Aviva 2009 Annual Report Download - page 40

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Aviva plc Financial and operating performance continued
Annual Report and Accounts 2009
we reported a foreign currency translation gain in other
comprehensive income of £2,684 million as sterling weakened
significantly against the euro and the dollar. During 2007,
the currency translation gain was lower at £723 million.
The impact of these fluctuations is limited to a significant
degree, however, by the fact that revenues, expenses, assets
and liabilities within our non-UK operations are generally
denominated in the same currencies.
Acquisitions and disposals
Over the last three years we have engaged in a significant
amount of acquisitions and disposals, some of which have had
a material impact on our results. These transactions reflect our
strategic objectives of maximising value for our shareholders
by building top five positions in key markets, withdrawing from
lines of business or markets that do not offer the potential for
market-leading positions and taking advantage of particular
opportunities as they arise.
Activity in 2009
On 1 October 2009, we completed the sale of our Australian
life and pension business and wealth management platform
to the National Australia Bank for A$902 million (£443 million).
The sale supports Aviva’s strategy of focusing on the key growth
markets in Asia where leading positions can be achieved.
On 3 November 2009, we completed the Initial Public
Offering (IPO) of approximately 42% of Delta Lloyd N.V. raising
€1.1 billion (£1 billion). The IPO enabled Aviva to monetise
part of its holding in Delta Lloyd, giving Aviva greater financial
flexibility, including the option to explore balance sheet
restructuring and further growth opportunities. It will also
enhance the value and liquidity of Aviva’s retained stake in
Delta Lloyd.
Delta Lloyd, at the start of the year, sold its health business
for £235 million to OWM CZ Groep Zorgverkeraar UA (CZ). The
sale to CZ removed the underwriting risk and administration out
of Delta Lloyd whilst continuing to sell health products and also
market general insurance and income protection products to
CZ’s customers.
Continuing with the group’s strategy to exit non-core
operations, we disposed of the British School of Motoring
Limited for a consideration of £4 million.
Activity in 2008
During 2008, we acquired subsidiaries in Ireland, Italy and
Belgium. In Belgium we acquired Swiss Life Belgium, further
strengthening our position in the Belgium life insurance market.
The acquisition of UBI Vita in Italy provides us with a new
bancassurance distribution channel and the acquisition of Vivas
Group Ltd. in Ireland has enabled us to enter the Irish health
insurance market. Total consideration for these acquisitions,
including costs, was £189 million.
As part of our strategy to exit non-core operations, we
disposed of HPI Limited and RAC Autowindscreens Limited in
the UK and our life operations in Luxembourg. In addition,
we disposed of our offshore administration operations. These
offshore operations will continue to provide administration
services to our UK, Irish and Canadian businesses under a
master services agreement with the new owners. Consideration
for these disposals was £126 million, realising a net profit
on disposal of £7 million.
Activity in 2007
During 2007, we acquired subsidiaries in Spain, Italy and the UK
in connection with bancassurance agreements with Cajamurcia,
Banco Popolare and HSBC, with the objective of further
increasing our distribution channels and access to customers in
these markets. In the Netherlands we acquired Erasmus Group
and an 85% interest in Cyrte Investments NV, further
strengthening the position of our Dutch subsidiary, Delta Lloyd,
in the Dutch insurance and fund management markets. Total
consideration for these acquisitions, including costs, was
£397 million.
In addition to these acquisitions we entered into joint
venture agreements with local banks in Turkey, Malaysia and
Taiwan. Our joint ventures in Malaysia and Taiwan gave us
access to these emerging markets for the first time, while our
joint venture in Turkey considerably strengthens our position
in the Turkish life and pensions market. Total consideration
for these joint ventures was £208 million.
We disposed of a number of businesses, the most material
of which was the contribution of our Turkish business, Aviva HE,
to our Turkish joint venture, referred to above. This gave rise to
a profit on disposal of £71 million. Other disposals of smaller
operations gave rise to a loss on disposal before tax of
£22 million.
Reattribution of inherited estate
The “inherited estate” refers to the assets of the long-term
with-profit funds less the realistic reserves for non-profit
policies, less asset shares aggregated across the with-profit
policies and any additional amounts expected at the valuation
date to be paid to in-force policyholders in the future in respect
of smoothing costs and guarantees.
The reattribution of our inherited estate completed on
1 October 2009 following the High Court’s approval of the offer
in September and final approval by the Aviva plc and Aviva UK
Life boards. Our objective was always to create a reattribution
that was fair to both shareholders and policyholders, making
sure that customers had a choice of whether they wished to
accept the offer, depending on their personal circumstances.
As a result, over 87% of eligible policyholders voted during
the election process, with 96% of these voting in favour of
the offer. By the end of 2009, the majority of the £471 million
reattribution payment had been distributed to those
policyholders who accepted the offer.
As previously stated, from a shareholder perspective the
reattribution is expected to enhance the cash flow profile of
Aviva’s UK life business and will bring significant financial
benefits. In return for the £471 million shareholders are
expected to gain access to around £650 million of additional
capital over five years, to fund new, non profit business.
The reattribution resulted in an IFRS operating loss of
£5 million (being the net impact of the value of the estate,
project costs, tax and the ‘Policyholder Incentive Payment’).
In addition to this, investment earnings on reattributed assets
and the surplus generated from the ‘New With-Profits Sub-
Fund’ during the period 1 October to 31 December 2009
generated IFRS operating profits of £79 million. The after
tax contribution was £51 million in 2009.
Basis of earnings by line of business
Our earnings originate from three main lines of business:
our long-term insurance and savings business, which includes a
range of life insurance and savings products; fund management,
which manages funds on behalf of our long-term insurance and
general insurance businesses, external institutions, pension
funds and retail clients; and general insurance and health,
which focuses on personal and commercial lines. These lines
of business are present in our various operating segments to
a greater or lesser extent. In the UK, we have major long-term
insurance and savings businesses and general insurance
businesses; in Europe we have long-term insurance and savings
businesses in all countries in which we operate, large general