Aviva 2009 Annual Report Download - page 42

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Aviva plc Financial and operating performance continued
Annual Report and Accounts 2009
— This includes traditional life insurance, annuity business and
with profit business
– There is an element of insurance risk borne by the group
therefore, under IFRS, these are reported within net written
premiums.
— Non-participating investment business
– This includes unit-linked business and pensions business
– The amounts received for this business are treated as
deposits under IFRS and an investment management fee
is earned on the funds deposited.
– For new business reporting in the UK, companies continue
to report non-participating investment business within their
“covered business” sales, in line with the historic treatment
under UK GAAP.
Non-covered business or investment sales:
— These include retail sales of mutual fund type products
such as unit trusts and OEICs.
— There is no insurance risk borne by the group therefore
under IFRS, these are treated as deposits and investment
management fee income is earned on the funds deposited.
This is in line with their previous treatment under UK GAAP.
— These have never been treated as “covered business” for
long-term insurance and savings reporting so we show
these separately as investment sales.
Sales is a non-GAAP financial measure and key performance
indicator that we report to our key decision makers in the
businesses in order to assess the value of new business from
our customers and compare performance across the markets
in which we operate. We consider sales to be a critical indicator
of new business, and is the basis on which we provide analysis
of our results to our shareholders and analysts. The non-GAAP
measure of sales is also used internally in the determination
of bonus awards as an executive performance measure.
For our general insurance and health business we report
sales based on IFRS net written premiums.
For long-term insurance and savings new business, we
define sales as the sum of the present value of new business
premiums (PVNBP) of life, pension and savings products and
investment sales.
PVNBP is equal to total single premium sales received in the
year plus the discounted value of annual premiums expected to
be received over the terms of newly incepted contracts and is
calculated as at the date of sale. We adjust annual premiums
to reflect the expected stream of business coming from this
new business over future years. In the view of management this
performance measure better recognises the relative economic
value of regular premium contracts compared to single premium
contracts. PVNBP is a European insurance industry standard
measure of new business.
For our long-term insurance and savings business, we
believe that sales is an important measure of underlying
performance and a better measure for new business than
IFRS net written premiums. We consider the use of sales
over IFRS net written premiums provides:
— Consistent treatment of long-term insurance and investment
contracts: IFRS net written premiums do not include deposits
received on non-participating investment contracts. Long-
term insurance contracts and participating investment
contracts also contain a deposit component, which are
included in IFRS net written premiums, in addition to an
insurance risk component. Therefore, to appropriately assess
the revenue generated on a consistent basis between types
of contracts, we evaluate the present value of new business
sales of long-term insurance and investment products on
the basis of total premiums and deposits collected, including
sales of mutual fund type products such as unit trusts
and OEICs.
— Better reflection of the relative economic value of regular
premium contracts compared to single premium contracts:
Sales recognise the economic value of all expected
contractual cash flows for regular premium contracts in
the year of inception, whereas IFRS net written premiums
only recognise premiums received in the year.
— Better reflection of current management actions in the year:
IFRS net written premiums include premiums on regular
premium contracts, which incepted in prior years, and
therefore reflect the actions of management in prior years.
In comparison to IFRS net written premiums, sales do not
include premiums received from contracts in-force at the
beginning of the year, even though these are a source of IFRS
revenue, as these have already been recognised as sales in the
year of inception of the contract. In addition, unlike IFRS net
written premiums, sales do not reflect the effect on premiums
of any increase or decrease in persistency of regular premium
contracts compared to what was assumed at the inception of
the contract.
PVNBP is not a substitute for net written premiums as
determined in accordance with IFRS. Our definition of sales
may differ from similar measures used by other companies,
and may change over time.
General insurance and health sales
General insurance and health sales are defined as IFRS net
written premiums, being those premiums written during the
year net of amounts reinsured with third parties, as set out in
the segmental analysis of results in “Financial Statements IFRS –
Note 3 – Segmental information”. For sales reporting, we use
the GAAP measure for general insurance and health business.
The table below presents our consolidated sales for the
years ended 31 December 2009, 2008 and 2007, as well as
the reconciliation of sales to net written premiums in IFRS.
2009 2008 2007
£m £m £m
Long-term insurance
and savings new business sales 35,875 40,240 39,705
General insurance and health sales 9,193 11,137 10,569
Total sales 45,068 51,377 50,274
Less: Effect of capitalisation factor on regular
premium long-term business (8,612) (9,893) (7,650)
Share of long-term new business sales from
JVs and associates (1,277) (1,062) (789)
Annualisation impact of regular premium
long-term business (446) (731) (560)
Deposits taken on non-participating
investment contracts (4,181) (7,523) (8,762)
Retail sales of mutual fund type products
(investment sales) (3,872) (3,995) (6,983)
Add: IFRS gross written premiums from existing
long-term business 7,164 7,236 4,661
Less: long-term insurance and savings
business premiums ceded to reinsurers (1,730) (1,044) (858)
Total IFRS net written premiums 32,114 34,365 29,333
Analysed as:
Long-term insurance
and savings net written premiums 22,921 23,228 18,764
General insurance and health net
written premiums 9,193 11,137 10,569
32,114 34,365 29,333