Solvency and Financial Condition Report 2018 Contents

Aviva plc Solvency and Financial Condition Report 2018 Contents IN THIS SECTION SECTION D: VALUATION FOR SOLVENCY PURPOSES EXECUTIVE SUMMARY 38 D1–Assets 39 D2–Technical Provisions SECTION A: BUSINESS AND PERFORMANCE 05 A1–Business 55 D3–Other Liabilities 07 A2–Underwriting Performance 57 D4–Alternative methods of valuation 09 A3–Investment Performance 59 D5–Any other material information 11 A4–Performance of other activities SECTION E: CAPITAL MANAGEMENT 11 A5–Any other information 61 E1–Own Funds 66 E2–Solvency Capital Requirement (SCR) and Minimum Capital SECTION B: SYSTEM OF GOVERNANCE Requirement (MCR) 13 B1–General information on the system of governance 67 E3–Use of duration-based equity risk sub-module in the 15 B2–Fit and Proper policy calculation of the SCR 16 B3–Risk management system including the own risk and 67 E4–Difference between the standard formula and any internal solvency assessment model used 19 B4–Internal Control System 71 E5–Non-compliance with the MCR and non-compliance with 20 B5–Internal audit function the SCR 20 B6–Actuarial function 71 E6–Any other material information 21 B7–Outsourcing 21 B8–Any other material information SECTION F: OTHER INFORMATION 74 F1–Cautionary statement SECTION C: RISK PROFILE 75 F2– Public disclosure templates 24 C1–Underwriting risk 114 F3–Directors’ Certificate 27 C2–Market risk 115 F4–Approvals, determinations and modifications 29 C3–Credit risk 116 F5–Audit Opinion 31 C4–Liquidity risk 118 Appendix 32 C5–Operational risk 33 C6–Other material risks 33 C7–Any other information As a reminder Reporting currency: We use £ sterling. Unless otherwise stated, all figures referenced in this report relate to Group. A glossary explaining key terms used in this report is available on www.aviva.com/glossary. The Company’s registered office is St Helen’s, 1 Undershaft, London, EC3P 3DQ The Company’s telephone number is +44 (0)20 7283 2000 Business and System of Risk Valuation for Capital Other Summary Performance Governance Profile Solvency Purposes Management Information Executive summary The Solvency II regulatory framework, which governs industry regulation and prudential capital requirements within the European Union, became effective from 1 January 2016. The purpose of the Solvency and Financial Condition Report (SFCR) is to provide information required by the Solvency II regulatory framework in respect of the Aviva plc Group (the Group) at 31 December 2018. This report sets out aspects of the Group’s business and performance, system of governance, risk profile, valuation methods used for solvency purposes and its capital management practices. The SFCR has been prepared in accordance with the relevant PRA Rules and Solvency II regulations. Business and performance Aviva plc, a public limited company incorporated under the laws of England and Wales, is the holding company of the Aviva Group. The Group provides customers with long-term insurance and savings, general and health insurance, and fund management products and services. Our purpose is to help people to handle life’s uncertainties with confidence. The Group’s strategy puts the customer at the heart of what we do and provides clear direction for how we run our business across all of our markets. Since 2014, we have defined our strategy in three key areas: True Customer Composite, Digital First and Not Everywhere. We are focused on eight attractive, growing markets where we are or have the potential to be the best in class, these markets are: the UK, Ireland, France, Poland, Italy, Canada, Singapore and Aviva Investors. This is where Aviva believes it is currently best positioned to compete on the basis of our scale, brand and leading distribution. For the year ended 31 December 2018, Group adjusted operating profit1 increased 2% to £3,116 million (2017: £3,068 million). International Financial Reporting Standards (IFRS) profit after tax was £1,687 million (2017: £1,646 million), leading to basic earnings per share of 38.2 pence (2017: 35.0 pence). Our operating results continue to benefit from broad-based growth from our major markets together with releases of longevity provisions in our UK annuity portfolio. However, as in previous years, we have used the additional profitability provided by longevity releases to accelerate investment in digital, IT and finance change initiatives and to strengthen provisions in areas related to past practices. Our financial results are affected by a number of external factors, including demographic trends, general economic and market conditions, government policy and legislation and exchange rate fluctuations. In addition, our business is affected by corporate actions taken by the Group, including acquisitions, disposals, debt repayment, share buy-backs and other actions aimed at achieving our stated strategy. In late 2018, the Civil Liability Bill, which determines how personal injury compensation awards are set in the UK, received Royal Assent. While confirmation of the new ‘Ogden’ rate will be provided in 2019, following passage of the legislation we have revised the discount rate