise stated.
Operating and financial performance
Operating profit
Life General insurance & health
2016 2015 Sterling % change Constant currency % 2016 2015 Sterling % change Constant currency %
£m £m £m £m
France 429 395 9% (4)% 70 71 (1)% (14)%
Poland 132 129 2% (6)% 8 10 (20)% (27)%
Italy 170 139 22% 8% 42 33 27% 14%
Spain 107 92 16% 3% - - - -
Turkey 6 11 (45)% (45)% - - - -
Total 844 766 10% (2)% 120 114 5% (6)%
Life operating profit was £844 million (2015: £766 million) and decreased marginally on a constant currency basis. Italy
operating profit increased to £170 million (2015: £139 million), up 8% reflecting portfolio growth and margin improvements
across all products. France operating profit was £429 million (2015: £395 million) with growth in protection and
with-profits offset by lower unit-linked asset management charges due to adverse market movements. Expenses in France
increased during the period as we invested and reorganised the business. Poland operating profit of £132 million (2015:
£129 million) reduced by 6% as a result of a new asset levy effective from 1 February 2016 and adverse equity market
movements impacting asset management charges offsetting portfolio growth. Spain operating profit increased 3% to £107
million (2015: £92 million), mainly due to the positive performance of protection margin resulting from significant
improvements in the claims ratio. Operating profit in Turkey decreased to £6 million (2015: £11 million) due to market
turbulence.
General insurance and health operating profit decreased by 6% to £120 million. This was mainly driven by France operating
profit of £70 million (2015: £71 million), a 14% decrease primarily due to weather events in the first half of the year.
Operating profit in Italy improved to £42 million, up 14% (2015: £33 million) with underwriting improvements offsetting
lower investment results. In Poland, operating profit decreased to £8 million (2015: £10 million) mostly due to commercial
large losses early in the year and increased motor claim frequencies.
Cash
Remittances to Group during the period amounted to £449 million (2015: £431 million). France remitted £163 million in the
second half of the year. Poland's remittances of £176 million (2015: £81 million) increased as a result of a legal entity
restructuring deferring the timing of remittances from 2015 into 2016.
Page 16
6.iii - Europe continued
Expenses
Operating expenses were £641 million (2015: £526 million), up 8%. In France, expenses increased due to investment required
for growing and reorganising the business. In Poland, expenses increased due to the impact of the asset levy and additional
expense from the acquisition of the Expander distribution network in July 2015. Italy's expenses increased due to
investment supporting business growth. Integration and restructuring costs decreased to £9 million (2015: £22 million).
Value of new business: MCEV basis (VNB)
2016 2015 Sterling % change1 Constant currency % change1
£m £m
France 224 198 13% -
Poland 65 65 (1)% (9)%
Italy 124 79 58% 39%
Spain 42 31 33% 18%
Turkey 25 27 (7)% (9)%
Total 480 400 20% 7%
1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.
VNB increased by 7% largely driven by a strong performance in Italy. VNB in Italy was up by 39% as a result of growth in
all product lines, including over 30% growth in sales of unit-linked versus a market that contracted by over 30%. VNB in
France was flat as higher protection and with-profits sales were offset by lower unit-linked volumes as a result of reduced
customer's appetite for equity linked products. In Poland, VNB decreased by 9% mainly as a result of a new asset levy
impacting banks and insurance companies and lower unit-linked volumes following regulatory changes impacting distribution,
partly offset by increased sales of protection business. Spain VNB increased by 18%, reflecting mix improvements within
protection business and sales of unit-linked products in the fourth quarter, partly offset by the adverse impact of lower
interest rates. Turkey's VNB decreased by 9% as a result of market volatility and uncertainty on the pension reforms
resulting in lower investment levels.
