Aviva 2005 Annual Report Download - page 156

Financial statements continued
Notes to the consolidated financial statements continued
35 – Insurance liabilities continued
In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used
are those implicit in the historic 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, for example, to reflect one-off occurrences, changes in external
or market factors such as public attitudes to claiming, economic conditions, levels of claims inflation, judicial decisions and legislation, as
well as internal factors such as portfolio mix, policy conditions and claims handling procedures in order to arrive at the estimated ultimate
cost of claims that represents the likely outcome, from the range of possible outcomes, taking account of all the uncertainties involved.
Movements
The following changes have occurred in the general insurance and health claims provisions during the year:
2005 2004
£m £m
Carrying amount at 1 January 12,750 12,378
Impact of changes in assumptions (6) (30)
Claim losses and expenses incurred in the current year 7,124 6,770
Increase/(decrease) in estimated claim losses and expenses incurred in prior years (372) (234)
Incurred claims losses and expenses 6,746 6,506
Less:
Payments made on claims incurred in the current year (3,379) (3,120)
Payments made on claims incurred in prior years (3,407) (3,244)
Recoveries on claim payments 263 233
Claims payments made in the year, net of recoveries (6,523) (6,131)
Other movements in the claims provisions (9) 27
Changes in claims reserve recognised as an expense 214 402
Gross portfolio transfers, acquisitions and disposals (153) 2
Foreign exchange rate movements 146 32
Other gross movements 8(64)
Carrying amount at 31 December 12,965 12,750
The effect of changes in the main assumptions is given in Note 39.
(d) Loss development tables
The tables that follow present the development of claim payments and the estimated ultimate cost of claims for the accident years
2001 to 2005. The upper half of the tables shows the cumulative amounts paid during successive years related to each accident year.
For example, with respect to the accident year 2001, by the end of 2005 £5,966 million had actually been paid in settlement of claims.
In addition, as reflected in the lower section of the table, the original estimated ultimate cost of claims of £6,590 million was re-estimated
to be £6,754 million at 31 December 2005. This increase from the original estimate is due to the combination of a number of factors,
including claims being settled for larger amounts than originally estimated. The original estimates will also be increased or decreased,
as more information becomes known about the individual claims and overall claim frequency and severity.
In the year of adoption of IFRS, only five years are required to be disclosed. This will be increased in each succeeding additional year,
until ten years of information is included.
The Group aims to maintain strong reserves in respect of its non-life and health business in order to protect against adverse future
claim experience and development. As claims develop and the ultimate cost of claims become more certain, the absence of adverse
claims experience will then result in a release of reserves from earlier accident years, as shown in the loss development tables below.
However, in order to maintain strong reserves, the Group transfers much of this release to current accident year (2005) reserves where
the development of claims is less mature and there is much greater uncertainty attaching to the ultimate cost of claims. The release from
prior accident year reserves during 2005 is also due to an improvement in the estimated ultimate cost of claims.
Aviva plc 2005 Financial statements
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