Aviva 2009 Annual Report Download - page 227

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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
43 – Unallocated divisible surplus
An unallocated divisible surplus (UDS) is established where the nature of policy benefits is such that the division between
shareholder reserves and policyholder liabilities is uncertain. This note shows the movements in this surplus during the year.
The following movements have occurred in the year:
2009 2008
£m £m
Carrying amount at 1 January 2,325 6,785
Change in participating contract assets (1,314) (12,022)
Change in participating contract liabilities 3,836 7,699
Effect of special bonus to with-profit policyholders (see note 44a) (69) (89)
Effect of reattribution of inherited estate (see note 44b) (881) —
Other movements (25) (70)
Change in liability recognised as an expense 1,547 (4,482)
Effect of portfolio transfers, acquisitions and disposals (4) —
Movement in respect of change in pension scheme deficit (note 47c(i)) (24) (78)
Foreign exchange rate movements 43 88
Other movements (21) 12
Carrying amount at 31 December 3,866 2,325
In Italy, the UDS balances were £92 million negative in total at 31 December 2009
(2008: France, Italy and Spain £924 million
negative, 2007: Italy £116 million negative)
because of an accounting mismatch between participating assets carried at market
value and participating liabilities measured using local practice. In each case, the negative balance is considered to be recoverable
from margins in the existing participating business liabilities.
44 – Special bonus and reattribution of the inherited estate
This note describes the special distribution and reattribution of the inherited estate in our UK Life business.
(a) Special bonus declared by UK Life business
On 5 February 2008, the Group’s UK long-term business operation, Norwich Union Life, announced a one-off, special bonus worth
an estimated £2.3 billion, benefiting around 1.1 million with-profit policyholders in its CGNU Life and CULAC with-profit funds.
The bonus is being used to enhance policy values by around 10% in total, in three instalments, with the qualifying dates being
1 January 2008, 1 January 2009 and 1 January 2010. In accordance with the way the funds are managed, the bonus distribution
is being split on a 90/10 basis between policyholders and shareholders. £2,127 million was set aside for policyholders on 1 January
2008, and subject to market movements from that date, will be allocated over three years. Similarly, shareholders will receive
£236 million, subject to market movements, over the three year period.
As explained in accounting policies F and K, the Group’s insurance and participating investment contract liabilities are
measured in accordance with IFRS 4,
Insurance Contracts , and FRS 27, Life Assurance . The latter requires liabilities for with-profit
funds falling within the scope of the UK’s Financial Services Authority’s capital regime to be determined in accordance with this
regime, adjusted to remove the shareholders’ share of future bonuses. This required us to recognise planned discretionary bonuses
within policyholder liabilities at 31 December 2007, even if there was no constructive obligation at the time. As a result of the
announcement made above, a transfer of £2,127 million was made in 2007 from the UDS in order to increase insurance liabilities
by £1,728 million and participating investment contract liabilities by £399 million. Of the original £236 million due to shareholders,
£69 million has been transferred from the UDS in 2009
(2008: £89 million) .
(b) Impact of the reattribution of the inherited estate
On 1 October 2009 a reorganisation of the with-profit funds of CGNU Life Assurance Limited (CGNU) and Commercial Union Life
Assurance Company Limited (CULAC) was approved by the Board and became effective. The reorganisation is achieved through a
reattribution to shareholders of the inherited estates of these funds. As part of the reorganisation the two funds were merged and
transferred to Aviva Life & Pensions UK Limited (UKLAP).
Within UKLAP, two new with-profit sub-funds have been created. Policies of non-electing policyholders have been transferred
to the Old With-Profit Sub-Fund (OWPSF). The inherited estate has not been reattributed and remains in the OWPSF.
Where policyholders elected to accept the reattribution their policies have been transferred to the New With-Profit Sub-Fund
(NWPSF). The inherited estate, totalling £1,105 million at 1 October 2009, has been reattributed to a separate long-term fund
called the Non-Profit Sub-Fund 1(NPSF1), in which 100% of the surplus is attributable to shareholders.
On the effective date of 1 October 2009, the unallocated divisible surplus of NWPSF was released as it has been allocated
to shareholders. The release of this liability is included in the impact below. The reorganisation scheme has imposed certain
restrictions around release of the assets allocated to shareholders as a result of this transaction, to ensure that sufficient protection
for with-profit policyholder benefits is maintained.
Financial statements IFRS