Investor FAQs

Information correct at 31 December 2008

How are your employees incentivised and your directors remunerated?

• Our directors remuneration is based broadly on the same components of reward as other employees.

  In addition, directors and other senior employees participate in an Annual Bonus Plan (ABP), “One Aviva, twice the value” bonus plan (OATTV) and a Long Term Incentive Plan (LTIP).

  The Annual Bonus Plan is intended to motivate directors to achieve the annual business plan, based on a series of key financial, employee and customer performance indicators (KPIs), which make up 70% of the bonus opportunity, and personal objectives (30%). The ABP awards are made 1/3rd in cash paid immediately and 2/3rd deferred shares, which vest after 3 years.

  The “One Aviva, twice the value” bonus plan was introduced in 2008 to emphasise the chief executive’s clear strategic imperative for the group to deliver growth in Earnings Per Share (EPS), with a target of doubling EPS in five years from an end 2007 baseline. No other element of executive remuneration is focused on EPS growth, and this bonus scheme directly aligns a portion of executive remuneration to this key strategic goal.

  The Long Term Incentive Plan is intended to promote achievement of the Company’s longer-term objectives, to aid the retention of key personnel and to align executive interests to those of shareholders. Shares under the LTIP do not vest for 3 years and only then if demanding performance conditions are met. Performance is assessed based on our shareholder return ranking against a comparator group of financial services companies and our performance against our Return on Capital employed targets.

  Further detail on directors’ remuneration can be found in the report of the remuneration committee in the Annual Report and Accounts.

• Our employees are rewarded in a variety of ways in order to help them achieve their full potential and objectives with Aviva; annual bonuses are only one element of our reward package.

  The total remuneration of our UK employees includes a basic salary, annual bonus, share-based schemes and other benefits. In addition to this, flexible working opportunities are available to over 90% of our employees worldwide as well as extensive learning and development opportunities both at a business unit and group level.

  Annual bonuses are paid to employees based on both business unit and individual performance.

  Our share-based schemes give our UK employees the opportunity to become shareholders of Aviva to help to align their interests with those of our other shareholders and to enable them to participate in our success. The Share Award scheme may, at the discretion of the board, give UK employees an allocation of free shares. The level of this award takes account of Aviva’s UK financial performance subject to a maximum award of £3,000. Our Share Incentive Plan and Share Save Scheme also give our UK employees the chance to buy Aviva shares via deductions from their basic pay.

• In addition to the above Aviva provides good Pension, Life Assurance and ill-health benefits. Employees can also benefit from a number of employee discounts on our core Life and Insurance products and our tax efficient benefits scheme, which allows individuals to make savings on Home computer equipment, childcare and bike usage.

What were Aviva’s sales and profits in 2008?

Sales	£m
Worldwide life and pensions new business sales*	36,283
Investment sales**	3,995
General insurance and health premiums	11,137
Worldwide sales	51,145
MCEV operating profit before tax	3,358
IFRS operating profit before tax	2,297

* Based on present value of new business premiums (PVNBP). PVNBP is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.
**Calculated as new single premiums plus annualised value of new regular premiums.

What are the key financial measures used by Aviva?

The key financial measures used to assess performance at a group level are set out below:

Earnings per share

To demonstrate our commitment to our vision of “One Aviva, twice the value”, we announced our ambition in February 2008 to double IFRS earnings per share by 2012. This ambition is based on total IFRS return, including investment volatility and non-operating items over the weighted average number of shares.

Our IFRS earnings per share for 2008 was a loss of 36.8 pence (2007 restated: 48.9 profit). This reflects the net adverse short-term fluctuations and economic assumption changes due to adverse market movement, continued investment in developing the business and strengthening our provisions for latent claims.

Proposed ordinary dividend per share and dividend cover*

Our intention is to increase the total dividend on a basis judged prudent using a dividend cover in the 1.5 to 2.0 times range as a guide, while retaining capital to support future business growth. Our board has recommended a final dividend of 19.91 pence per share (2007: 21.10 pence) bringing the total dividend for the year to 33.00 pence.

The total dividend has been maintained in line with 2007. Dividend cover is 1.9 times (2007: 1.6 times) within our target range.

* Dividend cover is measured on operating earnings after tax on an IFRS basis, expressed as a multiple of the ordinary dividend in respect of the financial year.

Group operating profit before tax**

We aim to achieve steady sustainable growth in our operating profit, both on a MCEV and IFRS basis. In seeking to achieve this growth, we continue to adopt strict financial management disciplines underpinned by strong corporate governance.

