Aviva 2009 Annual Report Download - page 61

59
Aviva plc
Annual Report and Accounts 2009 Risk management continued
Corporate responsibility
Performance review
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
Performance review
Sensitivities1
—
A 1% increase in interest rates would decrease total
shareholder funds by £1.3 billion net of tax on an IFRS basis
and by £0.6 billion net of tax on an MCEV basis
—
A 10% decrease in equity prices would decrease total
shareholders’ funds by £0.7 billion net of tax on an IFRS basis
and by £1.0 billion net of tax on an MCEV basis
—
We expect that a 40% fall in equity prices (at 31 December
2009) would reduce IGD by £0.7 billion.
Risk mitigation
—
Regular reviews by group asset liability committee relative to risk appetite
—
Active management of exposure through hedging against unfavourable
market movements and changes in asset mix
—
Regular monitoring of impact from changes in market risks (interest rates,
equity prices, property values) through value at risk analysis, stress tests
and scenario analysis
—
Use of currency borrowings and derivatives to manage currency exposures
within centrally set limits
—
Investment strategy and long-term objectives agreed with scheme trustees
—
A 50 bps increase in credit spreads would increase shareholder
funds by £0.3 billion net of tax on an IFRS basis and would
decrease embedded value by £0.8 billion on a net of tax
MCEV basis.
—
Adherence to credit policy and limits frameworks by all businesses
—
Regular monitoring and reviews by credit approvals committee of
exposures and management against limits
—
Maintaining a diversified portfolio and review concentrations of exposure
by types, sector, geography and credit ratings
—
Utilisation of risk reduction techniques such as hedging and collateral
posting requirements
—
The Liquidity stress tests performed and the size of the liquidity
—
Asset liability matching methodology develops optimal asset portfolio
buffer held to cover unforeseen circumstances maturity structures in our businesses to ensure cash flows are sufficient
to meet liabilities
—
Regular monitoring through liquidity stress and scenario testing
—
Sale of assets from investment portfolios, issuing commercial paper
—
Maintain committed borrowing facilities (£2.1 billion) from highly
rated banks
—
Our total potential loss from our most concentrated exposure
(northern Europe windstorm) is approximately £335 million for
a one in ten year annual loss scenario, compared to
approximately £620 million for a one in hundred year annual
loss scenario
—
A 5% increase in gross loss ratios for our general insurance
and health business reduces shareholders funds by
£345 million on a pre-tax IFRS basis
—
Regular reviews by group general insurance committee
—
Use of reinsurance to help reduce the financial impact of a catastrophe
and manage earnings volatility
—
Extensive use of data, financial models and analysis to improve pricing
and risk selection
—
Underwriting and claims management disciplines
—
Digital mapping to better manage property flood risk
—
Mortality/ morbidity – a 5% worsening in assurance
mortality/morbidity experience would reduce shareholder funds
by £45 million before tax on an IFRS basis and decrease
embedded value by £195 million net of tax on an MCEV basis.
—
Longevity – should our assumptions in respect of annuitant
mortality worsen by 5% then shareholder funds would reduce
by £320 million before tax on an IFRS basis and decrease
embedded value by £365 million net of tax on an MCEV basis.
—
Regular reviews by Life insurance committee
—
Monitor longevity statistics compared with emerging industry trends and
use of reinsurance solutions
—
Use of reinsurance solutions to mitigate mortality and morbidity risks
—
Guidelines to support businesses through complete cycle of product
design, development and pricing
—
Regular monitoring of expense assumptions
—
Guidelines on persistency management apply best practice across
the group
—
Progress in building our Aviva global brand and transforming
our business
—
How responsive we are to changes in the external environment
that may provide opportunities or cause strategic risks
—
Impact of the challenging economic environment and volatile
financial markets
—
Strategic review and planning process
—
Developments assessed during our performance management process
—
Maintaining a diverse distribution model and review of concentrations
by channel, product, country or customer group
—
Challenging developments that could be damaging to our business and
the industry as a whole
—
Maintaining integrity and confidence in our brands
and products
—
Building long-term relationships with our customers and
attracting new customers to Aviva
—
New product and distribution developments that suit our
customers’ changing needs
—
Regular reviews by the group corporate reputation committee
—
Building our brand prominence and regularly monitoring brand metrics
—
Delivering a truly exceptional experience to our customers and treating
customers fairly in line with the FSA principles
—
Monitor metrics including customer advocacy, retention and complaints
—
Increasing our efficiency and reducing complexity
—
Framework of corporate responsibility, policies and business ethics code
—
Levels of investment and operating performance
—
Procedures to record properly and verify a large number of events
—
Capabilities across our organisation
—
Significant resources devoted to maintaining efficient and
effective operations
1. IFRS sensitivities are shown gross of minority interest.