Notes to the consolidated financial statements 21-30

21 – Loans

(a) Carrying amounts
The carrying amounts of loans at 31 December 2005 and 2004 were as follows:

	2005 £m	2004 £m
Policy loans	1,020	1,032
Bank loans	125	52
Securitised mortgage loans (see note 22)	7,476	5,106
Non-securitised mortgage loans	15,224	14,663
Other loans	699	1,202
Total	24,544	22,055

Of the above loans, £12,257 million (2004: £11,014 million) is expected to be recovered more than one year after the balance sheet date.

The impairment charge in respect of the above loans, charged to profit for the year, was £8 million (2004: £5 million) and reversals of impairments on these loans were £4 million (2004: £4 million).

(b) Collateral
At 31 December 2005, the fair values of collateral which the Group has accepted and is permitted to sell or repledge in the absence of default, and of collateral that the Group has sold and has an obligation to return, were £580 million and £nil, respectively (2004: £nil and £nil, respectively).

22 – Securitised mortgages and related assets

The Group has loans secured by mortgages, subject to non-recourse finance arrangements, in a UK long-term business subsidiary and in two Dutch subsidiaries. Details of the relevant transactions are as follows:

(a) United Kingdom
In a United Kingdom long-term business subsidiary (NUER), the beneficial interest in certain portfolios of lifetime mortgages has been transferred to five special purpose securitisation companies, Equity Release Funding (No 1) plc (ERF1), Equity Release Funding (No 2) plc (ERF2), Equity Release Funding (No 3) plc (ERF3), ERF Trustee (No 4) Limited (ERF4T) held on trust for the benefit of Equity Release Funding (No. 4) plc (ERF4), and ERF Trustee (No 5) Limited (ERF5T) held on trust for the benefit of Equity Release Funding (No. 5) plc (ERF5) (together “the ERF companies”), in return for initial consideration and, at later dates, deferred consideration. The deferred consideration represents receipts accrued within the ERF companies after meeting all their obligations to the note holders, loan providers and other third parties in the priority of payments. No gain or loss was recognised on the transfers to ERF1, ERF3 and ERF5T, and gains of £5 million and £9 million were recognised on the transfers to ERF2 and ERF4T respectively. The purchases of the mortgages were funded by the issue of fixed rate, floating rate and index-linked notes by the ERF companies.

All the shares in the ERF companies are held by independent companies, whose shares are held on trust. Although NUER does not own, directly or indirectly, any of the share capital of the ERF companies or their parent companies, these have been treated as subsidiaries in the consolidated financial statements. NUER has no right to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where NUER is in breach of warranty or loans are substituted in order to effect a further advance.

NUER has purchased subordinated notes and granted subordinated loans to some of the ERF companies. These have been offset against the borrowings of the ERF companies in the consolidated balance sheet.

(b) Netherlands
In two Dutch subsidiaries, Delta Lloyd Levensverzekering NV (DLL) and Amstelhuys NV (AMS), the principal benefits of certain portfolios of mortgage loans have been transferred to a number of special purpose securitisation companies, Arena 2000 - I BV, Arena 2001 - I BV, Arena 2002 - I BV, Arena 2003 - I BV, Arena 2004 - I BV, Arena 2004 - II BV, Arena 2005 - I BV and DARTS Finance BV (the securitisation companies), which were funded primarily through the issue of fixed rate, floating rate and index-linked notes. No gains or losses were recognised on these transfers.

All the shares in the Arena companies are held by independent trustee companies. Although DLL and AMS do not own, directly or indirectly, any of the share capital of the securitisation companies or their parent companies, these companies have been treated as subsidiaries in the consolidated financial statements. DLL and AMS have no right, nor any obligation, to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where they are in breach of warranty.

Delta Lloyd companies have purchased notes in the securitisation companies, which have been offset against the borrowings of the securitisation companies in the consolidated balance sheet.

(c) In all of the above transactions, the Company and its subsidiaries are not obliged to support any losses that may be suffered by the noteholders and do not intend to provide such support. Additionally, the notes were issued on the basis that noteholders are only entitled to obtain payment, of both principal and interest, to the extent that the available resources of the respective special purpose securitisation companies, including funds due from customers in respect of the securitised loans, are sufficient and that noteholders have no recourse whatsoever to other companies in the Aviva Group.

