Aviva 2007 Annual Report Download - page 237
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56 – Derivative financial instruments
This note gives details of the various derivative instruments we use to mitigate risk.
The Group uses cash flow, fair value and net investment hedges to mitigate risk, as detailed below.
(a) Cash flow hedges
The Group had no cash flow hedge activity at 31 December 2007 (2006: nil).
(b) Fair value hedges
The Group had no fair value hedge activity at 31 December 2007 (2006: nil).
(c) Net investment hedges
To reduce the Group’s exposure to foreign currency risk, the Group has entered into the following net investment hedges:
– The Group has designated a portion of its Euro and US dollar denominated debt as a hedge of the net investment in
its European and American subsidiaries. The carrying value of the debt at 31 December 2007 was £1,988 million
(2006: £1,875 million) and its fair value at that date was £1,972 million (2006: £1,973 million).
The foreign exchange loss of £114 million (2006: gain £59 million) on translation of the debt to sterling at the
balance sheet date was recognised in the hedging instruments reserve in shareholders’ equity. This hedge was fully
effective throughout the current and prior year.
– The Group has entered into a Sterling/Euro cross currency swap derivative which has been designated as a hedge of
the net investment in its European subsidiaries. The notional value of the derivative at 31 December 2007 was
£1,000 million (2006: nil) and its fair value at that date was £27 million (2006: nil).
– This fair value loss of £27 million (2006: nil) on revaluation of the derivative at balance sheet date was recognised in the
hedging instruments reserve in shareholders’ equity. This hedge was fully effective since its inception in the current year.
(d) Non-hedge derivatives
The Group’s non-hedge derivative activity at 31 December 2007 was as follows:
2007 2006
Contract/ Contract/
notional Fair value Fair value notional Fair value Fair value
amount asset liability amount asset liability
£m £m £m £m £m £m
Foreign exchange contracts
OTC
Forwards 9,594 24 (106) 12,379 93 (7)
Interest and currency swaps 859 57 – 245 – (52)
Options ––––––
Total 10,453 81 (106) 12,624 93 (59)
Interest rate contracts
OTC
Forwards 3,305 15 (2) 538 9 (4)
Swaps 16,172 279 (320) 9,412 184 (264)
Options 986 251 (1) 943 239 (2)
Exchange traded
Futures 6,505 220 (37) (2,060) 74 (5)
Options 15 – – 30 – –
Total 26,983 765 (360) 8,863 506 (275)
Equity/Index contracts
OTC
Forwards –––8––
Options 12,278 267 (61) 3,705 258 (3)
Exchange traded
Futures 5,456 418 (23) 951 391 (9)
Options 473 21 (2) 93 27 (6)
Total 18,207 706 (86) 4,757 676 (18)
Other 414 57 (24) 305 50 (3)
Totals at 31 December 56,057 1,609 (576) 26,549 1,325 (355)
Aviva plc
Annual Report and
Accounts 2007
233
Financial
statements