Preliminary results year ended 31 December 2008
05 March 2009
M1 – Introduction
The summarised consolidated income statement and balance sheet present the group’s results and financial position for the life and related businesses on the Market Consistent Embedded Value (MCEV) basis and for its non-life businesses on the International Financial Reporting Standards (IFRS) basis. The MCEV methodology adopted is in accordance with the MCEV Principles published by the CFO Forum in June 2008 with the exception of the use of an adjusted risk-free yield due to current market conditions for immediate annuities in the UK and Netherlands and for immediate annuities, deferred annuities and all other contracts in the US.
The CFO Forum MCEV Principles were designed during a period of relatively stable market conditions. As announced on 19 December 2008, the CFO Forum has agreed to conduct a review of the impact of turbulent market conditions on the MCEV Principles, the result of which may lead to changes to the published MCEV Principles or the issuance of guidance. The particular areas under review include implied volatilities, the cost of non-hedgeable risks, the use of swap rates as a proxy for risk-free rates and the effect of liquidity premia.
The directors consider that Aviva’s MCEV methodology gives useful insight into the drivers of financial performance of the group’s life and related businesses. This basis values future cash flows from assets consistently with market prices, including more explicit allowance for the impact of uncertainty in future investment returns and other risks. Embedded value is also consistent with the way pricing is assessed and the business is managed.
The prior year comparatives have been restated to MCEV as announced on 4 February 2009.
The results for 2008 and 2007 have been audited by our auditors, Ernst & Young. Their report in respect of 2008 can be found on page 288 in the Report and Accounts.