Aviva 2014 Annual Report Download - page 296

Aviva plc Annual report and accounts 2014
Shareholder information continued
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on central borrowings in 2013. Total corporate centre expenses
in 2014 were £132 million compared with £150 million in 2013.
An additional application of our funds is the acquisition of
businesses. In 2014, cash paid for the acquisition of subsidiaries,
joint ventures and associates from continuing operations net of
cash acquired amounted to £79 million, compared with cash
paid of £29 million in 2013.
Capital injections
We make capital injections into our businesses where necessary
to ensure that they meet their local solvency requirements and
also to support development of their operations. Capital is
provided either by equity or, where a local holding company is
in place, may be via loans with the holding company
subsequently injecting equity capital in the regulated operating
company. Each capital injection is subject to central review and
approval by the Board of the relevant holding company and
needs to meet our required internal rates of return. To the
extent that capital injections are provided or funded by
regulated entities, then we have to consider the impact on
regulatory capital of the capital injection.
Otherwise our ability to make capital injections into our
businesses is not materially limited by applicable legal and
regulatory restrictions. Total capital injections into the business
units were £567 million and £157 million in 2014 and 2013
respectively. Payments during the year include initial
capitalisation of the Group’s internal reinsurance vehicle and
other restructuring activity.
Consolidated cash flows1
The cash and cash equivalents consist of cash at banks and in
hand, deposits held at call with banks, treasury bills and other
short-term highly liquid investments that are readily convertible
to known amounts of cash and which are subject to an
insignificant risk of change in value.
For the purposes of the cash flow statement, cash and cash
equivalents also include bank overdrafts, which are included in
payables and other financial liabilities on the balance sheet.
Year ended 31 December 2014
Net cash from operating activities
Total net cash from operating activities (continuing operations)
decreased by £2,643 million to a £544 million outflow in 2014
(2013: £2,099 million inflow restated for IAS 32). The net
operating cash outflow reflects a number of factors, including
the level of premium income, payments of claims, creditors and
surrenders and purchases and sales of operating assets including
financial investments. It also includes changes in the size and
value of consolidated cash investment funds and changes in the
Group’s participation in these funds.
Net cash from investing activities
Net cash used in investing activities (continuing operations)
decreased by £562 million to £228 million outflow (2013: £334
million inflow restated for IAS 32). The decrease in cash is
mainly due to lower inflows from disposals and higher
purchases of property and equipment.
Net cash outflow on financing activities
Net cash used in financing activities (continuing operations)
increased by £407 million to an outflow of £1,955 million
(2013: £1,548 million outflow). The increase is mainly due to
the redemption of a direct capital instrument.
Net cash and cash equivalents
At 31 December 2014, total consolidated net cash and cash
equivalents, net of bank overdrafts, amounted to £22,564
million, a decrease of £3,425 million over £25,989 million in
2013 (restated for IAS 32).
1 Comparatives have been restated following the adoption of amendments to IAS 32 ‘Financial Instruments:
Presentation’ – see Note 1 for details
Year ended 31 December 2013
Net cash from operating activities
Total net cash from operating activities increased by £408
million to a £4,018 million inflow in 2013 (2012 restated:
£3,610 million inflow). The increase was primarily due to an
increase in operating cash flows in US Life prior to disposal,
partly offset by changes in working capital.
Net cash from investing activities
Net cash used in investing activities increased by £1,239 million
to £1,254 million outflow (2012: £15 million outflow). The
movement is mainly a result of the disposal of the US Life
business.
Net cash outflow on financing activities
Net cash used in financing activities increased by £410 million to
an outflow of £1,529 million (2012: £1,119 million outflow).
The increase in cash used is due to repayment of borrowings, a
lower dividend payment and 2012 benefitting from the issue of
fixed rate tier 1 notes.
Net cash and cash equivalents
At 31 December 2013, total consolidated net cash and cash
equivalents, net of bank overdrafts, amounted to £25,989
million, an increase of £1,425 million over £24,564 million in
2012 (restated for IAS 32).
Currency
Our exposures to movements in exchange rates and the
management of these exposures is detailed in ‘Performance
review – Financial and operating performance – Exchange rate
fluctuations’.
Regulatory capital position
Individual regulated subsidiaries measure and report solvency
based on applicable local regulations, including in the UK the
regulations established by the PRA. These measures are also
consolidated under the European Insurance Groups Directive
(IGD) to calculate regulatory capital adequacy at an aggregate
group level, where we have a regulatory obligation to have a
positive position at all times.
This measure represents the excess of the aggregate value of
regulatory capital employed in our business over the aggregate
minimum solvency requirements imposed by local regulators,
excluding the surplus held in the UK and Ireland with-profit life
funds. The minimum solvency requirement for our European
businesses is based on the Solvency 1 Directive. In broad terms,
for EU operations, this is set at 4% and 1% of non-linked and
unit-linked life reserves respectively and for our general
insurance portfolio of business is the higher of 18% of gross
premiums or 26% of gross claims, in both cases adjusted to
reflect the level of reinsurance recoveries. For our businesses in
Canada a risk charge on assets and liabilities approach is used.
European Insurance Groups Directive
UK life
funds
£bn
Other
business
£bn
31
December
2014
£bn
31
December
2013
£bn
Insurance Groups Directive (IGD)
capital resources 6.0 8.4 14.4 14.4
Less: capital resources
requirement (6.0) (5.2) (11.2) (10.8)
Insurance Group Directive
(IGD) excess solvency — 3.2 3.2 3.6
Cover over EU minimum
(calculated excluding UK life
funds) 1.6 times 1.7 times
The EU Insurance Groups Directive (IGD) regulatory capital
solvency surplus has decreased by £0.4 billion since FY13 to
£3.2 billion. This total includes an adverse impact of £0.4 billion
from recognising the proposed final dividend for 2014 that was
announced on 2 December 2014 as part of the announcement
292 | Aviva plc Annual report and accounts 2014