Annual Report • Mar 11, 2021
Annual Report
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Registered in Scotland No. SC119505
Annual Report and Financial Statements 2020
| Directors and officers3 Strategic report 4 Directors' report 7 Independent auditors' report to the members of General Accident plc 9 Accounting Policies14 Income Statement 17 Statement of comprehensive income18 Statement of changes in equity 19 Statement of financial position20 Statement of cash flows21 |
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| Notes to the financial statements22 | |
| 1. Investment Income 22 |
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| 2. Employee information22 |
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| 3. Directors' remuneration 22 |
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| 4. Auditors' remuneration 22 |
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| 5. Tax charge 22 |
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| 6. Dividends23 |
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| 7. Earnings per share 23 |
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| 8. Receivables and other financial assets 24 |
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| 9. Ordinary share capital 24 |
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| 10. Preference share capital24 |
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| 11. Retained earnings 24 |
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| 12. Tax assets and liabilities25 |
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| 13. Provisions25 |
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| 14. Risk management 25 |
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| 15. Related party transactions27 |
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| 16. Subsequent events27 |
K A Cooper J M Windsor A G M Montague
J C Baddeley
PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT
Pitheavlis Perth Scotland PH2 0NH
Registered in Scotland No. SC119505
General Accident plc ("the Company") is a member of the Aviva plc group of companies ("the Group").
Strategic report The directors present their strategic report for the Company for the year ended 31 December 2020.
The Company is a wholly-owned subsidiary of Aviva plc. Its principal activity is the provision of loans to its Parent Company. During 2020, the income of the Company continued to consist of interest received on a loan made to its Parent Company. The Company continues to have preference shares listed on the London Stock Exchange.
The financial position of the Company as at 31 December 2020 is shown in the statement of financial position on page 20, with the results shown in the income statement on page 17, and the statement of cash flows on page 21.
A dividend of £101 million (2019: £140 million) on the ordinary shares of the Company was declared and settled by way of an intercompany transaction to the Company's parent, Aviva plc. The dividend was settled on 31 December 2020.
Preference dividends of £21 million (2019: £21 million) were paid on behalf of the Company by its parent, Aviva plc. Refer to note 6 of the financial statements.
On 26 October 2020 the FCA published the outcome of its investigation into Aviva's announcement on preference shares made in March 2018. The FCA found that Aviva contravened certain provisions of the Listing Rules and the Disclosure and Transparency Rules by failing to take reasonable care to ensure that information in the announcement was not misleading and did not omit anything likely to affect the import of the information in the announcement. The Group has accepted the FCA decision and lessons have been learned. The Group is sorry for the uncertainty created by the March 2018 announcement and in July 2018 set up a discretionary goodwill scheme for impacted Preference Shareholders. The Board agreed with the Group's decision to accept the findings from the investigation.
Strategies for the Group as a whole are determined by the Board of Aviva plc and these are shown in the Aviva plc Annual Report and Accounts 2020 and Preliminary Announcement for the year ended 31 December 2020. The Company will work with the Group to support the implementation of these strategies. The directors consider that the Company's principal activities will continue unchanged for the foreseeable future.
It is anticipated that the Company's significant financial assets will continue to comprise amounts due from its Parent Company, Aviva plc.
A description of the principal risks and uncertainties facing the Company and the Company's risk management policies 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, but are not limited to:
In addition, the loan amounting to £9,529 million (2019: £9,630 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 2020 or 31 December 2019.
We report here on how our Directors have discharged their duties under Section 172 of the Companies Act 2006.
The Board is responsible for monitoring and upholding the culture, values, standards, ethics and reputation of the Company to ensure that our obligations to our shareholder and to our stakeholders are met. It monitors adherence to the Aviva Group business standards and compliance with local corporate governance requirements, and is committed to acting if our businesses should fail to act in the manner we expect of them.
For each matter which comes before the Board, stakeholders who may be affected are identified and their interests are carefully considered as part of the Board's decision-making process.
The Board is also mindful of the wider social context within which our businesses operate, including those issues related to climate change which are of fundamental importance to the planet's well-being.
