Final Results - PART 4 OF 4

RNS Number : 9302Y

Aviva PLC

09 March 2017

Part 4 of 4

Page 97

Capital & liquidity

In this section		Page
Capital and liquidity
C1	Analysis of return on equity	98
C2	Group capital structure - IFRS basis	99
C3	Equity sensitivity analysis - IFRS basis	100

Page 98

C1 - Analysis of return on equity

	Operating return¹
2016	Before tax £m	After tax £m	Weighted average shareholders' funds including non-controlling interests² £m	Return on equity² %
United Kingdom & Ireland Life	1,555	1,262	11,218	11.2%
United Kingdom & Ireland General Insurance and Health^3,4	471	380	2,431	15.6%
Europe	964	674	5,160	13.1%
Canada⁴	269	197	1,256	15.7%
Asia	228	216	1,548	14.0%
Fund management	138	104	426	24.4%
Corporate and Other Business^3,5	(227)	(219)	4,850	N/A
Return on total capital employed	3,398	2,614	26,889	9.7%
Subordinated debt	(387)	(309)	(6,907)	4.5%
Senior debt	(1)	(1)	(869)	0.1%
Return on total equity	3,010	2,304	19,113	12.1%
Less: Non-controlling interests		(147)	(1,279)	11.5%
Direct capital instrument and tier 1 notes		(68)	(1,123)	6.1%
Preference capital		(17)	(200)	8.5%
Return on equity shareholders' funds		2,072	16,511	12.5%

1 The operating return is based upon Group operating profit. Refer to note B1.

2 Return on equity is based on an annualised operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity.

3 2015 comparatives have been restated to exclude c.£0.9 billion of goodwill which does not support the general insurance and health business for capital purposes and is included in 'Corporate and Other Business'. There is no impact on Group return on equity as a result of this restatement.

4 2015 comparatives have been restated for the impact of an internal loan between Canada and United Kingdom general insurance. There is no impact on Group return on equity as a result of this restatement.

5 The 'Corporate' and 'Other Business' loss before tax of £227 million comprises corporate costs of £184 million, interest on internal lending arrangements of £23 million, other business operating loss (net of investment return) of £106 million, partly offset by finance income on the main UK pension scheme of £86 million.

	Operating return²
2015 - Restated¹	Before tax £m	After tax £m	Weighted average shareholders' funds including non-controlling interests² £m	Return on equity² %
United Kingdom & Ireland Life	1,455	1,277	9,586	14.4%
United Kingdom & Ireland General Insurance and Health^3,4,5	412	332	3,249	10.2%
Europe	880	590	4,645	12.7%
Canada⁵	214	157	972	16.2%
Asia	238	224	1,249	22.0%
Fund management	106	97	326	30.1%
Corporate and Other Business^4,6	(254)	(303)	3,417	n/a
Return on total capital employed	3,051	2,374	23,444	10.8%
Subordinated debt	(335)	(267)	(6,240)	4.4%
Senior debt	(28)	(22)	(623)	3.5%
Return on total equity	2,688	2,085	16,581	13.4%
Less: Non-controlling interests		(152)	(1,248)	12.2%
Direct capital instrument and tier 1 notes		(57)	(952)	6.6%
Preference capital		(17)	(200)	8.5%
Return on equity shareholders' funds		1,859	14,181	14.1%

1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. This has led to an increase in operating profit and profit before tax of £23 million for 2015 and an increase in opening retained earnings for 2015 of £20 million with an increase in equity at 31 December 2015 of £38 million. See note B2 for further details.

2 Return on equity is based on an annualised operating return after tax attributable to ordinary shareholders expressed as a percentage of weighted average ordinary shareholders' equity. The operating return is based upon Group operating profit. Refer to note B1. Following the acquisition of Friends Life, an annualisation factor of 1.33 was used to gross up the Friends Life operating return.

3 The operating return for United Kingdom & Ireland general insurance and health is presented net of £18 million of investment return, which is allocated to Corporate and Other Business. The £18 million represents the return on capital supporting Pillar II ICA risks deemed not to be supporting the ongoing general insurance operation.

4 2015 comparatives have been restated to exclude c.£0.9 billion of goodwill which does not support the general insurance and health business for capital purposes and is included in 'Corporate and Other Business'. There is no impact on Group return on equity as a result of this restatement.

5 2015 comparatives have been restated for the impact of an internal loan between Canada and United Kingdom general insurance. There is no impact on Group return on equity as a result.

6 The 'Corporate' and 'Other Business' loss before tax of £254 million comprises corporate costs of £180 million, interest on internal lending arrangements of £92 million, other business operating loss (net of investment return) of £76 million, partly offset by finance income on the main UK pension scheme of £94 million.

Page 99

C2 - Group capital structure - IFRS basis

The table below shows how our capital is deployed by market and how that capital is funded.

	2016 Capital employed £m	Restated¹ 2015 Capital employed £m
Life business
United Kingdom & Ireland	11,764	11,126
France	2,756	2,151
Poland	296	305
Italy	947	849
Spain	594	506
Other Europe	71	72
Europe	4,664	3,883
Asia	1,643	1,355
	18,071	16,364
General insurance & health
United Kingdom & Ireland²	1,761	3,165
France	462	506
Italy	282	231
Other Europe	70	63
Europe	814	800
Canada	1,471	957
Asia	16	24
	4,062	4,946
Fund Management	462	411
Corporate & Other Business^2,3	5,533	3,461
Total capital employed	28,128	25,182
Financed by
Equity shareholders' funds	16,803	15,802
Non-controlling interests	1,425	1,145
Direct capital instrument & tier 1 notes	1,123	1,123
Preference shares	200	200
Subordinated debt⁴	7,213	6,427
Senior debt	1,364	485
Total capital employed⁵	28,128	25,182

2 Capital employed for United Kingdom & Ireland general insurance and health excludes c.£0.9 billion of goodwill which does not support the general insurance and health business for capital purposes and is included in 'Corporate & Other Business'. Comparatives have been restated accordingly and there is no impact on Group return on equity as a result of this restatement.

3 'Corporate' and 'other Business' includes centrally held tangible net assets, the main UK staff pension scheme surplus and also reflects internal lending arrangements. These internal lending arrangements, which net out on consolidation, include the formal loan arrangement between Aviva Group Holdings Limited and Aviva Insurance Limited (AIL).

4 Subordinated debt excludes amounts held by Group companies of £9 million (2015: £42 million).

5 Goodwill, AVIF and other intangibles are maintained within the capital base. Goodwill includes goodwill in subsidiaries of £2,045 million (2015: £1,955 million), goodwill in joint ventures of £20 million (2015: £19 million) and goodwill in associates of £47 million (2015: £26 million). AVIF and other intangibles comprise £5,468 million (2015: £5,731 million) of intangibles in subsidiaries, £72 million (2015: £71 million) of intangibles in joint ventures and £18 million (2015: Nil) of intangibles in associates, net of deferred tax liabilities of £(783) million (2015: £(814) million) and the non-controlling interest share of intangibles of £(226) million (2015: £(195) million).

Total capital employed is financed by a combination of equity shareholders' funds, preference capital, subordinated debt and other borrowings. At the end of 2016 the Group had £28.1 billion (2015: £25.2 billion) of total capital employed in our trading operations measured on an IFRS basis.

In 2016 the Group issued two subordinated debt instruments and two sets of senior notes. Additionally one subordinated debt instrument was redeemed in full at its first call date. Further details are set out below:

· May 2016 - Aviva plc issued C$450 million of subordinated debt at 4.50% which matures in May 2021.

· September 2016 - Aviva plc issued £400 million of subordinated debt at 4.375%, with final maturity in September 2049 and first call in September 2029, and €350 million of senior debt at 0.100% which matures in December 2018.

· October 2016 - Aviva plc issued €500 million of senior debt at 0.625% with a maturity in October 2023.

· December 2016 - Aviva plc redeemed, at first call, the 8.25% $400 million subordinated debt originally issued in 2011.

At the end of 2016 the market value of our external debt, subordinated debt, preference shares (including both Aviva plc preference shares of £200 million and General Accident plc preference shares, within non-controlling interests, of £250 million), and direct capital instrument and tier 1 notes was £11,006 million (2015: £9,094 million).

Page 100

C3 - Equity sensitivity analysis - IFRS basis

The sensitivity of the Group's total equity on an IFRS basis at 31 December 2016 to a 10% fall in global equity markets, a rise of 1% in global interest rates or a 0.5% increase in credit spreads is as follows:

Restated¹ 2015 £bn	IFRS basis	31 December 2016 £bn	Equities down 10% £bn	Interest rates up 1% £bn	0.5% increased credit spread £bn
16.4	Long-term savings	18.1	-	(0.4)	(0.2)
8.8	General insurance and other	10.1	(0.1)	(0.4)	0.6
(6.9)	Borrowings	(8.6)	-	-	-
18.3	Total equity	19.6	(0.1)	(0.8)	0.4

1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.

These sensitivities assume a full tax charge/credit on market value assumptions. The interest rate sensitivity also assumes an equivalent movement in both inflation and discount rate (i.e. no change to real interest rates) and therefore incorporates the offsetting effects of these items on the pension scheme liabilities. A 1% increase in the real interest rate has the effect of reducing the pension scheme liability in the main UK pension scheme by £2.3 billion (before any associated tax impact).

The 0.5% increased credit spread sensitivity does not make an allowance for any adjustment to risk-free interest rates. The long-term business sensitivities provide for any impact of credit spread movements on liability valuations. The sensitivities also include the allocation of staff pension scheme sensitivities, which assume inflation rates and government bond yields remain constant. In practice, the sensitivity of the business to changes in credit spreads is subject to a number of complex interactions. The impact of the credit spread movements will be related to individual portfolio composition and may be driven by changes in credit or liquidity risk; hence, the actual impact may differ substantially from applying spread movements implied by various published credit spread indices to these sensitivities.

Page 101

Analysis of assets

In this section		Page
Analysis of assets
D1	Total assets	102
D2	Total assets - Valuation bases/fair value hierarchy	102
D3	Analysis of asset quality	105
D4	Pension fund assets	121
D5	Available funds	122
D6	Guarantees	122

Page 102

D1 - Total assets

As an insurance business, Aviva Group holds a variety of assets to match the characteristics and duration of its insurance liabilities. Appropriate and effective asset liability matching (on an economic basis) is the principal way in which Aviva manages its investments. In addition, to support this, Aviva also uses a variety of hedging and other risk management strategies to diversify away any residual mismatch risk that is outside of the Group's risk appetite.

2016	Policyholder assets £m	Participating fund assets £m	Shareholder assets £m	Total assets analysed £m	Less assets of operations classified as held for sale £m	Balance sheet total £m
Goodwill and acquired value of in-force business and intangible assets	-	-	7,525	7,525	(12)	7,513
Interests in joint ventures and associates	89	1,356	640	2,085	-	2,085
Property and equipment	-	192	295	487	-	487
Investment property	6,625	3,664	527	10,816	(48)	10,768
Loans	1,027	2,470	21,362	24,859	(75)	24,784
Financial investments
Debt securities	27,048	102,511	53,715	183,274	(7,738)	175,536
Equity securities	52,571	15,771	670	69,012	(664)	68,348
Other investments	45,630	9,119	3,506	58,255	(2,304)	55,951
Reinsurance assets	18,525	664	7,565	26,754	(411)	26,343
Deferred tax assets	-	-	183	183	(3)	180
Current tax assets	-	-	119	119	-	119
Receivables and other financial assets	435	2,301	6,462	9,198	(1,404)	7,794
Deferred acquisition costs and other assets	25	556	5,312	5,893	-	5,893
Prepayments and accrued income	279	1,394	1,323	2,996	(114)	2,882
Cash and cash equivalents	8,874	17,777	12,312	38,963	(255)	38,708
Assets of operations classified as held for sale	-	-	-	-	13,028	13,028
Total	161,128	157,775	121,516	440,419	-	440,419
Total %	36.6%	35.8%	27.6%	100.0%	-	100.0%
2015 Total - restated¹	141,592	141,756	104,483	387,831	-	387,831
2015 Total % - restated¹	36.5%	36.6%	26.9%	100.0%	-	100.0%

1 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.

As at 31 December 2016, 27.6% of Aviva's total asset base was shareholder assets, 35.8% participating fund assets where Aviva shareholders have partial exposure, and 36.6% policyholder assets where Aviva shareholders have no exposure. Of the total assets (excluding held for sale), investment property, loans and financial investments comprise £335.4 billion, compared to £308.0 billion at 31 December 2015.

D2 - Total assets - Valuation bases/fair value hierarchy

Total assets - 2016	Fair value £m	Amortised cost £m	Equity accounted/ tax assets¹ £m	Total £m
Goodwill and acquired value of in-force business and intangible assets	-	7,525	-	7,525
Interests in joint ventures and associates	-	-	2,085	2,085
Property and equipment	389	98	-	487
Investment property	10,816	-	-	10,816
Loans	21,283	3,576	-	24,859
Financial Investments
Debt securities	183,274	-	-	183,274
Equity securities	69,012	-	-	69,012
Other investments	58,255	-	-	58,255
Reinsurance assets	18,366	8,388	-	26,754
Deferred tax assets	-	-	183	183
Current tax assets	-	-	119	119
Receivables and other financial assets	-	9,198	-	9,198
Deferred acquisition costs and other assets	-	5,893	-	5,893
Prepayments and accrued income	-	2,996	-	2,996
Cash and cash equivalents	38,963	-	-	38,963
Total	400,358	37,674	2,387	440,419
Total %	90.9%	8.6%	0.5%	100.0%
Assets of operations classified as held for sale	11,009	2,016	3	13,028
Total (excluding assets held for sale)	389,349	35,658	2,384	427,391
Total % (excluding assets held for sale)	91.1%	8.3%	0.6%	100.0%
2015 Total - restated²	352,629	33,038	2,164	387,831
2015 Total % - restated²	90.9%	8.5%	0.6%	100.0%

1 Within the Group's statement of financial position, assets are recognised for deferred tax and current tax. The valuation basis of these assets does not directly fall within any of the categories outlined above. As such, these assets have been reported together with equity accounted items within the analysis of the Group's assets.

2 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.

Page 103

D2 - Total assets - Valuation bases/fair value hierarchy continued

Total assets - Policyholder assets 2016	Fair value £m	Amortised cost £m	Equity accounted/ tax assets¹ £m	Total £m
Goodwill and acquired value of in-force business and intangible assets	-	-	-	-
Interests in joint ventures and associates	-	-	89	89
Property and equipment	-	-	-	-
Investment property	6,625	-	-	6,625
Loans	-	1,027	-	1,027
Financial Investments
Debt securities	27,048	-	-	27,048
Equity securities	52,571	-	-	52,571
Other investments	45,630	-	-	45,630
Reinsurance assets	18,359	166	-	18,525
Deferred tax assets	-	-	-	-
Current tax assets	-	-	-	-
Receivables and other financial assets	-	435	-	435
Deferred acquisition costs and other assets	-	25	-	25
Prepayments and accrued income	-	279	-	279
Cash and cash equivalents	8,874	-	-	8,874
Total	159,107	1,932	89	161,128
Total %	98.7%	1.2%	0.1%	100.0%
Assets of operations classified as held for sale	2,489	-	-	2,489
Total (excluding assets held for sale)	156,618	1,932	89	158,639
Total % (excluding assets held for sale)	98.7%	1.2%	0.1%	100.0%
2015 Total	140,525	926	141	141,592
2015 Total %	99.2%	0.7%	0.1%	100.0%

Total assets - Participating fund assets 2016	Fair value £m	Amortised cost £m	Equity accounted/ tax assets¹ £m	Total £m
Goodwill and acquired value of in-force business and intangible assets	-	-	-	-
Interests in joint ventures and associates	-	-	1,356	1,356
Property and equipment	180	12	-	192
Investment property	3,664	-	-	3,664
Loans	124	2,346	-	2,470
Financial Investments
Debt securities	102,511	-	-	102,511
Equity securities	15,771	-	-	15,771
Other investments	9,119	-	-	9,119
Reinsurance assets	-	664	-	664
Deferred tax assets	-	-	-	-
Current tax assets	-	-	-	-
Receivables and other financial assets	-	2,301	-	2,301
Deferred acquisition costs and other assets	-	556	-	556
Prepayments and accrued income	-	1,394	-	1,394
Cash and cash equivalents	17,777	-	-	17,777
Total	149,146	7,273	1,356	157,775
Total %	94.5%	4.6%	0.9%	100.0%
Assets of operations classified as held for sale	8,520	1,482	-	10,002
Total (excluding assets held for sale)	140,626	5,791	1,356	147,773
Total % (excluding assets held for sale)	95.2%	3.9%	0.9%	100.0%
2015 Total	132,319	8,142	1,295	141,756
2015 Total %	93.4%	5.7%	0.9%	100.0%

Page 104

D2 - Total assets - Valuation bases/fair value hierarchy continued

Total assets - Shareholders assets 2016	Fair value £m	Amortised cost £m	Equity accounted/ tax assets¹ £m	Total £m
Goodwill and acquired value of in-force business and intangible assets	-	7,525	-	7,525
Interests in joint ventures and associates	-	-	640	640
Property and equipment	209	86	-	295
Investment property	527	-	-	527
Loans	21,159	203	-	21,362
Financial Investments
Debt securities	53,715	-	-	53,715
Equity securities	670	-	-	670
Other investments	3,506	-	-	3,506
Reinsurance assets	7	7,558	-	7,565
Deferred tax assets	-	-	183	183
Current tax assets	-	-	119	119
Receivables and other financial assets	-	6,462	-	6,462
Deferred acquisition costs and other assets	-	5,312	-	5,312
Prepayments and accrued income	-	1,323	-	1,323
Cash and cash equivalents	12,312	-	-	12,312
Total	92,105	28,469	942	121,516
Total %	75.8%	23.4%	0.8%	100.0%
Assets of operations classified as held for sale	-	534	3	537
Total (excluding assets held for sale)	92,105	27,935	939	120,979
Total % (excluding assets held for sale)	76.1%	23.1%	0.8%	100.0%
2015 Total - restated²	79,785	23,970	728	104,483
2015 Total % - restated²	76.4%	22.9%	0.7%	100.0%

2 Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparatives have been restated. See note B2 for further details.

