Aviva 2006 Annual Report Download - page 182

Aviva plc
Annual Report and Accounts 2006 178
Notes to the consolidated financial statements continued
39 – Effect of changes in assumptions and estimates during the year
Certain estimates and assumptions used in determining liabilities for insurance and investment contract business were changed from
2005 to 2006, and had the following effect on the profit recognised for the year with an equivalent effect on liabilities. This disclosure
only allows for the impact on liabilities and related assets, such as reinsurance, deferred acquisition costs and AVIF, and does not allow for
offsetting movements in the value of backing financial assets.
Effect Effect
on profit on profit
2006 2005
£m£m
Assumptions
Long-term insurance business
Interest rates 947 (1,078)
Expenses 16 (12)
Persistency rates 45 3
Mortality for assurance contracts 25 25
Mortality for annuity contracts 60 (39)
Tax and other assumptions (17) (3)
Investment contracts
Interest rates 23 (11)
Expenses 87 (6)
Persistency rates 2–
Tax and other assumptions (4) (2)
General insurance and health business
Change in loss ratio assumptions (2) 2
Change in expense ratio assumptions –4
Total 1,182 (1,117)
The impact of interest rates for long-term business relates primarily to the UK and the Netherlands. This results from the use of higher
valuation interest rates on annuities and other business, reflecting the rise in market interest rates over the year.The mortality impacts
relate primarily to assumption changes in the UK and Ireland.
The impact on existing business of implementing FSA Policy Statement 06/14, Prudential Changes for Insurers,in 2006 is £132 million,
arising mainly on expenses and persistency rates in both insurance and investment contracts. This is reflected in reductions in insurance
contract liabilities of £800 million (see note 35(b)), investment contract liabilities of £105 million (see note 37(c)), reinsurance recoveries of
£502 million (see note 36(c)) and deferred acquisition costs of £271 million (see note 25(b)). The impact on new business in 2006 is
£17 million, giving a total increase in pre-tax profit for the year of £149 million.
40 – Tax assets and liabilities
(a) General
Current tax assets and liabilities recoverable or payable in more than one year are £81 million and £842 million (2005: £78 million and
£339 million) respectively.
(b) Deferred tax
(i) The balances at 31 December comprise:
2006 2005
£m £m
Deferred tax assets 1,199 1,018
Deferred tax liabilities (3,077) (2,458)
Net deferred tax liability (1,878) (1,440)
(ii) The net deferred tax liability arises on the following items:
2006 2005
£m £m
Long-term business technical provisions and other insurance items 1,247 1,155
Deferred acquisition costs (126) (245)
Unrealised gains on investments (2,379) (2,561)
Provisions and other temporary differences (712) (223)
Impairment of assets 21
Pensions and other post-retirement obligations 344 488
Unused losses and tax credits 250 57
Other temporary differences (504) (112)
Net deferred tax liability (1,878) (1,440)
Financial statements continued