As the provider of vital financial services to millions of customers, Aviva seeks to earn customers' trust by acting with integrity and responsibility at all times. We look to build relationships with all our stakeholders based on openness and continuing dialogue.
Our culture is shaped by our clearly defined values to help ensure we do the right thing. We value diversity and inclusivity in our workforce and beyond. The commitment we make to each customer extends to all our stakeholders; that we are 'with you today, for a better tomorrow.' Throughout our business, we are proud that our people live by our core value of Caring More for our customers, for each other and for the communities we serve.
The Company has no employees. All UK employees engaged in the activities of the Company are employed by subsidiary undertakings of Aviva plc. Disclosures relating to employees may be found in the annual report and financial statements of these companies.
The Company has no direct customers.
The Board considers the long-term impact of corporate actions and decisions on our shareholders. During 2020 the Board paid £21 million to holders of preference shares in General Accident plc. On 26 October 2020 the FCA published the outcome of its investigation into Aviva's announcement on preference shares made in March 2018. The Board agreed with the Group's decision to accept the findings from the investigation. Refer to note 10 of the financial statements.
Our ultimate shareholder is Aviva plc and there is ongoing communication and engagement with the Aviva plc Board. Any matters requiring escalation are escalated by the Board through the Chairman to its parent. Additionally, members of the Aviva plc board can attend board meetings by invitation.
The directors consider that the Company's key performance indicators ("KPIs") that communicate the financial performance are as follows:
| 2019 2020 |
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|---|---|
| Effective interest rate earned on loans 1.25% |
1.65% |
Effective interest represents the interest received in the year as a proportion of the weighted average loan principal. The rate has decreased in 2020 due to a decrease in the average value of 3 month LIBOR rate from 0.82% to 0.40%.
On behalf of the Board on 3 March 2021
J Windsor Director
Directors' report The directors present their annual report and audited financial statements for the Company for the year ended 31 December 2020. This directors' report also comprises of the management report required under the Disclosure and Transparency Rule 4.1.5R.
The names of the present directors of the Company appear on page 3.
S Mohammed resigned as a director of the Company on 30 April 2020.
A G M Montague was appointed as a director of the Company on 30 April 2020.
In accordance with the Company's articles of association, at the forthcoming Annual General Meeting, all directors will retire from office and, being eligible, will offer themselves for re-election.
The name of the present Company Secretary appears on page 3.
Interim ordinary dividends totalling £101 million on the Company's ordinary shares were declared and settled during 2020 (2019: £140 million). The directors do not recommend a final dividend on the Company's ordinary shares for the year ended 31 December 2020 (2019: £nil). The total cost of dividends paid during the year, including preference dividends of £21 million (2019: £21 million), amounted to £122 million (2019: £161 million).
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic report, which includes a section describing the principal risks and uncertainties. In addition, the financial statements include notes on the Company's management of its major risks (see note 14).
The Company and its immediate parent, Aviva plc, have considerable financial resources together with a diversified business model, with a spread of businesses and geographical reach. The directors believe that the Company is well placed to manage its business risks successfully.
After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of the financial statements. For this reason, they continue to adopt, and to consider appropriate, the going concern basis in preparing the financial statements.
Likely future developments in the business of the Company are discussed in the strategic report on page 4.
The Company has no employees. All UK employees engaged in the activities of the Company are employed by subsidiary undertakings of Aviva plc.
At the Annual General Meeting held on 14 May 2020, shareholders renewed the Company's authority to make market purchases of up to 140 million 8 7 /8% cumulative irredeemable preference shares of £1 each and up to 110 million 7 7 /8% cumulative irredeemable preference shares £1 each. At the 2021 Annual General Meeting, shareholders will be asked to renew these authorities for another year.
In accordance with section 418 of the Companies Act 2006, the directors in office at the date of approval of this report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's External Auditors, PricewaterhouseCoopers LLP, are unaware and each director has taken all steps that ought to have been taken as a director in order to make themselves aware of any relevant audit information and to establish that PricewaterhouseCoopers LLP are aware of that information.
It is the intention of the directors to reappoint the auditors, PricewaterhouseCoopers LLP, under the deemed appointment rules of section 489 of the Companies Act 2006.
