Glossary
| Product Definitions: | ||
|---|---|---|
| Annuities | A type of policy that pays out regular amounts of benefit, either immediately and for the remainder of a person’s lifetime, or deferred to commence from a future date. Immediate annuities may be purchased for an individual and his or/her dependents or on a bulk purchase basis for groups of people. Deferred annuities are accumulation contracts, which may be used to provide benefits in retirement, and may be guaranteed, unit-linked or index-linked. | |
| Bonds and savings | These are accumulation products with single or regular premiums and unit-linked or guaranteed investment returns. Our product ranges include single premium investment bonds, regular premium savings plans and mortgage endowment products. | |
| Critical illness cover | Critical illness cover pays out a lump sum if the insured person is diagnosed with a serious illness that meets the plan definition. The cover is often provided in conjunction with other benefits under a protection contract. | |
| Deferred annuities | An annuity (or pension) due to be paid from a future date or when the policyholder reaches a specified age. A deferred annuity may be funded by a policyholder by payment of a series of regular contributions or by a capital sum (the latter often provided from a pension fund). | |
| Group pensions | A pension plan that covers a group of people, which is typically purchased by a company and offered to their employees | |
| Guaranteed annuities | A policy that pays out a fixed regular amount of benefit for a defined period. | |
| Income drawdown | The policyholder can transfer money from any pension fund to an income drawdown plan from which they receive an income. The remainder of the pension fund continues to be invested, giving it the potential for growth. | |
| Index linked annuities | An index linked annuity is a type of deferred annuity whose credited interest is linked to an equity index. It guarantees a minimum interest rate and protects against a loss of principal. | |
| Investment sales | Comprise retail sales of mutual fund type products such as unit trusts, individual savings accounts (“ISAs”) and Open Ended Investment Companies (“OEICs”). | |
| ISAs | Individual savings accounts – Tax efficient plans for investing in stocks and shares, cash deposits or life insurance investment funds, subject to certain limits. Introduced in the UK in 1999. | |
| Monolines | Financial companies specialising in a single line of products such as credit cards, mortgages or home equity loans). | |
| Mortgage endowment | An insurance contract combining savings and protection elements which is designed to repay the principal of a loan or mortgage. | |
| Mortgage life insurance | A protection contract designed to pay off the outstanding amount of a mortgage or loan in the event of death of the insured. | |
| Non profits | Long term savings and insurance products sold in the UK other than “With profits” (see definition below) products. | |
| OEIC | Open ended investment company is a collective investment fund structured as a limited company in which investors can buy and sell shares. | |
| Pensions | A means of providing income in retirement for an individual and possibly his/her dependants. Our pensions products include personal and group pensions, stakeholder pensions and income drawdown. | |
| Personal pensions | A pension plan tailored to the individual policyholder, which includes the options to stop, start or change their payments. | |
| Protection | An insurance contract that protects the policyholder or his/her dependants against financial loss on death or ill-health. Our product ranges include term assurance, mortgage life insurance, flexible whole life and critical illness cover. | |
| Regular premium | A series of payments are made by the policyholder, typically monthly or annually, for part of or all of the duration of the contract. | |
| SICAVs | Société d’investissement à capital variable (variable capital investment company). This is an open-ended investment fund, structured as a legally independent joint stock company, whose units are issued in the form of shares. | |
| Single premium | A single lump sum is paid by the policyholder at commencement of the contract, | |
| Stakeholder pensions | Low cost and flexible pension plans available in the UK, governed by specific regulations. | |
| Superannuation | Superannuation is a pension product sold in Australia where employers pay a proportion of an employee’s salaries and wages into a fund, which can be accessed when the employee retires. | |
| Takaful | Insurance products that observe the rules and regulations of Islamic law. | |
| Term assurance | A simple form of life insurance, offering cover over a fixed number of years during which a lump sum will be paid out if the life insured dies. | |
| Unit trusts | A form of open ended collective investment constituted under a trust deed, in which investors can buy and sell units. | |
| Unit-linked annuities | A unit-linked annuity is a type of deferred annuity which is invested in units of investment funds, whose value depends directly on the market value of assets in those funds. | |
| Whole life | Whole life insurance is a protection policy that remains in force for the insured’s whole life. Traditional whole life contracts have fixed premium payments that typically cannot be missed without lapsing the policy. Flexible whole life contracts allow the policyholder to vary the premium and/or amount of life cover, within certain limits. | |
| With profits | A type of long term savings and insurance product sold in the UK Under with profits policies premiums are paid into a separate fund. Policyholders receive a return on their policies through bonuses, which “smooth” the investment return from the assets which premiums are invested in. Bonuses are declared on an annual and terminal basis. Shareholders have a participating interest in the with-profit funds and any declared bonuses. Generally, policyholder and shareholder participation in with-profit funds in the UK is split 90:10. | |
| Wrap investments | An account in which a broker or fund manager executes investment decisions on behalf of a client in exchange for a single quarterly or annual fee, usually based on the total assets in the account rather than the number of transactions. |
General terms: |
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|---|---|---|
