Aviva 2014 Annual Report Download - page 193

Aviva plc Annual report and accounts 2014
189
41 – Insurance liabilities continued
2014
Gross
£m
Reinsurance
£m
Net
£m
Long-term business liabilities
Change in long-term business provisions (note 41b(iv)) 5,847 (376) 5,471
Change in provision for outstanding claims 128 4 132
5,975 (372) 5,603
General insurance and health liabilities
Change in insurance liabilities (note 41c(iv) and 44 c(ii)) (76) 49 (27)
Less: Unwind of discount on GI reserves and other (9) 3 (6)
(85) 52 (33)
Total change in insurance liabilities (note 7) 5,890 (320) 5,570
Continuing Operations Discontinued Operations Total
2013
Gross
£m
Reinsurance
£m
Net
£m
Gross
£m
Reinsurance
£m
Net
£m
Gross
£m
Reinsurance
£m
Net
£m
Long term business liabilities
Change in long term business provisions (note
41b(iv)) (2,423) (164) (2,587) 331 (19) 312 (2,092) (183) (2,275)
Change in provision for outstanding claims 75 (7) 68 (11) 11 — 64 4 68
(2,348) (171) (2,519) 320 (8) 312 (2,028) (179) (2,207)
General insurance and health liabilities
Change in insurance liabilities (note 41c(iv) and 44
c(ii)) (33) 64 31
—
—
— (33) 64 31
Less: Unwind of discount on GI reserves and other (15) 10 (5)
—
—
— (15) 10 (5)
(48) 74 26 — — — (48) 74 26
Total change in insurance liabilities (note 7) (2,396) (97) (2,493) 320 (8) 312 (2,076) (105) (2,181)
(b) Long-term business liabilities
(i) Business description
The Group underwrites long-term business in a number of countries as follows:
• In the UK mainly in:
– New With-Profits sub-fund (NWPSF) of Aviva Life & Pensions UK (UKLAP), where the with-profit policyholders are entitled to at
least 90% of the distributed profits, the shareholders receiving the balance. Any surplus or deficit emerging in NWPSF that is not
distributed as bonus will be transferred from this sub-fund to the Reattributed Inherited Estate External Support Account (RIEESA)
(see below).
– Old With-Profits sub-fund (OWPSF), With-Profits sub-fund (WPSF) and Provident Mutual sub-fund (PMSF) of UKLAP, where the
with-profit policyholders are entitled to at least 90% of the distributed profits, the shareholders receiving the balance.
– ‘Non-profit’ funds of Aviva Annuity UK and UKLAP, where shareholders are entitled to 100% of the distributed profits.
Shareholder profits on unitised with-profit business written by WPSF and on stakeholder unitised with-profit business are derived
from management fees and policy charges, and emerge in the non-profit funds.
– The RIEESA of UKLAP, which is a non-profit fund where shareholders are entitled to 100% of the distributed profits, but these
cannot be distributed until the ‘lock-in’ criteria set by the Reattribution Scheme have been met. The RIEESA has been used to write
non-profit business and also to provide capital support to NWPSF.
• In France, where the majority of policyholders’ benefits are determined by investment performance, subject to certain
guarantees, and shareholders’ profits are derived largely from management fees. In addition, a substantial number of policies
participate in investment returns, with the balance being attributable to shareholders.
• In other operations in Europe and Asia, a range of long-term insurance and savings products are written.
(ii) Group practice
The long-term business provision is calculated separately for each of the Group’s life operations. The provisions for overseas
subsidiaries have generally been included on the basis of local regulatory requirements, modified where necessary to reflect the
requirements of the Companies Act 2006.
Material judgment is required in calculating the provisions and is exercised particularly through the choice of assumptions
where discretion is permitted. In turn, the assumptions used depend on the circumstances prevailing in each of the life operations.
Provisions are most sensitive to assumptions regarding discount rates and mortality/morbidity rates. Where discount rate
assumptions are based on current market yields on fixed interest securities, allowance is made for default risk implicit in the yields
on the underlying assets.
Bonuses paid during the year are reflected in claims paid, whereas those allocated as part of the bonus declaration are included
in the movements in the long-term business provision.
For UK with-profit life funds falling within the scope of the PRA realistic capital regime, and hence FRS 27, an amount may be
recognised for the present value of future profits (PVFP) on non-participating business written in a with-profit fund where the
determination of the realistic value of liabilities in that with-profit fund takes account, directly or indirectly, of this value. For our
UK with-profit funds, no adjustment for this value is made to the participating insurance and investment contract liabilities or the
unallocated divisible surplus.
Aviva plc Annual report and accounts 2014 |189
IFRS Financial statements