218 | Aviva plc Annual report
218
report and
and accounts
accounts 2014
2014
Notes to the consolidated financial statements continued
56 – Statement of cash flows continued
(c) Cash flows in respect of the disposal of subsidiaries, joint ventures and associates comprised:
Cash proceeds from disposal of subsidiaries, joint ventures and associates
Less: Net cash and cash equivalents divested with subsidiaries
Cash flows on disposals – continuing operations
Cash flows on disposal – discontinued operations
Total cash flow on disposals
2014
£m
2013
£m
349
(239)
817
(440)
110
(20)
377
(1,582)
90
(1,205)
2014
£m
Restated1
2013
£m
The above figures form part of cash flows from investing activities.
(d) Cash and cash equivalents in the statement of cash flows at 31 December comprised:
Cash at bank and in hand
Cash equivalents
2,855
20,259
4,103
22,379
Bank overdrafts
23,114
(550)
26,482
(493)
22,564
25,989
1
Restated for the adoption of amendments to IAS 32 ‘Financial Instruments: Presentations’ – see note 1 for details. In addition, following a review of the classification of cash and cash equivalents, £8,211 million has been reclassified
from cash at bank and in hand to cash equivalents. The net impact of this reclassification on cash and cash equivalents is £nil.
Cash and cash equivalents reconciles to the statement of financial position as follows:
2014
£m
Cash and cash equivalents (excluding bank overdrafts)
Less: Assets classified as held for sale
1
Restated1
2013
£m
23,114
(9)
26,482
(351)
23,105
26,131
Restated for the adoption of amendments to IAS 32 ‘Financial Instruments: Presentations’ – see note 1 for details
57 – Capital statement
This statement sets out the financial strength of our Group entities and provides an analysis of the disposition and constraints over
the availability of capital to meet risks and regulatory requirements. The capital statement also provides a reconciliation of
shareholders’ funds to regulatory capital.
The analysis below sets out the Group’s available capital resources, which includes available capital resources of subsidiaries
classified as held for sale in the Group IFRS statement of financial position still included in the Group’s available capital resources at
31 December 2014.
Available capital resources
Old
withprofit
sub-fund
£m
New
withprofit
sub-fund
£m
Withprofit
sub-fund5
£m
Total shareholders' funds
Other sources of capital1
Unallocated divisible surplus2
Adjustments onto a regulatory basis:
Shareholders' share of accrued bonus
Goodwill and other intangibles3
Regulatory valuation and admissibility
restrictions4
—
—
221
(37)
24
—
—
(19) 1,530
(37)
—
445
—
69
1,722
Total available capital resources
253
2,111
Total
UK life
withOther
Total Overseas
Other
profit
UK life
UK life
life
Total life
funds operations operations operations operations operations6
£m
£m
£m
£m
£m
£m
(13)
—
1,732
5,131
200
—
5,118
200
1,732
1,819
4,394
—
12,276
4,623
9,467
11,017
4,413
6,709
—
(126)
210
2,001
(2,521)
1,021
501
1,583
3,947
2,684
6,631 13,269
19,900
2,258
22,158
18,556
9,870 23,747
95
—
— 3,327
509 4,469 37,476
—
—
—
23,842 20,992
3,327 4,636
41,945 4,711
—
—
44,834
7,963
46,656
—
—
—
—
—
44,834
7,963
46,656
—
45,098
8,714
42,447
(106)
(520)
—
(855)
10,457
229
9,467
2013
Total
£m
227
—
(181)
—
227
(126)
5,339
29
7,735
2014
Total
£m
227
—
227
(981) (1,436) (2,417)
(2,519) (2,018)
(89)
(2,608)
(886)
Analysis of liabilities:
Participating insurance liabilities
Unit-linked liabilities
Other non-participating life insurance
Amounts classified as held for sale
1,766 12,111
—
—
372 3,588
—
—
Total insurance liabilities
2,138 15,699 10,379 28,216 40,898
69,114 30,339
99,453
—
99,453
96,153
717 3,115 6,227 10,059 2,612
(2)
(7)
—
(9) 40,804
—
—
—
—
—
12,671 54,561
40,795 9,218
—
—
67,232
50,013
—
—
—
—
67,232
50,013
—
70,628
48,140
(2,710)
715
53,466 63,779 117,245
— 117,245 116,058
2,853 18,807 16,606 38,266 84,314 122,580 94,118 216,698
— 216,698 212,211
Participating investment liabilities
Non-participating investment liabilities
Amounts classified as held for sale
Total investment liabilities
Total liabilities
1
2
3
4
5
6
3,108
6,227 10,050 43,416
Other sources of capital include Subordinated debt of £4,594 million issued by Aviva and £29 million of other qualifying capital issued by Italian and Spanish subsidiary and associate undertakings.
