Aviva 2013 Annual Report Download - page 214

Aviva plc
Annual report and accounts 2013
212
Notes to the consolidated financial statements continued
52 – Other liabilities
This note analyses our other liabilities at the end of the year.
2013
£m
Restated1
2012
£m
Deferred income 177 319
Reinsurers’ share of deferred acquisition costs 11 11
Accruals 1,386 1,138
Other liabilities 930 1,109
Total 2,504 2,577
Less: Amounts classified as held for sale (32) (735)
2,472 1,842
Expected to be settled within one year 2,145 1,457
Expected to be settled in more than one year 327 385
2,472 1,842
1 Restated for the adoption of IFRS10. See note 1 for further details.
53 – Contingent liabilities and other risk factors
This note sets out the main areas of uncertainty over the calculation of our liabilities.
(a) Uncertainty over claims provisions
Note 41 gives details of the estimation techniques used by the Group to determine the general insurance business outstanding
claims provisions and of the methodology and assumptions used in determining the long-term business provisions. These
approaches are designed to allow for the appropriate cost of policy-related liabilities, with a degree of prudence, to give a result
within the normal range of outcomes. However, the actual cost of settling these liabilities may differ, for example because
experience may be worse than that assumed, or future general insurance business claims inflation may differ from that expected,
and hence there is uncertainty in respect of these liabilities.
(b) Asbestos, pollution and social environmental hazards
In the course of conducting insurance business, various companies within the Group receive general insurance liability claims, and
become involved in actual or threatened related litigation arising there from, including claims in respect of pollution and other
environmental hazards. Amongst these are claims in respect of asbestos production and handling in various jurisdictions, including
Europe, Canada and Australia. Given the significant delays that are experienced in the notification of these claims, the potential
number of incidents which they cover and the uncertainties associated with establishing liability and the availability of reinsurance,
the ultimate cost cannot be determined with certainty. However, on the basis of current information having regard to the level of
provisions made for general insurance claims, the directors consider that any additional costs arising are not likely to have a
material impact on the financial position of the Group.
(c) Guarantees on long-term savings products
As a normal part of their operating activities, various Group companies have given guarantees and options, including interest rate
guarantees, in respect of certain long-term insurance and investment products. Note 43 gives details of these guarantees and
options. In providing these guarantees and options, the Group’s capital position is sensitive to fluctuations in financial variables
including foreign currency exchange rates, interest rates, property values and equity prices. Interest rate guaranteed returns, such
as those available on guaranteed annuity options, are sensitive to interest rates falling below the guaranteed level. Other
guarantees, such as maturity value guarantees and guarantees in relation to minimum rates of return, are sensitive to fluctuations
in the investment return below the level assumed when the guarantee was made. The directors continue to believe that the
existing provisions for such guarantees and options are sufficient.
(d) Regulatory compliance
The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates. A
number of the Group’s UK subsidiaries are “dual regulated” (directly authorised by both the PRA (for prudential regulation) and
the FCA (for conduct regulation)) whilst others are solo regulated (regulated solely by the FCA for both prudential and conduct
regulation). Between them, the PRA and FCA have broad powers including the authority to grant, vary the terms of, or cancel a
regulated firm’s authorisation; to investigate marketing and sales practices; and to require the maintenance of adequate financial
resources. The Group’s regulators outside the UK typically have similar powers, but in some cases they also operate a system of
‘prior product approval’.
The Group’s regulated businesses have compliance resources to respond to regulatory enquiries in a constructive way, and take
corrective action when warranted. However, all regulated financial services companies face the risk that their regulator could find
that they have failed to comply with applicable regulations or have not undertaken corrective action as required.
The impact of any such finding (whether in the UK or overseas) could have a negative impact on the Group’s reported results
or on its relations with current and potential customers. Regulatory action against a member of the Group could result in adverse
publicity for, or negative perceptions regarding, the Group, or could have a material adverse effect on the business of the Group,
its results of operations and/or financial condition and divert management’s attention from the day-to-day management of
the business.