Aviva 2001 Annual Report Download - page 31

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£11.7 billion
equity
shareholders’
funds
530p
net asset
value per
ordinary share
(based on equity shareholders' funds,
adding back the equalisation provision)
29 CGNU plc
Borrowings
2001 2000
At 31 December £m £m
External debt 2,651 2,581
Internal debt 3,284 4,120
5,935 6,701
Subordinated debt 1,157 –
Total 7,092 6,701
The ratio of the group’s external debt to shareholders’funds was 19%.
Interest cover, which measures the extent to which external interest
costs are covered by achieved operating profit, was 12 times.
Management of financial risks
The group recognises the critical importance of efficient and effective
risk management systems. Close attention is paid to asset and
liability management.This is particularly important for our life
businesses, given the long-term nature of the liabilities involved.
General insurance funds are invested in fixed income securities to
match broadly our insurance liabilities, the balance of the portfolio
invested largely in equities.
DerivativesDerivative instruments are only used to a limited extent,
within guidelines established by the Board. Derivatives are used for
efficient portfolio management, debt-hedging purposes, or to
structure specific retail savings products. Speculative activity is
prohibited and all derivative transactions are covered fully, either by
cash or by corresponding assets and liabilities.
Exchange fluctuation As a result of the international diversity
of its operations, approximately half of the group’s premium
income arises in currencies other than sterling. Similarly, its net
assets are denominated in a variety of currencies, of which the
largest are the euro (56%) and sterling (32%).
In managing our foreign currency exposures we do not hedge
revenues as these are substantially retained locally to support
the growth of our business and to meet local regulatory and
market requirements.
The group’s net assets and, to a more limited extent its solvency, are
exposed to movements in exchange rates. The group hedges part of
this exposure through local currency borrowings and derivatives.
Reinsurance Reinsurance is a key tool in managing our catastrophe
exposure. In designing our reinsurance programmes we take account
of our risk assessment, the financial strength of reinsurance
counterparties, the benefits to shareholders of capital efficiency and
reduced volatility, and the cost of reinsurance protection.
To complement the reinsurance protection bought by individual
businesses, the group has an additional cover in place above
£100 million that provides protection from a single event or an
aggregation of events.
Mike Biggs, Group Finance Director