Aviva 2005 Annual Report Download - page 153

35 – Insurance liabilities continued
Mortality table used
2005 2004
Assurances, pure endowments and deferred annuities before vesting Nil or AM92/AF92 or Nil or AM92/AF92 or AM80/
AM80/AF80 adjusted AF80 or A67/70 adjusted
Pensions business after vesting and pensions annuities in payment PCMA00/PCFA00 or PMA80/PFA80 or PMA92/PFA92
PMA92/PFA92 adjusted plus adjusted plus allowance for future
allowance for future mortality mortality improvement
improvement
Non-profit business Conventional non-profit contracts, including those written in the with-profit funds, are valued using gross premium
methods which discount projected future cash flows. The cash flows are calculated using the amount of contractual premiums payable,
together with explicit assumptions for investment returns, inflation, discount rates, mortality, morbidity, persistency and future expenses.
These assumptions vary by contract type and reflect current and expected future experience. All contracts are assumed to continue for
the contractual term.
For unit-linked and some unitised with-profit 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 on the assumption that future
premiums cease, unless it is more onerous to assume that they continue. Where appropriate, allowance for persistency is based on
actual experience.
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 restricting the yields for equities and properties with reference to a
margin over long-term interest rates or by making an explicit deduction from the yields on corporate bonds, mortgages and deposits,
based on historical default experience of each asset class. A further margin for risk is then deducted for all asset classes.
The provisions held in respect of guaranteed annuity options 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.
For all non-profit business, including annuities, 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 restricting the yields
for equities and properties with reference to a margin over long-term interest rates or by making an explicit deduction from the yields on
corporate bonds, mortgages and deposits, based on historical default experience of each asset class. A further margin for risk is then
deducted for all asset classes.
The changes in the valuation discount rates since 2004 reflect the changes in the yields on the supporting assets.
Valuation discount rates
2005 2004
Assurances
Life conventional non-profit 2.9% to 3.6% 3.2% to 4.0%
Pensions conventional non-profit 3.6% to 4.0% 4.0% to 4.5%
Deferred annuities
Non-profit – in deferment 3.6% to 4.6% 4.0% to 5.5%
Non-profit – in payment 3.6% 4.0%
Annuities in payment
Convention annuity 4.0% to 4.6% 4.7% to 5.3%
Non-unit reserves
Life 3.2% 3.5%
Pensions 3.9% 4.3%
Mortality assumptions are set with regard to recent company experience and general industry trends. Since 2004, there have been
changes to the base tables in order to reflect more closely actual experience.
Financial statements
Aviva plc 2005
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