Aviva plc (LON:AV) has released presentation slides and a financial information pack on its website, providing initial unaudited comparative information for the six months to 30 June 2022 and the year to 31 December 2022, restated for the adoption of IFRS 17 and IFRS 9.
Charlotte Jones, Group Chief Financial Officer, commented:
“The adoption of IFRS 17 is a significant milestone for the insurance industry, and provides a comprehensive and more consistent approach to accounting for insurance contracts. The operating profit and balance sheet impacts we are announcing today are consistent with our previous guidance, and there is no impact to the underlying economics of our business, our strategy or dividend guidance.”
No impact to strategy, capital generation, dividend guidance, or capital return outlook
· Cash remittances, capital generation and approach to capital allocation are unchanged by IFRS 17.
· Solvency II, an important basis under which the Group is managed, is unaffected.
· There is no impact on our dividend guidance for 2023 of c.£915m, with low-to-mid single digit growth in the cash cost of the dividend thereafter.
· Our intention for regular and sustainable returns of capital to shareholders is unchanged.
· We remain confident in meeting or exceeding our Group financial targets for cash remittances, own funds generation and cost reduction. These targets are unchanged under IFRS 17.
Financial impacts on transition to IFRS 17
Under IFRS 17, total profit remains unchanged over the lifetime of a contract, however the timing of when profit emerges will be altered, resulting in increased long-term predictability of profit.
FY22 restated business unit operating profit is £1.9bn1, 15% lower than under IFRS 42 and consistent with our previous guidance. This principally reflects accounting changes to our Annuities and Protection businesses with new business profit now being deferred over the lifetime of the contract. We expect operating profit to grow from its restated base.
IFRS 17 introduces two new balance sheet concepts, the contractual service margin (CSM) and the risk adjustment (RA), both significant stocks of future profit. These represent profits, principally from our Annuities and Protection businesses, that will be released over time. This stock of future profit was £7.8bn at 31 December 2022, and we expect the CSM to grow over time.
IFRS 17 adjusted shareholders’ equity3 (including CSM net of tax) is £14.3bn at 31 December 2022, compared with IFRS 4 shareholders’ equity3 of £11.9bn. IFRS 17 shareholders’ equity is £9.4bn at 31 December 2022.
Group operating profit outlook
To assist users of our financial information with the transition to IFRS 17, we are exceptionally providing Group operating profit guidance. We expect HY23 Group operating profit of c.£700m (HY22: £661m), and we expect FY23 Group operating profit to grow 5-7%4 from £1,350m in FY22.
Presentation slides and a financial information pack are available here, where further detailed restated information is provided.
1. Excluding corporate centre costs, other operations and Group debt costs and other interest
2. FY22 IFRS 4 results have been re-presented, refer to section 1.iii of the Aviva plc 2022 comparative results under IFRS 17 and IFRS 9 document, which is available on www.aviva.com/investors/ifrs-17-transition-update/
3. IFRS Shareholders’ equity is equity attributable to shareholders of Aviva plc, less preference capital
4. Subject to normal weather and large claims experience in our General Insurance businesses in the second half of the year
