Aviva 2009 Annual Report Download - page 125

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Performance review
Aviva plc Additional information for Shareholders continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Distribution of profits and with-profits business
For UK authorised life insurer carrying on with-profits business,
the FSA’s rules require that once an allocation of surplus in a
with-profits fund has been made to policyholders, no transfer
of assets representing any part of a subsequent surplus can be
made, to shareholders or otherwise, unless either the “relevant
minimum” (as defined in the FSA Handbook) of the surplus has
been allocated to policyholders or a statutory notification
procedure has been followed. Calculation of the relevant
minimum is based on the percentage of the relevant surplus
previously allocated to eligible policyholders.
Reporting requirements
Under the FSA Handbook, insurance companies must file with
the FSA their audited annual accounts and statements of
financial position and life insurers’ annual reports from the
actuary performing the actuarial function. There is also a
requirement to report the annual solvency position of the
insurance company’s ultimate parent.
The FSA uses the annual return to monitor the solvency
(ability to meet current and future obligations such as claims
payments to policyholders) of an insurance company. For
general insurance business, the return is also used to assess
retrospectively the adequacy of the company’s claims provisions.
The directors of an insurance company are required to sign a
certificate, which includes a statement as to whether the
company has maintained the required minimum margin of
solvency throughout the year. The directors must also certify
that the company has completed its return to the FSA properly
in accordance with the FSA’s instructions and that the directors
are satisfied that the company has complied in all material
respects with the requirements set out in the FSA Handbook.
UK winding up rules
The general insolvency laws and regulations applicable to UK
companies are modified in certain respects in relation to UK
insurance companies, where direct insurance claims will have
priority over the claims of other unsecured creditors (with the
exception of preferred creditors), including reinsurance
creditors, on a winding-up by the court or a creditors’ voluntary
winding up of the insurance company. Furthermore, instead of
making a winding-up order when an insurance company has
been proved unable to pay its debts, a UK court may, under
section 311 of FSMA, reduce the amount of one or more of
the insurance company’s contracts on terms and subject to
conditions (if any) which the court considers fit. Where an
insurance company is in financial difficulties but not in
liquidation, the Financial Services Compensation Scheme may
take measures for securing the transfer of all or part of the
business to another insurance company.
FSMA provides further protection to policyholders of
insurance companies effecting or carrying out contracts of long-
term insurance. Unless the court orders otherwise, a liquidator
must carry on the insurer’s business so far as it consists of
carrying out the insurer’s contracts of long-term insurance with
a view to it being transferred as a going concern to a person
who may lawfully carry out those contracts. In carrying on the
business, the liquidator may agree to the variation of any
contracts of insurance in existence when the winding-up order
is made, but must not effect any new contracts of insurance.
The European Union (EU)
In addition to its UK businesses Aviva is also currently active
in 14 of the 27 EU member states through wholly owned
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
subsidiary and joint venture companies. These companies are
subject to the laws and regulation of the EU member state in
which they are based. However, as progress continues towards
the creation of a single market in financial services, EU
legislation will continue to have a significant influence on the
legislative environment both in the UK and other EU markets.
The EU operates by promulgating Directives that must be
implemented into local national legislation within each EU
member country. Directives set the minimum standards for the
appropriate national legislatures to meet, but leave it up to the
legislatures to decide just how they should be implemented.
National governments are generally free to include restrictions in
their laws beyond those required by a directive but may not pass
laws that do not meet the minimum standard. Directives are
written at a fairly high level of detail and consequently
implemented in more detail at national level according to the
local legal system. Still higher levels of detail may be imposed
through the rules and regulations of national regulators. In the
case of financial services businesses these rules can be extensive.
EU financial services regulation is based on the principle of
‘home country control’ under which the home country regulator
is responsible for monitoring compliance with all applicable
regulation. For life and non-life insurance business the home
country control principle was implemented through the Third
Life and Non-Life Directives during the mid 1990’s. This regime
places the responsibility for such issues as solvency, actuarial
reserves and investment of assets as well as certain governance
issues on the home country regulator. Consequently most
companies that have been licensed to conduct insurance
business in one member state may conduct business or apply
to ‘passport’ into all other member states without having to
be separately licensed in each. The general exception is selling
activity which continues to be regulated by the state in which
the sale takes place.
Insurance group directive (IGD)
The EU has promulgated the Insurance Groups Directive
(“IGD”), which requires member states to introduce the
following measures to strengthen supervision of insurance
companies which are part of a group:
— An adjustment to the solo supervision solvency calculation
in relation to participating interest in other insurance
undertakings in order to eliminate ‘double-gearing’ (the
use of the same regulatory capital in more than one entity
of a group).
— An additional parent undertaking solvency margin
calculation analogous to the adjusted solo solvency margin
test referred to above, to be applied at the level of the
parent undertaking.
— The introduction of new solo-supervision requirements,
including rules as to internal control within the insurance
undertaking regarding the production of information
relevant to supplementary supervision, the exchange of
information within the group and the supervision of intra-
group transactions.
— Further provisions aimed at ensuring co-operation between
competent regulatory authorities of member states.
Since 31 December 2006 the group capital resources
requirement (the parent undertaking solvency calculation
mentioned above) has been a ‘hard’ test (ie it constitutes a
requirement to maintain the group capital resources, rather
than simply to make the calculation) under the FSA Handbook.
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