Net written premiums1 Combined operating ratio1
2016 2015 Sterling % change Constant currency % 2016 2015 Change
£m £m £m £m
France 957 804 19% 5% 96.9% 95.7% 1.2pp
Poland 86 66 30% 19% 96.1% 94.7% 1.4pp
Italy 395 330 20% 6% 92.7% 94.3% (1.6)pp
Total 1,438 1,200 20% 6% 95.8% 95.4% 0.4pp
1 General insurance business only
Net written premiums
General insurance net written premiums of £1,438 million have increased by 6% with growth in all our markets. In France,
general insurance net written premiums were £957 million (2015: £804 million), an increase of 5% reflecting rating actions
and volume growth in SME and commercial. Italy's net written premiums grew by 6% to £395 million (2015: £330 million),
despite a shrinking market. In Poland, our net written premiums increased by 19% to £86 million (2015: £66 million) driven
by rating actions in our motor book.
Combined operating ratio
The European combined operating ratio has marginally increased to 95.8% (2015: 95.4%). Our claims ratio has increased by
0.5pp to 66.7% (2015: 66.2%) as a result of weather events in France. Our pricing actions across the markets, notably in
Poland, and underwriting discipline when selecting risks have helped us mitigate adverse market conditions in both Italy
and Poland. Our commission and expense ratio has improved by 0.1pp to 29.1% (2015: 29.2%) primarily as a result of the
benefits from our cost saving initiatives.
Page 17
6.iv - Canada
2016 2015 Sterling % change Constant currency %
£m £m
General Insurance operating profit 269 214 26% 16%
Cash remitted to Group 130 6 - -
Expenses
Operating expenses 396 298 33% 23%
Integration and restructuring costs 18 7 157% 157%
414 305 36% 25%
Combined operating ratio 94.6% 93.8% 0.8pp 0.8pp
Net written premiums 2,453 1,992 23% 14%
2016 overview
In 2016, we completed the acquisition of the RBC General Insurance Company (RBC), assisted our customers affected by the
Alberta wildfires, the largest Canadian insured event in history, and opened our Digital Garage in Toronto to spearhead
innovation. Operating profit of £269 million (2015: £214 million) is the highest on record for this business.
Difficult economic conditions, particularly in Western Canada, have led to reduced growth in premium of 2% excluding the
impact of the RBC acquisition. Following the RBC transaction, our market share has increased to c.10.6% and our products
are now available to a broader range of customers.
Operating and financial performance
Operating profit
2016 2015 Sterling % change Constant currency %
£m £m
Underwriting result 168 120 40% 29%
Longer-term investment return 105 98 7% (1)%
Other1 (4) (4) - -
Total 269 214 26% 16%
1 Includes unwind of discount and pension scheme net finance costs
Operating profit was £269 million (2015: £214 million), and increased 16% on a constant currency basis mainly due to the
acquisition of RBC, partially offset by increased catastrophe experience. Prior year development contributed £130 million
(2015: £87 million) to profit, driven by lower ultimate losses in Ontario auto following government actions to bring down
the cost of insurance for consumers, while net catastrophe losses were £49 million higher in the year.
Cash
Net cash remittances during the period were £130 million (2015: £6 million). Cash generated in 2015 was largely retained to
part fund the RBC acquisition.
Expenses
Operating expenses increased to £396 million (2015: £298 million) and integration and restructuring costs increased to £18
million (2015: £7 million)mainly driven by the RBC acquisition and the impact of foreign exchange movements.
Net written premiums
Net written premiums Combined operating ratio
2016 2015 Sterling % change Constant currency % 2016 2015 Change
£m £m £m £m
Personal Lines 1,680 1,282 31% 21% 95.7% 94.6% 1.1pp
Commercial Lines 773 710 9% 1% 92.4% 92.5% (0.1)pp
Total 2,453 1,992 23% 14% 94.6% 93.8% 0.8pp
Net written premiums were £2,453 million (2015: £1,992 million), up 14% excluding the impact of foreign exchange rate
movements, mostly due to the RBC acquisition. Net written premiums increased 2% in constant currency, excluding RBC.
Combined operating ratio
The combined operating ratio was 94.6% (2015: 93.8%), driven by a higher claims ratio mainly due to increased catastrophe
experience. The commission and expense ratio increased by 0.6pp in part due to investment in technology and internalising
certain claims expenses. This latter factor benefitted the claims ratio.
