Aviva 2013 Annual Report Download - page 273

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
271
Analysis of investments
Analysis of investments
We invest our policyholders’ funds and our own funds in order to generate a return for both policyholders and shareholders. The
financial strength of the Group and both our current and future operating results and financial performance are, therefore, in part
dependent on the quality and performance of our investment portfolios in the UK, Europe, Canada and Asia.
For additional information on our financial investments, see ‘IFRS Financial statements – note 27 – Financial investments’.
Investment strategy
Our investment portfolio supports a range of businesses operating in a number of geographical locations. Our aim is to match the
investments held to support a line of business to the nature of the underlying liabilities, whilst at the same time considering
local regulatory requirements, the level of risk inherent within different investments, and the desire to generate superior investment
returns, where compatible with this stated strategy and risk appetite.
Long-term insurance and savings business
As stated above, we aim to optimise investment returns whilst ensuring that sufficient assets are held to meet future liabilities and
regulatory requirements. As different types of life insurance business vary in their cash flows and in the expectations placed upon
them by policyholders, we need to hold different types of investments to meet these different cash flows and expectations.
The UK with-profits business is comprised largely of long-term contracts with some guaranteed payments. We are therefore
able to invest a significant proportion of the funds supporting this business in equities and real estate. This is because the long-
term nature of these contracts allows us to take advantage of the long-term growth potential within these classes of assets, whilst
the level of guaranteed payments is managed to mitigate the level of risk that we bear in relation to the volatility of these classes
of assets.
Non-UK participating business, annuities and non-participating contracts in all countries, have a high level of guaranteed future
payments. We endeavour to match the investments held against these types of business to future cash flows. We therefore have a
policy of generally holding fixed income securities and mortgage loans with appropriate maturity dates.
With unit-linked business, the primary objective is to maximise investment returns, subject to following an investment policy
consistent with the representations that we have made to our unit-linked product policyholders.
General insurance and health business
The general insurance and health business is comprised of shorter-term liabilities than the long-term insurance business.
Furthermore, all the risk attaching to the investments is borne by our shareholders. As a result, the investment portfolio held to
cover general insurance liabilities contains a higher proportion of fixed income securities than the portfolio held to cover life
insurance liabilities.
Property partnerships
As part of their investment strategy, the UK and certain European policyholder funds have invested in a number of property limited
partnerships (“PLPs”), either directly or via property unit trusts (“PUTs”), through a mix of capital and loans. The nature of our
involvement in property partnerships is set out in the second and third paragraphs of the Investment vehicles section of ‘IFRS
Financial Statements – Accounting policies – (D) Consolidation principles’. Property partnerships are accounted for depending on
our participation and the terms of each partnership agreement. For each property partnership accounted for as a subsidiary, joint
venture, associate or financial investment, we are exposed to falls in the value of the underlying properties which are reflected as
unrealised gains/losses on investment properties, our share of joint venture or associate results and unrealised gains/losses on
financial investments, respectively. However, the majority of these are in policyholder funds (rather than shareholder funds) so such
losses are offset by changes in the amounts due to policyholders or unitholders, or UDS.
Analysis of investments
We distinguish between policyholder, participating fund and shareholder investments, which are terms used to reflect the differing
exposure to investment gains and losses. Policyholder assets are connected to our unit-linked business, where the policyholder
bears the investment risk on the assets in the unit-linked funds. Our exposure to loss on policyholder assets is limited to the extent
that income arising from asset management charges is based on the value of assets in the funds. Participating fund assets relate to
some of our insurance and investment contracts which contain a discretionary participation feature, which is a contractual right to
receive additional benefits as a supplement to guaranteed benefits. Our exposure to investment losses on participating funds is
generally limited to our participation in the fund. Shareholder assets are other assets held within our businesses that are not
backing unit-linked liabilities or participating funds.
Investments held at 31 December 2013 and 31 December 2012 are listed below:
2013
Policyholder
assets
£m
Participating
fund assets
£m
Shareholder
assets
£m
Total
assets
analysed
£m
Less
assets of
operations
classified
as held
for sale
£m
Carrying
value in the
statement
of financial
position
£m
Investment property 3,564 5,648 239 9,451 — 9,451
Loans 471 5,535 17,873 23,879 — 23,879
Financial investments
Debt securities 12,835 80,610 33,360 126,805 (2,420) 124,385
Equity securities 25,836 10,544 1,000 37,380 (54) 37,326
Other investments 26,563 3,880 1,008 31,451 (201) 31,250
Total 69,269 106,217 53,480 228,966 (2,675) 226,291
Total % 30.2% 46.4% 23.4% 100.0% — 100.0%
2012 Restated1 67,181 108,464 87,404 263,049 (39,830) 223,219
2012 Restated1 % 25.6% 41.2% 33.2% 100.0% — 100.0%
1 The 2012 figures have been restated following the adoption of IFRS 10 ‘Consolidated Financial Statements’ – see ‘IFRS Financial Statements – note 1’ for details.