Aviva 2009 Annual Report Download - page 198

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Aviva plc Notes to the consolidated financial statements continued
Annual Report and Accounts 2009
24 – Financial investments continued
(d) Impairment of financial investments
The movements in impairment provisions on available-for-sale financial investments for the years ended 31 December 2009 and
2008 were as follows:
Fixed
maturity Equity Other
securities securities investments Total
£m £m £m £m
At 1 January 2008 (8) (227) — (235)
Increase for the year charged to the income statement (169) (661) — (830)
Other movements (11) (9) — (20)
Foreign exchange rate movement (37) (139) — (176)
At 31 December 2008 (225) (1,036) — (1,261)
Increase for the year charged to the income statement (93) (384) (5) (482)
Write back following sale or reimbursement 174 401 — 575
Foreign exchange rate movement 25 85 (2) 108
At 31 December 2009 (119) (934) (7) (1,060)
(e) Financial investment arrangements
(i) Stock lending arrangements
The Group has entered into stock lending arrangements in the UK and overseas during the year in accordance with established
market conventions. The majority of the Group’s stock lending transactions occurs in the UK, where investments are lent to EEA-
regulated, locally-domiciled counterparties and governed by agreements written under English law.
The Group receives collateral in order to reduce the credit risk of these arrangements. Collateral must be in a readily realisable
form, such as listed securities, and is held in segregated accounts. Transfer of title always occurs for collateral received, although no
market risk or economic benefit is taken. The level of collateral held is monitored regularly, with further collateral obtained where
this is considered necessary to manage the Group’s risk exposure.
In certain markets, the Group or the Group’s appointed stock lending managers obtain legal ownership of the collateral
received and can re-pledge it as collateral elsewhere or sell outright in the absence of default. The carrying amounts of financial
assets received and pledged in this manner at 31 December 2009 were £16,909 million and £703 million respectively
(2008:
£18,486 million and £322 million respectively, 2007: £23,779 million and £4 million respectively)
. The value of collateral that was
actually sold or re-pledged in the absence of default was £nil
(2008: £nil) .
In addition to the above, the Group has received and pledged cash collateral under stock lending arrangement that has been
recognised in the statement of financial position with a corresponding obligation or receivable for its return. These latter balances
are shown separately in notes 49 and 25 respectively.
(ii) Stock repurchase arrangements
Included within financial investments are £664 million (2008: £383 million, 2007: £358 million) of debt securities and other fixed
income securities which have been sold under stock repurchase arrangements. The obligations arising under these arrangements
are shown in note 49.
(iii) Other arrangements
In carrying on its bulk purchase annuity business, the Group’s UK Life operation is required to place certain investments in trust on
behalf of the policyholders. Amounts become payable from the trust funds to the trustees if the Group were to be in breach of its
payment obligations in respect of policyholder benefits. At 31 December 2009, £703 million
(2008: £474 million, 2007: £nil) of
financial investments were restricted in this way.
Certain financial investments are also required to be deposited under local laws in various overseas countries as security for the
holders of policies issued in those countries. Other investments are pledged as security collateral for bank letters of credit.