Aviva 2007 Annual Report Download - page 193
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Please find page 193 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.39 – Liability for investment contracts
This note analyses our investment contract liabilities by type of product and describes how we calculate these liabilities
and what assumptions we have used.
(a) Carrying amount
The liability for investment contracts at 31 December comprised:
2007 2006
£m £m
Long-term business
Participating contracts 53,609 49,400
Non-participating contracts at fair value 43,608 38,081
Non-participating contracts at amortised cost 1,027 877
44,635 38,958
Total 98,244 88,358
(b) Long-term business investment liabilities
Investment contracts are those that do not transfer significant insurance risk from the contract holder to the issuer, and are
therefore treated as financial instruments under IFRS.
Many investment contracts contain a discretionary participation feature in which the contract holder has a contractual right
to receive additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts and
are measured according to the methodology and group practice for long-term business liabilities as described in note 38.
They are not measured at fair value as there is currently no agreed definition of fair valuation for discretionary participation
features under IFRS. In the absence of such a definition, it is not possible to provide a range of estimates within which
a fair value is likely to fall. The IASB has deferred consideration of participating contracts to Phase II of its insurance
contracts project.
For participating business, the discretionary participation feature is recognised separately from the guaranteed element and
is classified as a liability, referred to as unallocated distributable surplus. Guarantees on long-term investment products are
discussed in note 40.
Investment contracts that do not contain a discretionary participation feature are referred to as non-participating contracts
and the liability is measured at either fair value or amortised cost.
Most non-participating investment contracts measured at fair value are unit-linked in structure and the fair value liability
is equal to the unit reserve plus additional non-unit reserves if required on a fair value basis. For this business, a deferred
acquisition cost asset and deferred income reserve liability are recognised in respect of transaction costs and front-end fees
respectively, that relate to the provision of investment management services, and which are amortised on a systematic
basis over the contract term. The amount of the related deferred acquisition cost asset is shown in note 26 and the
deferred income liability is shown in note 49.
In the United States, funding agreements consist of one to ten year fixed rate contracts. These contracts may not be
cancelled by the holders unless there is a default under the agreement, but may be terminated by Aviva at any time.
The weighted average interest rates for fixed-rate and floating-rate funding agreements in 2007 were 5.21% and 5.15%
(2006: 5.07% and 5.55%) respectively. The funding agreements are measured at fair value equal to the present value of
contractual cash flows.
There is a small volume of annuity certain business for which the liability is measured at amortised cost using the effective
interest method.
The fair value of contract liabilities measured at amortised cost is not materially different from the amortised cost liability.
Aviva plc
Annual Report and
Accounts 2007
189
Financial
statements