Aviva plc: Worldwide long-term savings new business– 12 months to 31 December 2008
Additional information
Solvency
Insurers are required to hold a financial buffer over and above statutory solvency levels, known as the capital resource requirement. The IGD surplus is the amount of capital held in addition to this regulatory requirement. Aviva has a strong capital position. As at 31 December 2008, the group’s estimated IGD surplus was £2.0 billion (30 September 2008: £1.9 billion). Following individual guidance from the FSA we now recognise surpluses in the non-profit funds of our UK life and pensions business which is available for transfer to shareholders of £0.4 billion, the benefit of which is offset by reserve strengthening elsewhere in the group.
In the current economic conditions we are proactively managing balance sheet risk. In addition to the de-risking exercise we undertook in 2007 we have taken out further equity hedges during 2008 which will remain in place for the foreseeable future. As a result of these and other actions, we expect that our IGD surplus would be approximately £1.3 billion in the event of a 40% fall in equity markets from the 31 December 2008 position.
Liquidity
The group and its subsidiaries have a strong liquidity position with significant cashflows generated by its businesses and remitted to Aviva plc. At 31 December 2008 Aviva plc had direct access to £1.4 billion of liquid assets which are sufficient to meet our operational requirements for the foreseeable future without having to borrow externally. In addition, the first call date on Aviva plc’s hybrid debt is not until November 2011.
Aviva plc also has a commercial paper programme (£536 million outstanding) which continues to be refinanced in the normal course of business and £2.1 billion of undrawn committed credit facilities which are provided by a range of leading international banks.
Proposed inherited estate reattribution
Since we agreed an offer with the policyholder advocate in July 2008, the estate has reduced significantly as a result of substantial reductions in the value of equity and property investments. Continuing market volatility and uncertainty means that the original reattribution offer for the inherited estate no longer meets our critical test of being fair to both policyholders and shareholders. We are working closely with the policyholder advocate to see how we can restructure our offer. While we realise this will be disappointing for our eligible policyholders, it does reflect the nature of the current exceptional investment market conditions. We expect to be able to update policyholders in the next few months.