Fair value hierarchy

To provide further information on the valuation techniques we use to measure assets carried at fair value, we have categorised the measurement basis for assets carried at fair value into a 'fair value hierarchy' described as follows, based on the lowest level input that is significant to the valuation as a whole:

· Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets.

· Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly. If the asset has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset.

· Inputs to Level 3 fair values are unobservable inputs for the asset. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such unobservable inputs reflect the assumption the business unit considers that market participants would use in pricing the asset. Examples are investment property, certain private equity investment and private placements.

	Fair value hierarchy
Investment property and financial assets - Total 2016	Level 1 £m	Level 2 £m	Level 3 £m	Sub-total fair value £m	Amortised cost £m	Less: Assets of operations classified as held for sale £m	Balance sheet total £m
Investment property	-	-	10,816	10,816	-	(48)	10,768
Loans	-	360	20,923	21,283	3,576	(75)	24,784
Debt securities	102,724	63,234	17,316	183,274	-	(7,738)	175,536
Equity securities	68,099	-	913	69,012	-	(664)	68,348
Other investments (including derivatives)	47,832	6,359	4,064	58,255	-	(2,304)	55,951
Assets of operations classified as held for sale	-	-	-	-	-	10,829	10,829
Total	218,655	69,953	54,032	342,640	3,576	-	346,216
Total %	63.2%	20.2%	15.6%	99.0%	1.0%	-	100.0%
Assets of operations classified as held for sale	9,408	366	980	10,754	75	-	10,829
Total (excluding assets held for sale)	209,247	69,587	53,052	331,886	3,501	-	335,387
Total % (excluding assets held for sale)	62.5%	20.7%	15.8%	99.0%	1.0%	-	100.0%
2015 Total	191,265	64,210	49,122	304,597	3,354	-	307,951
2015 Total %	62.1%	20.8%	16.0%	98.9%	1.1%	-	100.0%

At 31 December 2016, the proportion of total financial assets classified as Level 1 in the fair value hierarchy increased to 63.2% (2015: 62.1%). The proportion of Level 2 loans and financial assets was 20.2% (2015: 20.8%) and investment properties, loans and financial assets classified as Level 3 was 15.6% (2015: 16.0%).

Page 105

D3 - Analysis of asset quality

The analysis of assets that follows provides a breakdown of information about the assets held by the Group.

D3.1 - Investment property

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Investment property - Total	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Lease to third parties under operating leases	-	-	10,754	10,754	-	-	11,149	11,149
Vacant investment property/held for capital appreciation	-	-	62	62	-	-	152	152
Total	-	-	10,816	10,816	-	-	11,301	11,301
Total %	-	-	100.0%	100.0%	-	-	100.0%	100.0%
Assets of operations classified as held for sale	-	-	48	48	-	-	-	-
Total (excluding assets held for sale)	-	-	10,768	10,768	-	-	11,301	11,301
Total % (excluding assets held for sale)	-	-	100.0%	100.0%	-	-	100.0%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Investment property - Policyholder assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Lease to third parties under operating leases	-	-	6,612	6,612	-	-	6,574	6,574
Vacant investment property/held for capital appreciation	-	-	13	13	-	-	73	73
Total	-	-	6,625	6,625	-	-	6,647	6,647
Total %	-	-	100.0%	100.0%	-	-	100.0%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-	-	-	-
Total (excluding assets held for sale)	-	-	6,625	6,625	-	-	6,647	6,647
Total % (excluding assets held for sale)	-	-	100.0%	100.0%	-	-	100.0%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Investment property - Participating fund assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Lease to third parties under operating leases	-	-	3,616	3,616	-	-	4,048	4,048
Vacant investment property/held for capital appreciation	-	-	48	48	-	-	68	68
Total	-	-	3,664	3,664	-	-	4,116	4,116
Total %	-	-	100.0%	100.0%	-	-	100.0%	100.0%
Assets of operations classified as held for sale	-	-	48	48	-	-	-	-
Total (excluding assets held for sale)	-	-	3,616	3,616	-	-	4,116	4,116
Total % (excluding assets held for sale)	-	-	100.0%	100.0%	-	-	100.0%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Investment property - Shareholder assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Lease to third parties under operating leases	-	-	526	526	-	-	527	527
Vacant investment property/held for capital appreciation	-	-	1	1	-	-	11	11
Total	-	-	527	527	-	-	538	538
Total %	-	-	100.0%	100.0%	-	-	100.0%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-	-	-	-
Total (excluding assets held for sale)	-	-	527	527	-	-	538	538
Total % (excluding assets held for sale)	-	-	100.0%	100.0%	-	-	100.0%	100.0%

Within total investment properties by value 95.1% (2015: 95.2%) are held in policyholder or participating fund assets. Shareholder exposure to investment properties is principally through investments in UK and French commercial property.

Investment properties are stated at their market values as assessed by qualified external independent valuers. The investment properties are valued on an income basis that is based on current rental income plus anticipated uplifts at the next rent review, lease expiry, or break option taking in to consideration lease incentives and assuming no further growth in the estimated rental value of the property. This uplift and the discount rate are derived from rates implied by recent market transactions on similar property. These inputs are deemed unobservable.

Within total investment properties by value 99.4% (2015: 98.7%) are leased to third parties under operating leases, with the remainder either being vacant or held for capital appreciation.

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D3.2 - Loans

The Group loan portfolio is principally made up of:

· Policy loans which are generally collateralised by a lien or charge over the underlying policy;

· Loans and advances to banks, which primarily relate to loans of cash collateral received in stock lending transactions. These loans are fully collateralised by other securities;

· Mortgage loans collateralised by property assets;

· Healthcare, Infrastructure & Private Finance Initiative ('PFI') other loans; and

· Other loans, which include loans to brokers and intermediaries.

Loans with fixed maturities, including policy loans, mortgage loans (at amortised cost) and loans and advances to banks, are recognised when cash is advanced to borrowers. These loans are carried at their unpaid principal balances and adjusted for amortisation of premium or discount, non-refundable loan fees and related direct costs. These amounts are deferred and amortised over the life of the loan as an adjustment to loan yield using the effective interest rate method.

For certain mortgage loans, the Group has taken advantage of the fair value option under IAS 39 to present the mortgages, associated borrowings, other liabilities and derivative financial instruments at fair value, since they are managed together on a fair value basis. The mortgage loans are not traded in active markets. These investments are classified as level 3 as the assumptions used to derive the credit risk, liquidity premium and property risk are not deemed to be market observable.

Loans - Total 2016	United Kingdom & Ireland £m	Europe £m	Canada £m	Asia £m	Total £m
Policy loans	15	830	-	37	882
Loans and advances to banks	2,564	15	-	-	2,579
Healthcare, Infrastructure & PFI other loans	2,460	-	-	-	2,460
Mortgage loans	18,253	1	-	-	18,254
Other loans	506	8	170	-	684
Total	23,798	854	170	37	24,859
Total %	95.8%	3.4%	0.7%	0.1%	100.0%
Assets of operations classified as held for sale	-	75	-	-	75
Total (excluding assets held for sale)	23,798	779	170	37	24,784
Total % (excluding assets held for sale)	96.1%	3.1%	0.7%	0.1%	100.0%
2015 Total	21,507	760	135	31	22,433
2015 Total %	95.9%	3.4%	0.6%	0.1%	100.0%

Loans - Policyholders assets 2016	United Kingdom & Ireland £m	Europe £m	Canada £m	Asia £m	Total £m
Policy loans	-	-	-	8	8
Loans and advances to banks	1,019	-	-	-	1,019
Healthcare, Infrastructure & PFI other loans	-	-	-	-	-
Mortgage loans	-	-	-	-	-
Other loans	-	-	-	-	-
Total	1,019	-	-	8	1,027
Total %	99.2%	-	-	0.8%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-
Total (excluding assets held for sale)	1,019	-	-	8	1,027
Total % (excluding assets held for sale)	99.2%	-	-	0.8%	100.0%
2015 Total	76	-	-	7	83
2015 Total %	91.6%	-	-	8.4%	100.0%

Loans - Participating fund assets 2016	United Kingdom & Ireland £m	Europe £m	Canada £m	Asia £m	Total £m
Policy loans	11	824	-	27	862
Loans and advances to banks	982	2	-	-	984
Healthcare, Infrastructure & PFI other loans	-	-	-	-	-
Mortgage loans	120	1	-	-	121
Other loans	502	1	-	-	503
Total	1,615	828	-	27	2,470
Total %	65.4%	33.5%	-	1.1%	100.0%
Assets of operations classified as held for sale	-	75	-	-	75
Total (excluding assets held for sale)	1,615	753	-	27	2,395
Total % (excluding assets held for sale)	67.5%	31.4%	-	1.1%	100.0%
2015 Total	2,638	727	-	21	3,386
2015 Total %	77.9%	21.5%	-	0.6%	100.0%

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D3.2 - Loans continued

Loans - Shareholder assets 2016	United Kingdom & Ireland £m	Europe £m	Canada £m	Asia £m	Total £m
Policy loans	4	6	-	2	12
Loans and advances to banks	563	13	-	-	576
Healthcare, Infrastructure & PFI other loans	2,460	-	-	-	2,460
Mortgage loans	18,133	-	-	-	18,133
Other loans	4	7	170	-	181
Total	21,164	26	170	2	21,362
Total %	99.1%	0.1%	0.8%	0.0%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-
Total (excluding assets held for sale)	21,164	26	170	2	21,362
Total % (excluding assets held for sale)	99.1%	0.1%	0.8%	0.0%	100.0%
2015 Total	18,793	33	135	3	18,964
2015 Total %	99.1%	0.2%	0.7%	0.0%	100.0%

The value of the Group's loan portfolio (including Policyholder, Participating Fund and Shareholder assets) excluding assets held for sale at 31 December 2016 stood at £24.8 billion (2015: £22.4 billion), an increase of £2.4 billion.

The total shareholder exposure to loans was £21.4 billion (2015: £19.0 billion) and represented 86% of the total loan portfolio, with the remaining 14% mainly held in participating funds (£2.4 billion (2015: £3.4 billion)) with £1.0 billion (2015: £nil) in policyholder assets.

Of the Group's total loan portfolio excluding assets held for sale (including Policyholder, Participating Fund and Shareholder assets), 74% (2015: 77%) is invested in mortgage loans.

Primary Healthcare, Infrastructure and PFI other loans included within shareholder assets are £2.5 billion (2015: £1.2 billion) and are secured against the income from healthcare and educational premises.

Mortgage loans - Shareholder assets

2016	Total £m
Non-securitised mortgage loans
- Residential (Equity release)	730
- Commercial	6,651
- Healthcare, Infrastructure & PFI mortgage loans	3,336
	10,717
Securitised mortgage loans	7,416
Total	18,133
Assets of operations classified as held for sale	-
Total (excluding assets held for sale)	18,133
2015 Total	16,954

The Group's mortgage loan portfolio is mainly focused in the UK, across various sectors, including residential loans, commercial loans and government supported healthcare loans. Aviva's shareholder exposure to mortgage loans accounts for 85% of total shareholder asset loans. This section focuses on explaining the shareholder risk within these exposures.

United Kingdom & Ireland

(Non-securitised mortgage loans)

Residential

The UK non-securitised residential mortgage portfolio has a total value at the end of 2016 of £0.7 billion (2015: £4.8 billion). During 2016 £4.6 billion of loans were transferred from non-securitised residential loans to securitised residential mortgage loans as a UK subsidiary, Aviva Annuity UK Limited, securitised £4,614 million of equity release mortgages by transferring them to a wholly owned subsidiary, Aviva ERFA 15 UK Limited in exchange for £4,586 million of loan notes.

The remaining movement in the year is due to £0.5 billion of net new loans and accrued interest (net of redemptions). Fair value movements were less than £0.1 billion.

These mortgages are all in the form of equity release, whereby homeowners mortgage their property to release cash equity. Due to the structure of equity release mortgages, whereby interest amounts due are not paid in cash but instead rolled into the amount outstanding, they predominantly have a current Loan to Value ('LTV') of below 70%. The average LTV across the portfolio is 35.2% (2015: 26.8%). The change from prior year reflects the change in portfolio mix following the transfer, as outlined above.

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D3.2 - Loans continued

Commercial

Gross exposure by loan to value and arrears is shown in the table below.

Shareholder assets

2016	>120% £m	115-120% £m	110-115% £m	105-110% £m	100-105% £m	95-100% £m	90-95% £m	80-90% £m	70-80% £m	<70% £m	Total £m
Not in arrears	-	-	-	-	10	-	329	281	759	5,272	6,651
0 - 3 months	-	-	-	-	-	-	-	-	-	-	-
3 - 6 months	-	-	-	-	-	-	-	-	-	-	-
6 - 12 months	-	-	-	-	-	-	-	-	-	-	-
> 12 months	-	-	-	-	-	-	-	-	-	-	-
Total	-	-	-	-	10	-	329	281	759	5,272	6,651

Of the £6.7 billion (2015: £6.4 billion) of UK non-securitised commercial mortgage loans in the shareholder fund held by our UK Life business, £6.4 billion are used to back annuity liabilities and are stated on a fair value basis. The loan exposures for our UK Life business are calculated on a discounted cash flow basis, and include a risk adjustment through the use of Credit Risk Adjusted Value ('CRAV') methods.

For commercial mortgages loan service collection ratios, a key indicator of mortgage portfolio performance, improved to 1.89x (2015: 1.78x). Loan Interest Cover ('LIC'), which is defined as the annual net rental income (including rental deposits and less ground rent) divided by the annual loan interest service, also improved to 2.18x (2015: 2.05x). Average mortgage LTV decreased by 3pp compared to 2015 from 61% to 58% (CRAV). The value of loans in arrears included within our shareholder assets is £0.1 million (2015: £9 million).

Commercial mortgages and Healthcare, Infrastructure & PFI loans are held at fair value on the asset side of the statement of financial position. Insurance liabilities are valued using a discount rate derived from gross yield on assets, with adjustments to allow for risk. £10.9 billion of shareholder loan assets are backing annuity liabilities and comprise of commercial mortgage loans (£6.4 billion), Healthcare, Infrastructure and PFI mortgage loans (£3.3 billion) and Primary Healthcare, Infrastructure and PFI other loans (£1.2 billion). The Group carries a valuation allowance within the liabilities against the risk of default of commercial mortgages, including Healthcare and PFI mortgages, of £0.5 billion which equates to 50 bps at 31 December 2016 (2015: 59 bps). The total valuation allowance held by Aviva Annuity UK Limited in respect of corporate bonds and mortgages, including Healthcare and PFI mortgages is £1.3 billion (2015: £1.5 billion) over the remaining term of the UK Life corporate bond and mortgage portfolio. The valuation allowance for Friends Life Limited in respect of corporate bonds was £0.5 billion (2015: £0.7 billion).

The UK portfolio remains well diversified in terms of property type, location and tenants as well as the spread of loans written over time. The risks in commercial mortgages are addressed through several layers of protection with the mortgage risk profile being primarily driven by the ability of the underlying tenant rental income to cover loan interest and amortisation. Should any single tenant default on their rental payment, rental from other tenants backing the same loan often ensures the loan interest cover does not fall below 1.0x. Where there are multiple loans to a single borrower further protection may be achieved through cross-charging (or pooling) such that any single loan is also supported by rents received within other pool loans. Additionally, there may be support provided by the borrower of the loan itself and further loss mitigation from any general floating charge held over assets within the borrower companies.

If the LIC cover falls below 1.0x and the borrower defaults then Aviva still retains the option of selling the security or restructuring the loans and benefiting from the protection of the collateral. A combination of these benefits and the high recovery levels afforded by property collateral (compared to corporate debt or other uncollateralised credit exposures) results in the economic exposure being significantly lower than the gross exposure reported above. We will continue to actively manage this position.

Healthcare

Primary Healthcare, Infrastructure and PFI mortgage loans included within shareholder assets of £3.3 billion (2015: £3.3 billion) are secured against primary health care premises (including General Practitioner surgeries), education, social housing and emergency services related premises. For all such loans, Government support is provided through either direct funding or reimbursement of rental payments to the tenants to meet income service and provide for the debt to be reduced substantially over the term of the loan. Although the loan principal is not Government guaranteed, the nature of these businesses and premises provides considerable comfort of an ongoing business model and low risk of default.