Aviva plc, the Company's Ultimate Parent, granted in 2004 an indemnity to the directors against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 1985, which continue to apply in relation to any provision made before 1 October 2007. This indemnity is a "qualifying third party indemnity" for the purposes of section 309A to section 309C of the Companies Act 1985. These qualifying third-party indemnity provisions remain in force as at the date of approving the directors' report by virtue of paragraph 15, Schedule 3 of the Companies Act 2006 (Commencement No. 3, Consequential Amendments, Transitional Provisions and Savings) Order 2007.
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 statement in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. 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:
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.
The directors 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 Company is a wholly-owned subsidiary of Aviva plc, a company with a premium listing on the London Stock Exchange, and as such is subject to Aviva plc's system of risk management, internal control and financial reporting. Aviva plc is subject to the UK Corporate Governance Code. The Aviva plc Annual Report and Accounts set out details of how the Aviva Group has applied the principles and complied with the provisions of the UK Corporate Governance Code during 2020. Further information on the Code can be found on the Financial Reporting Council's website, www.frc.org.uk.
On behalf of the Board on 3 March 2021
J Windsor Director
In our opinion, General Accident plc's financial statements:
We have audited the financial statements, included within the Annual Report and Financial Statements (the "Annual Report"), which comprise: the statement of financial position as at 31 December 2020; the income statement, the statement of comprehensive income, the statement of cash flows, the statement of changes in equity for the year then ended; the accounting policies; and the notes to the financial statements.
Our opinion is consistent with our reporting to the directors.
As explained in note A in the accounting policies to the financial statements, the company, in addition to applying international accounting standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided to the group headed by Aviva plc, of which the company is a member.
We have provided no non-audit services to the company in the period under audit.
General Accident plc functions primarily to provide loans to its Parent Company, Aviva plc. Its sole income stream is the interest on these loans. We have used this knowledge and our understanding of the entity built up over previous years as auditors to design an audit specifically to meet these characteristics. The outbreak of COVID-19 has meant that workforces in the UK have worked remotely where possible, resulting in the vast majority of the audit being performed remotely. Whilst this presented several initial challenges, through our utilisation of the full suite of technology available, the audit of General Accident plc has run to the original timetable with no changes required to the overall audit approach.
Audit scope
• We designed our audit by determining materiality and assessing the risks of material misstatements in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Key audit matters
• Impact of COVID - 19
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors' responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of listing requirements over listed securities, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to misrepresentation of intercompany loan positions or overstatement of investment income relating to intercompany finance costs. Audit procedures performed by the engagement team included:
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Impact of COVID-19 is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year.
| Key audit matter | How our audit addressed the key audit matter |
|---|---|
| Impact of COVID - 19 The impacts of the Covid-19 pandemic continue to cause significant social and economic disruption, with the effects felt up to the reporting date. In performing our audit, we have identified the following key impacts of Covid-19: Ability of the entity to continue as a going concern The key matter relating to General Accident plc is focussed on the fluctuation of interest rates due to the economic impact of the pandemic. Interest on the loan receivable with Aviva plc is the sole income stream in General Accident plc. This interest income is used to cover the preference share dividend payments. Despite reduction in interest rate from 1.65% to 1.25% the income covered the dividend payment in 2020. The interest rate will be at a fixed rate from January 2021 following the abolition of LIBOR. The Directors' have concluded that the Company is a going concern. Qualitative Disclosures in the Annual Report and Financial Statements |
We assessed management's approach to assessing the impact of Covid-19 on the Company and the financial statements by performing the following procedures: We assessed our conclusions on going concern in the light of the ongoing impacts of Covid-19 up to the date of signing these financial statements. We considered the ongoing impacts of Covid-19 when testing all key judgements and estimates, including reviewing management's assessment of the current and future impacts of the pandemic. We have considered the impact of Covid-19 on our audit, and in particular the requirement to work remotely and the impact on the design and operating effectiveness of key controls and processes. We assessed the disclosures made by management in the financial statements and checked the consistency of the disclosures with our knowledge of the company based on our audit. |
| The Directors' have considered the content of the qualitative disclosures included in the Annual Report and Financial Statements with regards to Covid-19. Consideration has been taken for the impact of the pandemic thus far and any future implications for the Company. |
Based on the work performed and the evidence obtained, we consider the disclosure of the impact of Covid-19 in the financial statements to be appropriate. |
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates.