Page 18
6.v - Asia
2016 2015 Sterling % change Constant currency %
£m £m
Operating profit
Life 241 244 (1)% (5)%
General insurance & health (13) (6) (117)% (106)%
228 238 (4)% (8)%
Cash remitted to Group - 21 (100)% (100)%
Expenses
Operating expenses 177 141 26% 16%
Integration and restructuring costs 17 7 143% 140%
194 148 31% 21%
Value of new business: MCEV basis 148 151 (2)% (11)%
Combined operating ratio1 112.9% 101.6% 11.3pp 11.3pp
Net written premiums1 11 12 (8)% (15)%
1 General insurance business only.
2016 overview
The discontinuation of the bancassurance agreement with DBS Bank Ltd (DBS) and our focus on investment in distribution,
digital and analytics capabilities to support future growth in Asia has led to a challenging year in 2016. This has been
partially offset by the strengthening of Asia's existing distribution platforms, particularly Aviva Financial Advisers in
Singapore which was launched in August 2016 and also the strengthening of the agency and broker channels in China.
All percentage movements below are quoted in constant currency unless otherwise stated.
Operating and financial performance
Operating profit
2016 2015 Sterling % change Constant currency %
£m £m
Life operating profit
Singapore 112 94 19% 5%
FPI1 140 151 (7)% (8)%
Other Asia (11) (1) - -
241 244 (1)% (5)%
General insurance & health operating profit (13) (6) (117)% (106)%
Total operating profit 228 238 (4)% (8)%
1 Friends Provident International Limited (FPI) was acquired in April 2015 and contributed 9 months of performance in
2015.
Operating profit from life and general insurance and health businesses was £228 million (2015: £238 million), a decrease of
8%. Life operating profit decreased 5% to £241 million (2015: £244 million) impacted by the discontinuance of the
bancassurance agreement with DBS (£15 million), continuous investment in distribution and infrastructure in the region and
the one-off benefit of an internal reinsurance transaction in FPI in the prior year (Group net neutral). This was partly
offset by a recovery of indirect taxes paid in Singapore. The contribution from FPI post amortisation of acquired value of
in-force business was a loss of £2 million (2015: profit of £15 million).
The general insurance and health business reported a £13 million loss (2015: £6 million loss), as a result of higher claims
experience from the Singapore Health business.
Cash
No dividends were remitted to Group during the financial year (2015: £21 million) as we continue to reallocate capital to
support initiatives in the region.
Expenses
Expenses were up 21% to £194 million (2015: £148 million) reflecting the additional quarter of operating expenses and
integration costs for FPI; and investments to support business growth across Asia.
Value of new business: MCEV basis (VNB)
2016 2015 Sterling %change1 Constant currency %change1
£m £m
Singapore 104 103 1% (10)%
FPI 5 5 5% 5%
Other Asia 39 43 (10)% (15)%
Total 148 151 (2)% (11)%
1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.
VNB declined 11% to £148 million (2015: £151 million) impacted by the discontinuance of the bancassurance agreement with
DBS, partly offset by growth in the sales from Singapore's core financial advisory channel. VNB movement in other Asia
markets fell due to the adverse impact of lower sales and higher expense overrun.
Combined operating ratio
Net written premiums for general insurance business were down 15% due to the continued softening of motor insurance market
premium rates. As general insurance operating expenses remained broadly flat, this resulted in a higher combined operating
ratio of 112.9% (2015: 101.6%).
Page 19
6.vi - Aviva Investors
2016 2015 Sterling % change
£m £m
Revenue: Fee income 506 450 12%
Expenses
Operating expenses 367 345 6%
Integration and restructuring costs 19 11 73%
386 356 8%
Operating profit
Fund management 139 105 32%
Other operations 19 - -
158 105 50%
Cash remitted to Group 39 24 63%
Value of new business: MCEV basis 29 16 81%
2016 overview
Fund management operating profit has increased by 32% to £139 million in 2016 despite turbulent markets. Operating profit
margin has increased by 4pp to 27% (2015: 23%) as a result of the progress made in externalising the business and
developing higher value outcome oriented propositions for our clients, continuing cost control and improved operational
efficiency.
