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IFRS financial statements

In this section		Page
Consolidated financial statements
Consolidated income statement		39
Consolidated statement of comprehensive income		40
Consolidated statement of changes in equity		41
Consolidated statement of financial position		42
Consolidated statement of cash flows		43
� Notes to the consolidated financial statements
B1	Basis of preparation	44
B2	Changes to the comparative amounts	47
B3	Exchange rates	48
B4	Subsidiaries, joint ventures and associates - acquisitions	48
B5	Subsidiaries, joint ventures and associates - disposals and held for sale	48
B6	Segmental information	50
B7	Tax	55
B8	Earnings per share	57
B9	Dividends and appropriations	58
B10	Contracted liabilities and associated reinsurance	59
B11	Insurance liabilities	60
B12	Insurance liabilities methodology and assumptions	65
B13	Liability for investment contracts	69
B14	Reinsurance assets	71
B15	Effect of changes in assumptions and estimates during the year	73
B16	Unallocated divisible surplus	74
B17	Borrowings	74
B18	Pension obligations	75
B19	Related party transactions	77
B20	Risk management	78
B21	Direct capital instrument and tier 1 notes	90
B22	Cash and cash equivalents	90
B23	Contingent liabilities and other risk factors	91
B24	Acquired value of in-force business and intangible assets	92
B25	Subsequent events	92

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Consolidated income statement

For the year ended 31 December 2019

	Note	2019 �m	Restated¹ 2018 �m
Income
Gross written premiums		31,243	28,659
Premiums ceded to reinsurers		(3,563)	(2,326)
Premiums written net of reinsurance		27,680	26,333
Net change in provision for unearned premiums		(209)	(81)
Net earned premiums		27,471	26,252
Fee and commission income		2,141	2,178
Net investment income/(expense)		40,577	(10,912)
Share of profit after tax of joint ventures and associates		85	112
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	B5(a)	(22)	102
		70,252	17,732
Expenses
Claims and benefits paid, net of recoveries from reinsurers		(23,096)	(23,142)
Change in insurance liabilities, net of reinsurance	B10(b)	(5,702)	6,246
Change in investment contract provisions		(24,095)	5,321
Change in unallocated divisible surplus	B16	(3,985)	3,237
Fee and commission expense		(5,536)	(3,326)
Other expenses		(3,329)	(3,843)
Finance costs		(576)	(573)
		(66,319)	(16,080)
Profit before tax		3,933	1,652
Tax attributable to policyholders' returns	B7(d)	(559)	477
Profit before tax attributable to shareholders' profits		3,374	2,129
Tax (expense)/credit	B7(d)	(1,270)	35
Less: tax attributable to policyholders' returns	B7(d)	559	(477)
Tax attributable to shareholders' profits	B7(d)	(711)	(442)
Profit for the year		2,663	1,687

Attributable to:
Equity holders of Aviva plc		2,548	1,568
Non-controlling interests		115	119
Profit for the year		2,663	1,687
Earnings per share	B8
Basic (pence per share)		63.8	38.2
Diluted (pence per share)		63.1	37.8

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Consolidated statement of comprehensive income

For the year ended 31 December 2019�

	Note	2019 �m	2018 �m
Profit for the year		2,663	1,687

Other comprehensive income:
Items that may be reclassified subsequently to income statement
Investments classified as available for sale
Fair value gains		39	57
Fair value gains transferred to profit on disposals		(19)	(78)
Share of other comprehensive income/(loss) of joint ventures and associates		22	(10)
Foreign exchange rate movements		(219)	5
Aggregate tax effect - shareholder tax on items that may be reclassified subsequently to income statement	B7(b)	6	8

Items that will not be reclassified to income statement
Owner-occupied properties - fair value gains		3	1
Remeasurements of pension schemes		(867)	(279)
Aggregate tax effect - shareholder tax on items that will not be reclassified subsequently to income statement	B7(b)	103	43
Total other comprehensive income, net of tax		(932)	(253)
Total comprehensive income for the year		1,731	1,434

Attributable to:
Equity holders of Aviva plc		1,655	1,310
Non-controlling interests		76	124
		1,731	1,434

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Consolidated statement of changes in equity

For the year ended 31 December 2019

	Ordinary share capital �m	Preference share capital �m	Capital reserves¹ �m	Treasury shares �m	Currency translation reserve �m	Other reserves �m	Retained earnings �m	DCI and tier 1 notes �m	Total equity excluding non-controlling interests �m	Non-controlling interests �m	Total equity �m
Balance at 1 January	975	200	10,232	(15)	1,122	(279)	4,523	731	17,489	966	18,455
Adjustment at 1 January for adoption of IFRS 16²	-	-	-	-	-	-	(110)	-	(110)	-	(110)
Balance at 1 January restated²	975	200	10,232	(15)	1,122	(279)	4,413	731	17,379	966	18,345
Profit for the year	-	-	-	-	-	-	2,548	-	2,548	115	2,663
Other comprehensive income	-	-	-	-	(308)	178	(763)	-	(893)	(39)	(932)
Total comprehensive income for the year	-	-	-	-	(308)	178	1,785	-	1,655	76	1,731
Dividends and appropriations	-	-	-	-	-	-	(1,244)	-	(1,244)	-	(1,244)
Non-controlling interests share of dividends declared in the year	-	-	-	-	-	-	-	-	-	(63)	(63)
Reclassification of tier 1 notes to financial liabilities³	-	-	-	-	-	-	21	(231)	(210)	-	(210)
Reserves credit for equity compensation plans	-	-	-	-	-	62	-	-	62	-	62
Shares issued under equity compensation plans	5	-	25	(5)	-	(62)	55	-	18	-	18
Treasury shares held by subsidiary companies	-	-	-	13	-	-	-	-	13	-	13
Forfeited dividend income	-	-	-	-	-	-	4	-	4	-	4
Changes in non-controlling interests in subsidiaries	-	-	-	-	-	-	-	-	-	(2)	(2)
Change in equity accounted option	-	-	-	-	-	-	22	-	22	-	22
Shares purchased in buy-back	-	-	-	-	-	-	-	-	-	-	-
Transfer to profit on disposal of subsidiaries, joint ventures and associates	-	-	-	-	-	-	-	-	-	-	-
Capital contributions from non-controlling interests	-	-	-	-	-	-	-	-	-	-	-
Aggregate tax effect - shareholder tax	-	-	-	-	-	-	9	-	9	-	9
Balance at 31 December	980	200	10,257	(7)	814	(101)	5,065	500	17,708	977	18,685

1 � Capital reserves consist of share premium of �1,239 million, a capital redemption reserve of �44 million and a merger reserve of �8,974 million.

2 � The Group adopted IFRS 16 Leases from 1 January 2019. In line with the transition options available, prior period comparatives have not been restated and the impact of the adoption has been shown as an adjustment to opening retained earnings. See note B1(a) for further information.

3�� On 17 October 2019, notification was given that the Group would redeem the 6.875% �210 million tier 1 notes. At that date, the instrument was reclassified as a financial liability of �210 million, representing its fair value at that date. On 21 November 2019, the instrument was redeemed in full at a cost of �210 million. The difference between its carrying amount of �231 million and fair value of �210 million has been charged to retained earnings.

For the year ended 31 December 2018

	Ordinary share capital �m	Preference share capital �m	Capital reserves¹ �m	Treasury shares �m	Currency translation reserve �m	Other reserves �m	Retained earnings �m	DCI and tier 1 notes �m	Total equity excluding non-controlling interests �m	Non-controlling interests �m	Total equity �m
Balance at 1 January	1,003	200	10,195	(14)	1,141	(274)	4,918	731	17,900	1,235	19,135
Profit for the year	-	-	-	-	-	-	1,568	-	1,568	119	1,687
Other comprehensive income	-	-	-	-	28	(50)	(236)	-	(258)	5	(253)
Total comprehensive income for the year	-	-	-	-	28	(50)	1,332	-	1,310	124	1,434
Dividends and appropriations	-	-	-	-	-	-	(1,189)	-	(1,189)	-	(1,189)
Non-controlling interests share of dividends declared in the year	-	-	-	-	-	-	-	-	-	(90)	(90)
Reclassification of tier 1 notes to financial liabilities	-	-	-	-	-	-	-	-	-	-	-
Reserves credit for equity compensation plans	-	-	-	-	-	64	-	-	64	-	64
Shares issued under equity compensation plans	2	-	7	(1)	-	(55)	49	-	2	-	2
Treasury shares held by subsidiary companies	-	-	-	-	-	-	-	-	-	-	-
Forfeited dividend income	-	-	-	-	-	-	4	-	4	-	4
Changes in non-controlling interests in subsidiaries	-	-	-	-	(7)	-	1	-	(6)	(306)	(312)
Change in equity accounted option	-	-	-	-	-	-	-	-	-	-	-
Shares purchased in buy-back²	(30)	-	30	-	-	-	(600)	-	(600)	-	(600)
Transfer to profit on disposal of subsidiaries, joint ventures and associates	-	-	-	-	(40)	36	-	-	(4)	-	(4)
Capital contributions from non-controlling interests	-	-	-	-	-	-	-	-	-	3	3
Aggregate tax effect - shareholder tax	-	-	-	-	-	-	8	-	8	-	8
Balance at 31 December	975	200	10,232	(15)	1,122	(279)	4,523	731	17,489	966	18,455

1 � Capital reserves consist of share premium of �1,214 million, a capital redemption reserve of �44 million and a merger reserve of �8,974 million.

2�� On 1 May 2018, the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to �600 million. On completion in 2018 of this buy-back, �600 million of shares had been purchased and shares with a nominal value of �30 million have been cancelled, giving rise to an additional capital redemption reserve of an equivalent amount.

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Consolidated statement of financial position

As at 31 December 2019

	Note	2019 �m	Restated¹ 2018 �m	Restated¹ 1 January 2018 �m
Assets
Goodwill		1,855	1,872	1,876
Acquired value of in-force business and intangible assets	B24	2,800	3,201	3,455
Interests in, and loans to, joint ventures		1,227	1,214	1,221
Interests in, and loans to, associates		304	304	421
Property and equipment		889	548	509
Investment property		11,203	11,482	10,797
Loans		38,579	36,184	37,227
Financial investments		343,418	319,825	331,690
Reinsurance assets	B14	12,356	11,755	13,492
Deferred tax assets		151	185	144
Current tax assets		132	76	94
Receivables		8,995	8,639	8,151
Deferred acquisition costs		3,156	2,965	2,906
Pension surpluses and other assets		2,799	3,341	3,468
Prepayments and accrued income		3,143	3,149	3,117
Cash and cash equivalents		19,524	15,926	13,377
Assets of operations classified as held for sale	B5(b)	9,512	8,855	10,871
Total assets		460,043	429,521	442,816
Equity
Capital
Ordinary share capital		980	975	1,003
Preference share capital		200	200	200
		1,180	1,175	1,203
Capital reserves
Share premium		1,239	1,214	1,207
Capital redemption reserve		44	44	14
Merger reserve		8,974	8,974	8,974
		10,257	10,232	10,195
Treasury shares		(7)	(15)	(14)
Currency translation reserve		814	1,122	1,141
Other reserves		(101)	(279)	(274)
Retained earnings		5,065	4,523	4,918
Equity attributable to shareholders of Aviva plc		17,208	16,758	17,169
Direct capital instrument and tier 1 notes	B21	500	731	731
Equity excluding non-controlling interests		17,708	17,489	17,900
Non-controlling interests		977	966	1,235
Total equity		18,685	18,455	19,135
Liabilities
Gross insurance liabilities	B11	149,338	144,077	148,650
Gross liabilities for investment contracts	B13	222,127	202,468	203,986
Unallocated divisible surplus	B16	9,597	5,949	9,082
Net asset value attributable to unitholders		16,610	16,338	18,176
Pension deficits and other provisions		1,565	1,399	1,429
Deferred tax liabilities		2,155	1,885	2,377
Current tax liabilities		569	254	290
Borrowings	B17	9,039	9,420	10,286
Payables and other financial liabilities		18,138	17,681	16,676
Other liabilities		3,094	3,074	2,856
Liabilities of operations classified as held for sale	B5(b)	9,126	8,521	9,873
Total liabilities		441,358	411,066	423,681
Total equity and liabilities		460,043	429,521	442,816

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Consolidated statement of cash flows

For the year ended 31 December 2019

The cash flows presented in this statement cover all the Group's activities and include flows from both policyholder and shareholder activities. All cash and cash equivalents are available for use by the Group.

	Note	2019 �m	Restated¹ 2018 �m
Cash flows from operating activities²
Cash generated from operating activities		6,517	5,848
Tax paid		(549)	(447)
Total net cash from operating activities		5,968	5,401
Cash flows from investing activities
Acquisitions of, and additions to, subsidiaries, joint ventures and associates, net of cash acquired		(19)	192
Disposals of subsidiaries, joint ventures and associates, net of cash transferred		12	381
Purchases of property and equipment		(84)	(87)
Proceeds on sale of property and equipment		4	15
Purchases of intangible assets		(63)	(64)
Total net cash (used in)/from investing activities		(150)	437
Cash flows from financing activities
Proceeds from issue of ordinary shares		27	8
Shares purchased in buy-back		-	(600)
Treasury shares purchased for employee trusts		(9)	(4)
New borrowings drawn down, net of expenses		580	3,148
Repayment of borrowings³		(927)	(4,181)
Net repayment of borrowings	B17(b)	(347)	(1,033)
Interest paid on borrowings		(553)	(551)
Preference dividends paid	B9	(17)	(17)
Ordinary dividends paid	B9	(1,184)	(1,128)
Forfeited dividend income		4	4
Coupon payments on direct capital instrument and tier 1 notes	B9	(43)	(44)
Capital contributions from non-controlling interests of subsidiaries		-	3
Dividends paid to non-controlling interests of subsidiaries		(63)	(90)
Other⁴		(5)	(13)
Total net cash used in financing activities		(2,190)	(3,465)
Total net increase in cash and cash equivalents		3,628	2,373
Cash and cash equivalents at 1 January		16,051	13,617
Effect of exchange rate changes on cash and cash equivalents		(245)	61
Cash and cash equivalents at 31 December		19,434	16,051

2�� Cash flows from operating activities include interest received of �5,834 million (2018 restated: �5,758 million) and dividends received of �5,614 million (2018 restated: �4,880 million).

3�� 2019 includes the redemption of 6.875% �210 million tier 1 notes. 2018 includes the redemption of �500 million 6.875% subordinated notes and $575 million 7.875% undated subordinated notes in full at first call dates and the maturity of �350 million 0.100% senior notes.

4�� 2019 includes a �5 million (2018: �3 million) donation of forfeited dividend income to a charitable foundation. 2018 also includes �10 million related to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs.

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B1 (i) Basis of preparation

(a)� The results in this preliminary announcement have been taken from the Group's 2019 Annual report and accounts which will be available on the Company's website on 25 March 2020. The consolidated financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and those parts of the Companies Act 2006 applicable to those reporting under IFRS.

The basis of preparation and summary of accounting policies applicable to the Group's consolidated financial statements can be found in the Accounting policies section of the 2019 Annual report and accounts. The comparative figures have been restated for the adjustments detailed in note B2. The Group has adopted IFRS 16 Leases as described in B1(ii). In addition, the Group has adopted new amendments to published standards as described in B1(ii).

The preliminary announcement for the year ended 31 December 2019 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The results on an IFRS basis for full year 2019 and 2018 have been audited by PricewaterhouseCoopers LLP (PwC). PwC have reported on the 2019 and 2018 consolidated financial statements. Both reports were unqualified and neither contained a statement under section 498 (2) or (3) of the Companies Act 2006. The Group's 2018 annual report and accounts have been filed with the Registrar of Companies.

After making enquiries, the directors have a reasonable expectation that the Group as a whole has adequate resources to continue in operational existence over a period of at least 12 months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

(b)� Items included in the financial statements of each of the Group's entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are stated in pounds sterling, which is the Company's functional and presentational currency. Unless otherwise noted, the amounts shown in these financial statements are in millions of pounds sterling (�m).

(c)� The long-term nature of much of the Group's operations means that, for management's decision-making and internal performance management of our operating segments, the Group focuses on Group adjusted operating profit, a non-GAAP alternative performance measure (APM), that incorporates an expected return on investments supporting its long-term and non long-term businesses.

Group adjusted operating profit for long-term business is based on expected investment returns on financial investments backing shareholder and policyholder funds over the reporting period, with allowance for the corresponding expected movements in liabilities. Variances between actual and expected investment returns, and the impact of changes in economic assumptions on liabilities, are disclosed separately outside Group adjusted operating profit. For non long-term business, the total investment income, including realised and unrealised gains, is analysed between that calculated using a longer-term return and short-term fluctuations from that level. The exclusion of short-term realised and unrealised investment gains and losses from the Group adjusted operating profit APM reflects the long-term nature of much of our business and presents separately the operating profit APM which is used in managing the performance of our operating segments from the impact of economic factors.

Group adjusted operating profit excludes impairment of goodwill, associates and joint ventures; amortisation and impairment of intangible assets acquired in business combinations; amortisation and impairment of acquired value of in-force business; and the profit or loss on disposal and remeasurement of subsidiaries, joint ventures and associates. These items principally relate to mergers and acquisition activity which we view as strategic in nature, hence they are excluded from the Group adjusted operating profit APM as this is principally used to manage the performance of our operating segments when reporting to the Group's chief decision maker. For 2019, the Group adjusted operating profit APM has been amended and now includes the amortisation and impairment of internally generated intangible assets to provide more relevant information by better reflecting their operational nature. 2018 comparative figures have been restated (see note B2(b)).

Group adjusted operating profit also excludes Other items, which 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. Details of these items, including an explanation of the rationale for their exclusion, are provided in the relevant notes.

The Group adjusted operating profit APM should be viewed as complementary to IFRS GAAP measures. It is important to consider Group adjusted operating profit and profit before tax together to understand the performance of the business in the year.

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B1(ii) New standards, interpretations and amendments to published standards that have been adopted by the Group

The Group has adopted IFRS 16 which became effective for the annual reporting period beginning on 1 January 2019:

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(i)�� IFRS 16 Leases

In January 2016, the IASB published IFRS 16 Leases. This standard replaces IAS 17 Leases and applies to annual reporting periods beginning on or after 1 January 2019. The standard has been endorsed by the EU.

The adoption of IFRS 16 has resulted in an update to the Group's stated accounting policy for leases. The standard has introduced a definition of a lease with a single lessee accounting model, eliminating the previous classification of either operating or finance leases. Lessees are required to recognise lease assets and liabilities on the statement of financial position for all leases, with the exception of short-term and low-value leases. Further information can be found in accounting policy Z in the Group's annual report and accounts.

The Group has chosen to adopt the modified retrospective approach on transition permitted by IFRS 16. This approach does not require prior year comparatives to be restated, and the impact of adoption of the standard on retained earnings is shown as an adjustment to opening retained earnings. On transition, and where applicable, the Group has applied the following practical expedients:

� Applied a single discount rate to a portfolio of leases with reasonably similar characteristics;

� Relied on existing assessments on whether leases are onerous as an alternative to performing an impairment review. Where such leases existed, the onerous lease provision held at 31 December 2018 was offset against the initial right-of-use asset at the date of initial application as permitted by IFRS 16;

� Excluded initial direct costs for the measurement of the right-of-use asset at the date of initial application; and

� Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group has reviewed existing service and outsourcing contracts to determine whether they are either a lease or contain a lease at the date of initial application. This has not resulted in any additional contracts being recognised as leases in the statement of financial position.

Application of the modified retrospective approach on transition has resulted in a reduction of retained earnings of �110 million at 1 January 2019. This reflects the fact that the right-of-use assets and lease liabilities amortise to nil at different rates over the lease term. A higher initial amortisation of the right-of-use asset compared to the lease liability results in the asset value being lower than the lease liability during the lease term, with the difference between the two generally converging to nil as the lease term ends. There have been corresponding increases in the value of assets (�434 million) and liabilities (�544 million), representing the right-of-use assets and liabilities, net of any tax impacts, not previously recognised on the consolidated statement of financial position in accordance with IAS 17. There has been no material impact on profit before tax.

The weighted average discount rate applied to the lease liabilities recognised at 1 January 2019 was 2.95%.

Future contractual aggregate minimum lease payments under non-cancellable operating leases, as disclosed in note 56 of the Group's 2018 annual report and accounts, were �728 million at 31 December 2018. Lease liabilities in respect of operating leases brought on to the consolidated statement of financial position at 1 January 2019 following the adoption of IFRS 16 were �544 million. The balance shown at 1�January 2019 represents a present value of lease payments, whereas the figure disclosed at 31 December 2018 is the aggregated undiscounted payments. Other differences between the commitments disclosed and the opening IFRS 16 lease liabilities recognised relate primarily to amounts paid under service contracts that were included as a commitment in prior years, but do not meet the definition of a lease under IFRS 16.

Lessor accounting remains similar to the previous approach set out in IAS 17. The Group's lessor accounting policies have not changed as a result of the introduction of IFRS 16.

Leased property classified as investment property is held at fair value and measured in accordance with IAS 40 Investment Property. This is consistent with the approach adopted under IAS 17.

The introduction of IFRS 16 has had no impact on the Company's financial statements.

The following amendments to existing standards and IFRIC interpretations have been issued, and are effective from 1 January 2019 or earlier, and do not have an impact on the Group's consolidated financial statements.

(ii)� IFRIC 23 Uncertainty over Income Tax Treatments

In June 2017, the IASB published IFRIC 23 Uncertainty over Income Tax Treatments. The standard is effective for annual reporting beginning on or after 1 January 2019.

(iii) Amendments to IAS 19: Plan Amendment, Curtailment or Settlement

In February 2018, the IASB published Plan Amendment, Curtailment or Settlement (Amendments to IAS 19). The amendments are effective for annual reporting beginning on or after 1 January 2019.

(iv) Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures

In October 2017, the IASB published Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28). The amendments are effective for annual reporting beginning on or after 1 January 2019.

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B1(ii) New standards, interpretations and amendments to published standards that have been adopted by the Group continued

(v)� Annual Improvements to IFRS Standards 2015-2017 Cycle

These improvements consist of amendments to four IFRSs including IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs. The amendments are effective for annual reporting beginning on or after 1 January 2019.

In addition, the Group has continued to apply the deferral approach to IFRS 9 which enables eligible insurers to apply a temporary exemption from applying IFRS 9 prior to applying IFRS 17. In November 2018 the IASB recommended an amendment to IFRS 17 to defer the effective date to 1 January 2022. At the same time, they recommended an extension to the fixed expiry date for the temporary exemption for insurers from applying IFRS 9 until 1 January 2022. These amendments are subject to the IASB's due process and were included in an exposure draft published in July 2019, with final amendments expected to be published mid-2020.

