Aviva 2013 Annual Report Download - page 220

Aviva plc
Annual report and accounts 2013
218
Notes to the consolidated financial statements continued
57 – Capital statement continued
The with-profit funds and the RIEESA use internal hedging to limit the impacts of equity market volatility.
In aggregate, the Group has at its disposal total available capital of £18.6 billion (2012: £19.0 billion), representing the
aggregation of the solvency capital of all of our businesses.
This capital is available to meet risks and regulatory requirements set by reference to local guidance and EU directives.
After effecting the year-end transfers to shareholders, the UK with-profit funds have available capital of £3.2 billion (2012: £3.0
billion) (including amounts held in RIEESA). Subject to certain conditions, the RIEESA capital can be used to write new non-profit
business, but the primary purpose of this capital is to provide support for the UK with-profit business. The capital is comfortably in
excess of the required capital margin, and therefore the shareholders are not required to provide further support.
For the remaining life and general insurance operations, the total available capital amounting to £15.4 billion (2012: £16
billion) is higher than the minimum requirements established by regulators and, in principle, the excess is available to shareholders.
In practice, management will hold higher levels of capital within each business operation to provide appropriate cover for risk.
The total available capital of £18.6 billion is arrived at on the basis of local regulatory guidance, which evaluates assets and
liabilities prudently and includes the Group’s unallocated divisible surplus of overseas life operations. This is a limitation of the
Group Capital Statement which, to be more meaningful, needs to evaluate available capital on an economic basis and compare it
with the risk capital required for each individual operation, after allowing for the considerable diversification benefits that exist in
our Group.
Within the Aviva Group there exist intra-group arrangements to provide capital to particular business units. Included in these
arrangements is a subordinated loan of £200 million from Aviva Life Holdings UK Limited to Aviva Annuity Limited to provide
capital to support the writing of new business.
The available capital of the Group’s with-profit funds is determined in accordance with the ‘Realistic balance sheet’ regime
prescribed by the PRA’s regulations, under which liabilities to policyholders include both declared bonuses and the constructive
obligation for future bonuses not yet declared. The available capital resources include an estimate of the value of their respective
estates, included as part of the unallocated divisible surplus. The estate represents the surplus in the fund that is in excess of any
constructive obligation to policyholders. It represents capital resources of the individual with-profit fund to which it relates and
is available to meet regulatory and other solvency requirements of the fund and, in certain circumstances, additional liabilities
may arise.
The liabilities included in the balance sheet for the with-profit funds do not include the amount representing the shareholders’
portion of future bonuses. However, the shareholders’ portion is treated as a deduction from capital that is available to meet
regulatory requirements and is therefore shown as a separate adjustment in the capital statement.
In accordance with the PRA’s regulatory rules under its realistic capital regime, the Group is required to hold sufficient capital
in its UK life with-profit funds to meet the PRA capital requirements, based on the risk capital margin (RCM). The determination
of the RCM depends on various actuarial and other assumptions about potential changes in market prices, and the actions
management would take in the event of particular adverse changes in market conditions.
31 December
2013
31 December
2012
Estimated
realistic
assets
£bn
Estimated
realistic
liabilities1
£bn
Estimated
realistic
inherited
estate2
£bn
Capital
support
arrangement3
£bn
Estimated
risk capital
margin
£bn
Estimated
excess
available
capital
£bn
Estimated
excess
available
capital
£bn
NWPSF 15.6 (15.6) — 1.1 (0.2) 0.9 0.3
OWPSF 2.8 (2.4) 0.4 — (0.1) 0.3 0.2
WPSF4 16.9 (15.4) 1.5 — (0.3) 1.2 1.3
Aggregate 35.3 (33.4) 1.9 1.1 (0.6) 2.4 1.8
1 These realistic liabilities include the shareholders’ share of accrued bonuses of £0.1 billion (31 December 2012: £0.3 billion). Realistic liabilities adjusted to eliminate the shareholders’ share of accrued bonuses are £33.4 billion
(31 December 2012: £36.0 billion).These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision included within realistic liabilities is £1.4 billion,
£0.2 billion and £2.5 billion for NWPSF, OWPSF and WPSF respectively (31 December 2012: £1.8 billion, £0.3 billion and £3.5 billion for NWPSF, OWPSF and WPSF respectively).
2 Estimated realistic inherited estate at 31 December 2012 was £nil, £0.3 billion and £1.8 billion for NWPSF, OWPSF and WPSF respectively.
3 This represents the reattributed estate of £1.1 billion at 31 December 2013 (31 December 2012: £0.7 billion) held within NPSF1 (a non-profit fund within UKLAP included within other UK life operations).
4 The WPSF fund includes the Provident Mutual (PM) fund, which has realistic assets and liabilities of £1.5 billion and therefore does not impact the realistic inherited estate.
Under the PRA regulatory regime, UK life with-profits business is required to hold capital equivalent to the greater of their
regulatory requirement based on EU directives (regulatory peak) and the PRA realistic bases (realistic peak) described above.
For UK non-participating business, the relevant capital requirement is the minimum solvency requirement determined in
accordance with PRA regulations. The available capital reflects the excess of regulatory basis assets over liabilities before deduction
of capital resources requirement.
For UK general insurance businesses, the relevant capital requirement is the minimum solvency requirement determined in
accordance with the PRA requirements.
For overseas businesses in the European Economic Area (EEA), Canada, Hong Kong and Singapore, the available capital and the
minimum requirement are calculated under the locally applicable regulatory regimes. The businesses outside these territories are
subject to the PRA rules for the purposes of calculation of available capital and capital resource requirement.
For fund management and other businesses, the relevant capital requirement is the minimum solvency requirement determined
in accordance with the local regulator’s requirements for the specific class of business.