Aviva 2009 Annual Report Download - page 248

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Aviva plc Notes to the consolidated financial statements continued
Annual Report and Accounts 2009
51 – Contingent liabilities and other risk factors continued
(f) Regulatory compliance
The Group’s insurance and investment business is subject to local regulation in each of the countries in which it operates. The FSA
regulates the Group’s UK business and in addition monitors the financial resources and organisation of the Group as a whole. The
FSA has broad powers including the authority to grant, vary the terms of, or cancel a regulated firm’s authorisation, to investigate
marketing and sales practices and to require the maintenance of adequate financial resources. The Group’s regulators outside the
UK typically have similar powers but in some cases they operate a system of “prior product approval” and hence place less
emphasis than the FSA on regulating sales and marketing practices.
The directors believe each of the Group’s regulated businesses dedicates appropriate resources to its compliance programme,
endeavours to respond to regulatory enquiries in a constructive way, and takes corrective action when warranted. However, all
regulated financial services companies face the risk that their regulator could find that they have failed to comply with applicable
regulations or have not undertaken corrective action as required.
The impact of any such finding (whether in the UK or overseas) could have a negative impact on the Group’s reported results
or on its relations with current and potential customers. Regulatory action against a member of the Group could result in adverse
publicity for, or negative perceptions regarding, the Group, or could have a material adverse effect on the business of the Group,
its results of operations and/or financial condition and divert management’s attention from the day-to-day management of
the business.
(g) Aviva USA litigation
In November 2006, the Group completed the acquisition of the AmerUs Group, a US-based insurer. In common with other
companies operating in the sector, AmerUs is subject to litigation, including class-action litigation, arising out of its sale of equity-
based index-linked annuity products. The Group is aware of a multi-district class action filed against AmerUs in Pennsylvania but is
not aware of any adverse development. The directors continue to monitor the situation and consider that the litigation will not
have a material effect on the Group’s ability to meet shareholder expectations.
(h) Payment protection insurance (PPI) mis-selling
In September 2009, the FSA launched an investigation into sales practices for payment protection insurance. As at 3 March 2010,
no ruling has been issued by the FSA and, as a result, it is not possible to determine whether, and if so to what extent, any liability
exists. The directors continue to monitor the situation.
(i) Structured settlements
In Canada annuities have been purchased from licensed Canadian life insurers to provide for fixed and recurring payments to
claimants. As a result of these arrangements, the Group is exposed to credit risk to the extent that any of the life insurers fail to
fulfil their obligations. The Group's maximum exposure to credit risk for these arrangements is approximately £984 million as at
31 December 2009
(2008: £1,029 million, 2007: £742 million) based on estimated replacement cost for the underlying annuities.
The credit risk is managed by acquiring annuities from a diverse portfolio of life insurers with proven financial stability. The risk is
reduced to the extent of coverage provided by Assuris, the Canadian life insurance industry compensation plan. As at 31 December
2009, no information has come to the Group's attention that would suggest any weakness or failure in the Canadian life insurers
from which it has purchased annuities.
(j) Other
In the course of conducting insurance and investment business, various Group companies receive liability claims, and become
involved in actual or threatened related litigation. In the opinion of the directors, adequate provisions have been established
for such claims and no material loss will arise in this respect.
The Company and several of its subsidiaries have guaranteed the overdrafts and borrowings of certain other Group
companies. At 31 December 2009, the total exposure of the Group and Company is £nil
(2008: £nil, 2007: £7 million) and
£77 million
(2008: £88 million, 2007: £113 million) respectively and, in the opinion of the directors, no material loss will arise
in respect of these guarantees and indemnities.
In addition, in line with standard business practice, various Group companies have been given guarantees, indemnities and
warranties in connection with disposals in recent years of subsidiaries and associates to parties outside the Aviva Group. In the
opinion of the directors, no material loss will arise in respect of these guarantees, indemnities and warranties.
The Group’s insurance subsidiaries pay contributions to levy schemes in several countries in which we operate. Given the
economic environment, there is a heightened risk that the levy contributions will need to be increased to protect policyholders
if an insurance company falls into financial difficulties. The directors continue to monitor the situation but are not aware of any
need to increase provisions at the statement of financial position date.