Capital Management

Sound risk management is a key part of our business and integral to maintaining financial stability for our stakeholders. Through the first quarter we have further strengthened our risk management operating model and governance in line with recommendations from the Walker Review.

We continue to protect the balance sheet to large equity shocks through appropriate hedging strategies and hold high quality diverse debt securities and commercial mortgages portfolios. We have not experienced any material defaults during the first quarter.

Capital generation

We remain focused on capital generation in our business and in 2010 we expect to generate approximately £1.3 billion of net operating capital, an increase of 30% compared with 2009. We aim to generate the additional capital through a combination of higher in-force profits, an increase in general insurance profitability and a focus on greater capital efficiency.

IGD solvency

Our capital position remains strong. The estimated group regulatory capital surplus position based on the EU Insurance Groups Directive was £4.4 billion as at 31 March 2010 (31 December 2009: £4.5 billion), after accounting for the payment of the 2009 full year dividend of £0.3 billion (net of scrip).

There have been positive developments on Solvency II with the publication of the draft technical specifications for the fifth quantitative impact study (QIS5), as part of the Solvency II consultation process. We are actively preparing for the transition to Solvency II and we continue to be optimistic about the proposed treatment of capital and the inclusion of a liquidity premium, as laid out in QIS5, which we believe should form the basis for the final Solvency II framework.

Sovereign debt

Our shareholder exposure (net of minority interests) to debt securities of the governments of Greece, Spain and Portugal (including local authorities and agencies) at 31 March 2010 is £0.9 billion (including our expected exposure to those securities held within participating funds). Within this our exposure to Greek debt securities is £150 million.

Net asset value

Our estimated net asset value per share on an MCEV basis was 505 pence as at 31 March 2010 (31 December 2009: 471 pence). On an IFRS basis estimated net asset value per share was 395 pence at 31 March 2010 (31 December 2009: 374 pence). These do not include the impact of the final dividend declared in March 2010.

Proposed changes to UK pension schemes

A long-term funding plan for the deficit in the Aviva Staff Pension Scheme (ASPS) has now been agreed with the pension scheme Trustees, where contributions, together with the anticipated growth in scheme investments are expected to eliminate the ASPS deficit over time. As part of this funding plan, Aviva will make a contribution of £365 million in 2010 towards the funding of the ASPS deficit.