Aviva 2013 Annual Report Download - page 192

Aviva plc
Annual report and accounts 2013
190
Notes to the consolidated financial statements continued
41 – Insurance liabilities continued
(c) Other countries
In all other countries, local generally accepted interest rates and published standard mortality tables are used for different
categories of business as appropriate. The tables are based on relevant experience and show mortality rates, by age, for specific
groupings of people.
(iv) Movements
The following movements have occurred in the gross long-term business provisions during the year:
2013
£m
Restated1
2012
£m
Carrying amount at 1 January 131,190 131,171
Provisions in respect of new business 5,671 8,631
Expected change in existing business provisions (8,015) (8,362)
Variance between actual and expected experience 2,871 943
Impact of operating assumption changes 428 (718)
Impact of economic assumption changes (2,812) 1,726
Other movements1 (235) 2
Change in liability recognised as an expense (2,092) 2,222
Effect of portfolio transfers, acquisitions and disposals2 (34,441) (214)
Foreign exchange rate movements 509 (1,878)
Other movements1,3 (194) (111)
Carrying amount at 31 December 94,972 131,190
1 Other movements (outside change in liability recognised as an expense) of £(111) million in 2012 represents the reclassification of liabilities from insurance to non-participating investment in Eurovita. In 2012 these were included
within “Other movements” within change in liability recognised as an expense.
2 Disposals in 2013 include £31,167 million related to the disposal of the US business, £1,900 million related to the disposal of Aseval, and £1,233 million related to the disposal of Ark Life.
3 Other movements (outside change in liability recognised as an expense) in 2013 of £(194) million represents the reclassification of liabilities from insurance to participating investment in Eurovita.
The variance between actual and expected experience of £2.9 billion in 2013 was primarily due to the impact of favourable equity
and property returns on liabilities for unit-linked and with profit contracts in the UK and Ireland, and unit-linked contracts in France
and Italy. For many types of long-term business, including unit-linked and participating funds, movements in asset values are offset
by corresponding changes in liabilities, limiting the net impact on profit. Minor variances arise from differences between actual and
expected experience for persistency, mortality and other demographic factors.
The impact of assumption changes in the above analysis shows the resulting movement in the carrying value of insurance
liabilities. The £0.4 billion impact of operating assumption changes relates to a strengthening of mortality and lapse assumptions
on protection business in the UK (with the impact on profit mainly offset by a corresponding increase in reinsurance assets), and
the impact on with profit liabilities in the With profits sub-fund (WPSF), of a decision to discontinue the charge on assets shares for
guarantee costs, and to refund previously deducted charges to asset shares. The £2.8 billion impact of economic assumption
changes reflects increases in valuation interest rates, primarily in respect of immediate annuity and participating insurance contracts
in the UK.
The £0.2 billion release of reserves due to “other movements” (included within change in liability recognised as an expense)
largely relates to UK with profit liabilities, the most significant individual item being the impact on asset shares of moving to a
fair-value asset valuation, for loans previously valued at amortised cost.
For participating business, a movement in liabilities is generally offset by a corresponding adjustment to the unallocated
divisible surplus and does not impact on profit. Where assumption changes do impact on profit, these are included in the effect
of changes in assumptions and estimates during the year shown in note 45, together with the impact of movements in related
non-financial assets.
In 2013 we found evidence of improper allocation of trades in fixed income securities in Aviva Investors. This occurred between
2006 – 2012. These breaches of our dealing policy involved late allocation of trades which favoured external hedge funds to the
detriment of certain Aviva UK Life funds. The relevant regulatory authorities were notified at an early stage and have been kept
fully apprised of the issue.
A thorough review of internal control processes relating to the dealing policy has been carried out by management and
reviewed by PwC. Measures to improve controls have been implemented.
Of the total expected cost of £132 million, an amount of £126 million in relation to this matter has been recognised within
insurance liabilities (this reflects the compensation expected to be claimed in respect of these breaches), with the balance relating
to other associated costs.