Glossary
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A
- 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.
- 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.
- Association of British Insurers (ABI)
- Association of British Insurers – A major trade association for UK insurance
companies, established in July 1985.
- Asymmetric risk
- Risks that will cause shareholder profits to vary where the variation above and
below the average are not equal in distribution.
- 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.
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B
- Bancassurance
- An arrangement whereby banks and building societies sell insurance and investment
products to their customers on behalf of other financial providers.
- 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.
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C
- 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.
- 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.
- 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.
- 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.
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D
- 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.
- 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).
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E
- 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.
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F
- 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.
- 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.
- 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.
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G
- 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.
- 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.
- Group pensions
- A pension plan that covers a group of people, which is typically purchased by a
company and offered to their employees
- Gross risk-free yields
- Gross of tax yields on risk-free fixed interest investments, generally swap rates
under MCEV.
- Guaranteed annuities
- A policy that pays out a fixed regular amount of benefit for a defined period.
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H
- “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.
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I
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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L
- 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 earnings
- Total earnings on the MCEV basis relating to the lines of business included in the
embedded value calculations. From continuing operations.
- 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.
- Long-term savings
- Includes life and pension sales calculated under MCEV and retail investment sales.
- Long term and savings business
- Collective term for life insurance, pensions, savings, investments and related business.
- 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.
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M
- 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.
- 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.
- 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.
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N
- 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.
- Net written premiums
- Total gross written premiums for the given period, minus premiums paid over or "ceded"
reinsurers.
- 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.
- Non profits
- Long term savings and insurance products sold in the UK other than “With profits”
(see definition below) products.
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O
- OEIC
- Open ended investment company is a collective investment fund structured as a limited
company in which investors can buy and sell shares.
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P
- 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.
- 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.
- 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.
- 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.
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R
- 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.
- 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.
- 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. 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. In current markets, including the period from 1 July 2007, the
risk-free rate is taken as swaps except for all contracts that contain features
similar to immediate annuities and are backed by appropriate assets, including paid
up group deferred annuities in the Netherlands, and deferred annuities and all other
contracts in the US. The adjusted risk-free rate is taken as swaps plus the additional
return available for products and where backing asset portfolios can be held to
maturity.
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S
- Service companies
- Companies providing administration or fund management services to the covered business.
- 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.
- “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.
- 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.
- Stakeholder pensions
- Low cost and flexible pension plans available in the UK, governed by specific regulations.
- 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.
- 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.
- 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.
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T
- 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.
- 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.
- 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.
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U
- 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.
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V
- 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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W
- 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.
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