Aviva 2002 Annual Report Download - page 58

A – Basis of accounts
The consolidated accounts have been prepared in accordance with
Section 255A of, and the special provisions relating to insurance
companies of Schedule 9A to, the Companies Act 1985 and with
the Statement of Recommended Practice issued by the Association
of British Insurers (the “ABI SORP”) issued in December 1998.
The accounting policies adopted reflect United Kingdom financial
reporting standards and statements of standard accounting
practice applicable at 31 December 2002, as considered
appropriate for an insurance company. The balance sheet of the
Company has been prepared in accordance with Section 226 of,
and Schedule 4 to, the Companies Act 1985.
The profit and loss account for the year reflects all income,
expenditure, and investment gains and losses, except certain items
which are taken directly to reserves after tax. The items taken
directly to reserves include movements in the value of internally
generated in-force long-term business and exchange gains and
losses on the net investment in foreign enterprises (except for
certain items dealt with in the fund for future appropriations).
The general business technical result is determined on an
annual basis.
B – Premiums
General business premiums written reflect business incepted
during the year. General business unearned premiums are those
proportions of the premiums written in a year that relate to the
periods of risk after the balance sheet date. Unearned premiums
are computed principally on either the daily or monthly pro rata
basis. Long-term business premiums are accounted for when
receivable, except for investment-linked premiums which are
accounted for when liabilities are recognised.
C – Claims
General business claims incurred include all losses occurring during
the year, whether reported or not, related handling costs, a
reduction for the value of salvage and other recoveries, and any
adjustments to claims outstanding from previous years.
General business outstanding claims provisions are based on the
estimated ultimate cost of all claims incurred but not settled at the
balance sheet date, whether reported or not, together with related
claims handling costs and a reduction for the expected value of
salvage and other recoveries. Significant delays are experienced in
the notification and settlement of certain general insurance claims,
particularly in respect of liability business, including environmental
and pollution exposures, the ultimate cost of which cannot be
known with certainty at the balance sheet date. Provisions for
certain claims are discounted using rates having regard to
the returns generated by the assets supporting the liabilities.
Any estimate represents a point within a range of possible
outcomes. Further details of estimating techniques are given
in note 39(a).
Long-term business claims reflect the cost of all claims arising
during the year, including claims handling costs, as well as
policyholder bonuses paid in anticipation of a bonus declaration.
D – Deferred acquisition costs
Deferred acquisition costs represent a proportion of commission
and other acquisition costs that relate to policies that are in force at
the year end. General business deferred acquisition costs are
amortised over the period in which the related premiums are earned.
Long-term business deferred acquisition costs are amortised over a
period no longer than that in which they are expected to be
recoverable out of margins in revenues from the related policies.
E – Unexpired risks
Provision is made for any overall excess of expected claims and
deferred acquisition costs over unearned premiums, after taking
account of the investment return expected to arise on assets
relating to the relevant general business provisions.
F – Investment income and unrealised investment
gains or losses
Investment income consists of interest, dividends and rents
receivable for the year, together with realised investment gains and
losses. Interest includes the interest rate differential on forward
foreign exchange contracts. Realised investment gains and losses
represent the difference between the net sale proceeds and the
cost of acquisition. Unrealised investment gains and losses
represent the difference between the carrying value at the year
end and the carrying value at the previous year end or purchase
value during the year.
Long-term business investment income and unrealised gains and
losses are included in the long-term business technical account
and, where applicable, a transfer is made to the non-technical
account to ensure that the return remaining in the long-term
technical account attributable to shareholders reflects the longer
term investment return.
Non-long-term business investment income and unrealised gains
and losses are taken to the non-technical account. The longer term
return on the investments owned by general business operations is
then transferred from the non-technical account to the general
business technical account. Profits and losses arising on investment
transactions with the long-term funds are included in realised
investment gains.
G – Long-term business result and fund valuations
Transfers from the long-term business technical account to the
non-technical account in respect of shareholders’ profits are
determined as a result of annual actuarial valuations, which are
based on local practice, subject to transfers to or from the fund
for future appropriations.
H – Pension costs
The Group operates defined-benefit pension schemes in a number
of countries around the world, with contributions made on a going
concern basis, as recommended by actuaries. There are also several
money purchase pension plans. Where separate pension schemes
exist, they are fully funded on a discontinuance actuarial valuation
basis. The pension costs, which are included in expenses, are
calculated using actuarial valuation methods which give a
substantially even charge over the expected service lives of
employees. The costs of other material post-retirement benefits,
also included in expenses, are charged as they accrue.
In November 2000, the Accounting Standards Board issued
Financial Reporting Standard (“FRS”) 17 Retirement Benefits,
the accounting provisions of which are not required to be adopted
by the Group until 2005. However, the FRS requires certain
disclosures to be made in the notes to the accounts, as shown in
note 45(d).
I – Tax
The shareholder tax charge in the non-technical account is
based on the taxable profits for the year, after any adjustments
in respect of prior years. Tax, including tax relief for losses if
applicable, is allocated over profits on ordinary activities and
amounts charged or credited to reserves as appropriate. In the
long-term business technical account, the charge is based on the
method of assessing tax for long-term funds applicable in the
relevant country of operation.
Accounting policies
44 Aviva plc
Annual report + accounts 2002