Aviva 2009 Annual Report Download - page 236

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Aviva plc Notes to the consolidated financial statements continued
Annual Report and Accounts 2009
47 – Pension obligations continued
(v) Experience gains and losses
The following disclosures of experience gains and losses give a five year history. Scheme assets exclude insurance policies with
Group companies and income on the assets underlying them.
2009 2008 2007 2006 2005
£m £m £m £m £m
Fair value of scheme assets at the end of the year 8,754 7,936 8,814 8,137 7,334
Present value of scheme liabilities at the end of the year (11,812) (9,951) (10,017) (10,196) (9,680)
Net deficits in the schemes (3,058) (2,015) (1,203) (2,059) (2,346)
Difference between the expected and actual return
on scheme assets
Amount of gains/(losses) 561 (1,893) (138) 251 798
Percentage of the scheme assets at the end of the year 6.4% 23.8% 1.6% 3.1% 10.9%
Experience gains/(losses) on scheme liabilities
(excluding changes in assumptions)
Amount of gains/(losses) 77 105 (80) 63 (86)
Percentage of the present value of scheme liabilities 0.7% 1.1% 0.8% 0.6% 0.9%
(vi) Risk management and asset allocation strategy
As noted above, the long-term investment objectives of the trustees and the employers are to limit the risk of the assets failing to
meet the liabilities of the schemes over the long term, and to maximise returns consistent with an acceptable level of risk so as to
control the long-term costs of these schemes. To meet these objectives, each scheme’s assets are invested in a diversified portfolio,
consisting primarily of equity and debt securities. These reflect the current long-term asset allocation ranges chosen, having regard
to the structure of liabilities within the schemes.
Main UK scheme
Both the Group and the trustees regularly review the asset/liability management of the main UK scheme. It is fully understood that,
whilst the current asset mix is designed to produce appropriate long-term returns, this introduces a material risk of volatility in the
scheme’s surplus or deficit of assets compared with its liabilities.
The principal asset risks to which the scheme is exposed are:
Equity market risk – the effect of equity market falls on the value of plan assets.
Inflation risk – the effect of inflation rising faster than expected on the value of the plan liabilities.
Interest rate risk – falling interest rates leading to an increase in liabilities significantly exceeding the increase in the value of assets.
There is also an exposure to currency risk where assets are not denominated in the same currency as the liabilities. The majority of
this exposure has been removed by the use of hedging instruments.
In addition, the trustees have taken measures to partially mitigate inflation and interest rate risks, including entering into
inflation and interest rate swaps to hedge approximately one third of the scheme’s exposure to these risks.
Other schemes
The other schemes are considerably less material but their risks are managed in a similar way to those in the main UK scheme.