Aviva 2013 Annual Report Download - page 216

Aviva plc
Annual report and accounts 2013
214
Notes to the consolidated financial statements continued
55 – Group capital structure continued
Accounting basis and capital employed by segment
The table below shows how our capital, on an IFRS basis, is deployed by segment and how that capital is funded.
2013
Capital
employed
IFRS basis
£m
2012
Capital
employed
IFRS basis
£m
Life business
United Kingdom 5,237 4,911
Ireland 595 735
United Kingdom & Ireland 5,832 5,646
France 2,366 2,119
Poland 380 336
Italy 1,108 1,276
Spain 769 1,113
Other Europe 93 155
Europe 4,716 4,999
Asia 676 784
11,224 11,429
General insurance & health
United Kingdom 3,725 3,653
Ireland 421 355
United Kingdom & Ireland 4,146 4,008
France 570 562
Italy 269 242
Other Europe 43 57
Europe 882 861
Canada 925 1,039
Asia 33 41
5,986 5,949
Fund Management 237 225
Corporate & Other Business1 (1,305) (1,471)
Total capital employed (excluding United States) 16,142 16,132
United States — 367
Total capital employed (including United States) 16,142 16,499
Financed by
Equity attributable to ordinary shareholders 7,964 8,204
Non-controlling interests 1,471 1,574
Direct capital instruments & fixed rate tier 1 notes 1,382 1,382
Preference shares 200 200
Subordinated debt 4,370 4,337
External debt 755 802
Total capital employed 16,142 16,499
Less: Goodwill & other intangibles (net of tax & non-controlling interests)2 (2,204) (2,523)
Total tangible capital employed 13,938 13,976
Total debt3 6,957 6,971
Tangible debt leverage 50% 50%
1 Corporate and other business includes centrally held tangible net assets, the main UK staff pension scheme surplus and also reflects internal lending arrangements. These internal lending arrangements, which net out on
consolidation, include the formal loan arrangement between Aviva Group Holdings Limited and Aviva Insurance Limited (AIL). Internal capital management mechanisms in place allocated a majority of the total capital of AIL to the UK
general insurance operations with the remaining capital deemed to be supporting residual (non-operational) Pillar II ICA risks.
— Certain subsidiaries, subject to satisfying standalone capital and liquidity requirements, loan funds to corporate and holding entities. These loans satisfy arm’s-length criteria and all interest payments are made when due.
2 Goodwill and intangibles comprise £1,480 million (2012: £1,703 million) of goodwill in subsidiaries, £1,068 million (2012: £1,090 million) of intangibles in subsidiaries and £60 million (2012: £132 million) of goodwill and intangibles
in joint ventures, net of deferred tax liabilities of £(189) million (2012: £(188) million) and the non-controlling interest share of intangibles of £(215) million (2012: £(214) million).
3 Total debt comprises direct capital instruments and fixed rate tier 1 notes, Aviva Plc preference share capital and core structural borrowings. In addition General Accident plc preference share capital of £250 million within non-
controlling interests has been included.
Total capital employed is financed by a combination of equity shareholders’ funds, preference capital, subordinated debt and
borrowings.
At the end of 2013 we had £16.1 billion (2012: £16.5 billion) of total capital employed in our trading operations measured on
an IFRS basis.
In July 2013 we issued €650 million of Lower Tier 2 subordinated debt callable in 2023. This was used to repay a €650 million
Lower Tier 2 subordinated debt instrument at its first call date, in October 2013. On a net basis, these transactions did not impact
on Group IGD solvency and Economic Capital measures. Financial leverage, the ratio of external senior and subordinated debt to
tangible capital employed was 50% (2012: 50%).
At the end of 2013 the market value of our external debt, subordinated debt, preference shares (including both Aviva plc
preference shares of £200 million and General Accident plc preference shares, within non-controlling interests, of £250 million),
and direct capital instruments and fixed rate tier 1 notes was £7,573 million (2012: £7,260 million), with a weighted average cost,
post tax, of 3.8% (2012: 4.4%). The Group Weighted Average Cost of Capital (WACC) is 6.6% (2012: 6.3%) and has been
calculated by reference to the cost of equity and the cost of debt at the relevant date. The cost of equity at 2013 was 8.3% (2012:
7.5%) based on a risk free rate of 3% (2012: 1.9%), an equity risk premium of 4.0% (2012: 4.0%) and a market beta of 1.3
(2012: 1.4).