Unallocated divisible surplus for overseas life operations is included gross of minority interest and amounts disclosed include balances classified as held for sale.
Includes goodwill and other intangibles of £87 million in joint ventures and associates, and amounts disclosed include balances classified as held for sale.
Includes an adjustment for minorities (except for other sources of capital that are reflected net of minority interest).
Includes the Provident Mutual with-profit fund.
Other operations include general insurance and fund management business.
Aviva plc
plc Annual
Annual report
report and accounts 2014 | 219
Aviva
57 – Capital statement continued
Analysis of movements in capital of long-term businesses
For the year ended 31 December 2014
Old
with-profit
sub-fund
£m
New
with-profit
sub-fund
£m
With-profit
sub-fund
£m
Total UK
life withprofit
funds
£m
Other
UK life
operations
£m
Total
UK life
operations
£m
Overseas
life
operations
£m
Total life
operations
£m
Available capital resources at 1 January
Effect of new business
Expected change in available capital resources
Variance between actual and expected experience
Effect of operating assumption changes
Effect of economic assumption changes
Effect of changes in management policy1
Transfers, acquisitions and disposals2
Foreign exchange movements
Other movements
363
—
(4)
(6)
(6)
(8)
(87)
—
—
1
1,298
(36)
(1)
70
5
(139)
926
—
—
(12)
1,510
(1)
70
31
48
(26)
—
—
—
(49)
3,171
(37)
65
95
47
(173)
839
—
—
(60)
2,793
127
306
(71)
156
(45)
308
(491)
—
(399)
5,964
90
371
24
203
(218)
1,147
(491)
—
(459)
10,732
(150)
653
3,176
59
51
3
(61)
(792)
(402)
16,696
(60)
1,024
3,200
262
(167)
1,150
(552)
(792)
(861)
Available capital resources at 31 December
253
2,111
1,583
3,947
2,684
6,631
13,269
19,900
1
New with-profit sub-fund (NWPSF) changes in management policy include increase in the value of the reattributed estate (RIEESA) as a result of the transfer of the non-profit business from RIEESA to NWPSF of £1.1 billion.
2
Included within transfers, acquisitions and disposals is £550 million of cash consideration paid from life operations to other non-life operations within the Group for the sale of Aviva Life & Pensions Ireland Limited and Aviva
Powszechne Towarzystwo Emerytalne BZ WBK S.A.
IFRS Financial statements
Further analysis of the movement in the liabilities of the long-term business can be found in notes 41 and 42.
The analysis of movements in capital provides an explanation of the movement in available capital of the Group’s life business
for the year. This analysis is intended to give an understanding of the underlying causes of changes in the available capital of the
Group’s life business, and provides a distinction between some of the key factors affecting the available capital.
The negative shareholders’ funds balance within the UK with-profit funds arises in NWPSF as a result of regulatory valuation
and admissibility differences in the reattributed estate which is valued on a realistic regulatory basis compared to the disclosure on
an IFRS basis.
NWPSF is fully supported by the reattributed estate of £2,111 million (this is known as RIEESA) at 31 December 2014 (31
December 2013: £1,105 million) held within NPSF1 (a non-profit fund within UKLAP included within other UK life operations) in
the form of a capital support arrangement. This support arrangement will provide capital to NWPSF to ensure that the value of
assets of NWPSF are at least equal to the value of liabilities calculated on a realistic regulatory basis, therefore it forms part of the
NWPSF available capital resources.
The with-profit funds and the RIEESA use internal hedging to limit the impacts of equity market volatility.
