Aviva plc: 2016 Annual Report and Financial Statements

Tickers: AV
GENERAL ACCIDENT PLC - 2016 ANNUAL REPORT AND FINANCIAL STATEMENTS

Following the release by General Accident plc (the 'Company') on 9 March 2017 of the Company's 2016 Preliminary Results Announcement for the year ended 31 December 2016 the Company announces that it has, on 30 March 2017, issued to shareholders its 2016 Annual Report and Financial Statements, which is now available to view on the Aviva plc website at www.aviva.com/gareports. A copy of the 2016 Annual Report and Financial Statements has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

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Enquiries:

Kirsty Cooper, Group General Counsel and Company Secretary, Aviva plc

Telephone - 020 7662 6646

Roy Tooley, Head of Secretariat- Corporate

Telephone - 020 7662 6019

General Accidents's LEI code is 213800GJT26929P77P35

Information required under Disclosure & Transparency Rule 6.3

This announcement should be read in conjunction with the Company's preliminary results announcement issued on 10 March 2016. Together these constitute the material required by DTR 6.3 to be communicated to the media in full unedited text through a Regulatory Information Service. This material is not a substitute for reading the Company's 2015 Annual Report and Accounts. Page references in the text below refer to page numbers in the 2015 Annual Report and Accounts.

Directors' responsibility statement pursuant to the Disclosure and Transparency Rule 4

The directors are responsible for preparing the Strategic Report, Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. In preparing these financial statements, the directors have also elected to comply with IFRSs, issued by the International Accounting Standards Board (IASB). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable IFRSs as adopted by the European Union, and IFRSs as issued by the IASB have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess a company's performance, business model and strategy.

The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Events since the Statement of Financial Position date

There are no events since the Statement of Financial Position date to report.

Principal risks and uncertainties

A description of the principal risks and uncertainties facing the Company and the Company's risk management policies to manage and mitigate these risks are set out in note 14 to the financial statements.

Risk factors beyond the Company's control that could cause actual results to differ materially from those estimated include credit and interest rate risk.

Credit risk

The net asset value of the Company's financial resources is exposed to the potential default on the loan and short term receivables due from its parent, Aviva plc which has an external issuer credit rating of A- , and as such the risk of counterparty default is considered remote. In addition, the loan amounting to £9,990 million (2015: £10,100 million) is secured by a legal charge against the ordinary share capital of Aviva Group Holdings Limited mitigating the risk of loss in the event of Aviva plc defaulting. Due to the nature of the loan, and the fact that it is intended to be held until settled by Aviva plc (on maturity or earlier if redeemed before maturity) and not traded, the Company is not exposed to the risk of changes to the market value caused by changing perceptions of the credit worthiness of Aviva plc. There were no financial assets that were past due or impaired at either 31 December 2016 or 31 December 2015.

Interest rate risk

The net asset value of the Company's financial resources is exposed to potential fluctuations in interest rates. The effect of a 100 basis point increase / decrease in interest rates would be an increase / decrease in net interest income of £100 million (2015: increase / decrease of £101 million). Interest rate risk is a risk the Company chooses to accept rather than reduce or mitigate, as although it may materially impact the results of the Company, it does not impact the Company as a going concern, as the Company has no operating expenses and, in respect of preference dividends, it has both discretion over payment and also a loan structure in place, which generates more than adequate income, even at zero LIBOR rates, to cover the annual cost of those dividends.

Risk management

(a) The Company's approach to risk and capital management

Risk management framework

The Company's risk management framework is aligned with that of the Aviva plc Group and forms an integral part of the management and Board processes and decision-making framework.

The Company's risk management approach is aimed at actively identifying, measuring, managing, monitoring and reporting significant existing and emerging risks. Risks are measured considering the significance of the risk to the business and its internal and external stakeholders.

To promote a consistent and rigorous approach to risk management, the Aviva plc Group has set out formal risk management policies and business standards which set out the risk strategy, framework and minimum requirements for the Group's worldwide operations, including the Company.

The directors recognise the critical importance of having efficient and effective risk management systems in place and acknowledge that they are responsible for the Company's framework of internal control and of reviewing its effectiveness. The framework is designed to manage rather than eliminate the risk of failure to achieve the Company's objectives, and can only provide reasonable assurance against misstatement or loss. The directors of the Company are satisfied that their adherence to this Group framework provides an adequate means of managing risk in the Company. These are documented as follows:

(b) Management of financial and non-financial risks

(i) Market risk

Market risk is the risk of an adverse financial impact resulting from fluctuations in interest rates, foreign currency exchange rates, equity prices and property values. At the statement of financial position date, the Company did not have any material exposure to currency exchange rates, equity prices or property values.

Interest rate risk arises from the inter-company loans receivable (see note 8). The effect of a 100 basis point increase / decrease in interest rates would be an increase / decrease in interest income (before tax) of £100 million (2015: increase / decrease of £101 million). The fair value or net asset value of the Company's financial resources is not materially affected by fluctuations in interest rates.

