Aviva 2007 Annual Report Download - page 223
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Please find page 223 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
Within the Aviva group there exist intra-group arrangements to provide capital to particular business units. Included in
these arrangements is a subordinated loan of £200 million from Aviva plc to the NUL&P non-profit fund to provide capital
to support the writing of new business.
The available capital of the Group’s with-profit funds is determined in accordance with the “Realistic balance sheet”
regime prescribed by the FSA’s regulations, under which liabilities to policyholders include both declared bonuses and the
constructive obligation for future bonuses not yet declared. The available capital resources include an estimate of the value
of their respective estates, included as part of the unallocated divisible surplus. The estate represents the surplus in the
fund that is in excess of any constructive obligation to policyholders. It represents capital resources of the individual with-
profit fund to which it relates and is available to meet regulatory and other solvency requirements of the fund and, in
certain circumstances, additional liabilities may arise.
The liabilities included in the balance sheet for the with-profit funds do not include the amount representing the
shareholders’ portion of future bonuses. However, the shareholders’ portion is treated as a deduction from capital that is
available to meet regulatory requirements and is therefore shown as a separate adjustment in the capital statement.
In accordance with the FSA’s regulatory rules under its realistic capital regime, the Group is required to hold sufficient
capital in its UK life with-profit funds to meet the FSA capital requirements, based on the risk capital margin (RCM).
The determination of the RCM depends on various actuarial and other assumptions about potential changes in market
prices, and the actions management would take in the event of particular adverse changes in market conditions.
The table below provides the information on the UK with-profits funds on a realistic basis.
31 December 31 December
2007 2006
Estimated Estimated
Estimated Estimated realistic risk
realistic realistic inherited capital Estimated
assets liabilities estate margin excess Excess
£bn £bn1£bn2£bn3£bn £bn
CGNU Life 14.5 (13.1) 1.4 (0.3) 1.1 2.0
CULAC 13.9 (12.7) 1.2 (0.4) 0.8 2.0
NUL&P426.1 (24.2) 1.9 (0.6) 1.3 1.2
Aggregate 54.5 (50.0) 4.5 (1.3) 3.2 5.2
1. These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision included
within realistic liabilities is £0.7 billion, £0.8 billion and £3.0 billion for CGNU Life, CULAC and NUL&P, respectively (31 December 2006: £0.5 billion,
£0.7 billion and £3.0 billion for CGNU Life, CULAC and NUL&P respectively).
2. Estimated realistic inherited estate at 31 December 2006 was £2.5 billion, £2.5 billion and £1.8 billion for CGNU Life, CULAC and NUL&P respectively.
3. The risk capital margin (RCM) is 3.5 times covered by the inherited estate (31 December 2006: 4.2 times).
4. The NUL&P fund includes the Provident Mutual (PM) fund, which has realistic assets and liabilities of £2.1 billion and therefore does not impact the realistic
inherited estate.
Under the FSA regulatory regime, UK with-profit funds is required to hold capital equivalent to the greater of their
regulatory requirement based on EU Directive (“regulatory peak”) and the FSA realistic basis (“realistic peak”) described
above.
For UK non-participating business, the relevant capital requirement is the minimum solvency requirement determined in
accordance with FSA regulations. The available capital reflects the excess of regulatory basis assets over liabilities before
deduction of capital resources requirement.
For UK general insurance businesses, the relevant capital requirement is the minimum solvency requirement determined in
accordance with the FSA requirements.
For overseas business in the EEA, US, Canada, Australia, Hong Kong and Singapore, the available capital and the
minimum capital requirement are calculated under the locally applicable regulatory regimes. The businesses outside these
territories are subject to the FSA rules for the purposes of calculation of available capital and capital resource requirement.
For fund management and other businesses, the relevant capital requirement is the minimum solvency requirement
determined in accordance with the local regulator’s requirements for the specific class of business.
All businesses hold sufficient available capital to meet their minimum capital requirement.
The available capital resources in each regulated entity are generally subject to restrictions as to their availability to meet
requirements that may arise elsewhere in the Group. The principal restrictions are:
(i) UK with-profit funds (CGNU Life, CULAC and NUL&P) – any available surplus held in each fund can only be used
to meet the requirements of the fund itself or be distributed to policyholders and shareholders. With-profit policyholders
are entitled to at least 90% of the distributed profits while the shareholders receive the balance. The latter distribution
would be subject to a tax charge, which is met by the fund in the case of CGNU Life, CULAC and NUL&P.
(ii) UK non-participating funds – any available surplus held in these is attributable to shareholders. Capital within the
non-profit funds may be made available to meet requirements elsewhere in the Group subject to meeting the regulatory
requirements of the fund. Any transfer of the surplus may give rise to a tax charge subject to availability of tax relief
elsewhere in the Group.
Aviva plc
Annual Report and
Accounts 2007
219
Financial
statements