Aviva 2014 Annual Report Download - page 316

Aviva plc Annual report and accounts 2014
Shareholder information continued
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jurisdictions in which we operate. These actions arise in various
contexts, including in connection with our activities as an
insurer, securities issuer, employer, investment adviser,
investment manager, investor and taxpayer.
Lawsuits and investigations may also arise which could 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.
As industry practices and legal, judicial, social and other
environmental conditions change, unexpected and unintended
issues related to claims and coverage may emerge. Examples of
emerging claims and coverage issues include adverse changes in
loss trends, judicial expansion of policy coverage and the impact
of new theories of liability; growth of claims culture; legislative
or judicial action that affects policy coverage or interpretation,
claim quantification, or pricing; a growing trend of plaintiffs
targeting property and casualty insurers in purported class
action litigation relating to claims-handling and other practices;
new causes of liability or mass claims; claims in respect of
directors’ and officers’ coverage, professional indemnity and
other liability covers; and climate change-related litigation.
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
legislation passed in the United States
The U.S. Foreign Account Tax Compliance Act (“FATCA”)
requires 30% withholding on payments of U.S. source
dividends, interest, and other fixed payments (including, after
December 31, 2016, payments of gross proceeds) made to a
non-United States financial institution (“FFI”) unless the FFI has
entered into an agreement with the Internal Revenue Service to
report account information for any of the FFI’s U.S.
accountholders. An intergovernmental agreement between the
U.S. and certain other jurisdictions will allow FFIs in those
jurisdictions to report U.S. accountholder information only to
local revenue authorities, rather than to the IRS.
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, in which we operate, have
introduced or announced that they intend to introduce similar
measures. There can be no assurance as to the nature of such
measures, or extensions to existing measures, that may be
introduced.
Changes to IFRS generally or specifically for insurance
companies may materially adversely affect the reporting of
our financial results
Changes to IFRS for insurance companies have been proposed
in recent years and further changes may be proposed in the
future. The International Accounting Standards Board published
proposals that would introduce significant changes to the
statutory reporting of insurance entities that prepare financial
statements according to IFRS. The accounting proposals, which
are not expected to be finalised until later in 2015 at the earliest
with an effective date still to be determined, will change the
presentation and measurement of insurance contracts, including
the effect of technical reserves and reinsurance on the value of
insurance contracts. It is uncertain whether and how the
proposals may affect the Group should they become definitive
standards. Current proposals may have an adverse effect on the
manner in which we report insurance provisions and, therefore,
identify and report revenues, costs and distributable reserves.
The changes could, therefore, have an adverse effect on our
financial performance and condition (including through changes
affecting the calculation of taxation). These and any other
changes to IFRS, that may be proposed in the future, whether or
not specifically targeted at insurance companies, could
materially adversely affect our reported results of operations and
their financial position.
Risks related to ownership of the ADSs and
ordinary shares
The trading price of our ADRs and dividends paid on our
ADSs may be materially adversely affected by fluctuations in
the exchange rate for converting sterling into US dollars.
An ADS is a negotiable US security representing ownership in
one share. An ADR is denominated in US dollars and represents
ownership of any number of ADSs. ADRs are publicly traded
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