used in determining our personal injury claims reserves in the UK to 0%, from -0.75% previously, giving rise to an increase in Solvency II own funds of £177 million. On 9 October 2018, Mark Wilson stepped down as the Group CEO. Sir Adrian Montague, the Non-Executive Chairman of Aviva, assumed the role of Executive Chairman while the search for a new Group CEO was undertaken. On 4 March 2019, we announced the appointment of Maurice Tulloch as Chief Executive Officer. Maurice will work with the Board to establish and refine the strategy that will take Aviva forward in the coming years. Further information on this and other significant events that impacted the Group’s Solvency II position during the year are outlined in section A of this report. System of governance The Board’s role is to be collectively responsible for promoting the long-term success of the Group and for setting the Group’s strategy, against which management’s performance is monitored. It sets the Group’s risk appetite and satisfies itself that financial controls and risk management systems are robust, while ensuring the Group is adequately resourced. It is also responsible for setting the values and supporting the culture of the Group, and ensures that there is appropriate dialogue with shareholders on strategy and remuneration. A strong system of governance throughout the Group aids effective decision-making and supports the achievement of the Group’s objectives for the benefit of customers and shareholders while in compliance with relevant regulations. Roles and responsibilities for risk management in Aviva are based around the ‘three lines of defence model’ where ownership for risk is taken at all levels in the Group. In the first line, management monitoring ensures management is responsible for the application of the risk management framework (RMF), for implementing and monitoring the operation of the system of internal control and for providing assurance to the Audit, Governance and Risk Committees and the Board. The second line, consisting of risk management, compliance and actuarial functions, is accountable for quantitative and qualitative oversight and challenge of the identification, measurement, monitoring and reporting of principal risks and for developing the RMF. The final and third line relates to internal audit where independent and objective assessment on the robustness of the RMF and the appropriateness and effectiveness of internal control to the Audit, Governance and Risk Committees, market audit committees and the Board is provided. The RMF forms an integral part of the management and Board processes and decision-making framework across the Group. The key elements of our RMF comprise: • Risk appetite; • Risk governance, including risk policies and business standards, risk oversight committees and roles and responsibilities; and • The processes we use to identify, measure, manage, monitor and report risks, including the use of our risk models and stress and scenario testing. 1 This is an Alternative Performance Measure (APM) which provides useful information to enhance the understanding of financial performance. Further information can be found in section A.2 of this report. Aviva plc Solvency and Financial Condition Report 2018 01 Business and System of Risk Valuation for Capital Other Summary Performance Governance Profile Solvency Purposes Management Information The Audit Committee, working closely with the Risk Committee on behalf of the Board, carried out a full review of the effectiveness of the systems of internal control and risk management in March 2019 covering all material controls, including financial, operational and compliance controls and the RMF. There has been regular reporting to the committee throughout the year to ensure that outstanding areas of improvement are both identified and remediated. While there has been substantial progress during the year, there remain a number of areas where significant work is still required. The reports to the committee refer to the need to embed controls in a number of areas and the need to make significant improvement in areas which represent key aspects of the Group’s control environment, such as cyber security, IT resilience and disaster recovery, as well as financial crime prevention, data management, UK Insurance complaints management (including data migrations) and ongoing improvements in Canada. We will continue to monitor progress throughout 2019. Section B of this report describes the system of governance in place throughout the Group by which the operations of the Group are overseen, directed, managed and controlled and explains the compliance with the requirements of Solvency II. Risk profile For the purposes of risk identification and measurement, and aligned to Aviva’s risk policies, risks are usually grouped by risk types: underwriting for both life insurance (including long-term health) and general insurance (including short-term health) business, market, credit, liquidity, operational and other material risks which include asset management risk, see sections C.1 to C.6.

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