Aviva plc: Pension Statement Provision in Europe, October 2011
Aviva 2011 Non GAAP Financial Measures Sept 2011 US
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Transcript of Aviva 2011 Non GAAP Financial Measures Sept 2011 US
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8/3/2019 Aviva 2011 Non GAAP Financial Measures Sept 2011 US
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Disclaimer
Cautionary statements:
This should be read in conjunction with the documents filed by Aviva plc (the Company or Aviva) with the United States Securities andExchange Commission (SEC). This announcement contains, and we may make verbal statements containing, forward-looking statements
with respect to certain of Avivas plans and current goals and expectations relating to future financial condition, performance, results, strategic
initiatives and objectives. Statements containing the words believes, intends, expects, plans, will, seeks, aims, may, could,
outlook, estimates and anticipates, and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve
risk and uncertainty. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in
these statements. Aviva believes factors that could cause actual results to differ materially from those indicated in forward-looking statements in
the presentation include, but are not limited to: the impact of difficult conditions in the global capital markets and the economy generally; the
impact of new government initiatives related to the financial crisis; defaults and impairments in our bond, mortgage and structured credit
portfolios; changes in general economic conditions, including foreign currency exchange rates, interest rates and other factors that could affect
our profitability; the impact of volatility in the equity, capital and credit markets on our profitability and ability to access capital and credit; risks
associated with arrangements with third parties, including joint ventures; inability of reinsurers to meet obligations or unavailability of reinsurance
coverage; a decline in our ratings with Standard & Poors, Moodys, Fitch and A.M. Best; increased competition in the U.K. and in other countries
where we have significant operations; changes to our brands and reputation; changes in assumptions in pricing and reserving for insurance
business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical
downturn of the insurance industry; changes in local political, regulatory and economic conditions, business risks and challenges which may
impact demand for our products, our investment portfolio and credit quality of counterparties; the impact of actual experience differing from
estimates on amortisation of deferred acquisition costs and acquired value of in-force business; the impact of recognising an impairment of our
goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment
securities; the effect of various legal proceedings and regulatory investigations; the impact of operational risks; the loss of key personnel; the
impact of catastrophic events on our results; changes in government regulations or tax laws in jurisdictions where we conduct business; funding
risks associated with our pension schemes; the effect of undisclosed liabilities, integration issues and other risks associated with our acquisitions;
and the timing impact and other uncertainties relating to acquisitions and disposals and relating to other future acquisitions, combinations or
disposals within relevant industries. For a more detailed description of these risks, uncertainties and other factors, please see Item 3, Risk
Factors, and Item 5, Operating and Financial Review and Prospects in Avivas Annual Report Form 20-F as filed with the SEC on 24 March
2011. Aviva undertakes no obligation to update the forward looking statements in this announcement or any other forward-looking statements we
may make. Forward-looking statements in this presentation are current only as of the date on which such statements are made.1
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Non-GAAP financial measures
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Financial measures
In presenting Avivas results, management has included and discussed certain non-GAAP financial measures, as such term is defined in Regulation G. These
measures are sales PVNBP (Present Value of New Business Premiums), Sales, IFRS operating profit1, Net operating capital generation , MCEV Net Asset
Value per share, EEV equivalent Net Asset Value per share, Economic capital surplus, GI LTIR (Long Term Investment Ret urn), Cost Base and CapitalEfficiency .
Management believes that these non-GAAP measures, which may be defined differently by other companies, explain Avivas results of operations in a manner thatallows for a more complete understanding of the underlying trends in Avivas business. However, these measures are not a substitute for those determined inaccordance with International Financial Reporting Standards (IFRS). The reconciliation of such non-GAAP financial measures to their respective most directlycomparable IFRS financial measures in accordance with Regulation G is included herein for Sales (PVNBP), Net operating cap ital generation, EEV equivalentNet Asset Value per share, Economic capital surplus, Capital Efficiency and GI LTIR and within the 2011 Half Year report (available onwww.aviva.com/investor-relations/results-and-reports/) for IFRS operating profit1, MCEV Net Asset Value per share and Cost Base.
