Aviva 2014 Annual Report Download - page 223

Aviva plc Annual report and accounts 2014
219
57 – Capital statement continued
Analysis of movements in capital of long-term businesses
For the year ended 31 December 2014
Old
with-profit
sub-fund
£m
New
with-profit
sub-fund
£m
With-profit
sub-fund
£m
Total UK
life with-
profit
funds
£m
Other
UK life
operations
£m
Total
UK life
operations
£m
Overseas
life
operations
£m
Total life
operations
£m
Available capital resources at 1 January 363 1,298 1,510 3,171 2,793 5,964 10,732 16,696
Effect of new business
—
(36) (1) (37) 127 90 (150) (60)
Expected change in available capital resources (4) (1) 70 65 306 371 653 1,024
Variance between actual and expected experience (6) 70 31 95 (71) 24 3,176 3,200
Effect of operating assumption changes (6) 5 48 47 156 203 59 262
Effect of economic assumption changes (8) (139) (26) (173) (45) (218) 51 (167)
Effect of changes in management policy1 (87) 926
—
839 308 1,147 3 1,150
Transfers, acquisitions and disposals2
—
—
—
—
(491) (491) (61) (552)
Foreign exchange movements
—
—
—
—
— — (792) (792)
Other movements 1 (12) (49) (60) (399) (459) (402) (861)
Available capital resources at 31 December 253 2,111 1,583 3,947 2,684 6,631 13,269 19,900
1 New with-profit sub-fund (NWPSF) changes in management policy include increase in the value of the reattributed estate (RIEESA) as a result of the transfer of the non-profit business from RIEESA to NWPSF of £1.1 billion.
2 Included within transfers, acquisitions and disposals is £550 million of cash consideration paid from life operations to other non-life operations within the Group for the sale of Aviva Life & Pensions Ireland Limited and Aviva
Powszechne Towarzystwo Emerytalne BZ WBK S.A.
Further analysis of the movement in the liabilities of the long-term business can be found in notes 41 and 42.
The analysis of movements in capital provides an explanation of the movement in available capital of the Group’s life business
for the year. This analysis is intended to give an understanding of the underlying causes of changes in the available capital of the
Group’s life business, and provides a distinction between some of the key factors affecting the available capital.
The negative shareholders’ funds balance within the UK with-profit funds arises in NWPSF as a result of regulatory valuation
and admissibility differences in the reattributed estate which is valued on a realistic regulatory basis compared to the disclosure on
an IFRS basis.
NWPSF is fully supported by the reattributed estate of £2,111 million (this is known as RIEESA) at 31 December 2014 (31
December 2013: £1,105 million) held within NPSF1 (a non-profit fund within UKLAP included within other UK life operations) in
the form of a capital support arrangement. This support arrangement will provide capital to NWPSF to ensure that the value of
assets of NWPSF are at least equal to the value of liabilities calculated on a realistic regulatory basis, therefore it forms part of the
NWPSF available capital resources.
The with-profit funds and the RIEESA use internal hedging to limit the impacts of equity market volatility.
In aggregate, the Group has at its disposal total available capital of £22.2 billion (2013: £18.6 billion), representing the
aggregation of the solvency capital of all of our businesses.
This capital is available to meet risks and regulatory requirements set by reference to local guidance and EU directives.
After effecting the year-end transfers to shareholders, the UK with-profit funds have available capital of £3.9 billion (2013: £3.2
billion) (including amounts held in RIEESA). Subject to certain conditions, the RIEESA capital can be used to write new non-profit
business, but the primary purpose of this capital is to provide support for the UK with-profit business. The capital (including RIEESA)
is comfortably in excess of the required capital margin, and therefore no further support is required by shareholders.
For the remaining life and general insurance operations, the total available capital amounting to £18.3 billion (2013: £15.4
billion) is higher than the minimum requirements established by regulators and, in principle, the excess is available to shareholders.
In practice, management will hold higher levels of capital within each business operation to provide appropriate cover for risk.
The total available capital of £22.2 billion is arrived at on the basis of local regulatory guidance, which evaluates assets and
liabilities prudently and includes the Group’s unallocated divisible surplus of overseas life operations. This is a limitation of the
Group Capital Statement which, to be more meaningful, needs to evaluate available capital on an economic basis and compare it
with the risk capital required for each individual operation, after allowing for the considerable diversification benefits that exist in
our Group.
Within the Aviva Group there exist intra-group arrangements to provide capital to particular business units. Included in these
arrangements is a subordinated loan of £200 million from Aviva Life Holdings UK Limited to Aviva Annuity Limited to provide
capital to support the writing of new business.
The available capital of the Group’s with-profit funds is determined in accordance with the ‘Realistic balance sheet’ regime
prescribed by the PRA’s regulations, under which liabilities to policyholders include both declared bonuses and the constructive
obligation for future bonuses not yet declared. The available capital resources include an estimate of the value of their respective
estates, included as part of the unallocated divisible surplus. The estate represents the surplus in the fund that is in excess of any
constructive obligation to policyholders. It represents capital resources of the individual with-profit fund to which it relates and is
available to meet regulatory and other solvency requirements of the fund and, in certain circumstances, additional liabilities may
arise.
The liabilities included in the balance sheet for the with-profit funds do not include the amount representing the shareholders’
portion of future bonuses. However, the shareholders’ portion is treated as a deduction from capital that is available to meet
regulatory requirements and is therefore shown as a separate adjustment in the capital statement.
In accordance with the PRA’s regulatory rules under its realistic capital regime, the Group is required to hold sufficient capital in
its UK life with-profit funds to meet the PRA capital requirements, based on the risk capital margin (RCM). The determination of
the RCM depends on various actuarial and other assumptions about potential changes in market prices, and the actions
management would take in the event of particular adverse changes in market conditions.
Aviva plc Annual report and accounts 2014 |219
IFRS Financial statements