We designed our audit by determining materiality and assessing the risks of material misstatements in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall company materiality |
£139,000,000 (2019: £139,000,000). |
|---|---|
| How we determined it |
1% of total assets |
| Rationale for benchmark applied |
In determining our materiality, we considered financial metrics which we believed to be relevant, and concluded, consistent with last year, that total assets is the most relevant benchmark given the users are principally concerned with the asset position of the Company to pay preference share dividends. |
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £104,250,000 for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the directors that we would report to them misstatements identified during our audit above £7 million (2019: £7 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included:
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors' report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below.
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors' report for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors' report.
As explained more fully in the Statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
We were appointed by the members on 22 March 2012 to audit the financial statements for the year ended 31 December 2012 and subsequent financial periods. The period of total uninterrupted engagement is 9 years, covering the years ended 31 December 2012 to 31 December 2020.
Philip Watson (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 3 March 2021
The Company is a public limited company incorporated and domiciled in the United Kingdom ("UK") and limited by shares. The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
The financial statements of the Company have been prepared and approved by the directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. In addition, the financial statements also comply with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union (EU). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
The financial statements have been prepared on the going concern basis as explained in the directors' report on page 7.
The Company's financial statements are stated in pounds sterling, which is the Company's functional and presentational currency. Unless otherwise noted, the amounts shown in these financial statements are in millions of pounds sterling (£m).
The Company has adopted the following amendments to standards which became effective for the annual reporting period beginning on 1 January 2020. The amendments have been issued and endorsed by the EU and do not have a significant impact on the Company's consolidated financial statements.
The following new standards and amendments to existing standards have been issued, are not effective for the current reporting period and are not expected to have a significant impact on the Company's consolidated financial statements:
(v) Interest Rate Benchmark Reform Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Published by the IASB in August 2020. The amendments are effective for annual reporting beginning on or after 1 January 2021 and have not yet been endorsed by the EU.
The preparation of financial statements requires the Company to select accounting policies and make estimates and assumptions that affect items reported in the income statement, statement of financial position, other primary statements and notes to the financial statements.
The Company does not have any critical accounting policies and does not rely on estimation or assumption in these financial statements.
Investment income consists of interest receivable for the year. Interest receivable is recognised as it accrues, taking into account the effective yield on the investment.
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Financial assets and liabilities are offset, and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.
Receivables and other financial assets are recognised initially at their fair value. Subsequent to initial measurement receivables, excluding those loans due from Group operations held at fair value as described below, are measured at amortised cost using the effective interest rate method, less expected credit losses.
Loans with fixed maturities are recognised when cash is advanced to borrowers. Loans where repayments consist solely of principal or interest are subsequently measured at amortised cost using the effective interest rate method. Loans with indefinite future lives are carried at unpaid principal balances. All other loans are held at FVTPL based on the outcome of a business model assessment, which were assessed as being held to collect, or where the contractual cash flows are not solely payment of principal and interest.
To the extent that a loan is considered to be uncollectable, it is written down as impaired through the income statement. Any subsequent recoveries are credited to the income statement.
Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if there is a present obligation as a result of a past event but either a payment is not probable, or the amount cannot be reasonably estimated.
The current tax expense is based on the taxable profits for the year, after any adjustments in respect of prior years. Tax, including tax relief for losses if applicable, is allocated over profits before taxation and amounts charged or credited to components of other comprehensive income as appropriate.
Provision is made for deferred tax liabilities, or credit taken for deferred tax assets, using the liability method, on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
The rates enacted or substantively enacted at the statement of financial position date are used to value the deferred tax assets and liabilities.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Where there is a history of tax losses, deferred tax assets are only recognised in excess of deferred tax liabilities if there is convincing evidence that future profits will be available.
Deferred tax is provided on any temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future.
Current and deferred tax relating to items recognised in other comprehensive income and directly in equity are similarly recognised in other comprehensive income and directly in equity respectively, except for the tax consequences of distributions from certain equity instruments, to be recognised in the income statement. Deferred tax related to any fair value re-measurement of available for sale investments, owner-occupied properties, pensions and other post-retirement obligations and other amounts charged or credited directly to other comprehensive income is recognised in the statement of financial position as a deferred tax asset or liability.