Risk management continued

(b) Management of financial and non-financial risks continued

(ii) Credit risk

Credit risk is the risk of financial loss as a result of the default or failure of third parties to meet their payment obligations, or variations in market values as a result of changes in expectation related to these risks.

The Company's financial assets primarily comprise loans and receivables due from its parent, Aviva plc, which has an external issuer credit rating of A-1, and as such the credit risk arising from the counterparty failing to meet all or part of their obligations is considered remote. In addition, the loan amounting to £9,990 million (2015: £10,100 million) is secured by a legal charge against the ordinary share capital of Aviva Group Holdings Limited. Due to the nature of the financial assets, and the fact that the loans are intended to be held until settled, by the issuer (on maturity or earlier if redeemed before maturity), and not traded, the Company is not exposed to the risk of changes to the market value caused by changing perceptions of the credit worthiness of Aviva plc. Financial assets that were past due or impaired at 31 December 2016 were £nil (2015: £nil).

(iii) Liquidity risk

Liquidity risk is the risk that the Company is not able to make payments as they become due because there are insufficient assets in cash form.

The Company does not hold any assets in cash form. Cash settlements of its dividend obligations to holders of preference shares, which are discretionary and subject to Director resolution, pass through an intercompany account. Group relief is also settled through an intercompany account.

(iv) Operational risk

Operational risk is the risk of a direct or indirect loss arising from inadequate or failed internal processes, people and systems, or external events, including changes in the regulatory environment.

Given its limited activities, the key operational risks to the Company are inadequate governance and lack of sufficiently robust financial controls. The risks are mitigated by the Company's implementation of the Group's risk management policies and framework and compliance with the Group's Financial Reporting Control Framework.

(c) Capital management

The Company's capital risk determined with reference to the requirements of the Company's stakeholders. In managing capital we seek to maintain sufficient, but not excessive, financial strength to support the payment of preference dividends and the requirements of other stakeholders. The sources of capital used by the Company are equity shareholders' funds and preference shares. At 31 December 2016 the Company had £13,914 million (2015: £13,917 million) of total capital employed.

Related party transactions

(a) The Company had the following related party transactions

The Company receives interest income from, and pays dividends to its parent company in the normal course of business. These activities are reflected in the tables below.

(i) Loans due from parent company

On 19 December 2014, the Company provided a facility to Aviva plc, its parent company, of £10,382 million. This loan accrues interest at 65 basis points above 3 month LIBOR with settlement to be received in cash at maturity on 31 December 2017. It is the intention of both parties that this facility will be renewed in full upon maturity and has been presented within 1 - 5 years maturity. As at the Statement of Financial Position date, the loan balance outstanding was £9,990 million (2015: £10,100million). This facility has been secured against the ordinary share capital of Aviva Group Holdings Limited.

Related party transactions continued

(a) The Company had the following related party transactions continued

(i) Loans due from parent company continued

The maturity analysis of the related party loans is as follows:

2016

2015

£m

£m

1-5 years

9,990

10,100

9,990

10,100

Effective interest rate

1.59%

1.62%

Following a review of the effective interest calculation, comparative amounts have been amended from amounts previously reported.

(ii) Other transactions

Services provided to related parties

2016

2015

Income earned in the year

Receivable at year end

Income earned in the year

Receivable at year end

£m

£m

£m

£m

Immediate parent

160

3,990

166

3,904

160

3,990

166

3,904

The services provided related to interest income of £160 million (2015: £166 million)

Services provided by related parties

2016

2015

Expenses paid in the year

Payable at year end

Expenses paid in the year

Payable at year end

£'000

£m

£'000

£m

Immediate parent

10

-

9

-

Other Aviva Group companies

-

34

-

53

10

34

9

53

Expenses paid represents audit fees paid by Aviva plc. Refer note 3.

Preference dividends of £21 million (2015: £21 million) were paid on behalf of the Company by its parent, Aviva plc.

Group relief

The services provided by related parties related to liabilities for prior years' tax settled by group relief.

Dividends paid

The only other related party transactions affecting the Company's equity related to ordinary dividends paid to Aviva plc of £110 million (2015: £110 million).

(b) Key management compensation

Key management, which comprises the directors of the Company, are not remunerated directly for their services as directors for the Company and the amount of time spent performing their duties is incidental to their role across the Aviva Group. The majority of such costs are borne by Aviva plc and are not recharged to the Company. Refer note 1 for details of director's remuneration.

(c) Parent entity

The immediate and ultimate parent entity and controlling party is Aviva plc, a public limited company incorporated and domiciled in England and Wales. This is the parent undertaking of the smallest and largest Group to consolidate these financial statements. Copies of Aviva plc consolidated financial statements are available on application to the Group Company Secretary, Aviva plc, St Helen's, 1 Undershaft, London EC3P 3DQ, and on the Aviva plc website at www.aviva.com.

Aviva plc published this content on 30 March 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 30 March 2017 10:24:54 UTC.