In 2008 we delivered strong MCEV operating profit at £3,358 million, up 10% against 2007 and IFRS operating profit of £2,297 million, up 4% against the prior year. These results reflect higher life and general insurance results offset by lower fund management returns.

** Group MCEV operating profit is calculated using long-term savings operating profit on a MCEV basis before the impairment of goodwill. Group IFRS operating profit is calculated using long-term savings operating profit on an IFRS basis before the impairment of goodwill.

Long-term savings new business sales

Total new business sales, including investment sales, increased by 1% in 2008 to £40,278 million (2007: £39,705 million) with growth in life and pension sales being offset by a fall in the sales of investment products. As a global group with 67% of our long-term savings sales coming from outside the UK we have benefited from currency movements in the year, mainly the appreciation of the euro and US dollar. However, while we have already met the target to double sales in North America a year earlier than planned, in the current economic climate top-line sales growth targets are not our priority.

In 2009 we aim to maintain a strong franchise in each of our markets, but with an increased emphasis on capital efficiency. We will aim to perform in line with the market, but will prioritise profitability and efficient use of capital.

Return on equity shareholders’ funds

Return on equity shareholders’ capital is calculated as after-tax operating return, before adjusting items, on opening equity shareholders’ funds, including life profits on a market consistent embedded value (MCEV) basis†. The improvement in 2008 to 11.0% (2007 restated: 10.4%) reflects the increase in post-tax MCEV operating return, partly offset by an increase in opening shareholders' funds of £2.6 billion. For further information on Aviva'’s performance measures, including graphs and non-financial measures, see the Key Performance Indicators page.

What is the split of Aviva’s business between the various regions in which it operates?

Regional analysis of total sales

Region	%
1 UK	37
2 Europe	42
3 N. America	14
4 Asia Pacific	7
Total	100

What is Aviva’s dividend policy?

Our intention is to increase the total dividend on a basis judged prudent using a dividend cover in the 1.5 to 2.0 times range as a guide, while retaining capital to support future business growth.

What is Aviva’s strategy?

Our purpose is to deliver prosperity and peace of mind to our customers. We will do this by realising our vision: “One Aviva, twice the value”.

Our priority is to realise the full potential of Aviva’s existing businesses. By working together across our businesses, we will optimise our performance in the global marketplace and maximise the value we can generate for all our stakeholders.

2008 was a very challenging year for the world economy, especially for the financial sector, characterised by slow growth and extreme market volatility, with most major economies contracting towards the end of the year. Throughout this period we have remained focused on our vision and made steady progress against the five strategic priorities we set in 2007.

In 2009, we will continue to drive the group strategy, while adapting our short-term tactics in response to current recessionary conditions. In particular we are focused on capital, profitability and productivity over volume growth and we have strengthened our commitment to understanding and responding to the needs of our customers and partners during these turbulent times.

View more information about our strategy.

What actions has Aviva taken in support of its strategy?

To achieve our vision, we are focused on delivering against our five strategic priorities:

• Manage composite portfolio
  We are fully committed to maintaining the composite nature of the group. We firmly believe in the benefits of life insurance, general insurance and asset management as complementary parts of an overall business model that balances cash flow, returns and long-term value creation, and delivers prosperity and peace of mind to customers.

• Build global asset management
  Launched in September 2008, Aviva Investors is a clear example of the “One Aviva, twice the value” strategy in action. Integrating our global asset management businesses under one umbrella, Aviva Investors is now a leading asset manager, operating in 15 countries with £236 billion of funds under management. We plan to grow Aviva Investors and significantly increase its contribution to group profits.

• Allocate capital rigorously
  Capital management will continue to be a key focus. Capital is treated as a scarce resource, and is allocated to provide the highest sustainable returns for shareholders. We continuously seek improvements in capital structure and efficiency.

• Increase customer reach
  We sell our products in 28 countries in ways that our customers choose to buy them. We will get closer to our customers through better understanding of their needs and by providing products and services that customers want. We will continue looking for the right distribution in the right markets. Our move to a global brand is key to achieving our goals.

• Boost productivity
  We constantly look for ways to boost our productivity, to support sustainable growth, increase our competitiveness, improve our services, and deliver higher value to our customers. Working together as “One Aviva”, we deliver operational excellence through shared services, shared knowledge, rationalised systems and effective outsourcing.