Aviva 2005 Annual Report Download - page 179

49 – Capital statement continued
Analysis of movements in capital
For the year ended 31 December 2005
Total UK life
CGNU with- CULAC with- NUL&P with- with-profit Other UK life Total UK life Overseas life Total life
profit fund profit fund profit fund funds operations Operations operations operations
£m £m £m £m £m £m £m £m
Opening available capital resources 1,695 1,633 1,208 4,536 1,433 5,969 4,523 10,492
Movement in liabilities (4,671) (400) 800 (4,271) (4,184) (8,455) (7,238) (15,693)
Other movements in capital15,079 708 (759) 5,028 3,989 9,017 7,790 16,807
Closing available capital resources 2,103 1,941 1,249 5,293 1,238 6,531 5,075 11,606
1. Includes movement in: outstanding claims provision; other technical provision; and obligations to staff pension schemes transferred to provisions.
A further analysis of the movement in the liabilities of the long-term business can be found in notes 35 and 37.
The main drivers of the variance between actual and expected liability movements are reductions in valuation interest rates for traditional
contracts and strong investment return for unit-linked business.
Other movements in capital reflect cashflows for premiums received, benefits paid and the investment return on assets held.
This movement also includes the change in the regulatory adjustments and regulatory rules. The only regulatory rule changes having
significant impact in the year are a change in the basis for inclusion of non-insurance subsidiaries from market value to a surplus assets
basis, and new rules relating to the recognition of pension deficits, requiring a charge to be made based on anticipated additional
payments over the next five years instead of the inclusion of the full scheme deficit.
In aggregate, the Group has at its disposal total available capital of £13.6 billion (2004: £12.8 billion), representing the aggregation of
the solvency capital of all of our businesses. This capital is available to meet risks and regulatory requirements set by reference to local
guidance and EU directives.
After effecting the year-end transfer to shareholders’, the UK with-profit funds’ available capital of £5.2 billion (2004: £4.5 billion) can
only be used to provide support for UK with-profits business and is not available to cover other shareholder risks. This is comfortably in
excess of the required capital margin and, therefore, the shareholders are not required to provide further capital support to this business.
For the remaining life and general insurance operations, the total available capital amounting to £8.3 billion (2004: £8.3 billion) is
significantly higher than the minimum requirements established by regulators and, in principle, the excess is available to shareholders.
In practice, management will hold higher levels of capital within each business operation to provide appropriate cover for risk.
As the total available capital of £13.6 billion is arrived at on the basis of local regulatory guidance, which evaluates assets and liabilities
prudently, it understates the economic capital of the business which is considerably higher. This is a limitation of the Group Capital
Statement which, to be more meaningful, needs to evaluate available capital on an economic basis and compare it with the risk capital
required for each individual operation, after allowing for the considerable diversification benefits that exist in our Group.
Within the Aviva group there exist intra-group arrangements to provide capital to particular business units. Included within these
arrangements is a subordinated loan of £200 million from Aviva plc to the NUL&P non-profit fund to provide capital to support the
writing of new business.
The available capital of the Group’s with-profit funds is determined in accordance with the “Realistic balance sheet” regime prescribed by
the FSA’s regulations, under which liabilities to policyholders include both declared bonuses and the constructive obligation for future
bonuses not yet declared. The available capital resources include an estimate of the value of their respective estates, included as part of
the unallocated divisible surplus. The estate represents the surplus in the fund that is in excess of any constructive obligation to
policyholders. It represents capital resources of the individual with-profit fund to which it relates and is available to meet regulatory and
other solvency requirements of the fund and, in certain circumstances, additional liabilities may arise.
The liabilities included in the balance sheet for the with-profit funds do not include the amount representing the shareholders’ portion of
future bonuses. However, the shareholders’ portion is treated as a deduction from capital that is available to meet regulatory requirements
and is therefore shown as a separate adjustment in the capital statement.
In accordance with the FSA’s regulatory rules under its realistic capital regime, the Group is required to hold sufficient capital in its UK life
with-profit funds to meet the FSA capital requirements, based on the risk capital margin (RCM). The determination of the RCM depends
on various actuarial and other assumptions about potential changes in market prices, and the actions management would take in the
event of particular adverse changes in market conditions.
Financial statements
Aviva plc 2005
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