Aviva 2009 Annual Report Download - page 215

213
Performance review
Aviva plc Notes to the consolidated financial statements continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
38 – Insurance liabilities continued
Provisions for outstanding claims are established to cover the outstanding expected ultimate liability for losses and loss adjustment
expenses (LAE) in respect of all claims that have already occurred. The provisions established cover reported claims and associated
LAE, as well as claims incurred but not yet reported and associated LAE.
We only establish loss reserves for losses that have already occurred. We therefore do not establish catastrophe equalisation
reserves that defer a share of income in respect of certain lines of business from years in which a catastrophe does not occur to
future periods in which catastrophes may occur. When calculating reserves, we take into account estimated future recoveries from
salvage and subrogation, and a separate asset is recorded for expected future recoveries from reinsurers after considering their
collectability.
The table below shows the split of total general insurance and health outstanding claim provisions and IBNR provisions, gross
of reinsurance, by major line of business.
As at 31 December 2009 As at 31 December 2008
Outstanding Outstanding
claim IBNR Total claim claim IBNR Total claim
provisions provisions provisions provisions provisions provisions
£m £m £m £m £m £m
Motor
Property
Liability
Creditor
Other
4,411
1,697
2,707
170
992
753
196
1,379
17
374
5,164
1,893
4,086
187
1,366
4,723
1,920
3,407
131
1,661
960
257
878
28
395
5,683
2,177
4,285
159
2,056
9,977 2,719 12,696 11,842 2,518 14,360
As at 31 December 2007
Outstanding
claim IBNR Total claim
provisions provisions provisions
£m £m £m
Motor
Property
Liability
Creditor
Other
4,428
1,598
2,953
119
1,744
951
231
551
15
351
5,379
1,829
3,504
134
2,095
10,842 2,099 12,941
(ii) Discounting
Outstanding claims provisions are based on undiscounted estimates of future claim payments, except for the following classes
of business for which discounted provisions are held:
Rate
Mean term
of liabilities
Class 2009 2008 2007 2009 2008 2007
Netherlands Permanent health and injury
Reinsured London Market business
Latent claims
3.48%
4.00%
0.82%
3.82%
3.56%
1.17%
3.87%
5.00%
4.51%
8 years
10 years
7 years
8 years
8 years
8 years
to to to
8 to 15 9 to 15 9 to 15
Structured settlements
4.84%
3.30%
3.92%
2.5%
5.21%
2.5%
years years years
35 years 35 years 35 years
Financial statements IFRS
The gross outstanding claims provision before discounting was £13,576 million (2008: £15,061 million) . The period of time which
will elapse before the liabilities are settled has been estimated by modelling the settlement patterns of the underlying claims.
The discount rate that has been applied to latent claims reserves is based on the relevant swap curve in the relevant currency
having regard to the expected settlement dates of the claims. The range of discount rates used depends on the duration of the
claims and is given in the table above. The duration of the claims span over 35 years, with the average duration being between
8 and 15 years depending on the geographical region. Any change in discount rates between the start and the end of the
accounting period is reflected below operating profit as an economic assumption change.
During 2009, we have experienced an increase in the number of bodily injury claims settled by periodic payment orders (PPOs)
or structured settlements, especially in the UK, which are reserved for on a discounted basis.
(iii) Assumptions
Outstanding claims provisions are estimated based on known facts at the date of estimation. Case estimates are generally set by
skilled claims technicians, applying their experience and knowledge to the circumstances of individual claims. Taking into account
all available information and correspondence regarding the circumstances of the claim, such as medical reports, investigations and
inspections. Claims technicians set case estimates according to documented claims department policies and specialise in setting
estimates for certain lines of business or types of claim. Claims above certain limits are referred to senior claims handlers for
authorisation.