Aviva 2007 Annual Report Download - page 188
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Please find page 188 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.38 – Insurance liabilities continued
(b) France
The majority of provisions arise from a single premium savings product and are based on the accumulated fund value,
adjusted to maintain consistency with the value of the assets backing the policyholder liabilities. The net premium method
is used for prospective valuations, in accordance with local regulation, where the valuation assumptions depend on the
date of issue of the contract. The valuation discount rate also depends on the original duration of the contract and
mortality rates are based on industry tables.
Valuation discount rates Mortality tables used
2007 and 2006 2007 and 2006
Life assurances 1.75% to 4.5% PM60-64, TD73-77,
TD88/90, TF00-02,
TH00-02
Annuities 1.75% to 4.5% TPRV (prospective
table), TGF05,
TGH05
(c) Netherlands
On transition to IFRS, the valuation of most long-term insurance and participating investment contracts was changed from
existing methods that generally used historic assumptions to an active basis using current market interest rates. A liability
adequacy test is performed in line with IFRS requirements. Where liabilities are based on current market interest rates and
assets are valued at market value, the margin in the liability adequacy test is determined by comparison of the liabilities
with the present value of best estimate cash flows.
Valuation discount rates Mortality tables used
2007 and 2006 2007 and 2006
Life assurances Actual swap rate GBM 61-65, GMB GBM/V 76-80,
GBM 80-85, GBM/V 85-90
and GBM/V90-95
Annuities in deferment and in payment Actual swap rate GBM/V 76-80, GBM/V 85-90,
GBM/V 95-00,
Coll 1993/2003 and DIL 98, plus
further allowance for
future mortality improvement
(d) United States
For the major part of our US business, insurance liabilities are measured in accordance with US GAAP as at the date of
acquisition.
The liability for future policy benefits for traditional life insurance is computed using the net level method, based on
guaranteed interest and mortality rates as used in calculating cash surrender values. Reserve interest assumptions ranged
from 2.00% to 7.50% in 2007 (2006: 2.00% to 7.50%). The weighted average interest rate for all traditional life policy
reserves in 2007 was 4.46% (2006: 4.48%).
Future policy benefit reserves for universal life insurance, indexed life, deferred annuity products and funding agreements
are computed under a retrospective deposit method and represent policy account balances before applicable surrender
charges. The weighted average interest crediting rates for universal life products were 5.45% in 2007 (2006: 4.37%).
The range of interest crediting rates for deferred annuity products, excluding sales inducement payouts, was 2.50% to
7.00% in 2007 (2006: 2.75% to 7.00%). An additional liability is established for universal life contracts with death or
other insurance benefit features, which is determined using an equally-weighted range of scenarios with respect to
investment returns, policyholder lapses, benefit election rates, premium payout patterns and mortality. The additional
liability represents the present value of future expected benefits based on current product assumptions.
The indexed life and annuity products guarantee the return of principal to the customer, and credit interest based on
certain indices. A portion of the premium from each customer is invested in fixed income securities and is intended to
cover the minimum guaranteed value. A further portion of the premium is used to purchase call options to hedge the
growth in interest credited to the customer as a direct result of increases in the related indices. Both the call options and
the options embedded in the policy are valued at their fair value.
Deferred income reserves are established for fees charged for insurance benefit features which are assessed in a manner
that is expected to result in higher profits in earlier years, followed by lower profits or losses in subsequent years.
The excess charges are deferred and amortised using the same assumptions and factors used to amortise deferred
acquisition costs. Shadow adjustments may be made to deferred acquisition costs, acquired value of in-force business,
deferred income reserves and contract liabilities. The shadow adjustments are recognised directly in equity so that
unrealised gains or losses on investments that are recognised directly in equity affect the measurement of the liability,
or related assets, in the same way as realised gains or losses.
Aviva plc
Annual Report and
Accounts 2007
184
Financial
statements
Notes to the consolidated financial statements continued