Aviva 2013 Annual Report Download - page 152

Aviva plc
Annual report and accounts 2013
150
Notes to the consolidated financial statements continued
10 – Longer-term investment return and economic assumption changes for non-long-term
business continued
The longer-term rate of investment return is determined using consistent assumptions between operations, having regard to local
economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income
receivable for the year. Actual income and longer-term investment return both contain the amortisation of the discounts/premium
arising on the acquisition of fixed income securities. For other operations, the longer-term return reflects assets backing non-long-
term business held in the France holding company and Group centre investments, including the centre hedging programme.
Market value movements which give rise to variances between actual and longer-term investment returns are disclosed
separately in short term fluctuations outside operating profit.
The adverse movement in short term fluctuations during 2013 compared with 2012 is mainly due to an increase in risk free
rates reducing fixed income security market values and other market movements impacting Group centre investments and the
centre hedging programme.
(d) The total assets supporting the general insurance and health business, which contribute towards the longer-term return, are:
2013
£m
2012
£m
Debt securities 10,105 9,297
Equity securities 339 774
Properties 140 139
Cash and cash equivalents 1,969 2,535
Other 5,410 5,997
Assets supporting general insurance and health business 17,963 18,742
Assets supporting other non-long-term business1 695 206
Total assets supporting non-long-term business 18,658 18,948
1 For 2013 represents assets backing non-life business in the France holding company and Group centre investments, including the centre hedging programme. For 2012 represents assets in France holding company backing non-long-
term business.
The principal assumptions underlying the calculation of the longer-term investment return are:
Longer-term rates
of return
Equities
Longer-term rates
of return
Properties
2013
%
2012
%
2013
%
2012
%
United Kingdom 5.4 5.8 3.9 4.3
Eurozone 5.1 5.9 3.6 4.4
Canada 5.8 5.8 4.3 4.3
To calculate the longer-term investment return for its non-long-term business in 2012 and 2013, the Group has applied the same
economic assumptions for equities and properties as are used under MCEV principles.
(e) The table below compares the actual return on investments attributable to the non-long-term business, after deducting
investment management expenses and charges, with the aggregate longer-term return over a five-year period.
Continuin
g
operations
2009-2013
£m
2008-2012
£m
Actual return attributable to shareholders 2,902 3,095
Longer-term return credited to operating results (3,578) (3,902)
Excess of longer-term returns over actual returns (676) (807)
(f) The table below shows the sensitivity of the Group’s non-long-term business operating profit for continuing operations before
tax to changes in the longer-term rates of return:
Continuin
g
operations – Movement in investment return for B
y
Chan
g
e in
2013
£m
2012
£m
Equities 1% higher/lower Group operating profit before tax 8 6
Properties 1% higher/lower Group operating profit before tax 1 2
(g) The economic assumption changes mainly arise from movements in the rate used to discount latent claims.
As explained in accounting policy L, provisions for latent claims are discounted, using rates based on the relevant swap curve,
in the relevant currency at the reporting date, having regard to the duration of the expected settlement of the claims. The discount
rate is set at the start of the accounting period, with any change in rates between the start and end of the accounting period being
reflected below operating profit as an economic assumption change. The range of discount rates used is disclosed in note 41c.