Additional information in relation to non-GAAP measures can be found on pages 21 to 23 of the 2010 Form 20-F, which is also available onwww.aviva.com/investor-relations/results-and-reports/
Additional performance measures included in this presentation are Internal Rate of Return (IRR), Payback period, IGD Sol vency Surplus, Value of in forcecovered business (VIF) and Aviva Investors Net Funded External Sales . There are no directly comparable measures for these measures under IFRS.Management believes these provide meaningful measures for the investment community to evaluate Avivas business.
Net operating capital generation is Gross capital generated less Capital invested in new business.
The Combined Operating Ratio (COR) is an industry term which demonstrates the efficiency of a general insurance business by expressing the total of claimscosts, commission and expenses as a percentage of premiums received which have been determined in accordance with IFRS. Expense ratio is expensesexpressed as a percentage of premiums received, which have been determined in accordance with IFRS.
Ratios which are based on numbers determined in accordance with IFRS are calculated as follows:
"Average life in-force reserves are calculated as opening reserves + closing reserves for half year periods, and opening reserves + half year
reserves + closing reserves for yearly periods. Administration cost ratio on life reserves is calculated as administration expenses divided by average life in-force reserves (multiplied by 2 to annualise for
half year periods).
Life cost income ratio is calculated as (Acquisition expenses + Admin expenses + DAC/AVIF amortisation + Other income orexpenses) divided by (Newbusiness income + Underwriting Margin + Investment Return).
The non-GAAP financial measures section on slides 36 to 42 of this presentation will be available on www.aviva.com/investor-relations/results-and-reports/reports/
1 IFRS operating profit is termed adjusted operating profit within Avivas 2010 20-F.
http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/ -
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Reconciliation of sales (PVNBP) to net written premiums under IFRS
Reconciliations of non-GAAP financial measures
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A reconciliation between Long term savings sales, Sales and IFRS net written premiums is given below for the periods ended 30June 2011, 30 June 2010 and 30 June 2009. Additional information on this non-GAAP measure is given on pages 22 to 23 of Avivas
2010 20-F, which is available on www.aviva.com/investor-relations/results-and-reports/.
million HY11 HY10 HY09
Life and pensions sales (PVNBP) 14,317 16,314 15,693
Investment sales 1,830 1,797 1,591
Long term savings sales 16,147 18,111 17,284
General insurance and health net written premiums 4,708 4,337 4,270
Total sales 20,855 22,448 21,554
Less: Effect of capitalisation factor on regular premium long-term business(3,724) (3,349) (3,611)
Share of long-term new business sales from JVs and associates (428) (700) (649)
Annualisation impact of regular premium long-term business (192) (227) (161)
Deposits taken on non-participating investment and equity release
contracts (2,244) (2,131) (1,559)
Retail sales of mutual fund type products (investment sales) (1,830) (1,797) (1,591)
Add: IFRS gross written premiums from existing long-term business 2,679 2,651 2,202
Less: long-term insurance and savings business premiums ceded to
reinsurers (658) (515) (575)
Total IFRS net written premiums 14,458 16,380 15,609
million HY11 HY10 HY09
Life and pensions sales (PVNBP) gross of tax and non controlling interest 14,317 16,314 15,693
Less: Tax and non controlling interest 2,024 2,807 2,378
Life and pensions sales (PVNBP) net of tax and non controlling interest 12,293 13,507 13,315
http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/http://www.aviva.com/investor-relations/results-and-reports/ -
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Reconciliations of non-GAAP financial measures
36
Reconciliation of MCEV net asset value to IFRS net asset value
MCEV Net Asset Value per share is derived from Equity attributable to ordinary shareholders of Aviva plc MCEV basis.
To reconcile Equity attributable to ordinary shareholders of Aviva plc MCEV basis to Equity attributable to ordinary
shareholders of Aviva plc IFRS basis, please refer to the following disclosures within our 2011 Half Year report (available onwww.aviva.com/investor-relations/results-and-reports/):
- Reconciliation of shareholders equity on IFRS and MCEV bases (page 112);- Reconciliation of IFRS total equity to MCEV net worth (page 112); and
- note E6 Segmentation of condensed consolidated statement of financial position (page 127).
