Aviva 2009 Annual Report Download - page 52

50
Aviva plc Analysis of investments
Annual Report and Accounts 2009
Analysis of investments
We invest our policyholders’ funds and our own funds in order
to generate a return for both policyholders and shareholders.
The financial strength of our group and both our current
and future operating results and financial performance are,
therefore, in part dependent on the quality and performance
of our investment portfolios in our UK, continental European,
North America and Asia Pacific operations.
For additional information on our financial investments,
please see “Financial statements IFRS – Note 24 – Financial
investments”. For a quantitative analysis of funds under
management by Aviva and third-party fund managers,
see ‘Financial statements IFRS – Note 58 – Assets under
management’.
Investment strategy
Our investment portfolio supports a range of businesses
operating in a number of geographical locations. Our aim is
to match the investments held to support a line of business
to the nature of the underlying liabilities, while at the same
time considering local regulatory requirements, the level of
risk inherent within different investments, and the desire to
generate superior investment returns, where compatible with
this stated strategy and risk appetite.
Long-term insurance and savings business
As stated above, we aim to optimise investment returns while
ensuring that sufficient assets are held to meet future liabilities
and regulatory requirements. As different types of life insurance
business vary in their cash flows and in the expectations placed
upon them by policyholders, we need to hold different types of
investment to meet these different cash flows and expectations.
The UK with-profits business is comprised largely of long-
term contracts with some guaranteed payments. We are
therefore able to invest a significant proportion of the funds
supporting this business in equities and real estate. This is
because the long-term nature of these contracts allows us to
take advantage of the long-term growth potential within these
classes of assets, while the level of guaranteed payments is
managed to mitigate the level of risk that we bear in relation
to the volatility of these classes of assets.
Annuities and non-participating contracts, on the other
hand, have a high level of guaranteed future payments. We
endeavour to match the investments held against these types
of business to future cash flows. We therefore have a policy of
generally holding fixed income securities and mortgage loans
with appropriate maturity dates.
With unit-linked business, the primary objective is to
maximise investment returns, subject to following an investment
policy consistent with the representations that we have made
to our unit-linked product policyholders.
General insurance and health business
The general insurance and health business is comprised of
shorter-term liabilities than the long-term insurance business.
Furthermore, all the risk attaching to the investments is borne
by our shareholders. As a result, the investment portfolio held
to cover general insurance liabilities contains a higher
proportion of fixed-income securities than the portfolio held
to cover life insurance liabilities.
Property partnerships
As part of their investment strategy, the UK and certain
European policyholder funds have invested in a number of
property limited partnerships (PLPs), either directly or via
property unit trusts (PUTs), through a mix of capital and loans.
The nature of our involvement in property partnerships is set out
in the second and third paragraphs of the Investment vehicles
section of “Financial Statements IFRS – Accounting policies – (C)
Consolidation principles”. Property partnerships are accounted
for as subsidiaries, joint ventures or financial investments
depending on our participation and the terms of each
partnership agreement. For each property partnership
accounted for as a subsidiary, joint venture or financial
investment, we are exposed to falls in the value of the
underlying properties which are reflected as unrealised
gains/losses on investment properties, our share of joint venture
results and unrealised gains/losses on financial investments,
respectively. However, these are all in policyholder funds (
rather
than shareholder funds
) so such losses are offset by changes in
the amounts due to policyholders or unitholders, or in the
Unallocated Divisible Surplus (UDS).