Aviva 2013 Annual Report Download - page 299

Strategic report Governance IFRS Financial statements Other information
Aviva plc
Annual report and accounts 2013
297
Shareholder information continued
Long-term assets and liabilities
Where a UK insurer carries on life insurance business, its long-
term business assets and liabilities – i.e. those assets and
liabilities relating to life and health insurance policies – must be
segregated from the assets and liabilities attributable to non-life
insurance business or to shareholders. Separate accounting and
other records must be maintained and a separate fund
established to hold all receipts of long-term business.
The extent to which long-term fund assets may be used for
purposes other than long-term business is restricted by the PRA
rules. Only the ‘established surplus’, which is the excess of
assets over liabilities in the long-term fund as determined by
actuarial investigation, may be transferred so as to be available
for other purposes. Restrictions also apply to the payment of
dividends by the insurance company, as described below. PRA
rules also require insurers to maintain sufficient assets in the
separate long-term insurance fund to cover the actuarially
determined value of the insurance liabilities.
Distribution of profits and with-profits business
For UK authorised life insurers carrying on with-profits business,
such as Aviva Life and Pensions UK Ltd (‘AVLAP’), the FCA’s
rules require that where a firm decides to make a distribution of
surplus from the with-profits fund it must distribute at least the
required percentage (as defined in the FCA Handbook) of the
total amount distributed to policyholders, with the balance of
the total amount to be distributed being payable to the
shareholders.
In addition, at least once a year the AVLAP Board must
consider whether a distribution is required to be made from the
Old with-profits sub-fund (“Old WPSF”) inherited estate. Such a
distribution will ordinarily be required if the level of the inherited
estate of the Old WPSF exceeds the Required Distribution
Threshold as described in the Reattribution Scheme of Transfer
effective from 1 October 2009 (‘The Scheme’) on any such
annual investigation from the third such investigation after
1 October 2009. An Annual investigation may also be carried
out to determine if a Release to shareholders can be made from
the RIEESA. Releases can only be made:
 if the Reattributed Inherited Estate exceeds the Permitted
Release Threshold as defined in the Scheme;
 the AVLAP Board (based on appropriate actuarial advice
including that of the With-Profits Actuary) are of the opinion
that the Release will not give rise to a significant risk that the
New with-profits sub-fund (including the RIEESA) would be
unable to meet its obligations to policyholders and its capital
requirements or the Old WPSF would be unable to meet its
obligations to policyholders; and
 following the sixth annual investigation after 1 October
2009 or later investigation and provided that investigation
and investigations made in the previous 2 years determined
that the Reattributed Inherited Estate exceeded the
Permitted Release Threshold.
Reporting requirements
PRA rules require insurance companies to file their audited
annual accounts, statements of financial position and life
insurers’ annual reports from the actuary performing the
actuarial function with the regulator. There is also a requirement
to report the annual solvency position of the insurance
company’s ultimate parent.
The PRA uses the annual return to monitor the solvency (i.e.
the ability to meet current and future obligations such as claims
payments to policyholders) of the insurance company. For
general insurance business, the return is also used to assess
retrospectively the adequacy of the company’s claims provisions.
The directors of an insurance company are required to sign a
certificate, which includes a statement as to whether the
company has maintained the required minimum margin of
solvency throughout the year. The directors must also certify
that the company has completed its return to the PRA properly
in accordance with the PRA’s instructions, and that the directors
are satisfied that the company has complied in all material
respects with the requirements set out in the PRA rules.
UK winding up rules
The general insolvency laws and regulations applicable to UK
companies are modified in certain respects in relation to UK
insurance companies where direct insurance claims will have
priority over the claims of other unsecured creditors (with the
exception of preferred creditors), including reinsurance
creditors, on a winding up by the court or a creditors’ voluntary
winding up of the insurance company. Furthermore, instead of
making a winding-up order when an insurance company has
been proved unable to pay its debts, a UK court may reduce the
amount of one or more of the insurance company’s contracts
on terms and subject to conditions (if any) which the court
considers fit. Where an insurance company is in financial
difficulties but not in liquidation, the FSCS may take measures
to secure the transfer of all or part of the business to another
insurance company.
FSMA provides further protection to policyholders of
insurance companies effecting or carrying out contracts of long-
term insurance. Unless the court orders otherwise, a liquidator
and/or administrator must carry on the insurer’s business so far
as it consists of carrying out the insurer’s contracts of long-term
insurance with a view to it being transferred as a going concern
to a person who may lawfully carry out those contracts. In
carrying on the business, the liquidator/administrator may agree
to the variation of any contracts of insurance in existence when
the winding-up order is made, but must not effect any new
contracts of insurance.