Appendix A2
FRS 27 disclosures
Capital statement
FRS 27 requires us to produce a capital statement which sets out the financial strength of our Group entities and provides an analysis of the disposition and constraints over the availability of capital to meet risks and regulatory requirements. The capital statement also provides a reconciliation of shareholders' funds to regulatory capital.
The analysis below sets out the Group's available capital resources.
Available capital resources
| 2007 | 2006 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CGNU with-profit fund £m |
CULAC with-profit fund £m |
NUL&P with-profit fund3 £m |
Total UK life with-profit funds £m |
Other UK life ops £m |
Total UK life ops £m |
Overseas life ops £m |
Total life ops £m |
Other ops4 £m |
Total £m |
Total £m |
||
| Total shareholders’ funds | 43 | 42 | 41 | 126 | 4,412 | 4,538 | 10,751 | 15,289 | 1,303 | 16,592 | 14,064 | |
| Total other sources of capital1 | - | - | - | - | 200 | 200 | 49 | 249 | 2,981 | 3,230 | 3,090 | |
| Unallocated divisible surplus | 1,515 | 1,222 | 2,184 | 4,921 | 41 | 4,962 | 1,823 | 6,785 | - | 6,785 | 9,465 | |
| Adjustments onto a regulatory basis: | ||||||||||||
| Shareholders’ share of accrued bonus | (331) | (333) | (528) | (1,192) | - | (1,192) | - | (1,192) | - | (1,192) | (730) | |
| Goodwill, acquired value of in-force long-term business and intangibles | - | - | - | - | (400) | (400) | (4,029) | (4,429) | (2,385) | (6,814) | (5,638) | |
| Regulatory valuation and admissibility restrictions2 | 206 | 275 | 124 | 605 | (1,742) | (1,137) | 72 | (1,065) | (731) | (1,796) | (746) | |
| Total available capital | 1,433 | 1,206 | 1,821 | 4,460 | 2,511 | 6,971 | 8,666 | 15,637 | 1,168 | 16,805 | 19,505 | |
| Analysis of liabilities: | ||||||||||||
| Participating insurance liabilities | 10,689 | 9,895 | 16,876 | 37,460 | 2,148 | 39,608 | 26,485 | 66,093 | - | 66,093 | 63,705 | |
| Unit-linked liabilities | - | - | - | - | 5,291 | 5,291 | 15,310 | 20,601 | - | 20,601 | 21,004 | |
| Other non-participating life insurance | 1,218 | 1,851 | 341 | 3,410 | 15,751 | 19,161 | 29,159 | 48,320 | - | 48,320 | 41,515 | |
| Total insurance liabilities | 11,907 | 11,746 | 17,217 | 40,870 | 23,190 | 64,060 | 70,954 | 135,014 | - | 135,014 | 126,224 | |
| Participating investment liabilities | 2,055 | 2,534 | 7,524 | 12,113 | 2,782 | 14,895 | 38,714 | 53,609 | - | 53,609 | 49,400 | |
| Non-participating investment liabilities | 55 | 18 | 2 | 75 | 26,056 | 26,131 | 18,504 | 44,635 | - | 44,635 | 38,958 | |
| Total investment liabilities | 2,110 | 2,552 | 7,526 | 12,188 | 28,838 | 41,026 | 57,218 | 98,244 | - | 98,244 | 88,358 | |
| Total liabilities | 14,017 | 14,298 | 24,743 | 53,058 | 52,028 | 105,086 | 128,172 | 233,258 | - | 233,258 | 214,582 | |
- Other sources of capital include subordinated debt of £3,054 million issued by Aviva and £176 million of other qualifying capital issued by Dutch, Italian, Spanish and US subsidiary undertakings
- Including an adjustment for minorities.
- Includes the Provident Mutual with-profit fund.
- Other operations include general insurance and fund management business.
- Goodwill and other intangibles includes goodwill of £535m and JVs and associates.
