TIDMGACA
RNS Number : 6109R
General Accident PLC
09 March 2021
9 March 2021
GENERAL ACCIDENT PLC
2020 ANNUAL REPORT AND FINANCIAL STATEMENTS
On 4 March 2021, General Accident plc (the "Company") released
its 2020 Preliminary Results Announcement for the year ended 31
December 2020. The Company announces it has today issued the 2020
Annual Report and Financial Statements.
The document is available to view on the Company's website at
https://www.aviva.com/investors/reports/ and copies have been
submitted to the National Storage Mechanism and will shortly be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Printed copies of the 2020 Annual Report and Financial
Statements can be requested free of charge by shareholders by
contacting the Company's Registrar, Computershare Investor Services
PLC, on 0371 495 0105 or at AvivaSHARES@computershare.co.uk, 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 - +44 (0)7800 699781
Information required under Disclosure & Transparency Rule
6.3
This announcement should be read in conjunction with the
Company's preliminary results announcement issued on 4 March 2021.
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 2020 Annual report and financial
statements. Page and note references in the text below refer to
page numbers and notes in the 2020 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 statement in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. Under company law the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the company for
that period. In preparing these financial statements, the directors
are required to:
- select suitable accounting policies and then apply them consistently;
- make reasonable and prudent judgements and accounting estimates;
- state whether applicable IFRSs as adopted by the European
Union and IFRS issued by IASB have been followed, subject to any
material departures disclosed and explained in the financial
statements; 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.
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 14 to the financial statements.
Risk factors beyond the Company's control that could cause
actual results to differ materially from those estimated include,
but are not limited to:
- 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 of Aviva plc (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 GBP9,529 million (2019:
GBP9,630 million) is secured by a legal charge against the ordinary
share capital of Aviva Group Holdings Limited mitigating the risk
of loss in the event of Aviva plc defaulting. Due to the nature of
the loan, and the fact that it is intended to be held until settled
by Aviva plc (on maturity or earlier if redeemed before maturity)
and not traded, the Company is not exposed to the risk of changes
to the market value caused by changing perceptions of the credit
worthiness of Aviva plc. There were no financial assets that were
past due or impaired at either 31 December 2020 or 31 December
2019.
- Interest rate risk: The net asset value of the Company's
financial resources has previously been exposed to fluctuations in
interest rates. Interest rate risk is a risk the Company has
historically chosen 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. From January 2021 the loan has been
set at a fixed rate for 5 years, due to LIBOR being abolished, and
going forwards the interest rate risk will be mitigated.
14. 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 managed
considering the significance of the risk to the business and its
internal and external stakeholders.
To promote a consistent and rigorous approach to risk management
across all businesses, the Group has a set of risk policies and
business standards which set out the risk strategy, appetite,
framework and minimum requirements for the Group's worldwide
operations, including the Company.
For the purposes of risk identification and measurement, and
aligned to the Company's risk policies, risks are usually grouped
by risk type: credit, market, liquidity and operational risk. Risks
falling within these types may affect a number of metrics including
those relating to statement of financial position strength,
liquidity and profit.
The directors recognise the critical importance of having
efficient and effective risk management systems in place and
acknowledge that they are responsible for the Company's framework
of internal control and of reviewing its effectiveness. The
framework is designed to manage rather than eliminate the risk of
failure to achieve the Company's objectives and can only provide
reasonable assurance against misstatement or loss. The directors of
the Company are satisfied that their adherence to this Group
framework provides an adequate means of managing risk in the
Company.
Further information on the types and management of specific risk
types is given in sections (b) to (h) below.
(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 within12 months from the reporting date) do not
generally attract an expected credit loss charge, unless there is
objective evidence that losses are likely to arise.
The Company makes use of the simplified approach when
calculating expected credit losses on trade receivables which don't
include a significant financing component, and therefore calculates
expected credit losses over the lifetime of the instrument in
question. As at the reporting date, no lifetime expected credit
losses have been recognised in relation to receivables.
The Company has not purchased or originated any credit-impaired
financial assets as at the reporting date.
The Company's financial assets primarily comprise loans and
receivables due from its parent, Aviva plc, which has an external
issuer credit rating of A (issuer credit ratings represent an
issuer's ability to meet its overall financial commitments as they
fall due), and as such the credit risk arising from the
counterparty failing to meet all or part of their obligations is
considered remote. There are no material expected credit losses
recognised in relation to loans due from Aviva plc.
