Aviva 2007 Annual Report Download - page 199
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42 – Effect of changes in assumptions and estimates during the year
Certain estimates and assumptions used in determining our liabilities for insurance and investment contract business were
changed from 2006 to 2007, and this affected the profit recognised for the year with an equivalent effect on liabilities.
This note analyses the effect of the changes.
This disclosure only allows for the impact on liabilities and related assets, such as reinsurance, deferred acquisition costs
and AVIF, and does not allow for offsetting movements in the value of backing financial assets.
Effect Effect
on profit on profit
2007 2006
£m £m
Assumptions
Long-term insurance business
Interest rates 850 947
Expenses (13) 16
Persistency rates (2) 45
Mortality for assurance contracts 16 25
Mortality for annuity contracts 11 60
Tax and other assumptions 60 (17)
Investment contracts
Interest rates 12 23
Expenses 587
Persistency rates –2
Tax and other assumptions 7(4)
General insurance and health business
Change in loss ratio assumptions –(2)
Change in discount rate assumptions 3–
Change in expense ratio assumptions (4) –
Total 945 1,182
The impact of interest rates for long-term business relates primarily to the UK and the Netherlands. This results from the
use of higher valuation interest rates for the UK annuities and Dutch traditional business, reflecting the rise in market
interest rates over the year. The mortality impacts relate to assumption changes in the UK. The impact on existing business
of applying FSA Policy Statement 06/14, Prudential Changes for Insurers, in 2007 is £60 million, relating to UK income
protection business. This is reflected in reductions in insurance contract liabilities of £60 million (see note 38(b)). The impact
on new business in 2007 is £4 million, giving a total increase in pre-tax profit for the year of £64 million.
43 – Unallocated divisible surplus
An unallocated divisible surplus is established where the nature of policy benefits is such that the division between
shareholder reserves and policyholder liabilities is uncertain. This note shows the movements in this surplus during
the year.
The following movements have occurred in the year:
2007 2006
£m £m
Carrying amount at 1 January 9,465 8,978
Change in participating contract assets 2,463 8,614
Change in participating contract liabilities (3,244) (7,640)
Impact of change in management policy –(286)
Transfer in respect of pension scheme deficit funding (note 46c(i)) –(130)
Effect of special bonus to with-profit policyholders (note 59) (2,127) –
Other movements (14) –
Change in liability recognised as an expense (2,922) 558
Effect of portfolio transfers, acquisitions and disposals 3–
Movement in respect of change in pension scheme deficit (note 46c(i)) 61 30
Foreign exchange rate movements 173 (101)
Other movements 5–
Carrying amount at 31 December 6,785 9,465
Aviva plc
Annual Report and
Accounts 2007
195
Financial
statements