Glossary
Life profits reporting
In reporting the headline operating profit, life profits have been included using the European Embedded Value basis. This is used throughout the Aviva Group to assess performance, having adopted the EEV Principles. We have focused on the EEV basis, as we believe EEV operating return is a more realistic measure of the performance of the businesses than IFRS basis. The IFRS basis is used in our financial statements and, on this basis, the operating profit before tax on continuing operations amounted to £943 million (2004: £781 million). The EEV methodology adopted is in accordance with the EEV Principles introduced by the CFO Forum.
Definitions of Group key performance indicators and other terms
| Annual premium equivalent (APE) | – | Method for calculating life, pensions and investment new business levels. It equals the total of new annualised regular premiums plus 10% of single premiums. |
|---|---|---|
| Assets under management | – | Represents all assets managed by the Group including funds held on behalf of third parties. |
| CGUII | – | A principal UK general insurance company and the parent of the majority of the Group’s overseas general insurance and life assurance subsidiaries. |
| Combined operating ratio (COR) | – | The aggregate of incurred claims expressed as a percentage of earned premiums and written expenses and written commissions expressed as a percentage of written premiums. |
| Covered business | – | The contracts to which the EEV methodology has, in line with the EEV Principles, been applied. |
| EU solvency | – | The excess of assets over liabilities and the world-wide minimum solvency margins, excluding goodwill and the additional value of in-force long-term business, and excluding the surplus held in the Group's life funds. The Group solvency calculation is determined according to the UK Financial Services Authority application of EU Insurance Groups Directive rules. |
| Financial Options and Guarantees | – | Features of the covered business conferring potentially valuable guarantees underlying, or options to change, the level or nature of policyholder benefits and exercisable at the discretion of the policyholder, whose potential value is impacted by the behaviour of financial variables. |
| Free Surplus | – | The amount of any capital and surplus allocated to, but not required to support, the in-force covered business. |
| Gross risk free yields | – | Gross of tax yields on risk free fixed interest investments, generally Government bonds. |
| Holding Company | – | A legal entity with a function of being a consolidating entity for primary financial reporting of covered business. |
| Implicit items | – | Amounts allowed by local regulators to be deducted from capital amounts when determining the EU required minimum margin. |
| Life EEV operating return | – | Operating return on the EEV basis relating to the lines of business included in the embedded value calculations. From continuing operations and is stated before tax, impairment of goodwill and exceptional items. |
| Life EEV return | – | Total return on the EEV basis relating to the lines of business included in the embedded value calculations. From continuing operations. |
| Look-through basis | – | Inclusion of the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business. |
| IFRS operating profit | – | From continuing operations, stated before tax attributable to shareholders’ profits, impairment of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items. |
| Net asset value per ordinary share | – | Net asset value divided by the number of ordinary shares in issue. Net asset value is based on equity shareholders’ funds. |
| New business contribution | – | Is calculated using the same economic assumptions as those used to determine the embedded values at the beginning of each year and is stated before tax and the effect of required capital. |
| New business margin | – | New business margins are calculated as the new business contribution divided by the present value of new business premiums (PVNBP), and expressed as a percentage. Previously, under the Achieved Profits basis, they were expressed as new business contribution divided by premiums measured on an annual premium equivalent (APE) basis. |
| Orphan estate | – | The assets of the long-term with-profit funds less the realistic reserves for non-profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees. |
| Present value of new business premiums (PVNBP) | – | Present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine new business contribution. |
| Required Capital | – | The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted. |
| Service companies | – | Companies providing administration or fund management services to the covered business. |
| Solvency cover | – | The excess of the regulatory value of total assets over total liabilities, divided by the regulatory value of the required minimum solvency margin. |
| Statutory Basis | – | The valuation basis and approach used for reporting financial statements to local regulators. |
| Stochastic Techniques | – | Techniques that incorporate the potential future variability in assumptions affecting their outcome. |
| Time Value and Intrinsic Value | – | A financial option or guarantee has two elements of value, the time value and intrinsic value. The intrinsic value is the discounted value of the option or guarantee at expiry, assuming that future economic conditions follow best estimate assumptions. The time value is the additional value arising from uncertainty about future economic conditions. |