Operating and financial performance
Revenue
Revenue has increased by 12% to £506 million due to positive external flows into higher value added products and a change
in pricing by Aviva Investors to manage funds on behalf of other Aviva entities. Aviva Investors Multi-Strategy (AIMS)
assets under management have continued to grow to £9.0 billion (2015: £3.0 billion). Working closely with UK Life,
origination of infrastructure assets has increased by 16% to £3.3 billion. External clients contributed to generating 32%
of total revenue.
Expenses
Operating expenses in Aviva Investors were £367 million (2015: £345 million) reflecting investment to support the growth
and further development of the business. Integration and restructuring costs were £19 million (2015: £11 million) largely
relating to the Friends Life integration.
Operating profit
Fund management operating profit increased by £34 million in 2016 to £139 million (2015: £105 million). The growth in
operating profit is driven by a £56 million increase in revenue due to positive external net flows and the transfer to
Aviva Investors of a further £14 billion of Friends Life assets during 2016, taking the total Friends Life assets on
boarded to £59 billion, and the change in pricing charges by Aviva Investors to manage funds on behalf of other Aviva
entities. Cost increases have been controlled as we invest to grow the business.
Other operations comprise £19 million operating profit relating to insurance recoveries. Of this, £16 million was from the
Group's internal reinsurer which therefore has a neutral effect on overall Group operating profit.
Cash
Dividends and interest paid from the business to Group increased by 63% to £39 million (2015: £24 million).
Value of new business: MCEV basis
Value of new business in Aviva Investors increased by 81% to £29 million (2015: £16 million) driven by higher sales in the
AIMS fund range.
Net flows and assets under management - Aviva Investors1
InternalLegacy2£m Internal External Total
Core £m £m
£m
Aviva Investors
Assets under management at 1 January 2016 81,239 164,935 43,736 289,910
Total Inflows 3,501 19,750 9,393 32,644
Total Outflows (9,048) (16,050) (6,519) (31,617)
Net Flows (5,547) 3,700 2,874 1,027
Net Flows into Liquidity Funds 4 8,331 (337) 7,998
Friends Life asset transfers 11,434 2,606 - 14,040
Market and foreign exchange movements3 10,160 11,095 10,288 31,543
Assets under management at 31 December 2016 97,290 190,667 56,561 344,518
1 Assets under management represents all assets managed by Aviva Investors. These comprise Aviva (internal) assets which
are included within the Group's statement of financial position and those belonging to external clients outside the Aviva
Group which are therefore not included in the Group's statement of financial position. These assets under management
exclude those funds that are managed by third parties.
2 Assets managed by Aviva Investors on behalf of internal Aviva Clients relating to products that are no longer actively
marketed.
3 Within the market and foreign exchange movements number is a £4.1 billion reclassification from internal core assets
under management to external assets under management.
Aviva Investors assets under management increased by £55 billion to £345 billion (2015: £290 billion) over the year with
net external inflows of £2.9 billion (2015: £(0.3) billion) and £14.0 billion of further Friends Life assets transferred to
Aviva Investors in 2016. Internal Core net inflows were £3.7 billion while net outflows on the rest of the internal book
were £5.5 billion. Net flows into liquidity funds were £8 billion. The remaining increase of £32 billion comprised
favourable market movements of £19 billion and favourable foreign exchange rate movements of £13 billion.
Page 20
7.i - Life business profit drivers
Life business operating profit before shareholder tax increased by 8% to £2,642 million (2015: £2,442 million), up 4% on a
constant currency basis, mainly due to the benefit of an additional quarter's contribution from Friends Life.
Overall, total income increased by 15% to £4,522 million (2015: £3,944 million) and total expenses increased by 12% to
£2,096 million (2015: £1,866 million). This increase in net income of £348 million was partly offset by a lower benefit
from DAC and other items to give a total increase in life operating profit of £200 million for the year including a
positive foreign exchange impact of £108 million largely driven by the strengthening of the euro against sterling.
