Aviva 2007 Annual Report Download - page 266
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Please find page 266 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.Principal economic assumptions continued
Ireland Italy
2007 2006 2005 2007 2006 2005
Risk discount rate 7.1% 6.7% 6.0% 7.1% 6.7% 6.0%
Pre-tax investment returns:
Base government fixed interest 4.4% 4.0% 3.3% 4.4% 4.0% 3.3%
Ordinary shares 7.4% 7.0% 6.3% 7.4% 7.0% 6.3%
Property 6.4% 6.0% 5.3% 6.4% 6.0% 5.3%
Future expense inflation 4.0% 4.0% 4.0% 2.5% 2.5% 2.5%
Tax rate 12.5% 12.5% 12.5% 32.4% 38.3% 38.3%
Required Capital (% EU minimum) 150% 150% 150% 115% 115% 115%
Netherlands Poland
2007 2006 2005 2007 2006 2005
Risk discount rate 7.1% 6.7% 6.0% 9.4% 8.7% 8.6%
Pre-tax investment returns:
Base government fixed interest 4.4% 4.0% 3.3% 5.7% 5.0% 4.9%
Ordinary shares 7.4% 7.0% 6.3% 8.7% 8.0% 7.9%
Property 6.4% 6.0% 5.3% n/a n/a n/a
Future expense inflation 2.5% 2.5% 2.5% 4.1% 3.4% 3.3%
Tax rate 25.5% 25.5% 29.1% 19.0% 19.0% 19.0%
Required Capital (% EU minimum) 150% 150% 150% 150% 150% 150%
Spain United States
2007 2006 2005 2007 2006* 2005
Risk discount rate 7.1% 6.7% 6.0% 6.7% 7.4% 7.2%
Pre-tax investment returns:
Base government fixed interest 4.4% 4.0% 3.3% 4.0% 4.7% 4.5%
Ordinary shares 7.4% 7.0% 6.3% 7.0% 7.7% n/a
Property 6.4% 6.0% 5.3% n/a n/a n/a
Future expense inflation 2.5% 2.5% 2.5% 3.0% 3.0% 3.0%
Tax rate 30.0% 30.0% 35.0% 35.0% 35.0% 35.0%
Required Capital (% EU minimum, or equivalent) 125%/ 125%/ 125%/ 250% 250% 200%
110% 110% 110%
* The principal economic assumptions used for AmerUs Group Co. at the date of acquisition were as follows: risk discount rate of 7.2%, pre-tax investment
returns of 4.6% for base government fixed interest and required capital of 250%.
For service companies, expense inflation relates to the underlying expenses rather than the fees charged to the life
company. Future returns on corporate fixed interest investments are calculated from prospective yields less an adjustment
for credit risk. Following the change made to the required capital in Norwich Union Annuity Limited, required capital in the
United Kingdom is now 100% EU minimum for all life companies. Required capital in Spain is 125% EU minimum for
Aviva Vida y Pensiones and 110% for bancassurance companies. The level of required capital for the US business is 250%
of the risk based capital, at the company action level, set by the National Association of Insurance Commissioners. The
required capital is equivalent to 5% of the insurance liabilities on a local regulatory basis which is broadly equivalent to the
required capital we hold for our main European businesses.
Other economic assumptions
Required capital relating to with-profit business is assumed to be covered by the surplus within the with-profit funds and
no effect has been attributed to shareholders. Bonus rates on participating business have been set at levels consistent with
the economic assumptions and Aviva’s medium-term bonus plans. The distribution of profit between policyholders and
shareholders within the with-profit funds assumes that the shareholder interest in conventional with-profit business in the
United Kingdom and Ireland continues at the current rate of one-ninth of the cost of bonus.
Stochastic calculations
The time value of options and guarantees calculation allows for expected management and policyholder actions
in response to varying future investment conditions. The management actions modelled include changes to asset mix
and bonus rates. Modelled policyholder actions are described under “Other assumptions”.
This section describes the models used to generate future investment simulations and gives some sample statistics for the
simulations used. Two separate models have been used, for the UK businesses and for International businesses, to better
reflect the characteristics of the businesses.
Aviva plc
Annual Report and
Accounts 2007
262
Financial
statements
Alternative method of reporting long-term business profits continued