Aviva 2013 Annual Report Download - page 198

Aviva plc
Annual report and accounts 2013
196
Notes to the consolidated financial statements continued
42 – Liability for investment contracts
This note analyses our investment contract liabilities by type of product and describes how the Group calculates these liabilities and
the assumptions used.
(a) Carrying amount
The liability for investment contracts (gross of reinsurance) at 31 December comprised:
Lon
g
-term business
2013
£m
2012
£m
Participating contracts 70,628 66,849
Non-participating contracts at fair value 48,140 46,299
Non-participating contracts at amortised cost — 1,400
48,140 47,699
Total 118,768 114,548
Less: Amounts classified as held for sale (2,710) (4,054)
116,058 110,494
(b) Long-term business investment liabilities
Investment contracts are those that do not transfer significant insurance risk from the contract holder to the issuer, and are
therefore treated as financial instruments under IFRS.
Many investment contracts contain a discretionary participation feature in which the contract holder has a contractual right
to receive additional benefits as a supplement to guaranteed benefits. These are referred to as participating contracts and are
measured according to the methodology and Group practice for long-term business liabilities as described in note 41. They are
not measured at fair value as there is currently no agreed definition of fair valuation for discretionary participation features under
IFRS. In the absence of such a definition, it is not possible to provide a range of estimates within which a fair value is likely to fall.
The IASB has deferred consideration of participating contracts to Phase II of its insurance contracts project.
For participating business, the discretionary participation feature is recognised separately from the guaranteed element and is
classified as a liability, referred to as unallocated divisible surplus. Guarantees on long-term investment products are discussed in
note 43.
Investment contracts that do not contain a discretionary participation feature are referred to as non-participating contracts and
the liability is measured at either fair value or amortised cost. Following the disposal of the US, there are no non-participating
investment contracts, that are measured at amortised cost, at 31 December 2013.
Of the non-participating investment contracts measured at fair value, £47,684 million in 2013 are unit-linked in structure and
the fair value liability is equal to the unit reserve plus additional non-unit reserves, if required, on a fair value basis. These contracts
are generally classified as ‘Level 1’ in the fair value hierarchy, as the unit reserve is calculated as the publicly quoted unit price
multiplied by the number units in issue, and any non-unit reserve is insignificant.
For unit-linked business, a deferred acquisition cost asset and deferred income reserve liability are recognised in respect of
transaction costs and front-end fees respectively, that relate to the provision of investment management services, and which are
amortised on a systematic basis over the contract term. The amount of the related deferred acquisition cost asset is shown in note
29 and the deferred income liability is shown in note 52.
(c) Movements in the year
The following movements have occurred in the gross provisions for investment contracts in the year:
(i) Participating investment contracts
2013
£m
2012
£m
Carrying amount at 1 January 66,849 67,707
Provisions in respect of new business 3,421 2,695
Expected change in existing business provisions (2,243) (2,039)
Variance between actual and expected experience 1,085 102
Impact of operating assumption changes 329 9
Impact of economic assumption changes (301) 74
Other movements (47) (82)
Change in liability recognised as an expense 2,244 759
Effect of portfolio transfers, acquisitions and disposals1 (39) —
Foreign exchange rate movements 1,380 (1,610)
Other movements2 194 (7)
Carrying amount at 31 December 70,628 66,849
1 Disposals in 2013 relate to Aseval.
2 Other movements (outside change in liability recognised as an expense) in 2013 of £194 million represents the reclassification of liabilities from insurance to participating investment in Eurovita.