Aviva 2009 Annual Report Download - page 60

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Aviva plc
Annual Report and Accounts 2009 Risk management continued Risk factors
This table sets out the definitions of each key risk type; the
key risk drivers for each category; sensitivities to economic
and operating experience on the group’s performance; and a
summary of the related risk mitigation processes that operate
within the Risk Management Framework.
Risk type Key drivers
Market
Risk of adverse financial impact due to changes in fair values
or future cash flows of financial instruments from fluctuations
in interest rates, equity prices and foreign currency
exchange rates
—
Fluctuation in the value of our investments in loans, debt and equity securities
as well as our holdings of investment properties
—
Impact of market conditions on sales of investment products and our fund
management business
—
Products sold by the group that carry investment return and surrender
value guarantees
—
Premium income, dividends from overseas businesses and transactions from
currencies other than sterling
—
Assets held in the staff pension scheme
—
Exposures to debt investments, structured asset investments, and
Credit counterparties in our derivatives, mortgage loans and reinsurance placements
Risk of financial loss as a result of the default or failure of third
—
Default and spread risks are considered, as both impact the value and risks
parties to meet their payment obligations of assets
—
Concentrations of exposures to individual credits/counterparties or
sectors/geographies
—
Insufficient capital generated from the receipt of premiums, fees and
Liquidity investment income, along with planned asset sales and maturities to pay
Risk of not maintaining sufficient financial resources to meet claims and expenses
our business obligations as they fall due
—
Instances where additional cash requirements arise in excess of that available
within operating businesses
—
Mismatches in the timing of cash flows relating to assets, liabilities and off
balance sheet instruments
General insurance
The inherent uncertainty as to the occurrence, amount and
timing of insurance liabilities. This includes fluctuations in the
timing, frequency, and severity of claims and settlements,
inadequate reinsurance protection and inadequate reserves.
—
Our largest general insurance risk is claims incurred from catastrophic events,
such as flooding and windstorm
—
Financial impact of worsening claims ratios and inadequate reserves
—
Reinsurance may not be available, affordable or adequate to protect the
group against losses
—
Inappropriate risk selection and related pricing
Life insurance
The inherent uncertainty as to the occurrence, amount and
timing of insurance liabilities. This includes exposure to
mortality and morbidity insurance and exposure to worse than
anticipated operating experience on factors such as persistency
levels and management and administrative expenses
—
Adverse longevity experience (the risk that people will live longer than we
have assumed)
—
Adverse mortality experience (the death of a policy holder) and morbidity
(ill health)
—
Expense experience compared with assumptions at the start of the
insurance policy
—
Poorly designed or inadequately priced products
—
Persistency risk arising from customers lapsing their policies earlier than has
been assumed
—
Focus on our strategy of delivering ‘One Aviva, Twice the Value’
Strategic
—
Our strategic response to changes in external environment including
Risks to our business model arising from changes in external competitive landscape, customer behaviour, distributor regulatory changes,
events, our markets and customer behaviour as well as risks merger and acquisition opportunities and emerging trends
arising from mergers and acquisitions
—
We are vulnerable to press speculation, negative publicity, adverse market
Brand and reputation and customer perception
Our dependence on the strength of our brands, the brands
—
Products or services recommended by us do not perform as expected
of our partners, and our reputation with customers and
—
We operate in an industry where integrity, customer trust and confidence
distributors in the sale of our products and services are paramount
—
Processing large number of complex transactions across numerous
Operational and diverse products
The risks of direct or indirect loss resulting from inadequately
—
We are highly dependent on the proper functioning of information
or failed internal processes, or from people and systems, or technology and communication systems to serve our customers
from external events
—
We are partially reliant on the operational processing performance of our
outsourced partners including certain servicing and IT functions
For further details refer to the “Financial statements IFRS – Note 56 – Risk management”.