Aviva 2007 Annual Report Download - page 123
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Please find page 123 of the 2007 Aviva annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.(L) Non-participating investment
contract liabilities
Claims
For non-participating investment contracts with an
account balance, claims reflect the excess of amounts
paid over the account balance released.
Contract liabilities
Deposits collected under non-participating investment
contracts are not accounted for through the income
statement, except for the investment income attributable
to those contracts, but are accounted for directly through
the balance sheet as an adjustment to the investment
contract liability.
The majority of the Group’s contracts classified as non-
participating investment contracts are unit-linked contracts
and are measured at fair value, to be consistent with the
value of the backing assets. Certain liabilities for non-
linked non-participating contracts are measured at
amortised cost.
The fair value liability is in principle established through
the use of prospective discounted cash-flow techniques.
For unit-linked contracts, the fair value liability is equal
to the current unit fund value, plus additional non-unit
reserves if required on a fair value basis. For non-linked
contracts, the fair value liability is equal to the present
value of expected cash flows on a market-consistent basis.
Amortised cost is calculated as the fair value of
consideration received at the date of initial recognition,
less the net effect of principal payments such as
transaction costs and front-end fees, plus or minus the
cumulative amortisation (using the effective interest rate
method) of any difference between that initial amount
and the maturity value, and less any write-down for
surrender payments. The effective interest rate is the one
that equates the discounted cash payments to the initial
amount. At each reporting date, the amortised cost
liability is determined as the value of future best estimate
cash flows discounted at the effective interest rate.
(M) Reinsurance
The Group accepts and cedes reinsurance in the normal
course of business, with retention limits varying by line of
business. Premiums on reinsurance assumed are recognised
as revenue in the same manner as they would be if the
reinsurance were considered direct business, taking into
account the product classification of the reinsured business.
The cost of reinsurance related to long-duration contracts is
accounted for over the life of the underlying reinsured
policies, using assumptions consistent with those used to
account for these policies.
Gains or losses on buying retroactive reinsurance are
recognised in the income statement immediately at the
date of purchase and are not amortised. Premiums ceded
and claims reimbursed are presented on a gross basis in
the consolidated income statement and balance sheet
as appropriate.
Reinsurance assets primarily include balances due from
both insurance and reinsurance companies for ceded
insurance liabilities. Amounts recoverable from reinsurers
are estimated in a manner consistent with the outstanding
claims provisions or settled claims associated with the
reinsured policies and in accordance with the relevant
reinsurance contract.
Reinsurance contracts that principally transfer financial
risk are accounted for directly through the balance sheet
and are not included in reinsurance assets or liabilities.
A deposit asset or liability is recognised, based on the
consideration paid or received less any explicitly identified
premiums or fees to be retained by the reinsured.
If a reinsurance asset is impaired, the Group reduces the
carrying amount accordingly and recognises that
impairment loss in the income statement. A reinsurance
asset is impaired if there is objective evidence, as a result
of an event that occurred after initial recognition of the
reinsurance asset, that the Group may not receive all
amounts due to it under the terms of the contract, and
the event has a reliably measurable impact on the
amounts that the Group will receive from the reinsurer.
(N) Goodwill, AVIF and intangible assets
Goodwill
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the
net assets of the acquired subsidiary, associate or joint
venture at the date of acquisition. Goodwill on acquisitions
prior to 1 January 2004 (the date of transition to IFRS) is
carried at its book value (original cost less cumulative
amortisation) on that date, less any impairment
subsequently incurred. Goodwill arising before 1 January
1998 was eliminated against reserves and has not been
reinstated. Goodwill arising on the Group’s investments
in subsidiaries since that date is shown as a separate asset,
whilst that on associates and joint ventures is included
within the carrying value of those investments.
Acquired value of in-force business (AVIF)
The present value of future profits on a portfolio of
long-term insurance and investment contracts, acquired
either directly or through the purchase of a subsidiary, is
recognised as an asset. In most cases, this is classified
as AVIF but, for non-participating investment contracts,
it is included within intangibles. If this results from the
acquisition of an investment in a joint venture or an
associate, the AVIF is held within the carrying amount
of that investment. In all cases, the AVIF is amortised over
the useful lifetime of the related contracts in the portfolio
on a systematic basis. The rate of amortisation is chosen
by considering the profile of the additional value of
in-force business acquired and the expected depletion
in its value. The value of the acquired in-force long-term
business is reviewed annually for any impairment in
value and any reductions are charged as expenses in the
income statement.
The full embedded value of the long-term business and
further details of the methodology and assumptions are
included as supplementary information on pages 247
to 267.
Aviva plc
Annual Report and
Accounts 2007
119
Financial
statements