Aviva 2005 Annual Report Download - page 18

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Aviva plc 2005 Business review
Business review
This business review has been prepared in accordance with the
recommendations of the European Union (EU) Modernisation
Directive and is in line with current best practice. It is addressed to,
and written for, the members of Aviva plc with the aim of providing
a fair review of our business development, performance and
position at the current time. In providing this review, we aim to
present a view that is both balanced and comprehensive and that is
consistent with the size and complexity of our business. The review
is written in the context of the risks and uncertainties facing our
business. We anticipate that the format and content of the review
will evolve over time, along with developments in our business and
the external environment.
Key performance indicators
The EU Modernisation Directive requires that business reviews
contain financial and, where applicable, non-financial key
performance indicators. We consider that our key financial
performance indicators (KPIs) are those that communicate the
financial performance and strength of the group as a whole to
the members. These KPIs comprise:
– Return on capital employed
– Proposed ordinary dividend
– Dividend cover
– Operating profit (International Financial Reporting Standards basis)
– Operating profit (European Embedded Value basis).
Management also use a variety of Other Performance Indicators
(OPIs) in both running and assessing the performance of
individual business segments, rather than the group as a whole.
OPIs include measures such as present value of new business
premiums, new business margins, combined operating ratio
and underwriting profit.
From 2006, non-financial performance indicators covering customer
service and employee satisfaction will also be disclosed. We see
both as being important to the ongoing success of our business.
Additionally, performance against customer and employee
measures will be incorporated into executive and senior
management remuneration.
Forward-looking statements
This business review contains “forward-looking statements”
with respect to certain of Aviva’s plans and its current goals and
expectations relating to its future financial condition, performance
and results. By their nature, all forward-looking statements involve
risk and uncertainty because they relate to future events that
are beyond Aviva’s control. For example, certain insurance risk
disclosures are dependent on our choices about assumptions and
models, and by their nature are only estimates. As a result, actual
future gains and losses could differ materially from those that have
been estimated. Other factors that could cause actual results to
differ materially from those estimated by the forward-looking
statements include, but are not limited to:
– UK domestic and global economic business conditions
– Monetary and interest rate policies
– Foreign currency exchange rates
– Equity and property prices
– The impact of competition, inflation and deflation
– Changes to regulations, taxes or UK and foreign legislation
– The timing and impact of acquisitions or business combinations
in relevant industries
– Natural and other disasters
– Changes to consumer saving or spending habits
– Aviva’s success in managing the above factors.
As a result, Aviva’s actual future financial condition, performance
and results may differ materially from the plans, goals and
expectations set forth in Aviva’s forward-looking statements.
Aviva undertakes no obligation to update the forward-looking
statements contained in this review or any other forward-looking
statements we make.
Accounting basis of preparation
In addition to presenting our results and financial position on an
International Financial Reporting Standards basis, we also use
European Embedded Value (EEV) as an alternative performance
measure. Details of the accounting basis of preparation are set
out in the ‘financial reporting’ section of this business review on
page 46.
Group overview: Basis of preparation