Eligibility for the deferral approach was based on assessment of the Group's liabilities as at 31 December 2015, in accordance with the date specified in the amendments to IFRS 4. At this date the Group's liabilities connected with insurance exceeded 90% of the carrying value of the Group's total liabilities.

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B2 - Changes to comparative amounts

(a)� Presentation of consolidated investment funds

Following a review of the Group's presentation of consolidated investment funds, corrections to previous reported values on the consolidated statement of financial position and consolidated income statement have been identified (with corresponding impacts on the consolidated statement of cash flows) and comparative amounts have been restated. There has been no impact on profit for the period or equity for any of the periods presented. The nature of the restatements are as follows:

� Fixed maturity securities, loans, derivatives and receivables held indirectly through certain majority-owned fund investments in the UK and France, which in 2018 were presented as cash and cash equivalents, are now presented as financial investments, loans, receivables and payables and other financial liabilities which reflect the classification of the underlying holdings;

� Corrections to the calculation of minority ownership of certain fund investments have resulted in a restatement of net asset value attributable to unitholders and an adjustment to de-consolidate two investment funds where the Group was incorrectly deemed to have been the controlling entity in 2018;

� Corrections to the calculation of minority ownership have resulted in a restatement of the investment income attributable to minority shareholders recorded in fee and commission expense, net investment expense and fee and commission income for the period ending 31�December 2018; and

� Accrued interest on certain fixed maturity securities held indirectly through certain majority-owned funds, which in 2018 was presented within financial investments, is now presented in prepayments and accrued income (consistent with accrued interest on the Group's directly held fixed maturity securities).

The impact of the changes above on the following captions in the income statement for the prior period presented is shown below:

�	31 December 2018
	As reported �m	Effect of changes �m	Restated �m
Fee and commission income	2,180	(2)	2,178
Net investment expense	(10,847)	(65)	(10,912)
Fee and commission expense	(3,393)	67	(3,326)

The impact of the changes above on the statement of financial position for the prior periods presented is shown below:

	31 December 2018					1 January 2018
	As reported �m	Effect of changes �m	Restated �m	As reported �m	Effect of changes �m	Restated �m
Assets
Loans	28,785	7,399	36,184	27,857	9,370	37,227
Financial investments	297,585	22,240	319,825	311,082	20,608	331,690
Receivables	8,879	(240)	8,639	8,285	(134)	8,151
Prepayments and accrued income	2,947	202	3,149	2,860	257	3,117
Cash and cash equivalents	46,484	(30,558)	15,926	43,347	(29,970)	13,377
Other	45,798	-	45,798	49,254	-	49,254
Total assets	430,478	(957)	429,521	442,685	131	442,816
Liabilities
Net asset value attributable to unit holders	18,125	(1,787)	16,338	18,327	(151)	18,176
Payables and other financial liabilities	16,882	799	17,681	16,459	217	16,676
Other liabilities	3,043	31	3,074	2,791	65	2,856
Other	373,973	-	373,973	385,973	-	385,973
Total liabilities	412,023	(957)	411,066	423,550	131	423,681
Total equity	18,455	-	18,455	19,135	-	19,135

The impact of the changes above on the following captions in the statement of cash flows for the prior period presented is shown below:

	31 December 2018
	As reported �m	Effect of changes �m	Restated �m
Cash generated from operating activities	6,405	(557)	5,848
Total net cash from operating activities	5,958	(557)	5,401
Total net increase in cash and cash equivalents	2,930	(557)	2,373
Cash and cash equivalents at 1 January¹	43,587	(29,970)	13,617
Effect of exchange rate changes on cash and cash equivalents	92	(31)	61
Cash and cash equivalents at 31 December¹	46,609	(30,558)	16,051

1�� Cash and cash equivalents shown in the statement of cash flows above include cash and cash equivalents of operations classified as held for sale and bank overdrafts.

The above items have also resulted in a number of corresponding reclassifications in the Group's fair value hierarchy level disclosures included in note C4.1. The primary changes reflect:

� The inclusion of fixed maturity securities in level 2 and loans in amortised cost (the assets were previously classified as cash and cash equivalents and therefore not included in the fair value hierarchy); and

� A reduction in financial investments reflecting the de-consolidation of two investment funds where the Group was incorrectly deemed to have been the controlling entity.

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B2 - Changes to comparative amounts continued

Additionally, following the review, �33,050 million of fixed maturity securities previously included within level 1 have been reclassified to level 2 at 31 December 2018.

(b)� Amendment to Group adjusted operating profit

For 2019, the Group adjusted operating profit APM has been amended and now includes amortisation and impairment of internally generated intangible assets to provide more relevant information by better reflecting their operational nature. These assets include advisor platforms, digital distribution channels and claims and policy administration systems which are used to support operational activities. Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations as these items principally relate to merger and acquisition activity which we view as strategic in nature. The effect of this change is to move �112 million relating to amortisation of internally generated intangible assets into Group adjusted operating profit for 2018. The 2018 comparative figures have been restated in the Reconciliation of Group adjusted operating profit to profit for the year and the Segmental income statement. The relevant EPS metrics (operating EPS and diluted operating EPS) for 2018 have also been restated (see note B8). There is no impact from this change on profit before tax.

�

B3 - Exchange rates

The Group's principal overseas operations during the year were located within the eurozone, Canada and Poland. The results and cash flows of these operations have been translated into sterling at the average rates for the year, and the assets and liabilities have been translated at the year end rates as follows:

	2019	2018
Eurozone
Average rate (�1 equals)	�0.88	�0.88
Year end rate (�1 equals)	�0.85	�0.90
Canada
Average rate ($CAD1 equals)	�0.59	�0.58
Year end rate ($CAD1 equals)	�0.58	�0.57
Poland
Average rate (PLN1 equals)	�0.20	�0.21
Year end rate (PLN1 equals)	�0.20	�0.21

B4 - Subsidiaries, joint ventures and associates - acquisitions

The Group completed minor acquisitions in Canada, the UK and France in 2019. The aggregate consideration paid in these transactions was �20 million. With the exception of the acquisition of an associate in Canada, the acquired entities are all consolidated subsidiaries. During 2019, an adjustment of �2 million was made to the acquisition balance sheet of Friends Life Assurance Company DAC (Friends First), which became a wholly owned subsidiary on 1 June 2018. This resulted in a corresponding decrease in the negative goodwill previously recognised.

B5 - Subsidiaries, joint ventures and associates - disposals and held for sale

This note provides details of the disposals of subsidiaries, joint ventures and associates that the Group has made during the year, together with details of businesses held for sale at the year end.

(a)� Summary

The profit on the disposal and remeasurement of subsidiaries, joint ventures and associates comprises:

	2019 �m	2018 �m
Disposals	6	113
Held for sale remeasurements	(28)	(13)
Remeasurements due to change in control status	-	2
Total (loss)/profit on disposal and remeasurements	(22)	102

The loss on the disposal and remeasurement of subsidiaries, joint ventures and associates during the year of��22�million�(2018: �102 million gain) consists of �6 million of gains relating to small disposals and a �28 million remeasurement loss relating to Friends Provident International Limited (FPI), see note B5(b) for further details. In 2018, the profit on disposal of �113 million primarily related to the disposals of Avipop Assicurazioni S.p.A. (Italy Avipop) and three businesses in Spain and the remeasurement loss of �13 million was related to FPI.

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B5 - Subsidiaries, joint ventures and associates - disposals and held for sale continued

(b)� Assets and liabilities of operations classified as held for sale

The assets and liabilities of operations classified as held for sale as at 31 December 2019 are as follows:

	2019 �m	2018 �m
Assets
Acquired value of in-force business and intangible assets	526	660
Interests in, and loans to, joint ventures and associates	8	-
Property and equipment	8	5
Loans	1	-
Financial investments	7,824	7,251
Reinsurance assets	75	45
Other assets	290	206
Cash and cash equivalents	780	688
Total assets	9,512	8,855
Liabilities
Gross insurance liabilities	687	121
Gross liabilities for investment contracts	8,324	8,341
External borrowings	28	-
Other liabilities	87	59
Total liabilities	9,126	8,521
Net assets	386	334

Assets and liabilities of operations classified as held for sale as at 31 December 2019 relate primarily to the expected disposal of the international operations of FPI and also include Group's operations in Hong Kong. See below for further details. Assets and liabilities of operations classified as held for sale during 2018 relate entirely to FPI.

(i)�� FPI

On 19 July 2017, Aviva announced the sale of FPI to RL360 Holding Company Limited, a subsidiary of International Financial Group Limited, for a total consideration of �340 million, and FPI has been reported as held for sale by the Group since 31 December 2017. The conditions defined in IFRS 5 for a subsidiary to be classified as held for sale include the presumption that the sale will be completed within 12 months of the date of reclassification. However, if events or circumstances extend the period to complete the sale beyond 12 months, a held for sale classification continues to be appropriate if certain conditions are met.

The transaction remains subject to regulatory approvals. The delays to receiving these approvals have been beyond the control of the Group and both the Group and RL360 have continued to cooperate with the regulatory approval process throughout. The Group remains committed to completing the transaction and now expects it to complete in 2020. As such, the subsidiary continues to be classified as held for sale and has been remeasured at fair value less costs to sell of �334 million, based on the agreed price. This resulted in a total loss on remeasurement of �28 million in 2019 (2018: �13 million) (see note B24). The business remains a consolidated subsidiary of Aviva at the balance sheet date.

(ii) Hong Kong joint venture

On 20 November 2019, Aviva announced the sale of its entire 40% shareholding in its Hong Kong joint venture (Blue) to Hillhouse AV Holdings Limited for 450 million HKD (approximately �44 million). In addition to the investment in the joint venture, Aviva retained control of certain activities under the previous sale agreement reached in 2018, which remain fully consolidated at the balance sheet date, and which form part of the sale agreement to Hillhouse AV Holding Limited. No remeasurement loss has been recognised on reclassification to held for sale.

(c)� Significant restrictions

In certain jurisdictions the ability of subsidiaries to transfer funds to the Group in the form of cash dividends or to repay loans and advances is subject to local corporate or insurance laws and regulations and solvency requirements. There are no protective rights of non-controlling interests which significantly restrict the Group's ability to access or use the assets and settle the liabilities of the Group.

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B6 - Segmental information

The Group's results can be segmented either by activity or by geography. Our primary reporting format is along market reporting lines, with supplementary information being given by business activity. This note provides segmental information on the consolidated income statement. In November 2019 the Group announced the creation of new divisions. From 2020 UK Life will focus on three product lines - annuities and equity release, protection and health and heritage. The Investments, Savings and Retirement division, will bring together Aviva Investors and the modern UK Savings and Retirement business that is currently reported in UK Life. The global General Insurance division will report the results of the UK, Canada and our European and Asian general insurance businesses. Europe Life and Asia Life will no longer include the results of the European and Asian general insurance businesses. The following segments represent how the business has been managed in 2019 and are consistent with the segments presented in 2018.

(a)� Operating segments

United Kingdom

The United Kingdom comprises two operating segments - Life and General Insurance. The principal activities of our UK Life operations are life insurance, long-term health and accident insurance, savings, pensions and annuity business. UK General Insurance provides insurance cover to individuals and businesses, for risks associated mainly with motor vehicles, property and liability (such as employers' liability and professional indemnity liability) and medical expenses.

Canada

The principal activity of our operation in Canada is general insurance. In particular it provides personal and commercial lines insurance products principally distributed through insurance brokers.

France

The principal activities of our operations in France are long-term business and general insurance. The long-term business offers a range of long-term insurance and savings products, primarily for individuals, with a focus on the unit-linked market. The general insurance business predominantly sells personal and small commercial lines insurance products through agents and a direct insurer.

Poland

Activities in Poland comprise long-term business and general insurance and includes our long-term business in Lithuania.

Italy, Ireland and Other

These countries are not individually significant at a Group level, so have been aggregated into a single reporting segment in line with IFRS 8 Operating Segments. The principal activities of our operations in Italy and Ireland are long-term business and general insurance. Our 'Other' operations include our life operations in Turkey. This segment also includes Friends First, which was acquired on 1 June 2018. The comparative results include our operations within Spain up to the date of disposal (Caja Murcia Vida and Caja Granada Vida on 11 July 2018 and Pelayo Vida on 1 October 2018), the principal activity of which was the sale of accident and health insurance and a selection of savings products. The comparative results also include Avipop, part of our operations in Italy, up to the date of disposal on 29 March 2018.

Asia

Our activities in Asia principally comprise our long-term business operations in China, India, Singapore, Hong Kong (see note B5(b)), Vietnam, Indonesia, and FPI (see note B5(b)). This segment also includes general insurance and health operations in Singapore and health operations in Indonesia.

Aviva Investors

Aviva Investors operates in most of the markets in which the Group operates, in particular the UK, France, North America and Asia Pacific. Aviva Investors manages policyholders' and shareholders' invested funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products. These include investment funds, unit trusts, open-ended investment companies and individual savings accounts.

Other Group activities

Investment return on centrally held assets and head office expenses, such as Group treasury and finance functions, together with certain taxes and financing costs arising on central borrowings are included in 'Other Group activities'. The results of our internal reinsurance operations and the Group's interest in Wealthify are also included in this segment, as are the elimination entries for certain inter-segment transactions and group consolidation adjustments.

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B6 - Segmental information continued

Measurement basis

The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are subject to normal commercial terms and market conditions. The Group evaluates performance of operating segments on the basis of:

(i)�� profit or loss from operations before tax attributable to shareholders

(ii)� profit or loss from operations before tax attributable to shareholders, adjusted for items outside the segment management's control, including investment market performance and fiscal policy changes.

(a) (i) Segmental income statement for the year ended 31 December 2019

	United Kingdom					Europe
	Life �m	GI �m	Canada �m	France �m	Poland �m	Italy, Ireland and Other �m	Asia �m	Aviva Investors �m	Other Group activities² �m	Total �m
Gross written premiums	8,596	4,624	3,204	6,883	643	5,761	1,532	-	-	31,243
Premiums ceded to reinsurers	(2,271)	(406)	(143)	(86)	(12)	(264)	(381)	-	-	(3,563)
Internal reinsurance revenue	-	-	-	-	-	-	1	-	(1)	-
Premiums written net of reinsurance	6,325	4,218	3,061	6,797	631	5,497	1,152	-	(1)	27,680
Net change in provision for unearned premiums	(2)	(57)	(99)	(28)	2	(9)	(16)	-	-	(209)
Net earned premiums	6,323	4,161	2,962	6,769	633	5,488	1,136	-	(1)	27,471
Fee and commission income	951	113	24	305	99	123	205	320	1	2,141
	7,274	4,274	2,986	7,074	732	5,611	1,341	320	-	29,612
Net investment income	27,070	254	171	6,267	155	4,352	967	61	1,280	40,577
Inter-segment revenue	-	-	-	-	-	-	-	247	-	247
Share of profit of joint ventures and associates	20	-	-	48	-	12	33	-	(28)	85
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	6	-	-	-	(28)	-	-	(22)
Segmental income¹	34,364	4,528	3,163	13,389	887	9,975	2,313	628	1,252	70,499
Claims and benefits paid, net of recoveries from reinsurers	(9,569)	(2,614)	(1,938)	(4,751)	(380)	(2,820)	(1,003)	-	(21)	(23,096)
Change in insurance liabilities, net of reinsurance	(3,428)	(53)	(16)	(1,112)	(49)	(1,062)	(32)	-	50	(5,702)
Change in investment contract provisions	(16,411)	-	-	(4,041)	1	(3,365)	(216)	(63)	-	(24,095)
Change in unallocated divisible surplus	162	-	-	(2,010)	(4)	(1,764)	(369)	-	-	(3,985)
Fee and commission expense	(669)	(1,265)	(823)	(816)	(156)	(352)	(257)	(27)	(1,171)	(5,536)
Other expenses	(1,332)	(298)	(162)	(246)	(95)	(230)	(283)	(447)	(236)	(3,329)
Inter-segment expenses	(218)	(6)	(6)	(2)	(5)	(10)	-	-	-	(247)
Finance costs	(159)	(4)	(7)	(1)	(1)	(6)	(8)	-	(390)	(576)
Segmental expenses	(31,624)	(4,240)	(2,952)	(12,979)	(689)	(9,609)	(2,168)	(537)	(1,768)	(66,566)
Profit/(loss) before tax	2,740	288	211	410	198	366	145	91	(516)	3,933
Tax attributable to policyholders' returns	(487)	-	-	-	-	(14)	(58)	-	-	(559)
Profit/(loss) before tax attributable to shareholders' profits	2,253	288	211	410	198	352	87	91	(516)	3,374
Adjusting items:
Reclassification of corporate costs and unallocated interest	-	(8)	33	46	-	-	-	5	(76)	-
Life business: Investment variances and economic assumption changes	(695)	-	-	84	(4)	(42)	10	-	(7)	(654)
Non-life business: Short-term fluctuation in return on investments	-	(102)	(64)	(95)	(5)	(33)	-	-	132	(167)
General insurance and health business: Economic assumption changes	-	27	2	24	-	-	-	-	1	54
Impairment of goodwill, joint ventures, associates and other amounts expensed	-	-	2	-	-	-	13	-	-	15
Amortisation and impairment of intangibles acquired in business combinations	54	-	13	2	5	2	11	-	-	87
Amortisation and impairment of AVIF	243	-	-	2	-	33	126	-	2	406
(Profit)/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	(6)	-	-	-	28	-	-	22
Other³	-	45	-	-	-	2	-	-	-	47
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	1,855	250	191	473	194	314	275	96	(464)	3,184

1�� Total reported income, excluding inter-segment revenue, includes �39,041 million from the United Kingdom (Aviva plc's country of domicile). Income is attributed on the basis of geographical origin which does not differ materially from revenue by geographical destination, as most risks are located in the countries where the contracts were written.

2�� Other Group activities include internal reinsurance and net expenses of �15 million in relation to the UK digital business. The reduction of �165 million from 2018 reflects the alignment of the UK digital business with the UK Life and UK GI businesses during the year.

3 � Other includes a charge of �45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims and a charge of �2 million relating to the negative goodwill that arose on acquisition of Friends First (see note B4).

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B6 - Segmental information continued

(a) (ii) Segmental income statement for the year ended 31 December 2018 - restated^1,2

	United Kingdom					Europe
	Life �m	GI �m	Canada �m	France �m	Poland �m	Italy, Ireland, Spain and Other �m	Asia �m	Aviva Investors⁴ �m	Other Group activities⁵ �m	Total �m
Gross written premiums	7,302	4,504	3,047	5,584	616	6,504	1,102	-	-	28,659
Premiums ceded to reinsurers	(1,666)	(317)	(119)	(77)	(12)	(113)	(20)	-	(2)	(2,326)
Internal reinsurance revenue	-	6	-	-	-	(2)	(7)	-	3	-
Premiums written net of reinsurance	5,636	4,193	2,928	5,507	604	6,389	1,075	-	1	26,333
Net change in provision for unearned premiums	14	(87)	27	(38)	7	9	(13)	-	-	(81)
Net earned premiums	5,650	4,106	2,955	5,469	611	6,398	1,062	-	1	26,252
Fee and commission income	939	122	24	313	94	113	202	368	3	2,178
	6,589	4,228	2,979	5,782	705	6,511	1,264	368	4	28,430
Net investment (expense)/income	(6,771)	16	51	(2,302)	(73)	(1,111)	(286)	37	(473)	(10,912)
Inter-segment revenue	-	-	-	-	-	-	-	259	-	259
Share of profit of joint ventures and associates	144	-	1	9	-	10	14	-	(66)	112
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	-	-	-	89	(5)	27	(9)	102
Segmental income³	(38)	4,244	3,031	3,489	632	5,499	987	691	(544)	17,991
Claims and benefits paid, net of recoveries from reinsurers	(10,184)	(2,731)	(1,989)	(4,659)	(356)	(2,595)	(570)	-	(58)	(23,142)
Change in insurance liabilities, net of reinsurance	6,184	351	(133)	557	148	(872)	(40)	-	51	6,246
Change in investment contract provisions	7,540	-	-	27	-	(2,249)	42	(39)	-	5,321
Change in unallocated divisible surplus	270	-	-	1,754	12	1,063	138	-	-	3,237
Fee and commission expense	(738)	(1,225)	(791)	(484)	(146)	(343)	(199)	(33)	633	(3,326)
Other expenses	(1,663)	(220)	(182)	(256)	(106)	(188)	(272)	(449)	(507)	(3,843)
Inter-segment expenses	(232)	(5)	(6)	(1)	(6)	(7)	-	-	(2)	(259)
Finance costs	(172)	(1)	(5)	(1)	-	(5)	(3)	-	(386)	(573)
Segmental expenses	1,005	(3,831)	(3,106)	(3,063)	(454)	(5,196)	(904)	(521)	(269)	(16,339)
Profit/(loss) before tax	967	413	(75)	426	178	303	83	170	(813)	1,652
Tax attributable to policyholders' returns	469	-	-	-	-	1	7	-	-	477
Profit/(loss) before tax attributable to shareholders' profits	1,436	413	(75)	426	178	304	90	170	(813)	2,129
Adjusting items:
Reclassification of corporate costs and unallocated interest	-	(16)	31	48	-	(1)	-	5	(67)	-
Life business: Investment variances and economic assumption changes	115	-	-	(6)	10	57	21	-	-	197
Non-life business: Short-term fluctuation in return on investments	-	172	45	44	2	57	-	-	156	476
General insurance and health business: Economic assumption changes	-	4	-	(5)	-	-	-	-	-	(1)
Impairment of goodwill, joint ventures, associates and other amounts expensed	-	-	-	-	2	-	3	-	8	13
Amortisation and impairment of intangibles acquired in business combinations	50	-	26	1	6	2	12	-	-	97
Amortisation and impairment of AVIF	285	-	-	2	-	6	130	-	3	426
(Profit)/loss on the disposal and remeasurement of subsidiaries, joint ventures and associates	-	-	-	-	-	(89)	5	(27)	9	(102)
Other⁶	-	(190)	-	-	-	(36)	-	-	(5)	(231)
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	1,886	383	27	510	198	300	261	148	(709)	3,004

1�� Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other Group activities segment. These consolidation adjustment reclassifications relate to UK property funds (�66 million reclassified to Other Group activities, which predominately includes net investment expense (�78 million), other expenses (�24 million credit) and finance costs (�15 million)). This segmental restatement has had no impact on the consolidated income statement. See note B2(a) for further information.