- On 5 February 2008 Norwich Union Life announced a one-off special bonus worth an estimated £2.3 billion. In accordance with FRS 27, a transfer of £2.1 billion has been made from the unallocated divisible surplus to increase insurance and participating investment contract liabilities. £0.2 billion of shareholder's share of the special bonus is included within the shareholders' share of the accrued bonus line.
Analysis of movements in capital of long-term businesses
For the year ended 31 December 2007
| CGNU with-profit fund £m |
CULAC with-profit fund £m |
NUL&P with-profit 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 | 2,548 | 2,479 | 1,823 | 6,850 | 1,913 | 8,763 | 9,290 | 18,053 |
| Effect of new business | (54) | (38) | - | (92) | (162) | (254) | (325) | (579) |
| Expected change in available capital resources | 208 | 246 | 169 | 623 | 153 | 776 | 492 | 1,268 |
| Variance between actual and expected experience | (125) | (187) | (201) | (513) | 114 | (399) | (598) | (997) |
| Effect of operating assumption changes | (42) | (57) | 6 | (93) | (32) | (125) | (2) | (127) |
| Effect of economic assumption changes | (165) | (163) | (67) | (395) | (13) | (408) | (7) | (415) |
| Effect of changes in management policy | (1,195) | (1,207) | (19) | (2,421) | - | (2,421) | (1) | (2,422) |
| Effect of changes in regulatory requirements | - | - | - | - | - | - | (337) | (337) |
| Transfers, acquisitions and disposals | - | - | - | - | 21 | 21 | 44 | 65 |
| Foreign exchange movements | - | - | - | - | - | - | 682 | 682 |
| Other movements | 258 | 133 | 110 | 501 | 517 | 1,018 | (572) | 446 |
| Available capital resources at 31 December | 1,433 | 1,206 | 1,821 | 4,460 | 2,511 | 6,971 | 8,666 | 15,637 |
Further analysis of the movement in the liabilities of the long-term business can be found in Appendix B.
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 the 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.
For the UK with-profit funds, the decrease in available capital is driven by a special bonus worth an estimated £2.3 billion announced on 5 February 2008, which is treated as a transfer from unallocated divisible surplus to policy liabilities. Equity performance was moderate, which had a direct effect on the equity content of the estate assets. In addition, the implied market volatility for equities has increased, which raises the assumed asset share volatility and consequently guarantee costs have increased. The positive other movements relate mainly to methodology and modelling changes.
The changes in management policy shown in CGNU and CULAC with-profit funds relate to the special bonus announced on 5 February 2008.
For the Overseas life operations, the negative variance between the actual and expected experience is driven mainly by the increase in market interest rates, which has led to a capital depreciation of fixed interest assets and consequential reduction of the unallocated divisible surplus in France and other European businesses.
In aggregate, the Group has at its disposal total available capital of £16.8 billion (2006: £19.5 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 transfer to shareholders, the UK with-profit funds' available capital of £4.5 billion (2006: £6.9 billion) can only be used to provide support for UK with-profits business and is not available to cover other shareholder risks. This is comfortably in excess of the required capital margin and, therefore, the shareholders are not required to provide further capital support to this business.
For the remaining life and general insurance operations, the total available capital amounting to £12.3 billion (2006: £12.6 billion) is significantly 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.
As the total available capital of £16.8 billion is arrived at on the basis of local regulatory guidance, which evaluates assets and liabilities prudently, it understates the economic capital of the business which is considerably higher. 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 exists intra-group arrangements to provide capital to particular business units. Included in these arrangements is a subordinated loan of £200 million from Aviva plc to the NUL&P non-profit fund 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 FSA'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 FSA'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 FSA 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.
