Preliminary results - 12 months ended 31 December 2005

previous | index | next

Supplementary analyses

(a) Analysis of service companies and fund management businesses within embedded value

The EEV methodology incorporates the impact of profits and losses arising from subsidiary undertakings providing administration, investment management and other services where these arise in relation to covered business. The principal subsidiaries of the Aviva group providing such services are NU Life Services Limited (UK), Morley Fund Management (UK) and Aviva Gestion d’Actifs (France). The following table provides an analysis of the elements within the life and other related business embedded value:

The “look-through” value attributable to fund management is based on the level of after-tax profits expected to be earned in the future over the outstanding term of the covered business in respect of services provided to the Group’s life operations. The EEV basis income statement excludes the actual statutory basis profits arising from the provision of fund management services to the Group’s life businesses. The EEV income statement records the experience profit or loss compared to the assumed profitability, the return on the in-force value arising from the unwind at the relevant risk discount rate and the effect on the in-force value of changes to economic assumptions.

NU Life Services Limited (NULS) is the main provider of administration services to the UK Life business. NULS incurs substantially all of the UK Life businesses operating expenditure, comprising acquisition, maintenance and project costs. Costs are recharged to the UK Life companies (the product companies) on the basis of a pre-determined Management Services Agreement (MSA) which was negotiated in 1998 and will be reviewed in 2008.

The EEV principles “look-through” the contractual terms of the MSA to the underlying expenses of NULS. Accordingly the actual maintenance expenses and a “normal” annual level of project expense allowances have been applied to the product companies. Under EEV, any further one-off project expenditure is reported as experience losses when incurred.

(b) Pension schemes

(i) Pension scheme deficits in consolidated balance sheet

On the consolidated balance sheet, the amount described as Provisions includes the pension scheme deficits and comprises:

(ii) Movements in the pension schemes’ deficits comprise:

The change in the net pension deficit during 2005 is mainly attributable to changes in assumptions underlying the present value of the schemes’ liabilities, partially offset by an increase in the market value of their assets. In the United Kingdom, the value of the liabilities has increased due to lower corporate bond yields, which are used to set the valuation discount rate, a higher assumed inflation rate and a strengthening to the post-retirement mortality future improvements allowed for in the basis. The increase in scheme assets is primarily due to an improvement in equity and bond values since the previous year end, together with deficit contribution payments made by the employing companies. The deficit has further increased by £313 million as a result of the acquisition of RAC plc in May 2005.

Employer contributions included deficit funding payments amounting to £211 million (2004: £50 million).

(iii) The pension expense for these schemes comprises:

The cumulative amount of actuarial gains and losses recognised in the statement of recognised income and expenses since 1 January 2004 (the date of transition to IFRS) is £692 million at 31 December 2005 (2004: £145 million).

(c) Long-term savings new business

(d) Assets under management

previous | index | next