General Accident PLC Annual Financial Report (0249U)

TIDMGACA

RNS Number : 0249U

General Accident PLC

26 March 2019

26 March 2019

GENERAL ACCIDENT PLC

2018 ANNUAL REPORT AND FINANCIAL STATEMENTS

Following the release by General Accident plc (the "Company") on 7 March 2019 of the Company's 2018 Preliminary Results Announcement for the year ended 31 December 2018, the Company announces that it has today issued the 2018 annual report and financial statements.

The documents are available to view on the Company's website at www.aviva.com/reports and copies have been submitted to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM

Printed copies of the 2018 annual report and financial statements can be requested free of charge by shareholders from 26 March 2019 by contacting the Company's Registrar, Computershare Investor Services PLC, on 0371 495 0105 or at [e-mail], or by writing to the Group Company Secretary, Aviva plc, St Helen's, 1 Undershaft, London EC3P 3DQ.

Enquiries:

Kirsty Cooper, Group General Counsel and Company Secretary

Telephone - 020 7662 6646

Roy Tooley, Head of Secretariat - Corporate

Telephone - 020 7662 6019

Information required under Disclosure & Transparency Rule 6.3

This announcement should be read in conjunction with the Company's preliminary results announcement issued on 7 March 2019. Together these constitute the material required by DTR 6.3 to be communicated to the media in full unedited text through a Regulatory Information Service. This material is not a substitute for reading the Company's 2018 Annual report and financial statements. Page and note references in the text below refer to page numbers and notes in the 2018 Annual report and financial statements.

Statement of directors' responsibilities

The directors are responsible for preparing the strategic report, directors' report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU"). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

   -        select suitable accounting policies and then apply them consistently; 

- state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements;

   -        make judgements and accounting estimates that are reasonable and prudent; and 

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006.

The directors are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess a company's performance, business model and strategy.

The directors are responsible for the maintenance and integrity of the ultimate parent company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board on

6 March 2019.

Principal risks and uncertainties

A description of the principal risks and uncertainties facing the Company and the Company's risk management policies are set out in note 1 to the financial statements.

Risk factors beyond the Company's control that could cause actual results to differ materially from those estimated include, but are not limited to:

- Credit risk: The net asset value of the Company's financial resources is exposed to the potential default on the loan and short-term receivables due from its parent, Aviva plc. The external issuer credit rating (representing an issuer's ability to meet its overall financial commitments as they fall due) is A-, and as such the risk of counterparty default is considered remote.

In addition, the loan amounting to GBP9,770 million (2017: GBP9,900 million) is secured by a legal charge against the ordinary share capital of Aviva Group Holdings Limited mitigating the risk of loss in the event of Aviva plc defaulting. Due to the nature of the loan, and the fact that it is intended to be held until settled by Aviva plc (on maturity or earlier if redeemed before maturity) and not traded, the Company is not exposed to the risk of changes to the market value caused by changing perceptions of the credit worthiness of Aviva plc. There were no financial assets that were past due or impaired at either 31 December 2018 or 31 December 2017.

- Interest rate risk: The net asset value of the Company's financial resources is exposed to potential fluctuations in interest rates. The effect of a 100 basis point increase / decrease in interest rates would be an increase / decrease in net interest income of GBP98 million (2017: increase / decrease of GBP99 million). Interest rate risk is a risk the Company chooses to accept rather than reduce or mitigate, as although it may materially impact the results of the Company, it does not impact the Company as a going concern, as the Company has no operating expenses and a loan structure in place, which generates more than adequate income, even at zero LIBOR rates, to cover the annual cost of those dividends.

- Brexit: Although the directors do not believe that Brexit has a significant operational impact on the business, the influence that it will continue to have on the UK economy will require careful monitoring. During the year the Group Board reviewed the impact of potential exit scenarios and the operational response plans.

Risk management

   (a)        Risk management framework 

The Company operates a risk management framework that forms an integral part of the management and Board processes and decision-making framework, aligned to the Group's risk management framework.

The Company's risk management approach is aimed at actively identifying, measuring, managing, monitoring and reporting significant existing and emerging risks. Risks are measured considering the significance of the risk to the business and its internal and external stakeholders.

