Aviva 2013 Annual Report Download - page 227

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
225
Notes to the consolidated financial statements continued
58 – Risk management continued
(vi) Derivatives risk
Derivatives are used by a number of the businesses. Activity is overseen by the Group risk function, which monitors exposure levels
and approves large or complex transactions. Derivatives are primarily used for efficient investment management, risk hedging
purposes, or to structure specific retail savings products.
The Group applies strict requirements to the administration and valuation processes it uses, and has a control framework that
is consistent with market and industry practice for the activity that is undertaken.
(vii) Correlation risk
The Group recognises that lapse behaviour and potential increases in consumer expectations are sensitive to and interdependent
with market movements and interest rates. These interdependencies are taken into consideration in the internal economic capital
model and in scenario analysis.
(d) Liquidity risk
Liquidity risk is the risk of not being able to make payments as they become due because there are insufficient assets in cash form.
The relatively illiquid nature of insurance liabilities is a potential source of additional investment return by allowing us to invest in
higher yielding, but less liquid assets such as commercial mortgages. The Group seeks to ensure that it maintains sufficient financial
resources to meet its obligations as they fall due through the application of a Group liquidity risk policy and business standard. At
Group and business unit level, there is a liquidity risk appetite which requires that sufficient liquid resources be maintained to cover
net outflows in a stress scenario. In addition to the existing liquid resources and expected inflows, the Group maintains significant
undrawn committed borrowing facilities (£1.5 billion) from a range of leading international banks to further mitigate this risk.
Maturity analyses
The following tables show the maturities of our insurance and investment contract liabilities, and of the financial and reinsurance
assets to meet them. A maturity analysis of the contractual amounts payable for borrowings and derivatives is given in notes 50
and 59, respectively. Contractual obligations under operating leases and capital commitments are given in note 54.
(i) Analysis of maturity of insurance and investment contract liabilities
For non-linked insurance business, the following table shows the gross liability at 31 December 2013 and 2012 analysed by
remaining duration. The total liability is split by remaining duration in proportion to the cash-flows expected to arise during that
period, as permitted under IFRS 4, Insurance Contracts.
Almost all linked business and non-linked investment contracts may be surrendered or transferred on demand. For such
contracts, the earliest contractual maturity date is therefore the current statement of financial position date, for a surrender
amount approximately equal to the current statement of financial position liability. We expect surrenders, transfers and maturities
to occur over many years, and the tables reflect the expected cash flows for these contracts. However, contractually, the total
liability for linked business and non-linked investment contracts would be shown in the ‘within 1 year’ column below. Changes in
durations between 2012 and 2013 reflect evolution of the portfolio, and changes to the models for projecting cash-flows. This
table includes amounts held for sale.
At 31 December 2013
Total
£m
On demand
or within
1 year
£m
1-5 years
£m
5-15 years
£m
Over 15
years
£m
Long-term business
Insurance contracts
–
non-linked 81,458 7,900 25,223 29,620 18,715
Investment contracts
–
non-linked 60,111 2,098 10,422 17,594 29,997
Linked business 73,458 6,244 16,403 23,483 27,328
General insurance and health 14,534 6,350 5,591 2,197 396
Total contract liabilities 229,561 22,592 57,639 72,894 76,436
At 31 December 2012
Total
£m
On demand
or within
1 year
£m
1-5 years
£m
5-15 years
£m
Over 15
years
£m
Long-term business
Insurance contracts
–
non-linked 117,602 8,303 31,894 44,455 32,950
Investment contracts
–
non-linked 59,788 2,491 12,390 16,679 28,228
Linked business 69,690 5,667 18,203 21,590 24,230
General insurance and health 15,006 6,166 5,763 2,456 621
Total contract liabilities 262,086 22,627 68,250 85,180 86,029