2 � During 2019 the Group adjusted operating profit APM has been revised and now includes the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. Comparative amounts have been restated resulting in a reduction in the prior period Group adjusted operating profit of �112 million. There is no impact on profit before tax attributable to shareholders' profit.

3�� Total reported income, excluding inter-segment revenue, includes �4,412 million from the United Kingdom (Aviva plc's country of domicile). Income is attributed on the basis of geographical origin which does not differ materially from revenue by geographical destination, as most risks are located in the countries where the contracts were written.

4 � Aviva Investors adjusted operating profit includes �1 million profit relating to the Aviva Investors Pensions Limited business.

5�� Other Group activities include internal reinsurance and net expenses of �180 million (restated) in relation to the UK digital business.

6�� Other includes a movement in the discount rate used for estimating lump sum payments in settlement of bodily injury claims which resulted in a gain of �190 million, a provision release of �78 million relating to the sale of Aviva USA in 2013, a gain of �36 million relating to negative goodwill on the acquisition of Friends First, a charge of �63 million relating to the UK defined benefit pension scheme as a result of the requirement to equalise members' benefits for the effects of Guaranteed Minimum Pension and a charge of �10 million relating to the goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs.

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B6 - Segmental information continued

(b) Further analysis by products and services

The Group's results can be further analysed by products and services which comprise long-term business, general insurance and health, fund management and other activities.

Long-term business

Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business. Long-term business also includes our share of the other life and related business written in our associates and joint ventures, as well as lifetime mortgage business written in the UK.

General insurance and health

Our general insurance and health business provides insurance cover to individuals and to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses.

Fund management

Our fund management business invests policyholders' and shareholders' funds and provides investment management services for institutional pension fund mandates. It manages a range of retail investment products, including investment funds, unit trusts, open-ended investment companies and individual savings accounts. Clients include Aviva Group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors.

Other

'Other' includes service companies, head office expenses, such as Group treasury and finance functions, and certain financing costs and taxes not allocated to business segments and elimination entries for certain inter-segment transactions and group consolidation adjustments.

(b) (i) Segmental income statement - products and services for the year ended 31 December 2019

	Long-term business �m	General insurance and health² �m	Fund management �m	Other³ �m	Total �m
Gross written premiums¹	20,335	10,908	-	-	31,243
Premiums ceded to reinsurers	(2,879)	(684)	-	-	(3,563)
Premiums written net of reinsurance	17,456	10,224	-	-	27,680
Net change in provision for unearned premiums	-	(209)	-	-	(209)
Net earned premiums	17,456	10,015	-	-	27,471
Fee and commission income	1,490	126	319	206	2,141
	18,946	10,141	319	206	29,612
Net investment income/(expense)	38,722	622	(1)	1,234	40,577
Inter-segment revenue	-	-	250	-	250
Share of profit of joint ventures and associates	113	-	-	(28)	85
(Loss)/profit on the disposal and remeasurement of subsidiaries, joint ventures and associates	(28)	6	-	-	(22)
Segmental income	57,753	10,769	568	1,412	70,502
Claims and benefits paid, net of recoveries from reinsurers	(16,612)	(6,484)	-	-	(23,096)
Change in insurance liabilities, net of reinsurance	(5,566)	(136)	-	-	(5,702)
Change in investment contract provisions	(24,095)	-	-	-	(24,095)
Change in unallocated divisible surplus	(3,985)	-	-	-	(3,985)
Fee and commission expense	(1,546)	(2,672)	(27)	(1,291)	(5,536)
Other expenses	(1,850)	(649)	(453)	(377)	(3,329)
Inter-segment expenses	(237)	(13)	-	-	(250)
Finance costs	(170)	(10)	-	(396)	(576)
Segmental expenses	(54,061)	(9,964)	(480)	(2,064)	(66,569)
Profit/(loss) before tax	3,692	805	88	(652)	3,933
Tax attributable to policyholders' returns	(559)	-	-	-	(559)
Profit/(loss) before tax attributable to shareholders' profits	3,133	805	88	(652)	3,374
Adjusting items	(133)	(161)	4	100	(190)
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	3,000	644	92	(552)	3,184

1�� Gross written premiums include inward reinsurance premiums assumed from other companies amounting to �62 million, which all relates to property and liability insurance.

2�� General insurance and health business segment includes gross written premiums of �944 million relating to health business. The remaining business relates to property and liability insurance.

3 � Other includes net expenses of �15 million in relation to the UK digital business. The reduction of �165 million from 2018 reflects the alignment of the UK digital business with the UK long-term and general insurance businesses during the year.

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B6 - Segmental information continued

(b) (ii) Segmental income statement - products and services for the year ended 31 December 2018 - restated^{1, 2}

	Long-term business �m	General insurance and health⁴ �m	Fund management �m	Other⁵ �m	Total �m
Gross written premiums³	18,140	10,519	-	-	28,659
Premiums ceded to reinsurers	(1,775)	(551)	-	-	(2,326)
Premiums written net of reinsurance	16,365	9,968	-	-	26,333
Net change in provision for unearned premiums	-	(81)	-	-	(81)
Net earned premiums	16,365	9,887	-	-	26,252
Fee and commission income	1,496	138	365	179	2,178
	17,861	10,025	365	179	28,430
Net investment (expense)/income	(10,453)	63	(1)	(521)	(10,912)
Inter-segment revenue	-	-	263	-	263
Share of profit of joint ventures and associates	178	-	-	(66)	112
Profit/(loss) on the disposal and remeasurement of subsidiaries, joint ventures and associates	84	-	27	(9)	102
Segmental income	7,670	10,088	654	(417)	17,995
Claims and benefits paid, net of recoveries from reinsurers	(16,540)	(6,602)	-	-	(23,142)
Change in insurance liabilities, net of reinsurance	6,044	202	-	-	6,246
Change in investment contract provisions	5,321	-	-	-	5,321
Change in unallocated divisible surplus	3,237	-	-	-	3,237
Fee and commission expense	(1,245)	(2,592)	(31)	542	(3,326)
Other expenses	(2,128)	(596)	(461)	(658)	(3,843)
Inter-segment expenses	(249)	(12)	-	(2)	(263)
Finance costs	(179)	(6)	-	(388)	(573)
Segmental expenses	(5,739)	(9,606)	(492)	(506)	(16,343)
Profit/(loss) before tax	1,931	482	162	(923)	1,652
Tax attributable to policyholders' returns	477	-	-	-	477
Profit/(loss) before tax attributable to shareholders' profits	2,408	482	162	(923)	2,129
Adjusting items	568	169	(19)	157	875
Group adjusted operating profit/(loss) before tax attributable to shareholders' profits	2,976	651	143	(766)	3,004

1�� Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The restatement has had no impact on the profit for the year or equity. As a result of the review, there have been reclassifications between operating segments to ensure a consistent presentation of investment fund consolidation entries in the Other segment. These consolidation adjustment reclassifications relate to property funds (�66 million reclassified from long-term business to Other, which predominately includes net investment expense (�78 million), other expenses (�24 million credit) and finance costs (�15�million)). This segmental restatement has had no impact on the consolidated income statement. See note B2(a) for further information.

2 � Following a change in the definition of the Group adjusted operating profit APM, comparative amounts have been amended from those previously reported, and now include the amortisation and impairment of internally generated intangible assets to better reflect the operational nature of these assets (see note B2(b)). Group adjusted operating profit continues to exclude amortisation and impairment of intangible assets acquired in business combinations. The effect of this change is to move �112 million relating to the amortisation of internally generated intangible assets into Group adjusted operating profit. There is no impact on profit before tax.

3�� Gross written premiums include inward reinsurance premiums assumed from other companies amounting to �56 million which all relates to property and liability insurance.

4�� General insurance and health business segment includes gross written premiums of �879 million relating to health business. The remaining business relates to property and liability insurance.

5 � Other includes net expenses of �180 million (restated) in relation to the UK digital business.

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B7 - Tax

This note analyses the tax charge for the year and explains the factors that affect it.

(a)� Tax charged/(credited) to the income statement

(i)�� The total tax charge/(credit) comprises:

	2019 �m	2018 �m
Current tax
For the period	1,062	559
Prior period adjustments	(179)	(49)
Total current tax	883	510
Deferred tax
Origination and reversal of temporary differences	402	(531)
Changes in tax rates or tax laws	(6)	(13)
Write back of deferred tax assets	(9)	(1)
Total deferred tax	387	(545)
Total tax charged/(credited) to income statement	1,270	(35)

(ii)� The Group, as a proxy for policyholders in the UK, Ireland and Singapore, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Ireland and Singapore life insurance policyholder returns is included in the tax charge. The tax charge attributable to policyholder returns included in the charge above is �559 million (2018: credit of �477�million).

(iii) The tax charge/(credit) above, comprising current and deferred tax, can be analysed as follows:

	2019 �m	2018 �m
UK tax	851	(236)
Overseas tax	419	201
	1,270	(35)

(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce the current tax expense and deferred tax charge by �nil and �11 million (2018: �nil and �nil), respectively.

(v)� Deferred tax charged/(credited) to the income statement represents movements on the following items:

	2019 �m	2018 �m
Long-term business technical provisions and other insurance items	(1,185)	907
Deferred acquisition costs	4	3
Unrealised gains/(losses) on investments	1,554	(1,453)
Pensions and other post-retirement obligations	21	2
Unused losses and tax credits	4	7
Subsidiaries, associates and joint ventures	4	(7)
Intangibles and additional value of in-force long-term business	(63)	(64)
Provisions and other temporary differences	48	60
Total deferred tax charged/(credited) to income statement	387	(545)

(b)� Tax credited to other comprehensive income

(i)�� The total tax credit comprises:

	2019 �m	2018 �m
Current tax
In respect of pensions and other post-retirement obligations	(49)	(59)
In respect of foreign exchange movements	(10)	(1)
	(59)	(60)
Deferred tax
In respect of pensions and other post-retirement obligations	(56)	16
In respect of fair value gains on owner-occupied properties	1	-
In respect of unrealised gains/(losses) on investments	5	(7)
	(50)	9
Total tax credited to other comprehensive income	(109)	(51)

(ii)� There is no tax charge/(credit) attributable to policyholders' return included above in either 2019 or 2018.

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B7 - Tax continued

(c)� Tax credited to equity

Tax credited directly to equity in the year in respect of coupon payments on the direct capital instrument and tier 1 notes amounted to �9�million (2018: �8 million).

(d)� Tax reconciliation

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	Shareholder �m	Policyholder �m	2019 �m	Shareholder �m	Policyholder �m	2018 �m
Total profit before tax	3,374	559	3,933	2,129	(477)	1,652

Tax calculated at standard UK corporation tax rate of 19.00% (2018: 19.00%)	641	106	747	405	(91)	314
Reconciling items
Different basis of tax - policyholders	-	454	454	-	(385)	(385)
Adjustment to tax charge in respect of prior periods	5	-	5	(16)	-	(16)
Non-assessable income and items not taxed at the full statutory rate	(51)	-	(51)	(4)	-	(4)
Non-taxable profit on sale of subsidiaries and associates	(1)	-	(1)	(59)	-	(59)
Disallowable expenses	41	-	41	50	-	50
Different local basis of tax on overseas profits	98	(1)	97	71	(1)	70
Change in future local statutory tax rates	(6)	-	(6)	-	-	-
Movement in deferred tax not recognised	(4)	-	(4)	(3)	-	(3)
Tax effect of profit from joint ventures and associates	(8)	-	(8)	(6)	-	(6)
Other	(4)	-	(4)	4	-	4
Total tax charged/(credited) to income statement	711	559	1,270	442	(477)	(35)

The tax charge/(credit) attributable to policyholder returns is removed from the Group's total profit before tax in arriving at the Group's profit before tax attributable to shareholders' profits. As the net of tax profits attributable to with-profits and unit-linked policyholders is zero, the Group's pre-tax profit attributable to policyholders is an amount equal and opposite to the tax charge/(credit) attributable to policyholders included in the total tax charge.

Finance Act 2016 introduced legislation reducing the UK corporation tax rate from 1 April 2020 to 17%. In addition, in France the rate of corporation tax was reduced from 34.43% to 32.02% from 1 January 2019, to 27.37% from 1 January 2021 and 25.83% from 1 January 2022. These reduced rates were used in the calculation of the Group's deferred tax assets and liabilities as at 31 December 2018.

During 2019 changes were made in France to alter the reduction in corporation tax rates, delaying the reduction to 32.02% to 1 January 2020 and amending the rate to take effect from 1 January 2021 to 28.41%. These revised rates have been used in the calculation of France's deferred tax assets and liabilities as at 31 December 2019.

During 2019, the UK Government indicated that it would reverse the reduction in corporation tax rate to 17% due from 1 April 2020. As of the 31 December 2019, this measure had not been substantively enacted and therefore no impact is reflected in the calculation of the UK's deferred tax assets and liabilities as at 31 December 2019. Were this measure to be introduced, it would increase the Group's deferred tax liability by approximately �73 million.

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B8 - Earnings per share

This note shows how to calculate earnings per share on profit attributable to ordinary shareholders, based both on the present shares in issue (the basic earnings per share) and the potential future shares in issue, including conversion of share options granted to employees (the diluted earnings per share). We have also shown the same calculations based on our Group adjusted operating profit as we believe this gives an important indication of operating performance. Consideration of both these measures gives a full picture of the performance of the business in the period.

(a)� Basic earnings per share

(i)�� The profit attributable to ordinary shareholders is:

			2019			Restated¹ 2018
	Group adjusted operating profit �m	Adjusting items �m	Total �m	Group adjusted operating profit �m	Adjusting items �m	Total �m
Profit before tax attributable to shareholders' profits	3,184	190	3,374	3,004	(875)	2,129
Tax attributable to shareholders' profit	(668)	(43)	(711)	(625)	183	(442)
Profit for the year	2,516	147	2,663	2,379	(692)	1,687
Amount attributable to non-controlling interests	(98)	(17)	(115)	(100)	(19)	(119)
Cumulative preference dividends for the year	(17)	-	(17)	(17)	-	(17)
Coupon payments in respect of the direct capital instrument (DCI) and tier 1 notes (net of tax)	(34)	-	(34)	(36)	-	(36)
Profit attributable to ordinary shareholders	2,367	130	2,497	2,226	(711)	1,515

1�� Following a change in the definition of the Group adjusted operating profit APM, comparative amounts have been amended from those previously reported, and now exclude only the amortisation and impairment of intangible assets acquired in business combinations (see note B1(b)). This change has been made to better reflect the operational nature of the Group's internally generated intangible assets. The effect of this change is to move �112�million relating to amortisation of internally generated intangible assets into Group adjusted operating profit.

(ii)� Basic earnings per share is calculated as follows:

			2019			Restated² 2018
	Before tax �m	Net of tax, NCI, preference dividends and DCI¹ �m	Per share p	Before tax �m	Net of tax, NCI, preference dividends and DCI¹ �m	Per share p
Group adjusted operating profit attributable to ordinary shareholders	3,184	2,367	60.5	3,004	2,226	56.2
Adjusting items:
Life business: Investment variances and economic assumption changes	654	535	13.7	(197)	(198)	(5.0)
Non-life business: Short-term fluctuation in return on investments	167	129	3.3	(476)	(378)	(9.6)
General insurance and health business: Economic assumption changes	(54)	(33)	(0.8)	1	(1)	-
Impairment of goodwill, joint ventures, associates and other amounts expensed	(15)	(15)	(0.4)	(13)	(13)	(0.3)
Amortisation and impairment of intangibles acquired in business combinations²	(87)	(61)	(1.6)	(97)	(82)	(2.1)
Amortisation and impairment of acquired value of in-force business	(406)	(356)	(9.1)	(426)	(371)	(9.4)
Profit on disposal and remeasurement of subsidiaries, joint ventures and associates	(22)	(23)	(0.6)	102	102	2.6
Other³	(47)	(46)	(1.2)	231	230	5.8
Profit attributable to ordinary shareholders	3,374	2,497	63.8	2,129	1,515	38.2

1�� DCI includes the direct capital instrument and tier 1 notes.

2�� Following a change in the definition of the Group adjusted operating profit APM, comparative amounts have been amended from those previously reported, and now exclude only the amortisation and impairment of intangible assets acquired in business combinations (see note B1(b)). This change has been made to better reflect the operational nature of the Group's internally generated intangible assets. The effect of this change is to move �112�million relating to amortisation of internally generated intangible assets into Group adjusted operating profit.

3�� Other in 2019 relates to a charge of �45 million in relation to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (see B12(b)) and a charge of �2�million relating to negative goodwill which arose on the acquisition of Friends First (see note A7). Other in 2018 includes a movement in the discount rate used for estimating lump sum payments in the settlement of bodily injury claims which resulted in a gain of �190 million, a provision release of �78 million relating to the sale of Aviva USA in 2013, a gain of �36 million relating to negative goodwill on the acquisition of Friends First, a charge of �63 million relating to the UK defined benefit pension scheme as a result of the requirements to equalise members' benefits of the effects of Guaranteed Minimum Pension and a charge of �10 million relating to goodwill payments to preference shareholders, which was announced on 30 April 2018, and associated administration costs.

(iii) The calculation of basic earnings per share uses a weighted average of 3,911 million (2018: 3,963 million) ordinary shares in issue, after deducting treasury shares. The actual number of shares in issue at 31 December 2019 was 3,921 million (2018: 3,902 million) and 3,919�million (2018: 3,899 million) excluding treasury shares.

(iv) On 1 May 2018 the Group announced a share buy-back of ordinary shares for an aggregate purchase price of up to �600 million, which was carried out in full during the period from 1 May 2018 to 17 September 2018. The number of shares in issue reduced by 119 million as at 31 December 2018 in respect of shares acquired and cancelled under the buy-back programme.

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B8 - Earnings per share continued

(b)� Diluted earnings per share

(i)�� Diluted earnings per share is calculated as follows:

			2019			2018
	Total �m	Weighted average number of shares million	Per share p	Total �m	Weighted average number of shares million	Per share p
Profit attributable to ordinary shareholders	2,497	3,911	63.8	1,515	3,963	38.2
Dilutive effect of share awards and options	-	45	(0.7)	-	47	(0.4)
Diluted earnings per share	2,497	3,956	63.1	1,515	4,010	37.8

(ii) Diluted earnings per share on Group adjusted operating profit attributable to ordinary shareholders is calculated as follows:

			2019			Restated¹ 2018
	Total �m	Weighted average number of shares million	Per share p	Total �m	Weighted average number of shares million	Per share p
Group adjusted operating profit attributable to ordinary shareholders	2,367	3,911	60.5	2,226	3,963	56.2
Dilutive effect of share awards and options	-	45	(0.7)	-	47	(0.7)
Diluted group adjusted operating profit per share	2,367	3,956	59.8	2,226	4,010	55.5

B9 - Dividends and appropriations

This note analyses the total dividends and other appropriations paid during the year. The table below does not include the final dividend proposed after the year end because it is not accrued in these financial statements.

	2019 �m	2018 �m
Ordinary dividends declared and charged to equity in the period
Final 2018 - 20.75 pence per share, paid on 30 May 2019	812	-
Final 2017 - 19.00 pence per share, paid on 17 May 2018	-	764
Interim 2019 - 9.50 pence per share, paid on 26 September 2019	372	-
Interim 2018 - 9.25 pence per share, paid on 24 September 2018	-	364
	1,184	1,128
Preference dividends declared and charged to equity in the period	17	17
Coupon payments on DCI and tier 1 notes	43	44
	1,244	1,189

Subsequent to 31 December 2019, the directors proposed a final dividend for 2019 of 21.40 pence per ordinary share (2018: 20.75 pence), amounting to �839 million (2018: �812 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on
2 June 2020 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2020.

Interest on the direct capital instrument and tier 1 notes is treated as an appropriation of retained profits and, accordingly, is accounted for when paid. This year's tax relief is obtained at a rate of 19% (2018: 19%).

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B10 - Contract liabilities and associated reinsurance

The Group's liabilities for insurance and investment contracts it has sold, and the associated reinsurance, is covered in the following notes:

� Note B11 covers insurance liabilities;

� Note B12 covers the methodology and assumptions used in calculating the insurance liabilities;

� Note B13 covers liabilities for investment contracts;

� Note B14 details the associated reinsurance assets on these liabilities; and

� Note B15 shows the effects of changes in the assumptions on the liabilities.

(a)� Carrying amount

The following is a summary of the contract liabilities and related reinsurance assets as at 31 December.

			2019			2018
	Gross provisions �m	Reinsurance assets �m	Net �m	Gross provisions �m	Reinsurance assets �m	Net �m
Long-term business
Insurance liabilities	(131,182)	6,369	(124,813)	(125,829)	5,836	(119,993)
Liabilities for participating investment contracts	(92,762)	1	(92,761)	(90,455)	1	(90,454)
Liabilities for non-participating investment contracts	(137,689)	4,006	(133,683)	(120,354)	4,009	(116,345)
	(361,633)	10,376	(351,257)	(336,638)	9,846	(326,792)
Outstanding claims provisions	(2,187)	93	(2,094)	(2,001)	89	(1,912)
	(363,820)	10,469	(353,351)	(338,639)	9,935	(328,704)
General insurance and health
Outstanding claims provisions	(8,831)	683	(8,148)	(9,046)	789	(8,257)
Provisions for claims incurred but not reported	(2,672)	1,004	(1,668)	(2,360)	822	(1,538)
	(11,503)	1,687	(9,816)	(11,406)	1,611	(9,795)
Provision for unearned premiums	(5,138)	275	(4,863)	(4,946)	254	(4,692)
Provision arising from liability adequacy tests¹	(15)	-	(15)	(16)	-	(16)
	(16,656)	1,962	(14,694)	(16,368)	1,865	(14,503)
Total	(380,476)	12,431	(368,045)	(355,007)	11,800	(343,207)
Less: Liabilities classified as held for sale	9,011	(75)	8,936	8,462	(45)	8,417
	(371,465)	12,356	(359,109)	(346,545)	11,755	(334,790)

1�� Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations, where applicable, are included in other line items. At 31 December 2019 this provision is �nil (2018: �nil) for the life operations.

(b)� Change in contract liabilities, net of reinsurance, recognised as an expense

The purpose of the following table is to reconcile the change in insurance liabilities, net of reinsurance, shown on the consolidated income statement, to the change in insurance liabilities recognised as an expense in the relevant movement tables in the following notes. The components of the reconciliation are the change in provision for outstanding claims on long-term business (which is not included in a separate movement table), and the unwind of discounting on general insurance reserves (which is included within finance costs in the income statement). For general insurance and health, the change in the provision for unearned premiums is not included in the reconciliation as, within the income statement, this is included within earned premiums.

