Aviva 2007 Annual Report Download - page 190
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Please find page 190 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
In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the
assumptions used are those implicit in the historical claims development data on which the projections are based.
Additional qualitative judgement is used to assess the extent to which past trends may not apply in the future, for
example, to reflect one-off occurrences, changes in external or market factors such as public attitudes to claiming,
economic conditions, levels of claims inflation, judicial decisions and legislation, as well as internal factors such as portfolio
mix, policy conditions and claims handling procedures in order to arrive at the estimated ultimate cost of claims that
represents the likely outcome, from the range of possible outcomes, taking account of all the uncertainties involved.
Movements
The following changes have occurred in the general insurance and health claims provisions during the year:
2007 2006
£m £m
Carrying amount at 1 January 12,718 12,965
Impact of changes in assumptions 12
Claim losses and expenses incurred in the current year 8,273 7,639
Decrease in estimated claim losses and expenses incurred in prior years (937) (550)
Incurred claims losses and expenses 7,337 7,091
Less:
Payments made on claims incurred in the current year (4,408) (3,765)
Payments made on claims incurred in prior years (3,686) (3,771)
Recoveries on claim payments 315 304
Claims payments made in the year, net of recoveries (7,779) (7,232)
Other movements in the claims provisions 36 (7)
Changes in claims reserve recognised as an expense (406) (148)
Effect of portfolio transfers, acquisitions and disposals 175 207
Foreign exchange rate movements 655 (306)
Carrying amount at 31 December 13,142 12,718
The effect of changes in the main assumptions is given in note 42.
(d) Loss development tables
(i) Description of tables
The tables that follow present the development of claim payments and the estimated ultimate cost of claims for the
accident years 2001 to 2007. The upper half of the tables shows the cumulative amounts paid during successive years
related to each accident year. For example, with respect to the accident year 2002, by the end of 2007 £5,618 million had
actually been paid in settlement of claims. In addition, as reflected in the lower section of the table, the original estimated
ultimate cost of claims of £6,250 million was re-estimated to be £6,122 million at 31 December 2007. This decrease
from the original estimate is due to the combination of a number of factors. The original estimates will be increased or
decreased, as more information becomes known about the individual claims and overall claim frequency and severity.
In 2005, the year of adoption of IFRS, only five years were required to be disclosed. This is being increased in each
succeeding additional year, until ten years of information is included.
The Group aims to maintain strong reserves in respect of its non-life and health business in order to protect against
adverse future claims experience and development. As claims develop and the ultimate cost of claims become more
certain, the absence of adverse claims experience will then result in a release of reserves from earlier accident years, as
shown in the loss development tables. However, in order to maintain reserve adequacy, the Group transfers releases to
current accident year (2007) reserves where the development of claims is less mature and there is much greater
uncertainty attaching to the ultimate cost of claims. The release from prior accident year reserves during 2007 is also due
to an improvement in the estimated ultimate cost of claims.
Aviva plc
Annual Report and
Accounts 2007
186
Financial
statements
Notes to the consolidated financial statements continued