Aviva 2009 Annual Report Download - page 324

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Aviva plc Glossary continued
Annual Report and Accounts 2009
Market Consistent Embedded Value
(MCEV) terms cont.
New business margin
New business margins are calculated as the
value of new business divided by the present
value of new business premiums (PVNBP), and
expressed as a percentage.
Present value of new business
premiums (PVNBP)
Present value of new regular premiums plus
100% of single premiums, calculated using
assumptions consistent with those used to
determine the value of new business.
Required capital
The amount of assets, over and above the
value placed on liabilities in respect of covered
business, whose distribution to shareholders
is restricted.
Risk-free rate (reference rate in CFO
Forum terminology)
In stable markets, including the period from
31 December 2006 to 30 June 2007, the risk-
free rate is taken as the swap curve yield.
In current markets, including the period from
1 July 2007, the risk-free rate is taken as swaps
except for all contracts that contain features
similar to immediate annuities and are backed
by appropriate assets, including paid up group
deferred annuities in the Netherlands, and
deferred annuities and all other contracts in
the US. The adjusted risk-free rate is taken as
swaps plus the additional return available for
products and where backing asset portfolios
can be held to maturity.
Service companies
Companies providing administration or fund
management services to the covered business.
Solvency cover
The excess of the regulatory value of total
assets over total liabilities, divided by the
regulatory value of the required minimum
solvency margin.
Spread business
Contracts where a significant source of
shareholder profits is the taking of credit
spread risk that is not passed on to
policyholders. The most significant spread
business in Aviva are immediate annuities and
US deferred annuities and life business.
Statutory basis
The valuation basis and approach used
for reporting financial statements to
local regulators.
Stochastic techniques
Techniques that incorporate the potential
future variability in assumptions.
Symmetric risks
Risks that will cause shareholder profits to
vary where the variation above and below the
average are equal and opposite. Financial
theory says that investors do not require
compensation for non-market risks that are
symmetrical as the risks can be diversified
away by investors.
Time value and intrinsic value
A financial option or guarantee has two
elements of value, the time value and intrinsic
value. The intrinsic value is the discounted value
of the option or guarantee at expiry, assuming
that future economic conditions follow best
estimate assumptions. The time value is the
additional value arising from uncertainty
about future economic conditions.
Value of new business
Is calculated using economic assumptions
set at the start of each quarter and the same
operating assumptions as those used to
determine the embedded values at the end
of the reporting period and is stated after
the effect of any frictional costs. Unless
otherwise stated, it is also quoted net of
tax and minority interests.