Aviva 2013 Annual Report Download - page 191

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
189
Notes to the consolidated financial statements continued
41 – Insurance liabilities continued
Valuation discount rates for business in the non-profit funds are as follows:
Valuation discount rates 2013 2012
Assurances
Life conventional non-profit 2.5% 1.8%
Pensions conventional non-profit 3.2% 2.2%
Annuities
Conventional immediate and deferred annuities 3.2% to 4.7% 2.6% to 4.1%
Non-unit reserves on Unit Linked business
Life 2.8% 2.1%
Pensions 3.5% 2.5%
Income Protection
Active lives 2.9% 2.2%
Claims in payment
–
level 3.1% 3.1%
Claims in payment
–
index linked (0.6)% (0.7)%
The above valuation discount rates are after reduction for investment expenses and credit risk. For conventional immediate annuity
business the allowance for credit risk comprises long-term assumptions for defaults and downgrades, which vary by asset category
and rating. The credit risk allowance made for corporate bonds and mortgages, including healthcare mortgages, held by Aviva
Annuity UK Limited equated to 48bps and 124bps respectively at 31 December 2013 (2012: 56 bps and 89 bps respectively). For
corporate bonds, the allowance represented 44% of the average credit spread for the portfolio (2012: 30%). The total valuation
allowance held by Aviva Annuity UK Limited in respect of corporate bonds and mortgages, including healthcare mortgages, was
£2.0 billion (2012: £2.0 billion including an implicit reinvestment margin of £0.2 billion) over the remaining term of the UK Life
corporate bond and mortgage portfolio. Total liabilities for the annuity business were £30 billion at 31 December 2013 (2012: £30
billion). Whilst the total valuation allowance held by Aviva Annuity UK Limited remained unchanged, the allowance for defaults for
commercial mortgages was increased by £0.3 billion at half year (whilst the implicit reinvestment margin was reduced by £0.2
billion to reflect management actions to better duration match), during the second half of 2013 this has reduced slightly in line
with interest rate increases and default experience, the allowance for corporate bonds remains largely unchanged.
Mortality assumptions for non-profit business are set with regard to recent Company experience and general industry trends.
The mortality tables used in the valuation are summarised below:
Mortalit
y
tables used 2013 2012
Assurances
Non-profit AM00/AF00 or TM00/TF00
adjusted for smoker status and
age/sex specific factors
AM00/AF00 or TM00/TF00
adjusted for smoker status and
age/sex specific factors
Pure endowments and deferred annuities before vesting AM00/AF00 adjusted AM00/AF00 adjusted
Annuities in payment
Pensions business and general annuity business PCMA00/PCFA00 adjusted plus
allowance for future mortality
improvement
PCMA00/PCFA00 adjusted plus
allowance for future mortality
improvement
For the main pensions annuity business in Aviva Annuity UK Limited, the underlying mortality assumptions for Males are 103.0%
of PCMA00 with base year 2000; for Females the underlying mortality assumptions are 98.5% of PCFA00 with base year 2000.
Improvements have been strengthened and are based on data used in CMI_2013 with a long-term improvement rate of 1.75% for
males and 1.5% for females both with an addition of 0.5% to all future annual improvement (2012: CMI_2011 with long-term
improvement rate of 1.5% for males and 1.0% for females both with an addition of 0.5% to all future annual improvement).
Year-specific adjustments are made to allow for selection effects due to the development of the Enhanced Annuity market.
(b) France
The majority of reserves arise from single premium savings products and are based on the accumulated fund values, adjusted to
maintain consistency with the value of the assets backing the policyholder liabilities. For traditional business, the net premium method
is used for prospective valuations, in accordance with local regulation, where the valuation assumptions depend on the date of issue
of the contract. The valuation discount rate also depends on the original duration of the contract and mortality rates are based on
industry tables.
Valuation discount rates Mortalit
y
tables used
2013 and 2012 2013 and 2012
Life assurances 0% to 4.5%
TD73-77, TD88-90,TH00-02
TF00-02, H_AVDBS, F_AVDBS
H_SSDBS, F_SSDBS
Annuities 0% to 4.5% TGF05/TGH05