23 – Financial investments

(a) Financial investments comprise:

		2005
		At fair value through profit or loss
		Trading £m	Other than trading £m	Available for sale* £m	Total £m
Debt securities
	UK government	–	22,845	–	22,845
	Non-UK government	4	22,908	438	23,350
	Corporate – UK	–	11,492	58	11,550
	Corporate – Non-UK	81	31,345	5,237	36,663
	Other	–	8,834	675	9,509
		85	97,424	6,408	103,917
Equity securities
	Corporate – UK	–	29,036	13	29,049
	Corporate – Non-UK	58	21,610	1,327	22,995
		58	50,646	1,340	52,044
Other investments
	Unit trusts	4	14,419	3	14,426
	Derivative financial instruments	1,003	(536)	–	467
	Deposits with credit institutions	–	165	–	165
	Specialised investment companies (see note 18c)	–	9,783	–	9,783
	Minority holdings in property management undertakings (see note 17b)	–	499	–	499
	Other	(6)	1,069	24	1,087
		1,001	25,399	27	26,427
Total financial investments		1,144	173,469	7,775	182,388

*The loss related to AFS investments recognised in equity was £65 million (2004: £64 million loss) and the amount recognised in the income statement on disposals was £154 million (2004: £322 million gain). (See notes 5 and 32).

Of the above total, £19,509 million (2004: £17,794 million) is expected to be recovered more than one year after the balance sheet date.

		2004
		At fair value through profit or loss
		Trading £m	Other than trading £m	Available for sale* £m	Total £m
Debt securities
	UK Government	–	23,581	–	23,581
	Non – UK government	34	24,260	586	24,880
	Corporate – UK	–	9,472	45	9,517
	Corporate – Non-UK	112	31,651	6,033	37,796
	Other	–	2,433	512	2,945
		146	91,397	7,176	98,719
Equity securities
	Corporate – UK	36	27,094	4	27,134
	Corporate – Non-UK	23	17,468	2,666	20,157
		59	44,562	2,670	47,291
Other investments
	Unit trusts	3	9,561	2	9,566
	Derivative financial instruments	549	58	10	617
	Deposits with credit institutions	–	1,699	2	1,701
	Specialised investment companies (see note 18c)	–	7,942	–	7,942
	Minority holdings in property management undertakings (see note 17b)	–	410	–	410
	Other	7	75	28	110
		559	19,745	42	20,346
Total financial investments		764	155,704	9,888	166,356

(b) The following is a summary of the cost/amortised cost, gross unrealised gains and losses and fair value of financial investments:

		2005
		Cost/ amortised cost £m	Unrealised gains £m	Unrealised losses £m	Fair value £m
Debt securities		99,086	5,006	(175)	103,917
Equity securities		42,578	9,562	(96)	52,044
Other investments
	Unit trusts	12,552	1,885	(11)	14,426
	Derivative financial instruments	–	467	–	467
	Deposits with credit institutions	165	–	–	165
	Specialised investment companies	9,783	–	–	9,783
	Minority holdings in property management undertakings	499	–	–	499
	Other	1,040	49	(2)	1,087
		165,703	16,969	(284)	182,388

		2004
		Cost/ amortised cost £m	Unrealised gains £m	Unrealised losses £m	Fair value £m
Debt securities		94,338	4,527	(146)	98,719
Equity securities		42,161	5,429	(299)	47,291
Other investments
	Unit trusts	8,903	737	(74)	9,566
	Derivative financial instruments	–	617	–	617
	Deposits with credit institutions	1,701	–	–	1,701
	Specialised investment companies	7,942	–	–	7,942
	Minority holdings in property management undertakings	410	–	–	410
	Other	83	34	(7)	110
		155,538	11,344	(526)	166,356

(c) Other information on investments
(i) In addition to the investments in associates detailed in note 18, the Group holds investments exceeding 20% of a class of the equity capital in a number of other companies in the United Kingdom and elsewhere. These investments do not represent a material part of the assets or investment income of the Group. These include the Group’s shareholding in Delta Lloyd Investment Fund NV where nil (2004: 20.13%) is held directly and a further nil (2004: 11.74%) is held in segregated policyholders funds. As this company invests mainly in equities and all dividends received are passed on to the shareholders, the Group’s interest has been shown in other financial instruments in these financial statements.

