Aviva 2009 Annual Report Download - page 135

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Performance review
Aviva plc Accounting policies continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
Memorandum of Understanding with the ASB, under which we voluntarily agreed to adopt in full the standard from 2005 in the
Group’s IFRS financial statements. FRS 27 adds to the requirements of IFRS but does not vary them in any way. The additional
requirements of FRS 27 are detailed in policy K below and in note 55.
(G) Premiums earned
Premiums on long-term insurance contracts and participating investment contracts are recognised as income when receivable,
except for investment-linked premiums which are accounted for when the corresponding liabilities are recognised. For single
premium business, this is the date from which the policy is effective. For regular premium contracts, receivables are taken at the
date when payments are due. Premiums are shown before deduction of commission and before any sales-based taxes or duties.
Where policies lapse due to non-receipt of premiums, then all the related premium income accrued but not received from the date
they are deemed to have lapsed is offset against premiums.
General insurance and health premiums written reflect business incepted during the year, and exclude any sales-based taxes
or duties. Unearned premiums are those proportions of the premiums written in a year that relate to periods of risk after the
statement of financial position date. Unearned premiums are calculated on either a daily or monthly pro rata basis. Premiums
collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience, and are
included in premiums written.
Deposits collected under investment contracts without a discretionary participating feature (non-participating contracts) are
not accounted for through the income statement, except for the fee income (covered in policy H) and the investment income
attributable to those contracts, but are accounted for directly through the statement of financial position as an adjustment to the
investment contract liability.
(H) Other investment contract fee revenue
Investment contract policyholders are charged fees for policy administration, investment management, surrenders or other contract
services. The fees may be for fixed amounts or vary with the amounts being managed, and will generally be charged as an
adjustment to the policyholder’s balance. The fees are recognised as revenue in the period in which they are collected unless they
relate to services to be provided in future periods, in which case they are deferred and recognised as the service is provided.
Initiation and other “front-end” fees (fees that are assessed against the policyholder balance as consideration for origination
of the contract) are charged on some non-participating investment and investment fund management contracts. Where the
investment contract is recorded at amortised cost, these fees are deferred and recognised over the expected term of the policy by
an adjustment to the effective yield. Where the investment contract is measured at fair value, the front-end fees that relate to the
provision of investment management services are deferred and recognised as the services are provided.
(I) Other fee and commission income
Other fee and commission income consists primarily of fund management fees, income from the RAC’s non-insurance activities,
distribution fees from mutual funds, commissions on reinsurance ceded, commission revenue from the sale of mutual fund shares,
and transfer agent fees for shareholder record keeping. Reinsurance commissions receivable are deferred in the same way as
acquisition costs, as described in policy W. All other fee and commission income is recognised as the services are provided.
(J) Net investment income
Investment income consists of dividends, interest and rents receivable for the year, movements in amortised cost on debt securities,
realised gains and losses, and unrealised gains and losses on FV investments (as defined in policy S). Dividends on equity securities
are recorded as revenue on the ex-dividend date. Interest income is recognised as it accrues, taking into account the effective yield
on the investment. It includes the interest rate differential on forward foreign exchange contracts. Rental income is recognised on
an accruals basis.
A gain or loss on a financial investment is only realised on disposal or transfer, and is the difference between the proceeds
received, net of transaction costs, and its original cost or amortised cost as appropriate.
Unrealised gains and losses, arising on investments which have not been derecognised as a result of disposal or transfer,
represent the difference between the carrying value at the year end and the carrying value at the previous year end or purchase
value during the year, less the reversal of previously recognised unrealised gains and losses in respect of disposals made during the
year. Realised gains or losses on investment property represent the difference between the net disposal proceeds and the carrying
amount of the property.
(K) Insurance and participating investment contract liabilities
Claims
Long-term business claims reflect the cost of all claims arising during the year, including claims handling costs, as well as
policyholder bonuses accrued in anticipation of bonus declarations.
General insurance and health claims incurred include all losses occurring during the year, whether reported or not, related
handling costs, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from
previous years.
Claims handling costs include internal and external costs incurred in connection with the negotiation and settlement of claims.
Internal costs include all direct expenses of the claims department and any part of the general administrative costs directly
attributable to the claims function.
Financial statements IFRS