In addition, the loan amounting to GBP9,529 million (2019:
GBP9,630 million) is secured by a legal charge against the ordinary
share capital of Aviva Group Holdings Limited. Due to the nature of
the financial assets, and the fact that the loans are intended to
be held until settled, by the issuer (on maturity or earlier if
redeemed before maturity), and not traded, the Company is not
exposed to the risk of changes to the market value caused by
changing perceptions of the credit worthiness of Aviva plc.
Financial assets that were past due or impaired at 31 December 2020
were GBPnil (2019: 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 net asset value of the Company's
financial resources is not materially affected by fluctuations in
interest rates. From January 2021, the loan was set at a fixed
interest rate for 5 years, mitigating future interest rate risk
arising from variance in interest income.
(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.
(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 2020 the Company had GBP13,932 million
(2019: GBP13,934 million) of total capital employed.
(g) UK-EU Future Relationship risks
The EU-UK Trade and Cooperation Agreement of 24 December 2020
provides for a dynamic future UK-EU relationship with scope for
managed policy divergence or maintaining alignment, if the UK
chooses. The agreement will have evolving consequences in 2021 and
beyond on future financial services regulation, EU market access
and the UK economy which will require careful monitoring.
(h) COVID-19
On 11 March 2020, the World Health Organization declared the
outbreak of a strain of novel coronavirus disease, COVID-19, a
global pandemic. Governments in affected areas have imposed a
number of measures designed to contain the outbreak, including
business closures, travel restrictions, stay at home orders and
prohibition of gatherings and events. The spread of COVID-19 has
had a significant impact on the global economy, causing volatile
equity markets and falls in interest rates.
The Company continues to maintain a positive net asset value and
since the onset of the pandemic the Company has remained
operational, despite the loan interest dropping to 1.25% (2019:
1.65%). The Company's balance sheet exposure has been reviewed and
actions are being taken to further reduce the sensitivity to
economic shocks. The 5 year fixed interest rate (following the
abolition of LIBOR) which commenced in January 2021 will result in
the loan bearing sufficient interest to cover the preference share
dividends due per annum, hence the company will continue to remain
operational.
15. Related party transactions
T he 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. For 2020 and 2019, the loan has accrued interest at
65 basis points above 3 month LIBOR (and in the event that the
LIBOR rate is less than zero, the rate shall be deemed to be zero).
From January 2021, as a result of LIBOR being abolished, this loan
will now be set at a fixed interest rate for 5 years. This rate is
expected to be as follows; 5- year Gilt (current rate 0.005%) +
Basis adjustment 0.15%+ 0.65% floor. Settlement is due to be
received in cash at maturity on 31 December 2022; however, it is
the intention of both parties that the facility will be renewed in
full upon maturity.
As at the statement of financial position date, the loan balance
outstanding was GBP9,529 million (2019: GBP9,630 million). This
facility has been secured against the ordinary share capital of
Aviva Group Holdings Limited. The loan agreement also includes a
penalty interest charge of 1% above the interest rate if any
amounts payable under the loan agreement remain outstanding. As at
31 December 2020, no amounts remain outstanding.
The maturity analysis of the related party loan is as
follows:
2020 2019
GBPm GBPm
1 - 5 years 9,529 9,630
------ ------
9,529 9,630
------ ------
Effective Interest
Rate 1.25% 1.65%
------ ------
The interest received on this loan shown in the income statement
is GBP120 million (2019: GBP161 million). Refer to note 1 .
(b) Other transactions
(i) Services provided to related parties
2020 2019
Receivable at Receivable at
year end year end
GBPm GBPm
Immediate parent 4,403 4,304
--------------- ---------------
4,403 4,304
--------------- ---------------
The related parties' receivables are not secured, and no
guarantees were received in respect thereof. The receivables will
be settled in accordance with normal credit terms.
(ii) 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
(2019: GBPnil). Audit fees as described in note 4 are borne by the
Company's ultimate parent, Aviva plc.
(iii) Dividends paid
Dividends paid relate to an intercompany transaction of GBP101
million (2019: GBP140 million) with the Company's parent, Aviva
plc. Preference dividends of GBP21 million (2019: 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
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