Aviva 2007 Annual Report Download - page 206
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Please find page 206 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.46 – Pension obligations continued
(vi) Risk management and asset allocation strategy
As noted above, the long-term investment objectives of the trustees and the employers are to limit the risk of the assets
failing to meet the liabilities of the schemes over the long term, and to maximise returns consistent with an acceptable
level of risk so as to control the long-term costs of these schemes. To meet these objectives, each scheme’s assets are
invested in a diversified portfolio, consisting primarily of equity and debt securities. These reflect the current long-term
asset allocation ranges chosen, having regard to the structure of liabilities within the schemes.
Main UK scheme
Both the Group and the trustees regularly review the asset/liability management of the main UK scheme. It is fully
understood that, whilst the current asset mix is designed to produce appropriate long-term returns, this introduces a
material risk of volatility in the scheme’s surplus or deficit of assets compared with its liabilities.
The principal asset risks to which the scheme is exposed are:
Equity market risk – the effect of equity market falls on the value of plan assets.
Inflation risk – the effect of inflation rising faster than expected on the value of the plan liabilities.
Interest rate risk – falling interest rates leading to an increase in liabilities significantly exceeding the increase in the value
of assets.
During 2007, there has been a reduction in the proportion of assets invested in equities, thereby mitigating the equity
risk. There is also an exposure to currency risk where assets are not denominated in the same currency as the liabilities.
The majority of this exposure has been removed by the use of hedging instruments.
Other schemes
The other schemes are considerably less material but their risks are managed in a similar way to those in the main
UK scheme.
(vii) Balance sheet recognition
The assets and liabilities of the schemes, attributable to defined benefit members, including investments in Group
insurance policies (see footnote below), at 31 December 2007 were:
UK Netherlands Canada Ireland Total
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m £m £m
Equities 4,347 4,682 306 310 144 129 256 249 5,053 5,370
Bonds 3,059 2,046 556 498 85 75 174 163 3,874 2,782
Property 562 581 52 46 ––42 25 656 652
Other 135 318 114 80 22519 256 419
Total fair value
of assets 8,103 7,627 1,028 934 231 206 477 456 9,839 9,223
Present value of
scheme liabilities (8,229) (8,601) (1,049) (944) (289) (251) (450) (400) (10,017) (10,196)
(Deficits)/surplus in
the schemes (126) (974) (21) (10) (58) (45) 27 56 (178) (973)
The surplus in the Irish schemes of £27 million (2006: £56 million) is included in Other assets (note 26), whilst the deficits
in the other schemes of £205 million (2006: £1,029 million) are included in provisions (note 45).
Plan assets in the table above include investments in Group-managed funds in the consolidated balance sheet of
£150 million (2006: £336 million) in the UK scheme, and insurance policies of £143 million and £1,025 million
(2006: £152 million and £934 million) in the UK and Dutch schemes respectively. Where the investment and insurance
policies are in segregated funds with specific asset allocations, they are included in the appropriate line in the table above,
otherwise they appear in “Other”. Since 1 January 2007, the UK insurance policies have been considered transferable
under the terms of IAS 19. However, the Dutch insurance policies are considered non-transferable under the terms of IAS
19 and so have been treated as other obligations to staff pension schemes within provisions (see note 45).
Aviva plc
Annual Report and
Accounts 2007
202
Financial
statements
Notes to the consolidated financial statements continued