| Available for Sale (“AFS”) | Securities that have been acquired neither for short-term sale nor to be held to maturity. These are shown at fair value on the statement of financial position and changes in value are taken straight to equity instead of the income statement. | |
| Association of British Insurers (“ABI”) | Association of British Insurers – A major trade association for UK insurance companies, established in July 1985. | |
| Acquired value of in force (“AVIF”) | An estimate of future profits that will emerge over the remaining term of all existing life and pensions policies for which premiums are being paid or have been paid at the statement of financial position date. | |
| Bancassurance | An arrangement whereby banks and building societies sell insurance and investment products to their customers on behalf of other financial providers. | |
| Combined Code on Corporate Governance | The Combined Code on Corporate Governance sets out guidance in the form of principles and provisions on how companies should be directed and controlled to follow good governance practice. The Financial Services Authority requires companies listed in the UK to disclose, in relation to the Combined Code, how they have applied its principles and whether they have complied with its provisions throughout the accounting year. Where the provisions have not been complied with, companies must provide an explanation for this. | |
| Deferred acquisition costs (“DAC”) | The cost directly attributable to the acquisition of new business for insurance and participating investment contracts (excluding those written in the UK) are deferred to the extent that they are expected to be recoverable out of future margins in revenue on these contracts. | |
| Fair value | The price that a reasonable buyer would be willing to pay and a reasonable seller would be willing to accept for a product on the open market. | |
| FSA | The UK’s Financial Services Authority – Main regulatory body appointed by the government to oversee the financial services industry in the UK. Since December 2001 it has been the single statutory regulator responsible for the savings, insurance and investment business. | |
| Funds under management | Represents all assets actively managed or administered by or on behalf of the Group including those funds managed by third parties. | |
| Funds under management by Aviva | Represents all assets actively managed or administered by the fund management operations of the Group. | |
| General insurance | Also known as non-life or property and casualty insurance. Casualty insurance primarily covers losses arising from accidents that cause injury to other people or damage property of others. Property insurance covers loss or damage through fire, theft, flood, storms and other specified risks. | |
| Gross written premiums | The total earnings or revenue generated by sales of insurance products, before any reinsurance is taken into account. Not all premiums written will necessarily be treated as income in the current financial year, because some of them could relate to insurance cover for a subsequent period. | |
| “Hard” insurance market | A term used to describe the state of the general insurance market. A “hard” insurance market is characterised by high levels of underwriting profits and the ability of insurers to charge high premium rates. Hard insurance markets generally occur when capital is scarce and are the opposite of “soft” insurance markets. | |
| Independent Financial Advisers (“IFAs”) | A person or organisation authorised to give advice on financial matters and to sell the products of all financial service providers. In the UK they are legally obliged to offer the product that best suits their clients’ needs. Outside the UK IFAs may be referred to by other names. | |
| IFRS | International Financial Reporting Standards. These are accounting regulations designed to ensure comparable statement of financial position preparation and disclosure, and are the standards that all publicly listed companies in the European Union are required to use. | |
| Inherited estate | In the UK, the assets of the long-term with-profit funds less the realistic reserves for non-profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees. | |
| Long term and savings business | Collective term for life insurance, pensions, savings, investments and related business. | |
| Market Consistent Embedded Value | Aviva’s Market Consistent Embedded Value (MCEV) methodology which 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 the Netherlands and for immediate annuity, deferred annuity and other contracts in the US. | |
| Net written premiums | Total gross written premiums for the given period, minus premiums paid over or "ceded" reinsurers. | |
| Present value of new business (“PVNBP”) | Present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business under Market Consistent Embedded Value (“MCEV”) principles published by the CFO Forum of major European listed and non-listed insurance companies. | |
| “Soft” insurance market | A term used to describe the state of the general insurance market. A “soft” insurance market is characterised by low levels of profitability and market competition driving premium rates lower. Soft insurance markets generally occur when there is excess capital and are the opposite of “hard” insurance markets. | |
| Turnbull Guidance on Internal Control | The Turnbull guidance sets out best practice on internal controls for UK listed companies, and provides additional guidance in applying certain sections of the Combined Code. |
Market Consistent Embedded Value (MCEV) terms: |
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| Asymmetric risk | Risks that will cause shareholder profits to vary where the variation above and below the average are not equal in distribution. | |
| CFO Forum | The CFO Forum www.cfoforum.nl is a high-level group formed by the Chief Financial Officers of major European listed and non-listed insurance companies. Its aim is to discuss issues relating to proposed new accounting regulations for their businesses and how they can create greater transparency for investors. The Forum was created in 2002, the Market Consistent Embedded Value principles were launched in June 2008 and CFO Forum members across Europe have agreed to adopt these for their 2009 published accounts. The principles are a further development of the European Embedded Value principles first launched in May 2004. | |
