Aviva 2014 Annual Report Download - page 166

Aviva plc Annual report and accounts 2014
Notes to the consolidated financial statements continued
162
17 – Goodwill continued
Future new business profits for the remainder of the given period beyond the initial three years are extrapolated using a steady
growth rate. Growth rates and expected future profits are set with regards to management estimates, past experience and relevant
available market statistics.
Expected profits from future new business are discounted using a risk adjusted discount rate. The discount rate is a
combination of a risk-free rate and a risk margin to make prudent allowance for the risk that experience in future years for new
business may differ from that assumed.
Key Assumptions
Embedded value basis
Future new business
profits growth rate
Future new business
profits discount rate
2014 2013 2014
%
2013
%
2014
%
2013
%
Italy long-term business MCEV MCEV 2.0 2.0 8.4 10.5
Spain long-term business MCEV MCEV 1.5 1.5 10.0 10.0
General insurance, health, fund management and other businesses
Value in use is calculated as the discounted value of expected future profits of each business. The calculation uses cash flow
projections based on business plans approved by management covering a three year period. These plans reflect management’s best
estimate of future profits based on both historical experience and expected growth rates for the relevant cash generating unit. The
underlying assumptions of these projections include market share, customer numbers, premium rate and fee income changes,
claims inflation and commission rates.
Cash flows beyond that three year period are extrapolated using a steady growth rate. Growth rates and expected future
profits are set with regards to past experience and relevant available market statistics.
Future profits are discounted using a risk adjusted discount rate.
Key assumptions
Extrapolated future profits growth rate Future profits discount rate
2014
%
2013
%
2014
%
2013
%
United Kingdom general insurance and health 1.3 1.3 6.7 7.7
Ireland general insurance and health 1.3 1.3 5.9 8.4
Italy general insurance and health 2.0 2.0 6.8
–
7.9 8.7
–
10.2
France – indefinite life intangible asset
The recoverable amount of the indefinite life intangible asset has been assessed based on the fair value less costs to sell of the cash
generating unit to which it relates. The fair value less costs to sell was determined based on the quoted market value of Aviva’s
share of the subsidiary to which it relates.
Results of impairment testing
The recoverable amount exceeds the carrying value of the cash generating units including goodwill.
162 | Aviva plc Annual report and accounts 2014