Aviva 2007 Annual Report Download - page 268
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Principal economic assumptions continued
Other assumptions
Taxation
Current tax legislation and rates have been assumed to continue unaltered, except where changes in future tax rates
have been announced.
Demographic assumptions
Assumed future mortality, morbidity and lapse rates have been derived from an analysis of Aviva’s recent operating
experience. Where appropriate, surrender and option take up rate assumptions that vary according to the investment
scenario under consideration have been used in the calculation of the time value of options and guarantees, based
on our assessment of likely policyholder behaviour in different investment scenarios.
Expense assumptions
Management expenses and operating expenses of holding companies attributed to life and related businesses have been
included in the EEV calculations and split between expenses relating to the acquisition of new business, the maintenance
of business in-force and project expenses. Future expense assumptions include an allowance for maintenance expenses
and a proportion of recurring project expenses. Certain expenses of an exceptional nature, when they occur, are identified
separately and are generally charged as incurred. No future productivity gains have been anticipated.
Where subsidiary companies provide administration, investment management or other services to businesses included in
the European Embedded Value calculations, the value of profits or losses arising from these services have been included
in the embedded value and new business contribution.
Valuation of debt
Borrowings in the EEV consolidated balance sheet are valued on an IFRS basis, consistent with the primary financial
statements. At 31 December 2007 the market value of the Group’s external debt, subordinated debt, preference
shares including General Accident plc preference shares of £250 million (classified as minority interests) and direct
capital instrument was £5,774 million (2006: £5,991 million).
2007 2006
£m £m
Borrowings per summarised consolidated balance sheet – EEV basis 12,657 12,137
Add: amount included within held for sale 12 –
Less: Securitised mortgage funding (7,295) (7,068)
Borrowings excluding non-recourse funding – EEV basis 5,374 5,069
Less: Operational financing by businesses (1,063) (874)
External debt and subordinated debt – EEV basis 4,311 4,195
Add: Preference shares (including General Accident plc) and direct capital instrument 1,440 1,440
External debt, subordinated debt, preference shares and direct capital instrument – EEV basis 5,751 5,635
Effect of marking these instruments to market 23 356
Market value of external debt, subordinated debt,
preference shares and direct capital instrument 5,774 5,991
Other
It has been assumed that there will be no changes to the methods and bases used to calculate the statutory technical
provisions and current surrender values, except where driven by varying future investment conditions under stochastic
economic scenarios.
Aviva plc
Annual Report and
Accounts 2007
264
Financial
statements
Alternative method of reporting long-term business profits continued