To promote a consistent and rigorous approach to risk management across all businesses, the Group has a set of risk policies and business standards which set out the risk strategy, appetite, framework and minimum requirements for the Group's worldwide operations, including the Company.

For the purposes of risk identification and measurement, and aligned to the Company's risk policies, risks are usually grouped by risk type: credit, market, liquidity and operational risk. Risks falling within these types may affect a number of metrics including those relating to statement of financial position strength, liquidity and profit.

The directors recognise the critical importance of having efficient and effective risk management systems in place and acknowledge that they are responsible for the Company's framework of internal control and of reviewing its effectiveness. The framework is designed to manage rather than eliminate the risk of failure to achieve the Company's objectives and can only provide reasonable assurance against misstatement or loss. The directors of the Company are satisfied that their adherence to this Group framework provides an adequate means of managing risk in the Company.

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

   (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 the Company, or variations in market values as a result of changes in expectation related to these risks.

The credit quality of receivables and other financial assets is monitored by the Company, and provisions are made for expected credit losses. Expected credit losses on material receivables and other assets are calculated with reference to the Company's historical experience of losses, along with an analysis of payment terms. Short term financial assets (where all amounts are receivable within 12 months from the reporting date) do not generally attract an expected credit loss charge, unless there is objective evidence that losses are likely to arise.

The Company makes use of the simplified approach when calculating expected credit losses on trade receivables which don't include a significant financing component, and therefore calculates expected credit losses over the lifetime of the instrument in question. As at the reporting date, no lifetime expected credit losses have been recognised in relation to receivables.

The Company has not purchased or originated any credit-impaired financial assets as at the reporting date.

The Company's financial assets primarily comprise loans and receivables due from its parent, Aviva plc, which has an external issuer credit rating of A- (issuer credit ratings represent an issuer's ability to meet its overall financial commitments as they fall due), and as such the credit risk arising from the counterparty failing to meet all or part of their obligations is considered remote. There are no material expected credit losses recognised in relation to loans due from Aviva plc.

In addition, the loan amounting to GBP9,770 million (2017: GBP9,900 million) is secured by a legal charge against the ordinary share capital of Aviva Group Holdings Limited. Due to the nature of the financial assets, and the fact that the loans are intended to be held until settled, by the issuer (on maturity or earlier if redeemed before maturity), and not traded, the Company is not exposed to the risk of changes to the market value caused by changing perceptions of the credit worthiness of Aviva plc. Financial assets that were past due or impaired at 31 December 2018 were GBPnil (2017: GBPnil).

   (c)        Market risk 

Market risk is the risk of an adverse financial impact resulting directly or indirectly from fluctuations in interest rates, inflation, foreign currency exchange rates, equity prices and property values. At the statement of financial position date, the Company did not have any material exposure to currency exchange rates, equity prices or property values.

Interest rate risk arises from the inter-company loans receivable (see note 8). The effect of a 100 basis point increase / decrease in interest rates would be an increase / decrease in interest income (before tax) of GBP98 million (2017: increase / decrease of GBP99 million). The fair value or net asset value of the Company's financial resources is not materially affected by fluctuations in interest rates.

   (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 Company does not hold any assets in cash form. Cash settlements of its dividend obligations to holders of preference shares, which are discretionary and subject to director resolution, pass through an intercompany account. Group relief is also settled through an intercompany account.

    (e)          Operational risk 

Operational risk is the risk of a direct or indirect loss, arising from inadequate or failed internal processes, people and systems, or external events, including changes in the regulatory environment.

Given its limited activities, the key operational risks to the Company are inadequate governance and lack of sufficiently robust financial controls. The risks are mitigated by the Company's implementation of the Group's risk management policies and framework and compliance with the Group's Financial Reporting Control Framework.

   (f)         Capital management 

The Company's capital risk is determined with reference to the requirements of the Company's stakeholders. In managing capital the Company seeks to maintain sufficient, but not excessive, financial strength to support the payment of preference dividends and the requirements of other stakeholders. The sources of capital used by the Company are equity shareholders' funds and preference shares. At 31 December 2018 the Company had GBP13,934 million (2017: GBP13,941 million) of total capital employed.