Reconciliation of IFRS operating profit1to IFRS profit before tax
For a reconciliation of IFRS operating profit1 to IFRS profit before tax please refer to the following disclosure on page 7 of the Half YearReport 2011 for the periods ended 30 June 2011 and 30 June 2010, and page 144 of the 2009 annual Report for the year ended 31December 2009, which are both available on: www.aviva.com/investor-relations/results-and-reports/:
Pro forma reconciliation of Group operating profit to profit before tax IFRS basis.
Reconciliation of IFRS operating cost base to IFRS expenses
For a reconciliation of IFRS operating cost base to IFRS expenses for the periods ended 30 June 2011 and 30 June 2010, pleaserefer to the following disclosure on page 68 of the Half Year Report 2011, which is available on www.aviva.com/investor-relations/results-and-reports/:
Note A22 Operational cost base
1 IFRS operating profit is termed adjusted operating profit within Avivas 2010 20-F.
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Reconciliations of non-GAAP financial measures
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Reconciliation of IFRS operating profit1 to net operating capital generation
1 IFRS operating profit is termed adjusted operating profit within Avivas 20-F.
Reconciliation of GI & Health LTIR to IFRS GI & Health Net investment income
million HY11 HY10
GI & Health LTIR 336 383
Unwind of discount & pension scheme net finance costs 22 11
Short term fluctuations (80) 26
Foreign exchange on unrealised gains/losses and other charges 91 (86)
IFRS GI & Health Net investment income 369 334
billion HY11 HY10IFRS operating profit1 1.3 1.3
Add back: Corporate centre costs, group debt costs and other
interest 0.4 0.4
Less: Tax and non-controlling interests (0.6) (0.7)
Net increase in required capital (0.1) (0.1)
DAC and other (0.2) -
Net operating capital generation 0.8 0.9
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Reconciliations of non-GAAP financial measures
615p
EEV
IFRS
425p
554p
MCEVVIF
Lifeintangibles
Asset return
above riskfree rate
Discountrate aboverisk free to
allow for risk
MCEVshareholders
equity
EEVshareholders
equity
12.2bn 15.9bn 17.6bn
+ 3.7bn + 1.7bnIFRS
shareholders equity
EEV equivalent Net Asset Value per share HY 2011
38
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Reconciliations of non-GAAP financial measures
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Available Economic Capital (AEC) - The amount of Economic Capital we hold
Based on the audited MCEV balance sheet adjusted for:
Intangible assets (excl. VIF) and goodwill are excluded
GI businesses adjusted from IFRS basis to an economic valuation (by removing reserve margins anddiscounting the liabilities)
Subordinated Hybrid debt is treated as available capital
17.6bn
5.0bn
1 including preference shares and DCI. Refer to slide 38 for details of where to find the reconciliation of MCEV net asset value to IFRS net asset value.2 HY 2011 subordinated debt includes 100% of Delta Lloyd's subordinated debt3 Pension scheme risk is allowed for through five years of stressed contributions. Capital required is based on Aviva's own internal assessment and capitalmanagement policies. The term economic capitaldoes not imply capital as required by regulators or other third parties.
Calculation of Available Economic Capital at Aviva plc
billion FY 2009 FY 2010 HY 2011
MCEV Shareholders equity1 14.2 16.5 17.1
Subordinated Debt2 5.0 5.3 5.8
Adjustments to Realistic basis (1.6) (2.6) (2.6)
Available Economic capital 17.6 19.2 20.3
Required Economic Capital 12.8 13.6 13.4
ICA Surplus 4.8 5.6 6.9
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Reconciliations of non-GAAP financial measures
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17.6bn
5.0bn
Calculation of Capital Efficiency
Capital efficiency is calculated as the capital strain of writing life new business (see reconciliation below) as a percent age of Life andPensions sales (PVNBP).
million HY11 HY10 Reference
IFRS Life new business income 471 467 Half Year Report 2011 Note A19 page 66
IFRS Life acquisition expenses (492) (510) Half Year Report 2011 Note A19 page 66
(21) (43)
Required Capital (319) (374) Half Year Report 2011 Note E7 page 128
DAC, tax, non controlling interest and other (148) (188)
Life new business capital strain (488) (605)
Life and pensions sales (PVNBP) net of tax and non controlling interest 12,293 13,507 Slide No. 37
Capital efficiency 4.0% 4.5%