In aggregate, the Group has at its disposal total available capital of £22.2 billion (2013: £18.6 billion), representing the
aggregation of the solvency capital of all of our businesses.
This capital is available to meet risks and regulatory requirements set by reference to local guidance and EU directives.
After effecting the year-end transfers to shareholders, the UK with-profit funds have available capital of £3.9 billion (2013: £3.2
billion) (including amounts held in RIEESA). Subject to certain conditions, the RIEESA capital can be used to write new non-profit
business, but the primary purpose of this capital is to provide support for the UK with-profit business. The capital (including RIEESA)
is comfortably in excess of the required capital margin, and therefore no further support is required by shareholders.
For the remaining life and general insurance operations, the total available capital amounting to £18.3 billion (2013: £15.4
billion) is higher than the minimum requirements established by regulators and, in principle, the excess is available to shareholders.
In practice, management will hold higher levels of capital within each business operation to provide appropriate cover for risk.
The total available capital of £22.2 billion is arrived at on the basis of local regulatory guidance, which evaluates assets and
liabilities prudently and includes the Group’s unallocated divisible surplus of overseas life operations. This is a limitation of the
Group Capital Statement which, to be more meaningful, needs to evaluate available capital on an economic basis and compare it
with the risk capital required for each individual operation, after allowing for the considerable diversification benefits that exist in
our Group.
Within the Aviva Group there exist intra-group arrangements to provide capital to particular business units. Included in these
arrangements is a subordinated loan of £200 million from Aviva Life Holdings UK Limited to Aviva Annuity Limited to provide
capital to support the writing of new business.
The available capital of the Group’s with-profit funds is determined in accordance with the ‘Realistic balance sheet’ regime
prescribed by the PRA’s regulations, under which liabilities to policyholders include both declared bonuses and the constructive
obligation for future bonuses not yet declared. The available capital resources include an estimate of the value of their respective
estates, included as part of the unallocated divisible surplus. The estate represents the surplus in the fund that is in excess of any
constructive obligation to policyholders. It represents capital resources of the individual with-profit fund to which it relates and is
available to meet regulatory and other solvency requirements of the fund and, in certain circumstances, additional liabilities may
arise.
The liabilities included in the balance sheet for the with-profit funds do not include the amount representing the shareholders’
portion of future bonuses. However, the shareholders’ portion is treated as a deduction from capital that is available to meet
regulatory requirements and is therefore shown as a separate adjustment in the capital statement.
In accordance with the PRA’s regulatory rules under its realistic capital regime, the Group is required to hold sufficient capital in
its UK life with-profit funds to meet the PRA capital requirements, based on the risk capital margin (RCM). The determination of
the RCM depends on various actuarial and other assumptions about potential changes in market prices, and the actions
management would take in the event of particular adverse changes in market conditions.
220 | Aviva plc Annual report
220
report and
and accounts
accounts 2014
2014
Notes to the consolidated financial statements continued
57 – Capital statement continued
31 December 31 December
2014
2013
Estimated
realistic
Capital
inherited
support
estate2 arrangement3
£bn
£bn
Estimated
realistic
assets
£bn
Estimated
realistic
liabilities1
£bn
NWPSF
OWPSF
WPSF4
14.8
2.8
17.1
(14.8)
(2.5)
(15.5)
—
0.3
1.6
2.1
—
—
Aggregate
34.7
(32.8)
1.9
2.1
1
2
3
4
Estimated
excess
available
capital
£bn
Estimated
excess
available
capital
£bn
(0.2)
(0.1)
(0.3)
1.9
0.2
1.3
0.9
0.3
1.2
(0.6)
3.4
2.4
Estimated
risk capital
margin
£bn
These realistic liabilities include the shareholders’ share of accrued bonuses of £(0.2) billion (31 December 2013: £0.1 billion). Realistic liabilities adjusted to eliminate the shareholders’ share of accrued bonuses are £33.0 billion (31
December 2013: £33.4 billion).These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision included within realistic liabilities is £1.4 billion, £0.3
billion and £3.0 billion for NWPSF, OWPSF and WPSF respectively (31 December 2013: £1.4 billion, £0.2 billion and £2.5 billion for NWPSF, OWPSF and WPSF respectively).
