Aviva 2013 Annual Report Download - page 232

Aviva plc
Annual report and accounts 2013
230
Notes to the consolidated financial statements continued
58 – Risk management continued
General insurance and health business sensitivities as at 31 December 2013
2013 Impact on profit before tax (£m)
Interest
rates
+1%
Interest
rates
–1%
Credit
spreads
+0.5%
Equity/
property
+10%
Equity/
property
–10%
Expenses
+10%
Gross loss
ratios
+5%
Gross of reinsurance (245) 235 (125) 50 (50) (110) (300)
Net of reinsurance (295) 295 (125) 50 (50) (110) (285)
2013 Impact on shareholders' equit
y
before tax (£m)
Interest
rates
+1%
Interest
rates
–1%
Credit
spreads
+0.5%
Equity/
property
+10%
Equity/
property
–10%
Expenses
+10%
Gross loss
ratios
+5%
Gross of reinsurance (245) 235 (125) 50 (50) (25) (300)
Net of reinsurance (295) 295 (125) 50 (50) (25) (285)
Sensitivities as at 31 December 2012
2012 Impact on profit before ta
x
(£m)
Interest
rates
+1%
Interest
rates
–1%
Credit
spreads
+0.5%
Equity
/
property
+10%
Equity
/
property
–10%
Expenses
+10%
Gross loss
ratios
+5%
Gross of reinsurance excluding Delta Lloyd (260) 235 (125) 45 (50) (120) (300)
Net of reinsurance excluding Delta Lloyd (300) 285 (125) 45 (50) (120) (285)
2012 Impact on shareholders' equity before ta
x
(£m)
Interest
rates
+1%
Interest
rates
–1%
Credit
spreads
+0.5%
Equity
/
property
+10%
Equity
/
property
–10%
Expenses
+10%
Gross loss
ratios
+5%
Gross of reinsurance excluding Delta Lloyd (260) 235 (125) 50 (50) (25) (300)
Net of reinsurance excluding Delta Lloyd (300) 285 (125) 50 (50) (25) (285)
For general insurance, the impact of the expense sensitivity on profit also includes the increase in ongoing administration expenses,
in addition to the increase in the claims handling expense provision.
Fund management and non-insurance business sensitivities as at 31 December 2013
2013 Impact on profit before tax (£m)
Interest
rates
+1%
Interest
rates
-1%
Credit
spreads
+0.5%
Equity/
property
+10%
Equity/
property -
10%
Total — — 20 (5) 15
2013 Impact on shareholders' equit
y
before tax (£m)
Interest
rates
+1%
Interest
rates
-1%
Credit
spreads
+0.5%
Equity/
property
+10%
Equity/
property -
10%
Total — — 20 (5) 15
Sensitivities as at 31 December 2012
2012 Impact on profit before ta
x
(£m)
Interest
rates
+1%
Interest
rates
–1%
Credit
spreads
+0.5%
Equity
/
property
+10%
Equity
/
property
–10%
Total excluding Delta Lloyd (5) — 30 (90) 10
2012 Impact on shareholders' equity before ta
x
(£m)
Interest
rates
+1%
Interest
rates
–1%
Credit
spreads
+0.5%
Equity
/
property
+10%
Equity
/
property
–10%
Total excluding Delta Lloyd (5) — 30 (90) 10
Limitations of sensitivity analysis
The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality,
there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and
larger or smaller impacts should not be interpolated or extrapolated from these results.
The sensitivity analyses do not take into consideration that the Group’s assets and liabilities are actively managed. Additionally,
the financial position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s
financial risk management strategy aims to manage the exposure to market fluctuations.
As investment markets move past various trigger levels, management actions could include selling investments, changing
investment portfolio allocation, adjusting bonuses credited to policyholders, and taking other protective action.
A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, a change
in the underlying assumptions may not have any impact on the liabilities, whereas assets held at market value in the statement of
financial position will be affected. In these circumstances, the different measurement bases for liabilities and assets may lead to
volatility in shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and equity
where explicit assumptions are made regarding interest (discount) rates or future inflation.
Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential
risk that only represent the Group’s view of possible near-term market changes that cannot be predicted with any certainty, and
the assumption that all interest rates move in an identical fashion.