United Kingdom & Ireland Europe Asia Total
2016 Restated12015 2016 2015 2016 2015 2016 Restated12015
£m £m £m £m £m £m £m £m
New business income2 801 708 267 228 184 152 1,252 1,088
Underwriting margin3 326 279 223 208 76 82 625 569
Investment return4 1,352 1,208 1,134 989 159 90 2,645 2,287
Total Income 2,479 2,195 1,624 1,425 419 324 4,522 3,944
Acquisition expenses5 (396) (405) (274) (243) (158) (127) (828) (775)
Administration expenses6 (652) (584) (520) (434) (96) (73) (1,268) (1,091)
Total Expenses (1,048) (989) (794) (677) (254) (200) (2,096) (1,866)
DAC and other 124 249 14 18 76 120 214 387
1,555 1,455 844 766 241 244 2,640 2,465
Other business7 2 (23)
Total life business operating profit 2,642 2,442
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year
comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for
2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of
£38 million. See note B2 for further details.
2 Represents the income earned on new business written during the period reflecting premiums less initial reserves.
3 Underwriting margin represents the release of reserves held to cover claims, surrenders and expenses less the cost of
actual claims and surrenders in the period.
4 Represents the expected income on existing business (other than the underwriting margin). Life investment return
comprises unit-linked margin, shareholders' return on participating business, spread margin and the expected return on
shareholder assets.
5 Initial expenses and commission incurred in writing new business less deferred costs.
6 Expenses and renewal commissions incurred in managing existing business.
7 Other business includes the total result for Aviva Investors Pooled Pensions and Aviva Life Reinsurance.
Income: New business income and underwriting margin
United Kingdom & Ireland Europe Asia Total
2016 2015 2016 2015 2016 2015 2016 2015
£m £m £m £m £m £m £m £m
New business income (£m) 801 708 267 228 184 152 1,252 1,088
APE (£m)1 2,456 2,075 1,236 947 270 356 3,962 3,378
As margin on APE (%) 33% 34% 22% 24% 68% 43% 32% 32%
Underwriting margin (£m) 326 279 223 208 76 82 625 569
Analysed by:
Expenses 70 65 62 44 47 39 179 148
Mortality and longevity 249 201 150 142 27 38 426 381
Persistency 7 13 11 22 2 5 20 40
1 Used as a measure of life sales. It is calculated as the sum of new regular premiums plus 10% of new single premiums
written in the period. APE excludes UK Retail Fund Management and Health business in UK & Ireland and Asia.
(a) New business income
New business income increased to £1,252 million (2015: £1,088 million), mainly driven by the additional quarter of Friends
Life and Italy.
The net contribution from new business is the new business income less associated acquisition expenses (see (g) below).
This increased to a profit of £424 million (2015: profit of £313 million).
In the UK & Ireland, net contribution from new business increased to £405 million (2015: £303 million) mainly driven by an
additional quarter of Friends Life in 2016, improved asset mix in annuities and improved individual protection performance
partly offset by lower BPA volumes.
In Europe, the net contribution improved to a loss of £7 million (2015: loss of £15 million) due to growth and margin
improvements in Italy, offset by reduced contributions due to market turbulence in Turkey. Volumes based on APE increased
by 17% in constant currency, reflecting growth across all product lines in Italy and increased unit-linked volumes in
Spain. This resulted in a slight decrease in new business margin on APE in Europe to 22% (2015: 24%).
In Asia, net contribution decreased 19% in constant currency to a profit of £26 million (2015: profit of £25 million) as a
result of the discontinuance of the bancassurance distribution agreement with DBS Bank Ltd, and higher acquisition expenses
reflecting a change in product mix.
(b) Underwriting margin
The underwriting margin increased to £625 million (2015: £569 million). This was driven by the UK & Ireland, as the margin
increased to £326 million (2015: £279 million) mainly due to an additional quarter of Friends Life in 2016 and improved
mortality margins. In Europe, the underwriting margin was £223 million (2015: £208 million) benefitting from favourable
foreign currency movements, however on a constant currency basis it decreased 4% mainly due to lower mortality margins in
France and lower persistency margin in Italy.
In Asia, underwriting margin decreased 12% in constant currency to £76 million (2015: £82 million) mainly due to lower
mortality margins in FPI offset by favourable expense margins on non-participating annuities in China.
