Aviva 2009 Annual Report Download - page 283

281
Performance review
Aviva plc Notes to the Company’s financial statements continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
H – Risk management
Risk management in the context of the Group is considered in the Group consolidated financial statements, note 56.
The business of the Company is managing its investments in subsidiary and joint venture operations. Its risks are considered
to be the same as those in the operations themselves and full details of the risk management policies are given in the Group
consolidated financial statements, note 56. Such investments are held by the Company at fair value in accordance with accounting
policy D.
The fair values of the subsidiaries and joint venture are estimated using applicable valuation models, underpinned by the
Company’s market capitalisation. This uses a three month rolling average of the Company’s share price. Given that the key input
into the valuation model is based on an observable current share price, and therefore sensitive to movements in that price, the
valuation process is not sensitive to non-observable market assumptions. Management believes the resulting estimated fair values
recorded in the balance sheet and any changes in fair values recorded in the income statement are reasonable, and are the most
appropriate values at the balance sheet date.
Financial assets, other than investments in subsidiaries and the joint venture, largely consist of amounts due from subsidiaries.
As at the balance sheet date, these receivable amounts were neither past due nor impaired.
Financial liabilities owed by the Company as at the balance sheet date are largely in respect of borrowings (details of which
are provided in note F and the Group consolidated financial statements, note 48) and loans owed to subsidiaries. Loans owed to
subsidiaries were within agreed credit terms as at the balance sheet date.
Interest rate risk
Loans to and from subsidiaries are at either fixed or floating rates of interest, with the latter being exposed to fluctuations in these
rates. The choice of rates is designed to match the characteristics of financial investments (which are also exposed to interest rate
fluctuations) held in both the Company and the relevant subsidiary, to mitigate as far as possible each company’s net exposure.
The majority of the Company’s external borrowings are at fixed rates of interest and are therefore not exposed to changes in
these rates. However, for those borrowings that are at floating rates, the Company is affected by changes in these rates. Further
details of the Company's borrowings are provided in note F and the Group consolidated financial statements, note 48.
Currency risk
The Company’s direct subsidiaries are all incorporated and operating in the UK, and therefore are not exposed to currency risk.
However, these subsidiaries are themselves exposed to foreign currency risk arising from fluctuations in exchange rates during the
course of providing insurance and asset management services around the world. The exposure of the subsidiaries to currency risk
is considered from a Group perspective in the Group consolidated financial statements, note 56.
The Company faces exposure to foreign currency risk through some of its borrowings which are denominated in euros and US
dollars. However, most of these borrowings have been on-lent to a subsidiary which holds financial investments in these currencies,
generating the net investment hedge described in the Group consolidated financial statements, note 57(a)(iii).
Financial statements IFRS