Aviva 2007 Annual Report Download - page 222
Download and view the complete annual report
Please find page 222 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.54 – Capital statement continued
Analysis of movements in capital of long-term businesses
For the year ended 31 December 2007
CGNU CULAC NUL&P Total UK life Other Total
with-profit with-profit with-profit with-profit UK life UK life Overseas life Total life
fund fund fund funds operations operations operations operations
£m £m £m £m £m £m £m £m
Available capital
resources at 1 January 2,548 2,479 1,823 6,850 1,913 8,763 9,290 18,053
Effect of new business (54) (38) – (92) (162) (254) (325) (579)
Expected change in
available capital resources 208 246 169 623 153 776 492 1,268
Variance between actual
and expected experience (125) (187) (201) (513) 114 (399) (598) (997)
Effect of operating
assumption changes (42) (57) 6 (93) (32) (125) (2) (127)
Effect of economic
assumption changes (165) (163) (67) (395) (13) (408) (7) (415)
Effect of changes in
management policy (1,195) (1,207) (19) (2,421) – (2,421) (1) (2,422)
Effect of changes in regulatory
requirements ––––––(337) (337)
Transfers, acquisitions
and disposals ––––21214465
Foreign exchange movements ––––––682682
Other movements 258 133 110 501 517 1,018 (572) 446
Available capital resources
at 31 December 1,433 1,206 1,821 4,460 2,511 6,971 8,666 15,637
Further analysis of the movement in the liabilities of the long-term business can be found in notes 38 and 39.
The analysis of movements in capital provides an explanation of the movement in available capital of the Group’s life
business for the year. This analysis is intended to give an understanding of the underlying causes of the changes in the
available capital of the Group’s life business, and provides a distinction between some of the key factors affecting the
available capital.
For the UK with-profit funds, the decrease in available capital is driven by a special bonus of £2.3 billion announced on
5 February 2008, which is treated as a transfer from unallocated divisible surplus to policy liabilities. This is shown in the
changes in management policy line. Equity performance was moderate, which had a direct effect on the equity content of
the estate assets. In addition, the implied market volatility for equities has increased, which raises the assumed asset share
volatility and consequently guarantee costs have increased. The positive other movements relate mainly to methodology
and modelling changes.
The changes in management policy shown in CGNU and CULAC with-profit funds relate to the special bonus announced
on 5 February 2008.
For the Overseas life operations, the negative variance between actual and expected experience is driven mainly by the
increase in market interest rates, which has led to capital depreciation of fixed interest assets and consequential reduction
of the unallocated divisible surplus in France and other European businesses.
In aggregate, the Group has at its disposal total available capital of £16.8 billion (2006: £19.5 billion), representing the
aggregation of the solvency capital of all of our businesses. This capital is available to meet risks and regulatory
requirements set by reference to local guidance and EU directives.
After effecting the year end transfer to shareholders, the UK with-profit funds’ available capital of £4.5 billion (2006:
£6.9 billion) can only be used to provide support for UK with-profits business and is not available to cover other
shareholder risks. This is comfortably in excess of the required capital margin and, therefore, the shareholders are not
required to provide further capital support to this business.
For the remaining life and general insurance operations, the total available capital amounting to £12.3 billion (2006:
£12.6 billion) is significantly higher than the minimum requirements established by regulators and, in principle, the excess
is available to shareholders. In practice, management will hold higher levels of capital within each business operation to
provide appropriate cover for risk.
As the total available capital of £16.8 billion is arrived at on the basis of local regulatory guidance, which evaluates assets
and liabilities prudently, it understates the economic capital of the business which is considerably higher. This is a limitation
of the Group Capital Statement which, to be more meaningful, needs to evaluate available capital on an economic basis
and compare it with the risk capital required for each individual operation, after allowing for the considerable
diversification benefits that exist in our Group.
Aviva plc
Annual Report and
Accounts 2007
218
Financial
statements
Notes to the consolidated financial statements continued