Aviva 2005 Annual Report Download - page 180

Financial statements continued
Notes to the consolidated financial statements continued
49 – Capital statement continued
31 December 31 December
2005 2004
Realistic Required
Realistic Realistic orphan capital
assets liabilities estate margin Excess Excess
£bn £bn £bn £bn £bn £bn
CGNU Life 14.0 (11.9) 2.1 0.5 1.6 1.4
CULAC 14.0 (12.1) 1.9 0.6 1.3 1.2
NUL&P 25.9 (24.7) 1.2 0.8 0.4 0.2
PM 2.5 (2.5) – – – –
Aggregate 56.4 (51.2) 5.2 1.9 3.3 2.8
1. These realistic liabilities include the shareholders’ share of future bonuses of £0.7 billion (31 December 2004: £0.5 billion). Realistic liabilities adjusted to eliminate the
shareholders’ share of future bonuses are £50.5 billion (31 December 2004: £47 billion).
2. These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision included within the realistic
liabilities is £0.7 billion, £0.9 billion and £3.4 billion for CGNU life, CULAC and NUL&P respectively. (31 December 2004: £0.6 billion, £0.9 billion and £3.3 billion for CGNU
life, CULAC and NUL&P respectively).
3. The required capital margin (RCM) is 2.7 times covered by the orphan estate (31 December 2004: 2.6 times).
For UK non-participating business, the relevant capital requirement is the minimum solvency requirement determined in accordance with
FSA regulations.
For overseas life businesses, the amount shown is the minimum requirement under the locally applicable regulatory regimes.
For UK and overseas general insurance businesses, the relevant capital requirement is the minimum solvency requirement determined in
accordance with the local regulator’s requirements.
For fund management and other businesses, the relevant capital requirement is the minimum solvency requirement determined in
accordance with the local regulator’s requirements for the specific class of business.
The available capital resources in each regulated entity are generally subject to restrictions as to their availability to meet requirements that
may arise elsewhere in the Group. The principal restrictions are:
(iii) UK with-profit funds – (CGNU Life, CULAC and NUL&P) – any available surplus held in each fund can only be used to meet the
requirements of the fund itself or be distributed to policyholders and shareholders. With-profit policyholders are entitled to at least 90%
of the distributed profits while the shareholders receive the balance. The latter distribution would be subject to a tax charge, which is met
by the fund in the case of CGNU Life, CULAC and NUL&P.
(iv) UK non-participating funds – any available surplus held in these is attributable to shareholders. Capital within the non-profit funds
may be made available to meet requirements elsewhere in the Group subject to meeting the regulatory requirements of the fund.
Any transfer of the surplus may give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
(v) Overseas life operations – the capital requirements and corresponding regulatory capital held by overseas businesses are calculated
using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to local regulatory
restrictions which may constrain management’s ability to utilise these in other parts of the Group. Any transfer of available capital may
give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
(vi) General insurance operations – the capital requirements and corresponding regulatory capital held by overseas businesses are
calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to local
regulatory restrictions which may constrain management’s ability to utilise these in other parts of the Group. Any transfer of available
capital may give rise to a tax charge, subject to availability of tax relief elsewhere in the Group.
50 – Risk management policies
(a) Governance framework
The Group has established a risk and financial management framework whose primary objective is to protect the Group from events
that hinder the sustainable achievement of the Group’s performance objectives, including failing to exploit opportunities. The Group
recognises the critical importance of having efficient and effective risk management systems in place. To this end, the Group has an
established governance framework, details of which are given in the corporate governance section of this report on pages 57 to 61.
This framework has three key elements:
– Defined terms of reference for the Board, its committees, and the associated executive management committees;
– A clear organisational structure with documented delegated authorities and responsibilities from the Board to executive management
committees and senior management; and
– A Group policy framework that sets out risk appetite, risk management, control and business conduct standards for the Group’s world
wide operations. Each policy has a member of senior management who is charged with overseeing compliance with the policy
throughout the Group.
Aviva plc 2005 Financial statements
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