Aviva 2006 Annual Report Download - page 236

Aviva plc
Annual Report and Accounts 2006 232Financial statements continued
Alternative method of reporting long-term business profits continued
Analysis of movement in life and related businesses embedded value continued
The embedded value of business acquired in 2006 of £1,434 million represents the embedded value of Ark Life Assurance Company
Limited, Eagle Insurance Company Limited and AmerUs Group Co.
Required capital has increased in the year by £866 million. The movement comprises an increase of £553 million in relation to new
business written, a reduction of £188 million in relation to in-force business, £607 million additional in-force required capital relating to
acquisitions during the year and a reduction of £106 million in relation to movements in foreign exchange rates. The decrease in the
in-force required capital includes the impact of PS06/14 on the amount of shareholder capital required to support the business and the
effect of the increase in long-term interest rates, which has decreased statutory reserves and, therefore, capital requirements.
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 returnvariances 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 to life and related businesses from 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.