On a market value basis, we estimate the average LTV of these mortgages to be 74% (2015: 75%), although as explained above, we do not consider this to be a key risk indicator. Income support from the Government bodies and the social need for these premises provide sustained income stability. Aviva therefore considers these loans to be lower risk relative to other mortgage loans.

Securitised mortgage loans

Securitised residential mortgages held are predominantly issued through vehicles in the UK.

As at 31 December 2016, the Group has £7.4 billion (2015: £2.5 billion) securitised mortgage loans of which £2.4 billion (2015: £2.5 billion) are externally securitised. Funding for the externally securitised residential mortgage assets was obtained by issuing loan note securities. Of these loan notes approximately £217 million (2015: £256 million) are held by Group companies. The remainder is held by third parties external to Aviva. As any cash shortfall arising once all mortgages have redeemed is borne by the loan note holders, the majority of the credit risk of these mortgages is borne by third parties.

As outlined above, during 2016 £4.6 billion of non-securitised residential loans were securitised internally through the issuance of loan notes. These mortgages are all in the form of equity release, whereby homeowners mortgage their property to release cash equity. Due to the structure of equity release mortgages, whereby interest amounts due are not paid in cash but instead rolled into the amount outstanding, they predominantly have a current Loan to Value ('LTV') of below 70%. The average LTV across the internally securitised mortgage loans is 23.4%.

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D3.3 - Financial investments

				2016				2015
Financial Investments - Total	Cost/ amortised cost £m	Unrealised gains £m	Impairment and unrealised losses £m	Fair value £m	Cost/ amortised cost £m	Unrealised gains £m	Impairment and unrealised losses £m	Fair value £m
Debt securities	168,075	16,408	(1,209)	183,274	155,247	10,864	(3,147)	162,964
Equity securities	57,268	13,214	(1,470)	69,012	60,124	7,663	(4,229)	63,558
Other investments	49,199	9,035	21	58,255	44,263	5,005	(1,573)	47,695
Total	274,542	38,657	(2,658)	310,541	259,634	23,532	(8,949)	274,217
Assets of operations classified as held for sale	9,872	865	(31)	10,706	-	-	-	-
Total (excluding assets held for sale)	264,670	37,792	(2,627)	299,835	259,634	23,532	(8,949)	274,217

Aviva holds large quantities of debt securities in the form of high quality bonds, primarily to match our liability to make guaranteed payments to policyholders. Some credit risk is taken, partly to increase returns to policyholders and partly to optimise the risk/return profile for shareholders. The risks are consistent with the products we offer and the related investment mandates, and are in line with our risk appetite.

The Group also holds equities, the majority of which are held in participating funds and policyholder funds, where they form an integral part of the investment expectations of policyholders and follow well-defined investment mandates. Some equities are also held in shareholder funds. The vast majority of equity investments are valued at quoted market prices and therefore classified as Level 1. Refer to D3.3.2 for further analysis of equities.

Other investments include investments such as unit trusts, derivative financial instruments and deposits with credit institutions. For further analysis, see D3.3.3.

D3.3.1 - Debt securities

	Fair value hierarchy
Debt securities - Total 2016	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
UK Government	28,151	2,441	160	30,752
Non-UK government	36,329	13,445	2,631	52,405
Europe	31,124	7,571	2,437	41,132
North America	1,193	3,562	194	4,949
Asia Pacific & Other	4,012	2,312	-	6,324
Corporate bonds - Public utilities	4,047	7,117	508	11,672
Corporate convertible bonds	180	-	-	180
Other Corporate bonds	29,037	34,221	11,751	75,009
Other	4,980	6,010	2,266	13,256
Total	102,724	63,234	17,316	183,274
Total %	56.1%	34.5%	9.4%	100.0%
Assets of operations classified as held for sale	6,622	247	869	7,738
Total (excluding assets held for sale)	96,102	62,987	16,447	175,536
Total % (excluding assets held for sale)	54.7%	35.9%	9.4%	100.0%
2015 Total	89,158	59,203	14,603	162,964
2015 Total %	54.7%	36.3%	9.0%	100.0%

	Fair value hierarchy
Debt securities - Policyholders assets 2016	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
UK Government	7,559	31	-	7,590
Non-UK government	4,217	947	2	5,166
Europe	1,319	585	1	1,905
North America	637	326	1	964
Asia Pacific & Other	2,261	36	-	2,297
Corporate bonds - Public utilities	75	728	3	806
Corporate convertible bonds	-	-	-	-
Other Corporate bonds	4,177	5,836	797	10,810
Other	1,493	1,182	1	2,676
Total	17,521	8,724	803	27,048
Total %	64.7%	32.3%	3.0%	100.0%
Assets of operations classified as held for sale	258	-	223	481
Total (excluding assets held for sale)	17,263	8,724	580	26,567
Total % (excluding assets held for sale)	65.0%	32.8%	2.2%	100.0%
2015 Total	14,931	8,460	631	24,022
2015 Total %	62.2%	35.2%	2.6%	100.0%

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D3.3.1 - Debt securities continued

	Fair value hierarchy
Debt securities - Participating fund assets 2016	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
UK Government	10,571	1,040	41	11,652
Non-UK government	28,877	5,131	1,858	35,866
Europe	26,665	3,223	1,858	31,746
North America	534	32	-	566
Asia Pacific & Other	1,678	1,876	-	3,554
Corporate bonds - Public utilities	3,787	1,346	13	5,146
Corporate convertible bonds	180	-	-	180
Other Corporate bonds	23,545	11,744	6,497	41,786
Other	3,201	2,809	1,871	7,881
Total	70,161	22,070	10,280	102,511
Total %	68.5%	21.5%	10.0%	100.0%
Assets of operations classified as held for sale	6,364	247	646	7,257
Total (excluding assets held for sale)	63,797	21,823	9,634	95,254
Total % (excluding assets held for sale)	67.0%	22.9%	10.1%	100.0%
2015 Total	61,357	20,784	8,865	91,006
2015 Total %	67.4%	22.8%	9.8%	100.0%

	Fair value hierarchy
Debt securities - Shareholder assets 2016	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
UK Government	10,021	1,370	119	11,510
Non-UK government	3,235	7,367	771	11,373
Europe	3,140	3,763	578	7,481
North America	22	3,204	193	3,419
Asia Pacific & Other	73	400	-	473
Corporate bonds - Public utilities	185	5,043	492	5,720
Corporate convertible bonds	-	-	-	-
Other Corporate bonds	1,315	16,641	4,457	22,413
Other	286	2,019	394	2,699
Total	15,042	32,440	6,233	53,715
Total %	28.0%	60.4%	11.6%	100.0%
Assets of operations classified as held for sale	-	-	-	-
Total (excluding assets held for sale)	15,042	32,440	6,233	53,715
Total % (excluding assets held for sale)	28.0%	60.4%	11.6%	100.0%
2015 Total	12,870	29,959	5,107	47,936
2015 Total %	26.8%	62.5%	10.7%	100.0%

Within the shareholder assets 28.0% (2015: 26.8%) of exposure to debt securities is based on quoted prices in an active market and are therefore classified as fair value level 1.

Within the shareholder assets 60.4% (2015: 62.5%) of exposure to debt securities is based on inputs other than quoted prices and are observable for the asset or liability, either directly or indirectly and are therefore classified as fair value level 2.

Within the shareholder assets 11.6% (2015: 10.7%) of exposure to debt securities is fair valued using models with significant unobservable market parameters (classified as fair value level 3). Where estimates are used, these are based on a combination of independent third party evidence and internally developed models, calibrated to market observable data where possible.

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D3.3.1 - Debt securities continued

	External ratings
Debt securities - Total 2016	AAA £m	AA £m	A £m	BBB £m	Less than BBB £m	Non-rated £m	Total £m
Government
UK Government	-	30,603	61	-	-	69	30,733
UK local authorities	-	-	-	-	-	19	19
Non-UK Government	10,769	21,206	5,442	13,011	927	1,050	52,405
	10,769	51,809	5,503	13,011	927	1,138	83,157
Corporate
Public utilities	3	367	4,847	5,726	337	392	11,672
Convertibles and bonds with warrants	-	-	-	180	-	-	180
Other corporate bonds	8,979	8,990	21,847	22,237	6,329	6,627	75,009
	8,982	9,357	26,694	28,143	6,666	7,019	86,861
Certificates of deposits	-	298	637	9	88	-	1,032
Structured
RMBS¹ non-agency ALT A	-	-	-	-	-	-	-
RMBS¹ non-agency prime	40	70	90	25	41	-	266
RMBS¹ agency	64	-	-	-	-	-	64
	104	70	90	25	41	-	330
CMBS²	382	153	108	77	-	2	722
ABS³	136	669	577	235	53	9	1,679
CDO (including CLO)⁴	416	-	-	-	-	-	416
ABCP⁵	-	-	-	2	-	-	2
	934	822	685	314	53	11	2,819
Wrapped credit	-	22	559	81	65	47	774
Other	57	91	664	2,739	2,983	1,767	8,301
Total	20,846	62,469	34,832	44,322	10,823	9,982	183,274
Total %	11.4%	34.1%	19.0%	24.2%	5.9%	5.4%	100.0%
Assets of operations classified as held for sale	1,101	2,505	1,550	1,710	369	503	7,738
Total (excluding assets held for sale)	19,745	59,964	33,282	42,612	10,454	9,479	175,536
Total % (excluding assets held for sale)	11.2%	34.2%	18.9%	24.3%	6.0%	5.4%	100.0%
2015 Total	20,198	60,916	32,197	34,650	6,509	8,494	162,964
2015 Total %	12.4%	37.4%	19.8%	21.2%	4.0%	5.2%	100.0%

1 RMBS - Residential Mortgage Backed Security

2 CMBS - Commercial Mortgage Backed Security

3 ABS - Asset Backed Security

4 CDO - Collateralised Debt Obligation, CLO - Collateralised Loan Obligation

5 ABCP - Asset Backed Commercial Paper

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	External ratings
Debt securities - Policyholders assets 2016	AAA £m	AA £m	A £m	BBB £m	Less than BBB £m	Non-rated £m	Total £m
Government
UK Government	-	7,590	-	-	-	-	7,590
UK local authorities	-	-	-	-	-	-	-
Non-UK Government	659	266	1,325	1,824	407	685	5,166
	659	7,856	1,325	1,824	407	685	12,756
Corporate
Public utilities	-	4	301	447	54	-	806
Convertibles and bonds with warrants	-	-	-	-	-	-	-
Other corporate bonds	250	668	2,325	2,992	2,821	1,754	10,810
	250	672	2,626	3,439	2,875	1,754	11,616
Certificates of deposits	-	298	637	-	41	-	976
Structured
RMBS¹ non-agency ALT A	-	-	-	-	-	-	-
RMBS¹ non-agency prime	-	1	13	1	7	-	22
RMBS¹ agency	-	-	-	-	-	-	-
	-	1	13	1	7	-	22
CMBS²	13	11	1	19	-	-	44
ABS³	12	21	41	43	-	-	117
CDO (including CLO)⁴	-	-	-	-	-	-	-
ABCP⁵	-	-	-	2	-	-	2
	25	32	42	64	-	-	163
Wrapped credit	-	-	15	7	-	-	22
Other	9	15	96	442	483	448	1,493
Total	943	8,874	4,754	5,777	3,813	2,887	27,048
Total %	3.5%	32.8%	17.6%	21.4%	14.0%	10.7%	100.0%
Assets of operations classified as held for sale	2	3	20	92	100	264	481
Total (excluding assets held for sale)	941	8,871	4,734	5,685	3,713	2,623	26,567
Total % (excluding assets held for sale)	3.5%	33.4%	17.8%	21.4%	14.0%	9.9%	100.0%
2015 Total	975	11,852	4,045	3,485	1,907	1,758	24,022
2015 Total %	4.1%	49.3%	16.8%	14.5%	8.0%	7.3%	100.0%

1 RMBS - Residential Mortgage Backed Security

2 CMBS - Commercial Mortgage Backed Security

3 ABS - Asset Backed Security

4 CDO - Collateralised Debt Obligation, CLO - Collateralised Loan Obligation

5 ABCP - Asset Backed Commercial Paper

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D3.3.1 - Debt securities continued

	External ratings
Debt securities - Participating fund assets 2016	AAA £m	AA £m	A £m	BBB £m	Less than BBB £m	Non-rated £m	Total £m
Government
UK Government	-	11,644	-	-	-	7	11,651
UK local authorities	-	-	-	-	-	1	1
Non-UK Government	5,466	16,786	2,828	9,917	517	352	35,866
	5,466	28,430	2,828	9,917	517	360	47,518
Corporate
Public utilities	3	156	1,481	3,170	253	83	5,146
Convertibles and bonds with warrants	-	-	-	180	-	-	180
Other corporate bonds	6,554	4,882	10,883	13,691	3,197	2,579	41,786
	6,557	5,038	12,364	17,041	3,450	2,662	47,112
Certificates of deposits	-	-	-	7	37	-	44
Structured
RMBS¹ non-agency ALT A	-	-	-	-	-	-	-
RMBS¹ non-agency prime	12	40	55	-	18	-	125
RMBS¹ agency	-	-	-	-	-	-	-
	12	40	55	-	18	-	125
CMBS²	106	31	52	57	-	1	247
ABS³	-	177	202	153	19	-	551
CDO (including CLO)⁴	409	-	-	-	-	-	409
ABCP⁵	-	-	-	-	-	-	-
	515	208	254	210	19	1	1,207
Wrapped credit	-	10	111	26	7	-	154
Other	46	73	478	2,179	2,382	1,193	6,351
Total	12,596	33,799	16,090	29,380	6,430	4,216	102,511
Total %	12.3%	33.0%	15.7%	28.6%	6.3%	4.1%	100.0%
Assets of operations classified as held for sale	1,099	2,502	1,530	1,618	269	239	7,257
Total (excluding assets held for sale)	11,497	31,297	14,560	27,762	6,161	3,977	95,254
Total % (excluding assets held for sale)	12.1%	32.8%	15.3%	29.1%	6.5%	4.2%	100.0%
2015 Total	12,453	32,793	15,007	22,818	3,911	4,024	91,006
2015 Total %	13.7%	36.0%	16.5%	25.1%	4.3%	4.4%	100.0%

1 RMBS - Residential Mortgage Backed Security

2 CMBS - Commercial Mortgage Backed Security

3 ABS - Asset Backed Security

4 CDO - Collateralised Debt Obligation, CLO - Collateralised Loan Obligation

5 ABCP - Asset Backed Commercial Paper

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D3.3 - Financial investments continued

D3.3.1 - Debt securities continued

	External ratings
Debt securities - Shareholder assets 2016	AAA £m	AA £m	A £m	BBB £m	Less than BBB £m	Non-rated £m	Total £m
Government
UK Government	-	11,369	61	-	-	62	11,492
UK local authorities	-	-	-	-	-	18	18
Non-UK Government	4,644	4,154	1,289	1,270	3	13	11,373
	4,644	15,523	1,350	1,270	3	93	22,883
Corporate
Public utilities	-	207	3,065	2,109	30	309	5,720
Convertibles and bonds with warrants	-	-	-	-	-	-	-
Other corporate bonds	2,175	3,440	8,639	5,554	311	2,294	22,413
	2,175	3,647	11,704	7,663	341	2,603	28,133
Certificates of deposits	-	-	-	2	10	-	12
Structured
RMBS¹ non-agency ALT A	-	-	-	-	-	-	-
RMBS¹ non-agency prime	28	29	22	24	16	-	119
RMBS¹ agency	64	-	-	-	-	-	64
	92	29	22	24	16	-	183
CMBS²	263	111	55	1	-	1	431
ABS³	124	471	334	39	34	9	1,011
CDO (including CLO)⁴	7	-	-	-	-	-	7
ABCP⁵	-	-	-	-	-	-	-
	394	582	389	40	34	10	1,449
Wrapped credit	-	12	433	48	58	47	598
Other	2	3	90	118	118	126	457
Total	7,307	19,796	13,988	9,165	580	2,879	53,715
Total %	13.6%	36.8%	26.0%	17.1%	1.1%	5.4%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-	-	-
Total (excluding assets held for sale)	7,307	19,796	13,988	9,165	580	2,879	53,715
Total % (excluding assets held for sale)	13.6%	36.8%	26.0%	17.1%	1.1%	5.4%	100.0%
2015 Total	6,770	16,271	13,145	8,347	691	2,712	47,936
2015 Total %	14.1%	34.0%	27.4%	17.4%	1.4%	5.7%	100.0%

1 RMBS - Residential Mortgage Backed Security

2 CMBS - Commercial Mortgage Backed Security

3 ABS - Asset Backed Security

4 CDO - Collateralised Debt Obligation, CLO - Collateralised Loan Obligation

5 ABCP - Asset Backed Commercial Paper

Within shareholder assets debt securities, 43% of exposure is in government holdings (2015: 39%). Our corporate debt securities portfolio represents 52% of total shareholder debt securities (2015: 55%). At 31 December 2016, the proportion of our shareholder debt securities that are investment grade increased to 93.5% (2015: 92.9%). The remaining 6.5% of shareholder debt securities that do not have an external rating of BBB or higher can be split as follows:

· 1.1% are debt securities that are rated as below investment grade;

· 5.4% are not rated by the major rating agencies.