An equity instrument is a contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. Accordingly, a financial instrument is treated as equity if:
Interim dividends on ordinary shares are recognised in equity in the period in which they are paid. Final dividends on these shares are recognised when they have been approved by shareholders. Dividends on preference shares are recognised in the period in which they are declared and approved.
Basic earnings per share is calculated by dividing net income available to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Details are given in note 7.
For the diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares, such as convertible debt and share options granted to employees. Potential or contingent share issuances are treated as dilutive when their conversion to shares would decrease net earnings per share.
| Income statement | |||
|---|---|---|---|
| 2020 | 2019 | ||
| Notes | £m | £m | |
| Income | |||
| Investment income | C & 1 | 120 | 161 |
| Expenses | - | - | |
| Profit for the year before tax | 120 | 161 | |
| Tax charge | G & 5 | - | - |
| Profit for the year after tax | 120 | 161 | |
| Earnings per share | |||
| Basic (pence per share) | I & 7 | 0.52 | 0.73 |
| Diluted (pence per share) | I & 7 | 0.52 | 0.73 |
For the year ended 31 December 2020
| Statement of comprehensive income | ||
|---|---|---|
| 2020 £m |
2019 £m |
|
| Profit for the year | 120 | 161 |
| Total comprehensive income for the year | 120 | 161 |
Statement of changes in equity
For the year ended 31 December 2020
| Ordinary share capital |
Preference share capital |
Share premium |
Retained earnings |
Total equity |
||
|---|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | £m | |
| Balance at 1 January 2019 | 4,781 | 250 | 8,859 | 44 | 13,934 | |
| Profit for the year | - | - | - | 161 | 161 | |
| Total comprehensive income for the year | - | - | - | 161 | 161 | |
| Dividends paid | H & 6 | - | - | - | (161) | (161) |
| Balance at 31 December 2019 | 4,781 | 250 | 8,859 | 44 | 13,934 | |
| Profit for the year | - | - | - | 120 | 120 | |
| Total comprehensive income for the year | - | - | - | 120 | 120 | |
| Dividends paid | H & 6 | - | - | - | (122) | (122) |
| Balance at 31 December 2020 | 4,781 | 250 | 8,859 | 42 | 13,932 |
As at 31 December 2020
| Statement of financial position | 2020 | 2019 | |
|---|---|---|---|
| Notes | £m | £m | |
| Assets | |||
| Non current assets | |||
| Receivables and other financial assets | E & 8 | 13,911 | 13,913 |
| Current assets | |||
| Receivables and other financial assets | E & 8 | 21 | 21 |
| Total assets | 13,932 | 13,934 | |
| Equity | |||
| Capital | |||
| Ordinary share capital | H & 9 | 4,781 | 4,781 |
| Preference share capital | H & 10 | 250 | 250 |
| Share premium | 8,859 | 8,859 | |
| Retained earnings | 11 | 42 | 44 |
| Total equity | 13,932 | 13,934 | |
| Liabilities | |||
| Total liabilities | - | - | |
| Total equity and liabilities | 13,932 | 13,934 | |
The financial statements were approved by the Board of Directors on 3 March 2021 and signed on its behalf by
J Windsor Director
Registered in Scotland No. SC119505
For the year ended 31 December 2020
| Statement of cash flows | ||
|---|---|---|
| 2020 | 2019 | |
| £m | £m | |
| Cash flows from financing activities | - | - |
| Net cash generated from financing activities | - | - |
| Total net increase/(decrease) in cash and cash equivalents | - | - |
| Cash and cash equivalents at 1 January | - | - |
| Cash and cash equivalents at 31 December1 | - | - |
1 The closing balance as at 31 December 2020 is £475 (2019: £179). The majority of the Company's cash requirements are met by fellow Group companies (see note 15 for further disclosure of transactions on the Company's behalf by its related parties).
| 2020 | 2019 | |
|---|---|---|
| Note | £m | £m |
| 15(a) | 120 | 161 |
| 120 | 161 | |
The Company has no employees (2019: nil). All UK employees engaged in the activities of the Company are employed by subsidiary undertakings of Aviva plc.
