Aviva 2006 Annual Report Download - page 244

Aviva plc
Annual Report and Accounts 2006 240Financial statements continued
Principal economic assumptions – deterministic calculations continued
2006 2005
£m£m
Borrow ings per summarised consolidated balance sheet – EEV basis 12,137 11,013
Less: Securitised mortgage funding (7,068) (6,303)
Borrowings excluding non-recourse funding – EEV basis 5,069 4,710
Less: Operational financing by businesses (874) (900)
External debt and subordinated debt – EEV basis 4,195 3,810
Add: Preference shares (including General Accident plc) and direct capital instrument 1,440 1,440
External debt, subordinated debt, preference shares and direct capital instrument – EEV basis 5,635 5,250
Effect of marking these instruments to market 356 618
M arket value of external debt, subordinated debt, preference shares and direct capital instrument 5,991 5,868
Other
It has been assumed that there will be no changes to the methods and bases used to calculate the statutory technical provisions
and current surrender values, except where driven by varying future investment conditions under stochastic economic scenarios.
Sensitivity analysis – economic assumptions
The tables below show the sensitivity of the embedded value as at 31 December 2006 and the new business contribution before
the effect of required capital for 2006 to:
–one percentage point increase and decrease in the discount rates;
–one percentage point increase and decrease in interest rates, including all consequential changes (including assumed investment returns
for all asset classes, market values of fixed interest assets, risk discount rates);
–one percentage point increase and decrease in the assumed investment returns for equity and property investments, excluding any
consequential changes to the risk discount rate;
–10% rise and fall in market value of equity and property assets (not applicable for new business contribution); and
–decrease in the level of required capital to 100% EU minimum (or equivalent) (not applicable for new business contribution).
In each sensitivity calculation, all other assumptions remain unchanged except where they are directly affected by the revised economic
conditions. For example, future bonus rates are automatically adjusted to reflect sensitivity changes to future investment returns. Some of
the sensitivity scenarios may have consequential effects on valuation bases, where the basis for certain blocks of business is actively
updated to reflect current economic circumstances. Consequential valuation impacts on the sensitivities are allowed for where an active
valuation basis is used. Where businesses have a target asset mix, the portfolio is re-balanced after a significant market movement
otherwise no re-balancing is assumed.
1% increase 1% decrease 1% increase 1% decrease
As reported in discount in discount in interest in interest
Embedded value (net of tax) on page 235 rates rates rates rates
31 December 2006 £m £m £m £m £m
France 2,291 (135) 155 (90) 85
Ireland 892 (40) 40 (30) 30
Italy 792 (20) 25 (5) (60)
Netherlands (including Belgium, Germany and Luxembourg) 3,867 (165) 195 50 (210)
Poland 719 (35) 40 (5) 5
Spain 857 (45) 50 (25) 25
Other Europe 106 (5) 5––
Continental Europe 9,524 (445) 510 (105) (125)
United States 1,478 (80) 85 (85) 85
Other 460 (15) 20 – –
Rest of the World 1,938 (95) 105 (85) 85
International 11,462 (540) 615 (190) (40)
United Kingdom 6,636 (470) 560 (310) 350
Total 18,098 (1,010) 1,175 (500) 310
Alternative method of reporting long-term business profits continued