Estimated realistic inherited estate at 31 December 2013 was £nil, £0.4 billion and £1.5 billion for NWPSF, OWPSF and WPSF respectively.
This represents the reattributed estate (RIEESA) of £2.1 billion at 31 December 2014 (31 December 2013: £1.1 billion).The increase arises mainly from the transfer of non-profit business from RIEESA to NWPSF and recognition of the
value of this business in RIEESA.
The WPSF fund includes the Provident Mutual (PM) fund which has realistic assets and liabilities of £1.7 billion and therefore does not contribute to the realistic inherited estate.
Under the PRA regulatory regime, UK life with-profits business is required to hold capital equivalent to the greater of their
regulatory requirement based on EU directives (regulatory peak) and the PRA realistic bases (realistic peak) described above.
For UK non-participating business, the relevant capital requirement is the minimum solvency requirement determined in
accordance with PRA regulations. The available capital reflects the excess of regulatory basis assets over liabilities before deduction
of capital resources requirement.
For UK general insurance businesses, the relevant capital requirement is the minimum solvency requirement determined in
accordance with the PRA requirements.
For overseas businesses in the European Economic Area (EEA), Canada, Hong Kong and Singapore, the available capital and the
minimum requirement are calculated under the locally applicable regulatory regimes. The businesses outside these territories are
subject to the PRA rules for the purposes of calculation of available capital and capital resource requirement.
For fund management and other businesses, the relevant capital requirement is the minimum solvency requirement determined
in accordance with the local regulator’s requirements for the specific class of business.
The available capital resources in each regulated entity are generally subject to restrictions as to their availability to meet
requirements that may arise elsewhere in the Group. The principal restrictions are:
• (i) UK with-profits fund – (NWPSF, OWPSF and WPSF) – any available surplus held in each fund can be used to meet the
requirements of the fund itself, be distributed to policyholders and shareholders or in the case of NWPSF and OWPSF, transferred
via the capital support arrangement explained above (for OWPSF only to the extent support has been provided in the past). In
most cases, with-profit policyholders are entitled to at least 90% of the distributed profits while the shareholders receive the
balance. The latter distribution would be subject to a tax charge, which is met by the fund.
• (ii) UK non-participating funds – any available surplus held in these is attributable to shareholders. Capital in the non-profit
funds may be made available to meet requirements elsewhere in the Group subject to meeting the regulatory requirements of
the fund. Any transfer of the surplus may give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
• (iii) Overseas life operations – the capital requirements and corresponding regulatory capital held by overseas businesses are
calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to local
regulatory restrictions which may constrain management’s ability to utilise these in other parts of the Group. In several business
units, Group companies and other parties jointly control certain entities; these joint venture operations may constrain
management’s ability to utilise the capital in other parts of the Group. Any transfer of available capital may give rise to a tax
charge subject to availability of tax relief elsewhere in the Group.
• (iv) General insurance operations – the capital requirements and corresponding regulatory capital held by overseas businesses
are calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to
local regulatory restrictions which may constrain management’s ability to utilise these in other parts of the Group. Any transfer of
available capital may give rise to a tax charge, subject to availability of tax relief elsewhere in the Group.
58 – Risk management
This note sets out the major risks our businesses and its shareholders face and describes the Group’s approach to managing these.
It also gives sensitivity analyses around the major economic and non-economic assumptions that can cause volatility in the Group’s
earnings and capital position.
(a) Risk management framework
The risk management framework (RMF) in Aviva forms an integral part of the management and Board processes and decisionmaking framework across the Group. The key elements of our risk management framework comprise risk appetite; risk
governance, including risk policies and business standards, risk oversight committees and roles and responsibilities; and the
processes we use to identify, measure, manage, monitor and report (IMMMR) risks, including the use of our risk models and stress
and scenario testing.
For the purposes of risk identification and measurement, and aligned to Aviva’s risk policies, risks are usually grouped by risk
type: credit, market, liquidity, life insurance, general insurance, asset management and operational risk. Risks falling within these
types may affect a number of metrics including those relating to balance sheet strength, liquidity and profit. They may also affect
the performance of the products we deliver to our customers and the service to our customers and distributors, which can be
categorised as risks to our brand and reputation or as conduct risk.