   (g)        Brexit 

Although the directors do not believe that Brexit has a significant operational impact on the business, the influence that it will continue to have on the UK economy will require careful monitoring. During the year the Group Board reviewed the impact of potential exit scenarios and the operational response plans.

Related party transactions

The Company had the following transactions with related parties, which include parent companies, subsidiaries, and fellow Group companies in the normal course of business.

   (a)        Loans due from parent company 

On 14 December 2017, the Company provided a loan to Aviva plc, its parent company, of GBP9,990 million with a maturity date of 31 December 2022. The loan accrued interest at 65 basis points above 3 month LIBOR (and in the event that the LIBOR rate is less than zero, the rate shall be deemed to be zero) with settlement to be paid at maturity. As at the statement of financial position date, the loan balance outstanding was GBP9,770 million (2017: GBP9,900 million). This facility has been secured against the ordinary share capital of Aviva Group Holdings Limited. The loan agreement also includes a penalty interest charge of 1% above the interest rate if any amounts payable under the loan agreement remain outstanding.

The maturity analysis of the related party loan is as follows:

 
                       2018 GBPm   2017 GBPm 
 1 - 5 years           9,770       9,900 
                      ----------  ---------- 
                       9,770       9,900 
                      ----------  ---------- 
 Effective Interest 
  Rate                 1.47%       1.38% 
                      ----------  ---------- 
 

The interest received on this loan shown in the income statement is GBP146 million (2017: GBP138 million). Refer to note 1.

   (b)        Other transactions 
   (i)         Services provided to related parties 
 
                     2018 Receivable at   2017 Receivable at 
                      year end GBPm        year end GBPm 
 Immediate parent    4,164                4,073 
                    -------------------  ------------------- 
                     4,164                4,073 
                    -------------------  ------------------- 
 

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.

   (ii)        Services provided by related parties 
 
                                         2018                                 2017 
                     Expenses incurred   Payable at       Expenses incurred   Payable at 
                      in the year         year end GBPm    in the year         year end GBPm 
                      GBP000                               GBP000 
                    ------------------  ---------------  ------------------  --------------- 
 Immediate 
  parent             35                  -                10                  - 
                    ------------------  ---------------  ------------------  --------------- 
 Other Aviva 
  Group companies    -                   -                -                   32 
                    ------------------  ---------------  ------------------  --------------- 
                     35                  -                10                  32 
                    ------------------  ---------------  ------------------  --------------- 
 

The related parties' payables are not secured and no guarantees were given in respect thereof. The payables will be paid in accordance with normal credit terms.

   (iii)       Audit fees 

Expenses incurred in the year represents audit fees. There were no non-audit fees paid to the Company's auditors during the year (2017: GBPnil). Audit fees as described in note 4 are borne by the Company's ultimate parent, Aviva plc.

   (iv)       Group relief 

Transactions with Group companies for settlement of corporation tax assets and liabilities by way of group relief are described in note 12.

   (v)        Dividends paid 

Dividends paid relate to an intercompany transaction of GBP130 million (2017: GBP90 million) with the Company's parent, Aviva plc. Preference dividends of GBP21 million (2017: GBP21 million) were paid on behalf of the Company by its parent, Aviva plc. Refer to note 6.

   (c)        Key management compensation 

Key management, which comprises the directors of the Company, are not remunerated directly for their services as directors for the Company and the amount of time spent performing their duties is incidental to their role across the Aviva Group. The majority of such costs are borne by Aviva plc and are not recharged to the Company. Refer to note 3 for details of directors' remuneration.

   (d)        Ultimate parent entity 

The immediate and ultimate parent entity and controlling party is Aviva plc, a public limited company incorporated and domiciled in the United Kingdom. This is the parent undertaking of the smallest and largest Group to consolidate these financial statements. Copies of Aviva plc consolidated financial statements are available on application to the Group Company Secretary, Aviva plc,

St Helen's, 1 Undershaft, London EC3P 3DQ, and on the Aviva plc website at www.aviva.com.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] or visit www.rns.com.

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March 26, 2019 06:30 ET (10:30 GMT)