Aviva 2013 Annual Report Download - page 228

Aviva plc
Annual report and accounts 2013
226
Notes to the consolidated financial statements continued
58 – Risk management continued
(ii) Analysis of maturity of financial assets
The following table provides an analysis, by maturity date of the principal, of the carrying value of financial assets which are
available to fund the repayment of liabilities as they crystallise. This table excludes assets held for sale.
At 31 December 2013
Total
£m
On demand
or within
1 year
£m
1-5 years
£m
Over 5
years
£m
No fixed
term
(perpetual)
£m
Debt securities 124,385 15,146 35,624 73,613 2
Equity securities 37,326 — — — 37,326
Other investments 31,250 28,067 701 587 1,895
Loans 23,879 2,029 3,909 17,920 21
Cash and cash equivalent 24,999 24,999 — — —
241,839 70,241 40,234 92,120 39,244
At 31 December 2012 (Restated1)
Total
£m
On demand
or within
1 year
£m
1-5 years
£m
Over 5
years
£m
No fixed
term
(perpetual)
£m
Debt securities 128,160 16,953 36,009 75,195 3
Equity securities 33,065 — — — 33,065
Other investments2 27,518 24,195 866 7 2,450
Loans 24,537 5,358 1,780 17,329 70
Cash and cash equivalent 23,102 23,102 — — —
236,382 69,608 38,655 92,531 35,588
1 Restated for the impact of IFRS 10. See note 1 for further details
2 To reflect the contractual redemption terms of the instruments, collective investment schemes included in ‘other investments’ previously reported as having no fixed term and maturing over 5 years, amounting to £17 million and
£12,278 million respectively, have been reclassified as repayable on demand or within 1 year
The assets above are analysed in accordance with the earliest possible redemption date of the instrument at the initiation of the
Group. Where an instrument is transferable back to the issuer on demand, such as most unit trusts or similar types of investment
vehicle, it is included in the ‘On demand or within 1 year’ column. Debt securities with no fixed contractual maturity date are
generally callable at the option of the issuer at the date the coupon rate is reset under the contractual terms of the instrument. The
terms for resetting the coupon are such that we expect the securities to be redeemed at this date, as it would be uneconomic for
the issuer not to do so, and for liquidity management purposes we manage these securities on this basis. The first repricing and call
date is normally ten years or more after the date of issuance. Most of the Group’s investments in equity securities and fixed
maturity securities are market traded and therefore, if required, can be liquidated for cash at short notice.
(e) Life insurance risk
Life insurance risk in the Group arises through its exposure to mortality and morbidity risks and exposure to worse than anticipated
operating experience on factors such as persistency levels and management and administration expenses. The Group chooses to
take measured amounts of life insurance risk provided that the relevant business has the appropriate core skills to assess and price
the risk and adequate returns are available.
The underlying risk profile of our life insurance risks, primarily persistency, longevity, mortality and expense risk, has remained
stable during 2013, although the current continued relatively low levels of interest rates have increased our sensitivity to longevity
shocks compared to historical norms. Persistency risk remains significant and continues to have a volatile outlook with underlying
performance linked to some degree to economic conditions. However, businesses across the Group have continued to make
progress with a range of customer retention activities. The Group has continued to write considerable volumes of life protection
business, and to utilise reinsurance to reduce exposure to potential losses. More generally, life insurance risks are believed to
provide a significant diversification against other risks in the portfolio. Life insurance risks are modelled within the internal
economic capital model and subject to sensitivity and stress and scenario testing. The assumption and management of life
insurance risks is governed by the group-wide business standards covering underwriting, pricing, product design and management,
in-force management, claims handling, and reinsurance. The individual life insurance risks are managed as follows:
 Mortality and morbidity risks are mitigated by use of reinsurance. The Group allows businesses to select reinsurers, from those
approved by the Group, based on local factors, but retains oversight of the overall exposures and monitor that the aggregation
of risk ceded is within credit risk appetite.
 Longevity risk and internal experience analysis are monitored against the latest external industry data and emerging trends.
Whilst individual businesses are responsible for reserving and pricing for annuity business, the Group monitors the exposure
to this risk and any associated capital implications. The Group has used reinsurance solutions to reduce the risks from longevity
and continually monitors and evaluates emerging market solutions to mitigate this risk further.
 Persistency risk is managed at a business unit level through frequent monitoring of company experience, and benchmarked
against local market information. Generally, persistency risk arises from customers lapsing their policies earlier than has been
assumed. Where possible the financial impact of lapses is reduced through appropriate product design. Businesses also
implement specific initiatives to improve retention of policies which may otherwise lapse. The Group has developed guidelines
on persistency management.
 Expense risk is primarily managed by the business units through the assessment of business unit profitability and frequent
monitoring of expense levels.