Aviva 2007 Annual Report Download - page 215
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Please find page 215 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.50 – Contingent liabilities and other risk factors continued
(e) Endowment reviews
In December 1999, the FSA announced the findings of its review of mortgage endowments and expressed concern as to
whether, given decreases in expected future investment returns, such policies could be expected to cover full repayment of
mortgages. A key conclusion was that, on average, holders of mortgage endowments had enjoyed returns such that they
had fared at least as well as they would have done without an endowment. Nevertheless, following the FSA review, all of
the Group’s UK mortgage endowment policyholders received policy-specific letters advising them whether their investment
was on track to cover their mortgage.
In May 2002, in accordance with FSA requirements, the Group commenced sending out the second phase of endowment
policy update letters, which provide policyholders with information about the performance of their policies and advice
as to whether these show a projected shortfall at maturity. The Group will send these updates annually to all mortgage
endowment holders, in accordance with FSA requirements. The Group has made provisions totalling £96 million at 31
December 2007 (2006: £128 million) to meet potential mis-selling costs and the associated expenses of investigating
complaints. It continues to be the directors’ view that there will be no material effect either on the Group’s liability to meet
the expectations of policyholders or on shareholders.
In August 2004, the Group confirmed its intention to introduce time barring on mortgage endowment complaints,
under FSA rules. The Group now includes details of its endowment policyholders’ time bar position within the annual
re-projection mailings. Customers will be given at least 12 months individual notice before a time bar becomes applicable –
double the six months’ notice required by the FSA.
(f) Regulatory compliance
The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates.
The FSA regulates the Group’s UK business and in addition monitors the financial resources and organisation of the Group
as a whole. The FSA has broad powers including the authority to grant, vary the terms of, or cancel a regulated firm’s
authorisation, to investigate marketing and sales practices and to require the maintenance of adequate financial resources.
The Group’s regulators outside the UK typically have similar powers but in some cases they operate a system of “prior
product approval” and hence place less emphasis than the FSA on regulating sales and marketing practices.
The directors believe each of the Group’s regulated businesses dedicates appropriate resources to its compliance
programme, endeavours to respond to regulatory enquiries in a constructive way, and takes corrective action when
warranted. However, all regulated financial services companies face the risk that their regulator could find that they have
failed to comply with applicable regulations or have not undertaken corrective action as required.
The impact of any such finding (whether in the UK or overseas) could have a negative impact on the Group’s reported
results or on its relations with current and potential customers. Regulatory action against a member of the Group could
result in adverse publicity for, or negative perceptions regarding, the Group, or could have a material adverse effect on the
business of the Group, its results of operations and/or financial condition and divert management’s attention from the day-
to-day management of the business.
(g) Aviva USA litigation
In November 2006, the Group completed the acquisition of the AmerUs Group, a US-based insurer. In common with
other companies operating in the sector, AmerUs is subject to litigation, including class-action litigation, arising out of its
sale of equity-based index-linked annuity products. The Group is aware of a multi-district class action filed against AmerUs
in Pennsylvania but is not aware of any adverse development. The directors continue to monitor the situation and consider
that the litigation will not have a material effect on the Group’s ability to meet shareholder expectations.
(h) Other
In the course of conducting insurance and investment business, various Group companies receive liability claims, and
become involved in actual or threatened related litigation. In the opinion of the directors, adequate provisions have been
established for such claims and no material loss will arise in this respect.
The Company and several of its subsidiaries have guaranteed the overdrafts and borrowings of certain other Group
companies. At 31 December 2007, the total exposure of the Group and Company is £7 million (2006: £7 million) and
£113 million (2006: £109 million) respectively but, in the opinion of the directors, no material loss will arise in respect of
these guarantees and indemnities.
In addition, in line with standard business practice, various Group companies have been given guarantees, indemnities and
warranties in connection with disposals in recent years of subsidiaries and associates to parties outside the Aviva Group.
In the opinion of the directors, no material loss will arise in respect of these guarantees, indemnities and warranties.
Aviva plc
Annual Report and
Accounts 2007
211
Financial
statements