The table below provides the information on the UK with-profits funds on a realistic basis.
| 31 December 2007 | 31 December 2006 | ||||||
|---|---|---|---|---|---|---|---|
| Estimated Realistic assets £bn |
Realistic Liabilities1 £bn |
Estimated Realistic inherited estate2£bn |
Estimated risk capital margin3 £bn |
Estimated Excess £bn |
Excess £bn |
||
| CGNU Life | 14.5 | (13.1) | 1.4 | (0.3) | 1.1 | 2.0 | |
| CULAC | 13.9 | (12.7) | 1.2 | (0.4) | 0.8 | 2.0 | |
| NUL&P4 | 26.1 | (24.2) | 1.9 | (0.6) | 1.3 | 1.2 | |
| Aggregate | 54.5 | (50.0) | 4.5 | (1.3) | 3.2 | 5.2 | |
These realistic liabilities include the shareholders' share of future bonuses of £1.2 billion (31 December 2006: £0.7 billion). Realistic liabilities adjusted to eliminate the shareholders' share of future bonuses are £48.8 billion (31 December 2006: £48.6 billion).
- These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision included within realistic liabilities is £0.7 billion, £0.8 billion and £3.0 billion for CGNU Life, CULAC and NUL&P, respectively (31 December 2006: £0.5 billion, £0.7 billion and £3.0 billion for CGNU Life, CULAC and NUL&P respectively).
- Estimated realistic inherited estate at 31 December 2006 was £2.5 billion, £2.5 billion and £1.8 billion for CGNU Life, CULAC and NUL&P respectively.
- The risk capital margin (RCM) is 3.5 times covered by the inherited estate (31 December 2006: 4.2 times).
- The NUL&P fund includes the Provident Mutual (PM) fund, which has realistic assets and liabilities of £2.1 billion and therefore does not impact the realistic inherited estate.
Under the FSA regulatory regime, UK with-profit funds is required to hold capital equivalent to the greater of their regulatory requirement based on EU Directive ("regulatory peak") and the FSA realistic basis ("realistic peak") described above.
For UK non-participating business, the relevant capital requirement is the minimum solvency requirement determined in accordance with FSA regulations. The available capital reflects the excess of regulatory basis assets over liabilities before deduction of capital resources requirement.
For UK general insurance businesses, the relevant capital requirement is the minimum solvency requirement determined in accordance with the FSA requirements.
For overseas business in the EEA, US, Canada, Australia, Hong Kong and Singapore, the available capital and the minimum capital requirement are calculated under the locally applicable regulatory regimes. The businesses outside these territories are subject to the FSA rules for the purposes of calculation of available capital and capital resource requirement.
For fund management and other businesses, the relevant capital requirement is the minimum solvency requirement determined in accordance with the local regulator's requirements for the specific class of business.
All businesses hold sufficient available capital to meet their minimum capital requirement.
The available capital resources in each regulated entity are generally subject to restrictions as to their availability to meet requirements that may arise elsewhere in the Group. The principal restrictions are:
- UK with-profit funds (CGNU Life, CULAC and NUL&P) - any available surplus held in each fund can only be used to meet the requirements of the fund itself or be distributed to policyholders and shareholders. With-profit policyholders are entitled to at least 90% of the distributed profits while the shareholders receive the balance. The latter distribution would be subject to a tax charge, which is met by the fund in the case of CGNU Life, CULAC and NUL&P.
- UK non-participating funds – any available surplus held in these is attributable to shareholders. Capital within the non-profit funds may be made available to meet requirements elsewhere in the Group subject to meeting the regulatory requirements of the fund. Any transfer of the surplus may give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
- Overseas life operations – the capital requirements and corresponding regulatory capital held by overseas businesses are calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to local regulatory restrictions which may constrain management's ability to utilise these in other parts of the Group. Any transfer of available capital may give rise to a tax charge subject to availability of tax relief elsewhere in the Group.
- General insurance operations – the capital requirements and corresponding regulatory capital held by overseas businesses are calculated using the locally applicable regulatory regime. The available capital resources in all these businesses are subject to local regulatory restrictions which may constrain management's ability to utilise these in other parts of the Group. Any transfer of available capital may give rise to a tax charge, subject to availability of tax relief elsewhere in the Group.
