Aviva 2007 Annual Report Download - page 189
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Please find page 189 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
(e) Other countries
In all other countries, local generally-accepted interest rates and published standard mortality tables are used for different
categories of business as appropriate. The tables are based on relevant experience and show mortality rates, by age, for
specific groupings of people.
Movements The following movements have occurred in the long-term business provisions during the year:
2007 2006
£m £m
Carrying amount at 1 January 126,614 114,430
Provisions in respect of new business 10,470 8,750
Expected change in existing business provisions (6,280) (5,678)
Variance between actual and expected experience (877) 1,209
Effect of adjusting to PS06/14 realistic basis (60) (800)
Impact of other operating assumption changes 95 (333)
Impact of economic assumption changes (909) (1,727)
Effect of special bonus to with-profit policyholders (note 59) 1,728 –
Other movements (324) 314
Change in liability recognised as an expense 3,843 1,735
Effect of portfolio transfers, acquisitions and disposals 571 12,454
Foreign exchange rate movements 4,284 (2,005)
Carrying amount at 31 December 135,312 126,614
(c) General insurance and health liabilities
Provisions for outstanding claims
Delays occur in the notification and settlement of claims and a substantial measure of experience and judgement is
involved in assessing outstanding liabilities, the ultimate cost of which cannot be known with certainty at the balance
sheet date. The reserves for general insurance and health are based on information currently available. However, it is
inherent in the nature of the business written that the ultimate liabilities may vary as a result of subsequent developments.
Provisions for outstanding claims are established to cover the outstanding expected ultimate liability for losses and loss
adjustment expenses (LAE) in respect of all claims that have already occurred. The provisions established cover reported
claims and associated LAE, as well as claims incurred but not yet reported and associated LAE.
Outstanding claims provisions are based on undiscounted estimates of future claim payments, except for the following
classes of business for which discounted provisions are held:
Rate Mean term of liabilities
Country Class 2007 2006 2007 2006
Netherlands Permanent health and injury 3.87% 3.61% 8 years 9 years
UK Reinsured London Market business 5.00% 5.00% 8 years 8 years
The gross outstanding claims provisions before discounting were £13,439 million (2006: £12,768 million). The period of
time which will elapse before the liabilities are settled has been estimated by modelling the settlement patterns of the
underlying claims.
Assumptions
Outstanding claims provisions are estimated based on known facts at the date of estimation. Case estimates are generally
set by skilled claims technicians, applying their experience and knowledge to the circumstances of individual claims.
The ultimate cost of outstanding claims is then estimated by using a range of standard actuarial claims projection
techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. The main assumption underlying these
techniques is that a company’s past claims development experience can be used to project future claims development
and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses,
average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios.
Historical claims development is mainly analysed by accident period, although underwriting or notification period is also
used where this is considered appropriate. Claim development is separately analysed for each geographic area, as well as
by each line of business. Certain lines of business are also further analysed by claim type or type of coverage. In addition,
large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or
separately projected in order to reflect their future development.
Aviva plc
Annual Report and
Accounts 2007
185
Financial
statements