Aviva 2006 Annual Report Download - page 205

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 201
50 – Risk management continued
The long-term businesses and general insurance businesses are generally not individually exposed to significant concentrations of credit
risk due to the regulations, applicable in most markets, limiting investments in individual assets and asset classes. In cases where the
business is particularly exposed to credit risk (e.g. in respect of defaults on mortgages or debt matching annuity liabilities) this risk is
translated into a more conservative discount rate used to value the liabilities, creating a greater capital requirement, and this credit
risk is actively managed. The impact of aggregation of credit risk is monitored as described above. With the exception of AAA rated
Governments the largest aggregated counterparty exposure does not exceed 1.6% of the Group’s total financial assets.
Reinsurance credit exposures
The Group is exposed to concentrations of risk with individual reinsurers, due to the nature of the reinsurance market and the restricted
range of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures
and the impact from reinsurer default is measured regularly, in particular through the ICA tests, and is managed accordingly. Both the
Credit committee and Reinsurance Security committee have a monitoring role over this risk. The Group’s largest reinsurance counterparty
is National Indemnity Corporation, a member of the Berkshire Hathaway Group. At 31 December 2006 the reinsurance asset recoverable
from National Indemnity Corporation was £1.3 billion. This exposure is monitored on a regular basis with the forecast to completion
monitored for any shortfall in the claims history to verify that the contract is progressing as expected and that no further exposure for the
Group will arise.
In the event of a catastrophic event, the counterparty exposure to a single reinsurer is estimated not to exceed 1.0% of shareholders’
equity.
The following table provides information regarding the carrying value of financial assets that have been impaired and the ageing
of financial assets that are past due but not impaired.
At 31 December 2006
Financial assets that arepast due but not impaired
Carrying value
Neither Financial assets in the
past due 6months– Greater than that have been balance sheet
nor impaired 0–3 months 3–6 months 1 year 1 year impaired £m
Debt securities 100.0% – – – – – 113,041
Reinsurance assets 98.5% – – – – 1.5% 7,825
Other investments 100.0% – – – – – 33,050
Loans 99.3% 0.4% – – 0.1% 0.2% 26,445
Receivables and other financial assets 89.8% 8.8% 0.6% 0.4% 0.3% 0.1% 8,098
At 31 December 2005
Financial assets that arepast due but not impaired
Carrying value
Neither Financial assets in the
past due 6 months– Greater than that have been balance sheet
nor impaired 0–3 months 3–6 months 1 year 1 year impaired £m
Debt securities 100.0% – – – – – 103,917
Reinsurance assets 99.9% – – – – 0.1% 7,130
Other investments 100.0% – – – – – 26,427
Loans 99.3% 0.5% – – – 0.2% 24,544
Receivables and other financial assets 94.6% 4.4% 0.5% 0.3% 0.2% – 7,706
The fair value of collateral held against loans that are past due or impaired at 31 December 2006 was £61 million (2005: £130 million).
This predominantly consists of commercial properties.
The credit ratings table above analyses the credit quality of the above balances where a credit rating is available. The credit quality
of receivables and other financial assets is managed at the local business unit level with uncollectible amounts being impaired
when necessary.
There were no material financial assets that would have been past due or impaired had the terms not been renegotiated.