The majority of non-rated corporate bonds are held by our businesses in the UK. Of the securities not rated by an external agency most are allocated an internal rating using a methodology largely consistent with that adopted by an external rating agency, and are considered to be of investment grade credit quality; these include £2.3 billion (2015: £2.5 billion) of debt securities held in our UK Life business, predominantly made up of private placements and other corporate bonds, which have been internally rated as investment grade.

The Group has limited shareholder exposure to CDOs, CLOs and 'Sub-prime' debt securities.

Out of the total asset backed securities (ABS), £948 million (2015: £1,023 million) are held by the UK Life business. The Group's shareholder holdings in ABS are investment grade of 95.7% (2015: 95.3%). ABS that either have a rating below BBB or are not rated represent approximately 0.1% of shareholder exposure to debt securities (2015: 0.1%)

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D3 - Analysis of asset quality continued

D3.3.2 - Equity securities

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Equity securities - Total assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Public utilities	4,328	-	-	4,328	3,364	-	3	3,367
Banks, trusts and insurance companies	15,203	-	190	15,393	13,893	-	133	14,026
Industrial miscellaneous and all other	48,263	-	723	48,986	45,164	-	800	45,964
Non-redeemable preferred shares	305	-	-	305	201	-	-	201
Total	68,099	-	913	69,012	62,622	-	936	63,558
Total %	98.7%	-	1.3%	100.0%	98.5%	-	1.5%	100.0%
Assets of operations classified as held for sale	664	-	-	664	-	-	-	-
Total (excluding assets held for sale)	67,435	-	913	68,348	62,622	-	936	63,558
Total % (excluding assets held for sale)	98.7%	-	1.3%	100.0%	98.5%	-	1.5%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Equity securities - Policyholder assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Public utilities	3,448	-	-	3,448	2,674	-	-	2,674
Banks, trusts and insurance companies	11,518	-	5	11,523	10,603	-	-	10,603
Industrial miscellaneous and all other	37,490	-	19	37,509	34,062	-	25	34,087
Non-redeemable preferred shares	91	-	-	91	30	-	-	30
Total	52,547	-	24	52,571	47,369	-	25	47,394
Total %	100.0%	-	-	100.0%	99.9%	-	0.1%	100.0%
Assets of operations classified as held for sale	8	-	-	8	-	-	-	-
Total (excluding assets held for sale)	52,539	-	24	52,563	47,369	-	25	47,394
Total % (excluding assets held for sale)	100.0%	-	-	100.0%	99.9%	-	0.1%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Equity securities - Participating fund assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Public utilities	874	-	-	874	685	-	3	688
Banks, trusts and insurance companies	3,560	-	104	3,664	3,173	-	97	3,270
Industrial miscellaneous and all other	10,536	-	689	11,225	10,899	-	763	11,662
Non-redeemable preferred shares	8	-	-	8	7	-	-	7
Total	14,978	-	793	15,771	14,764	-	863	15,627
Total %	95.0%	-	5.0%	100.0%	94.5%	-	5.5%	100.0%
Assets of operations classified as held for sale	656	-	-	656	-	-	-	-
Total (excluding assets held for sale)	14,322	-	793	15,115	14,764	-	863	15,627
Total % (excluding assets held for sale)	94.8%	-	5.2%	100.0%	94.5%	-	5.5%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Equity securities - Shareholder assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Public utilities	6	-	-	6	5	-	-	5
Banks, trusts and insurance companies	125	-	81	206	117	-	36	153
Industrial miscellaneous and all other	237	-	15	252	203	-	12	215
Non-redeemable preferred shares	206	-	-	206	164	-	-	164
Total	574	-	96	670	489	-	48	537
Total %	85.7%	-	14.3%	100.0%	91.1%	-	8.9%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-	-	-	-
Total (excluding assets held for sale)	574	-	96	670	489	-	48	537
Total % (excluding assets held for sale)	85.7%	-	14.3%	100.0%	91.1%	-	8.9%	100.0%

Within our total shareholder exposure to equity securities 85.7% is based on quoted prices in an active market and as such is classified as level 1 (2015: 91.1%).

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D3.3.3 - Other investments

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Other investments - Total	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Unit trusts and other investment vehicles	46,476	956	2,758	50,190	38,411	1,292	2,938	42,641
Derivative financial instruments	596	5,376	147	6,119	308	2,745	275	3,328
Deposits with credit institutions	325	-	-	325	460	-	-	460
Minority holdings in property management undertakings	-	27	1,159	1,186	-	20	940	960
Other	435	-	-	435	306	-	-	306
Total	47,832	6,359	4,064	58,255	39,485	4,057	4,153	47,695
Total %	82.1%	10.9%	7.0%	100.0%	82.8%	8.5%	8.7%	100.0%
Assets of operations classified as held for sale	2,122	119	63	2,304	-	-	-	-
Total (excluding assets held for sale)	45,710	6,240	4,001	55,951	39,485	4,057	4,153	47,695
Total % (excluding assets held for sale)	81.6%	11.2%	7.2%	100.0%	82.8%	8.5%	8.7%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Other investments - Policyholder assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Unit trusts and other investment vehicles	42,097	853	1,692	44,642	36,037	1,205	1,760	39,002
Derivative financial instruments	63	32	-	95	28	24	-	52
Deposits with credit institutions	294	-	-	294	327	-	-	327
Minority holdings in property management undertakings	-	-	172	172	-	-	114	114
Other	427	-	-	427	300	-	-	300
Total	42,881	885	1,864	45,630	36,692	1,229	1,874	39,795
Total %	94.0%	1.9%	4.1%	100.0%	92.2%	3.1%	4.7%	100.0%
Assets of operations classified as held for sale	1,876	85	39	2,000	-	-	-	-
Total (excluding assets held for sale)	41,005	800	1,825	43,630	36,692	1,229	1,874	39,795
Total % (excluding assets held for sale)	94.0%	1.8%	4.2%	100.0%	92.2%	3.1%	4.7%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Other investments - Participating fund assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Unit trusts and other investment vehicles	3,038	94	1,032	4,164	1,633	80	1,139	2,852
Derivative financial instruments	492	3,508	102	4,102	189	1,857	216	2,262
Deposits with credit institutions	28	-	-	28	28	-	-	28
Minority holdings in property management undertakings	-	-	825	825	-	-	597	597
Other	-	-	-	-	-	-	-	-
Total	3,558	3,602	1,959	9,119	1,850	1,937	1,952	5,739
Total %	39.0%	39.5%	21.5%	100.0%	32.2%	33.8%	34.0%	100.0%
Assets of operations classified as held for sale	246	34	24	304	-	-	-	-
Total (excluding assets held for sale)	3,312	3,568	1,935	8,815	1,850	1,937	1,952	5,739
Total % (excluding assets held for sale)	37.5%	40.5%	22.0%	100.0%	32.2%	33.8%	34.0%	100.0%

				2016				2015
	Fair value hierarchy				Fair value hierarchy
Other investments - Shareholders assets	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Unit trusts and other investment vehicles	1,341	9	34	1,384	741	7	39	787
Derivative financial instruments	41	1,836	45	1,922	91	864	59	1,014
Deposits with credit institutions	3	-	-	3	105	-	-	105
Minority holdings in property management undertakings	-	27	162	189	-	20	229	249
Other	8	-	-	8	6	-	-	6
Total	1,393	1,872	241	3,506	943	891	327	2,161
Total %	39.7%	53.4%	6.9%	100.0%	43.7%	41.2%	15.1%	100.0%
Assets of operations classified as held for sale	-	-	-	-	-	-	-	-
Total (excluding assets held for sale)	1,393	1,872	241	3,506	943	891	327	2,161
Total % (excluding assets held for sale)	39.7%	53.4%	6.9%	100.0%	43.7%	41.2%	15.1%	100.0%

The unit trusts and other investment vehicles invest in a variety of assets, which can include cash equivalents, debt, equity and property securities. Total shareholder other investments classified as level 2 increased during 2016 to 53.4% (2015: 41.2%), primarily due to increases in derivative financial instruments. Total shareholder other investments classified as level 3 have decreased during 2016 to 6.9% (2015: 15.1%), primarily due to disposals in minority holdings in property management undertakings.

In total 93.1% (2015: 84.9%) of total shareholder other investments are classified as level 1 or 2 in the fair value hierarchy.

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D3.3.4 - Available for sale investments - Impairments and duration and amount of unrealised losses

The impairment expense during 2016 relating to AFS debt securities and other investments was £nil (2015: £nil) and £nil (2015: £nil) respectively.

Total unrealised losses on AFS debt securities, equity securities and other investments at 31 December 2016 was £2 million (2015: £1 million), £nil (2015: £nil) and £nil (2015: £nil) respectively.

	0 - 6 months		7 - 12 months		more than 12 months		Total
2016	Fair value¹ £m	Gross unrealised £m	Fair value¹ £m	Gross unrealised £m	Fair value¹ £m	Gross unrealised £m	Fair value¹ £m	Gross unrealised £m
Less than 20% loss position:
Debt securities	-	-	6	-	73	(2)	79	(2)
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	-	-	6	-	73	(2)	79	(2)
20%-50% loss position:
Debt securities	-	-	-	-	-	-	-	-
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	-	-	-	-	-	-	-	-
Greater than 50% loss position:
Debt securities	-	-	-	-	-	-	-	-
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	-	-	-	-	-	-	-	-
Total
Debt securities	-	-	6	-	73	(2)	79	(2)
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	-	-	6	-	73	(2)	79	(2)
Assets of operations classified as held for sale	-	-	-	-	-	-	-	-
Total (excluding assets held for sale)	-	-	6	-	73	(2)	79	(2)

1 Only includes AFS securities that are in unrealised loss positions.

	0 - 6 months		7 - 12 months		more than 12 months		Total
2015	Fair value¹ £m	Gross unrealised £m	Fair value¹ £m	Gross unrealised £m	Fair value¹ £m	Gross unrealised £m	Fair value¹ £m	Gross unrealised £m
Less than 20% loss position:
Debt securities	5	-	8	-	34	(1)	47	(1)
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	5	-	8	-	34	(1)	47	(1)
20%-50% loss position:
Debt securities	-	-	-	-	-	-	-	-
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	-	-	-	-	-	-	-	-
Greater than 50% loss position:
Debt securities	-	-	-	-	-	-	-	-
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	-	-	-	-	-	-	-	-
Total
Debt securities	5	-	8	-	34	(1)	47	(1)
Equity securities	-	-	-	-	-	-	-	-
Other investments	-	-	-	-	-	-	-	-
	5	-	8	-	34	(1)	47	(1)
Assets of operations classified as held for sale	-	-	-	-	-	-	-	-
Total (excluding assets held for sale)	5	-	8	-	34	(1)	47	(1)

1 Only includes AFS securities that are in unrealised loss positions.

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D3.3 - Financial investments continued

D3.3.5 - Exposures to peripheral European countries

Included in our debt securities and other financial assets are exposures to peripheral European countries. All of these assets are valued on a mark-to-market basis under IAS 39, and therefore our statement of financial position and income statement already reflect any reduction in value between the date of purchase and the balance sheet date. The significant majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds.

Net of non-controlling interests, our direct shareholder and participating fund asset exposure to the government (and local authorities and agencies) of Italy is £5.8 billion (2015: £4.7 billion).

Direct sovereign exposures to Greece, Ireland, Portugal, Italy and Spain (net of non-controlling interests, excluding policyholder assets)

		Participating		Shareholder		Total
	2016 £bn	2015 £bn	2016 £bn	2015 £bn	2016 £bn	2015 £bn
Greece	-	-	-	-	-	-
Ireland	0.7	0.6	0.1	0.1	0.8	0.7
Portugal	0.1	0.1	-	-	0.1	0.1
Italy	5.4	4.4	0.4	0.3	5.8	4.7
Spain	1.0	0.8	0.4	0.4	1.4	1.2
Total Greece, Ireland, Portugal, Italy and Spain	7.2	5.9	0.9	0.8	8.1	6.7

Direct sovereign exposures to Greece, Ireland, Portugal, Italy and Spain (gross of non-controlling interests, excluding policyholder assets)

		Participating		Shareholder		Total
	2016 £bn	2015 £bn	2016 £bn	2015 £bn	2016 £bn	2015 £bn
Greece	-	-	-	-	-	-
Ireland	0.7	0.6	0.1	0.1	0.8	0.7
Portugal	0.1	0.1	-	-	0.1	0.1
Italy	7.5	6.1	0.5	0.5	8.0	6.6
Spain	1.4	1.1	0.7	0.6	2.1	1.7
Total Greece, Ireland, Portugal, Italy and Spain	9.7	7.9	1.3	1.2	11.0	9.1

D3.3.6 - Non-UK Government debt securities (gross of non-controlling interests)

		Policyholder		Participating		Shareholder		Total
Non-UK Government Debt Securities	2016 £m	2015 £m	2016 £m	2015 £m	2016 £m	2015 £m	2016 £m	2015 £m
Austria	11	14	715	697	138	140	864	851
Belgium	21	34	1,273	1,195	357	166	1,651	1,395
France	115	139	13,285	10,673	1,859	1,846	15,259	12,658
Germany	142	145	1,629	1,470	606	590	2,377	2,205
Greece	-	-	-	-	-	-	-	-
Ireland	3	12	662	595	130	100	795	707
Italy	223	319	7,500	6,090	556	442	8,279	6,851
Netherlands	47	31	976	1,156	329	302	1,352	1,489
Poland	807	559	769	689	384	399	1,960	1,647
Portugal	2	7	118	110	-	-	120	117
Spain	88	98	1,386	1,093	659	636	2,133	1,827
European Supranational debt	174	72	2,404	2,798	1,821	1,760	4,399	4,630
Other European countries	272	167	1,029	1,107	642	520	1,943	1,794
Europe	1,905	1,597	31,746	27,673	7,481	6,901	41,132	36,171
Canada	16	49	174	178	2,397	1,917	2,587	2,144
United States	948	323	392	100	1,022	409	2,362	832
North America	964	372	566	278	3,419	2,326	4,949	2,976
Singapore	2	16	904	762	330	264	1,236	1,042
Other	2,295	648	2,650	1,752	143	75	5,088	2,475
Asia Pacific and other	2,297	664	3,554	2,514	473	339	6,324	3,517
Total	5,166	2,633	35,866	30,465	11,373	9,566	52,405	42,664
Assets of operations classified as held for sale	-	-	2,325	-	-	-	2,325	-
Total (excluding assets held for sale)	5,166	2,633	33,541	30,465	11,373	9,566	50,080	42,664

At 31 December 2016, the Group's total government (non-UK) debt securities stood at £52.4 billion (2015: £42.7 billion). The significant majority of these holdings are within our participating funds where the risk to our shareholders is governed by the nature and extent of our participation within those funds.

Our direct shareholder asset exposure to government (non-UK) debt securities amounts to £11.4 billion (2015: £9.6 billion). The primary exposures, relative to total shareholder (non-UK) government debt exposure, are to Canadian (21%), French (16%), US (9%), Spanish (6%), German (5%) and Italian (5%) government debt securities.

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D3.3 - Financial investments continued

D3.3.6 - Non-UK Government debt securities (gross of non-controlling interests) continued

The participating funds exposure to (non-UK) government debt amounts to £35.9 billion (2015: £30.5 billion). The primary exposures, relative to total (non-UK) government debt exposures included within our participating funds, are to the (non-UK) government debt securities of France (37%), Italy (21%), Germany (5%), Belgium (4%), Spain (4%) and Netherlands (3%).

D3.3.7 - Exposure to worldwide bank debt securities

Direct shareholder and participating fund assets exposures to worldwide bank debt securities (net of non-controlling interests, excluding policyholder assets)

	Shareholder assets			Participating fund assets
2016	Total senior debt £bn	Total subordinated debt £bn	Total debt £bn	Total senior debt £bn	Total subordinated debt £bn	Total debt £bn
Australia	0.3	-	0.3	0.8	0.3	1.1
Denmark	-	-	-	1.3	-	1.3
France	0.5	0.1	0.6	3.2	0.7	3.9
Germany	0.1	-	0.1	0.4	0.3	0.7
Ireland	-	-	-	-	-	-
Italy	0.1	-	0.1	0.2	-	0.2
Netherlands	0.3	0.2	0.5	1.4	0.3	1.7
Spain	0.7	-	0.7	0.6	0.1	0.7
Sweden	0.2	-	0.2	0.4	0.2	0.6
Switzerland	-	-	-	1.7	-	1.7
United Kingdom	1.4	0.5	1.9	1.6	1.0	2.6
United States	1.1	0.2	1.3	1.8	0.1	1.9
Other	0.7	0.2	0.9	1.4	0.1	1.5
Total	5.4	1.2	6.6	14.8	3.1	17.9
Assets of operations classified as held for sale	-	-	-	0.9	0.2	1.1
Total (excluding assets held for sale)	5.4	1.2	6.6	13.9	2.9	16.8
2015 Total	4.9	1.0	5.9	12.9	2.8	15.7

Net of non-controlling interests, our direct shareholder assets exposure to worldwide bank debt securities is £6.6 billion (2015: £5.9 billion). The majority of our holding (82%) is in senior debt. The primary exposures are to UK (29%), US (20%) and Spanish (11%) banks.

