Aviva 2001 Annual Report Download - page 95

93 CGNU plc
Basis of preparation
The achieved profit statement on page 92 includes the results of the Group’s life operations reported under the achieved profit basis
combined with the modified statutory basis results of the Group’s non-life operations set out on pages 44 to 90. In the directors’
opinion, the achieved profit basis provides a more accurate reflection of the performance of the Group’s life operations year on year
than results under the modified statutory basis. The achieved profit methodology used is in accordance with the guidance on
“Supplementary reporting for long-term insurance business (the achieved profits method)”circulated by the Association of British
Insurers in December 2001. Further details on the methodology and assumptions are set out on pages 96 to 98.
The results of the Group’s life operations under the modified statutory basis, which is the basis used in the annual statutory accounts,
can be found on pages 44 to 90.
The contribution from the Group’s share of the alliance with The Royal Bank of Scotland Group plc (RBSG) is incorporated within the
achieved operating profit. Goodwill amortised in the period in respect of the Group’s holding in the associated company, RBS Life
Investments Limited, is included within the “Amortisation of goodwill”on page 92.
Components of total life achieved profit
Total life achieved profit, including the Group’s share from the alliance with RBSG, comprises the following components, the first four
of which in aggregate are referred to as life achieved operating profit:
•new business contribution written during the year including value added between the point of sale and end of year;
•the profit from existing business equal to:
– the expected return on the value of the in-force business at the beginning of the period,
– experience variances caused by the differences between the actual experience during the period and expected experience based on
the operating assumptions used to calculate the start of year value,
– the impact of changes in operating assumptions including risk margins;
•development costs incurred in establishing new life businesses;
•the expected investment return on the shareholders’net worth, based upon assumptions applying at the start of the year;
•investment return variances caused by differences between the actual return in the period and the expected experience based on
economic assumptions used to calculate the start of year value; and
•the impact of changes in economic assumptions in the period.
2001 2000
£m £m
New business contribution 479 392
Profit from existing business – expected return 848 839
– experience variances (18) 10
– operating assumption changes* 17 (7)
Development costs –(20)
Expected return on shareholders’net worth 339 319
1,665 1,533
Other life and savings activities** 936
Life achieved operating profit before tax and exceptional items 1,674 1,569
Exceptional items*** (12) (106)
Investment return variances (1,632) (43)
Effect of economic assumption changes 1(269)
Total life achieved profit before tax 31 1,151
Tax on operating profit (514) (485)
Tax on other ordinary activities 499 110
Total life achieved profit after tax 16 776
*Operating assumption changes include the impact of reducing risk margins in the Netherlands and the Poland life and pensions operations in line with
the directors’views of the risks associated with these in-force portfolios. The impact of the change in the Netherlands was £17 million. The impact was
£22 million in the Poland life operation and £6 million in the Poland pensions operation.
** Profits from other life and savings activities include the UK service company, which is deemed to act as a separate business segment to the long-term
business operations, and have been calculated on a statutory basis.
*** Exceptional items comprise integration costs.