2019	Gross �m	Reinsurance �m	Net �m
Long-term business
Change in insurance liabilities (note B11(b)(iii))	6,600	(1,030)	5,570
Change in provision for outstanding claims	4	(8)	(4)
	6,604	(1,038)	5,566
General insurance and health
Change in insurance liabilities (note B11(c)(iv) and B14(c)(ii))¹	234	(94)	140
Less: Unwind of discount	(14)	10	(4)
	220	(84)	136
Total change in insurance liabilities	6,824	(1,122)	5,702

1�� Includes �45 million in the UK General Insurance and Health business relating to a change in the discount rate used for estimating lump sum payments of bodily injury claims from 0.00% to -0.25%.

2018	Gross �m	Reinsurance �m	Net �m
Long-term business
Change in insurance liabilities (note B11(b)(iii))	(6,284)	61	(6,223)
Change in provision for outstanding claims	190	(11)	179
	(6,094)	50	(6,044)
General insurance and health
Change in insurance liabilities (note B11(c)(iv) and B14(c)(ii))¹	(313)	111	(202)
Less: Unwind of discount	(8)	8	-
	(321)	119	(202)
Total change in insurance liabilities	(6,415)	169	(6,246)

1�� Includes �(190) million in the UK General Insurance and Health business relating to a change in the discount rate used for estimating lump sum payments of bodily injury claims from -0.75% to 0.00%.

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B10 - Contract liabilities and associated reinsurance continued

For non-participating investment contracts, deposits collected and amounts withdrawn are not shown on the income statement, but are accounted for directly through the statement of financial position as an adjustment to the gross liabilities for investment contracts. The associated change in investment contract provisions shown on the income statement consists of the attributed investment return. For participating investment contracts, the change in investment contract provisions on the income statement primarily consists of the movement in participating investment contract liabilities (net of reinsurance) over the reporting period.

B11 - Insurance liabilities

This note analyses the Group's gross insurance contract liabilities for the long-term and general insurance and health business, describes how the Group calculates these liabilities and presents the movement in these liabilities during the year.

(a)� Carrying amount

Insurance liabilities (gross of reinsurance) at 31 December comprised:

	2019 �m	Restated¹ �2018 �m
Long-term business
Participating insurance liabilities¹	47,344	46,768
Unit-linked non-participating insurance liabilities	14,707	14,480
Other non-participating insurance liabilities¹	69,131	64,581
	131,182	125,829
Outstanding claims provisions	2,187	2,001
	133,369	127,830
General insurance and health
Outstanding claims provisions	8,831	9,046
Provision for claims incurred but not reported	2,672	2,360
	11,503	11,406
Provision for unearned premiums	5,138	4,946
Provision arising from liability adequacy tests²	15	16
	16,656	16,368
Total	150,025	144,198
Less: Liabilities classified as held for sale	(687)	(121)
	149,338	144,077

1�� Comparative amounts at full year 2018 have been revised. In the UK, �5,928 million has been reclassified from other non-participating insurance liabilities to participating insurance liabilities.

2�� Provision arising from liability adequacy tests relates to general insurance business only. Liability adequacy test provisions for life operations, where applicable, are included in other line items. At 31 December 2019 this provision is �nil (2018: �nil) for the life operations.

(b)� Long-term business liabilities

(i)�� Business description

The Group underwrites long-term business in a number of countries as follows:

� In the UK, long-term business is mainly written in the 'Non-Profit' fund and in a number of 'With-Profits' sub-funds. In the 'Non-Profit' fund shareholders are entitled to 100% of the distributed profits. In the 'With-Profits' sub-funds the with-profits policyholders are entitled to between 40% and 100% of distributed profits, depending on the fund rules. There is also the Reattributed Inherited Estate External Support Account (RIEESA), which does not itself underwrite any business, but provides capital support to one of the with-profits sub-funds and receives any surplus or deficit emerging from it. In the RIEESA, shareholders are entitled to 100% of the distributed profits, but these cannot be distributed until the 'lock-in' criteria set by the Reattribution Scheme have been met;

� In France, the majority of policyholders' benefits are determined by investment performance, subject to certain guarantees, and shareholders' profits are derived largely from management fees. In addition, a substantial number of policies participate in investment returns, with the balance being attributable to shareholders; and

� In other operations in Europe and Asia, a range of long-term insurance and savings products are written.

(ii)� Group practice

The long-term business liabilities are calculated separately for each of the Group's life operations. The provisions for overseas subsidiaries have generally been included on the basis of local regulatory requirements, modified where necessary to reflect the requirements of the Companies Act 2006.

Material judgement is required in calculating the liabilities and is exercised particularly through the choice of assumptions where discretion is permitted. In turn, the assumptions used depend on the circumstances prevailing in each of the life operations. Provisions are most sensitive to assumptions regarding discount rates, mortality and morbidity rates. Where discount rate assumptions are based on current market yields on fixed interest securities, allowance is made for default risk implicit in the yields on the underlying assets.

Bonuses paid during the year are reflected in claims paid, whereas those allocated as part of the bonus declaration are included in the movements in the long-term business liabilities.

A description of the main methodology and most material valuation assumptions has been provided (see note B12).

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B11 - Insurance liabilities continued

(iii) Movements in long-term business liabilities

The following movements have occurred in the gross long-term business liabilities during the year:

	2019 �m	2018 �m
Carrying amount at 1 January	125,829	130,972
Liabilities in respect of new business	6,988	6,190
Expected change in existing business	(6,452)	(7,952)
Variance between actual and expected experience	3,212	(1,844)
Impact of operating assumption changes	(961)	(1,456)
Impact of economic assumption changes	3,766	(959)
Other movements recognised as an expense¹	47	(263)
Change in liability recognised as an expense (note B10(b))	6,600	(6,284)
Effect of portfolio transfers, acquisitions and disposals²	-	788
Foreign exchange rate movements	(1,775)	413
Other movements³	528	(60)
Carrying amount at 31 December	131,182	125,829

1�� Other movements recognised as an expense during 2019 relate primarily to: a special bonus distribution to with-profits policyholders and model changes in UK Life; the reclassification of health liabilities in Singapore;
and methodology changes in Ireland. The movement in 2018 relates to a special bonus distribution to with-profits policyholders in UK Life.

2�� The movement during 2018 includes the acquisition of Friends First in Ireland offset by the disposal of Spain and Avipop in Italy.

3�� Other movements during 2019 mainly relate to the reclassification in UK from participating investment contracts to insurance contracts (�972 million) and following a review of the presentation of negative reinsurance assets in the UK, �(427) million of negative reinsurance assets have been reclassified from insurance liabilities to reinsurance assets. 2018 includes the reclassification in France from insurance to participating investment contracts (�(56)�million).

For many types of long-term business, including unit-linked and participating insurance liabilities, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The gross long-term business liabilities increased by �5.4 billion during 2019 (2018: �5.1 billion decrease) mainly driven by:

� Variance between actual and expected experience of �3.2 billion, which was mainly due to higher than expected equity returns in the UK and France;

� Impact of non-economic assumption changes of �(1.0) billion mainly due to updates to longevity assumptions (with the impact on profit partially offset by a corresponding reduction in reinsurance assets) in the UK; and

� Economic assumption changes of �3.8 billion, which reflects a reduction in valuation interest rates in response to decreasing interest rates and narrowing of credit spreads, primarily in respect of annuity contracts in the UK.

�

For participating insurance liabilities, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes impact profit, these are included in the effect of changes in assumptions and estimates during the year (see note B15), together with the impact of movements in related non-financial assets.

(c)� General insurance and health liabilities

(i)�� Business description

The Group underwrites general insurance and health business in a number of countries as follows:

� In the UK, providing individual and corporate customers with a wide range of insurance products;

� In Canada, providing a range of personal and commercial lines products; and

� In Europe and Asia, providing a range of general insurance and health products.

(ii)� Group practice

Delays occur in the notification and settlement of claims and a substantial measure of experience and judgement is involved in assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty at the statement of financial position date. The liabilities for general insurance and health business are based on information currently available. However, it is inherent in the nature of the business written that the ultimate liabilities may vary as a result of subsequent developments.

Provisions for outstanding claims are established to cover the outstanding expected ultimate liability for losses and loss adjustment expenses (LAE) in respect of all claims that have already occurred. The provisions established cover reported claims and associated LAE, as well as claims incurred but not yet reported and associated LAE.

The Group only establishes reserves for losses that have already occurred. The Group therefore does not establish catastrophe equalisation reserves that defer a share of income in respect of certain lines of business from years in which a catastrophe does not occur to future periods in which catastrophes may occur. When calculating reserves, the Group takes into account estimated future recoveries from salvage and subrogation, and a separate asset is recorded for expected future recoveries from reinsurers after considering their collectability.

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B11 - Insurance liabilities continued

(iii) Provisions for Outstanding Claims

The table below shows the total general insurance and health liabilities split by outstanding claim provisions and provision for claims incurred but not reported (IBNR provisions), gross of reinsurance, by major line of business.

	As at 31 December 2019			As at 31 December 2018
	Outstanding claim provisions �m	IBNR provisions �m	Total claim provisions �m	Outstanding claim provisions �m	IBNR provisions �m	Total claim provisions �m
Motor	4,836	1,115	5,951	5,019	963	5,982
Property	1,823	155	1,978	1,833	104	1,937
Liability	1,864	1,277	3,141	1,856	1,164	3,020
Creditor	5	6	11	4	7	11
Other	303	119	422	334	122	456
	8,831	2,672	11,503	9,046	2,360	11,406

The gross outstanding claims provision before discounting was �11,205 million (2018: �10,955 million). Details of the range of discount rates used along with other material assumptions are available (see note B12(b)).

(iv) Movements in general insurance and health claims liabilities

The following changes have occurred in the general insurance and health claims liabilities during the year:

	2019 �m	2018 �m
Carrying amount at 1 January	11,406	11,801
Impact of changes in assumptions	126	(22)
Claim losses and expenses incurred in the current year	7,045	7,158
Decrease in estimated claim losses and expenses incurred in prior periods	(186)	(544)
Incurred claims losses and expenses	6,985	6,592
Less:
Payments made on claims incurred in the current year	(3,834)	(3,927)
Payments made on claims incurred in prior periods	(3,327)	(3,343)
Recoveries on claim payments	396	357
Claims payments made in the period, net of recoveries	(6,765)	(6,913)
Unwind of discounting	14	8
Changes in claims reserve recognised as an expense (note B10(b))	234	(313)
Effect of portfolio transfers, acquisitions and disposals¹	-	(29)
Foreign exchange rate movements	(138)	(53)
Other movements	1	-
Carrying amount at 31 December	11,503	11,406

1�� The movement during 2018 relates to the disposal of Avipop in Italy.

(v)� Movements in general insurance and health unearned premiums

The following changes have occurred in the liabilities for unearned premiums (UPR) during the year:

	2019 �m	2018 �m
Carrying amount at 1 January	4,946	4,980
Premiums written during the year	10,908	10,519
Less: Premiums earned during the year	(10,677)	(10,421)
Changes in UPR recognised as an expense	231	98
Gross portfolio transfers and acquisitions¹	-	(103)
Foreign exchange rate movements	(39)	(29)
Carrying amount at 31 December	5,138	4,946

1�� The movement during 2018 relates to the disposal of Avipop in Italy.

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B11 - Insurance liabilities continued

(vi) Analysis of general insurance and health claims development

The tables that follow present the development of claims payments and the estimated ultimate cost of claims for the accident years 2010 to 2019. The upper half of the tables shows the cumulative amounts paid during successive years related to each accident year, while the lower section of the tables shows the original estimated ultimate cost of claims and how these original estimates have increased or decreased, as more information becomes known about the individual claims and overall claim frequency and severity.

Key elements of the development of prior accident year general insurance and health net provisions during 2019 were:

� �134 million release from the UK due to favourable claims experience in personal and commercial motor partly offset by a strengthening in commercial property and a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (for further details see note B12);

� �58 million release from Canada primarily due to favourable claims experience on personal and commercial motor and large reinsurance recoverable on two catastrophe events from August 2018 in personal and commercial property lines; and

� �83 million release from Europe mainly due to favourable claims development in France.

Key elements of the development of prior accident year general insurance and health net provisions during 2018 were:

� �372 million release from the UK due to a change in the discount rate used for estimating lump sum payments in settlement of bodily injury claims (for further details see note B12) and favourable claims experience in personal and commercial motor;

� �78 million release from Canada primarily due to favourable claims experience on personal motor and aligning RBC claims practices with that of the Aviva book; and

� �127 million release from Europe mainly due to continued favourable development in France.

Gross of reinsurance

Before the effect of reinsurance, the loss development table is:

Accident year	All prior years �m	2010 �m	2011 �m	2012 �m	2013 �m	2014 �m	2015 �m	2016 �m	2017 �m	2018 �m	2019 �m	Total �m
Gross cumulative claim payments
At end of accident year		(3,502)	(3,420)	(3,055)	(3,068)	(3,102)	(2,991)	(3,534)	(3,517)	(3,769)	(3,617)
One year later		(5,466)	(4,765)	(4,373)	(4,476)	(4,295)	(4,285)	(4,972)	(4,952)	(5,239)
Two years later		(5,875)	(5,150)	(4,812)	(4,916)	(4,681)	(4,710)	(5,435)	(5,388)
Three years later		(6,163)	(5,457)	(5,118)	(5,221)	(4,974)	(4,997)	(5,781)
Four years later		(6,405)	(5,712)	(5,376)	(5,467)	(5,244)	(5,198)
Five years later		(6,564)	(5,864)	(5,556)	(5,645)	(5,406)
Six years later		(6,649)	(5,978)	(5,635)	(5,739)
Seven years later		(6,690)	(6,032)	(5,718)
Eight years later		(6,718)	(6,078)
Nine years later		(6,740)
Estimate of gross ultimate claims
At end of accident year		6,911	6,428	6,201	6,122	5,896	5,851	6,947	6,894	7,185	6,979
One year later		7,006	6,330	6,028	6,039	5,833	5,930	6,931	6,796	7,175
Two years later		6,950	6,315	6,002	6,029	5,865	5,912	6,864	6,756
Three years later		6,914	6,292	5,952	6,067	5,842	5,814	6,817
Four years later		6,912	6,262	6,002	6,034	5,772	5,785
Five years later		6,906	6,265	5,979	5,996	5,756
Six years later		6,926	6,265	5,910	5,956
Seven years later		6,913	6,223	5,902
Eight years later		6,877	6,205
Nine years later		6,861
Estimate of gross ultimate claims		6,861	6,205	5,902	5,956	5,756	5,785	6,817	6,756	7,175	6,979
Cumulative payments		(6,740)	(6,078)	(5,718)	(5,739)	(5,406)	(5,198)	(5,781)	(5,388)	(5,239)	(3,617)
	2,341	121	127	184	217	350	587	1,036	1,368	1,936	3,362	11,629
Effect of discounting	(280)	(18)	(1)	-	1	-	-	-	-	-	-	(298)
Present value	2,061	103	126	184	218	350	587	1,036	1,368	1,936	3,362	11,331
Cumulative effect of foreign exchange movements	-	(3)	(2)	1	4	19	71	(16)	(23)	(19)	-	32
Effect of acquisitions	8	1	7	9	12	23	42	38	-	-	-	140
Present value recognised in the statement of financial position	2,069	101	131	194	234	392	700	1,058	1,345	1,917	3,362	11,503

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B11 - Insurance liabilities continued

Net of reinsurance

After the effect of reinsurance, the loss development table is:

Accident year	All prior years �m	2010 �m	2011 �m	2012 �m	2013 �m	2014 �m	2015 �m	2016 �m	2017 �m	2018 �m	2019 �m	Total �m
Net cumulative claim payments
At end of accident year		(3,386)	(3,300)	(2,925)	(2,905)	(2,972)	(2,867)	(3,309)	(3,483)	(3,718)	(3,565)
One year later		(5,242)	(4,578)	(4,166)	(4,240)	(4,079)	(4,061)	(4,591)	(4,843)	(5,117)
Two years later		(5,637)	(4,963)	(4,575)	(4,649)	(4,432)	(4,452)	(5,012)	(5,255)
Three years later		(5,905)	(5,263)	(4,870)	(4,918)	(4,720)	(4,725)	(5,329)
Four years later		(6,137)	(5,485)	(5,110)	(5,159)	(4,973)	(4,919)
Five years later		(6,278)	(5,626)	(5,289)	(5,324)	(5,132)
Six years later		(6,361)	(5,740)	(5,371)	(5,417)
Seven years later		(6,411)	(5,798)	(5,439)
Eight years later		(6,440)	(5,842)
Nine years later		(6,458)
Estimate of net ultimate claims
At end of accident year		6,650	6,202	5,941	5,838	5,613	5,548	6,489	6,714	6,997	6,774
One year later		6,751	6,103	5,765	5,745	5,575	5,635	6,458	6,591	6,944
Two years later		6,685	6,095	5,728	5,752	5,591	5,608	6,377	6,569
Three years later		6,644	6,077	5,683	5,733	5,559	5,517	6,334
Four years later		6,634	6,034	5,717	5,689	5,490	5,495
Five years later		6,614	6,005	5,680	5,653	5,472
Six years later		6,624	6,003	5,631	5,612
Seven years later		6,615	5,967	5,600
Eight years later		6,590	5,952
Nine years later		6,569
Estimate of net ultimate claims		6,569	5,952	5,600	5,612	5,472	5,495	6,334	6,569	6,944	6,774
Cumulative payments		(6,458)	(5,842)	(5,439)	(5,417)	(5,132)	(4,919)	(5,329)	(5,255)	(5,117)	(3,565)
	922	111	110	161	195	340	576	1,005	1,314	1,827	3,209	9,770
Effect of discounting	(121)	(15)	3	(1)	5	-	-	-	-	-	-	(129)
Present value	801	96	113	160	200	340	576	1,005	1,314	1,827	3,209	9,641
Cumulative effect of foreign exchange movements	-	(3)	(2)	1	4	18	70	(15)	(23)	(17)	-	33
Effect of acquisitions	10	1	7	9	12	23	42	38	-	-	-	142
Present value recognised in the statement of financial position	811	94	118	170	216	381	688	1,028	1,291	1,810	3,209	9,816

In the loss development tables shown above, the cumulative claim payments and estimates of cumulative claims for each accident year are translated into sterling at the exchange rates that applied at the end of that accident year. The impact of using varying exchange rates is shown at the bottom of each table. Disposals are dealt with by treating all outstanding and IBNR claims of the disposed entity as 'paid' at the date of disposal.

The loss development tables above include information on asbestos and environmental pollution claims provisions from business written more than 10 years ago. The undiscounted claim provisions, net of reinsurance, in respect of this business at 31 December 2019 were �88�million (2018:��94 million). The movement in the year reflects a reduction of �7 million due to favourable claims development, claim payments net of reinsurance recoveries and foreign exchange movements.

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B12 - Insurance liabilities methodology and assumptions

(a)� Long-term business

The main method used for the actuarial valuation of long-term insurance liabilities is the gross premium method which involves the discounting of projected future cash flows. The cash flows are calculated using the contractual premiums payable together with explicit assumptions for investment returns, discount rates, inflation, mortality, morbidity, persistency and future expenses. These assumptions can vary by contract type and reflect current and expected future experience with an allowance for prudence.

The methodology and assumptions described below relate to the UK and France insurance businesses only.

(i)�� UK

Non-profit business

The valuation of non?profit business is based on grandfathered regulatory requirements under IFRS 4 prior to the adoption of Solvency II, adjusted to remove certain regulatory reserves and margins in assumptions, notably for annuity business. Conventional non?profit contracts, including those written in the with-profits funds, are valued using the gross premium method. For non?profit business in the ex. Friends Life with?profits funds, the liabilities are measured on a realistic basis with implicit recognition of the present value of future profits.

For unit?linked and some unitised with?profits business, the provisions are valued by adding a prospective non?unit reserve to the bid value of units. The prospective non?unit reserve is calculated by projecting the future non?unit cash flows using prudent assumptions and on the assumption that future premiums cease, unless it is more onerous to assume that they continue.

Discount rates

Valuation discount rate assumptions are set with regard to yields on the supporting assets and the general level of long?term interest rates as measured by gilt yields. An explicit allowance for risk is included by making a deduction from the yields on corporate bonds, mortgages and deposits, based on historical default experience of each asset class. For equity release assets, the risk allowances are consistent with those used in the fair value asset methodology. A further margin for risk is then deducted for all asset classes.

Valuation discount rates for business in the non?profit funds are as follows:

Valuation discount rates (Gross of investment expenses)	2019	2018
Assurances
Life conventional non-profit	0.5% to 2.1%	0.9% to 2.6%
Pensions conventional non-profit	0.6% to 1.6%	1.1% to 2.1%
Annuities
Conventional immediate and deferred annuities	0.9% to 2.3%	1.2% to 3.0%
Non-unit reserves on unit-linked business
Life	0.9%	0.9% to 1.3%
Pensions	1.1%	0.9% to 1.6%
Income Protection
Active lives	0.6% to 2.1%	1.1% to 2.6%
Claims in payment (level and index linked)	1.1%	1.3% to 1.6%

The valuation discount rates are after a reduction for risk, but before allowance for investment expenses. For conventional immediate annuity business, the allowance for risk comprises long?term assumptions on a prudent basis for defaults or, in the case of equity release assets, expected losses arising from the No?Negative?Equity Guarantee. These allowances vary by asset category and for some asset classes by rating.

The risk allowances made for corporate bonds (including overseas government bonds and structured finance assets), mortgages (including healthcare mortgages, commercial mortgages and infrastructure assets), and equity release equated to�45?47 bps, 31?35 bps, and 124 bps�respectively at 31 December 2019 (2018: 50 bps, 39?41 bps, and 112 bps respectively).

The total valuation allowance in respect of corporate bonds and mortgages, including healthcare mortgages but excluding equity release, was��1.8 billion�(2018: �1.9 billion) over the remaining term of the portfolio at 31 December 2019. The total valuation allowance in respect of equity release assets was��1.5 billion�at 31 December 2019 (2018: �1.3 billion). Total liabilities for the annuity business were��57.6 billion�at 31�December 2019 (2018: �53.7 billion).

Expenses

Maintenance expense assumptions for non?profit business are generally expressed as a per policy charge set with regards to an allocation of current year expense levels by broad category of business and using the policy counts for in-force business. The assumptions also include an allowance for prudence and increase by future expense inflation over the lifetime of each contract. Expense inflation is assumed to be in line with RPI, and in line with external agreements for business administered externally. An additional liability is held if projected per?policy expenses in future years are expected to exceed current assumptions. Further, explicit project expense liabilities are held for non?discretionary project costs that typically relate to mandatory requirements. Expense?related liabilities are only held where expenses are not covered by anticipated future profits in the liability methodology, notably for unit?linked contracts. Investment expense assumptions are generally expressed as a proportion of the assets backing the liabilities.