(ii) Included within financial investments are strategic investments held on a long-term basis as follows:

	Market value of shareholding
	Long-term business		Non-long-term business		Total		Proportion held
	2005 £m	2004 £m	2005 £m	2004 £m	2005 £m	2004 £m	2005 %	2004 %	Country of incorporation
Münchener Rückversicherungs- Gesellschaft	150	205	–	179	150	384	0.8%	2.5%	Germany
UniCredito Italiano	383	283	501	255	884	538	2.1%	2.8%	Italy
Société Générale	–	242	–	2	–	244	–	1.1%	France
	533	730	501	436	1,034	1,166

All of the above are banking companies, except Münchener Rückversicherungs-Gesellschaft which is a reinsurance company.

(d) Impairments
The accumulated impairment charges on available for sale investments are as follows:

	Debt/ securities £m	Equity securities £m	Other investments £m	Total £m
	2005
At 1 January	2	369	–	371
Impairment charges for the year	4	44	7	55
Reversal of impairment charges during the year	(1)	(122)	(1)	(124)
Other	1	(11)	–	(10)
At 31 December	6	280	6	292

	Debt/ securities £m	Equity securities £m	Other investments £m	Total £m
	2004
At 1 January	3	510	–	513
Impairment charges for the year	–	–	–	–
Reversal of impairment charges during the year	(1)	(137)	–	(138)
Other	–	(4)	–	(4)
At 31 December	2	369	–	371

(e) Stocklending
The Group has entered into stocklending arrangements in the United Kingdom and overseas during the year in accordance with established market conventions. In the United Kingdom, investments are lent to locally-domiciled counterparties and governed by agreements written under English law. Other investments are specifically deposited under local laws in various countries overseas as security to holders of policies issued there.

Included within financial investments are £461 million (2004: £240 million) of debt securities and other fixed income securities which have been sold under stock repurchase arrangements. The obligations arising under these arrangements are included in other financial liabilities (see note 44).

The carrying amounts of financial assets received and pledged as collateral under stocklending arrangements at 31 December 2005 are £1,869 million and £nil million respectively (2004: £3,210 million and £nil respectively).

24 – Receivables and other financial assets

	2005 £m	2004 £m
Amounts owed by contract holders	1,873	1,949
Amounts owed by intermediaries	1,543	1,711
Deposits with ceding undertakings	1,050	984
Amounts due from reinsurers	820	736
Other financial assets	2,488	2,129
Total	7,774	7,509
Less: Amounts classified as held for sale	(68)	–
	7,706	7,509
Expected to be recovered in less than one year	7,210	7,026
Expected to be recovered in more than one year	496	483
	7,706	7,509

Concentrations of credit risk with respect to receivables are limited due to the size and spread of the Group’s trading base. No further credit risk provision is therefore required in excess of the normal provision for doubtful receivables.

25 – Deferred acquisition costs and other assets

(a) The carrying amount comprises:

		Long-term business £m	General insurance and health £m	Total 2005 £m	Total 2004 £m
Deferred acquisition costs in respect of:
	Insurance contracts	1,139	1,281	2,420	2,120
	Participating investment contracts	3	–	3	95
	Non-participating investment contracts	752	–	752	494
		1,894	1,281	3,175	2,709
Other assets		393	238	631	480
Total		2,287	1,519	3,806	3,189
Less: Amounts classified as held for sale		–	(40)	(40)	–
		2,287	1,479	3,766	3,189

Deferred acquisition costs on long-term business are generally recoverable in more than one year whilst such costs on general insurance and health business are generally recoverable within one year after the balance sheet date.

(b) The movements in deferred acquisition costs during the year were:

	2005 £m	2004 £m
Carrying amount at 1 January	2,709	2,872
Acquisition costs deferred during the year	3,108	2,807
Amortisation	(2,704)	(3,027)
Impairment losses	(4)	(7)
Reversal of impairment losses	–	2
Other movements	66	62
Carrying amount at 31 December	3,175	2,709

(c) Other assets include £472 million (2004: £369 million) that is expected to be recovered more than one year after the balance sheet date.

(d) Prepayments and accrued income include £467 million (2004: £456 million) that is expected to be recovered more than one year after the balance sheet date.

26 – Assets held to cover linked liabilities

Certain unit-linked products have been classified as investment contracts, while some are included within the definition of an insurance contract. The assets backing these unit-linked liabilities are included within the relevant balances in the consolidated balance sheet, while the liabilities are included within insurance and investment contract provisions disclosed in notes 35 and 37.

