Aviva 2013 Annual Report Download - page 308

Aviva plc
Annual report and accounts 2013
306
Shareholder information continued
Execution risk is inherent in the completion of all strategic
transactions. Such risks include uncertainty in relation to
obtaining the required regulatory approvals on satisfactory
terms for the change of control envisaged by such transactions.
Such execution risk gives rise to a corresponding potential
impact on capital requirements and liquidity.
We are reliant on IT systems and there are risks that our
current and legacy systems cannot be made to adapt to
growth in the business or new styles of doing business.
Key IT initiatives may not deliver what is required either on time
or within budget or provide the performance levels required to
support the current and future needs of the business. Significant
resources are devoted to maintaining and developing IT systems
to keep pace with developments within the insurance and fund
management industries. Failure to do so could result in the
inability to gather information for pricing, underwriting and
reserving, to attract and retain customers or meet regulatory
requirements or only to do so at excessive cost. We could also
incur higher administrative costs both from the processing of
business and potentially remediating disputes.
Our acquisitions may divert management attention and other
resources and involve risks of undisclosed liabilities and
integration issues.
In past years, we have completed a number of acquisitions
around the world. We may make further acquisitions in the
future. Growth by acquisition involves risks that could adversely
affect our operating results, including the substantial amount
of management time and other resources that may be diverted
from operations to pursue and complete acquisitions, or risks
of undisclosed liabilities or integration or separation issues.
Brand and reputation risks relating to Aviva’s business
We are rated by several rating agencies, and a decline in any
of these ratings could affect our standing among customers,
broker-dealers, agents, wholesalers and other distributors of
our products and services and cause our sales and earnings
to decrease.
A rating downgrade, or the perceived potential for such a
downgrade, of Aviva plc or any of our rated insurance
subsidiaries may, among other things, materially increase the
number of policy surrenders and withdrawals by policyholders
of cash values from their policies. The outcome of such activities
may be cash payments requiring the sale of invested assets,
including illiquid assets, at a price that may result in realised
investment losses. These cash payments to policyholders would
result in a decrease in total invested assets and a decrease in net
income. Among other things, early withdrawals may also cause
us to accelerate amortisation of policy acquisition costs, which
would reduce net income. A rating downgrade may also impact
sales volumes, particularly in Canada, where there is more focus
by brokers on ratings when evaluating similar products. The
ratings provided by AM Best and Standard & Poor’s are
considered to be the most important for distribution in Canada,
and a downgrade could lead to a significant loss of sales.
Similarly, a rating downgrade may increase our cost of
borrowing or limit our access to some forms of financing.
We are dependent on the strength of our brand, the brands
of our partners and our reputation with customers and
agents in the sale of our products and services.
Our results are, to a certain extent, dependent on the strength
of our brand and reputation. While we are well recognised,
we are vulnerable to adverse market and customer perception.
We operate in an industry where integrity, customer trust and
confidence are paramount. We are exposed to the risk that
litigation, employee misconduct, operational failures, the
outcome of regulatory investigations, press speculation and
negative publicity, disclosure of confidential client information,
inadequate services, amongst others, whether true or not, could
impact our brand or reputation. Our brand and reputation could
also be affected if products or services recommended by us (or
any of our intermediaries) do not perform as expected (whether
or not the expectations are founded) or in line with the
customers’ expectations for the product range. Such a change
to our brand strength could adversely affect our results of
operations and financial condition.
We may not be able to protect our intellectual property and
may be subject to infringement claims by a third party.
Our primary brand in the UK (“Aviva”) is a registered trade mark
in the UK and elsewhere. We own other registered or pending
trade marks in the UK, including Community trade marks having
effect in the entire EU. We rely on a combination of contractual
rights, copyright and trademark laws to establish and protect
our intellectual property. Although we use a broad range of
measures to protect our intellectual property rights, third parties
may infringe or misappropriate our intellectual property. The
loss of intellectual property protection or the inability to secure
or enforce the protection of our intellectual property assets
could have a material adverse effect on our business and our
ability to compete.
Third parties may have, or may eventually be issued, patents
or other protections that could be infringed by our products,
methods, processes or services or could limit our ability to offer
certain product features. In recent years, there has been
increasing intellectual property litigation in the financial services
industry challenging, among other things, product designs and
business processes. If a third party were to successfully assert an
intellectual property infringement claim against us, or if we
were otherwise precluded from offering certain features or
designs, or utilising certain processes, it could have a material
adverse effect on our business, results of operations and
financial condition.
Our businesses are conducted in highly competitive
environments.
There are many factors which affect our ability to sell our
products, including fiscal incentives, price and yields offered,
financial strength and ratings, range of product lines and
product quality, brand strength and name recognition, fund
management performance and historical bonus levels. In some
of our markets, we face competitors that are larger, have
greater financial resources or greater market share, offer a
broader range of products, benefit from more advantageous tax
treatments, or have higher bonus rates or claims-paying ratios.
Further, heightened competition for talented and skilled
employees with local experience, particularly in the emerging,
high-growth markets, may limit our ability potential to grow
businesses as quickly as planned.
Our principal competitors in the life market include many of
the major financial services businesses including, in particular,
Axa, Allianz, CNP, Generali, Prudential, Legal & General and
Standard Life. Our principal competitors in the general insurance
market include Direct Line Insurance, Intact, RSA, Zurich, Axa
and Allianz. Our principal competitors in the fund management
market include BlackRock, State Street Global, Fidelity
Investments, Schroders and Aberdeen, as well as the fund
management divisions of our principal competitors in the
life market.
We also face competitors who specialise in many of the
niche markets in which we operate. We believe that
competition will intensify across all regions in response to
consumer demand, technological advances, the impact of
consolidation, regulatory actions and other factors.
Our ability to generate an appropriate return depends
significantly upon our capacity to anticipate and respond
appropriately to these competitive pressures.