Aviva 2009 Annual Report Download - page 253

251
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
55 – Capital statement continued
Analysis of movements in capital of long-term businesses
For the year ended 31 December 2009
Existing
CGNU CULAC Old with- New with- UKLAP Total UK Other UK Overseas
with-profit with-profit profit sub- profit sub- with-profit life with- life Total UK life life Total life
fund fund fund fund fund profit funds operations operations operations operations
£m £m £m £m £m £m £m £m £m £m
Available capital resources at 1 January restated 714 727 — — 1,247 2,688 2,823 5,511 7,181 12,692
Effect of new business (20) (36) — — (22) (78) (87) (165) (477) (642)
Expected change in available capital resources 93 94 (4) 4 139 326 35 361 (8) 353
Variance between actual and expected experience (289) (93) 23 143 158 (58) 7 (51) 3,218 3,167
Effect of operating assumption changes 60 (5) (1) — 6 60 — 60 40 100
Effect of economic assumption changes (59) 12 (15) (110) 49 (123) — (123) 45 (78)
Effect of changes in management policy 12 17 (2) (17) (2) 8 — 8 291 299
Effect of changes in regulatory requirements — — — — — — — — 191 191
Transfers, acquisitions and disposals (543) (753) 150 1,128 — (18) — (18) (66) (84)
Foreign exchange movements — — — — — — — — (587) (587)
Other movements 32 37 48 (20) 15 112 83 195 (861) (666)
Available capital resources at 31 December — — 199 1,128 1,590 2,917 2,861 5,778 8,967 14,745
Further analysis of the movement in the liabilities of the long-term business can be found in notes 38 and 39.
The analysis of movements in capital provides an explanation of the movement in available capital of the Group's life business
for the year. This analysis is intended to give an understanding of the underlying causes of changes in the available capital of the
Group's life business, and provides a distinction between some of the key factors affecting the available capital.
As detailed in note 44(b), on 1 October 2009 the with-profit funds of CGNU Life Assurance Limited (CGNU) and Commercial
Union Life Assurance Company Limited (CULAC) were reorganised. This reorganisation was 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 Old With-Profit Sub-Fund (OWPSF). The inherited estate has not been reattributed and remains in OWPSF.
Where policyholders elected to accept the reattribution their policies have been transferred to 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.
The negative shareholders’ funds balance within the UK with-profit funds arises in NWPSF as a result of regulatory valuation
and admissibility differences in the reattributed estate which is valued on a realistic regulatory basis compared to the disclosure
on an IFRS basis.
NWPSF is fully supported by the reattributed estate of £1,177 million, known as the Reattribution Inherited Estate External
Support Accounts (RIEESA), at 31 December 2009, held within NPSF1 (a non-profit fund within UKLAP included within other UK
life operations), in the form of a capital support arrangement. This support arrangement will provide capital to NWPSF to ensure
that the value of assets of NWPSF are at least equal to the value of liabilities calculated on a realistic regulatory basis therefore it
forms part of the NWPSF available capital resources.
For UKLAP/RIEESA, equity market performance has had little impact, as the funds mitigate materially all of the equity risk of
the estate/RIEESA through internal hedging.
Commercial property returns have been negative, and this has had adverse impact, less so in UKLAP WP as the risk had been
partially hedged. However, credit risk is largely unhedged, and the reduction in spreads on corporate bonds through 2009
contributed to increases in the estate/RIEESA. Stabilisation in financial markets saw implied volatility reduce significantly through
2009, from near 35% at start of year to 25% at year end. This has significantly reduced the market consistent cost of guarantees
and hence increased estate/RIEESA.
For the Overseas life operations, the positive variance between actual and expected experience is driven mainly by market
movements which has led to capital appreciation of fixed interest assets and consequential increase of the unallocated divisible
surplus in France and other European businesses.
In aggregate, the Group has at its disposal total available capital of £17.1 billion
(2008 restated: £13.7 billion) , representing
the aggregation of the solvency capital of all of our businesses.
This capital is available to meet risks and regulatory requirements set by reference to local guidance and EU directives.
After effecting the year end transfers to shareholders, the UK with-profit funds' have available capital of £2.9 billion
(2008:
£2.7 billion)
(including amounts held in RIEESA). Subject to certain conditions, the RIEESA capital can be used to write new
non-profit business, but the primary purpose of this capital is to provide support for the UK with-profit business. The capital is
comfortably in excess of the required capital margin, and therefore the shareholders are not required to provide further support.
For the remaining life and general insurance operations, the total available capital amounting to £14.2 billion (2008 restated:
£11.0 billion) is significantly higher than the minimum requirements established by regulators and, in principle, the excess is
available to shareholders. In practice, management will hold higher levels of capital within each business operation to provide
appropriate cover for risk.
Financial statements IFRS