Aviva 2007 Annual Report Download - page 246
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Please find page 246 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.Aviva plc
Annual Report and
Accounts 2007
242
Financial
statements
Notes to the Company financial statements continued
F – Derivative financial instruments
Non-hedge derivatives
The Company’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 –––73 – (2)
Total –––73 – (2)
G – Contingent liabilities
Details of the Company’s contingent liabilities are given in note 50(h).
H – Risk management policies
Risk management in the context of the Group is considered in note 55.
The business of the Company is managing its investments in subsidiary and joint venture operations. Its risks are
considered to be the same as those in the operations themselves and full details of the risk management policies are given
in note 55. Such investments are held by the Company at fair value in accordance with accounting policy D.
The fair values of the subsidiaries and joint venture are estimated using applicable valuation models, underpinned by the
Company’s market capitalisation. This uses a three month rolling average of the Company’s share price. Given that the key
input into the valuation model is based on an observable current share price, and therefore sensitive to movements in that
price, the valuation process is not sensitive to non-observable market assumptions. Management believes the resulting
estimated fair values recorded in the balance sheet and any changes in fair values recorded in the income statement are
reasonable, and are the most appropriate values at the balance sheet date.
Financial assets, other than investments in subsidiaries and the joint venture, largely consist of amounts due from
subsidiaries. As at the balance sheet date, these receivable amounts were neither past due nor impaired.
Financial liabilities owed by the Company as at the balance sheet date are largely in respect of borrowings (details of which
are provided in notes E and 47) and loans owed to subsidiaries. Loans owed to subsidiaries were within agreed credit
terms as at the balance sheet date.
Interest rate risk
Loans to and from subsidiaries are at either fixed or floating rates of interest, with the latter being exposed to fluctuations
in these rates. The choice of rates is designed to match the characteristics of financial investments (which are also exposed
to interest rate fluctuations) held in both the Company and the relevant subsidiary, to mitigate as far as possible each
company's net exposure.
The majority of the Company's external borrowings are at fixed rates of interest and are therefore not exposed to changes
in these rates. However, for those borrowings that are at floating rates, the Company is affected by changes in these rates.
Further details of the Company's borrowings are provided in notes E and 47.
Currency risk
The Company’s direct subsidiaries are all incorporated and operating in the UK, and therefore are not exposed to currency
risk. However, these subsidiaries are themselves exposed to foreign currency risk arising from fluctuations in exchange rates
during the course of providing insurance and asset management services around the world. The exposure of the
subsidiaries to currency risk is considered from a Group perspective in note 55.
The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in Euros
and US dollars. However, most of these borrowings have been on-lent to a subsidiary which holds financial investments in
these currencies, generating the net investment hedge described in note 56(c).