Aviva 2006 Annual Report Download - page 16

Aviva plc
Annual Report and Accounts 2006 12
Basis of preparation
Business review
This business review complies with the recommendations of the
European Union (EU) Modernisation Directive, the Companies Act
1985 (Operating and Financial Review and Directors’ Report)
Regulations 2005 (the Companies Act) 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 producing this review, we aim to present a view that is 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 Companies Act requires that a fair review of the business
contains financial and, where applicable, non-financial key
performance indicators (KPIs). We consider that our financial
KPIs are those that communicate to the members the financial
performance and strength of the group as a whole. These KPIs
comprise:
–Returnon equity shareholders’ funds
–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 and units, 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.
In addition to reporting on our financial performance, it is important
that as a forward thinking company we are aware of our wider
responsibilities and report on the non-financial aspects of our
performance. Weconsider that our employees and customers are
fundamental to the success of our business; as such, they form the
basis for our non-financial measures, and include:
–Leadership and employee engagement
–Customer satisfaction
This is the first time that we have sought to report externally on
either of these measures and we expect that our reporting on
both will evolve. In particular, reporting on customer satisfaction is
complicated by the differing needs of customers in the countries in
which we operate and the relative maturities of those businesses.
Forward-looking statements
This business review contains “forward-looking statements” about:
–Our future plans
–Our current goals
–Our expectations of our 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
our control. For example, certain insurance risk disclosures are
dependent on our choices about assumptions and models, which
by their nature are only estimates. As such, actual future gains and
losses could differ materially from those that we have 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 and business combinations
in relevant industries
–Natural and other disasters
–Changes to consumer saving and spending habits
–Our success in managing the above factors
Consequently, our actual future financial condition, performance
and results could differ materially from the plans, goals and
expectations set out in our forward-looking statements.
We undertake 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 and reporting basis. Details of the accounting basis of
preparation are set out in the “financial reporting” section of this
business review on pages 60 and 61.