Before we assess the underlying financial performance of an insurance company, it's worth understanding the buildup of their reserves. This is the balance sheet liability that reflects all the potential claims that the insurance company expects on the basis of the policies that have been written to date. First, on the left hand side of the screen, you can see we have got the total estimated claims of 7,227 for the 2009 year for Aviva. So that is the total estimated claims expense in one year. Above that, we have got the breakdown over time of how that liability has been paid out. So at the end of the first year, 3,780 was paid out. Then a year later, a total of 5,464 was paid out. And on the right hand column, you've got the yearly payout amount. And you can see over time, the amount that gets paid out gets smaller and smaller and smaller. It's almost like a tail, the vast majority gets paid out within the first 12 months of the policy, and then it gradually gets smaller and smaller and smaller. And right at the very end, you can see they've got 127 million to be paid after nine years. So this is just the liability generated in one year, but the payout is a tail over time. So the reason there's a payout over time, for example, if it's a motor car insurance policy, which lasts one year. Although the policy only lasts a year, if you have a car accident and then you have healthcare requirements that last many years, maybe 15 years later, then the insurance company are going to have to pay out over a 15 year period, even though the policy only covered you for one year. This is probably best shown in the graph on the right hand side. So for one year's worth of claims expense, you can see the pattern of payout. The majority is paid out within the first 12 months, and then you get a steadily decline over time. Now, the reason this is important to understand is that this is how insurance companies can make money, because they don't pay out all the claims at once. And the great thing is that they can take the money that they have received upfront from the policy holder and invest it and get an investment return. It's essentially a present value benefit, get the money upfront and then pay it out over time. Now, you can see here this is Aviva's information, and what this is doing is showing us over a number of years, the first triangle is the gross cumulative payments. And you can see that that builds up over time. So we've looked at the 2009 year, but it gives us all the information from 2009 through to 2018, and this is from the 2018 financial statements. So for the 2018 year, there's only essentially been the one year's worth of payout, 3,769. Now, in the second triangle, this is the total estimate of the ultimate claims. And you can see here that has to be adjusted. So even though you make an initial estimate in the year that you write the policy, sometimes that needs to be updated. So for example, in the 2009 year, the original estimate was 7,364, but nine years later, that had to be revised downwards to 7,227.

So you'd also get adjustments in the original estimate of the potential claims over time, and this is disclosed in the notes to the accounts of Aviva.