Page 21
7.i - Life business profit drivers continued
Income: Investment return
United Kingdom & Ireland Europe Asia Total
2016 Restated12015 2016 2015 2016 2015 2016 Restated12015
£m £m £m £m £m £m £m £m
Unit-linked margin2 (£m) 826 763 518 435 112 70 1,456 1,268
As annual management charge on average reserves (bps) 75 83 155 140 132 108 96 98
Average reserves (£bn) 110.1 92.3 33.4 31.0 8.5 6.5 152.0 129.8
Participating business3 (£m) 195 152 524 470 15 (3) 734 619
As bonus on average reserves (bps) 38 31 80 84 43 n/a 61 57
Average reserves (£bn) 51.1 49.5 65.5 55.9 3.5 2.7 120.1 108.1
Spread margin4 (£m) 269 198 11 7 9 10 289 215
As spread margin on average reserves (bps) 42 36 34 23 75 111 43 37
Average reserves (£bn) 63.3 54.6 3.2 3.1 1.2 0.9 67.7 58.6
Expected return on shareholder assets5 (£m) 62 95 81 77 23 13 166 185
Total (£m) 1,352 1,208 1,134 989 159 90 2,645 2,287
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year
comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for
2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of
£38 million. See note B2 for further details.
2 Unit-linked margin represents the annual management charges on unit-linked business based on expected investment
return.
3 The shareholders' share of the return on with-profit and other participating business.
4 Spread margin represents the return made on annuity and other non-linked business, based on the expected investment
return less amounts credited to policyholders.
5 The expected investment return based on opening economic assumptions applied to expected surplus assets over the
reporting period that are not backing policyholder liabilities.
6 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.
(c) Unit-linked margin
The unit-linked average reserves have increased to £152 billion (2015: £130 billion), with the movement largely driven by
higher weighted average Group reserves following the Friends Life acquisition on 10 April 2015. The unit-linked margin
increased to £1,456 million (2015: £1,268 million) mainly driven by the additional quarter from Friends Life and increased
margins in FPI and Italy. The margin as a proportion of average unit-linked reserves decreased to 96 bps (2015: 98 bps).
The unit-linked margin in UK & Ireland has increased mainly due to the benefit of an additional quarter from Friends Life,
partly offset by the expected run-off in the back book. Unit-linked margin in Europe increased 10% on a constant currency
basis, reflecting a change in business mix to higher margin products in Italy. The increase in unit-linked margin in Asia
is mainly due to an additional quarter and higher management charges from existing business in FPI.
(d) Participating business
The participating average reserves have increased to £120 billion (2015: £108 billion), largely driven by favourable
foreign exchange movements in Europe. Income from participating business increased to £734 million (2015: £619 million). In
the UK & Ireland, the income has increased due to the additional quarter from Friends Life. In Europe, income has increased
to £524 million (2015: £470 million) reflecting favourable foreign currency movements of £62 million. The majority of
participating business income is earned in France, where there is a fixed management charge of around 50 bps on AFER
business, which is the largest single component of this business.
(e) Spread margin
The average reserves have increased to £68 billion (2015: £59 billion), largely driven by the higher weighted average
reserves as a result of the Friends Life acquisition. Spread business income, which mainly relates to UK in-force annuity
and equity release business, improved to £269 million (2015: £198 million). This increase is due to a refinement in the
expected cost of credit defaults in operating profit. The spread margin increased to 42 bps (2015: 36 bps), on average
reserves of £63 billion (2015: £55 billion). In Europe, spread income improved to £11 million (2015: £7 million), mainly
due to improved margins in Spain. In Asia, spread business income reduced to £9 million (2015: £10 million) due to reduced
investment margins in Singapore, partly offset by higher investment margins on non-participating business in China.
(f) Expected return on shareholder assets
Expected returns, representing investment income on surplus funds, decreased to £166 million (2015: £185 million). The
decrease is mainly driven by the impact of the economic capital optimisation (hedging) activity in Friends Life, reducing
the expected return on shareholder assets in UK Life and adverse foreign exchange movements on shareholder assets in
France.
