Aviva 2009 Annual Report Download - page 128

126
Aviva plc Additional information for Shareholders continued
Annual Report and Accounts 2009
Risk-based capital
The NAIC has developed risk-based capital standards for life
insurance companies as well as a model act for state legislatures
to enact. The model act requires that life insurance companies
report on a formula-based, risk-based capital standard that they
calculate by applying factors to various asset, premium and
reserve items. The formula takes into account the risk
characteristics of a company, including asset risk, insurance risk,
interest rate risk and business risk. The NAIC designed the
formula as an early warning tool to identify potentially
inadequately capitalised companies for purposes of initiating
regulatory action. The model act imposes broad confidentiality
requirements on those engaged in the insurance business
(including insurers, agents, brokers and others) and on state
insurance departments as to the use and publication of risk-
based capital data.
Any state adopting the model act gives the state insurance
commissioner explicit regulatory authority to require various
actions by, or take various actions against, insurance companies
whose adjusted capital does not meet minimum risk-based
capital standards. The Iowa Insurance Commissioner takes into
account the NAIC’s risk-based capital standards to determine
adequate compliance with Iowa insurance law.
Effective 31 December 2005, the NAIC implemented new
requirements, referred to as C-3 Phase II, for calculating risk
based capital in connection with variable annuity products with
death and living benefit guarantees. These changes did not have
a material effect on our US operations, and at 31 December
2008, the Company’s total adjusted capital under the NAIC’s
definition substantially exceeded Iowa standards.
Canada
We write property and casualty business in Canada via a
number of wholly owned companies.
Insurance business in Canada is regulated federally by the
Office of the Superintendent of Financial Institutions (OSFI) with
the focus very much on prudential supervision, ie capital
adequacy, solvency etc. OSFI derives its powers from the federal
Insurance Companies Act (Canada) which governs the structure
and operation of federally incorporated insurance companies.
The capital adequacy of insurance companies is monitored
under the Minimum Capital Test (MCT) – a risk based
framework allowing for capital to be assessed on the basis of
an individual company’s risk profile taking account of the
investments held and insurance business being written.
Companies have their own internal MCT target as well as being
expected to maintain capital in excess of 150% of the OSFI
minimum requirement.
There are also 10 individual provincial regulators each
regulating predominantly conduct of business issues such as
policy terms and conditions, pricing and underwriting of
companies they have licensed to write business in the province.
Asia Pacific
We operate within the Asia Pacific region through a network
of subsidiary companies either wholly owned or established as
a joint venture with a local partner. Our business in the region
is predominately long-term and savings business, with small
general insurance and health operations.
There are wholly owned businesses in Singapore and Hong
Kong. Aviva operates in China, India, Malaysia, Sri Lanka,
Taiwan and Korea which, depending on the nature and extent
of the control we are able to exert, are either accounted for as
subsidiaries, joint ventures or associates.
The Asia Pacific region is made up of a number of widely
differing and independent markets. The markets tend to be
at different stages in their development but each has its own
regulatory structures and Aviva fully complies with the local
regulation in each of the countries in which it operates.
Industry regulation across the region typically focuses on
financial stability, ie minimum capital and the basis for
calculating solvency, reserves and policyholder liability. In many
of the markets across the region Regulators have the power to
revoke operating licences, regulate shareholder structures and
the participation in and the payment of dividends. Markets
within the region are moving quickly to modernise insurance
regulation with an increasing focus on governance and conduct
of business.
Intellectual property
Our primary brands in the UK (Aviva, Norwich Union, RAC) are
registered trade marks in the UK and elsewhere.
We own approximately 300 registered or pending marks in
the UK, including Community trade marks having effect in the
entire EU.
We have an active programme of review of marks and
watching for infringements. There are no material infringements
in the UK known to us as at the date of this report, either by the
Group or third parties.