Aviva 2013 Annual Report Download - page 310

Aviva plc
Annual report and accounts 2013
308
Shareholder information continued
designated as G-SIIs also includes a number of our competitors.
The list will be updated annually from November 2014. For so
long as it is designated as a G-SII, the Group is within the scope
of policy requirements issued by the International Association of
Insurance Supervisors (“IAIS”), including: enhanced supervision
requiring the development by July 2014 of a Systemic Risk
Management Plan; the development of recovery and resolution
plans; and higher loss absorbency capital requirements, which
will apply from January 2019 for those insurers still designated
as G-SIIs in November 2017. Details of the loss absorbency
capital requirements are still being developed by the IAIS leading
to uncertainty over their impact. There is a risk that, if we
continue to be designated as a G-SII, this could lead to a
significant increase in capital required to support our business
which may give rise to a need for us to delay deleveraging plans
or to issue additional debt. Similarly we could be required to
reduce or discontinue activities which contribute to systemic
riskiness, restructure to facilitate resolvability and/or remove or
reduce (or accelerate the planned reduction of) intercompany
debts or guarantees within the Group. Such requirements could
have negative consequences for our business and results of
operations and, in particular, could impact on the ability of
subsidiaries to remit dividends to the Issuer.
The IAIS has no direct legal powers to impose standards on
either regional or national supervisors of the Group but, in the
UK, the PRA is taking steps to discuss G-SII requirements with
UK firms to whom the designation has been applied.
The IAIS is also developing a common framework for the
supervision of internationally active insurance groups
(“ComFrame”). The framework is designed to develop common
principles for supervision and so may result in more extensive
regulation, particularly at group level, in those jurisdictions
which do not currently employ group-wide supervision. In
addition, it is not clear how ComFrame will interact with existing
regimes of group-wide supervision. On 9 October 2013, the IAIS
announced a commitment to develop a risk-based global
insurance standard (“ICS”) by 2016. The intention is that the
ICS will ultimately form part of ComFrame. A revised draft
ComFrame proposal is expected in March 2014 and ComFrame,
including the final ICS, is expected to be adopted at the end of
2018 to apply from 2019.
We are involved in various legal proceedings, regulatory
investigations and examinations and may be involved in
more in the future.
We have been named as defendants in lawsuits, including class
actions and individual lawsuits. We have been subject to
regulatory investigations or examinations in the various
jurisdictions where we operate. These actions arise in various
contexts, including in connection with our activities as an
insurer, securities issuer, employer, investment adviser, investor
and taxpayer. Certain of these lawsuits and investigations seek
significant or unspecified amounts of damages, including
punitive damages, and certain of the regulatory authorities
involved in these proceedings have substantial powers over the
conduct and operations of our business.
Due to the nature of certain of these lawsuits and
investigations, we cannot make an estimate of loss or predict
with any certainty the potential impact of these lawsuits or
investigations.
In the course of conducting insurance business, we receive
general insurance liability claims, and become involved in actual
or threatened related litigation arising therefrom, including
claims in respect of pollution and other environmental hazards.
Given the significant delays that are experienced in the
notification of these claims, the potential number of incidents
that they cover and the uncertainties associated with
establishing liability and the availability of reinsurance, the
ultimate cost cannot be determined with certainty.
Additionally, it is possible that a regulator in one of our major
markets may conduct a review of products previously sold,
either as part of an industry-wide review or specific to it. The
result of this review may be to compensate customers for losses
they have incurred as a result of the products they were sold.
All of the above could adversely impact our results of operations
or financial condition.
From time to time, changes in the interpretation of existing
tax laws, amendments to existing tax rates or the
introduction of new tax legislation may adversely impact
our business.
We operate in numerous tax jurisdictions around the world
and face risks associated with changes in tax law, interpretation
of tax law, changes in tax rates and the risk of failure to comply
with procedures required by tax authorities. Failure to manage
tax risks could lead to an additional tax charge or a
financial penalty.
If, as a result of a particular tax risk materialising, the tax
costs associated with certain transactions are greater than
anticipated, it could affect the profitability of those transactions.
There are also specific rules governing the taxation of
policyholders. We are unable to predict accurately the impact of
future changes in tax law on the taxation of life insurance and
pension policies in the hands of policyholders. Amendments to
existing legislation, particularly if there is the withdrawal of any
tax relief, or an increase in tax rates, or the introduction of new
rules, may affect the future long-term business and the
decisions of policyholders. The impact of such changes upon
us might depend on the mix of business in-force at the time
of such change.
The design of life insurance products by our life insurance
companies takes into account a number of factors, including
risks and taxation. The design of long-term insurance products is
based on the tax legislation in force at that time. Changes in tax
legislation or in the interpretation of tax legislation may
therefore, when applied to such products, have a material
adverse effect on the financial condition of the relevant long-
term business fund of the company in which the business
was written.
We may face increased compliance costs as a result of recent
legislation passed in the United States.
In March 2010, the United States passed legislation that would
require non-United States financial institutions to enter into
agreements to provide information on United States account
holders beginning in 2015. If this information is not provided in
a form and with contents satisfactory to the United States tax
authorities, a non-United States financial institution will have a
30% withholding tax applied to certain amounts derived from
United States sources. Under the final United States Treasury
regulations, no such withholding tax will be imposed on any
payments made prior to 1 July 2014.
On 1 September 2013, regulations were introduced in the
United Kingdom (the ‘‘Regulations’’) to give effect to the
intergovernmental agreement entered into between the United
Kingdom and the United States to improve tax compliance,
dated 12 September 2012 (the ‘‘UK-US IGA’’). Under the UK-US
IGA, UK-based financial institutions should not be subject to a
30% withholding on US source income, unless they fail to meet
the requirements set out in the UK-US IGA and the Regulations.
A number of other jurisdictions have announced that they
intend to introduce similar measures.