Net of non-controlling interests, the participating fund exposures to worldwide bank debt securities, where the risk to our shareholders is governed by the nature and extent of our participation within those funds, is £17.9 billion (2015: £15.7 billion). The majority of the exposure (83%) is in senior debt. Participating funds are the most exposed to French (22%), UK (15%) and US (11%) banks.

Direct shareholder and participating fund assets exposures to worldwide bank debt securities (gross of non-controlling interests, excluding policyholder assets)

	Shareholder assets			Participating fund assets
2016	Total senior debt £bn	Total subordinated debt £bn	Total debt £bn	Total senior debt £bn	Total subordinated debt £bn	Total debt £bn
Australia	0.3	-	0.3	0.9	0.3	1.2
Denmark	-	-	-	1.3	-	1.3
France	0.5	0.1	0.6	3.8	0.8	4.6
Germany	0.1	-	0.1	0.5	0.3	0.8
Ireland	-	-	-	-	-	-
Italy	0.1	-	0.1	0.2	-	0.2
Netherlands	0.3	0.2	0.5	1.5	0.3	1.8
Spain	0.8	-	0.8	0.7	0.1	0.8
Sweden	0.2	-	0.2	0.4	0.3	0.7
Switzerland	-	-	-	1.7	-	1.7
United Kingdom	1.4	0.5	1.9	1.7	1.0	2.7
United States	1.1	0.2	1.3	2.0	0.1	2.1
Other	0.7	0.2	0.9	1.5	0.1	1.6
Total	5.5	1.2	6.7	16.2	3.3	19.5
Assets of operations classified as held for sale	-	-	-	1.7	0.5	2.2
Total (excluding assets held for sale)	5.5	1.2	6.7	14.5	2.8	17.3
2015 Total	5.0	1.0	6.0	14.2	2.9	17.1

Gross of non-controlling interests, our direct shareholder assets exposure to worldwide bank debt securities is £6.7 billion (2015: £6.0 billion). The majority of our holding (82%) is in senior debt. The primary exposures are to UK (28%), US (19%) and Spanish (12%) banks.

Gross of non-controlling interests, the participating fund exposures to worldwide bank debt securities, where the risk to our shareholders is governed by the nature and extent of our participation within those funds, is £19.5 billion (2015: £17.1 billion). The majority of the exposure (83%) is in senior debt. Participating funds are most exposed to French (24%), UK (14%) and US (11%) banks.

Page 120

D3 - Analysis of asset quality continued

D3.4 - Reinsurance assets

The Group assumes and cedes reinsurance in the normal course of business, with retention limits varying by line of business. Reinsurance assets primarily include balances due from both insurance and reinsurance companies for ceded insurance liabilities. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provisions or settled claims associated with the reinsured policies and in accordance with the relevant reinsurance contract.

If a reinsurance asset is impaired, the Group reduces the carrying amount accordingly and recognises that impairment loss in the income statement. A reinsurance asset is impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that the Group may not receive all amounts due to it under the terms of the contract, and the event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer.

For the table below, reinsurance asset credit ratings are stated in accordance with information from leading rating agencies.

					Ratings
Ratings 2016	AAA £m	AA £m	A £m	BBB £m	Less than BBB £m	Not rated £m	Total £m
Policyholders assets	-	17,531	751	-	-	243	18,525
Participating fund assets	-	650	10	4	-	-	664
Shareholder assets	-	6,427	928	10	-	200	7,565
Total	-	24,608	1,689	14	-	443	26,754
Total %	-	92.0%	6.3%	-	-	1.7%	100.0%
Assets of operations classified as held for sale	-	411	-	-	-	-	411
Total (excluding assets held for sale)	-	24,197	1,689	14	-	443	26,343
Total % (excluding assets held for sale)	-	91.9%	6.4%	-	-	1.7%	100.0%
2015 Total	28	18,432	1,675	-	-	783	20,918
2015 Total %	0.1%	88.2%	8.0%	-	-	3.7%	100.0%

D3.5 - Receivables and other financial assets

The credit quality of receivables and other financial assets is managed at the local business unit level. Where assets classed as 'past due and impaired' exceed local credit limits, and are also deemed at sufficiently high risk of default, an analysis of the asset is performed and a decision is made whether to seek sufficient collateral from the counterparty or to write down the value of the asset as impaired. At 2016, 99% (2015: 99%) of the receivables and other financial assets were neither past due nor impaired.

Credit terms vary from subsidiary to subsidiary, and from country to country, and are set locally within overall credit limits prescribed by the Group credit limit framework, and in line with the Group Credit Policy. The carrying value of receivables is reviewed at each reporting period. If the carrying value of a receivable or other financial asset is greater than the recoverable amount, the carrying value is reduced through a charge to the income statement in the period of impairment.

D3.6 - Cash and cash equivalents

Cash and cash equivalents consist of cash at banks and in hand, deposits held at call with banks, treasury bills and other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Such investments are normally those with less than three months maturity from the date of acquisition, and include certificates of deposit with maturities of less than three months at the date of issue.

Page 121

D4 - Pension fund assets

In addition to the assets recognised directly on the Group's statement of financial position outlined in the disclosures above, the Group is also exposed to the 'Scheme assets' that are shown net of the present value of scheme liabilities within the IAS 19 net pension surplus. Pension surpluses are included within other assets and pension deficits are recognised within provisions in the Group's consolidated statement of financial position. Refer to note B15 for details on the movements in the main schemes' surpluses and deficits.

Scheme assets are stated at their fair values. Total scheme assets are comprised in the UK, Ireland and Canada as follows:

				2016				2015
	UK £m	Ireland £m	Canada £m	Total £m	UK £m	Ireland £m	Canada £m	Total £m
Bonds
Fixed interest	7,085	249	151	7,485	5,542	216	133	5,891
Index-linked	11,469	157	-	11,626	5,758	114	-	5,872
Equities	71	-	-	71	70	-	-	70
Property	338	-	-	338	377	7	-	384
Pooled investment vehicles	3,433	200	96	3,729	2,904	143	96	3,143
Derivatives	86	1	-	87	96	-	-	96
Cash and other¹	(3,046)	3	34	(3,009)	1,244	4	3	1,251
Total fair value of scheme assets	19,436	610	281	20,327	15,991	484	232	16,707
Less: consolidation elimination for non-transferable Group insurance policy²	(633)	-	-	(633)	(546)	-	-	(546)
Total IAS 19 fair value of scheme assets	18,803	610	281	19,694	15,445	484	232	16,161

1 Cash and other assets comprise cash at bank, insurance policies, receivables, payables and repos. At 31 December 2016, repos of £4,666 million (2015: £nil) are included within cash and other assets.

2 The Friends Provident Pension Scheme (FPPS) assets are included in the UK balances. As at 31 December 2016, the FPPS's cash and other balances includes an insurance policy of £633 million (2015: £546 million) issued by a Group company that is not transferable under IAS 19 and is consequently eliminated from the Group's IAS 19 scheme assets.

Total scheme assets are analysed by those that have a quoted price in an active market and those that do not as follows:

			2016			2015
	Total Quoted £m	Total Unquoted £m	Total £m	Total Quoted £m	Total Unquoted £m	Total £m
Bonds
Fixed interest	3,697	3,788	7,485	2,796	3,095	5,891
Index-linked	11,141	485	11,626	5,436	436	5,872
Equities	71	-	71	70	-	70
Property	-	338	338	-	384	384
Pooled investment vehicles	189	3,540	3,729	291	2,852	3,143
Derivatives	70	17	87	6	90	96
Cash and other¹	714	(3,723)	(3,009)	532	719	1,251
Total fair value of scheme assets	15,882	4,445	20,327	9,131	7,576	16,707
Less: consolidation elimination for non-transferable Group insurance policy²	-	(633)	(633)	-	(546)	(546)
Total IAS 19 fair value of scheme assets	15,882	3,812	19,694	9,131	7,030	16,161

Risk management and asset allocation strategy

The long-term investment objectives of the trustees and the employers are to limit the risk of the assets failing to meet the liabilities of the schemes over the long term, and to maximise returns consistent with an acceptable level of risk so as to control the long-term costs of these schemes. To meet these objectives, the schemes' assets are invested in a portfolio consisting primarily (approximately 75%³) of debt securities. The investment strategy will continue to evolve over time and is expected to match the liability profile increasingly closely with swap overlays to improve interest rate and inflation matching. The schemes are generally matched to interest rate risk relative to the funding basis.

Main UK Scheme

The Company works closely with the trustee, who is required to consult it on the investment strategy.

Interest rate and inflation risk are managed using a combination of liability-matching assets and swaps. Exposure to equity risk has been reducing over time and credit risk is managed within appetite. Currency risk is relatively small and is largely hedged. The other principal risk is longevity risk. This risk has reduced due to the Aviva Staff Pension Scheme entering into a longevity swap in 2014 covering approximately £5 billion of pensioner in payment scheme liabilities.

Other schemes

The other schemes are considerably less material but their risks are managed in a similar way to those in the main UK scheme. During 2015, the RAC pension scheme entered into a longevity swap covering approximately £600 million of pensioner in payment scheme liabilities.

3 Excluding repos of £4,666 million

Page 122

D5 - Available funds

To ensure access to liquidity as and when needed, the Group maintains £1.7 billion of undrawn committed central borrowing facilities with a range of leading international banks, all of which have investment grade credit ratings. These facilities are used to support the Group's commercial paper programme. The expiry profile of the undrawn committed central borrowing facilities is as follows:

	2016 £m	2015 £m
Expiring within one year	-	575
Expiring beyond one year	1,650	1,075
Total	1,650	1,650

D6 - Guarantees

As a normal part of their operating activities, various Group companies have given guarantees and options, including investment return guarantees, in respect of certain long-term insurance and fund management products.

For the UK Life with-profits business, provisions in respect of these guarantees and options are calculated on a market consistent basis, in which stochastic models are used to evaluate the level of risk (and additional cost) under a number of economic scenarios, which allow for the impact of volatility in both interest rates and equity prices. For UK Life non-profit business, provisions do not materially differ from those determined on a market consistent basis.

In all other businesses, provisions for guarantees and options are calculated on a local basis with sensitivity analysis undertaken where appropriate to assess the impact on provisioning levels of a movement in interest rates and equity levels (typically a 1% decrease in interest rates and 10% decline in equity markets).

Page 123

VNB & Sales analysis

In this section		Page
E1	Sales, VNB and new business margin analysis	124
	by market (MCEV basis)
E2	Trend analysis of VNB - cumulative	125
E3	Trend analysis of VNB - discrete	125
E4	Trend analysis of PVNBP - cumulative	126
E5	Trend analysis of PVNBP - discrete	126
E6	Trend analysis of PVNBP by product -	127
	cumulative
E7	Trend analysis of PVNBP by product - discrete	127
E8	Geographical analysis of regular and single	128
	premiums
E9	Trend analysis of Investment sales -	128
	cumulative
E10	Trend analysis of Investment sales - discrete	128
E11	Trend analysis of general insurance and health	129
	net written premiums - cumulative
E12	Trend analysis of general insurance and health	129
	net written premiums - discrete
E13	Reconciliation of sales to net written	130
	Premiums in IFRS
E14	Principal Assumptions underlying the	131
	Calculation of VNB (on a MCEV basis)

Page 124

E1 - Sales, VNB and new business margin analysis by market (MCEV basis)

The table below sets out the present value of new business premiums (PVNBP) written by the life and related businesses, value generated by new business written during the period (VNB) and the resulting margin, gross of tax and non-controlling interests, on an MCEV basis. Following the introduction of the Solvency II regime on 1 January 2016, MCEV (which is calculated on the expired Solvency I basis) is no longer used as an indicator of the drivers of financial performance of the Group's in force Life and related businesses. However, PVNBP and VNB are still currently used alongside adjusted Solvency II VNB & PVNBP on a Solvency II basis to give insight to the relative volume and profitability of business written in the year compared to prior years. Adjusted Solvency II VNB is reported in note 4b of the overview section of this report and will be the new reported metric (along with PVNBP on a Solvency II basis) effective 1 January 2017. The MCEV VNB and MCEV PVNBP will be disclosed for the last time at 31 December 2016.

The VNB shown below is the present value of the projected stream of pre-tax distributable profit generated by the new business written during the period, including expected profit between the point the business is written and the valuation date on an MCEV basis. It reflects the additional value to shareholders created through the activity of writing new business including the impacts of interactions between in-force and new business. The VNB and PVNBP for 2016 include £3 million and £257 million respectively relating to the internal transfer of annuities from a with-profits fund to a non profit fund during the second half of 2016 in the UK. The methodology underlying the calculation of PVNBP and VNB (on an MCEV basis) remains unchanged from the prior year as set out in F1 of the Aviva 2015 MCEV report. The demographic assumptions have been updated to reflect the position as at 31 December 2016 and are materially the same as those used at 31 December 2015 as set out in F2 of the Aviva 2015 MCEV report. The economic assumptions have been updated to be those relevant at the point the business is written which has been implemented with the assumptions being taken as those appropriate to the start of each quarter. For contracts that are re-priced more frequently, weekly or monthly economic assumptions have been used. The principal economic assumptions are set out in E14.

	Present value of new business premiums¹		Value of new business²		New business margin
Gross of tax and non-controlling interests	2016 £m	2015 £m	2016 £m	2015 £m	2016 %	2015 %
United Kingdom³	18,092	16,236	671	609	3.7%	3.8%
Ireland	709	561	24	16	3.4%	2.9%
United Kingdom & Ireland	18,801	16,797	695	625	3.7%	3.7%
France	5,525	4,821	224	198	4.1%	4.1%
Poland	430	448	65	65	15.1%	14.5%
Italy	3,634	2,147	124	79	3.4%	3.7%
Spain	938	622	42	31	4.5%	5.0%
Turkey	448	460	25	27	5.6%	5.9%
Europe	10,975	8,498	480	400	4.4%	4.7%
Asia⁴	2,346	2,823	148	151	6.3%	5.3%
Aviva Investors	2,845	1,647	29	16	1.0%	1.0%
Total	34,967	29,765	1,352	1,192	3.9%	4.0%

1 A reconciliation to IFRS net written premiums can be found in note E13.

2 A reconciliation to adjusted Solvency II VNB can be found in note 4b of the Overview section.

3 United Kingdom includes Friends Life from 10 April 2015.

4 Asia includes FPI from 10 April 2015.

Page 125

E2 - Trend analysis of VNB - cumulative

									Growth¹ on 4Q15
Gross of tax and non-controlling interests	1Q15 YTD £m	2Q15 YTD £m	3Q15 YTD £m	4Q15 YTD £m	1Q16 YTD £m	2Q16 YTD £m	3Q16 YTD £m	4Q16 YTD £m	Sterling %	Constant currency %
United Kingdom^2,3	103	253	404	609	107	269	394	671	10%	10%
Ireland	3	7	11	16	5	11	19	24	49%	31%
United Kingdom & Ireland	106	260	415	625	112	280	413	695	11%	11%
France	56	98	144	198	59	103	145	224	13%	-
Poland⁴	15	30	46	65	15	27	44	65	(1)%	(9)%
Italy	19	39	57	79	26	71	96	124	58%	39%
Spain	6	13	20	31	6	16	27	42	33%	18%
Turkey	6	12	17	27	5	12	14	25	(7)%	(9)%
Europe	102	192	284	400	111	229	326	480	20%	7%
Asia⁴	36	76	115	151	31	61	100	148	(2)%	(11)%
Aviva Investors	3	6	9	16	5	13	18	29	77%	77%
Total	247	534	823	1,192	259	583	857	1,352	13%	8%

1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2 United Kingdom includes Friends Life from 10 April 2015.

3 Includes £3 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 4Q16.

4 Poland includes Lithuania. Asia includes FPI from 10 April 2015.

E3 - Trend analysis of VNB - discrete

									Growth¹ on 4Q15
Gross of tax and non-controlling interests	1Q15 Discrete £m	2Q15 Discrete £m	3Q15 Discrete £m	4Q15 Discrete £m	1Q16 Discrete £m	2Q16 Discrete £m	3Q16 Discrete £m	4Q16 Discrete £m	Sterling %	Constant currency %
United Kingdom^2,3	103	150	151	205	107	162	125	277	35%	35%
Ireland	3	4	4	5	5	6	8	5	(1)%	(14)%
United Kingdom & Ireland	106	154	155	210	112	168	133	282	34%	34%
France	56	42	46	54	59	44	42	79	46%	27%
Poland⁴	15	15	16	19	15	12	17	21	8%	(3)%
Italy	19	20	18	22	26	45	25	28	29%	12%
Spain	6	7	7	11	6	10	11	15	27%	11%
Turkey	6	6	5	10	5	7	2	11	15%	9%
Europe	102	90	92	116	111	118	97	154	32%	16%
Asia⁴	36	40	39	36	31	30	39	48	35%	21%
Aviva Investors	3	3	3	7	5	8	5	11	48%	48%
Total	247	287	289	369	259	324	274	495	34%	27%

1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2 United Kingdom includes Friends Life from 10 April 2015.

