Aviva plc: Adoption of Aviva Market Consistent Embedded Value (MCEV) methodology and impact on results
D – Impact of change in accounting policy for latent claims and other restatement changes
As part of the group's aim to continuously improve the relevance and reliability of its external financial reporting, Aviva undertook a review of the group's General Insurance ("GI") Reserving Policy in 2008.
As part of this review, the group concluded that estimating latent claims provisions on an undiscounted basis, and discounting back to current values, represented an improvement to the existing estimation technique. This approach is in line with best practice for long-term liabilities and moves the measurement of latent claims onto a more economic basis, consistent with our internal model for economic capital and the measurement model being proposed for both IFRS Phase II and Solvency II. Further this approach improves consistency with the reporting of other long tail classes of business which are already being discounted, namely certain London Markets latent claims and Netherlands Permanent Health and Injury Business.
The application of discounting to our latent claims provisions for IFRS purposes represents a change in accounting policy and therefore has been applied retrospectively. The cumulative impact of discounting on the opening balance sheet as at 1 January 2007 is £153 million, and a prior year adjustment has been made. The group has also made some changes to the IFRS balance sheet to reflect the consolidation of funds and treatment of shares held by employee trusts.
The impact of the change in accounting policy and restatement changes on the six months to 30 June 2008 and full year ended 31 December 2007 are set out in the basis of preparation section.