The carrying values of assets backing these unit-linked liabilities are as follows:

	2005 £m	2004 £m
Loans	–	1
Debt securities	18,220	13,484
Equity securities	16,332	18,251
Other investments	21,704	16,378
Reinsurance assets	1,232	854
Cash and cash equivalents	2,675	953
	60,163	49,921

27 – Ordinary share capital

(a) Details of the Company’s ordinary share capital are as follows:

	2005 £m	2004 £m
The authorised share capital of the Company at 31 December 2005 was:
3,000,000,000 (2004: 3,000,000,000) ordinary shares of 25 pence each	750	750
The allotted, called up and fully paid share capital of the Company at 31 December 2005 was:
2,395,693,688 (2004: 2,282,385,200) ordinary shares of 25 pence each	599	570

(b) During 2005, a total of 113,308,488 ordinary shares of 25 pence each were allotted and issued by the Company as follows:

	Number of shares	Share capital £m	Share premium £m
At 1 January	2,282,385,200	570	1,115
Shares issued under the Group’s employee and executive share option schemes	9,299,569	3	56
Shares issued in connection with acquisitions	87,865,495	22	–
Shared issued in lieu of dividends	16,143,424	4	(4)
At 31 December	2,395,693,688	599	1,167

Ordinary shares in issue in the Company rank pari passu. All the ordinary shares in issue carry the same right to receive all dividends and other distributions declared, made or paid by the Company.

Shares in lieu of the 2004 final and 2005 interim dividends were issued on 17 May and 17 November 2005 respectively. The issue of shares in lieu of cash dividends is considered a bonus issue under the terms of the Companies Act 1985 and the nominal value of the shares is charged to the share premium account.

28 – Equity compensation plans

(a) Description of the plans
The Group maintains a number of active stock option and award schemes. These are as follows:

(i) Savings-related options
These are options granted under the Inland Revenue – approved Save As You Earn (SAYE) share option schemes in the United Kingdom and in Ireland. Options are normally exercisable during the six-month period following either the third, fifth or seventh anniversary of the relevant savings contract.

(ii) Executive share options
These are options granted on various dates from 1996 to 2004, under the Aviva Executive Share Option Scheme or predecessor schemes. The exercise of options granted before 1997 is not subject to performance conditions. Options granted between 1997 and 2000 were subject to the satisfaction of conditions relating to either the Company’s return on capital employed (ROCE) or its relative total shareholder return (TSR) against a chosen comparator group. In respect of options granted from 2000 the performance condition has been a mixture of both ROCE and TSR measures. In all cases, performance is measured over a three-year performance period and the options are normally exercisable between the third and tenth anniversary of their grant.

(iii) Deferred bonus plan options
These are options granted in 1999 and 2000 under the CGU Deferred Bonus Plan. Participants who deferred their annual cash bonus in exchange for an award of shares of equal value also received a matching award over an equal number of share options. The exercise of these options is not subject to the attainment of performance conditions. These options are exercisable up to the tenth anniversary of their grant.

(iv) Long-term incentive plan awards
These awards have been made to senior Group executives since 2001 and are described in section (b) below and in the Directors' remuneration report.

(v) Deferred bonus plan awards
These awards have been made under the Aviva Deferred Bonus Plan, and are described in section (b) below and in the Directors' remuneration report.

The Group has established various employee share trusts to facilitate the delivery of shares under the above schemes. Details of these trusts are given in note 29.

(b) Outstanding options and awards

(i) Share options
At 31 December 2005, options to subscribe for ordinary shares of 25 pence each in the Company were outstanding as follows:

Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
797.60	108,651	2005	401.00	5,701,071	2005, 2007 or 2009
750.00	54,005	2006	406.00	3,136,755	2006, 2008 or 2010
895.20	277,481	2005 or 2007	428.00	1,929,984	2007, 2009 or 2011
664.00	475,852	2006 or 2008	491.00	5,465,734	2008, 2010 or 2012

Option price c	Number of shares	Normally exercisable	Option price c	Number of shares	Normally exercisable
1,653.37	1,253	2005	586.00	345,248	2006 or 2008
1,087.56	10,502	2006	630.12	117,791	2007 or 2009
662.85	122,334	2005 or 2007	719.00	184,251	2008 or 2010

RAC Savings Related Share Option Scheme	Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
	175.44	1,229	2005	312.27	1,207,928	2006 or 2008
	291.27	437,793	2004 or 2006	354.94	1,046,850	2007 or 2009

Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
581.17	35,382*	1999 to 2006	965.00	7,425	2002 to 2009
601.17	17,299*	1999 to 2006	870.83	48,186	2002 to 2009
689.17	13,690*	1999 to 2006	919.00	543,069	2002 to 2009
733.50	5,817	2000 to 2007	822.00	51,478	2003 to 2010
677.50	13,587	2000 to 2007	972.33	15,104	2003 to 2010
725.50	2,345	2000 to 2007	960.00	50,759	2003 to 2010
763.50	3,929	2000 to 2007	1,035.00	794,809	2004 to 2011
773.50	5,817	2000 to 2007	499.00	14,272	2005 to 2012
857.00	19,987	2000 to 2007	516.00	2,036,445	2005 to 2012
1,073.31	8,385	2001 to 2008	512.00	4,086,909	2006 to 2013
1,119.00	35,193	2001 to 2008	526.00	4,015,805	2007 to 2014
853.00	287,420	2001 to 2008

General Accident Executive Share Option Scheme	Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
	553.93	59,173	1999 to 2006	766.42	119,887	2000 to 2007

Aviva Executive Share Option Scheme (Delta Lloyd)	Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
	950.00	96,858	2001 to 2006	380.00	2,077,700	2003 to 2008
	739.00	697,792	2002 to 2007

RAC Executive Share Option Scheme	Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
	347.49	18,274	2005 to 2009	251.30	30,387	2000 to 2010

CGU plc Deferred Bonus Plan	Option price p	Number of shares	Normally exercisable	Option price p	Number of shares	Normally exercisable
	899.50	19,223	2002 to 2009	875.00	36,507	2006 to 2010
	966.50	1,986	2002 to 2009

Other than those grants marked with an asterisk, the exercise of options outstanding under the Aviva Executive Share Option Scheme and the Aviva Executive Share Option Scheme (Delta Lloyd) are subject to the attainment of performance conditions. Options which are not exercised lapse.

The following table summarises information about options outstanding at 31 December 2005:

Range of exercise prices	Outstanding options Number	Weighted average remaining contractual life Years	Weighted average exercise price p
£1.75 – £4.89	15,587,971	2	389.20
£4.90 – £8.04	18,090,563	5	532.73
£8.05 – £11.19	2,305,625	4	950.85

The comparative figures as at 31 December 2004 were:

Range of exercise prices	Outstanding options Number	Weighted average remaining contractual life Years	Weighted average exercise price p
£1.75 – £4.89	19,771,909	3	402.88
£4.90 – £8.04	16,202,411	6	555.36
£8.05 – £11.19	3,643,158	4	963.02

(ii) Share awards
At 31 December 2005, awards issued under the Company’s executive incentive plans over ordinary shares of 25 pence each in the Company were outstanding as follows:

Aviva Long-Term Incentive Plan	Number of shares	Vesting period
	3,379,189	2003 to 2005
	2,684,832	2004 to 2006

Aviva Long-Term Incentive Plan 2005	Number of shares	Vesting date
	3,847,369	2005 to 2007

Aviva Defered Bonus Plan	Number of shares	Vesting date	Number of shares	Vesting date
	3,403,442	28 March 2006	3,109,886	24 March 2008
	3,391,464	26 March 2007

Aviva Share Plan	Number of shares	Vesting date
	13,462	31 December 2006

The vesting of awards under the Aviva Long-Term Incentive Plan is subject to the attainment of performance conditions as described in the Directors’ remuneration report. Shares which do not vest, lapse.

(iii) Shares to satisfy awards and options
Prior to March 2003, it was the practice to satisfy awards and options granted under the executive incentive plans through shares purchased in the market and held by an employee share trust which was established for the purpose of satisfying awards under the various executive incentive plans and funded by the Company. From March 2003, no shares have been purchased by the trust, it being the Company’s current practice to satisfy the awards granted after that date by the issue of new shares at the time of vesting. At 31 December 2005, 1,823,788 shares were held by the employee share trust with an aggregate nominal value of £455,947 and market value of £12.8 million. The trustees have waived their right to dividends on the shares held in this trust. Further details are given in note 29.

(c) Movements in the year
A summary of the status of the option plans as at 31 December 2005 and 2004, and changes during the years ended on those dates, is shown below.