3 Includes £3 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 4Q16.

4 Poland includes Lithuania. Asia includes FPI from 10 April 2015

Page 126

E4 - Trend analysis of PVNBP - cumulative

									Growth² on 4Q15
Present value of new business premiums¹	1Q15 YTD £m	2Q15 YTD £m	3Q15 YTD £m	4Q15 YTD £m	1Q16 YTD £m	2Q16 YTD £m	3Q16 YTD £m	4Q16 YTD £m	Sterling %	Constant currency %
United Kingdom^3,4,5	2,445	7,071	11,696	16,236	4,136	8,214	12,219	18,092	11%	11%
Ireland	132	270	406	561	150	339	496	709	26%	12%
United Kingdom & Ireland	2,577	7,341	12,102	16,797	4,286	8,553	12,715	18,801	12%	11%
France	1,319	2,553	3,639	4,821	1,487	2,889	4,100	5,525	15%	1%
Poland⁶	110	218	319	448	100	197	299	430	(4)%	(12)%
Italy	603	1,116	1,518	2,147	752	2,025	2,699	3,634	69%	50%
Spain	224	363	455	622	124	300	586	938	51%	33%
Turkey	134	251	347	460	98	214	313	448	(3)%	(4)%
Europe	2,390	4,501	6,278	8,498	2,561	5,625	7,997	10,975	29%	15%
Asia⁶	623	1,449	2,218	2,823	497	986	1,537	2,346	(17)%	(24)%
Aviva Investors	366	761	1,165	1,647	485	1,388	2,094	2,845	73%	73%
Total	5,956	14,052	21,763	29,765	7,829	16,552	24,343	34,967	17%	12%

1 Present value of new business premiums (PVNBP) is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.

2 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3 United Kingdom includes Friends Life from 10 April 2015.

4 Includes c.£1 billion PVNBP (net of reinsurance) relating to a longevity insurance transaction completed in 3Q15.

5 Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 4Q16.

6 Poland includes Lithuania. Asia includes FPI from 10 April 2015.

E5 - Trend analysis of PVNBP - discrete

									Growth² on 4Q15
Present value of new business premiums¹	1Q15 Discrete £m	2Q15 Discrete £m	3Q15 Discrete £m	4Q15 Discrete £m	1Q16 Discrete £m	2Q16 Discrete £m	3Q16 Discrete £m	4Q16 Discrete £m	Sterling %	Constant currency %
United Kingdom^3,4,5	2,445	4,626	4,625	4,540	4,136	4,078	4,005	5,873	29%	29%
Ireland	132	138	136	155	150	189	157	213	37%	19%
United Kingdom & Ireland	2,577	4,764	4,761	4,695	4,286	4,267	4,162	6,086	30%	29%
France	1,319	1,234	1,086	1,182	1,487	1,402	1,211	1,425	21%	4%
Poland⁶	110	108	101	129	100	97	102	131	-	(10)%
Italy	603	513	402	629	752	1,273	674	935	49%	29%
Spain	224	139	92	167	124	176	286	352	111%	83%
Turkey	134	117	96	113	98	116	99	135	20%	11%
Europe	2,390	2,111	1,777	2,220	2,561	3,064	2,372	2,978	34%	17%
Asia⁶	623	826	769	605	497	489	551	809	34%	22%
Aviva Investors	366	395	404	482	485	903	706	751	56%	56%
Total	5,956	8,096	7,711	8,002	7,829	8,723	7,791	10,624	33%	26%

2 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3 United Kingdom includes Friends Life from 10 April 2015.

4 Includes c.£1 billion PVNBP (net of reinsurance) relating to a longevity insurance transaction completed in 3Q15.

5 Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 4Q16.

6 Poland includes Lithuania. Asia includes FPI from 10 April 2015.

Page 127

E6 - Trend analysis of PVNBP by product - cumulative

									Growth² on 4Q15
Present value of new business premiums¹	1Q15 YTD £m	2Q15 YTD £m	3Q15 YTD £m	4Q15 YTD £m	1Q16 YTD £m	2Q16 YTD £m	3Q16 YTD £m	4Q16 YTD £m	Sterling %	Constant currency %
Pensions	1,319	3,897	6,085	8,950	2,889	5,551	8,017	11,562	29%	29%
Annuities^3,4	136	777	2,205	2,945	224	570	934	2,074	(30)%	(30)%
Bonds	39	80	109	139	31	59	92	133	(4)%	(4)%
Protection	268	712	1,152	1,586	474	896	1,380	1,779	12%	12%
Equity release	206	458	584	699	111	247	420	637	(9)%	(9)%
Other	477	1,147	1,561	1,917	407	891	1,376	1,907	-	-
United Kingdom⁵	2,445	7,071	11,696	16,236	4,136	8,214	12,219	18,092	11%	11%
Ireland	132	270	406	561	150	339	496	709	26%	12%
United Kingdom & Ireland	2,577	7,341	12,102	16,797	4,286	8,553	12,715	18,801	12%	11%
Savings	1,224	2,389	3,423	4,535	1,384	2,698	3,845	5,116	13%	-
Protection	95	164	216	286	103	191	255	409	43%	26%
France	1,319	2,553	3,639	4,821	1,487	2,889	4,100	5,525	15%	1%
Pensions	192	356	493	700	156	320	475	752	7%	1%
Savings	754	1,330	1,767	2,443	792	2,139	3,001	4,082	67%	48%
Annuities	-	1	1	1	-	-	1	1	(21)%	(30)%
Protection	125	261	378	533	126	277	420	615	15%	5%
Poland⁶ , Italy, Spain and Turkey	1,071	1,948	2,639	3,677	1,074	2,736	3,897	5,450	48%	33%
Europe	2,390	4,501	6,278	8,498	2,561	5,625	7,997	10,975	29%	15%
Asia⁶	623	1,449	2,218	2,823	497	986	1,537	2,346	(17)%	(24)%
Aviva Investors	366	761	1,165	1,647	485	1,388	2,094	2,845	73%	73%
Total	5,956	14,052	21,763	29,765	7,829	16,552	24,343	34,967	17%	12%

2 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3 Includes c.£1 billion PVNBP (net of reinsurance) relating to a longevity insurance transaction completed in 3Q15.

4 Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 4Q16.

5 United Kingdom includes Friends Life from 10 April 2015.

6 Poland includes Lithuania, Asia includes FPI from 10 April 2015

E7 - Trend analysis of PVNBP by product - discrete

									Growth² on 4Q15
Present value of new business premiums¹	1Q15 Discrete £m	2Q15 Discrete £m	3Q15 Discrete £m	4Q15 Discrete £m	1Q16 Discrete £m	2Q16 Discrete £m	3Q16 Discrete £m	4Q16 Discrete £m	Sterling %	Constant currency %
Pensions	1,319	2,578	2,188	2,865	2,889	2,662	2,466	3,545	24%	24%
Annuities^3,4	136	641	1,428	740	224	346	364	1,140	54%	54%
Bonds	39	41	29	30	31	28	33	41	36%	36%
Protection	268	444	440	434	474	422	484	399	(8)%	(8)%
Equity release	206	252	126	115	111	136	173	217	89%	89%
Other	477	670	414	356	407	484	485	531	50%	50%
United Kingdom⁵	2,445	4,626	4,625	4,540	4,136	4,078	4,005	5,873	29%	29%
Ireland	132	138	136	155	150	189	157	213	37%	19%
United Kingdom & Ireland	2,577	4,764	4,761	4,695	4,286	4,267	4,162	6,086	30%	29%
Savings	1,224	1,165	1,034	1,112	1,384	1,314	1,147	1,271	14%	(1)%
Protection	95	69	52	70	103	88	64	154	123%	92%
France	1,319	1,234	1,086	1,182	1,487	1,402	1,211	1,425	21%	4%
Pensions	192	164	137	207	156	164	155	277	33%	19%
Savings	754	576	437	676	792	1,347	862	1,081	60%	39%
Annuities	-	1	-	-	-	-	1	-	-	-
Protection	125	136	117	155	126	151	143	195	25%	11%
Poland⁶ , Italy, Spain and Turkey	1,071	877	691	1,038	1,074	1,662	1,161	1,553	49%	31%
Europe	2,390	2,111	1,777	2,220	2,561	3,064	2,372	2,978	34%	17%
Asia⁶	623	826	769	605	497	489	551	809	34%	22%
Aviva Investors	366	395	404	482	485	903	706	751	56%	56%
Total	5,956	8,096	7,711	8,002	7,829	8,723	7,791	10,624	33%	26%

2 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3 Includes c.£1 billion PVNBP (net of reinsurance) relating to a longevity insurance transaction completed in 3Q15.

4 Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund in 4Q16.

5 United Kingdom includes Friends Life from 10 April 2015.

6 Poland includes Lithuania Asia includes FPI from 10 April 2015

Page 128

E8 - Geographical analysis of regular and single premiums

	Regular premiums								Single premiums
	2016 £m	Constant currency growth¹	WACF	Present value £m	2015 £m	WACF	Present value £m	2016 £m	2015 £m	Constant currency growth¹
United Kingdom²	1,679	16%	5.3	8,831	1,450	5.8	8,480	9,261	7,756	19%
Ireland	32	19%	6.3	202	24	6.3	152	507	409	10%
United Kingdom & Ireland	1,711	16%	5.3	9,033	1,474	5.9	8,632	9,768	8,165	19%
France	103	6%	8.7	901	86	8.5	729	4,624	4,092	-
Poland³	42	(6)%	8.0	334	41	8.0	328	96	120	(27)%
Italy	65	368%	3.0	194	12	7.8	93	3,440	2,054	48%
Spain	34	(3)%	7.0	238	32	6.0	192	700	430	44%
Turkey	98	(1)%	3.7	366	97	3.8	365	82	95	(15)%
Europe	342	18%	5.9	2,033	268	6.4	1,707	8,942	6,791	17%
Asia³	227	(31)%	7.5	1,707	300	6.9	2,060	639	763	(21)%
Aviva Investors	-	-	-	-	-	-	-	2,845	1,647	73%
Total	2,280	9%	5.6	12,773	2,042	6.1	12,399	22,194	17,366	21%

1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2 United Kingdom includes Friends Life from 10 April 2015.

3 Poland includes Lithuania. Asia includes FPI from 10 April 2015.

E9 - Trend analysis of Investment sales - cumulative

									Growth² on 4Q15
Investment sales¹	1Q15 YTD £m	2Q15 YTD £m	3Q15 YTD £m	4Q15 YTD £m	1Q16 YTD £m	2Q16 YTD £m	3Q16 YTD £m	4Q16 YTD £m	Sterling %	Constant currency %
United Kingdom & Ireland³	271	710	1,041	1,315	260	575	956	1,390	6%	6%
Aviva Investors⁴	1,073	2,102	3,475	4,993	1,384	3,587	4,119	5,765	15%	6%
Asia⁵	41	78	103	129	28	58	97	137	6%	(5)%
Total investment sales	1,385	2,890	4,619	6,437	1,672	4,220	5,172	7,292	13%	6%

1 Investment sales are calculated as new single premiums plus the annualised value of new regular premiums.

2 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3 UK & Ireland investment sales are also reported in UK Life PVNBP following the extension of MCEV covered business, YTD investment sales of £271 million for 1Q15, £710 million for 2Q15, £1,041 million for 3Q15, £1,315 million for 4Q15, £260 million for 1Q16, £575 million for 2Q16, £956 million for 3Q16 and £1,390 million for 4Q16 are equivalent to £295 million, £774 million, £1,110 million, £1,352 million, £284 million, £636 million, £1,019 million and £1,484 million on a PVNBP basis.

4 YTD investment sales of £362 million for 1Q15, £755 million for 2Q15, £1,156 million for 3Q15, £1,635 million for 4Q15, £480 million for 1Q16, £1,381 million for 2Q16, £2,085 million for 3Q16 and £2,834 million for 4Q16 are also included in Aviva Investors' PVNBP at the same level following the extension of MCEV covered business.

5 Asia investment sales are also reported in Asia PVNBP following an extension of MCEV covered business.

E10 - Trend analysis of Investment sales - discrete

									Growth² on 4Q15
Investment sales¹	1Q15 Discrete £m	2Q15 Discrete £m	3Q15 Discrete £m	4Q15 Discrete £m	1Q16 Discrete £m	2Q16 Discrete £m	3Q16 Discrete £m	4Q16 Discrete £m	Sterling %	Constant currency %
United Kingdom & Ireland³	271	439	331	274	260	315	381	434	58%	58%
Aviva Investors⁴	1,073	1,029	1,373	1,518	1,384	2,203	532	1,646	8%	(1)%
Asia⁵	41	37	25	26	28	30	39	40	55%	35%
Total investment sales	1,385	1,505	1,729	1,818	1,672	2,548	952	2,120	17%	7%

1 Investment sales are calculated as new single premiums plus the annualised value of new regular premiums.

2 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

3 UK & Ireland investment sales are also reported in UK Life PVNBP following the extension of MCEV covered business. Discrete investment sales of £271 million for 1Q15, £439 million for 2Q15, £331 million for 3Q15, £274 million for 4Q15, £260 million for 1Q16, £315 million for 2Q16, £381 million for 3Q16 and £434 million for 4Q16 are equivalent to £295 million, £479 million, £336 million and £242 million, £284 million, £352 million, £383 million and £464 million respectively on a PVNBP basis.

4 Discrete investment sales of £362 million for 1Q15, £393 million for 2Q15, £401 million for 3Q15, £479 million for 4Q15 £480 million for 1Q16, £901 million for 2Q16, £703 million for 3Q16 and £750 million for 4Q16 are also included in Aviva Investors' PVNBP at the same level following the extension of MCEV covered business.

5 Some of Asia investment sales are also reported in Asia PVNBP following an extension of MCEV covered business.

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E11 - Trend analysis of general insurance and health net written premiums - cumulative

									Growth¹ on 4Q15
	1Q15 YTD £m	2Q15 YTD £m	3Q15 YTD £m	4Q15 YTD £m	1Q16 YTD £m	2Q16 YTD £m	3Q16 YTD £m	4Q16 YTD £m	Sterling %	Constant currency %
General insurance
United Kingdom²	855	1,851	2,750	3,685	958	2,001	2,940	3,930	7%	7%
Ireland	63	134	210	282	83	179	280	378	34%	19%
United Kingdom & Ireland	918	1,985	2,960	3,967	1,041	2,180	3,220	4,308	9%	8%
Europe	399	674	910	1,200	437	757	1,058	1,438	20%	6%
Canada	409	1,013	1,519	1,992	417	1,049	1,766	2,453	23%	14%
Asia & Other	3	6	8	12	3	5	9	12	(3)%	(13)%
	1,729	3,678	5,397	7,171	1,898	3,991	6,053	8,211	15%	9%
Health insurance
United Kingdom³	158	315	423	529	151	292	402	514	(3)%	(3)%
Ireland	28	42	58	85	27	43	49	49	(42)%	(49)%
United Kingdom & Ireland	186	357	481	614	178	335	451	563	(8)%	(10)%
Europe	89	128	157	210	97	155	188	235	12%	(1)%
Asia⁴	33	55	75	95	37	64	92	125	32%	17%
	308	540	713	919	312	554	731	923	-	(5)%
Total	2,037	4,218	6,110	8,090	2,210	4,545	6,784	9,134	13%	7%

1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2 Excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

3 These premiums are also reported in UK Life PVNBP following the extension of MCEV covered business.1Q15 NWP of £158 million, 2Q15 YTD NWP of £315 million, 3Q15 YTD NWP of £423 million, 4Q15 YTD NWP of £529 million, 1Q16 YTD NWP of £151 million, 2Q16 YTD NWP of £292 million, 3Q16 YTD NWP of £402 million and 4Q16 YTD NWP of £514 million are equivalent to £181 million, £373 million, £451 million, £565 million, £123 million, £255 million, £357 million and £424 million on a PVNBP basis respectively.

4 Singapore long term health business is also reported in Asia PVNBP following the extension of MCEV covered business, 1Q15 NWP of £10 million and 2Q15 YTD NWP of £23 million, 3Q15 YTD NWP of £36 million and 4Q15 YTD NWP of £51 million, 1Q16 NWP of £14 million, 2Q16 YTD NWP of £30 million, 3Q16 YTD NWP of £46 million and 4Q16 YTD NWP of £67 million are equivalent to £48 million, £120 million, £184 million, £214 million, £48 million, £97 million, £133 million and £209 million on a PVNBP basis respectively.

E12 - Trend analysis of general insurance and health net written premiums - discrete

									Growth¹ on 4Q15
	1Q15 Discrete £m	2Q15 Discrete £m	3Q15 Discrete £m	4Q15 Discrete £m	1Q16 Discrete £m	2Q16 Discrete £m	3Q16 Discrete £m	4Q16 Discrete £m	Sterling %	Constant currency %
General insurance
United Kingdom²	855	996	899	935	958	1,043	939	990	6%	6%
Ireland	63	71	76	72	83	96	101	98	38%	20%
United Kingdom & Ireland	918	1,067	975	1,007	1,041	1,139	1,040	1,088	8%	7%
Europe	399	275	236	290	437	320	301	380	30%	13%
Canada	409	604	506	473	417	632	717	687	45%	30%
Asia & Other	3	3	2	4	3	2	4	3	(31)%	(37)%
	1,729	1,949	1,719	1,774	1,898	2,093	2,062	2,158	22%	14%
Health insurance
United Kingdom³	158	157	108	106	151	141	110	112	6%	6%
Ireland⁵	28	14	16	27	27	16	6	-	(100)%	(100)%
United Kingdom & Ireland	186	171	124	133	178	157	116	112	(15)%	(18)%
Europe	89	39	29	53	97	58	33	47	(12)%	(24)%
Asia⁴	33	22	20	20	37	27	28	33	62%	42%
	308	232	173	206	312	242	177	192	(7)%	(13)%
Total	2,037	2,181	1,892	1,980	2,210	2,335	2,239	2,350	19%	11%

1 Currency movements are calculated using unrounded numbers so minor rounding differences may exist.

2 Excludes the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL).

3 These premiums are also reported in UK Life PVNBP following the extension of MCEV covered business. 1Q15 NWP of £158 million, 2Q15 NWP of £157 million, 3Q15 NWP of £108 million, 4Q15 NWP of £106 million, 1Q16 NWP of £151 million, 2Q16 NWP of £141 million, 3Q16 NWP of £110 million and 4Q16 NWP of £112 million, are equivalent to £182 million, £191 million, £78 million, £114 million, £123 million, £132 million, £123 million and £132 million on a PVNBP basis respectively.

