Aviva 2007 Annual Report Download - page 258
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Please find page 258 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.Components of life EEV return
The life EEV return comprises the following components:
– new business contribution written during the period including value added between the point of sale and end
of the period;
– the profit from existing business equal to:
– the expected return on the value of the in-force covered business at the beginning of the period,
– experience variances caused by the differences between the actual experience during the period and expected
experience based on the operating assumptions used to calculate the start of year value;
– the impact of changes in operating assumptions including risk margins;
– the expected investment return on the shareholders' net worth, based upon assumptions applying at the start
of the year;
– investment return variances caused by differences between the actual return in the period and the expected return
based on economic assumptions used to calculate the start of year value; and
– the impact of changes in economic assumptions in the period.
The life EEV operating return comprises the first three of these components and is calculated using economic assumptions
as at the start of the year and operating (demographic, expenses and tax) assumptions as at the end of the year.
2007 2006
Life EEV return £m £m
New business contribution (after the effect of required capital) 912 683
Profit from existing business
– expected return 1,266 1,011
– experience variances (16) (50)
– operating assumption changes 114 44
Expected return on shareholders’ net worth 477 345
Life EEV operating return before tax 2,753 2,033
Investment return variances (450) 319
Effect of economic assumption changes 517 671
Life EEV return before tax 2,820 3,023
Tax on operating profit (819) (630)
Tax charge on other ordinary activities (1) (295)
Life EEV return after tax 2,000 2,098
There were no separate development costs reported in these years.
New business contribution
The table below sets out the premium volumes, the contribution from and the resulting margin achieved on new business
written by the life and related businesses.
The contribution generated by new business written during the year is the present value of the projected stream
of after tax distributable profit from that business. New business contribution before tax is calculated by grossing up the
contribution after tax at the full corporation tax rate for UK business and at appropriate rates of tax for other countries.
New business contribution has been calculated using the same economic assumptions as those used to determine the
embedded value as at the start of the year and operating assumptions used to determine the embedded value as at the
end of the year, and is rolled forward to the end of the financial year. New business contribution is shown before and after
the effect of required capital, calculated on the same basis as for in-force covered business.
New business sales are expressed on two bases: annual premium equivalent (APE) and the present value of new business
premiums (PVNBP). The PVNBP calculation is equal to total single premium sales received in the year plus the discounted
value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of
sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each
product are the same as those used to calculate new business contribution, so the components of the new business
margin are on a consistent basis.
Aviva plc
Annual Report and
Accounts 2007
254
Financial
statements
Alternative method of reporting long-term business profits continued