Capital allocation
At Aviva we are focused on the generation and disciplined allocation of capital.
Capital management objectives
Aviva’s capital management philosophy is focused on capital efficiency and effective risk management to support the dividend policy and earnings per share growth. Overall capital risk appetite is set and managed with reference to the requirements of a range of different stakeholders including shareholders, policyholders, regulators and rating agencies. In managing capital we seek to:
- maintain sufficient, but not excessive, financial strength to support new business growth and satisfy the requirements of our regulators and other stakeholders thus giving both our customers and shareholders assurance of our financial strength
- optimise our overall debt to equity structure to enhance our returns to shareholders, subject to our capital risk appetite and balancing the requirements of the range of stakeholders
- retain financial flexibility by maintaining strong liquidity, including significant unutilised committed credit facilities and access to a range of capital markets
- allocate capital rigorously across the group, to drive value adding growth in accordance with risk appetite and
- declare dividends on a basis judged prudent, while retaining capital to support future business growth, using dividend cover on an IFRS operating earnings after tax basis in the 1.5 to 2.0 times range as a guide.
Targets are established in relation to regulatory solvency, ratings, liquidity and dividend capacity and are a key tool in managing capital in accordance with our risk appetite and the requirements of our various stakeholders.
Strategic capital allocation initiatives
A number of key strategic initiatives have been delivered in the last quarter of 2009 which have significantly enhanced the Group’s capital position and financial flexibility.
On 1 October 2009 Aviva announced the completion of the sale of its Australian life business and wealth management platform. The total proceeds of the Australian sale were £0.4 billion (A$0.9 billion). The sale of the business benefited group IGD by £0.4 billion.
On 3 November 2009 Aviva announced the completion of the Delta Lloyd initial public offering (IPO) and the shares commenced trading on the Euronext Amsterdam. The IPO raised gross proceeds of £1.00 billion (€1.09 billion), including the 10% over-allotment option, and generated an IGD benefit of £0.5 billion.
Following High Court and FSA approval in September, the deal to complete the reattribution of our inherited estate was concluded on 1 October with 87% of policyholders voting and 96% of these voting in favour of the offer. The total value of the inherited estate for the reattribution was £1.25 billion, with £0.5 billion paid from shareholder funds to policyholders. The impact of the policyholder incentive payment reduced Group IGD by £0.5 billion.
Solvency I - IGD surplus significantly strengthened
- Combination of a 40% fall in equity markets and a £500 million US debt write off would still leave an IGD surplus of £3.3 billion.