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B12 - Insurance liabilities methodology and assumptions continued

Mortality

Mortality assumptions for non?profit business are set with regard to recent Company experience and general industry trends. The mortality tables used in the valuation are summarised below:

Mortality tables used	2019	2018
Assurances
Non-profit	AM00/AF00 or TM08/TF08 adjusted for smoker status and age/sex specific factors	AM00/AF00 or TM08/TF08 adjusted for smoker status and age/sex specific factors

Pure endowments and deferred annuities before vesting	AM00/AF00 adjusted	AM00/AF00 adjusted
Annuities in payment
Pensions business and general annuity business	PMA08 HAMWP /PFA08 HAMWP adjusted plus allowance for future mortality improvement	PMA08 HAMWP /PFA08 HAMWP adjusted plus allowance for future mortality improvement
Bulk purchase annuities	CV3	CV2

For the largest portfolio of pensions annuity business, the underlying mortality assumptions for males are 105.4% of PMA08 HAMWP adjusted (2018: 105.8% of PMA08 HAMWP adjusted) with base year 2008; for females the underlying mortality assumptions are 99.5% of PFA08 HAMWP adjusted (2018: 99.0% of PFA08 HAMWP adjusted) with base year 2008.

Improvements are based on 'CMI_2018 (S=7.25) Advanced with adjustments' (2018: 'CMI_2017 (S=7.5) Advanced with adjustments') with a long?term improvement rate of 1.75% (2018: 1.75%) for males and 1.5% (2018: 1.5%) for females, both with an additional improvement for prudence of 0.5% (2018: 0.5%) to all future annual improvement adjustments. The CMI_2018 tables have been adjusted by adding 0.25% (2018: 0.25%) and 0.35% (2018: 0.35%) to the initial rate of mortality improvements for males and females respectively (to allow for greater mortality improvements in the annuitant population relative to the general population on which CMI_2018 is based), and uses the advanced parameters to taper the long?term improvement rates to zero between ages 90 and 115 (the 'core' parameters taper the long?term improvement rates to zero between ages 85 and 110). The tapering approach is unchanged from that used at 2018. In addition, on a significant proportion of individual annuity business, year?specific adjustments are made to allow for potential selection effects due to the development of the Enhanced Annuity market and covering possible selection effects from pension freedom reforms.

With-profits business

The Group's UK with?profits funds are evaluated by reference to FRS 27, which was grandfathered under IFRS 4, prior to the adoption of Solvency II. This uses an approach of calculating the realistic liabilities for the contracts. The realistic liabilities include the with?profits benefit reserve (WPBR), and an additional provision for the expected cost of any guarantees and options in excess of the WPBR.

The WPBR for an individual contract is generally calculated on a retrospective basis, and represents the accumulation of the premiums paid on the contract, allowing for investment return, taxation, expenses and any other charges levied on the contract.

Provisions for guarantees and options within realistic liabilities are measured using market?consistent stochastic models. A stochastic approach includes measuring the time value of guarantees and options, which represents the additional cost arising from uncertainty surrounding future economic conditions. Non?market?related assumptions (for example, persistency, mortality and expenses) are assessed on a best estimate basis with reference to Company and wider industry experience, adjusted to take into account future trends.

The with?profits business is valued by adjusting Solvency II Best Estimate Liabilities and results in a valuation in accordance with FRS 27.

Future investment return

A risk-free rate equal to the spot yield on UK swaps is used for the valuation of with-profits business. The rates vary according to the outstanding term of the policy, with a typical rate as at 31 December 2019 of�1.02%�(2018: 1.44%) for a policy with ten years outstanding.

Volatility of investment return

Volatility assumptions are set with reference to implied volatility data on traded market instruments, where available, or on a best estimate basis where not.

Volatility	2019	2018
Equity returns	16.2%	18.0%
Property returns	15.8%	15.8%

The equity volatility used depends on term, money-ness and region. The figure shown is for a sample UK equity, at the money, with a ten?year term.

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B12 - Insurance liabilities methodology and assumptions continued

Future regular bonuses

Annual bonus assumptions for 2020 have been set consistently with the year-end 2019 declaration. Future annual bonus rates reflect the principles and practices of each fund. In particular, the level is set with regard to the projected margin for final bonus and the change from one year to the next is limited to a level consistent with past practice.

Mortality

Mortality assumptions for with-profits business are set with regard to recent Company experience and general industry trends. The mortality tables used in the valuation are summarised below:

Mortality table used	2019	2018
Assurances, pure endowments and deferred annuities before vesting	Nil or Axx00 adjusted	Nil or Axx00 adjusted

Pensions business after vesting and pensions annuities in payment	PMA08 HAMWP/PFA08 HAMWP adjusted plus allowance for future mortality improvement	PMA08 HAMWP/PFA08 HAMWP adjusted plus allowance for future mortality improvement

Allowance for future mortality improvement is in line with the rates for non-profit business.

Expenses

Maintenance fee assumptions for with-profits business are generally expressed as a fixed per policy charge in line with a memorandum of understanding between the with-profits funds and the non-profit fund within the company. The memorandum of understanding specifies the charges for a five-year period ending in 2023, and specifies a level of charge inflation during that period of CPI+2% or CPI+3% depending on the product type. After the end of the period covered by the memorandum of understanding we assume that the charges will remain unchanged, and a level of charge inflation of RPI+1% for all products will apply. Any excess of expenses charged by Aviva Life Services UK Limited (UKLS) to Aviva Life & Pensions UK Limited (AVLAP) over the charges specified by the memorandum of understanding is borne by the non-profit fund.

At 31 December 2018 maintenance expense assumptions for with-profits business were generally expressed as a fixed per policy charge in line with agreements between UKLS and AVLAP. The assumptions increased by a future inflation charge over the lifetime of each contract, which was 50% RPI, 100% RPI or 100% RPI + 1% depending on product type. Any excess of expenses charged by UKLS to AVLAP over the charges specified by the agreements was borne by the non-profit business.

Guarantees and options

The provisions held in respect of guaranteed annuity options for the with-profits and the non-profit business are a prudent assessment of the additional liability incurred under the option on a basis and method consistent with that used to value basic policy liabilities, and includes a prudent assessment of the proportion of policyholders who will choose to exercise the option.

(ii)� France

The majority of reserves arise from single premium savings products and are based on the accumulated fund values, adjusted to maintain consistency with the value of the assets backing the policyholder liabilities. For traditional business, the net premium method is used for prospective valuations, in accordance with local regulation, where the valuation assumptions depend on the date of issue of the contract. The valuation discount rate also depends on the original duration of the contract and mortality rates are based on industry tables.

	Valuation discount rates		Mortality tables used
	2019	2018	2019 and 2018
			TD73-77,TD88-90,TH00-02
			TF00-02, H_AVDBS,F_AVDBS
Life assurances	0% to 4.5%	0% to 4.5%	H_SSDBS, F_SSDBS
Annuities	0% to 1.5%	0% to 2%	TGF05/TGH05

(b)� General insurance and health

Outstanding claims provisions are estimated based on known facts at the date of estimation. Case estimates are set by skilled claims technicians and established case setting procedures. Claims above certain limits are referred to senior claims handlers for estimate authorisation.

No adjustments are made to the claims technicians' case estimates included in booked claim provisions, except for rare occasions when the estimated ultimate cost of individual large or unusual claims may be adjusted, subject to internal reserve committee approval, to allow for uncertainty regarding, for example, the outcome of a court case. The ultimate cost of outstanding claims is then estimated by using a range of standard actuarial claims projection techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. Historical claims development is mainly analysed by accident period, although underwriting or notification period is also used where this is considered appropriate.

The assumptions used in most non-life actuarial projection techniques, including future rates of claims inflation or loss ratio assumptions, are implicit in the historical claims development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in the future in order to arrive at a point estimate for the ultimate cost of claims that represents the likely outcome, from a range of possible outcomes, taking account of all the uncertainties involved. The range of possible outcomes does not, however, result in the quantification of a reserve range.

The following explicit assumptions are made which could materially impact the level of booked net reserves:

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B12 - Insurance liabilities methodology and assumptions continued

Discounting

Outstanding claims provisions are based on undiscounted estimates of future claim payments, except for the following classes of business for which discounted provisions are held:

		Discount rate		Mean term of liabilities
Class	2019	2018	2019	2018
Reinsured London Market business	0.8% to 2.2%	1.0% to 2.9%	9 years	10 years
Latent claims	0.8% to 2.2%	1.0% to 2.6%	10 to 12 years	11 to 18 years
Structured settlements	-0.2% to 2.7%	1.0% to 3.0%	11 to 35 years	9 to 37 years

The period of time which will elapse before the liabilities are settled has been estimated by modelling the settlement patterns of the underlying claims.

The discount rate that has been applied to latent claims reserves, structured settlements and reinsured London Market business is based on the swap curve in the relevant currency at the reporting date, having regard to the duration of the expected settlement dates of the claims. The range of discount rates used depends on the duration of the claims and is given in the table above. The duration of the claims span over 35 years, with the average duration being between 9 and 12 years depending on the geographical region.

At 31 December 2019, it is estimated that a 1% fall in the discount rates used would increase net claim reserves by approximately��120�million (2018: �100 million), excluding the offsetting effect on asset values as assets are not hypothecated across classes of business.

UK mesothelioma claims

The level of uncertainty associated with latent claims is considerable due to the relatively small number of claims and the long-tail nature of the liabilities. UK mesothelioma claims account for a large proportion of the Group's latent claims. The key assumptions underlying the estimation of these claims include claim numbers, the base average cost per claim, future inflation in the average cost of claims and legal fees.

The best estimate of the liabilities reflects the latest available market information and studies. Many different scenarios can be derived by flexing these key assumptions and applying different combinations of these assumptions. An upper and lower scenario can be derived by making reasonably likely changes to these assumptions, resulting in an estimate of �25 million (2018: �20 million) greater than the best estimate, or �35 million (2018: �30 million) lower than the best estimate. These scenarios do not, however, constitute an upper or lower bound on these liabilities.

Allowance for risk and uncertainty

The uncertainties involved in estimating loss reserves are allowed for in the reserving process and by the estimation of explicit reserve uncertainty distributions. The reserve estimation basis requires all non-life businesses to calculate booked claim provisions as the best estimate of the cost of future claim payments, plus an explicit allowance for risk and uncertainty. The allowance for risk and uncertainty is calculated by each business unit in accordance with the requirements of the Group non-life reserving policy, taking into account the risks and uncertainties specific to each line of business and type of claim in that territory. The requirements of the Group non-life reserving policy also seek to ensure that the allowance for risk and uncertainty is set consistently across both business units and reporting periods.

Lump sum payments in settlement of bodily injury claims that are decided by the UK courts are calculated in accordance with the Ogden Tables and discount rate. The Ogden discount rate is set by the Lord Chancellor and is applied when calculating the present value of future care costs and loss of earnings for claims settlement purposes. Following the announcement by the Lord Chancellor on 15 July 2019 to increase the Ogden discount rate from the -0.75% set in 2017 to -0.25% (rate retained at -0.75% in Scotland), balance sheet reserves in the UK have been calculated using a discount rate of -0.25% at 31 December 2019. This has resulted in a strengthening of claims reserves in the UK of �45 million. At December 2018, balance sheet reserves were calculated using a rate of 0.00%. The Ogden discount rate is expected to be reviewed by the Lord Chancellor within five years.

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B13 - Liabilities for investment contracts

This note analyses our gross liabilities for investment contracts by type of product and describes the calculation of these liabilities.

(a)� Carrying amount

The liabilities for investment contracts (gross of reinsurance) at 31 December comprised:

	2019 �m	2018 �m
Long-term business
Liabilities for participating investment contracts	92,762	90,455
Liabilities for non-participating investment contracts	137,689	120,354
Total	230,451	210,809
Less: Liabilities classified as held for sale	(8,324)	(8,341)
	222,127	202,468

(b)� Group practice

Investment contracts are those that do not transfer significant insurance risk from the contract holder to the issuer, and are therefore treated as financial instruments under IFRS.

Many investment contracts contain a discretionary participation feature in which the contract holder has a contractual right to receive additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts and are measured according to the methodology for long-term business liabilities (see note B12). They are not measured at fair value as there is currently no agreed definition of fair valuation for discretionary participation features under IFRS. In the absence of such a definition, it is not possible to provide a range of estimates within which a fair value is likely to fall. The IASB deferred consideration of participating contracts to the IFRS 17 insurance standard, which is expected to apply to annual reporting periods beginning on or after 1 January 2022.

For participating business, the discretionary participation feature is recognised separately from the guaranteed element and is classified as a liability, referred to as unallocated divisible surplus, except for the with-profits sub-fund supported by the RIEESA.

Investment contracts that do not contain a discretionary participation feature are referred to as non-participating contracts and the liability is measured at either fair value or amortised cost. We currently have no non-participating investment contracts measured at amortised cost.

Of the non-participating investment contracts measured at fair value, �137,040 million at 31 December 2019 (2018: �119,402 million) are unit?linked in structure and the fair value liability is equal to the current unit fund value, including any unfunded units, plus if required, additional non-unit reserves based on a discounted cash flow analysis. These contracts are generally classified as Level 1 in the fair value hierarchy, as the unit reserve is calculated as the publicly quoted unit price multiplied by the number of units in issue, and any non-unit reserve is insignificant.

For unit-linked business, a deferred acquisition cost asset and deferred income reserve liability are recognised in respect of transaction costs and front-end fees respectively, that relate to the provision of investment management services, and which are amortised on a systematic basis over the contract term.

For non-participating investment contracts acquired in a business combination, an acquired value of in-force business asset is recognised in respect of the fair value of the investment management services component of the contracts, which is amortised on a systematic basis over the useful lifetime of the related contracts.�The amount of the acquired value of in-force business asset is shown in note B24, which relates primarily to the acquisition of Friends Life in 2015 and Friends First in 2018.

(c)� Movements in the year

The following movements have occurred in the gross provisions for investment contracts in the year:

(i)�� Participating investment contracts

	2019 �m	2018 �m
Carrying amount at 1 January	90,455	87,654
Liabilities in respect of new business	6,991	6,301
Expected change in existing business	(4,857)	(4,491)
Variance between actual and expected experience	4,751	(1,441)
Impact of operating assumption changes	173	59
Impact of economic assumption changes	204	(40)
Other movements recognised as an expense¹	103	152
Change in liability recognised as an expense²	7,365	540
Effect of portfolio transfers, acquisitions and disposals³	-	427
Foreign exchange rate movements	(4,054)	774
Other movements⁴	(1,004)	1,060
Carrying amount at 31 December	92,762	90,455

1�� Other movements recognised as an expense during 2019 relate primarily to a special bonus distribution to with-profits policyholders and the recognition of unitised with-profits annual management charges in UK Life. The movement in 2018 primarily relates to a special bonus distribution to with-profits policyholders in UK Life.

2�� Total interest expense for participating investment contracts recognised in profit or loss is �5,269 million (2018: �(419) million).

3�� The movement during 2018 relates to the acquisition of Friends First in Ireland.

4�� Other movements during 2019 include the reclassification in UK from participating investment to insurance contracts (�(972) million) and from participating investment to outstanding claims reserves (�(32) million). The movement during 2018 relates to the reclassification in France from non-participating investment contracts to participating investment contracts (�151 million) and from insurance to participating investment contracts (�56�million) and to a reclassification from non-participating investment contracts to participating investment contracts in the UK (�853 million).

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B13 - Liabilities for investment contracts continued

For many types of long-term business, including unit-linked and participating funds, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit.

The variance between actual and expected experience in 2019 of �4.8 billion is primarily the result of the impact of strong global equity performance.

The impact of assumption changes in the analysis shows the resulting movement in the carrying value of participating investment contract liabilities. For participating business, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes do impact profit, these are included in the effect of changes in assumptions and estimates during the year shown in note B15, together with the impact of movements in related non-financial assets.

(ii)� Non-participating investment contracts

	2019 �m	2018 �m
Carrying amount at 1 January	120,354	124,995
Liabilities in respect of new business	5,520	4,869
Expected change in existing business	(3,742)	(5,509)
Variance between actual and expected experience	16,345	(5,539)
Impact of operating assumption changes	(22)	(10)
Impact of economic assumption changes	(1)	(81)
Other movements recognised as an expense	2	6
Change in liability	18,102	(6,264)
Effect of portfolio transfers, acquisitions and disposals¹	-	2,494
Foreign exchange rate movements	(575)	133
Other movements²	(192)	(1,004)
Carrying amount at 31 December	137,689	120,354

1�� The movement during 2018 relates to the acquisition of Friends First in Ireland.

2�� Other movements during 2019 mainly relate to the reclassification in UK from non-participating investment to outstanding claims reserves (�(180) million). Other movements during 2018 relates to the reclassification in
France from non-participating investment contracts to participating investment contracts (�(151) million) and to a reclassification from non-participating investment contracts to participating investment contracts in the UK (�(853) million).

For unit-linked investment contracts, movements in asset values are offset by corresponding changes in liabilities, limiting the net impact on profit. The variance between actual and expected experience in 2019 of �16.3 billion is primarily the result of the impact of strong global equity performance.

The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of non-participating investment contract liabilities. The impacts of assumption changes on profit are included in the effect of changes in assumptions and estimates during the year shown in note B15, which combines participating and non-participating investment contracts together with the impact of movements in related non-financial assets.

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B14 - Reinsurance assets

This note details the reinsurance assets on our insurance and investment contract liabilities.

(a)� Carrying amount

The reinsurance assets at 31 December comprised:

	2019 �m	2018 �m
Long-term business
Insurance contracts	6,369	5,836
Participating investment contracts	1	1
Non-participating investment contracts¹	4,006	4,009
	10,376	9,846
Outstanding claims provisions	93	89
	10,469	9,935
General insurance and health
Outstanding claims provisions	683	789
Provisions for claims incurred but not reported	1,004	822
	1,687	1,611
Provisions for unearned premiums	275	254
	1,962	1,865
	12,431	11,800
Less: Assets classified as held for sale	(75)	(45)
Total	12,356	11,755

1�� Balances in respect of all reinsurance treaties are included under reinsurance assets, regardless of whether they transfer significant insurance risk. The reinsurance assets classified as non-participating investment contracts are financial instruments measured at fair value through profit or loss.

Of the above total, �10,943 million (2018: �10,800 million) is expected to be recovered more than one year after this statement of financial position.

(b)� Assumptions

The assumptions, including discount rates, used for reinsurance contracts follow those used for insurance liabilities. Reinsurance assets are valued net of an allowance for recoverability.

(c)� Movements

The following movements have occurred in the reinsurance assets during the year:

(i)�� Long-term business liabilities

	2019 �m	2018 �m
Carrying amount at 1 January	9,846	11,565
Assets in respect of new business	954	1,766
Expected change in existing business assets	(185)	(22)
Variance between actual and expected experience	274	431
Impact of non-economic assumption changes	(175)	(460)
Impact of economic assumption changes	193	21
Other movements recognised as an expense¹	(37)	(3,877)
Change in assets²	1,024	(2,141)
Effect of portfolio transfers, acquisitions and disposals³	-	399
Foreign exchange rate movements	(73)	23
Other movements⁴	(421)	-
Carrying amount at 31 December	10,376	9,846

1�� Other movements recognised as an expense during 2019 primarily relate to the ceding of reinsurance for annuity business offset by basis methodology changes in Ireland, the reclassification of health reinsurance assets in Singapore and collective investments in unit-linked funds in the UK following a restructure of a reinsurance treaty. The latter part is a continuation of activity undertaken in 2018.

2�� Change in assets does not reconcile with values in note B10(b) due to the inclusion of reinsurance assets classified as non-participating investment contracts where, for such contracts, deposit accounting is applied on the income statement.

3�� The movement during 2018 primarily relates to the acquisition of Friends First in Ireland.

4�� Other movements during 2019 primarily relate to a reclassification in the UK. Following a review of the presentation of negative reinsurance assets in the UK, �(427) million of negative reinsurance assets have been reclassified from insurance liabilities to reinsurance assets.

The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of reinsurance assets, with corresponding movements in gross insurance contract liabilities. For participating businesses, a movement in reinsurance assets is generally offset by a corresponding adjustment to the unallocated divisible surplus and does not impact profit. Where assumption changes impact profit, these are included in the effect of changes in assumptions and estimates during the year (see note B15), together with the impact of movements in related liabilities and other non-financial assets.

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B14 - Reinsurance assets continued

(ii)� General insurance and health claims liabilities

	2019 �m	2018 �m
Carrying amount at 1 January	1,611	1,729
Impact of changes in assumptions	73	(22)
Reinsurers' share of claim losses and expenses
Incurred in current year	195	176
Incurred in prior years	96	40
Reinsurers' share of incurred claim losses and expenses	291	216
Less:
Reinsurance recoveries received on claims
Incurred in current year	(53)	(54)
Incurred in prior years	(227)	(259)
Reinsurance recoveries received in the year	(280)	(313)
Unwind of discounting	10	8
Change in reinsurance asset recognised as income (note B10(b))	94	(111)
Effect of portfolio transfers, acquisitions and disposals¹	-	(9)
Foreign exchange rate movements	(15)	2
Other movements	(3)	-
Carrying amount at 31 December	1,687	1,611

1�� The movement during 2018 relates to the proportion of reinsurance assets held by Avipop which was sold by Italy in 2018.

(iii) General insurance and health unearned premiums

	2019 �m	2018 �m
Carrying amount at 1 January	254	257
Premiums ceded to reinsurers in the year	683	392
Less: Reinsurers' share of premiums earned during the year	(661)	(375)
Changes in reinsurance asset recognised as income	22	17
Reinsurers' share of portfolio transfers and acquisitions¹	-	(21)
Foreign exchange rate movements	(1)	1
Carrying amount at 31 December	275	254

1�� The movement during 2018 relates to the proportion of Avipop sold by Italy in 2018 that was ceded to reinsurers.

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B15 - Effect of changes in assumptions and estimates during the year

This note analyses the impact of changes in estimates and assumptions from 2018 to 2019, on liabilities for insurance and investment contracts, and related assets and liabilities, such as unallocated divisible surplus, reinsurance, deferred acquisition costs and acquired value of in-force business and does not allow for offsetting movements in the value of backing financial assets.