4 Singapore long term health business is also reported in Asia PVNBP following the extension of MCEV covered business. For Singapore long term health business, 1Q15 NWP of £10 million and 2Q15 NWP of £13 million, 3Q15 NWP of £13 million and 4Q15 NWP of £15 million, 1Q16 NWP of £14 million, 2Q16 NWP of £15 million, 3Q16 NWP of £16 million and 4Q16 NWP of £21 million are equivalent to £48 million, £72 million, £64 million,£30 million, £48 million, £49 million, £36 million and £76 million on a PVNBP basis respectively.

5 The sale of the Ireland Health business was completed in 3Q16.

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E13 - Reconciliation of sales to net written premiums in IFRS

The table below presents our consolidated sales for the year ended 31 December 2016 and the year ended 31 December 2015 as well as the reconciliation of sales to net written premiums in IFRS.

	2016 £m	2015 £m
Present value of new business premiums¹	34,967	29,765
Investment sales	7,292	6,437
General insurance and health net written premiums	9,134	8,090
Less: long-term health and collectives business²	(4,944)	(3,660)
Total sales	46,449	40,632
Less: Effect of capitalisation factor on regular premium long-term business	(10,493)	(10,357)
Share of long-term new business sales from JVs and associates	(552)	(427)
Annualisation impact of regular premium long-term business³	(264)	(251)
Deposits taken on non-participating investment contracts and equity release contracts	(7,834)	(6,560)
Retail sales of mutual fund type products (investment sales)	(7,292)	(6,437)
Add: IFRS gross written premiums from existing long-term business³	4,867	4,676
Less: long-term insurance and savings business premiums ceded to reinsurers	(1,696)	(1,529)
Less: Outward reinsurance premium relating to general insurance business⁴	(107)	(712)
Total IFRS net written premiums	23,078	19,035
Analysed as:
Long-term insurance and savings net written premiums	14,051	11,658
General insurance and health net written premiums	9,027	7,377
	23,078	19,035

1 Includes £257 million relating to the internal transfer of annuities from a with-profits fund to a non profit fund during the second half of 2016.

2 Long-term health and collectives business are included as part of PVNBP following the extension of MCEV covered business.

3 £200 million has been reclassified from 'Annualisation impact of regular premium long-term business' to 'IFRS gross written premiums from existing long-term business' in UK Life for 2015.

4 Outwards reinsurance premium ceded represents £107 million (2015: £712 million) relating to an outwards reinsurance contract completed by the UK General Insurance business.

Effect of capitalisation factor on regular premium long-term business

PVNBP is derived from the single and regular premiums of the products sold during the financial period and is expressed at the point of sale. The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts. The discounted value of regular premiums is calculated using the same market consistent embedded value methodology as for VNB (on a MCEV basis).

The discounted value reflects the expected income streams over the life of the contract, adjusted for expected levels of persistency, discounted back to present value. The discounted value can also be expressed as annualised regular premiums multiplied by a weighted average capitalisation factor (WACF). The WACF varies over time depending on the mix of new products sold, the average outstanding term of the new contracts and the projection assumptions.

Share of long-term new business sales from joint ventures and associates

Total long-term new business sales include our share of sales from joint ventures and associates. Under IFRS reporting, premiums from these sales are excluded from our consolidated accounts, with only our share of profits or losses from such businesses being brought into the income statement separately.

Annualisation impact of regular premium long-term business

As noted above, the calculation of PVNBP includes annualised regular premiums. The impact of this annualisation is removed in order to reconcile the non-GAAP new business sales to IFRS premiums and will vary depending on the volume of regular premium sales during the year.

Deposits taken on non-participating investment contracts and equity release contracts

Under IFRS, non-participating investment contracts are recognised in the Statement of Financial Position by recording the cash received as a deposit and an associated liability and are not recorded as premiums received in the IFRS income statement. Only the margin earned is recognised in the IFRS income statement.

Retail sales of mutual fund type products (investment sales)

Investment sales included in the total sales number represent the cash inflows received from customers to invest in mutual fund type products such as unit trusts and OEICs. We earn fees on the investment and management of these funds which are recorded separately in the IFRS income statement as 'fees and commissions received' and are not included in statutory premiums.

IFRS gross written premiums from existing long-term business

The non-GAAP measure of long-term and savings sales focuses on new business written in the year under review while the IFRS income statement includes premiums received from all business, both new and existing.

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E14 - Principal Assumptions underlying the calculation of VNB (on a MCEV basis)

(a) Reference rates

Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at the end of each reporting period.

In setting the risk-free rate we have, wherever possible, used the mid-price swap yield curve for an AA-rated bank. For some businesses, where the impact is immaterial, a flat yield curve has been assumed. For most businesses, the curve is extrapolated beyond the last available market data point to an ultimate forward rate using the Nelson-Siegel functional form if necessary. For markets in which there is no reliable swap yield curve, the risk-free rate is based on relevant government bond yields with adjustments made to reflect the local market environment where necessary. For certain business, swap rates are adjusted for a 'liquidity premium' in deriving the risk-free rates, and these adjustments are shown below the reference rate table.

The principal economic assumptions used are as follows:

United Kingdom	4Q 2016	3Q 2016	2Q 2016	1Q 2016	4Q 2015	3Q 2015	2Q 2015	1Q 2015
Reference rate
1 year	0.5%	0.5%	0.6%	0.7%	0.7%	0.7%	0.6%	0.6%
5 years	0.9%	0.5%	1.0%	1.6%	1.4%	1.7%	1.4%	1.5%
10 years	1.3%	0.8%	1.4%	2.0%	1.9%	2.2%	1.7%	1.9%
15 years	1.4%	1.0%	1.7%	2.2%	2.0%	2.4%	1.9%	2.1%
20 years	1.5%	1.0%	1.7%	2.3%	2.1%	2.4%	2.0%	2.2%

Eurozone	4Q 2016	3Q 2016	2Q 2016	1Q 2016	4Q 2015	3Q 2015	2Q 2015	1Q 2015
Reference rate
1 year	0.1%	0.1%	0.1%	0.1%	0.1%	0.1%	0.1%	0.2%
5 years	0.1%	0.1%	0.1%	0.3%	0.4%	0.5%	0.2%	0.4%
10 years	0.3%	0.4%	0.5%	1.0%	1.0%	1.2%	0.6%	0.8%
15 years	0.6%	0.8%	0.9%	1.5%	1.4%	1.6%	0.7%	1.2%
20 years	0.7%	0.9%	1.0%	1.6%	1.5%	1.7%	0.8%	1.4%

(b) Liquidity premiums

The following liquidity premium adjustments are made to the swap rate for certain contracts. The risk-free rate is taken as the swap yield curve for the currency of the liability, adjusted by adding the following to each swap rate:

	4Q 2016	3Q 2016	2Q 2016	1Q 2016	4Q 2015	3Q 2015	2Q 2015	1Q 2015
UK immediate annuites¹	1.42%	1.42%	1.51%	1.51%	1.41%	1.40%	1.59%	1.59%
France immediate annuities	0.20%	0.31%	0.36%	0.38%	0.45%	0.28%	0.16%	0.19%
France participating business	0.15%	0.23%	0.27%	0.29%	0.34%	0.21%	0.12%	0.15%
Italy participating business	0.15%	0.23%	0.27%	0.29%	0.34%	0.21%	0.12%	0.15%

1 Immediate annuities have also been sold in Friends Life as well as the UK annuity business (UKA). At Q416, the liquidity premium for Friends Life policies is 63 bps for new business.

In assessing the liquidity premium, an optimised notional portfolio is assumed which can include the actual assets backing the liabilities and the matching that exists between them.

For assets valued on a mark to model basis (notably UK commercial mortgages and equity release assets) the liquidity premium continues to be estimated consistently with the underlying valuation model. For all other assets, the formula structure proposed by the CFO / CRO Forum and adopted in the Solvency II Fifth Quantitative Impact Study (QIS 5) is adopted. The formula for the liquidity premium is:

United Kingdom/Europe: 50% of (iBoxx Corporate bond spread - 40 bps)

For immediate and bulk purchase annuities, 100% of the full liquidity premium is applied, while 75% liquidity premium is applied to participating business and deferred annuities. No liquidity premium is applied to any other products.

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Other information

In this section	Page
Glossary	134
Shareholder services	139

Page 134

Product definitions

Annuity

A type of policy that pays out regular amounts, either immediately and for the remainder of a person's lifetime, or deferred to commence from a future date. Immediate annuities may be purchased for an individual and his or her dependants or on a bulk purchase basis for groups of people. Deferred annuities are accumulation contracts, which may be used to provide benefits in retirement and may be funded by a policyholder by payment of a series of contributions or by a capital sum. Annuities may be guaranteed, unit-linked or index-linked.

Bonds and savings

These are accumulation products with single or regular premiums and unit-linked or guaranteed investment returns.

Collective investment scheme (SICAVs)

This is an open-ended investment fund, structured as a legally independent joint stock company, whose units are issued in the form of shares.

Critical illness cover

Pays out a lump sum if the insured person is diagnosed with a serious illness that is specified within the insurance policy.

Equity Release

Equity release mortgages allow a homeowner to receive a lump sum in return for a mortgage secured on their house. No interest is payable on the loan; instead, interest is rolled-up on the loan and the loan and accrued interest are repayable at redemption (upon death or moving into long-term care).

General insurance

Also known as non-life or property and casualty insurance. Property insurance covers loss or damage through fire, theft, flood, storms and other specified risks. Casualty insurance primarily covers losses arising from accidents that cause injury to other people or damage to the property of others.

Group pension

A pension plan that covers a group of people, which is typically purchased by a company and offered to their employees.

Health insurance

Provides cover against loss from illness or bodily injury. It can pay for medicine, visits to the doctor, hospital stays, other medical expenses and loss of earnings, depending on the conditions covered and the benefits and choices of treatment available on the policy.

Income drawdown

The policyholder can transfer money from any pension fund to an income drawdown plan from which they receive an income. The remainder of the pension fund continues to be invested, giving it the potential for growth.

Individual savings account (ISAs)

Tax-efficient plans within the UK for investing in stocks and shares, cash deposits or life insurance investment funds, subject to certain limits.

Investment sales

Comprise retail sales of mutual fund-type products such as unit trusts, individual savings accounts (ISAs) and open ended investment companies (OEICs).

Mortgage endowment

An insurance contract combining savings and protection elements which is designed to repay the principal of a loan or mortgage.

Mortgage life insurance

A protection contract designed to pay off the outstanding amount of a mortgage or loan in the event of the death of the insured.

Open ended investment company (OEIC)

A collective investment fund structured as a limited company in which investors can buy and sell shares.

Pension

A means of providing income in retirement for an individual and possibly his/her dependants.

Personal pension

A pension plan tailored to the individual policyholder, which includes the options to stop, start or change their payments.

Protection

An insurance contract that protects the policyholder or his/her dependants against financial loss on death or ill-health.

Regular premium

A series of payments are made by the policyholder, typically monthly or annually, for part of or all of the duration of the contract.

Single premium

A single lump sum is paid by the policyholder at the start of the contract.

Stakeholder pensions

Low cost and flexible pension plans available in the UK, governed by specific regulations.

Term assurance

A simple form of life insurance, offering cover over a fixed number of years during which a lump sum will be paid out if the life insured dies within the specified time period.

Unit trusts

A form of open ended collective investment constituted under a trust deed, in which investors can buy and sell units.

Whole life

A protection policy that remains in force for the insured's whole life with a lump sum paid out on death. Traditional whole life contracts have fixed premium payments that typically cannot be missed without lapsing the policy. Flexible whole life contracts allow the policyholder to vary the premium and/or amount of life cover, within certain limits.

General terms

Alternative performance measures

Alternative performance measures ('APMs') are non-GAAP measures used by the Aviva Group within its financial publications to supplement disclosures prepared in accordance with other regulations such as International Financial Reporting Standards (IFRS) and Solvency II. We believe that these measures provide useful information to enhance the understanding of financial performance. The APMs should be

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viewed as complementary to, rather than a substitute for, the figures determined according to other regulatory measures.

The Group's APMs are highlighted below using the following symbol '‡'.

Acquired value of in force (AVIF)

The present value of future profits on a portfolio of long-term insurance and investment contracts, acquired either directly or through the purchase of, or investment in, a business.

Adjusted Solvency II value of new business‡

Adjusted Solvency II VNB is the increase in Solvency II Own Funds resulting from business written in the period, adjusted to remove the impact of contract boundaries, to include look through profits in service companies (where not included in Solvency II) and to include business that has previously been included in MCEV VNB but which is not included in the Solvency II valuation. There is no explicit adjustment to include the cost associated with holding the Solvency II capital requirement as the Solvency II risk margin is viewed to be sufficient.

From 2017 onwards, adjusted Solvency II VNB will replace MCEV VNB as a key performance indicator.

The methodology underlying the calculation of adjusted Solvency II VNB uses Solvency II rules with adjustments to reflect a more realistic basis than the prudential Solvency II basis.

Adjusted Solvency II VNB can be reconciled to MCEV VNB and to the Solvency II Own Funds impact of new business; however there is no equivalent IFRS metric.

Annual premium equivalent (APE)

Used as a measure of life sales. It is calculated as the sum of new regular premiums plus 10% of new single premiums written in the period.

Association of British Insurers (ABI)

A major trade association for UK insurance companies, established in July 1985.

Available for sale (AFS)

Securities that have been acquired neither for short-term sale nor to be held to maturity and are not classified as other than trading. These are shown at fair value on the statement of financial position and changes in value are taken straight to equity instead of the income statement.

Bancassurance/Affinity

An arrangement whereby banks and building societies sell insurance and investment products to their customers on behalf of other financial providers.

Best Estimate Liabilities (BEL)

The expected present value of future cash flows for a company's current insurance obligations, calculated using best estimate assumptions, projected over the contract's run-off period, taking into account all up-to-date financial market and actuarial information.

Cash remittances‡

Amounts paid by our operating businesses to the Group, comprising dividends and interest on internal loans. These amounts eliminate on consolidation and are hence not directly reconcilable to the Group's IFRS consolidated statement of cash flows.

Combined operating ratio (COR)‡

A financial measurement of general insurance underwriting profitability calculated as incurred claims expressed as a percentage of net earned premiums, plus written commissions and written expenses expressed as a percentage of net written premiums. A COR below 100% indicates profitable underwriting.

The components used to calculate COR for the Group are detailed in note 7.ii - General insurance and health.

Contract boundaries

A contract boundary is the first point in time in the lifetime of an insurance policy at which the insurer has the ability to review the premiums charged at the individual policy level, without any contractual constraints. For policies in which such a point does not exist, the contract boundary is the same as the full term of the contract. Under Solvency II, if a contract boundary on an insurance contract is less than the full term of the contract the expected future premiums and obligations that relate to cover which may be provided after that date are not recognised in the measurement of the insurance liabilities.

Cost of non-hedgeable risks (CNHR)

This is the cost of undertaking those risks for which a deep and liquid market in which to hedge that risk does not exist. This can include both financial risks and non-financial risks such as mortality, persistency and expense. The cost of non-hedgeable risks reduces the MCEV value of new business.

Covered business

The contracts to which the MCEV basis has been applied.

Deferred acquisition costs (DAC)

The costs directly attributable to the acquisition of new business for insurance and investment contracts may be deferred to the extent that they are expected to be recoverable out of future margins in revenue on these contracts.

Excess centre cash flow‡

A measure of excess cash flow, calculated by deducting central operating expenses and debt financing costs from cash remittances by business units. It is a measure of the cash available to pay dividends, reduce debt, pay exceptional charges or invest back into our business. The cash remittances from business units eliminate on consolidation and hence the excess centre cash flow is not directly reconcilable to the Group's IFRS consolidated statement of cash flows.

Fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price).

Financial Conduct Authority (FCA)

The FCA is an independent public body and is independent of the Bank of England. It is responsible for the conduct business regulation of financial services firms (including those firms subject to prudential regulation by the PRA) and the prudential regulation of firms not regulated by the PRA. The FCA has three statutory objectives: securing an appropriate degree of protection for consumers, protecting and enhancing the integrity of the UK financial system and promoting effective competition in the interests of consumers.

Frictional costs

The additional taxation and investment costs incurred by shareholders through investing required capital in the Company

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rather than directly. Frictional costs reduce the MCEV value of new business.

Gross written premiums

The total earnings or revenue generated by sales of insurance products, before any reinsurance is taken into account. Not all premiums written will necessarily be treated as income in the current financial year, because some of them could relate to insurance cover for a subsequent period.

