Aviva 2009 Annual Report Download - page 212

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Aviva plc Notes to the consolidated financial statements continued
Annual Report and Accounts 2009
38 – Insurance liabilities continued
Future regular bonuses
Annual bonus assumptions for 2010 have been set consistently with the year end 2009 declaration. Future annual bonus rates
reflect the principles and practices of the fund. In particular, the level is set with regard to the projected margin for final bonus and
the change from one year to the next is limited to a level consistent with past practice.
Mortality
Mortality assumptions are set with regard to recent company experience and general industry trends.
The mortality tables used in the valuation are summarised below:
Mortality table used
2008 and 2009 2007
Assurances, pure endowments and deferred annuities before vesting Nil or Axx00 adjusted Nil or AM92/AF92
Pensions business after vesting and pensions annuities in payment PCMA00/PCFA00 adjusted plus
allowance for future mortality
improvement
PCMA00/PCFA00 adjusted plus
allowance for future mortality
improvement
Non-profit business
Conventional non-profit contracts, including those written in the with-profit funds, are valued using gross premium methods which
discount projected future cash flows. The cash flows are calculated using the amount of contractual premiums payable, together
with explicit assumptions for investment returns, inflation, discount rates, mortality, morbidity, persistency and future expenses.
These assumptions vary by contract type and reflect current and expected future experience.
For unit-linked and some unitised with-profit business, the provisions are valued by adding a prospective non-unit reserve to
the bid value of units. The prospective non-unit reserve is calculated by projecting the future non-unit cash flows on the assumption
that future premiums cease, unless it is more onerous to assume that they continue. Where appropriate, allowance for persistency
is based on actual experience.
Valuation discount rate assumptions are set with regard to yields on the supporting assets and the general level of long-term
interest rates as measured by gilt yields. An explicit allowance for risk is included by restricting the yields for equities and properties
with reference to a margin over long-term interest rates or by making an explicit deduction from the yields on corporate bonds,
mortgages and deposits, based on historical default experience of each asset class. A further margin for risk is then deducted for all
asset classes.
The provisions held in respect of guaranteed annuity options are a prudent assessment of the additional liability incurred under
the option on a basis and method consistent with that used to value basic policy liabilities, and includes a prudent assessment of
the proportion of policyholders who will choose to exercise the option.
Valuation discount rates for business in the non-profit funds are as follows:
Valuation discount rates
2009 2008 2007
Assurances
Life conventional non-profit 3.0% to 3.8% 2.7% to 3.4% 3.1% to 3.9%
Pensions conventional non-profit 3.8% to 4.0% 3.4% to 3.6% 3.9% to 4.1%
Deferred annuities
Non-profit – in deferment 4.2% 3.8% 4.3%
Non-profit – in payment 3.8% to 4.0% 3.4% to 3.6% 3.9% to 4.1%
Annuities in payment
Conventional annuity 4.2% to 5.7% 3.8% to 5.4% 4.3% to 5.2%
Non-unit reserves
Life 3.3% 3.0% 3.4%
Pensions 4.1% 3.7% 4.2%