	Effect on profit 2019 �m	Effect on profit 2018 �m
Assumptions
Long-term insurance business
Interest rates	(2,978)	1,061
Expenses	(47)	9
Persistency rates	(124)	23
Mortality and morbidity for assurance contracts	(38)	24
Mortality for annuity contracts	830	780
Tax and other assumptions	9	18
Long-term investment business
Expenses	-	(1)
General insurance and health business
Change in discount rate assumptions	(54)	1
Total	(2,402)	1,915

The impact of interest rates on long-term business relates primarily to annuities in the UK (including any change in credit default and reinvestment risk provisions), where a reduction in the discount rate, in response to decreasing interest rates and narrowing credit spreads, has increased liabilities.

The impact of expenses on long-term business relates primarily to the UK and Ireland, where reserves have increased by �55 million following a review of recent experience including the margin for prudence. This has been offset slightly by �8 million due to favourable expense experience in Singapore.

The impact of persistency on long-term business relates primarily to the UK. Reserves have increased by �127 million following a review of recent experience, driven by the introduction of age-dependent retirement rates for pension business and unfavourable lapse experience.

The impact of mortality for annuitant contracts on long-term business relates primarily to the UK. In 2019, there has been a reduction in reserves due to longevity assumptions and modelling which include:

� Updates to base mortality to reflect recent experience for individual annuities of �81 million;

� Updates to the rate of mortality improvements for individual annuities, including CMI 2018 and a change in smoothing parameter, of �410�million;

� Refinements to modelling of bulk purchase annuities together with a change to base mortality, improvements and a change in smoothing parameter, of �231 million;

� Refinements to modelling of enhanced annuities of �58 million; and

� Other less significant movements of �19 million.

In Ireland there was a slight reduction in the reserves of �31 million following a review of recent experience.

In 2018 the impact of mortality for annuitant contracts on long-term business relates primarily to the UK. This resulted in a reduction in reserves due to longevity assumptions and modelling which included:

� Updates to base mortality to reflect recent experience including the 2008 series tables for individual annuities of �345 million;

� Updates to the rate of mortality improvements including CMI 2017 of �251 million;

� Refinements to modelling of bulk purchase annuities together with a change to base mortality and improvements of �132 million; and

� Other less significant movements of �24 million.

In Ireland and Singapore there was a slight reduction in the reserves of �28 million following a review of recent experience.

In the general insurance and health business, a negative impact of �(54) million�(2018: �1 million positive) has arisen primarily as a result of a decrease in the interest rates used to discount claim reserve for both periodic payment orders and latent claims.

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B16 - Unallocated divisible surplus

An unallocated divisible surplus (UDS) is established where the nature of policy benefits is such that the division between shareholder reserves and policyholder liabilities is uncertain at the reporting date. Therefore, the expected duration for settlement of the UDS is undefined.

This note shows the movements in the UDS during the year.

	2019 �m	2018 �m
Carrying amount at 1 January	5,949	9,101
Change in participating fund assets	9,411	(4,139)
Change in participating fund liabilities	(5,426)	902
Change in liability recognised as an expense	3,985	(3,237)
Effect of portfolio transfers, acquisition and disposals¹	-	48
Foreign exchange rate movements	(337)	37
Carrying amount at 31 December	9,597	5,949

1�� The movement during 2018 relates to the acquisition of Friends First (�66 million), and the disposal of the remainder of the Spanish business (�18 million).

The amount of UDS at 31 December 2019 has increased to �9.6 billion (2018: �5.9 billion). The increase is mainly due to market movements in Europe as a result of decreasing interest rates, narrowing credit spreads and increasing equity returns.

Where the aggregate amount of participating assets is less than the participating liabilities within a fund then the shortfall may be held as negative UDS, subject to recoverability testing as part of the liability adequacy requirements of IFRS 4. There are no material negative UDS balances at the participating fund?level within each life entity in the current period (2018: �355 million negative UDS within five funds in Italy)

B17 - Borrowings

Our borrowings are classified as either core structural borrowings, which are included within the Group's capital employed, or operational borrowings drawn by operating subsidiaries. This note shows the carrying values of each type, and movements during the year.

(a)� Analysis of total borrowings

Total borrowings comprise:

	2019 �m	2018 �m
Core structural borrowings, at amortised cost	7,496	7,699
Operational borrowings, at amortised cost	338	496
Operational borrowings, at fair value	1,233	1,225
	1,571	1,721
	9,067	9,420
Less: Liabilities classified as held for sale	(28)	-
	9,039	9,420

(b)� Movements during the year

Movements in borrowings during the year were:

			2019			2018
	Core Structural �m	Operational �m	Total �m	Core Structural �m	Operational �m	Total �m
New borrowings drawn down, excluding commercial paper, net of expenses	-	75	75	649	126	775
Repayment of borrowings, excluding commercial paper¹	(210)	(231)	(441)	(1,178)	(211)	(1,389)
Movement in commercial paper²	19	-	19	(419)	-	(419)
Net cash outflow	(191)	(156)	(347)	(948)	(85)	(1,033)
Foreign exchange rate movements	(204)	(28)	(232)	42	6	48
Borrowings reclassified/(loans repaid) for non-cash consideration¹	210	(4)	206	-	65	65
Fair value movements	-	38	38	-	89	89
Amortisation of discounts and other non-cash items	(23)	-	(23)	(35)	-	(35)
Movements in debt held by Group companies³	5	-	5	-	-	-
Movements in the year	(203)	(150)	(353)	(941)	75	(866)
Balance at 1 January	7,699	1,721	9,420	8,640	1,646	10,286
Balance at 31 December	7,496	1,571	9,067	7,699	1,721	9,420

1�� On 17 October 2019, notification was given that the Group would redeem the 6.875% �210 million tier 1 notes. At that date, the instruments were reclassified as a financial liability of �210 million, representing the fair value at that date. On 21 November 2019 the instruments were redeemed in full at a cost of �210 million. The difference of �21 million between the carrying amount of �231 million and fair value of �210 million has been charged to retained earnings.

2�� Gross issuances of commercial paper were �505 million in 2019 (2018: �2,372 million), offset by repayments of �486 million (2018: �2,791 million).

3�� Certain subsidiary companies have purchased subordinated notes and securitised loan notes issued by Group companies as part of their investment portfolios. In the consolidated statement of financial position, borrowings are shown net of these holdings but movements in such holdings over the year are reflected in the tables above.

All movements in fair value in 2018 and 2019 on securitised mortgage loan notes designated as fair value through profit or loss were attributable to changes in market conditions.

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B18 - Pension obligations

The Group operates a number of defined benefit and defined contribution pension schemes. The material defined benefit schemes are in the UK, Ireland and Canada. The assets and liabilities of these defined benefit schemes as at 31 December 2019 are shown below.

				2019				2018
	UK �m	Ireland �m	Canada �m	Total �m	UK �m	Ireland �m	Canada �m	Total �m
Total fair value of scheme assets (see b(ii) below)	17,671	833	264	18,768	17,059	775	249	18,083
Present value of defined benefit obligation	(15,416)	(1,035)	(341)	(16,792)	(14,246)	(950)	(324)	(15,520)
Net IAS 19 surpluses/(deficits) in the schemes	2,255	(202)	(77)	1,976	2,813	(175)	(75)	2,563

Surpluses included in other assets	2,746	-	-	2,746	3,256	-	-	3,256
Deficits included in provisions	(491)	(202)	(77)	(770)	(443)	(175)	(75)	(693)
Net IAS 19 surpluses/(deficits) in the schemes	2,255	(202)	(77)	1,976	2,813	(175)	(75)	2,563

Movements in the scheme surpluses and deficits

Movements in the pension schemes' surpluses and deficits comprise:

2019	Fair Value of scheme assets �m	Present Value of defined benefit obligation �m	IAS 19 Pensions net surplus/ (deficits) �m
Net IAS 19 surplus in the schemes at 1 January	18,083	(15,520)	2,563
Administrative expenses¹	-	(19)	(19)
Total pension cost charged to net operating expenses	-	(19)	(19)
Net interest credited/(charged) to investment income/(finance costs)²	479	(406)	73
Total recognised in income	479	(425)	54

Remeasurements:
Actual return on these assets	1,141	-	1,141
Less: Interest income on scheme assets	(479)	-	(479)
Return on scheme assets excluding amounts in interest income	662	-	662
Losses from change in financial assumptions	-	(1,824)	(1,824)
Gains from change in demographic assumptions	-	165	165
Experience gains	-	130	130
Total recognised in other comprehensive income	662	(1,529)	(867)

Employer contributions	215	-	215
Plan participant contributions	4	(4)	-
Benefits paid	(612)	612	-
Administrative expenses paid from scheme assets¹	(19)	19	-
Foreign exchange rate movements	(44)	55	11
Net IAS 19 surplus in the schemes at 31 December	18,768	(16,792)	1,976

1�� Administrative expenses are expensed as incurred.

2�� Net interest income of �96 million has been credited to investment income and net interest expense of �23 million has been charged to finance costs.

During the period the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited, a Group Company. Due to different measurement bases applying for accounting purposes, the premium paid by the scheme exceeded the valuation of the plan asset recognised. This is the primary reason for the reduction in the scheme surplus over the year and has been recognised as an actuarial loss in the actual return on assets within other comprehensive income. The plan asset recognised is transferable and so has not been subject to consolidation within the Group's financial statements.

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B18 - Pension obligations continued

2018	Fair Value of scheme assets �m	Present Value of defined benefit obligation �m	IAS 19 Pensions net surplus/ (deficits) �m
Net IAS 19 surplus in the schemes at 1 January	18,678	(16,043)	2,635
Past service costs - amendments¹	-	(63)	(63)
Administrative expenses²	-	(19)	(19)
Total pension cost charged to net operating expenses	-	(82)	(82)
Net interest credited/(charged) to investment income/(finance costs)³	442	(375)	67
Total recognised in income	442	(457)	(15)

Remeasurements:
Actual return on these assets	(182)	-	(182)
Less: Interest income on scheme assets	(442)	-	(442)
Return on scheme assets excluding amounts in interest income	(624)	-	(624)
Gains from change in financial assumptions	-	622	622
Losses from change in demographic assumptions	-	(185)	(185)
Experience losses	-	(93)	(93)
Total recognised in other comprehensive income	(624)	344	(280)

Acquisitions	87	(96)	(9)
Employer contributions	236	-	236
Plan participant contributions	9	(9)	-
Benefits paid	(724)	724	-
Administrative expenses paid from scheme assets²	(23)	19	(4)
Foreign exchange rate movements	2	(2)	-
Net IAS 19 surplus in the schemes at 31 December	18,083	(15,520)	2,563

1�� Past service costs include a charge of �63 million relating to the estimated additional liability arising in the UK defined benefit pension schemes as a result of the requirement to equalise members' benefits for the effects of Guaranteed Minimum Pension (GMP). This additional liability has arisen following the High Court judgement in October 2018 in the case involving Lloyds Banking Group.

2�� Administrative expenses are expensed as incurred.

3�� Net interest income of �89 million has been credited to investment income and net interest expense of �22 million has been charged to finance costs.

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B19 - Related party transactions

This note gives details of the transactions between Group companies and related parties which comprise our joint ventures, associates and staff pension schemes.

The Group undertakes transactions with related parties in the normal course of business. Loans to related parties are made on normal arm's-length commercial terms.

Services provided to, and by related parties

				2019				2018
	Income earned in the year �m	Expenses incurred in �the year �m	Payable at year end �m	Receivable at year end �m	Income earned in the year �m	Expenses incurred in the year �m	Payable at year end �m	Receivable at year end �m
Associates	1	-	-	4	1	-	-	2
Joint ventures	54	-	-	4	49	-	(1)	2
Employee pension schemes	9	-	-	6	10	-	-	7
	64	-	-	14	60	-	(1)	11

Transactions with joint ventures in the UK relate to the property management undertakings. The Group has equity interests in these joint ventures, together with the provision of administration services and financial management to many of them. Our fund management companies also charge fees to these joint ventures for administration services and for arranging external finance.

Key management personnel of the Company may from time to time purchase insurance, savings, asset management or annuity products marketed by group companies on equivalent terms to those available to all employees of the Group. In 2019, other transactions with key management personnel were not deemed to be significant either by size or in the context of their individual financial positions.

Our UK fund management companies manage most of the assets held by the Group's main UK staff pension scheme, for which they charge fees based on the level of funds under management. The main UK scheme holds investments in Group-managed funds and insurance policies with other group companies. As at 31 December 2019, the Friends Provident Pension Scheme ('FPPS'), acquired in 2015 as part of the acquisition of the Friends Life business, held an insurance policy of �646 million (2018: �620 million) issued by a group company, which eliminates on consolidation.

The related parties' receivables are not secured and no guarantees were received in respect thereof. The receivables will be settled in accordance with normal credit terms.

During the period, the ASPS completed a bulk annuity buy-in transaction with Aviva Life & Pensions UK Limited (AVLAP), a Group company. At inception, the buy-in insured approximately 4,300 deferred and 1,500 current pensioner liabilities. A premium of �1,665 million was paid by the scheme to AVLAP, with AVLAP recognising gross insurance liabilities of �1,334 million. The difference between the premium and the gross liabilities implies a profit of �331 million, which does not include costs incurred by the Group associated with the transaction, and is driven primarily by differences between the measurement bases used to calculate the premium and the accounting value of the associated gross liabilities. The ASPS recognised a plan asset of �1,126 million, with the difference between the plan asset recognised and the premium paid being recognised as an actuarial loss through Other Comprehensive Income. As at 31 December 2019, AVLAP recognised technical provisions of �1,243 million in relation to the buy-in which have been included within the Group's gross insurance liabilities, and the ASPS held a transferable plan asset of �1,144�million which does not eliminate on consolidation.

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B20 - Risk management

This note sets out the major risks our businesses and our shareholders face and describes the Group's approach to managing these. It also gives sensitivity analysis around the major economic and non-economic assumptions that can cause volatility in the Group's earnings and capital position.

(a)� Risk management framework

The risk management framework in Aviva forms an integral part of the management and Board processes and decision-making framework across the Group. The key elements of our risk management framework comprise risk appetite; risk governance, including risk policies and business standards, risk oversight committees and roles and responsibilities; and the processes we use to identify, measure, manage, monitor and report risks, including the use of our risk models and stress and scenario testing.

For the purposes of risk identification and measurement, and aligned to Aviva's risk policies, risks are usually grouped by risk type: credit, market, liquidity, life insurance (including long-term health), general insurance (including short-term health), asset management and operational risk. Risks falling within these types may affect a number of metrics including those relating to balance sheet strength, liquidity and profit. They may also affect the performance of the products we deliver to our customers and the service to our customers and distributors, which can be categorised as risks to our brand and reputation or as conduct risk.

To promote a consistent and rigorous approach to risk management across all businesses we have a set of risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group's worldwide operations. The business chief executive officers make an annual declaration supported by an opinion from the business chief risk officers that the system of governance and internal controls was effective and fit for purpose for their business throughout the year.

A regular top-down key risk identification and assessment process is carried out by the risk function. This includes the consideration of emerging risks and is supported by deeper thematic reviews. This process is replicated at the business unit level. The risk assessment processes are used to generate risk reports which are shared with the relevant risk committees.

Risk models are an important tool in our measurement of risks and are used to support the monitoring and reporting of the risk profile and in the consideration of the risk management actions available. We carry out a range of stress (where one risk factor, such as equity returns, is assumed to vary) and scenario (where combinations of risk factors are assumed to vary) tests to evaluate their impact on the business and the management actions available to respond to the conditions envisaged. For those risk types managed through the holding of capital, being our principal risk types except for liquidity risk, we measure and monitor our risk profile on the basis of the Solvency II solvency capital requirement.

Roles and responsibilities for risk management in Aviva are based around the 'three lines of defence model' where ownership for risk is taken at all levels in the Group. Line management in the business is accountable for risk management, including the implementation of the risk management framework and embedding of the risk culture. The risk function is accountable for quantitative and qualitative oversight and challenge of the risk identification, measurement, monitoring, management and reporting processes and for developing the risk management framework. Internal Audit provides an independent assessment of the risk framework and internal control processes.

Board oversight of risk and risk management across the Group is maintained on a regular basis through its Risk Committee and Customer, Conduct and Reputation Committee. The Board has overall responsibility for determining risk appetite, which is an expression of the risk the business is willing to take. Risk appetites are set relative to capital and liquidity at Group and in the business units.

Risk appetites, requiring management action if breached, are also set for interest rate and foreign exchange risk (calculated on the basis of the Solvency II solvency capital requirement), and liquidity risk (based on stressing forecast central liquid assets and cash inflows and outflows over a specified time horizon). For other risk types the Group sets Solvency II capital tolerances. The Group's position against risk appetite and capital tolerances is monitored and reported to the Board on a regular basis. Long-term sustainability depends upon the protection of franchise value and good customer relationships. As such, Aviva has a risk preference that we will not accept risks that materially impair the reputation of the Group and requires that customers are always treated with integrity. The oversight of risk and risk management at the Group level is supported by the Asset Liability Committee, which focuses on business and financial risks, and the Operational Risk Committee which focuses on operational and reputational risks. Similar committee structures with equivalent terms of reference exist in the business units.

The risk management framework of a small number of our joint ventures and strategic equity holdings differs from the Aviva framework outlined in this note. We work with these entities to understand how their risks are managed and to align them, where possible, with Aviva's framework.

Further information on the types and management of specific risk types is given in sections (b) to (h) below.

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B20 - Risk management continued

(b)� Credit risk

Credit risk is the risk of financial loss as a result of the default or failure of third parties to meet their payment obligations to Aviva, or variations in market values as a result of changes in expectations related to these risks. Credit risk is taken so that we can provide the returns required to satisfy policyholder liabilities and to generate returns for our shareholders. In general we prefer to take credit risk over equity and property risks, due to the better expected risk adjusted return, our credit risk analysis capability and the structural investment advantages conferred to insurers with long-dated, relatively illiquid liabilities.

Our approach to managing credit risk recognises that there is a risk of adverse financial impact resulting from fluctuations in credit quality of third parties including default, rating transition and credit spread movements. Our credit risks arise principally through exposures to debt security investments, structured asset investments, bank deposits, derivative counterparties, mortgage lending and reinsurance counterparties.

The Group manages its credit risk at business unit and Group level. All business units are required to implement credit risk management processes (including limits frameworks), operate specific risk management committees, and ensure detailed reporting and monitoring of their exposures against pre-established risk criteria. At Group level, we manage and monitor all exposures across our business units on a consolidated basis, and operate a Group limit framework that must be adhered to by all.

A detailed breakdown of the Group's current credit exposure by credit quality is shown below.

(i)�� Financial exposures by credit ratings

Financial assets are graded according to current external credit ratings issued. AAA is the highest possible rating. Investment grade financial assets are classified within the range of AAA to BBB ratings. Financial assets which fall outside this range are classified as sub-investment grade. The following table provides information regarding the aggregated credit risk exposure of the Group for financial assets with external credit ratings. 'Not rated' assets capture assets not rated by external ratings agencies.

As at 31 December 2019	AAA	AA	A	BBB	Below BBB	Not rated	Carrying value including held for sale �m	Less: Assets classified as held for sale �m	Carrying value �m
Fixed maturity securities	10.7%	34.1%	19.7%	23.0%	8.0%	4.5%	199,481	(649)	198,832
Reinsurance assets	3.3%	75.8%	9.2%	7.8%	-	3.9%	12,431	(75)	12,356
Other investments	0.2%	-	0.3%	0.1%	-	99.4%	51,935	(6,919)	45,016
Loans	18.3%	3.8%	0.1%	-	-	77.8%	38,580	(1)	38,579
Total							302,427	(7,644)	294,783

�

Restated¹ as at 31 December 2018	AAA	AA	A	BBB	Below BBB	Not rated	Carrying value including held for sale �m	Less: Assets classified as held for sale �m	Carrying value �m
Fixed maturity securities²	10.0%	36.6%	18.1%	23.9%	5.9%	5.5%	192,072	(397)	191,675
Reinsurance assets	-	83.1%	10.0%	2.7%	-	4.2%	11,800	(45)	11,755
Other investments²	0.2%	0.1%	0.4%	0.1%	-	99.2%	46,567	(6,644)	39,923
Loans	17.4%	7.5%	-	-	-	75.1%	36,184	-	36,184
Total							286,623	(7,086)	279,537

1�� Following a review of the Group's presentation of consolidated investment funds, comparative amounts have been restated from those previously reported. The review identified amounts presented within cash and cash equivalents and other investments that are now presented as fixed maturity securities and equity securities in the table above. The restatement has had no impact on the profit for the period or equity.

2�� Following a review of the classification of financial assets, comparative amounts have been amended from those previously reported. The effect of this change is to reclassify �2,201 million of assets from fixed maturity securities to other investments

The majority of non-rated debt securities within shareholder assets are held by our businesses in the UK. Of these securities 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 �4,095 million�(2018: �3,640 million) 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 following table provides information on the Group's exposure by credit ratings to financial assets that meet the definition of 'solely payment of principal and interest' (SPPI).

As at 31 December 2019	AAA	AA	A	BBB	Below BBB	Not rated
Loans	7,065	1,443	-	-	-	1,071
Receivables	-	144	338	259	4	5,044
Accrued income & interest	-	-	-	-	-	265
Other financial assets	-	-	5	-	-	-
Total	7,065	1,587	343	259	4	6,380

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Restated¹ as at 31 December 2018	AAA	AA	A	BBB	Below BBB	Not rated
Loans	6,299	2,720	-	-	-	894
Receivables	6	213	294	214	-	4,882
Accrued income & interest	-	-	18	-	-	175
Other financial assets	-	-	10	-	-	-
Total	6,305	2,933	322	214	-	5,951

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B20 - Risk management continued

At the period end, the Group held cash and cash equivalents of �15,344 million (2018 restated: �11,249 million) that met the SPPI criteria, of which �15,322 million (2018 restated: �11,234 million) is placed with financial institutions with issuer ratings within the range of AAA to BBB. Further information on the extent to which unrated receivables, including those that meet the SPPI criteria, are past due may be found in section (ix) of this note.

The Group continues to hold a series of macro credit hedges to reduce the overall credit risk exposure. The Group's maximum exposure to credit risk of financial assets, without taking collateral or these hedges into account, is represented by the carrying value of the financial instruments in the statement of financial position. These comprise debt securities, reinsurance assets, derivative assets, loans and receivables.

(ii)� Other investments

Other investments (including assets of operations classified as held for sale) include unit trusts and other investment vehicles; derivative financial instruments, representing positions to mitigate the impact of adverse market movements; and other assets, including deposits with credit institutions and minority holdings in property management undertakings.

