Aviva 2013 Annual Report Download - page 12

Aviva plc
Annual report and accounts 2013
10
Chief Financial Ofcer’s statement
Improved nancial
position
2013 was a year in which the nancial position of the
Group improved, cash ow and earnings were higher
and we nalised a plan to reduce the intercompany
loan to a sustainable level by 2015.
Patrick Regan
Chief Financial Ofcer
Overview
We have sharpened the focus of the Group,
completing disposals of our US insurance
business, remaining holding in Delta Lloyd, Aseval
in Spain and Malaysian business. In addition, we
have announced the disposal of our 39% stake in
Italian insurer Eurovita.
The nancial strength of the Group has
improved signicantly. At the end of 2013, our
economic capital surplus increased to £8.3 billion
from a pro forma surplus of £7.1 billion² at the
end of 2012. Our IGD surplus has reduced
modestly to £3.6 billion (2012: £3.8 billion) and
Group liquidity was £1.6 billion at the end of
February 2014.
During the year we have increased cash
remittances 40% to £1,269 million¹ (2012: £904
million), representing a remittance ratio of 72%
of operating capital generation.
As we continue to make progress resolving
our balance sheet issues, our focus will shift to
improving performance. In this area progress
has already been made, particularly in improving
expense and capital efciency.
UK Life
In UK Life, our largest business, life operating
prot grew 5%, operating expenses were 16%
lower, remittances doubled and Value of New
Business (VNB) was 4% higher. The VNB growth
came despite the difcult comparator in the
fourth quarter of 2012, when annuity sales
were elevated ahead of the gender directive
implementation.
The business has adapted well to the Retail
Distribution Review (RDR), with strong net ows
in our platform and SME-focused corporate
pensions offering. Individual protection sales are
lower however, as banks have pulled back from
advised selling.
Going forward, we expect to capitalise on our
market-leading position in annuities, benet
from a partial rebound in protection sales in the
bancassurance channel and extract greater
efciency from our back book.
UK General Insurance
Our UK General Insurance business (UK GI) grew
its underwriting result to £117 million (2012:
£48 million) and the combined ratio improved
to 97% (2012: 98.3%). Despite a stormy end to
2013, the UK results benetted from relatively
benign weather over the whole year. Remittances
from UK GI in respect of 2013 increased to £347
million primarily due to the simplied legal entity
structure and the restructure of the internal loan.
A lower Long-Term Investment Result (LTIR) of
3.2% on average assets (2012: 4.2%) brought
down the UK GI operating prot to £431 million
(2012: £459 million). This lower investment
return is primarily due to a reduced interest rate
on the intercompany loan which, although it
impacts the results of the UK GI business, is offset
at Group by lower internal interest costs. The LTIR
is expected to continue reducing as we bring
down the intercompany loan.
Key statistics
in 2013
£2,151m
IFRS prot after tax
£1.3bn
Cash remittances¹
£241bn
Aviva Investors
assets under
management
1 This includes £347 million remitted by UK General Insurance in January 2014 relating to activity in 2013.
2 The pro forma economic capital surplus at 31 December 2012 included the benet of disposals and an increase in pension scheme risk allowance from ve to ten years of stressed contributions.
The capital requirement is based on Aviva’s own internal assessment and capital management policies, measuring the amount of economic capital at risk in a 1-in-200 year loss event over a one year
time horizon. The term ‘economic capital’ does not imply capital as required by regulators or other third parties.