Aviva 2013 Annual Report Download - page 295

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
293
Shareholder information continued
Capital commitments
Contractual commitments for acquisitions or capital
expenditures of investment property, property and equipment
and intangible assets, which have not been recognised in our
consolidated financial statements, are as follows:
2013
£m
2012
£m
Investment property 3 6
Property and equipment 24 36
Total 27 42
Contractual obligations for future repairs and maintenance on
investment properties are £nil (2012: £nil). We have capital
commitments to joint ventures of £140 million (2012: £41
million). These commitments are expected to be funded
through operational cash flow without recourse to core
structural borrowings.
Regulation
Compliance
In both our insurance and fund management businesses,
matters may arise as a result of industry-wide issues, inspection
visits or other regulatory activity, requiring discussion and
resolution with industry regulators. The Group needs to ensure
that procedures are in place to address any regulatory concerns,
and that such procedures are properly planned, managed and
resourced. Corrective action is undertaken, when necessary,
with progress reported to relevant regulatory bodies in a
timely manner.
Overview of regulation as it affects our business
Our principal insurance and fund management operations are
in the UK, Europe, North America and the Asia Pacific region.
We are therefore subject to financial services regulation and
local regulatory supervision in all these areas, as individually
covered below.
As the Group’s parent company is based in the UK, both EU
legislation and UK regulatory rules can impact Aviva’s business
practices worldwide. Regulators supervising the Group co-
ordinate on a cross-border basis through a ‘college’.
The European Union
In addition to its UK businesses, Aviva is active in other EU
member states through wholly owned subsidiary and joint
venture companies. These companies are subject to the laws
and regulations of the EU member state in which they are
based, but are also affected by higher level EU legislation, which
will continue to have a significant influence on the legislative
environment in the UK and other EU markets.
The EU operates by promulgating directives that must be
implemented into local national legislation within each EU
member country. These directives set minimum standards for
national legislatures to meet, with each legislature able to
decide how they should be implemented. National governments
may not pass laws which fail to meet the minimum standards
set out in a directive, but are generally free to impose legal
requirements which go beyond those required. Directives are
written at a fairly high level, with more detail being provided at
national level through legislation developed in accordance with
the local legal system. Even greater detail may be imposed
through the rules and regulations of national regulators and, for
financial services businesses these rules can be extensive.
The EU may also impose requirements directly on countries
through regulation. EU financial services regulation is based on
the principle of ‘home country control’, which makes the home
country regulator responsible for monitoring compliance with all
applicable regulation.
Key directives of particular relevance to the financial services
industry, and so to Aviva’s businesses in the EU include:
Third Life and Non-Life Directives
These directives implemented the home country control
principle for life and non-life insurance business in the mid-
1990s and placed the responsibility for such issues as solvency,
actuarial reserves, investment of assets, and certain governance
issues on the home country regulator. Most companies licensed
to conduct insurance business in one member state may rely on
their home country regulation to ‘passport’ into all other
member states to conduct business without having to be
separately licensed in each. The general exception is selling
activity which continues to be regulated by the state in which
the sale takes place.
Insurance Groups Directive (IGD)
The IGD requires member states to introduce the following
measures to strengthen supervision of insurance companies
which are part of a group:
 An adjustment margin to the solvency calculation in relation
to participating interests in other insurance undertakings in
order to eliminate ‘double-gearing’ (the use of the same
regulatory capital in more than one entity of a group).
 An additional parent undertaking solvency margin
calculation analogous to the adjusted margin test referred to
above, to be applied at the level of the parent undertaking.
 The introduction of new solo supervision requirements,
including rules as to internal control within the insurance
undertaking regarding the production of information
relevant to supplementary supervision, the exchange of
information within the group and the supervision of intra-
group transactions.
 Further provisions aimed at ensuring co-operation between
competent regulatory authorities of member states.
Since 31 December 2006, the group capital resources
requirement (the parent undertaking solvency calculation
mentioned above) has been a ‘hard’ test (i.e. it constitutes
a requirement to maintain the group capital resources, rather
than simply to make the calculation) for UK-based companies
operating under PRA rules.
Reinsurance Directive
Adopted on 16 November 2005, this directive requires that all
reinsurance undertakings be authorised in their home member
state. To obtain that authorisation, they need to meet strict
requirements, but are then free to operate anywhere in the EU
through the single market passport process.
Distance Marketing Directive
Under the Distance Marketing Directive, EU member states are
required to implement a framework of rules and guidance in
order to protect consumers by:
 setting minimum standards for information that must be
provided to consumers before entering into a financial
services contract by ‘distance means’; and
 for certain products and services, giving a cooling-off period
in which a consumer may cancel a contract without penalty.
Insurance Mediation Directive
This requires EU member states to establish a framework to:
 ensure that insurance and reinsurance intermediaries have
been registered on the basis of a minimum set of
professional and financial requirements;
 ensure that registered intermediaries will be able to operate
in other member states by availing themselves of the
freedom to provide services or by establishing a branch; and
 impose requirements on insurance intermediaries to provide
specified minimum information to potential customers.