Aviva 2007 Annual Report Download - page 236
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Please find page 236 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.55 – Risk management continued
Fund management and non-insurance business
Sensitivities as at 31 December 2007
Impact on profit before tax (£m)
Interest Interest Equity/ Equity/
rates rates property property
+1% –1% +10% –10%
Total (35) 35 55 (55)
Impact before tax on shareholders’ equity (£m)
Interest Interest Equity/ Equity/
rates rates property property
+1% –1% +10% –10%
Total (35) 35 55 (55)
Sensitivities as at 31 December 2006
Impact on profit before tax (£m)
Interest Interest Equity/ Equity/
rates rates property property
+1% –1% +10% –10%
Total (26) 26 44 (44)
Impact before tax on shareholders’ equity (£m)
Interest Interest Equity/ Equity/
rates rates property property
+1% –1% +10% –10%
Total (52) 51 78 (78)
Limitations of sensitivity analysis
The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged.
In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities
are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.
The sensitivity analyses do not take into consideration that the Group’s assets and liabilities are actively managed.
Additionally, the financial position of the Group may vary at the time that any actual market movement occurs.
For example, the Group’s financial risk management strategy aims to manage the exposure to market fluctuations.
As investment markets move past various trigger levels, management actions could include selling investments, changing
investment portfolio allocation, adjusting bonuses credited to policyholders, and taking other protective action.
A number of the business units use passive assumptions to calculate their long-term business liabilities. Consequently, the
actual impact of a change in the assumptions may not have any impact on the liabilities, whereas assets are held at market
value on the balance sheet. In these circumstances, the different measurement bases for liabilities and assets may lead to
volatility in shareholder equity. Similarly, for general insurance liabilities, the interest rate sensitivities only affect profit and
equity where explicit assumptions are made regarding interest (discount) rates or future inflation.
Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate
potential risk that only represent the Group’s view of possible near-term market changes that cannot be predicted with any
certainty; and the assumption that all interest rates move in an identical fashion.
Sensitivity of fair values not derived from market information.
Assets are held at fair value in accordance with the relevant accounting policy. The majority of such assets are valued based
on quoted market information or observable market data.
A small percentage (less than 1%) of total assets recorded at fair value, are based on estimates. Where estimates are used,
these are based on a combination of independent third party evidence and internally developed models, calibrated to
market observable data where possible. Whilst such valuations are sensitive to estimates, it is believed that changing one
or more of the assumptions to reasonably possible alternative assumptions would not change the fair value significantly.
Aviva plc
Annual Report and
Accounts 2007
232
Financial
statements
Notes to the consolidated financial statements continued