Aviva 2009 Annual Report Download - page 206

204
Aviva plc Notes to the consolidated financial statements continued
Annual Report and Accounts 2009
32 – Direct capital instrument
This note gives details of the direct capital instrument issued in November 2004.
2009 2008 2007
Notional amount £m £m £m
5.9021% £500 million direct capital instrument 500 500 500
4.7291% €700 million direct capital instrument 490 490 490
990 990 990
The euro and sterling direct capital instruments (the DCIs) were issued on 25 November 2004. They have no fixed redemption date
but the Company may, at its sole option, redeem all (but not part) of the euro and sterling DCIs at their principal amounts on
28 November 2014 and 27 July 2020 respectively, at which dates the interest rates change to variable rates, or on any respective
coupon payment date thereafter.
In addition, under certain circumstances defined in the terms and conditions of the issue, the Company may at its sole option:
— substitute at any time not less than all of the DCIs for, or vary the terms of the DCIs so that they become, Qualifying Tier 1
Securities or Qualifying Upper Tier 2 Securities;
— substitute not less than all of the DCIs for fully paid non-cumulative preference shares in the Company. These preference shares
could only be redeemed on 28 November 2014 in the case of the euro DCIs and on 27 July 2020 in the case of the sterling
DCIs, or in each case on any dividend payment date thereafter. The Company has the right to choose whether or not to pay any
dividend on the new shares, and any such dividend payment will be non-cumulative.
The Company has the option to defer coupon payments on the DCIs on any relevant payment date. Deferred coupons shall be
satisfied only in the following circumstances, all of which occur at the sole option of the Company:
— Redemption; or
— Substitution by, or variation so they become, alternative Qualifying Tier 1 Securities or Qualifying Upper Tier 2 Securities; or
— Substitution by preference shares.
No interest will accrue on any deferred coupon. Deferred coupons will be satisfied by the issue and sale of ordinary shares in the
Company at their prevailing market value, to a sum as near as practicable to (and at least equal to) the relevant deferred coupons.
In the event of any coupon deferral, the Company will not declare or pay any dividend on its ordinary or preference share capital.
33 – Merger reserve
This note analyses the movements in the merger reserve during the year.
Movements in the year comprised:
2009 2008
£m £m
Balance at 1 January 3,271 3,271
Movement in the year — —
Balance at 31 December 3,271 3,271
Prior to 1 January 2004, certain significant business combinations were accounted for using the “pooling of interests method”
(or merger accounting), which treats the merged groups as if they had been combined throughout the current and comparative
accounting periods. Merger accounting principles for these combinations gave rise to a merger reserve in the consolidated
statement of financial position, being the difference between the nominal value of new shares issued by the Parent Company
for the acquisition of the shares of the subsidiary and the subsidiary’s own share capital and share premium account.
The merger reserve is also used where more than 90% of the shares in a subsidiary are acquired and the consideration
includes the issue of new shares by the Company, thereby attracting merger relief under the Companies Act 1985 and, from
1 October 2009, the Companies Act 2006.
The balance on the reserve has arisen through the mergers of Commercial Union, General Accident and Norwich Union
companies, forming Aviva plc in 2000, together with the acquisition of RAC plc in 2005.