Aviva 2014 Annual Report Download - page 30

Laying the
foundations for
the next stage of
transformation
Financially, we made further progress
on improving our performance and
increasing our nancial exibility.
Operationally, we have continued to
deliver expense savings and realise
efciencies across the Group
Overview
In 2014, operating earnings per share
(EPS)1 increased 10% to 47.0p and IFRS
book value per share (NAV) increased 26%
to 340p, primarily due to operating prot
and favourable movements in our staff
pension scheme. Excess centre cash ow2
from operations increased 65% to £0.7
billion, providing positive cash coverage of
our annual dividend for the rst time in
several years. Consequently, the nal
dividend has been increased 30% to
12.25p per share.
External debt leverage reduced from
48% to 41% of tangible capital on an
IFRSbasis, as we reduced debt and grew
book value. On an S&P basis, our debt
leverage is 28% and within our target
range of being comparable to the AA level.
Meanwhile we have also reduced the
internal loan3 by £1.3 billion in the
12months to February 2015 to £2.8billion.
Our capital level and liquidity are within our
risk appetite, with an estimated economic
capital surplus4 ratio of 178%, even after
declaring the year end dividend. We
manage our capital on an economic basis,
which is consistent with the UK regulatory
framework, but also with consideration to
the upcoming Solvency II regime.
Capital efciency remains a primary
theme of Aviva’s turnaround. We continue
to take action at both the Group level and
at the individual business cell level to
improve return on capital, or to redeploy
it to better use. The list of achievements in
2014 is long. We established our internal
reinsurance entity, separated our capital
and risk functions, and issued and
renanced €700 million long-term hybrid
debt on better terms than a similar issue
the year before. We divested our business
in South Korea, our general insurance
operation in Turkey, our River Road asset
management business in the U.S., Eurovita
in Italy and our stake in Spanish joint
venture CxG Aviva. Together with our
partner, we also conducted a successful
partial initial public offering (IPO) of our life
insurance operation in Turkey.
The proposed acquisition of Friends
Life accelerates our nancial
transformation. Our integration planning
to date has conrmed expected run rate
cost savings of £225 million by the end of
2017. In addition, we expect to realise
signicant capital synergies from the
combination over time.
In parallel to the Friends Life
integration, we will increasingly focus
management attention on organic growth
initiatives within Aviva and the reallocation
of capital and expenditures to our most
promising business opportunities. Our
challenge in 2015 through 2017 is to
deliver the Friends Life synergies, develop
our capabilities around the True Customer
Composite and Digital First, and shift
towards investing in growth.
Business Unit performance
Aviva is a diversied insurance and
investment management group. We
operate in 16 countries with differing
economic conditions and market
structures, and each of our businesses is
at different stages of performance
improvement and growth.
In our largest unit, UK & Ireland Life,
our focus has been on expense efciency
and improving the nancial resilience of
our large back book of existing business in
force. The objective has been to both
improve the solvency capital position
within the business and deliver more cash
to the Group. The results have been
satisfactory. Operating prot was up 9%
to £1,039 million (2013: £952 million) and
cash remittances increased 18% to
£437 million. In UK Life, changes in
annuitant mortality experience resulted in
a release of £282 million of longevity
reserves (2013: £66 million) following an
extensive review. Efciency gains also
allowed us to release expense reserves in
the rst half of the year, but the impact of
this on prot was negated by a DAC
writedown mainly related to new pension
charging rules. Lower individual annuity
volumes and dampened returns from
increased hedging activities depressed
underlying protability. Value of new
1 On a continuing basis, excluding US Life.
2 Excess centre cash ow. Refer to the glossary for a denition and more information.
3 Between Aviva Insurance Limited and the Group.
26 | Aviva plc Annual report and accounts 2014
Chief Financial Ofcer’s review
Thomas D. Stoddard
Chief Financial Ofcer
4 March 2015