Aviva 2014 Annual Report Download - page 206

Aviva plc Annual report and accounts 2014
Notes to the consolidated financial statements continued
202
45 – Effect of changes in assumptions and estimates during the year
Certain estimates and assumptions used in determining our liabilities for insurance and investment contract business were changed
from 2013 to 2014, affecting the profit recognised for the year with an equivalent effect on liabilities. This note analyses the effect
of the changes. This note only allows for the impact on liabilities and related assets, such as unallocated divisible surplus,
reinsurance, deferred acquisition costs and AVIF, and does not allow for offsetting movements in the value of backing financial
assets.
Effect on
profit 2014
£m
Effect on
profit 2013
£m
Assumptions
Long-term insurance business
Interest rates (4,578) 1,389
Expenses 75 3
Persistency rates 15 (1)
Mortality for assurance contracts 20 8
Mortality for annuity contracts 283 85
Tax and other assumptions 75 20
Investment contracts
Interest rates (2)
—
Expenses
—
—
Persistency rates
—
—
Tax and other assumptions
—
—
General insurance and health business
Change in loss ratio assumptions
—
3
Change in discount rate assumptions (145) 33
Change in expense ratio and other assumptions 1
—
Total (4,256) 1,540
The impact of interest rates on long-term business relates primarily to UK annuities, where a reduction in the valuation interest
rates has increased liabilities. The overall impact on profit also depends on movements in the value of assets backing the liabilities,
which is not included in this disclosure.
There has been a release of expense reserves for the UK annuity business as a result of continuing restructuring and process
improvements, reducing the current and long term cost base and a release of mortality reserves following the annual review of
experience, most of which relates to annuitant mortality.
Tax and other assumptions includes the effect of changes in the equity release default assumptions used to derive the valuation
interest rate for UK annuities resulting in a £163 million reduction in annuity liabilities (changes in other default risk assumptions
are included within “interest rate” changes). This is partially offset by a write down of DAC in the UK in part to include the impact
of the DWP announcement of a 0.75% charge cap and ban on active member discounts.
The adverse change in discount rate assumptions on general insurance and health business of £145 million (2013: £33 million
favourable) arises mainly as a result of a decrease in the swap rates used to discount latent claims reserves and periodic payment
orders.
202 | Aviva plc Annual report and accounts 2014