The directors were all remunerated by Aviva Employment Services Limited, a fellow subsidiary of Aviva plc, for their services to the Group as a whole. They were not remunerated for their services as directors of the Company and the amount of time spent performing their duties is incidental to their roles across the Group. This is consistent with prior years.
J M Windsor was a director of Aviva plc during the year and his emoluments are disclosed in that company's report and accounts.
K A Cooper was a member of key management personnel of Aviva plc during the year and her emoluments are disclosed in that company's report and accounts.
A G M Montague and S Mohammed were remunerated for their roles as employees across the Group.
The total remuneration payable by the Company, excluding VAT, to its auditors, PricewaterhouseCoopers LLP is as follows.
| 2020 | 2019 | |
|---|---|---|
| £'000 | £'000 | |
| Fees payable to PricewaterhouseCoopers LLP for the statutory audit of the Company's financial | ||
| statements | 39 | 36 |
| 39 | 36 |
The Company is exempt under SI 2008/489 from the obligation to disclose fees in respect of 'Other services' as the Company is a subsidiary of Aviva plc, which prepares consolidated financial statements. Fees paid to the Company's auditors, PricewaterhouseCoopers LLP and its associates for services other than the statutory audit of the Company and other Group undertakings are disclosed in the consolidated accounts of Aviva plc.
There were no non-audit fees paid to the Company's auditors during the year (2019: £nil). All fees have been borne by Aviva plc.
There was no tax credited or charged to other comprehensive income in either 2020 or 2019.
The tax on the Company's profit before tax differs from the theoretical amount that would arise using the tax rate of the United Kingdom as follows:
| 2020 | 2019 | ||
|---|---|---|---|
| Note | £m | £m | |
| Profit for the year before tax | 120 | 161 | |
| Tax calculated at standard UK corporation tax rate of 19% (2019 : 19%) | (23) | (31) | |
| Surrender of losses from group undertakings for no charge | 23 | 31 | |
| Tax charge for the year | 5(a) | - | - |
During 2020, the reduction in the UK corporation tax rate that was due to take effect from 1 April 2020 was cancelled and as a result, the rate has remained at 19%. There is no impact on the Company's net assets as a consequence of this amendment.
| 2020 | 2019 | |
|---|---|---|
| Note | £m | £m |
| - | 140 | |
| 15(b)(iii) | 101 | - |
| 101 | 140 | |
| 21 | 21 | |
| 122 | 161 | |
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
| 2020 | 2019 |
|---|---|
| Profit for the year after tax (£m) 120 |
161 |
| Cumulative preference dividends for the year (£m) (21) |
(21) |
| Profit attributable to equity holders of the Company (£m) 99 |
140 |
| Profit attributable per share (pence) 0.5176 |
0.7320 |
The calculation of basic earnings per share used a weighted average of 19,125 million (2019: 19,125 million) ordinary shares in issue.
Diluted earnings per share is calculated the same way as basic earnings per share (see note 7(a)) as there are no dilutive potential ordinary shares outstanding).
| 2020 | 2019 | ||
|---|---|---|---|
| Note | £m | £m | |
| Loans due from parent held at amortised cost | 15(a) | 9,529 | 9,630 |
| Amounts due from parent held at amortised cost | 15(b)(i) | 4,403 | 4,304 |
| Total at 31 December | 13,932 | 13,934 | |
| Expected to be recovered in less than one year | 21 | 21 | |
| Expected to be recovered in more than one year | 13,911 | 13,913 | |
| 13,932 | 13,934 | ||
| 9. Ordinary share capital |
|||
| 2020 | 2019 |
| £m | £m | |
|---|---|---|
| Allotted, called up and fully paid | ||
| 19,125,600,632 (2019: 19,125,600,632 ) ordinary shares of 25 pence each | 4,781 | 4,781 |
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.
| 2020 | 2019 | |
|---|---|---|
| £m | £m | |
| Allotted, called up and fully paid | ||
| 140,000,000 (2019: 140,000,000 ) 8 ⅞ % cumulative irredeemable of £1 each | 140 | 140 |
| 110,000,000 (2019: 110,000,000 ) 7 ⅞ % cumulative irredeemable of £1 each | 110 | 110 |
| 250 | 250 |
Whilst there is no limitation on the number of shares that the Company may issue, the directors will still be limited as to the number of shares they can allot because authority to allot continues to be required under the Companies Act 2006.
