Aviva 2006 Annual Report Download - page 209

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 205
50 – Risk management continued
Analysis of maturity of liabilities
For each main category of insurance and investment business, the following table shows the gross liability at 31 December 2006 analysed
by remaining duration. The total liability is split by remaining duration in proportion to the cash-flows expected to arise during that period.
At 31 December 2006
Total Within 1 year 1–5 years 5–15 years Over 15 years
£m £m £m £m £m
Long-term business
Insurance contracts – non linked 99,482 9,140 25,959 40,651 23,732
Investment contracts – non linked 41,578 3,044 10,572 15,930 12,032
Linked business 73,522 5,617 18,695 29,111 20,099
General insurance and health 18,006 8,482 6,824 2,617 83
At 31 December 2005
Total Within 1 year 1–5 years 5–15 years Over 15 years
£m £m £m £m £m
Long-term business
Insurance contracts – non linked 88,586 8,113 26,066 36,651 17,756
Investment contracts – non linked 42,736 3,111 11,767 16,688 11,170
Linked business 60,163 3,036 13,729 25,711 17,687
General insurance and health 18,426 8,636 7,416 2,189 185
Amaturity analysis of borrowings is given in Note 43.
(g) Risk and capital management
The Group uses a number of sensitivity test-based risk management tools to understand the volatility of earnings, the volatility of its
capital requirements, and to manage its capital more efficiently. Primarily, EEV, FCRs, and increasingly ICA are used. Sensitivities to
economic and operating experience are regularly produced on all of the Group’s financial performance measurements to inform the
Group’s decision making and planning processes, and as part of the framework for identifying and quantifying the risks that each of
its business units, and the Group as a whole are exposed to.
For long-term business in particular, sensitivities of EEV performance indicators to changes in both economic and non-economic
experience arecontinually used to manage the business and to inform the decision making process. More information on EEV sensitivities
can be found in the presentation of results on an EEV basis in the supplementary notes to this report.
Life insurance and Investment contracts
The nature of long-term business is such that a number of assumptions are made in compiling these financial statements. Assumptions
are made about investment returns, expenses, mortality rates, and persistency in connection with the in-force policies for each business
unit. Assumptions are best estimates based on historic and expected experience of the business. A number of the key assumptions for
the Group’scentral scenario aredisclosed elsewhere in these statements for both IFRS reporting and reporting under EEV methodology.
General insurance and health business
General insurance and health claim liabilities are estimated by using standard actuarial claims projection techniques. These methods
extrapolate the claims development for each accident year based on the observed development of earlier years. In most cases, no explicit
assumptions are made as projections are based on assumptions implicit in the historic claims development on which the projections are
based. As such, in the analysis below, the sensitivity of general insurance claim liabilities is primarily based on the financial impact of
changes to the reported loss ratio.
Some results of sensitivity testing for long-term business, general insurance and health business and the fund management and
non-insurance business are set out below. For each sensitivity test the impact of a reasonably possible change in a single factor is
shown, with other assumptions left unchanged.
Sensitivity Factor Description of sensitivity factor applied
Interest rate and investment return The impact of a change in market interest rates by ± 1% (e.g. if a current
interest rate is 5%, the impact of an immediate change to 4% and 6%).
The test allows consistently for similar changes to investment returns and
movements in the market value of backing fixed interest securities.
Expenses The impact of an increase in maintenance expenses by 10%.
Equity/property market values The impact of a change in equity/property market values by ± 10%
Assurance mortality/morbidity (life insurance only) The impact of an increase in mortality/morbidity rates for assurance
contracts by 5%.
Annuitant mortality (life insurance only) The impact of a reduction in mortality rates for annuity contracts by 5%
Gross loss ratios (non-life insurance only) The impact of an increase in gross loss ratios for general insurance and
health business by 5%.