Aviva 2005 Annual Report Download - page 160

Financial statements continued
Notes to the consolidated financial statements continued
37 – Liability for investment contracts
(a) Carrying amount
The liability for investment contracts at 31 December comprised:
2005 2004
£m £m
Long-term business
Participating contracts 47,258 43,974
Non-participating contracts at fair value 29,304 24,903
Non-participating contracts at amortised cost 747 678
30,051 25,581
Total 77,309 69,555
(b) Long-term business investment liabilities
Investment contracts are those that do not transfer significant insurance risk from the contract holder to the issuer, and are therefore
treated as financial instruments under IFRS.
Many investment contracts contain a discretionary participation feature in which the contract holder has a contractual right to receive
additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts and are measured according
to the methodology and group practice for long-term business liabilities as described in note 35. They are not measured at fair value
as there is currently no agreed definition of fair valuation for discretionary participation features under IFRS. In the absence of such a
definition, it is not possible to provide a range of estimates within which a fair value is likely to fall. The IASB has deferred consideration
of participating contracts to Phase II of its insurance contracts project.
For participating business, the discretionary participation feature is recognised separately from the guaranteed element and is classified as
a liability, referred to as unallocated distributable surplus. Guarantees on long-term investment products are discussed in note 38.
Investment contracts that do not contain a discretionary participation feature are referred to as non-participating contracts and the liability
is measured at either fair value or amortised cost.
Most non-participating investment contracts measured at fair value are unit-linked in structure and the fair value liability is equal to the
unit reserve plus additional non-unit reserves if required on a fair value basis. For this business, a deferred acquisition cost asset and
deferred income reserve liability are recognised in respect of transaction costs and front-end fees respectively, that relate to the provision
of investment management services, and which are amortised on a systematic basis over the contract term. The amount of the related
deferred acquisition cost asset is shown in note 25 and the deferred income reserve is shown in note 45.
There is a small volume of annuity certain business for which the liability is measured at amortised cost using the effective
interest method.
The fair value of contract liabilities measured at amortised cost is not materially different from the amortised cost liability.
(c) Movements in the year
The following movements have occurred in the year:
(i) Participating investment contracts
2005 2004
£m £m
Carrying amount at 1 January 43,974 36,974
Reserves in respect of new business 3,467 3,284
Expected change in existing business provisions (1,720) (1,340)
Variance between actual and expected experience 2,034 1,400
Impact of operating assumption changes 5(18)
Impact of economic assumption changes 513 47
Other movements (153) 73
Change in liability 4,146 3,446
Portfolio transfers and acquisitions 42,030
Foreign exchange rate movements (856) 304
Effect of adjusting to FRS 27 realistic basis –1,220
Other movements (10) –
Carrying amount at 31 December 47,258 43,974
The effect of changes in main assumptions is given in note 39.
Aviva plc 2005 Financial statements
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