The Company's cumulative irredeemable preference shares are listed on the London Stock Exchange under a Standard Listing. They are irredeemable but, subject to the provisions of the Companies Act 2006, the Company may at any time purchase any preference shares at either par or on the prevailing market price upon such terms as the Board shall determine.
The cumulative irredeemable preference shares rank, as to payment of a dividend and capital, ahead of the Company's ordinary share capital. 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. The Company does not have a contractual obligation to deliver cash or other financial assets to the preference shareholders, and therefore the directors may make dividend payments at their discretion.
On 26 October 2020 the FCA published the outcome of its investigation into Aviva's announcement on preference shares made in March 2018. The FCA found that Aviva contravened certain provisions of the Listing Rules and the Disclosure and Transparency Rules by failing to take reasonable care to ensure that information in the announcement was not misleading and did not omit anything likely to affect the import of the information in the announcement. The Group has accepted the FCA decision and lessons have been learned. The Group is sorry for the uncertainty created by the March 2018 announcement and in July 2018 set up a discretionary goodwill scheme for impacted Preference Shareholders. The Board agreed with the Group's decision to accept the findings from the investigation.
| 2020 | 2019 | ||
|---|---|---|---|
| Note | £m | £m | |
| At 1 January | 44 | 44 | |
| Profit for the year | 120 | 161 | |
| Dividends | 6 | (122) | (161) |
| At 31 December | 42 | 44 |
The Company had no current or deferred tax assets or liabilities at 31 December 2020 (2019: £nil).
There were no outstanding provisions on the balance sheet at 31 December 2020 (2019: £nil).
| 2020 £m |
2019 £m |
|
|---|---|---|
| At 1 January | - | - |
| Additional provisions | - | - |
| Unused amounts reversed | - | - |
| Charge to income statement | - | - |
| Utilised during the year | - | - |
| Total at 31 December | - | - |
The Company operates a risk management framework that forms an integral part of the management and Board processes and decision-making framework, aligned to the Group's risk management framework.
The Company's risk management approach is aimed at actively identifying, measuring, managing, monitoring and reporting significant existing and emerging risks. Risks are managed 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 across all businesses, the Group has a set of risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group's worldwide operations, including the Company.
For the purposes of risk identification and measurement, and aligned to the Company's risk policies, risks are usually grouped by risk type: credit, market, liquidity and operational risk. Risks falling within these types may affect a number of metrics including those relating to statement of financial position strength, liquidity and profit.
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.
Further information on the types and management of specific risk types is given in sections (b) to (h) below.
Credit risk is the risk of financial loss as a result of the default or failure of third parties to meet their payment obligations to the Company, or variations in market values as a result of changes in expectation related to these risks.
The credit quality of receivables and other financial assets is monitored by the Company, and provisions are made for expected credit losses. Expected credit losses on material receivables and other assets are calculated with reference to the Company's historical experience of losses, along with an analysis of payment terms. Short term financial assets (where all amounts are receivable within12 months from the reporting date) do not generally attract an expected credit loss charge, unless there is objective evidence that losses are likely to arise.
The Company makes use of the simplified approach when calculating expected credit losses on trade receivables which don't include a significant financing component, and therefore calculates expected credit losses over the lifetime of the instrument in question. As at the reporting date, no lifetime expected credit losses have been recognised in relation to receivables.
The Company has not purchased or originated any credit-impaired financial assets as at the reporting date.
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 (issuer credit ratings represent an issuer's ability to meet its overall financial commitments as they fall due), and as such the credit risk arising from the counterparty failing to meet all or part of their obligations is considered remote. There are no material expected credit losses recognised in relation to loans due from Aviva plc.
In addition, the loan amounting to £9,529 million (2019: £9,630 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 2020 were £nil (2019: £nil).
