Aviva 2013 Annual Report Download - page 254

Aviva plc
Annual report and accounts 2013
252
Financial and operating performance continued
insurance risk component. Therefore, to assess the revenue
generated on a consistent basis between types of contracts,
we evaluate the present value of new business sales of long-
term insurance and investment products on the basis of total
premiums and deposits collected, including sales of mutual
fund type products such as unit trusts and open ended
investment companies (OEICs).
 Better reflection of the relative economic value of regular
premium contracts compared to single premium contracts:
Sales recognise the economic value of all expected
contractual cash flows for regular premium contracts in
the year of inception, whereas IFRS net written premiums
only recognise premiums received in the year.
 Better reflection of current management actions in the year:
IFRS net written premiums include premiums on regular
premium contracts which incepted in prior years, and
therefore reflect the actions of management in prior years.
In comparison with IFRS net written premiums, sales do not
include premiums received from contracts in-force at the
beginning of the year, even though these are a source of IFRS
revenue, as these have already been recognised as sales in the
year of inception of the contract. In addition, unlike IFRS net
written premiums, sales do not reflect the effect on premiums
of any increase or decrease in persistency of regular premium
contracts compared with what was assumed at the inception of
the contract.
PVNBP is not a substitute for net written premiums as
determined in accordance with IFRS. Our definition of sales may
differ from similar measures used by other companies, and may
change over time.
General insurance and health sales
General insurance and health sales are defined as IFRS net
written premiums, which are premiums written during the year
net of amounts reinsured with third parties. For sales reporting,
we use the GAAP measure for general insurance and health
business.
The table below presents our consolidated sales for the
three years ended 31 December 2013, 2012 and 2011 for our
continuing operations, as well as the reconciliation of sales to
net written premiums in IFRS.
Continuin
g
operations
2013
£m
2012
£m
2011
£m
Long-term insurance and savings
new business sales 25,423 25,232 27,461
General insurance and health sales 8,720 8,894 9,162
Total sales 34,143 34,126 36,623
Less: Effect of capitalisation factor on regular
premium long-term business (6,310) (5,935) (6,079)
Share of long-term new business sales
from JVs and associates (660) (592) (604)
Annualisation impact of regular premium
long-term business (203) (239) (533)
Deposits taken on non-participating
investment contracts and equity
release contracts (4,389) (4,607) (4,573)
Retail sales of mutual fund type products
(investment sales) (4,875) (4,586) (3,473)
Add: IFRS gross written premiums from
existing long-term business 3,688 3,936 4,305
Less: long-term insurance and savings
business premiums ceded to reinsurers (905) (930) (959)
Total IFRS net written premiums 20,489 21,173 24,707
Analysed as:
Long-term insurance and savings net
written premiums 11,769 12,279 15,545
General insurance and health net
written premiums 8,720 8,894 9,162
20,489 21,173 24,707
 Effect of capitalisation factor on regular premium
long-term business
PVNBP is derived from the single and regular premiums of
the products sold during the financial period and is
expressed at the point of sale. The PVNBP calculation is
equal to total single premium sales received in the year plus
the discounted value of regular premiums expected to be
received over the term of the new contracts. The discounted
value of regular premiums is calculated using the market
consistent embedded value methodology proposed by the
CFO Forum Principles.
The discounted value reflects the expected income
streams over the life of the contract, adjusted for expected
levels of persistency, discounted back to present value. The
discounted value can also be expressed as annualised regular
premiums multiplied by a weighted average capitalisation
factor (WACF). The WACF varies over time depending on
the mix of new products sold, the average outstanding term
of the new contracts and the projection assumptions.
 Share of long-term new business sales from joint
ventures and associates
Total long-term new business sales include our share of sales
from joint ventures and associates. Under IFRS reporting,
premiums from these sales are excluded from our
consolidated accounts, with only our share of profits or
losses from such businesses being brought into the income
statement separately.
 Annualisation impact of regular premium
long-term business
As noted above, the calculation of PVNBP includes
annualised regular premiums. The impact of this
annualisation is removed in order to reconcile the non-GAAP
new business sales to IFRS premiums and will vary
depending on the volume of regular premium sales during
the year.
 Deposits taken on non-participating investment
contracts and equity release contracts
Under IFRS, non-participating investment contracts are
recognised in the Statement of Financial Position by
recording the cash received as a deposit and an associated
liability and are not recorded as premiums received in the
Income Statement. Only the margin earned is recognised in
the Income Statement.
 Retail sales of mutual fund type products
(investment sales)
Investment sales included in the total sales number represent
the cash inflows received from customers to invest in mutual
fund type products such as unit trusts and OEICs. We earn
fees on the investment and management of these funds
which are recorded separately in the IFRS income statement
as ’fees and commissions received’ and are not included in
statutory premiums.
 IFRS gross written premiums from existing
long-term business
The non-GAAP measure of long-term and savings sales
focuses on new business written in the year under review
whilst the IFRS income statement includes premiums
received from all business, both new and existing.