Aviva 2006 Annual Report Download - page 245

Overview Business review Governance Financial statements Other information
Aviva plc
Annual Report and Accounts 2006 241
Sensitivity analysis – economic assumptions continued
1% increase 1% decrease 10% rise in 10% fall in
in equity/ in equity/ equity/ equity/ EU minimum
As reported property property property property capital
Embedded value (net of tax) on page 235 returns returns market values market values (or equivalent)
31 December 2006 £m £m £m £m £m £m
France 2,291 75 (75) 115 (135) 40
Ireland 892 20 (20) 30 (30) 15
Italy 792 10 (10) 10 (10) 10
Netherlands (including Belgium, Germany and Luxembourg) 3,867 225 (225) 405 (415) 95
Poland 719 10 (10) 10 (10) 10
Spain 857 15 (15) 15 (15) 5
Other Europe 106 – – – – 5
Continental Europe 9,524 355 (355) 585 (615) 180
United States 1,478 25 (10) 5 (5) 80
Other 460 5 (5) 10 (10) 5
Rest of the World 1,938 30 (15) 15 (15) 85
International 11,462 385 (370) 600 (630) 265
United Kingdom 6,636 220 (230) 435 (435) 95
Total 18,098 605 (600) 1,035 (1,065) 360
In general, the magnitude of the sensitivities will reflect the size of the embedded values, though this will vary as the sensitivities have
different impacts on the different components of the embedded value. In addition, other factors can have a material impact, such
as the natureof the options and guarantees, as well as the types of investments held. The interest rate sensitivity will vary significantly
by territory, depending on the type of business written: for example, where non-profit business is well matched by backing assets,
the favourable impact of reducing the risk discount rate is the dominant factor.
Sensitivities will also vary according to the current economic assumptions, mainly due to the impact of changes to both the intrinsic cost
and time value of options and guarantees. Options and guarantees are the main reason for the asymmetry of the sensitivities where the
guarantee impacts to different extents under the different scenarios. This can be seen in the sensitivity of a 1% movement in the interest
rate for the Netherlands, wherethere is a significant amount of business with investment return guarantees. The increase of 70 basis
points to the assumed pre-tax investment returns at 31 December 2006 has significantly decreased this sensitivity, reflecting the level of
the guarantees relative to the interest rate assumption.
Sensitivities to a 1% movement in the equity/property return will only impact the value of the in-force covered business, whereas a 10%
movement in equity/property values may impact both the net worth and the value of in-force, depending on the allocation of assets.
1% increase 1% decrease 1% increase 1% decrease
New business contribution As reported in discount in discount in interest in interest
before required capital (gross of tax) on page 228 rates rates rates rates
31 December 2006 £m £m £m £m £m
France 153 (13) 15 (1) (2)
Ireland 15 (4) 4(2) 1
Italy 70 (4) 5 2 (12)
Netherlands (including
Belgium, Germany and Luxembourg) 56 (10) 11 43 (39)
Poland 28 (2) 3 – 1
Spain 184 (12) 14 (5) 5
Other Europe (4) (2) 2(1) –
Continental Europe 502 (47) 54 36 (46)
United States 20 (3) 3 (1) (2)
Other 43 (8) 9 3 (4)
Rest of the World 63 (11) 12 2 (6)
International 565 (58) 66 38 (52)
United Kingdom 327 (55) 65 (20) 23
Total 892 (113) 131 18 (29)