Aviva 2005 Annual Report Download - page 212

Financial statements continued
Alternative method of reporting long-term business continued
Analysis of movement in life and related businesses embedded value continued
All figures are shown net of tax.
2005
Value of
Net worth in-force Total
£m £m £m
Embedded value at the beginning of the year – Free surplus 1,894
– Required capital14,362
Total 6,256 6,758 13,014
New business contribution (after the effect of required capital) (536) 955 419
Expected return on existing business – return on VIF – 624 624
Expected return on existing business – transfer to net worth 929 (929) –
Experience variances and operating assumption changes 96 (115) (19)
Expected return on shareholders’ net worth 225 – 225
Investment return variances and economic assumption changes 785 517 1,302
Life EEV return after tax 1,499 1,052 2,551
Exchange rate movements (54) (45) (99)
Embedded value from business disposed of (19) (19) (38)
Amounts injected into life and related businesses 266 – 266
Amounts released from life and related businesses (751) – (751)
Transfer from life and related businesses to other segments 23 – 23
UK Life pension fund deficit transferred to analysis of net assets on an EEV basis2– 147 147
Embedded value at the end of the year – Free surplus 2,772
– Required capital14,448
Total 7,220 7,893 15,113
1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
2. Reflecting CFO Forum guidance the pension scheme deficit is now being accounted for on an IAS 19 basis. Consequently, the element that had previously been included in
the Life EEV analysis, being the present value of agreed deficit funding payments, has been removed from the Life EEV analysis.
The embedded value of business disposed of in 2005 of £38 million represents the embedded value of the business in Portugal and
Delta Lloyd’s stake in ENNIA Caribe, a Dutch Antilles and Aruba based insurer.
Required capital has increased in the year by £86 million. The movement comprises an increase of £557 million in relation to new business
written, a reduction of £415 million in relation to in-force business and a reduction of £56 million in relation to movements in foreign
exchange rates. The reduction in the in-force required capital includes a release of £245 million arising from the restructure of the UK non-
profit funds and a release of £295 million arising from the reduction in the level of required capital for UK annuities. The underlying increase
in the in-force required capital of £125 million which reflects the effect of the reduction in long-term interest rates, which has increased
statutory reserves, and therefore capital requirements and has more than off-set the reduction in capital in respect of business run-off.
2004
Value of
Net worth in-force Total
£m £m £m
Embedded value at the beginning of the year – Free surplus 1,721
– Required capital14,114
Total 5,835 5,916 11,751
New business contribution (after the effect of required capital) (520) 875 355
Expected return on existing business – return on VIF – 576 576
Expected return on existing business – transfer to net worth 738 (738) –
Experience variances and operating assumption changes (98) 79 (19)
Expected return on shareholders’ net worth 208 – 208
Investment return variances and economic assumption changes 167 (41) 126
Life EEV return after tax 495 751 1,246
Exchange rate movements 51 68 119
Embedded value of businesses acquired 79 23 102
Amounts injected into life and related businesses 324 – 324
Amounts released from life and related businesses (576) – (576)
Transfer from life and related businesses to other segments 48 – 48
Embedded value at the end of the year – Free surplus 1,894
– Required capital14,362
Total 6,256 6,758 13,014
1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
The embedded value of business acquired in 2004 of £102 million represents the total embedded value of Antarius, the
bancassurance joint venture with Crédit du Nord in France.
Aviva plc 2005 Financial statements
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