Aviva 2013 Annual Report Download - page 117

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
115
Accounting policies continued
recognised at the date when payments are due. Premiums are
shown before deduction of commission and before any sales-
based taxes or duties. Where policies lapse due to non-receipt
of premiums, then all the related premium income accrued but
not received from the date they are deemed to have lapsed is
offset against premiums.
General insurance and health premiums written reflect
business incepted during the year, and exclude any sales-based
taxes or duties. Unearned premiums are those proportions of
the premiums written in a year that relate to periods of risk after
the statement of financial position date. Unearned premiums
are calculated on either a daily or monthly pro rata basis.
Premiums collected by intermediaries, but not yet received, are
assessed based on estimates from underwriting or past
experience, and are included in premiums written.
Deposits collected under investment contracts without a
discretionary participation feature (non-participating contracts)
are not accounted for through the income statement, except for
the fee income (covered in accounting policy I) and the
investment income attributable to those contracts, but are
accounted for directly through the statement of financial
position as an adjustment to the investment contract liability.
(I) Other investment contract fee revenue
Investment contract policyholders are charged fees for policy
administration, investment management, surrenders or other
contract services. The fees may be for fixed amounts or vary
with the amounts being managed, and will generally be
charged as an adjustment to the policyholder’s balance. The
fees are recognised as revenue in the period in which they are
collected unless they relate to services to be provided in future
periods, in which case they are deferred and recognised as the
service is provided.
Initiation and other ‘front-end’ fees (fees that are assessed
against the policyholder balance as consideration for origination
of the contract) are charged on some non-participating
investment and investment fund management contracts. Where
the investment contract is recorded at amortised cost, these fees
are deferred and recognised over the expected term of the
policy by an adjustment to the effective yield. Where the
investment contract is measured at fair value, the front-end fees
that relate to the provision of investment management services
are deferred and recognised as the services are provided.
(J) Other fee and commission income
Other fee and commission income consists primarily of fund
management fees, distribution fees from mutual funds,
commissions on reinsurance ceded, commission revenue from
the sale of mutual fund shares and transfer agent fees for
shareholder record keeping. Reinsurance commissions receivable
are deferred in the same way as acquisition costs, as described
in accounting policy X. All other fee and commission income is
recognised as the services are provided.
(K) Net investment income
Investment income consists of dividends, interest and rents
receivable for the year, movements in amortised cost on debt
securities, realised gains and losses, and unrealised gains and
losses on FV investments (as defined in accounting policy T).
Dividends on equity securities are recorded as revenue on the
ex-dividend date. Interest income is recognised as it accrues,
taking into account the effective yield on the investment. It
includes the interest rate differential on forward foreign
exchange contracts. Rental income is recognised on an accruals
basis, and is recognised on a straight line basis unless there is
compelling evidence that benefits do not accrue evenly over the
period of the lease.
A gain or loss on a financial investment is only realised on
disposal or transfer, and is the difference between the proceeds
received, net of transaction costs, and its original cost or
amortised cost, as appropriate.
Unrealised gains and losses, arising on investments which
have not been derecognised as a result of disposal or transfer,
represent the difference between the carrying value at the year
end and the carrying value at the previous year end or purchase
value during the year, less the reversal of previously recognised
unrealised gains and losses in respect of disposals made during
the year. Realised gains or losses on investment property
represent the difference between the net disposal proceeds and
the carrying amount of the property.
(L) Insurance and participating investment
contract liabilities
Claims
Long-term business claims reflect the cost of all claims arising
during the year, including claims handling costs, as well as
policyholder bonuses accrued in anticipation of bonus
declarations.
General insurance and health claims incurred include all
losses occurring during the year, whether reported or not,
related handling costs, a reduction for the value of salvage and
other recoveries, and any adjustments to claims outstanding
from previous years.
Claims handling costs include internal and external costs
incurred in connection with the negotiation and settlement of
claims. Internal costs include all direct expenses of the claims
department and any part of the general administrative costs
directly attributable to the claims function.
Long-term business provisions
Under current IFRS requirements, insurance and participating
investment contract liabilities are measured using accounting
policies consistent with those adopted previously under existing
accounting practices, with the exception of liabilities
remeasured to reflect current market interest rates to be
consistent with the value of the backing assets, and those
relating to UK with-profit and non-profit contracts. For liabilities
relating to UK with-profit contracts, the Group has adopted FRS
27 Life Assurance, as described in policy G above, in addition to
the requirements of IFRS.
In the United States, shadow adjustments were made to the
liabilities or related deferred acquisition costs and were
recognised directly in other comprehensive income. This means
that the measurement of these items was adjusted for
unrealised gains or losses on the backing assets such as AFS
financial investments (see accounting policy T), that were
recognised directly in other comprehensive income, in the same
way as if those gains or losses had been realised.
The long-term business provisions are calculated separately for
each life operation, based either on local regulatory requirements or
existing local GAAP at the later of the date of transition to IFRS or
the date of the acquisition of the entity, and actuarial principles
consistent with those applied in the UK. Each calculation represents
a determination within a range of possible outcomes, where the
assumptions used in the calculations depend on the circumstances
prevailing in each life operation. The principal assumptions are
disclosed in note 41(b). For liabilities of the UK with-profit funds,
FRS 27 requires liabilities to be calculated as the realistic basis
liabilities as set out by the UK’s Prudential Regulation Authority
(PRA), adjusted to remove the shareholders’ share of future
bonuses. For UK non-profit insurance contracts, the Group applies
regulatory requirements, adjusted to remove certain regulatory
reserves and margins in assumptions, notably for annuity business.
On 1 April 2013 the rules made by the FSA were designated by
the PRA.