The credit quality of the underlying debt securities within investment vehicles is managed by the safeguards built into the investment mandates for these funds which determine the funds' risk profiles. At the Group level, we also monitor the asset quality of unit trusts and other investment vehicles against Group set limits.

A proportion of the assets underlying these investments are represented by equities and so credit ratings are not generally applicable. Equity exposures are managed against agreed benchmarks that are set with reference to overall appetite for market risk.

(iii) � Loans

The Group loan portfolio principally comprises:

� 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;

� Healthcare, infrastructure and PFI loans secured against healthcare, education, social housing and emergency services related premises; and

� Mortgage loans collateralised by property assets.

We use loan to value, interest and debt service cover, and diversity and quality of the tenant base metrics to internally monitor our exposures to mortgage loans. We use credit quality, based on dynamic market measures, and collateralisation rules to manage our stock lending activities. Policy loans are loans and advances made to policyholders, and are collateralised by the underlying policies.

(iv) Credit concentration risk

The long-term and general insurance businesses are generally not individually exposed to significant concentrations of credit risk due to the regulations applicable in most markets and the Group credit policy and limits framework, which limit investments in individual assets and asset classes. Credit concentrations are monitored as part of the regular credit monitoring process and are reported to the Group Asset Liability Committee (ALCO). With the exception of government bonds the largest aggregated counterparty exposure within shareholder assets is to the Swiss Reinsurance Company Ltd (including subsidiaries), representing approximately 2.4% of the total shareholder assets.

(v)� Reinsurance credit exposures

The Group is exposed to concentrations of risk with individual reinsurers due to the nature of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures, by limiting the reinsurers that may be used and applying strict limits to each reinsurer. Reinsurance exposures are aggregated with other exposures to ensure that the overall risk is within appetite. The Group Capital and Group Risk teams have an active monitoring role with escalation to the Chief Financial Officer (CFO), Chief Risk Officer (CRO), Group ALCO and the Board Risk Committee as appropriate.

The Group's largest reinsurance counterparty is Swiss Reinsurance Company Ltd (including subsidiaries). At 31 December 2019, the reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was �3,097 million (2018: �2,835 million).�

(vi) Securities finance

The Group has significant securities financing operations within the UK and smaller operations in some other businesses. The risks within this activity are mitigated by collateralisation and minimum counterparty credit quality requirements.

(vii)� Derivative credit exposures

The Group is exposed to counterparty credit risk through derivative trades. This risk is generally mitigated through holding collateral for most trades. Residual exposures are captured within the Group's credit management framework.

(viii) Unit-linked business

In unit-linked business the policyholder bears the direct market risk and credit risk on investment assets in the unit funds and the shareholders' exposure to credit risk is limited to the extent of the income arising from asset management charges based on the value of assets in the fund.

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B20 - Risk management continued

(ix) Impairment of financial assets

In assessing whether financial assets carried at amortised cost or classified as available for sale are impaired, due consideration is given to the factors outlined in accounting policies (T) and (V). The following table provides information regarding the carrying value of financial assets subject to impairment testing that have been impaired and the ageing of those assets that are past due but not impaired. The table excludes assets carried at fair value through profit or loss and held for sale.

	Neither past due nor impaired �m	Financial assets that are past due but not impaired
As at 31 December 2019	Neither past due nor impaired �m	0-3 months �m	3-6 months �m	6 months- 1 year �m	Greater than 1 year �m	Financial assets that have been impaired �m	Carrying value �m
Fixed maturity securities	1,455	-	-	6	-	-	1,461
Reinsurance assets	8,361	-	-	-	-	-	8,361
Other investments	2	-	-	-	-	-	2
Loans	10,260	-	-	-	-	-	10,260
Receivables and other financial assets	8,911	51	14	10	9	-	8,995

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	Neither past due nor impaired �m	Financial assets that are past due but not impaired
Restated¹ as at 31 December 2018	Neither past due nor impaired �m	0-3 months �m	3-6 months �m	6 months- 1 year �m	Greater than 1 year �m	Financial assets that have been impaired �m	Carrying value �m
Fixed maturity securities	1,675	-	-	5	-	-	1,680
Reinsurance assets	7,791	-	-	-	-	-	7,791
Other investments	1	-	-	-	-	-	1
Loans	10,658	-	-	-	-	-	10,658
Receivables and other financial assets	8,536	74	16	11	2	-	8,639

Excluded from the tables above are financial and reinsurance assets carried at fair value through profit or loss that are not subject to impairment testing, as follows: �198.0 billion of debt securities (2018 restated: �190.3 billion), �44.8 billion of other investments (2018 restated: �41.2 billion), �28.3 billion of loans (2018: �25.5 billion) and �4.0 billion of reinsurance assets (2018: �4.0 billion).

Where assets have been classed as 'past due and impaired', an analysis is made of the risk of default and a decision is made whether to seek to mitigate the risk. There were no material financial assets that would have been past due or impaired had the terms not been renegotiated.

(c)� Market risk

Market risk is the risk of adverse financial impact resulting, directly or indirectly from fluctuations in interest rates, inflation, foreign currency exchange rates, equity and property prices. Market risk arises in business units due to fluctuations in both the value of liabilities and the value of investments held. At Group level, it also arises in relation to the overall portfolio of international businesses and in the value of investment assets owned directly by the shareholders. We actively seek some market risks as part of our investment and product strategy. However, we have limited appetite for interest rate risk as we do not believe it is adequately rewarded.

The management of market risk is undertaken at business unit and at Group level. Businesses manage market risks locally using the Group market risk framework and within local regulatory constraints. Group Capital is responsible for monitoring and managing market risk at Group level and has established criteria for matching assets and liabilities to limit the impact of mismatches due to market movements.

In addition, where the Group's long-term savings businesses have written insurance and investment products where the majority of investment risks are borne by its policyholders, these risks are managed in line with local regulations and marketing literature, in order to satisfy the policyholders' risk and reward objectives. The Group writes unit-linked business in a number of its operations. The shareholders' exposure to market risk on this business is limited to the extent that income arising from asset management charges is based on the value of assets in the fund.

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B20 - Risk management continued

The most material types of market risk that the Group is exposed to are described below.

(i)�� Equity price risk

The Group is subject to direct equity price risk arising from changes in the market values of its equity securities portfolio. Our most material indirect equity price risk exposures are to policyholder unit-linked funds, which are exposed to a fall in the value of the fund thereby reducing the fees we earn on those funds, and participating contracts, which are exposed to a fall in the value of the funds thereby increasing our costs for policyholder guarantees. We also have some equity exposure in shareholder funds through equities held to match inflation-linked liabilities.

We continue to limit our direct equity exposure in line with our risk preferences. At a business unit level, investment limits and local investment regulations require that business units hold diversified portfolios of assets thereby reducing exposure to individual equities. The Group does not have material holdings of unquoted equity securities.

Equity risk is also managed using a variety of derivative instruments, including futures and options. Businesses actively model the performance of equities through the use of risk models, in particular to understand the impact of equity performance on guarantees, options and bonus rates. An equity hedging strategy remains in place to help control the Group's overall direct and indirect exposure to equities. At�31 December 2019 the Group continues to hold a series of macro equity hedges to reduce the overall shareholder equity risk exposure.

Sensitivity to changes in equity prices is given in section (i) Risk and capital management, below.

(ii)� Property price risk

The Group is subject to property price risk directly due to holdings of investment properties in a variety of locations worldwide and indirectly through investments in mortgages and mortgage backed securities. Investment in property is managed at business unit level, and is subject to local regulations on investments, liquidity requirements and the expectations of policyholders.

As at 31 December 2019, no material derivative contracts had been entered into to mitigate the effects of changes in property prices. Exposure to property risk on equity release mortgages from sustained underperformance in the UK House Price Index (HPI) is mitigated by capping loan to value on origination at low levels and regularly monitoring the performance of the mortgage portfolio.

Sensitivity to changes in property prices is given in section (i) Risk and capital management, below.

(iii) Interest rate risk

Interest rate risk arises primarily from the Group's investments in long-term debt and fixed income securities and their movement relative to the value placed on the insurance liabilities. A number of policyholder product features have an influence on the Group's interest rate risk. The major features include guaranteed surrender values, guaranteed annuity options, and minimum surrender and maturity values.

Exposure to interest rate risk is monitored through several measures that include duration, capital modelling, sensitivity testing and stress and scenario testing. The impact of exposure to sustained low interest rates is considered within our scenario testing.

The Group typically manages interest rate risk by investing in fixed interest securities which closely match the interest rate sensitivity of the liabilities where such investments are available. In particular, a key objective is to at least match the duration of our annuity liabilities with assets of the same duration, and in some cases where appropriate cash flow matching has been used. These assets include corporate bonds, residential mortgages and commercial mortgages. Should they default before maturity, it is assumed that the Group can reinvest in assets of a similar risk and return profile, which is subject to market conditions. Interest rate risk is also managed in some business units using a variety of derivative instruments, including futures, options, swaps, caps and floors.

Some of the Group's products, principally participating contracts, expose us to the risk that changes in interest rates will impact on profits through a change in the interest spread (the difference between the amounts that we are required to pay under the contracts and the investment income we are able to earn on the investments supporting our obligations under those contracts). Markets where Aviva is primarily exposed to this risk are the UK, France, Italy and some other Asian business units.

The low interest rate environment in a number of markets around the world has resulted in our current investment yields being lower than the overall current portfolio yield, primarily in our investments in fixed income securities. We anticipate that interest rates may remain below historical averages for an extended period of time and that financial markets may continue to have periods of high volatility. Investing activity will continue to decrease the portfolio yield as long as market yields remain below the current portfolio level. We expect the decline in portfolio yield will result in lower net investment income in future periods.

Other product lines of the Group, such as protection, are not significantly sensitive to interest rate or market movements. For unit-linked business, the shareholder margins emerging are typically a mixture of annual management fees and risk/expense charges. Risk and expense margins will be largely unaffected by low interest rates. Annual management fees may increase in the short term as the move towards low interest rates increases the value of unit funds. However, in the medium term, unit funds will grow at a lower rate which will reduce fund charges. For the UK annuities business interest rate exposure is mitigated by closely matching the duration of liabilities with assets of the same duration.

The UK participating business includes contracts with features such as guaranteed surrender values, guaranteed annuity options, and minimum surrender and maturity values. These liabilities are managed through duration matching of assets and liabilities and the use of derivatives, including swaptions. As a result, the Group's exposure to sustained low interest rates on this portfolio is not material. The Group's key exposure to low interest rates arises through its other participating contracts, principally in Italy and France. Some of these contracts also include features such as guaranteed minimum bonuses, guaranteed investment returns and guaranteed surrender values. In a low interest rate environment there is a risk that the yield on assets might not be sufficient to cover these obligations. For certain of its participating contracts the Group is able to amend guaranteed crediting rates. Our ability to lower crediting rates may be limited by competition, bonus mechanisms and contractual arrangements.

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B20 - Risk management continued

In addition, the following table summarises the weighted average minimum guaranteed crediting rates and weighted average book value yields on assets as at 31 December 2019 for our Italian and French participating contracts, where the Group's key exposure to sustained low interest rates arises.

	Weighted average minimum guaranteed crediting rate	Weighted average book value yield on assets	Participating contract liabilities �m
France	0.67%	2.47%	69,057
Italy	0.29%	3.50%	20,660
Other¹	N/A	N/A	50,389
Total	N/A	N/A	140,106

1�� 'Other' includes UK participating business

Profit before tax on General Insurance and Health Insurance business is generally a mixture of insurance, expense and investment returns. The asset portfolio is invested primarily in fixed income securities. The portfolio investment yield and average total invested assets in our general insurance and health business are set out in the table below.

	Portfolio investment yield¹	Average assets �m
2017	2.07%	14,770
2018	2.28%	14,651
2019	2.21%	14,350

1�� Before realised and unrealised gains and losses and investment expenses

The nature of the business means that prices in certain circumstances can be increased to maintain overall profitability. This is subject to the competitive environment in each market. To the extent that there are further falls in interest rates the investment yield would be expected to decrease further in future periods.

Sensitivity to changes in interest rates is given in section (i) Risk and capital management, below.

(iv) Inflation risk

Inflation risk arises primarily from the Group's exposure to general insurance claims inflation, to inflation linked benefits within the defined benefit staff pension schemes and within the UK annuity portfolio and to expense inflation. Increases in long-term inflation expectations are closely linked to long-term interest rates and so are frequently considered with interest rate risk. Exposure to inflation risk is monitored through capital modelling, sensitivity testing and stress and scenario testing. The Group typically manages inflation risk through its investment strategy and, in particular, by investing in inflation linked securities and through a variety of derivative instruments, including inflation linked swaps.

(v)� Currency risk

The Group has minimal exposure to currency risk from financial instruments held by business units in currencies other than their functional currencies, as nearly all such holdings are backing either unit-linked or with-profits contract liabilities or are hedged. As a result the foreign exchange gains and losses on investments are largely offset by changes in unit-linked and with-profits liabilities and fair value changes in derivatives attributable to changes in foreign exchange rates recognised in the income statement.

The Group operates internationally and as a result is exposed to foreign currency exchange risk arising from fluctuations in exchange rates of various currencies. Approximately 58% of the Group's premium income arises in currencies other than sterling and the Group's net assets are denominated in a variety of currencies, of which the largest are sterling, euro and Canadian dollars. The Group does not hedge foreign currency revenues as these are substantially retained locally to support the growth of the Group's business and meet local regulatory and market requirements. However, the Group does use foreign currency forward contracts to hedge planned dividends from its subsidiaries.

Businesses aim to maintain sufficient assets in local currency to meet local currency liabilities, however movements may impact the value of the Group's consolidated shareholders' equity which is expressed in sterling. This aspect of foreign exchange risk is monitored and managed centrally, against pre-determined limits. These exposures are managed by aligning the deployment of regulatory capital by currency with the Group's regulatory capital requirements by currency. Currency borrowings and derivatives are used to manage exposures within the limits that have been set. Except where the Group has applied net investment hedge accounting, foreign exchange gains and losses on foreign currency borrowings are recognised in the income statement, whereas foreign exchange gains and losses arising on consolidation from the translation of assets and liabilities of foreign subsidiaries are recognised in other comprehensive income. At 31 December 2019 and 2018, the Group's total equity deployment by currency including assets 'held for sale' was:

	Sterling �m	Euro �m	CAD$ �m	Other �m	Total �m
Capital 31 December 2019	16,036	819	397	1,433	18,685
Capital 31 December 2018	15,720	611	311	1,813	18,455

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B20 - Risk management continued

A 10% change in sterling to euro/Canada$ (CAD$) period-end foreign exchange rates would have had the following impact on total equity.

	10% increase in sterling / euro rate �m	10% decrease in sterling / euro rate �m	10% increase in sterling / CAD$ rate �m	10% decrease in sterling / CAD$ rate �m
Net assets at 31 December 2019	(82)	82	(40)	40
Net assets at 31 December 2018	(61)	77	(31)	31

A 10% change in sterling to euro/Canada$ (CAD$) average foreign exchange rates applied to translate foreign currency profits would have had the following impact on profit before tax, including resulting gains and losses on foreign exchange hedges.

	10% increase in sterling / euro rate �m	10% decrease in sterling / euro rate �m	10% increase in sterling / CAD$ rate �m	10% decrease in sterling / CAD$ rate �m
Impact on profit before tax 31 December 2019	(67)	82	(18)	22
Impact on profit before tax 31 December 2018	(60)	85	8	(9)

The balance sheet changes arise from retranslation of business unit statements of financial position from their functional currencies into sterling, with above movements being taken through the currency translation reserve. These balance sheet movements in exchange rates therefore have no impact on profit. Net asset and profit before tax figures are stated after taking account of the effect of currency hedging activities.

(vi) Derivatives risk

Derivatives are used by a number of the businesses. Derivatives are primarily used for efficient investment management, risk hedging purposes, or to structure specific retail savings products. Activity is overseen by the Group Capital and Group Risk teams, which monitor exposure levels and approve large or complex transactions.

The Group applies strict requirements to the administration and valuation processes it uses, and has a control framework that is consistent with market and industry practice for the activity that is undertaken.

(vii) Correlation risk

The Group recognises that lapse behaviour and potential increases in consumer expectations are sensitive to and interdependent with market movements and interest rates. These interdependencies are taken into consideration in the internal capital model and in scenario analysis.

(d)� Liquidity risk

Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form. The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in higher yielding, but less liquid assets such as commercial mortgages and infrastructure loans. The Group seeks to ensure that it maintains sufficient financial resources to meet its obligations as they fall due through the application of a Group liquidity risk policy and business standard and through the development of its liquidity risk management plan. At Group and business unit level, there is a liquidity risk appetite which requires that sufficient liquid resources be maintained to cover net outflows in a stress scenario. In addition to the existing liquid resources and expected inflows, the Group maintains significant undrawn committed borrowing facilities (�1,650 million) from a range of leading international banks to further mitigate this risk.

Maturity analyses

The following tables show the maturities of our insurance and investment contract liabilities, and of the financial and reinsurance assets held to meet them.

(i)�� Analysis of maturity of insurance and investment contract liabilities

For non-linked insurance business, the following table shows the gross liability at 31 December 2019 and 2018 analysed by remaining duration. The total liability is split by remaining duration in proportion to the cash-flows expected to arise during that period, as permitted under IFRS 4, Insurance Contracts.

Almost all linked business and non-linked investment contracts may be surrendered or transferred on demand. For such contracts, the earliest contractual maturity date is therefore the current statement of financial position date, for a surrender amount approximately equal to the current statement of financial position liability. However, we expect surrenders, transfers and maturities to occur over many years, and therefore the tables below reflect the expected cash flows for these contracts, rather than their contractual maturity date. This table includes amounts held for sale.

As at 31 December 2019	Total �m	On demand or within 1 year �m	1-5 years �m	5-15 years �m	Over 15 years �m
Long-term business
Insurance contracts - non-linked	111,731	8,811	27,184	41,728	34,008
Investment contracts - non-linked	74,641	5,978	19,532	28,313	20,818
Linked business	177,448	16,226	26,002	58,601	76,619
General insurance and health	16,656	7,136	6,665	2,258	597
Total contract liabilities	380,476	38,151	79,383	130,900	132,042

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Restated¹ as at 31 December 2018	Total �m	On demand or within 1 year �m	1-5 years �m	5-15 years �m	Over 15 years �m
Long-term business
Insurance contracts - non-linked	106,622	8,421	25,940	40,548	31,713
Investment contracts - non-linked	75,158	5,547	19,199	28,572	21,840
Linked business	156,859	15,559	23,901	52,656	64,743
General insurance and health	16,368	6,859	6,758	2,217	534
Total contract liabilities	355,007	36,386	75,798	123,993	118,830

(ii)� Analysis of maturity of financial assets

The following table provides an analysis, by maturity date of the principal, of the carrying value of financial assets which are available to fund the repayment of liabilities as they crystallise. This table excludes assets held for sale.

As at 31 December 2019	Total �m	On demand or within 1 year �m	1-5 years �m	Over 5 years �m	No fixed term (perpetual) �m
Fixed maturity securities	198,832	42,644	47,983	106,981	1,224
Equity securities	99,570	-	-	-	99,570
Other investments	45,016	38,817	25	5,365	809
Loans	38,579	9,641	4,643	24,293	2
Cash and cash equivalents	19,524	19,524	-	-	-
	401,521	110,626	52,651	136,639	101,605

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Restated¹ as at 31 December 2018	Total �m	On demand or within 1 year �m	1-5 years �m	Over 5 years �m	No fixed term (perpetual) �m
Fixed maturity securities²	191,675	42,764	47,936	99,670	1,305
Equity securities	88,227	-	-	-	88,227
Other investments²	39,923	34,782	77	4,301	763
Loans	36,184	9,488	4,236	22,457	3
Cash and cash equivalents	15,926	15,926	-	-	-
	371,935	102,960	52,249	126,428	90,298

The assets above are analysed in accordance with the earliest possible redemption date of the instrument at the initiation of the Group. Where an instrument is transferable back to the issuer on demand, such as most unit trusts or similar types of investment vehicle, it is included in the 'On demand or within 1 year' column. Debt securities with no fixed contractual maturity date are generally callable at the option of the issuer at the date the coupon rate is reset under the contractual terms of the instrument. The terms for resetting the coupon are such that we expect the securities to be redeemed at this date, as it would be uneconomic for the issuer not to do so, and for liquidity management purposes we manage these securities on this basis. The first repricing and call date is normally ten years or more after the date of issuance. Most of the Group's investments in equity securities and fixed maturity securities are market traded and therefore, if required, can be liquidated for cash at short notice.

(e)� Life and health insurance risk

Life insurance risk in the Group arises through its exposure to mortality risk and exposure to worse than anticipated operating experience on factors such as persistency levels, exercising of policyholder options and management and administration expenses. The Group's health insurance business (including private health insurance, critical illness cover, income protection and personal accident insurance, as well as a range of corporate healthcare products) exposes the Group to morbidity risk (the proportion of our customers falling sick) and medical expense inflation. The Group chooses to take measured amounts of life and health insurance risk provided that the relevant business has the appropriate core skills to assess and price the risk and adequate returns are available. The Group's underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. Life insurance risk is managed primarily at business unit level with oversight at the Group level.

The underlying risk profile of our life and health insurance risks, primarily persistency, longevity, mortality and expense risk, has remained stable during 2019. We are also exposed to longevity risk through the Aviva Staff Pension Scheme, to which our economic exposure has been reduced since 2014 by entering into a longevity swap covering approximately �5 billion of pensioner in payment scheme liabilities. Longevity risk remains the Group's most significant life insurance risk, while persistency risk remains significant and continues to have a volatile outlook with underlying performance linked to some degree to economic conditions. We purchased reinsurance for longevity risk for our annuity business, including the bulk annuity buy-in transaction with the Aviva Staff Pension scheme. Group has continued to write considerable volumes of life protection business, and to utilise reinsurance to reduce exposure to potential losses. More generally, life insurance risks are believed to provide a significant diversification against other risks in the portfolio. Life insurance risks are modelled within the internal capital model and subject to sensitivity and stress and scenario testing.

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The assumption and management of life and health insurance risks is governed by the Group-wide business standards covering underwriting, pricing, product design and management, in-force management, claims handling, and reinsurance. The individual life and health insurance risks are managed as follows:

� Mortality and morbidity risks are mitigated by use of reinsurance. The Group allows businesses to select reinsurers, from those approved by the Group, based on local factors, but retains oversight of the overall exposures and monitors that the aggregation of risk ceded is within credit risk appetite.

