Aviva 2001 Annual Report Download - page 84

36 – Long-term business provision continued
Interest % Mortality tables used
France
Life assurances:
Up to eight years 3.5 to 4.5 TD 88/90
Eight years and over 2.5 to 3.5 TD 88/90
Annuities 2.5 to 4.5 TPRV (prospective table)
Netherlands
Life assurance 3 to 4 GBM 61-65, 76-80, 80-85 and GBM/V 85-90, 90-95
Annuities in deferment and in payment 3 to 4 GBM/V 76-80, 80-85, 85-90, 90-95, Coll 1993
and DIL 98 plus further allowance for future
mortality improvement
In all countries, local generally accepted interest rates and published standard mortality tables are used for different categories of
business as appropriate. The tables are based on relevant experience and show mortality rates, by age, for specific groupings of people.
37 – Provisions for outstanding claims
(a) The ultimate cost of general business outstanding claims is estimated by using a range of standard actuarial claims projection
techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. Such methods extrapolate the development of paid and
incurred claims, average costs per claim and ultimate claim numbers for each accident year, based upon the observed development of
earlier years and expected loss ratios. The main assumption underlying these techniques is that past claims development experience
can be used to project ultimate claims costs. Judgement is used to assess the extent to which past trends may not apply in future, for
example to reflect public attitudes to claiming or varying levels of claims inflation. The approach adopted takes into account, inter alia,
the nature and materiality of the business and the type of data available. Case estimates are generally set by skilled claims technicians
applying their experience and knowledge to the circumstances of individual claims. Additional qualitative input, such as allowance
for one-off occurrences or changes in legislation, policy conditions or portfolio mix, is also used in arriving at the estimated ultimate
cost of claims, in order that it represents the most likely outcome, from a range of possible outcomes, taking account of all the
uncertainties involved.
Provisions are calculated allowing for reinsurance recoveries and a separate asset is recorded for the reinsurers’share, having regard
to collectability.
(b) Claims incurred in the general business technical account in 2000 included deficits amounting to £737 million arising on
claims reported in previous years. These arose principally in relation to certain long-tail liability business which is no longer written.
There were no material deficits in 2001.
(c) Claims on certain classes of business are discounted as follows:
Rate Mean term of liabilities
Class 2001 2000 2001 2000
Netherlands Permanent health and injury 3.5% 4% 12 years 8 years
Belgium Workers’compensation –4% –19 years
United States Workers’compensation –7% –7 years
United States and London Market Business no longer written –4.5% –9 years
Net of reinsurers’share, the outstanding claims provisions before discounting were £8,058 million (2000: £14,470 million).The period
of time which will elapse before the liabilities are settled has been estimated by modelling the settlement patterns of the underlying
claims and related reinsurance recoveries. The unwinding of the discount in respect of the United States and London Market business
no longer written was not material (2000: £24 million).
38 – Equalisation provision
An equalisation provision has been established in the Group accounts as explained in accounting policy U on page 46. This had the
effect of reducing Group and Company shareholders’funds by £272 million at the year end (2000: £216 million).The change in the
equalisation provision during the year comprised a reduction of £56 million (2000: £27 million) in the balance on the general business
technical account and the profit on ordinary activities before tax. The closing provision in 2000 was reduced by £23 million,
representing the equalisation provision of a subsidiary company sold during that year.
82 CGNU plc Annual report + accounts 2001 Notes to the accounts continued