| Cost of non-hedgeable risks | This is the cost of undertaking those risks for which a deep and liquid market in which to hedge that risk does not exist. This can include both financial risks and non-financial risks such as mortality, persistency and expense. | |
| Covered business | The contracts to which the MCEV methodology has been applied. | |
| EU solvency | The excess of assets over liabilities and the worldwide minimum solvency margins, excluding goodwill and the additional value of in-force long-term business, and excluding the surplus held in the group’s life funds. The group solvency calculation is determined according to the UK Financial Services Authority application of EU Insurance Group’s Directive rules. | |
| Financial options and guarantees | Features of the covered business conferring potentially valuable guarantees underlying, or options to change, the level or nature of policyholder benefits and exercisable at the discretion of the policyholder, whose potential value is impacted by the behaviour of financial variables. | |
| Free surplus | The amount of any capital and surplus allocated to, but not required to support, the in-force covered business. | |
| Frictional costs | The additional taxation and investment costs incurred by shareholders through investing the Required Capital in the Company rather than directly. | |
| Funds under management | Represents all assets actively managed or administered by or on behalf of the group including those funds managed by third parties. | |
| Group MCEV | A measure of the total consolidated value of the group with covered life business included on an MCEV basis and non-covered business (including pension schemes and goodwill) included on an IFRS basis. | |
| Gross risk-free yields | Gross of tax yields on risk-free fixed interest investments, generally swap rates under MCEV. | |
| IFRS operating profit | From continuing operations on an IFRS basis, stated before tax attributable to shareholders’ profits, impairment of goodwill and exceptional items. | |
| Implicit items | Amounts allowed by local regulators to be deducted from capital amounts when determining the EU required minimum margin. | |
| Inherited estate | The assets of the long-term with-profit funds less the realistic reserves for non-profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees. | |
| Life business | Subsidiaries selling life and pensions contracts that are classified as covered business under MCEV. | |
| Life MCEV | The MCEV balance sheet value of covered business as at the reporting date. Excludes non-covered business including pension schemes and goodwill. | |
| Life MCEV operating earnings | Operating earnings on the MCEV basis relating to the lines of business included in the embedded value calculations. From continuing operations and is stated before tax, impairment of goodwill and exceptional items. | |
| Life MCEV earnings | Total earnings on the MCEV basis relating to the lines of business included in the embedded value calculations. From continuing operations. | |
| Look-through basis | Inclusion of the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business. | |
| Long-term savings | Includes life and pension sales calculated under MCEV and retail investment sales. | |
| Market consistent | A measurement approach where economic assumptions are such that projected asset cash flows are valued consistently with current market prices for traded assets. | |
| Net asset value per ordinary share | Net asset value divided by the number of ordinary shares in issue. Net asset value is based on equity shareholders’ funds. | |
| Net worth | The market value of the shareholders’ funds and the shareholders’ interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets, and consists of the required capital and free surplus. | |
| New business margin | New business margins are calculated as the value of new business divided by the present value of new business premiums (PVNBP), and expressed as a percentage. | |
| Present value of new business premiums (PVNBP) | Present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business. | |
| Required capital | The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted. | |
| Risk-free rate (reference rate in CFO Forum terminology) | In stable markets, including the period from 31 December 2006 to 30 June 2007, the risk-free rate is taken as the swap curve yield. |
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| Service companies | Companies providing administration or fund management services to the covered business. | |
| Solvency cover | The excess of the regulatory value of total assets over total liabilities, divided by the regulatory value of the required minimum solvency margin. | |
| Spread business | Contracts where a significant source of shareholder profits is the taking of credit spread risk that is not passed on to policyholders. The most significant spread business in Aviva are immediate annuities and US deferred annuities and life business. | |
| Statutory basis | The valuation basis and approach used for reporting financial statements to local regulators. | |
| Stochastic techniques | Techniques that incorporate the potential future variability in assumptions. | |
| Symmetric risks | Risks that will cause shareholder profits to vary where the variation above and below the average are equal and opposite. Financial theory says that investors do not require compensation for non-market risks that are symmetrical as the risks can be diversified away by investors. | |
| Time value and intrinsic value | A financial option or guarantee has two elements of value, the time value and intrinsic value. The intrinsic value is the discounted value of the option or guarantee at expiry, assuming that future economic conditions follow best estimate assumptions. The time value is the additional value arising from uncertainty about future economic conditions. | |
| Value of new business | Is calculated using economic assumptions set at the start of each quarter and the same operating assumptions as those used to determine the embedded values at the end of the reporting period and is stated after the effect of any frictional costs. Unless otherwise stated, it is also quoted net of tax and minority interests. | |
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