Aviva 2005 Annual Report Download - page 216

Financial statements continued
Alternative method of reporting long-term business continued
Time value of options and guarantees
The following table sets out the time value of options and guarantees relating to covered business by territory at 31 December 2005 and
31 December 2004.
2005 2004
£m £m
United Kingdom 48 44
Continental Europe
France 84 79
Ireland 34
Italy 19 14
Netherlands (including Belgium and Luxembourg) 101 92
Poland 55
Spain 89
Other Europe 19 18
International 16 9
303 274
The time value of options and guarantees (TVOG) is most significant in the UK, France and the Netherlands. In the UK, this relates
mainly to non-market value adjustment (MVA) guarantees on unitised with-profit business and guaranteed annuity rates. In France,
this relates mainly to guaranteed crediting rates and surrender values on traditional business including the AFER fund. In the
Netherlands, this relates mainly to maturity guarantees on unit-linked products and interest rate guarantees on traditional individual
and Group profit sharing business.
The TVOG has increased over the year to £303 million primarily due to the allowance included in new business contribution of
£31 million. Also included is an increase of £15 million due to the 40 basis points fall in bond yields in continental Europe during 2005,
which have largely been offset by the favourable impacts of investment returns and exchange rates.
Minority interest in life and related businesses’ EEV results
2005 2004
Shareholders’ Minority
interest interest Group Group
£m £m £m £m
New business contribution before effect of required capital 652 156 808 706
Effect of required capital (160) (36) (196) (190)
New business contribution including effect of required capital 492 120 612 516
Life EEV operating return before tax 1,598 216 1,814 1,611
Life EEV return before tax 3,456 240 3,696 1,794
Attributed tax (1,065) (80) (1,145) (548)
Life EEV return after tax 2,391 160 2,551 1,246
Closing life and related businesses’ embedded value 14,113 1,000 15,113 13,014
Principal economic assumptions – deterministic calculations
Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at the end of each reporting period.
The same margins are applied on a consistent basis across the Group to gross risk free yields to obtain investment return assumptions for
ordinary shares and property and to produce risk discount rates. Additional country-specific risk margins are applied to smaller businesses
to reflect additional economic, political and business specific risks, which result in the application of risk margins ranging from 3.7% to
8.7% in our eastern European and Asian business operations. Expense inflation is derived as a fixed margin above a local measure of
long-term price inflation. Risk free rates and price inflation have been harmonised across territories within the euro currency zone, except
for expense inflation in Ireland where significant differences remain. Required capital is shown as a multiple of the EU statutory minimum
solvency margin.
Aviva plc 2005 Financial statements
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