Financial guarantees and options
As a normal part of their operating activities, various Group companies have given guarantees and options, including investment return guarantees, in respect of certain long-term insurance and fund management products.
(a) UK Life with-profit business
In the UK, life insurers are required to comply with the FSA's realistic reporting regime for their with-profit funds for the calculation of FSA liabilities. Under the FSA's rules, provision for guarantees and options within realistic liabilities must be measured at fair value, using market-consistent stochastic models. A stochastic approach includes measuring the time value of guarantees and options, which represents the additional cost arising from uncertainty surrounding future economic conditions.
The material guarantees and options to which this provision relates are:
- Maturity value guarantees – Substantially all of the conventional with-profit business and a significant proportion of unitised with-profit business have minimum maturity values reflecting the sums assured plus declared annual bonus. In addition, the guarantee fund has offered maturity value guarantees on certain unit-linked products.
- No market valuation reduction (MVR) guarantees – For unitised business, there are a number of circumstances where a "no MVR" guarantee is applied, for example on certain policy anniversaries, guaranteeing that no market value reduction will be applied to reflect the difference between the accumulated value of units and the market value of the underlying assets.
- Guaranteed annuity options – The Group's UK with-profit funds have written individual and group pensions which contain guaranteed annuity rate options (GAOs), where the policyholder has the option to take the benefits from a policy in the form of an annuity based on guaranteed conversion rates. The Group also has exposure to GAOs and similar options on deferred annuities.
- Guaranteed minimum pension – The Group's UK with-profit funds also have certain policies that contain a guaranteed minimum level of pensions as part of the condition of the original transfer from state benefits to the policy.
In addition, while these do not constitute guarantees, the with-profit fund companies have made promises to certain policyholders in relation to their with-profit mortgage endowments. Subject to certain conditions, top-up payments will be made on these policies at maturity to meet the mortgage value up to a maximum of the 31 December 1999 illustrated shortfall.
(b) UK Life non-profit business
The Group's UK non-profit funds are evaluated by reference to local statutory reserving rules, including changes introduced in 2006 under the FSA Policy Statement 06/14 Prudential Changes for insurers.
- Guaranteed annuity options – Similar options to those written in the with-profit fund have been written in relation to non-profit products. Provision for these guarantees does not materially differ from a provision based on a market-consistent stochastic model, and amounts to £36 million at 31 December 2007 (2006: £39 million).
- Guaranteed unit price on certain products – Certain unit-linked pension products linked to long-term life insurance funds provide policyholders with guaranteed benefits at retirement or death. No additional provision is made for this guarantee as the investment management strategy for these funds is designed to ensure that the guarantee can be met from the fund, mitigating the impact of large falls in investment values and interest rates.
(c) Overseas life businesses
In addition to guarantees written in the Group's UK life businesses, our overseas businesses have also written contracts containing guarantees and options. Details of the significant guarantees and options provided by overseas life businesses are set out below.
(i) France
Guaranteed surrender value and guaranteed minimum bonuses
Aviva France has written a number of contracts with such guarantees. The guaranteed surrender value is the accumulated value of the contract including accrued bonuses. Bonuses are based on accounting income from amortised bond portfolios, where the duration of bond portfolios is set in relation to the expected duration of the policies, plus income and releases from realised gains on equity-type investments. Policy reserves are equal to guaranteed surrender values. Local statutory accounting envisages the establishment of a reserve, "Provision pour Aléas Financiers" (PAF), when accounting income is less than 125% of guaranteed minimum credited returns. No PAF was established at the end of 2007.
The most significant of these contracts is the AFER Euro fund which has total liabilities of £24 billion at 31 December 2007 (2006: £21 billion). The guaranteed bonus on this contract equals 75% of the average of the last two years' declared bonus rates and was 3.64% for 2007 (2006: 3.30%) compared with an accounting income from the fund of 4.92% (2006: 4.81%).