	2005		2004
	Number of options	Weighted average exercise price p	Number of options	Weighted average exercise price p
Outstanding at 1 January	39,617,478	516.75	41,818,166	556.10
Granted during the year	7,956,344	434.64	6,830,193	493.88
Forfeited during the year	(890)	719.00	–
Exercised during the year	(5,918,840)	419.69	(902,698)	418.16
Expired during the year	(5,669,933)	581.58	(8,128,183)	696.65
Outstanding at 31 December	35,984,159	497.34	39,617,478	516.75
Exercisable at 31 December	8,238,435	600.59	8,077,112	720.94

(d) Expense charged to income statement
The total expense recognised for the year arising from equity compensation plans was as follows

	2005 £m	2004 £m
Equity-settled expense	22	21
Cash-settled expense	–	–
	22	21

(e) Fair value of options and awards granted after 7 November 2002
The weighted average fair value of options and awards granted during the year, estimated by using the Black-Scholes option-pricing model was £1.88 and £4.50 (2004: £1.56 and £4.08) respectively.

(i) Share options
The fair value of the options was estimated on the date of grant, based on the following weighted average assumptions:

Weighted average assumption	2005	2004
Share price	618p	538p
Exercise price	491p	492p
Expected volatility	35%	42%
Expected life	3.81 years	4.69 years
Expected dividend yield	4.1%	4.6%
Risk free interest rate	4.2%	4.9%

The expected volatility used was based on the historical volatility of the share price over a period equivalent to the expected life of the options prior to its date of grant.

The risk-free interest rate was based on the yields available of UK government bonds as at the date of grant. The bonds chosen were those with a similar remaining term to the expected life of the options.

No options were exercised during the year (2004: nil).

(ii) Share awards
The fair value of the awards was estimated on the date of grant, based on the following weighted average assumptions:

Weighted average assumption	2005	2004
Share price	632p	528p
Expected volatility*	41%	46%
Expected volatility of comparator companies’ share price*	44%	50%
Correlation between Aviva and competitors’ share price*	64%	55%
Expected life	3.0 years	3.0 years
Expected dividend yield	4.0%	4.7%
Risk free interest rate*	4.7%	4.5%

* For awards with market-based performance conditions.

The expected volatility used was based on the historical volatility of the share price over a period equivalent to the expected life of the options prior to its date of grant.

29 – Shares held by employee trusts

Movements in the cost of shares held by employee trusts comprise:

	2005		2004
	Number	£m	Number	£m
Cost debited to shareholders’ funds
At 1 January	5,894,264	–	7,598,384	41
Cost of options granted to employees in prior years		–		(40)
Net deduction from shareholders’ funds		–		1
Distributed in year	(4,070,476)	–	(1,704,120)	(1)
Balance at 31 December	1,823,788	–	5,894,264	–

These shares are owned by employee share trusts in the Company and a subsidiary undertaking to satisfy awards under the Group’s Long Term Incentive Plan and Deferred Bonus Plans. The shares are purchased in the market and carried at cost. Further details of the shares held can be found in note 28. Details of the features of the plans can be found in the Directors’ remuneration report.

30 – Preference share capital

The preference share capital of the Company at 31 December 2005 was:

	2005 £m	2004 £m
Authorised
200,000,000 cumulative irredeemable preference shares of £1 each	200	200
500,000,000 sterling new preference shares of £1 each	500	–
	700	200

	2005 €m	2004 €m
700,000,000 Euro new preference shares of €1 each	700	–

	2005 £m	2004 £m
Issued and paid up
100,000,000 8 3/8% cumulative irredeemable preference shares of £1 each	100	100
100,000,000 8 3/4% cumulative irredeemable preference shares of £1 each	100	100
	200	200

At the Annual General Meeting on 26 April 2005, the Company’s authorised preference share capital was increased to £700 million and 700 million by the creation of the new shares in the above table, in connection with the November 2004 issue of direct capital instruments (DCIs) of the same value. Note 31 below gives the conditions under which the Company has the right (but not the obligation) to substitute the sterling DCIs with Sterling New Preference Shares and the euro DCIs with Euro New Preference Shares. Although the directors have no present intention to allot these new shares, and consider the likelihood of such an issue and allotment to be remote, the Company is obliged to create and maintain a sufficient number of authorised new shares to effect a substitution.

The new preference shares, if issued and allotted, would rank, as to payment of a dividend and capital, ahead of the Company’s ordinary share capital but behind the cumulative irredeemable preference shares currently in issue. The issued preference shares are non-voting except where their dividends are in arrears, on a winding up or where their rights are altered. On a winding up, they carry a preferential right of return of capital ahead of the ordinary shares.

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Aviva plc Annual report and accounts 2005