Page 22
7.i - Life business profit drivers continued
Expenses
United Kingdom & Ireland Europe Asia Total
2016 Restated12015 2016 2015 2016 2015 2016 Restated12015
£m £m £m £m £m £m £m £m
Acquisition expenses (£m) (396) (405) (274) (243) (158) (127) (828) (775)
APE (£m)2 2,456 2,075 1,236 947 270 356 3,962 3,378
As acquisition expense ratio on APE (%) 16% 20% 22% 26% 59% 36% 21% 23%
Administration expenses (£m) (652) (584) (520) (434) (96) (73) (1,268) (1,091)
As existing business expense ratio on average reserves (bps) 29 30 51 48 73 72 37 37
Average reserves (£bn) 224.5 196.4 102.1 90.0 13.2 10.1 339.8 296.5
1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year
comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for
2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of
£38 million. See note B2 for further details.
2 APE excludes UK Retail Fund Management and Health business in UK & Ireland and Asia.
(g) Acquisition expenses
Acquisition expenses increased to £828 million (2015: £775 million) reflecting unfavourable exchange rate movements of £29
million in Europe in addition to increased expenses as volumes grew in Spain and Italy. Acquisition expenses in the UK
reflect integration synergies, partly offset by the additional quarter of Friends Life.
The increase in Asia is due to a change of business mix towards non-participating products in China and Singapore. The
overall group-wide ratio of acquisition expenses to APE improved to 21% (2015: 23%).
(h) Administration expenses
Administration expenses increased to £1,268 million (2015: £1,091 million). The expense ratio was 37 bps (2015: 37 bps) on
average reserves of £340 billion (2015: £297 billion). The increase in UK & Ireland is driven by the additional quarter of
Friends Life expenses, investment in digital, partly offset by integration synergies. Administration expenses in Europe
have increased to £520 million (2015: £434 million), with adverse exchange rate movements of £53 million, higher
renewal-related expenses and investment required for growing and reorganising the business in France and a new asset levy
in Poland effective from 1 February 2016. On a constant currency basis, Asia administration expenses increased primarily
due to the additional quarter of FPI costs along with continued investment in distribution and infrastructure across the
region.
The overall increase in life business acquisition and administration expenses was £230 million, with an additional quarter
of Friends Life expenses, adverse foreign exchange rate movements of £94 million, increased administration expenses in
France, investment in growth as the Italian and Spanish businesses grew and a change of business mix in China and Singapore
towards more non-participating business.
(i) DAC and other
DAC and other items amounted to an overall positive contribution of £214 million (2015: £387 million), which was mainly
driven by UK Life reflecting a lower level of non-recurring items with the longevity assumption change benefit of c.£290
million, partly offset by various other net reserve and modelling movements. In Asia DAC and other items reduced to £76
million (2015: £120 million) due to a provision for maintenance expense overruns in Hong Kong, the non-recurrence of the
one off benefit in the prior year of an internal reinsurance transaction in FPI, partly offset by a recovery of indirect
taxes paid in Singapore.
Page 23
7.ii - General insurance and health
2016 UK UK Commercial £m Total Ireland Total Canada Personal Canada Commercial £m Total Canada Europe Asia & Other2£m Total
Personal UK £m UK & Ireland £m £m £m £m
£m £m £m
General insurance
Gross written premiums 2,476 1,743 4,219 392 4,611 1,711 831 2,542 1,499 12 8,664
Net written premiums1 2,408 1,522 3,930 378 4,308 1,680 773 2,453 1,438 12 8,211
Net earned premiums1 2,295 1,526 3,821 351 4,172 1,645 775 2,420 1,396 12 8,000
Net claims incurred1 (1,602) (1,220) (2,822) (222) (3,044) (1,104) (433) (1,537) (931) (24) (5,536)
Of which claims handling costs (137) (9) (146) (93) (45) - (284)
Written commission (672) (314) (986) (56) (1,042) (313) (161) (474) (284) - (1,800)
Written expenses3 (166) (178) (344) (49) (393) (167) (122) (289) (134) (6) (822)
Movement in DAC and other 88 - 88 3 91 47 1 48 17 - 156
Impact of change in Ogden discount rate excluded from underwriting result 230 245 475 - 475 - - - - - 475
Underwriting result1 173 59 232 27 259 108 60 168 64 (18) 473
Longer-term investment return4 162 14 176 105 55 3 339
Other5 (2) - (2) (4) - -
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