Aviva 2009 Annual Report Download - page 273

271
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
57 – Derivative financial instruments continued
(ii) Fair value hedges
The Group has entered into a number of interest rate swaps in order to hedge fluctuations in the fair value of part of its portfolio
of mortgage loans and debt securities in the Netherlands and the United States. The notional value of these interest rate swaps
was £3,060 million at 31 December 2009
(2008: £1,088 million, 2007: £nil) and their fair value was £184 million liability (2008:
£86 million liability, 2007: £nil)
. These hedges were fully effective during the year.
(iii) Net investment hedges
To reduce its exposure to foreign currency risk, the Group has entered into the following net investment hedges:
— The Group has designated a portion of its Euro and US dollar denominated debt as a hedge of the net investment in its
European and American subsidiaries. The carrying value of the debt at 31 December 2009 was £2,806 million
(2008: £2,914
million, 2007: £1,988 million)
and its fair value at that date was £2,709 million (2008: £1,962 million, 2007: £1,972 million) .
— The foreign exchange gain of £255 million
(2008: loss of £716 million) on translation of the debt to sterling at the statement
of financial position date has been recognised in the hedging instruments reserve in shareholders’ equity. This hedge was fully
effective throughout the current and prior years.
— The Group holds a Sterling/Euro cross currency swap derivative, which has been designated as a hedge of the net investment
in its European subsidiaries. The notional value of the derivative at 31 December 2009 was £500 million
(2008: £500 million,
2007: £1,000 million)
and its fair value at that date was £120 million liability (2008: £185 million liability, 2007: £27 million
liability)
. During 2008, the Group reduced the size of the notional amount from £1 billion to £500 million, realising a loss of
£164 million in closing out this part of the hedge. The fair value gain during 2009 was £65 million
(2008: £158 million loss;
2007: £27 million loss)
on revaluation of the derivative which was recognised in other comprehensive income and the hedging
instrument reserve in shareholders’ equity. This hedge was fully effective throughout the year.
The losses on the Group’s net investment hedges during the year were more than offset by gains on the relevant subsidiaries which
are recognised in the currency translation reserve (see note 34).
(b) Non-hedge derivatives
Non-hedge derivatives either do not qualify for hedge accounting under IAS 39 or the option to hedge account has not been taken.
(i) The Group’s non-hedge derivative activity at 31 December 2009 was as follows:
2009 2008
Contract/
notional
amount
£m
Fair value
asset
£m
Fair value
liability
£m
Contract/
notional
amount
£m
Fair value
asset
£m
Fair value
liability
£m
Foreign exchange contracts
OTC
Forwards
Interest and currency swaps
6,091
1,408
17
41
(53)
(53)
6,164
1,235
89
3
(340)
(255)
Total 7,499 58 (106) 7,399 92 (595)
Interest rate contracts
OTC
Forwards 1,043 5 — 3,008 17 (11)
Swaps 26,718 297 (839) 20,246 482 (909)
Options 10,637 432 (4) 9,309 920 —
Exchange traded
Futures 5,542 404 (38) 6,067 615 (15)
Options 1,066 28 — — — —
Total 45,006 1,166 (881) 38,630 2,034 (935)
Equity/Index contracts
OTC
Forwards 863 71 — — — —
Options 14,571 663 (243) 11,619 470 (39)
Exchange traded
Futures 7,417 63 (534) 2,859 45 (68)
Options 2,688 19 (2) 4,513 189 (51)
Total 25,539 816 (779) 18,991 704 (158)
Other 1,155 37 (29) 771 80 (65)
Totals at 31 December 79,199 2,077 (1,795) 65,791 2,910 (1,753)
Financial statements IFRS