Market risk is the risk of an adverse financial impact resulting directly or indirectly from fluctuations in interest rates, inflation, 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 net asset value of the Company's financial resources is not materially affected by fluctuations in interest rates. From January 2021, the loan was set at a fixed interest rate for 5 years, mitigating future interest rate risk arising from variance in interest income.
Liquidity risk is the risk of not being 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.
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.
The Company's capital risk is determined with reference to the requirements of the Company's stakeholders. In managing capital, the Company seeks 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 2020 the Company had £13,932 million (2019: £13,934 million) of total capital employed.
The EU-UK Trade and Cooperation Agreement of 24 December 2020 provides for a dynamic future UK-EU relationship with scope for managed policy divergence or maintaining alignment, if the UK chooses. The agreement will have evolving consequences in 2021 and beyond on future financial services regulation, EU market access and the UK economy which will require careful monitoring.
On 11 March 2020, the World Health Organization declared the outbreak of a strain of novel coronavirus disease, COVID-19, a global pandemic. Governments in affected areas have imposed a number of measures designed to contain the outbreak, including business closures, travel restrictions, stay at home orders and prohibition of gatherings and events. The spread of COVID-19 has had a significant impact on the global economy, causing volatile equity markets and falls in interest rates.
The Company continues to maintain a positive net asset value and since the onset of the pandemic the Company has remained operational, despite the loan interest dropping to 1.25% (2019: 1.65%). The Company's balance sheet exposure has been reviewed and actions are being taken to further reduce the sensitivity to economic shocks. The 5 year fixed interest rate (following the abolition of LIBOR) which commenced in January 2021 will result in the loan bearing sufficient interest to cover the preference share dividends due per annum, hence the company will continue to remain operational.
The Company had the following transactions with related parties, which include parent companies, subsidiaries, and fellow Group companies in the normal course of business.
On 14 December 2017, the Company provided a loan to Aviva plc, its parent company, of £9,990 million with a maturity date of 31 December 2022. For 2020 and 2019, the loan has accrued interest at 65 basis points above 3 month LIBOR (and in the event that the LIBOR rate is less than zero, the rate shall be deemed to be zero). From January 2021, as a result of LIBOR being abolished, this loan will now be set at a fixed interest rate for 5 years. This rate is expected to be as follows; 5- year Gilt (current rate 0.005%) + Basis adjustment 0.15%+ 0.65% floor. Settlement is due to be received in cash at maturity on 31 December 2022; however, it is the intention of both parties that the facility will be renewed in full upon maturity.
As at the statement of financial position date, the loan balance outstanding was £9,529 million (2019: £9,630 million). This facility has been secured against the ordinary share capital of Aviva Group Holdings Limited. The loan agreement also includes a penalty interest charge of 1% above the interest rate if any amounts payable under the loan agreement remain outstanding. As at 31 December 2020, no amounts remain outstanding.
The maturity analysis of the related party loan is as follows:
| 2020 | 2019 | |
|---|---|---|
| £m | £m | |
| 1-5 years | 9,529 | 9,630 |
| 9,529 | 9,630 | |
| Effective interest rate | 1.25% | 1.65% |
The interest received on this loan shown in the income statement is £120 million (2019: £161 million). Refer to note 1.
| 2020 | 2019 | |
|---|---|---|
| Receivable at | Receivable | |
| year end | at year end | |
| £m | £m | |
| Immediate parent | 4,403 | 4,304 |
| 4,403 | 4,304 |
The related parties' receivables are not secured, and no guarantees were received in respect thereof. The receivables will be settled in accordance with normal credit terms.
Expenses incurred in the year represents audit fees. There were no non-audit fees paid to the Company's auditors during the year (2019: £nil). Audit fees as described in note 4 are borne by the Company's ultimate parent, Aviva plc.
Dividends paid relate to an intercompany transaction of £101 million (2019: £140 million) with the Company's parent, Aviva plc. Preference dividends of £21 million (2019: £21 million) were paid on behalf of the Company by its parent, Aviva plc. Refer to note 6.
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 to note 3 for details of directors' remuneration.
The immediate and ultimate parent entity and controlling party is Aviva plc, a public limited company incorporated and domiciled in the United Kingdom. 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
There are no subsequent events to report.
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