Independent Financial Advisers (IFAs)

A person or organisation authorised to give independent advice on financial matters. IFAs are authorised by the FCA in the UK.

Inherited estate

In the UK, the assets of the long-term with-profits funds less the realistic reserves for non-profit policies written within the with-profits funds, less asset shares aggregated across the with-profits policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees.

International financial reporting standards (IFRS)

These are international accounting regulations that all publicly listed companies in the European Union are required to use.

Latent claims

General insurance claims that are often not made until many years after the period of cover provided, due to the impact of perils or causes not becoming evident for a number of years. Sources of latent claims include asbestos-related diseases, environmental pollution and industrial deafness.

Life business

Businesses selling life and pensions contracts that are classified as covered business within MCEV VNB.

Liquidity premium

An addition to the risk-free rate used when projecting investment returns and discounting cash flows on certain types of contracts where the liabilities are illiquid and have cash flows that are predictable.

Longevity risk

Risk associated with increasing life expectancy trends among policyholders and pensioners.

Long-term and savings business

Collective term for life insurance, pensions, savings, investments and related business.

Market consistent embedded value (MCEV)

A measure of the value of a life business to its shareholders. It is the sum of shareholders net assets and today's value of the future profits that are expected to emerge from business already written, where the assumptions used to calculate future profits are consistent with current market prices for traded assets.

MCEV value of new business (VNB)‡

VNB is the present value of future profits from new business written at the point of sale and any changes to existing contracts which were not anticipated at the outset of the contract that generate additional shareholder risk and associated premium income, of the nature of a new policy. An example of a change to existing contracts that is considered to be generating value of new business is an internal transfer of annuities from with-profits funds to a non profit fund. It is calculated on a market consistent basis using economic assumptions set at the start of each quarter or more frequently and best estimate operating assumptions. It is stated after the effect of any frictional costs and the cost of non-hedgeable risks.

MCEV VNB can be reconciled to adjusted Solvency II VNB and to Solvency II Own Funds impact of new business; however there is no equivalent IFRS metric.

Minimum capital requirement (MCR)

The Minimum Capital Requirement is the minimum amount of capital that an insurer needs to hold to cover its risks under the Solvency II regulatory framework. If an insurer's capital falls below the MCR then authorisation will be withdrawn by the regulator unless a firm is able to meet the MCR within a short period of time.

Morbidity

Rate of disease or how likely someone will fall ill, varying by such parameters as age, gender and health, used in pricing and calculating liabilities for policyholders of life and annuity products.

Mortality

Rate of death, varying by such parameters as age, gender and health, used in pricing and calculating liabilities for policyholders of life and annuity products, which contain mortality risks.

Net asset value (NAV) per share‡

Net asset value (NAV) per share is calculated as the equity attributable to shareholders of Aviva plc, less preference share capital (both within the Consolidated statement of financial position), divided by the actual number of shares in issue as at the balance sheet date.

Net written premiums

Total gross written premiums for the given period, minus premiums paid over or 'ceded' to reinsurers.

New business margin

New business margins are calculated as the MCEV value of new business divided by the present value of new business premiums (PVNBP), and expressed as a percentage.

Operating capital generation (OCG)‡

OCG is the Solvency II surplus movement in the period due to operating items including the impact of new business, expected investment returns on existing business, operating variances, operating assumption changes and management actions. It excludes economic variances, economic assumption changes and integration and restructuring costs.

Operating earnings per share (EPS)‡

Operating EPS is calculated based on the operating profit attributable to ordinary shareholders net of tax, non-controlling interests, preference dividends, the direct capital instrument (DCI) and tier one notes divided by the weighted average number of ordinary shares in issue, after deducting treasury shares.

The components used to calculate the operating EPS are detailed in note B7 - Earnings per share.

Operating expense ratio‡

The Group operating expense ratio expresses operating expenses as a percentage of operating income. Operating

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income is calculated as operating profit before Group debt costs and operating expenses.

The components used to calculate the operating expense ratio are detailed in note 1 - Operating profit, note 3 - Expenses and note A3 - Group debt costs and other interest.

Operating expenses‡

The day-to-day expenses involved in running the business including staff costs. For the avoidance of doubt, operating expenses excludes commission, non-operating integration and restructuring costs, and amortisation and impairment of AVIF and intangible assets. The components of operating expenses are detailed in note 3 - Expenses.

Operating profit‡

This is a non-GAAP financial performance measure. It is based on expected investment returns and stated before tax and before non-operating items including impairment of goodwill and amortisation and impairment of acquired value of in-force business, the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates, integration and restructuring costs and other items. Other items are those items that, in the Directors' view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group's financial performance.

The components of operating profit are detailed in note A - Reconciliation of group operating profit to profit after tax.

Own Funds

Under Solvency II, capital available to cover the SCR and MCR is referred to as own funds. This includes the excess of assets over liabilities in the Solvency II balance sheet (calculated on best estimate, market consistent assumptions and net of transitional measures on technical provisions), subordinated liabilities that qualify as capital under Solvency II, and off-balance sheet own funds approved by the regulator. Own funds eligible to cover the SCR and MCR also reflect any tiering restrictions.

Persistency

The rate at which policies are retained over time and therefore continue to contribute premium income and assets under management.

Present value of new business premiums (PVNBP)

Present value of new regular premiums plus 100% of single premiums from new business written at the point of sale and any changes to existing contracts, which were not anticipated at the outset of the contract that generates additional shareholder risk and associated premium income of the nature of a new policy. An example of a change to existing contracts that is considered to be generating PVNBP is an internal transfer of annuities from with-profits funds to a non profit fund. PVNBP is calculated using assumptions consistent with those used to determine the MCEV value of new business.

Prudential Regulatory Authority (PRA)

The PRA is a part of the Bank of England and is responsible for the prudential regulation of deposit taking institutions, insurers and major investment firms. The PRA has three statutory objectives: to promote the safety and soundness of these firms, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders and secondary objective to facilitate effective competition.

Required capital

The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted.

Risk-adjusted returns

Adjusting profits earned and investment returns by how much risk is involved in producing that return or profit.

Risk Margin

The amount an insurance company would require, in excess of best estimate liabilities, in order to take over and meet the whole portfolio of insurance and reinsurance obligations. It reflects the cost of providing capital equal to the Solvency II capital requirement for non-hedgable risks necessary to support the insurance obligations over their lifetime. Risk Margin represents the value of deviation risk of the actual outcome compared with the best estimate, expressed in terms of a defined risk measure.

Solvency II

These are insurance regulations designed to harmonise EU insurance regulation. Primarily this concerns the amount of capital that European insurance companies must hold under a measure of capital and risk. Solvency II became effective from 1 January 2016.

Solvency II cover ratio‡

Own funds divided by the Solvency Capital Requirement, as calculated on a shareholder view. The shareholder view excludes the contribution to Group Solvency Capital Requirement (SCR) and Group own funds of fully ring fenced with-profits funds and staff pension schemes in surplus - these exclusions have no impact on Solvency II surplus.

Solvency II cover ratio is detailed in note 8.iv - Solvency II.

Solvency II own funds impact of new business

The change in own funds resulting from new business written in the period.

Solvency II surplus

Own funds less the Solvency Capital Requirement.

Solvency II surplus impact of new business

The change in Solvency II surplus resulting from new business written in the period.

Solvency Capital Requirement (SCR)

The Solvency Capital Requirement is the amount of capital the regulator requires an insurer to hold to meet the requirements under the Solvency II regulatory framework. Holding capital in excess of the SCR demonstrates an insurer has adequate financial resources in place to meet all its liabilities as and when they fall due and that there is sufficient capital to absorb significant losses. Firms may use their own internal model, the European Insurance and Occupational Pensions Authority (EIOPA) prescribed standard formula or a partial internal model to determine SCR.

Transitional Measures on Technical Provisions (TMTP)

TMTP is an adjustment to Solvency II technical provisions to bring them into line with the pre-Solvency II equivalent as at 1 January 2016 when the regulatory basis changed, to smooth the introduction of the new regime. This will decrease linearly over the 16 years following Solvency II implementation but may be recalculated to allow for material changes to the risk profile of the relevant business, subject to agreement with the

Page 138

regulator. TMTP may also be recalculated every 24 months at the request of either the firm or the regulator.

Underwriting result

The profit or loss from general insurance and health activities, excluding investment performance. It is calculated as net earned premiums less net insurance claims, commission and expenses. The underwriting result is calculated in note 7ii - General insurance and health.

UK Corporate Governance Code

The code sets out guidance in the form of principles and provisions on how companies should be directed and controlled to follow good governance practice.

Page 139

DON'T MISS OUT ON YOUR FUTURE DIVIDENDS!

From November 2017, we are simplifying the way we pay dividends to shareholders by only paying cash dividends directly into a nominated bank account. This provides shareholders with the following benefits:

· A faster, more secure, environmentally friendly way of paying dividends - we currently send out over 200,000 cheques for each dividend

· No more fees for the replacement of lost cheques - one in five dividend cheques issued in 2015 remains uncashed

If you are currently receiving your dividend by cheque, take action now and choose from the dividend payment options detailed below. If you already receive your dividend directly to your bank account, your current payment instruction will apply.

DIVIDEND PAYMENT OPTIONS

Shareholders will be able to receive their dividends in the following ways:

§ Directly into your nominated UK bank account

§ Directly into your nominated Eurozone bank account

§ The Global Payment Service provided by our Registrar, Computershare. This enables shareholders living outside of the Single European Payment Area (SEPA) to elect to receive their dividends or interest payments in a choice of over 60 international currencies

§ The Dividend Reinvestment Plan enables eligible shareholders to reinvest their cash dividend in additional Aviva ordinary shares

You can find further details regarding these payment options at www.aviva.com/dividends and register your choice by contacting Computershare using the contact details on the next page, online at www.aviva.com/online or by returning a dividend mandate form. You must register for one of these payment options to receive dividend payments from November 2017.

PARTNERING WITH THE BRITISH RED CROSS

We are a year into our three year strategic partnership with the British Red Cross and already we have achieved a huge amount together to help communities in the UK and globally, be safer and stronger in times of uncertainty and crisis.

This includes training our people to spot the signs of stress in our customers during times of crisis, and continuing our support of the British Red Cross emergency app. Together, we are helping to make people better informed, prepared and therefore more resilient if disaster should strike.

HELP AVIVA SUPPORT THE BRITISH RED CROSS

During November and December 2016, Aviva shareholders completed 1,500 online dividend mandate instructions, meaning a donation of £1,500 to the British Red Cross to help people become safer and stronger in times of uncertainty and crisis.

You can help achieve even more - for every online dividend mandate and every voting instruction received online for the 2017 Annual General Meeting, Aviva will donate £1 to the British Red Cross.

DIVIDEND CHANGES TIMELINE

25 April 2017 Last date to complete a mandate instruction for the dividend payable in May 2017

17 May 2017 Last dividend payment that can be made by cheque

27 October 2017* Last date to complete a mandate instruction to receive the dividend payable in November 2017

17 November 2017* First dividend where direct credit is the only method of payment for cash dividends - a reminder will be sent to shareholders who have not received their dividend

Spring 2019 An annual dividend confirmation will be sent to shareholders who have had dividends withheld during the previous year

* Any dates marked with an asterisk are provisional and may be subject to change

MANAGE YOUR SHAREHOLDING ONLINE

www.aviva.com/online:

You can access Computershare online services directly using the above address where you can log in using your Computershare details to:

§ Change your address

§ Change payment options

§ Switch to electronic communications

§ View your shareholding

§ View any outstanding payments

§ Access useful information and view your Aviva policies

www.aviva.co.uk/myaviva:

If you've already registered for MyAviva you'll be able to view useful shareholder information. You can also check the details of Aviva policies you may have. Our online portal brings all this information together into one safe and secure place at a time that suits you. Just login as normal using your email address via www.aviva.co.uk/myaviva.

MyAviva also includes a link to the Investor Centre, where you can log in and manage you shareholding as outlined above.

www.aviva.com/shareholders:

For access to our shareholder services centre.

www.aviva.com/dividends:

To find the latest information on Aviva dividends.

www.aviva.com/agm:

To find the latest information on our Annual General Meeting.

www.investorcentre.co.uk/eproxy:

For access to electronic voting for our Annual General Meeting.

www.aviva.com/reports:

To access our latest reports, such as our annual report and accounts.

www.aviva.com/shareprice:

To find out the latest Aviva plc Ordinary share price.

www.londonstockexchange.com:

To find out the latest Aviva plc Preference share price.

SHAREHOLDER UPDATES

In 2017, we want to keep you informed with quarterly online shareholder updates. This will provide a summary on how Aviva is doing as well as information for shareholders. Sign up for email communications at www.aviva.com/online to receive a notification when the latest update is available.

Page 140

Shareholder profile as at 31 December 2016

By category of shareholder	Number of shareholders	%*	Number of shares	%*
Individual	578,993	98.22	248,881,261	6.13
Banks and nominee companies	7,906	1.34	3,758,032,990	92.53
Pension fund managers and insurance companies	221	0.04	1,040,014	0.03
Other corporate bodies	2,368	0.40	53,584,941	1.32
Total	589,488	100	4,061,539,206	100
By size of shareholding	Number of shareholders	%*	Number of shares	%*
1-1,000	539,400	91.50	134,735,003	3.32
1,001-5,000	44,611	7.57	83,697,278	2.06
5,001-10,000	3,000	0.51	20,785,611	0.51
10,001-250,000	1,861	0.32	78,749,554	1.94
250,001-500,000	154	0.03	54,803,042	1.35
500,001 and above	461	0.08	3,648,142,024	89.82
American Depositary Receipts (ADRs)+	1	0.00	40,626,694	1.00
Total	589,488	100	4,061,539,206	100

+ The number of registered ordinary shares represented by ADRs. Please note that each Aviva ADR represents two (2) ordinary shares.

* Percentages do not necessarily add up due to rounding.

2017 financial calendar

Ordinary 2016 final dividend ex-dividend date*	6 April 2017
2016 final dividend record date (Ordinary and ADR)	7 April 2017
Last day for Dividend Reinvestment Plan and currency election for 2016 final dividend	25 April 2017
Annual General Meeting	11am on 10 May 2017
2016 final dividend payment date*	17 May 2017

The full financial calendar is available at www.aviva.com/financial-calendar

* Please note that the ADR local payment date will be approximately five business days after the proposed dividend date for ordinary shares. The ex-dividend date for ADR holders will be 5 April 2017.

GROUP COMPANY SECRETARY

Shareholders may contact the Group Company Secretary:

By Email: Aviva.shareholders@aviva.com

In Writing: Kirstine Cooper, Group Company Secretary, St Helen's, 1 Undershaft, London, EC3P 3DQ

By Telephone: +44 (0)20 7283 2000

ORDINARY AND PREFERENCE SHARES - CONTACT:

For any queries regarding your shareholding, please contact Computershare:

By Telephone: 0371 495 0105 - Lines are open 8.30am to 5.30pm (UK time), Monday to Friday (excluding public holidays). Please call +44 117 378 8361 if calling from outside of the UK

By Email: AvivaSHARES@computershare.co.uk

In Writing: Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ

AMERICAN DEPOSITARY RECEIPTS (ADRS) - CONTACT:

For any queries regarding Aviva ADRs, please contact Citibank Shareholder Services (Citibank):

By Telephone: 1 877 248 4237 (1 877-CITI-ADR), or +1 781 575 4555 if calling from outside of the US - Lines are open 8.30am to 6pm, Monday to Friday US Eastern Standard Time

By Email: Citibank@shareholders-online.com

In Writing: Citibank Shareholder Services, PO Box 43077, Providence, Rhode Island, 02940-3077 USA

ANNUAL GENERAL MEETING (AGM)

The 2017 AGM will be held at The Queen Elizabeth II Centre, Broad Sanctuary, Westminster, London SW1P 3EE, on Wednesday, 10 May 2017, at 11am.

Details of each resolution to be considered at the meeting and voting instructions are provided in the Notice of AGM, which is available on the Company's website at www.aviva.com/agm. The voting results of the 2017 AGM will be accessible on the Company's website at www.aviva.com/agm shortly after the meeting.

AVIVA PLC ANNUAL REPORT AND ACCOUNTS

Aviva plc annual report and accounts are intended to provide information about the Company's activities and financial performance in the previous year. This strategic report is only part of the Company's annual report and accounts. You can view the full Aviva plc annual report and accounts online at www.aviva.com/2016ar or order a printed copy using the contact details opposite.

FORM 20-F

On 1 December 2016, the Company announced that it had resolved to voluntarily delist its American Depositary Shares (ADS) from the NYSE and to terminate the registration of its ADS and the underlying ordinary shares under the Exchange Act and to continue its ADS programme as a 'Level 1' sponsored programme, which will enable investors to trade ADS in the US over-the-counter market. The last day of trading on the NYSE was 22 December 2016 and the Company's obligations to file certain reports with the SEC were suspended on the same date. The Company expects the deregistration of its ADS and the underlying ordinary shares to become effective on 22 March 2017. Copies of the Company's Form 20-F for the financial year ended 31 December 2015 and for prior financial years can be found at www.aviva.com/reports.

ENDS PART 4 OF 4

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR DGGDXISGBGRI

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