Aviva 2007 Annual Report Download - page 161
Download and view the complete annual report
Please find page 161 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.Aviva plc
Annual Report and
Accounts 2007
157
Financial
statements
16 – Goodwill continued
(i) UK (general insurance and health)
The recoverable amount of the UK general insurance and health unit has been determined based on a value in use
calculation. The calculation uses cash flow projections based on business plans approved by management covering a three
year period and a risk adjusted discount rate of 10.17% (2006: 10.45%). Cash flows beyond that three year period have
been extrapolated using a steady 0% growth rate (2006: 3%). The recoverable amount significantly exceeds the carrying
value of the cash-generating unit including goodwill and intangible assets with indefinite useful lives and a reasonably possible
change in a key assumption will not cause the carrying value of the cash-generating unit to exceed its recoverable amount.
Key assumptions used for the calculation were:
– Budgeted operating profit represents the operating profit in the business plans, approved by management and as such
reflects the best estimate of future profits based on both historical experience and expected growth rates for the UK
general insurance industry.
– Some of the assumptions that underline the budgeted operating profit include market share, premium rate changes,
claims inflation and commission rates.
– Growth rate represents the rate used to extrapolate future cash flows beyond the business plan period and has been
based upon latest information available regarding future and past growth rates. The growth rate is considered to be
consistent with both past experience and external sources of data (ABI Annual Market Statistics).
(ii) RAC (non-insurance operations)
The recoverable amount of the RAC (non-insurance operations) has also been determined based on a value in use
calculation. The calculation uses cash flow projections based on business plans approved by management covering a three
year period and a risk adjusted discount rate of 9.98% (2006: 10.32%). Cash flows beyond that three year period have
been extrapolated using a steady 2% growth rate. The recoverable amount significantly exceeds the carrying value of the
cash generating unit including goodwill and intangible assets with indefinite useful lives and a reasonably possible change
in a key assumption will not cause the carrying value of the cash-generating unit to exceed its recoverable amount.
Key assumptions used for the calculation were:
– Budgeted operating profit represents the operating profit in the business plans, approved by management and as such
reflects the best estimate of future profits based on both historical experience and expected growth. Some of the
assumptions that underline the budgeted operating profit include market share, fee income and customer numbers.
(iii) France (long-term business)
The recoverable amount of the indefinite life intangible asset has been assessed as part of the recoverable amount of
the French long-term business cash generating unit and has been determined based on a fair value less costs to sell
calculation. The first step of the test was to compare the carrying value of the business, including indefinite life intangible
assets, to the European Embedded Value (EEV). If the EEV is less than the carrying value of the business, the present value
of profits from expected new business is considered.
The EEV of the French long term business was significantly greater than its carrying value, including indefinite life
intangible assets. A reasonably possible change in a key assumption will not cause the carrying value of the cash
generating unit to exceed its recoverable amount. Key assumptions used for the calculation were:
– Embedded value represents the shareholder interest in the life business and is calculated in accordance with the European
Embedded Value (EEV) principles. The embedded value is the total of the net worth of the life business and the value of
the in-force business. The underlying methodology and assumptions have been reviewed by the Group’s auditors.
(iv) Ireland (long-term business)
The recoverable amount of the Irish long-term business has been determined based on a fair value less costs to sell
calculation. The first step of the test was to compare the carrying value of the business, including goodwill, to the
European Embedded Value (EEV). If the EEV is less than the carrying value of the business the present value of profits from
expected new business is considered.
The EEV of the Irish long-term business is greater than its carrying value so the recoverable value will be significantly in excess
of its carrying value, including goodwill. A reasonably possible change in a key assumption will not cause the carrying value
of the cash generating unit to exceed its recoverable amount. Key assumptions used for the calculation were:
– Embedded value represents the shareholder interest in the life business and is calculated in accordance with the European
Embedded Value (EEV) principles. The embedded value is the total of the net worth of the life business and the value of
the in-force business. The underlying methodology and assumptions have been reviewed by the Group’s auditors.
(v) Ireland (general insurance and health)
The recoverable amount of the Irish general insurance and health unit has been determined based on a value in use
calculation. The calculation uses cash flow projections based on business plans approved by management covering a three
year period and a risk adjusted discount rate of 8.07% (2006: 8.07%). Cash flows beyond that three year period have
been extrapolated using a steady 4.6% growth rate (2006: 4.6%). The recoverable amount significantly exceeds the
carrying value of the cash generating unit including goodwill and a reasonably possible change in a key assumption will
not cause the carrying value of the cash generating unit to exceed its recoverable amount.