Non-AFER contracts with guaranteed surrender values had liabilities of £8 billion (2006: £6 billion) at 31 December 2007 and all guaranteed annual bonus rates are between 0% and 4.5%. For non-AFER business, the accounting income return exceeded guaranteed bonus rates in 2007.
Guaranteed death and maturity benefits
In France, the Group has also sold unit-linked policies where the death and/or maturity benefit is guaranteed to be at least equal to the premiums paid. The reserve held in the Group's consolidated balance sheet at the end of 2007 for this guarantee is £30 million (2006: £8 million). The reserve is calculated on a prudent basis and is in excess of the economic liability. At the end of 2007, total sums at risk for these contracts were £63 million (2006: £38 million) out of total unit-linked funds of £15 billion (2006: £13 billion). The average age of policyholders was approximately 53. It is estimated that this liability would increase by £17 million (2006: £3 million) if yields were to decrease by 1% per annum and by £7 million (2006: £2 million) if equity markets were to decline by 10% from year end 2007 levels. These figures do not reflect our ability to review the tariff for this option.
(ii) Netherlands
Guaranteed minimum return at maturity
In the Netherlands, it is market practice to guarantee a minimum return at maturity on traditional savings and pension contracts. Guarantees on older lines of business are 4% per annum while, for business written since 1 September 1999, the guarantee is 3% per annum. On group pensions business, it is often possible to recapture guarantee costs through adjustments to surrender values or to premium rates.
On transition to IFRS, Delta Lloyd changed the reserving basis for most traditional contracts to reflect current market interest rates, for consistency with the reporting of assets at market value. The cost of meeting interest rate guarantees is allowed for directly in the liabilities. Although most traditional contracts are valued at market interest rate, the split by level of guarantee shown below is according to the original underlying guarantee.
The total liabilities for traditional business at 31 December 2007 are £10 billion (2006: £8 billion) analysed as follows:
| Liabilities 3% guarantee 31 December 2007 £m |
Liabilities 3% guarantee 31 December 2006 £m |
Liabilities 4% guarantee 31 December 2007 £m |
Liabilities 4% guarantee 31 December 2006 £m |
|
|---|---|---|---|---|
| Individual | 1,387 | 1,222 | 3,671 | 2,989 |
| Group pensions | 485 | 518 | 3,993 | 3,180 |
| Total | 1,872 | 1,740 | 7,664 | 6,169 |
Delta Lloyd has certain unit-linked contracts which provide a guaranteed minimum return at maturity from 4% per annum to 2% per annum. Provisions consist of unit values plus an additional reserve for the guarantee. The additional provision for the guarantee was £70 million (2006: £76 million). An additional provision of £19 million (2006: £43 million) in respect of investment return guarantees on group segregated fund business is held. It is estimated that the provision would increase by £211 million (2006: £163 million) if yields were to reduce by 1% per annum and by £21 million (2006: £25 million) if equity markets were to decline by 10% from year end 2007 levels.
(iii) Ireland
Guaranteed annuity options
Products with similar GAOs to those offered in the UK have been issued in Ireland. The current net of reinsurance provision for such options is £160 million (2006: £152 million). This has been calculated on a deterministic basis, making conservative assumptions for the factors which influence the cost of the guarantee, principally annuitant mortality, option take-up and long-term interest rates.
These GAOs are "in the money" at current interest rates but the exposure to interest rates under these contracts has been hedged through the use of reinsurance, using derivatives (swaptions). The swaptions effectively guarantee that an interest rate of 5% will be available at the vesting date of these benefits so there is reduced exposure to a further decrease in interest rates.