� Longevity risk and internal experience analysis are monitored against the latest external industry data and emerging trends. While individual businesses are responsible for reserving and pricing for annuity business, the Group monitors the exposure to this risk and any associated capital implications. The Group has used reinsurance solutions to reduce the risks from longevity and continually monitors and evaluates emerging market solutions to mitigate this risk further.

� Persistency risk is managed at a business unit level through frequent monitoring of company experience, and benchmarked against local market information. Generally, persistency risk arises from customers lapsing their policies earlier than has been assumed. Where possible the financial impact of lapses is reduced through appropriate product design. Businesses also implement specific initiatives to improve the retention of policies which may otherwise lapse. The Group has developed guidelines on persistency management.

� Expense risk is primarily managed by the business units through the assessment of business unit profitability and frequent monitoring of expense levels.

Embedded derivatives

The Group is exposed to the risk of changes in policyholder behaviour due to the exercise of options, guarantees and other product features embedded in its long-term savings products. These product features offer policyholders varying degrees of guaranteed benefits at maturity or on early surrender, along with options to convert their benefits into different products on pre-agreed terms. The extent of the impact of these embedded derivatives differs considerably between business units and exposes Aviva to changes in policyholder behaviour in the exercise of options as well as market risk.

Examples of each type of embedded derivative affecting the Group are:

� Options: call, put, surrender and maturity options, guaranteed annuity options, options to cease premium payment, options for withdrawals free of market value adjustment, annuity options, and guaranteed insurability options.

� Guarantees: embedded floor (guaranteed return), maturity guarantee, guaranteed death benefit, and guaranteed minimum rate of annuity payment.

� Other: indexed interest or principal payments, maturity value, loyalty bonus.

The impact of these is reflected in the capital model and managed as part of the asset liability framework. Further disclosure on financial guarantees and options embedded in contracts and their inclusion in insurance and investment contract liabilities is provided in note B13.

(f)� General insurance risk

Types of risk

General insurance risk in the Group arises from:

� Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations;

� Unexpected claims arising from a single source or cause;

� Inaccurate pricing of risks or inappropriate underwriting of risks when underwritten; and

� Inadequate reinsurance protection or other risk transfer techniques.

The majority of the general insurance business underwritten by the Group continues to be short tail in nature such as motor, household and commercial property insurances. The Group's underwriting strategy and appetite is communicated via specific policy statements, related business standards and guidelines. General insurance risk is managed primarily at business unit level with oversight at the Group level. Claims reserving is undertaken by local actuaries in the various general insurance businesses and is also subject to periodic external reviews. Reserving processes are further detailed in note B11 Insurance liabilities.

The vast majority of the Group's general insurance business is managed and priced in the same country as the domicile of the customer.

Management of general insurance risks

Significant insurance risks will be reported under the risk management framework. Additionally, the capital model is used to assess the risks that each general insurance business unit, and the Group as a whole, is exposed to, quantifying their impact and calculating appropriate capital requirements.

Business units have developed mechanisms that identify, quantify and manage accumulated exposures to contain them within the limits of the appetite of the Group. The business units are assisted by the General Insurance Council which provides technical input for major decisions which fall outside individual delegated limits or escalations outside group risk preferences, group risk accumulation, concentration and profitability limits.

Reinsurance strategy

Significant reinsurance purchases are reviewed annually at both business unit and Group level to verify that the levels of protection being bought reflect any developments in exposure and the risk appetite of the Group. The basis of these purchases is underpinned by analysis of capital, earnings and capital volatility, cash flow and liquidity and the Group's franchise value.

Detailed actuarial analysis is used to calculate the Group's extreme risk profile and then design cost and capital efficient reinsurance programmes to mitigate these risks to within agreed appetites. For businesses writing general insurance we analyse the natural catastrophe exposure using our own internal probabilistic catastrophe model which is benchmarked against external catastrophe models widely used by the rest of the (re)insurance industry.

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The Group cedes much of its worldwide catastrophe risk to third-party reinsurers through excess of loss and aggregate excess of loss structures. The Group purchases a Group-wide catastrophe reinsurance programme to protect against catastrophe losses exceeding a 1 in 200 year return period. The total Group potential retained loss from its most concentrated catastrophe exposure peril (Northern Europe Windstorm) is approximately �150 million on a per occurrence basis and �175 million on an annual aggregate basis. Any losses above these levels are covered by the group-wide catastrophe reinsurance programme to a level in excess of a 1 in 200 year return period. In addition the Group purchases a number of GI business line specific reinsurance programmes with various retention levels to protect both capital and earnings, and has reinsured 100% of its latent exposures to its historic UK employers' liability and public liability business written prior to 31�December 2000.

(g)� Asset management risk

Aviva is directly exposed to the risks associated with operating an asset management business through its ownership of Aviva Investors. The underlying risk profile of our asset management risk is derived from investment performance, specialist investment professionals and leadership, product development capabilities, fund liquidity, margin, client retention, regulatory developments, fiduciary and contractual responsibilities. Funds invested in illiquid assets such as commercial property are particularly exposed to liquidity risk. The risk profile is regularly monitored.

A client relationship team is in place to manage client retention risk, while all new asset management products undergo a review and approval process at each stage of the product development process, including approvals from legal, compliance and risk functions. Investment performance against client objectives relative to agreed benchmarks is monitored as part of our investment performance and risk management process, and subject to further independent oversight and challenge by a specialist risk team, reporting directly to the Aviva Investors' Chief Risk Officer.

(h)� Operational risk

Operational risk is the risk of direct or indirect loss, arising from inadequate or failed internal processes, people and systems, or external events including changes in the regulatory environment. We have limited appetite for operational risk and aim to reduce these risks as far as is commercially sensible.

Our business units are primarily responsible for identifying and managing operational risks within their businesses, within the Group-wide operational risk framework including the risk and control self-assessment process. Businesses must be satisfied that all material risks falling outside our risk tolerances are being mitigated, monitored and reported to an appropriate level. Any risks with a high potential impact are monitored centrally on a regular basis. Businesses use key indicator data to help monitor the status of the risk and control environment. They also identify and capture loss events, taking appropriate action to address actual control breakdowns and promote internal learning.

The importance of digital interaction with our customers and advanced data analytics, the conduct, data protection and financial crime agenda of the European institutions, the FCA and other regulators, as well as the increasing cyber security threat, as evidenced by continuing instances of high profile cyber security breaches for other corporates in the UK and elsewhere, mean the Group has inherent risk exposure to data theft, conduct regulatory breaches (including financial crime) and customer service interruption due to IT systems failure. During 2019 we have continued to take action to reduce our residual exposure to these risks and improve our operational resilience through our conduct risk management framework, financial crime risk mitigation programme and significant investment in upgrading our IT infrastructure and security.

We are exposed to the risk that litigation, employee misconduct, operational failures, the outcome of regulatory investigations, media speculation and negative publicity, disclosure of confidential client information, inadequate services, whether or not founded, could impact our brands or reputation. Any of our brands or our reputation could also be affected if products or services recommended by us (or any of our intermediaries) do not perform as expected (whether or not the expectations are founded) or customers' expectations for the product change. We seek to reduce this risk to as low a level as commercially sensible.

The FCA regularly considers whether we are meeting the requirement to treat our customers fairly and we make use of various metrics to assess our own performance, including customer advocacy, retention and complaints. Failure to meet these requirements could also impact our brands or reputation.

If we do not manage the perception of our brands and reputation successfully, it could cause existing customers or agents to withdraw from our business and potential customers or agents to choose not to do business with us.

(i)�� Risk and capital management

(i)�� Sensitivity test analysis

The Group uses a number of sensitivity tests to understand the volatility of earnings, the volatility of its capital requirements, and to manage its capital more efficiently. Sensitivities to economic and operating experience are regularly produced on the Group's key financial performance metrics to inform the Group's decision making and planning processes, and as part of the framework for identifying and quantifying the risks to which each of its business units, and the Group as a whole, are exposed.

(ii)� Life insurance and investment contracts

The nature of long-term business is such that a number of assumptions are made in compiling these financial statements. Assumptions are made about investment returns, expenses, mortality rates and persistency in connection with the in-force policies for each business unit. Assumptions are best estimates based on historic and expected experience of the business. A number of the key assumptions for the Group's central scenario are disclosed elsewhere in these statements.

(iii) General insurance and health business

General insurance and health claim liabilities are estimated by using standard actuarial claims projection techniques. These methods extrapolate the claims development for each accident year based on the observed development of earlier years. In most cases, no explicit assumptions are made as projections are based on assumptions implicit in the historic claims.

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(iv) Sensitivity test results

Illustrative results of sensitivity testing for long-term business, general insurance and health business and the fund management and non-insurance business are set out below. For each sensitivity test the impact of a reasonably possible change in a single factor is shown, with other assumptions left unchanged. Each test allows for any consequential impact on the asset and liability valuations.

Sensitivity factor	Description of sensitivity factor applied
Interest rate and investment return	The impact of a change in market interest rates by a 1% increase or decrease. The test allows consistently for similar changes to investment returns and movements in the market value of backing fixed interest securities.
Credit spreads	The impact of a 0.5% increase in credit spreads over risk-free interest rates on corporate bonds and other non-sovereign credit assets.
Equity/property market values	The impact of a change in equity/property market values by � 10%.
Expenses	The impact of an increase in maintenance expenses by 10%.
Assurance mortality/morbidity (life insurance only)	The impact of an increase in mortality/morbidity rates for assurance contracts by 5%.
Annuitant mortality (long-term insurance only)	The impact of a reduction in mortality rates for annuity contracts by 5%.
Gross loss ratios (non-long-term insurance only)	The impact of an increase in gross loss ratios for general insurance and health business by 5%.

Long-term business sensitivities as at 31 December 2019

31 December 2019 Impact on profit before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	-	5	(10)	(65)	60	(50)	10	(5)
Insurance non-participating	(985)	1,265	(800)	(120)	105	(240)	(145)	(955)
Investment participating	(85)	55	(5)	(5)	5	(25)	-	-
Investment non-participating	-	5	-	5	(5)	(5)	-	-
Assets backing life shareholders' funds	(150)	170	(35)	(35)	30	-	-	-
Total	(1,220)	1,500	(850)	(220)	195	(320)	(135)	(960)

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31 December 2019 Impact on shareholders' equity before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	-	5	(10)	(65)	60	(50)	10	(5)
Insurance non-participating	(985)	1,265	(800)	(120)	105	(240)	(145)	(955)
Investment participating	(85)	55	(5)	(5)	5	(25)	-	-
Investment non-participating	-	5	-	5	(5)	(5)	-	-
Assets backing life shareholders' funds	(190)	205	(30)	(30)	30	-	-	-
Total	(1,260)	1,535	(845)	(215)	195	(320)	(135)	(960)

Sensitivities as at 31 December 2018

31 December 2018 Impact on profit before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	(75)	35	(15)	(105)	70	(20)	(5)	(5)
Insurance non-participating	(975)	1,130	(695)	(125)	105	(210)	(115)	(865)
Investment participating	(40)	40	(10)	(15)	(15)	(15)	-	-
Investment non-participating	-	-	-	10	(25)	(20)	-	-
Assets backing life shareholders' funds	(95)	105	(25)	20	(20)	-	-	-
Total	(1,185)	1,310	(745)	(215)	115	(265)	(120)	(870)

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31 December 2018 Impact on shareholders' equity before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Assurance mortality +5%	Annuitant mortality -5%
Insurance participating	(75)	35	(15)	(105)	70	(20)	(5)	(5)
Insurance non-participating	(975)	1,130	(695)	(125)	105	(210)	(115)	(865)
Investment participating	(40)	40	(10)	(15)	(15)	(15)	-	-
Investment non-participating	-	-	-	10	(25)	(20)	-	-
Assets backing life shareholders' funds	(145)	150	(25)	25	(25)	-	-	-
Total	(1,235)	1,355	(745)	(210)	110	(265)	(120)	(870)

Changes in sensitivities between 2019 and 2018 reflect underlying movements in the value of assets and liabilities, the relative duration of assets and liabilities and asset liability management actions. The sensitivities to economic and demographic movements relate mainly to business in the UK.

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General insurance and health business sensitivities as at 31 December 2019

31 December 2019 Impact on profit before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(210)	165	(115)	185	(175)	(140)	(315)
Net of reinsurance	(270)	215	(115)	185	(175)	(140)	(300)

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31 December 2019 Impact on shareholders' equity before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(210)	165	(115)	185	(175)	(25)	(315)
Net of reinsurance	(270)	215	(115)	185	(175)	(25)	(300)

Sensitivities as at 31 December 2018

31 December 2018 Impact on profit before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(240)	235	(115)	165	(165)	(120)	(325)
Net of reinsurance	(305)	295	(115)	165	(165)	(120)	(315)

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31 December 2018 Impact on shareholders' equity before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%	Expenses +10%	Gross loss ratios +5%
Gross of reinsurance	(240)	235	(115)	170	(170)	(25)	(325)
Net of reinsurance	(305)	295	(115)	170	(170)	(25)	(315)

For general insurance and health, the impact of the expense sensitivity on profit also includes the increase in ongoing administration expenses, in addition to the increase in the claims handling expense provision.

Fund management and non-insurance business sensitivities as at 31 December 2019

31 December 2019 Impact on profit before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(20)	15	40	(10)	15

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31 December 2019 Impact on shareholders' equity before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(15)	15	40	(10)	15

Sensitivities as at 31 December 2018

31 December 2018 Impact on profit before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(25)	20	30	(20)	35

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31 December 2018 Impact on shareholders' equity before tax �m	Interest rates +1%	Interest rates -1%	Credit spreads +0.5%	Equity/ property +10%	Equity/ property -10%
Total	(20)	15	30	(20)	30

Limitations of sensitivity analysis

The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

The sensitivity analyses do not take into consideration that the Group's assets and liabilities are actively managed. Additionally, the financial position of the Group may vary at the time that any actual market movement occurs. For example, the Group's financial risk management strategy aims to manage the exposure to market fluctuations.

As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocation, adjusting bonuses credited to policyholders, and taking other protective action.

A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, a change in the underlying assumptions may not have any impact on the liabilities, whereas assets held at market value in the statement of financial position will be affected. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and equity where explicit assumptions are made regarding interest (discount) rates or future inflation.

Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that only represent the Group's view of possible near-term market changes that cannot be predicted with any certainty, and the assumption that all interest rates move in an identical fashion.

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B21 - Direct capital instrument and tier 1 notes

Notional amount	2019 �m	2018 �m
5.9021% �500 million direct capital instrument - Issued November 2004	500	500
6.875% �210 million STICS - Issued November 2003	-	231
Total	500	731

The direct capital instrument (the DCI) was issued on 25 November 2004. The DCI has no fixed redemption date but the Company may, at its sole option, redeem all (but not part) of the principal amount on 27 July 2020, at which date the interest rate changes to a variable rate, or on any respective coupon payment date thereafter. The variable rate will be the six month sterling deposit rate plus margin.

The Step-up Tier one Insurance Capital Securities ('STICS') were issued on 21 November 2003 by Friends Life Holdings plc, substituted as issuer by Aviva plc on 1 October 2015. These had no fixed redemption date, however, on 17 October 2019 notification was given that the Group would redeem the tier one notes at the first call date on 21 November 2019. On the notification date the instruments were reclassified as a financial liability of �210 million, representing the fair value and redemption cost at that date. The resulting difference of �21 million between the carrying amount of �231 million and fair value of �210 million has been charged to retained earnings. The instruments were cancelled on 25 November 2019.

The Company has the option to defer coupon payments on the DCI on any relevant payment date. Deferred coupons shall only be satisfied should the Company exercise its sole option to redeem the instruments.

No interest will accrue on any deferred coupon on the DCI. Deferred coupons on the DCI will be satisfied by the issue and sale of ordinary shares in the Company at their prevailing market value, to a sum as near as practicable to (and at least equal to) the relevant deferred coupons. In the event of any coupon deferral, the Company will not declare or pay any dividend on its ordinary or preference share capital. These instruments have been treated as equity. Please refer to accounting policy AE.

At the end of 2019 the fair value of the DCI was �514 million (2018 DCI: �506 million, STICS: �216 million).

B22 - Cash and cash equivalents

Cash and cash equivalents in the statement of cash flows at 31 December comprised:

	2019 �m	Restated¹ 2018 �m
Cash and cash equivalents	19,524	15,926
Cash and cash equivalents of operations classified as held for sale	780	688
Bank overdrafts	(870)	(563)
Net cash and cash equivalents at 31 December	19,434	16,051

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B23 - Contingent liabilities and other risk factors

This note sets out the main areas of uncertainty over the calculation of our liabilities.

(a)� Uncertainty over claims provisions

Note B12 gives details of the estimation techniques used by the Group to determine the general insurance business outstanding claims provisions and of the methodology and assumptions used in determining the long-term business provisions. These approaches are designed to allow for the appropriate cost of policy-related liabilities, with a degree of prudence, to give a result within the normal range of outcomes. However, the actual cost of settling these liabilities may differ, for example because experience may be worse than that assumed, or future general insurance business claims inflation may differ from that expected, and hence there is uncertainty in respect of these liabilities.

(b)� Asbestos, pollution and social environmental hazards

In the course of conducting insurance business, various companies within the Group receive general insurance liability claims, and become involved in actual or threatened related litigation arising therefrom, including claims in respect of pollution and other environmental hazards. Amongst these are claims in respect of asbestos production and handling in various jurisdictions, including Europe, Canada and Australia. Given the significant delays that are experienced in the notification of these claims, the potential number of incidents they cover and the uncertainties associated with establishing liability, the ultimate cost cannot be determined with certainty. However, on the basis of current information having regard to the level of provisions made for general insurance claims and substantial reinsurance cover now in place, the directors consider that any additional costs arising are not likely to have a material impact on the financial position of the Group.

(c)� Guarantees on long-term savings products

As a normal part of their operating activities, various Group companies have given guarantees and options, including interest rate guarantees, in respect of certain long-term insurance and investment products. In providing these guarantees and options, the Group's capital position is sensitive to fluctuations in financial variables including foreign currency exchange rates, interest rates, property values and equity prices. Interest rate guaranteed returns, such as those available on guaranteed annuity options, are sensitive to interest rates falling below the guaranteed level. Other guarantees, such as maturity value guarantees and guarantees in relation to minimum rates of return, are sensitive to fluctuations in the investment return below the level assumed when the guarantee was made. The directors continue to believe that the existing provisions for such guarantees and options are sufficient.

(d)� Regulatory compliance

The Group's insurance and investment business is subject to local regulation in each of the countries in which it operates. A number of the Group's UK subsidiaries are dual regulated (directly authorised by both the PRA (for prudential regulation) and the FCA (for conduct regulation)) while others are solo regulated (regulated solely by the FCA for both prudential and conduct regulation). Between them, the PRA and FCA have broad powers including the authority to grant, vary the terms of, or cancel a regulated firm's authorisation; to investigate marketing and sales practices; and to require the maintenance of adequate financial resources. The Group's regulators outside the UK typically have similar powers, but in some cases they also operate a system of 'prior product approval'.

The Group's regulated businesses have compliance resources to respond to regulatory enquiries in a constructive way, and take corrective action when warranted. However, all regulated financial services companies face the risk that their regulator could find that they have failed to comply with applicable regulations or have not undertaken corrective action as required.

The impact of any such finding (whether in the UK or overseas) could have a negative impact on the Group's reported results or on its relations with current and potential customers. Regulatory action against a member of the Group could result in adverse publicity for, or negative perceptions regarding, the Group, or could have a material adverse effect on the business of the Group, its results, operations and/or financial condition and divert management's attention from the day-to-day management of the business.

(e)� Structured settlements

The Group has purchased annuities from licensed Canadian life insurers to provide for fixed and recurring payments to claimants. As a result of these arrangements, the Group is exposed to credit risk to the extent that any of the life insurers fail to fulfill their obligations. The Group's maximum exposure to credit risk for these types of arrangements is approximately �707 million as at�31�December�2019�(2018:��710�million). Credit risk is managed by acquiring annuities from a diverse portfolio of life insurers with proven financial stability. This risk is reduced to the extent of coverage provided by Assuris, the Canadian life insurance industry compensation plan. As at 31 December 2019, no information has come to the Group's attention that would suggest any weakness or failure in life insurers from which it has purchased annuities and consequently no provision for credit risk is required.

(f)� Other

In the course of conducting insurance and investment business, various Group companies receive liability claims, and become involved in actual or threatened related litigation. In the opinion of the directors, adequate provisions have been established for such claims and no material loss will arise in this respect.

In addition, in line with standard business practice, various Group companies have given guarantees, indemnities and warranties in connection with disposals in recent years of subsidiaries and associates to parties outside the Aviva Group. In the opinion of the directors, no material unprovisioned loss will arise in respect of these guarantees, indemnities and warranties.

There are a number of charges registered over the assets of Group companies in favour of other Group companies or third parties. In addition, certain of the Company's assets are charged in favour of certain of its subsidiaries as security for intra-Group loans.

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B24 - Acquired value of in-force business and intangible assets

Acquired value of in-force business and intangible assets presented in the statement of financial position is comprised of:

	2019 �m	2018 �m
Acquired value of in-force business on insurance contracts¹	1,235	1,418
Acquired value of in-force business on investment contracts²	1,244	1,498
Intangible assets	847	945
	3,326	3,861
Less: Assets classified as held for sale	(526)	(660)
Total	2,800	3,201

1�� On insurance and participating investment contracts.

2�� On non-participating investment contracts.

The acquired value of in-force (AVIF) business on insurance and investment contracts has reduced in the year primarily due to an amortisation charge of �406 million (2018: �426 million charge). There was also an impairment of AVIF on investment contracts of �28�million in the year relating to FPI (2018: �13 million) recorded as a remeasurement loss as FPI is held for sale (see note B5(b)(i)).

The decrease in intangible assets primarily relates to the amortisation charge of �212 million (2018: �209 million charge), partially offset by additions of �136 million largely relating to computer software.

B25 - Subsequent events

2020 has begun with the outbreak of a new strain of the Coronavirus (COVID-19) in China, with confirmed cases in more than 50 countries, including all of those in which Aviva has material businesses. There is a risk of a significant global pandemic and economic disruption. We have reviewed the exposure of our balance sheet and are taking actions to further reduce our sensitivity to economic shocks. Notwithstanding our robust capital and liquidity position and the operational and financial actions that we are taking, a deterioration in the situation would have adverse implications for our businesses arising from the potential impacts on financial markets, our insurance exposures and our operations. As the situation is rapidly evolving it is not practicable to quantify the potential financial impact of the outbreak on the Group.

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END PART 3 of 5