"No MVR" guarantees
Certain unitised with-profit policies containing "no MVR" guarantees, similar to those in the UK, have been sold in Ireland. These guarantees are currently "out-of-the-money" by £53 million (2006: £69 million). This has been calculated on a deterministic basis as the excess of the current policy surrender value over the discounted value (excluding terminal bonus) of the guarantees. The value of these guarantees is sensitive to the performance of investments held in the with-profit fund. Amounts payable under these guarantees are determined by the bonuses declared on these policies. It is estimated that the guarantees would be out-of-the-money by £46 million (2006: £74 million) if yields were to increase by 1% per annum and by £29 million (2006: £31 million) if equity markets were to decline by 10% from year end 2007 levels.
Return of premium guarantee
Hibernian Life has written two tranches of linked bonds with a return of premium guarantee after five or six years. The provision for these at the end of 2007 is £0.1 million (2006: £nil). In addition, it is estimated that the provision would increase if equity markets were to decline by 10% from year end 2007 levels by £1.4 million. It is estimated that the provision would increase if interest rates were to increase by 1% from year end 2007 levels by £0.1 million.
(iv) Spain and Italy
Guaranteed investment returns and guaranteed surrender values
The Group has written contracts containing guaranteed investment returns and guaranteed surrender values in both Spain and Italy. Traditional profit-sharing products receive an appropriate share of the investment return, assessed on a book value basis, subject to a guaranteed minimum annual return of up to 6% in Spain and 4% in Italy on existing business, while on new business the maximum guaranteed rate is lower. Liabilities are generally taken as the face value of the contract plus, if required, an explicit provision for guarantees calculated in accordance with local regulations. At 31 December 2007, total liabilities for the Spanish business were £4 billion (2006: £3 billion) with a further reserve of £16 million (2006: £18 million) for guarantees. Total liabilities for the Italian business were £4 billion (2006: £5 billion), with a further provision of £48 million (2006: £46 million) for guarantees. Liabilities are most sensitive to changes in the level of interest rates. It is estimated that provisions for guarantees would need to increase by £66 million (2006: £66 million) in Spain and £14 million (2006: £9 million) in Italy if interest rates fell by 1% from end 2007 values. Under this sensitivity test, the guarantee provision in Spain is calculated conservatively, assuming a long-term market interest rate of 1.42% and no lapses or premium discontinuances.
(v) United States
Indexed and total return strategy products
In the United States, the Group writes indexed life and deferred annuity products. These products guarantee the return of principal to the policyholder and credit interest based on certain indices, primarily the Standard & Poor's 500 Composite Stock Price Index. A portion of each premium is used to purchase call options to hedge the growth in interest credited to the policyholder. The call options held by the Group and the options embedded in the policy are both carried at fair value. At 31 December 2007, the total liabilities for indexed products were £8.4 billion (2006: £5.4 billion). If interest rates were to increase by 1%, the provision for embedded options would decrease by £89 million (2006: £51 million) and, if interest rates were to decrease by 1%, the provision would increase by £86 million (2006: £56 million).
The Group has certain products that credit interest based on a total return strategy, whereby policyholders are allowed to allocate their premium payments to different asset classes within the general account. The Group guarantees a minimum return of premium plus approximately 3% interest over the term of the contracts. The linked general account assets are fixed maturity securities, and both the securities and the contract liabilities are carried at fair value. At 31 December 2007, the liabilities for total return strategy products were valued at £1.2 billion (2006: £1.4 billion).
The Group offers an optional lifetime guaranteed income benefit focused on the retirement income segment of the deferred annuity marketplace to help customers manage income during both the accumulation stage and the distribution stage of their financial life. At 31 December 2007, a total of £0.7 billion in indexed deferred annuities have elected this benefit taking steps to guarantee retirement income.
(d) Sensitivity
In providing these guarantees and options, the Group's capital position is sensitive to fluctuations in financial variables including foreign currency exchange rates, interest rates, real estate prices and equity prices. Interest rate guaranteed returns, such as those available on guaranteed annuity options (GAOs), are sensitive to interest rates falling below the guaranteed level. Other guarantees, such as maturity value guarantees and guarantees in relation to minimum rates of return, are sensitive to fluctuations in the investment return below the level assumed when the guarantee was made.
