Achieved strong growth in sales and profits across our worldwide portfolio of businesses despite experiencing the worst UK floods in 60 years Introduced a regional management structure and set out medium term growth targets Completed the integration of our businesses in the USA and Ireland Achieved ratings upgrades in our US life business from AM Best and Standard & Poors Achieved savings of £250 million in the UK life and general insurance businesses Gained access to over 50 million potential new customers through bancassurance deals Completed a merger in Turkey, creating Aviva SA, which will contribute to growth in central and eastern Europe
Our people are our most important asset. This is not empty rhetoric. We strive constantly to make Aviva an employer of choice. We are determined to be an ethical, civilised organisation that respects the people who work for it. Inevitably from time to time we have to make difficult decisions affecting jobs. Our employees have coped well with continuing uncertainty following the introduction of our regional structure and the new targets for reducing costs. We are introducing a talent management programme across the whole group that will recognise each individual’s particular skills and potential, with a view to matching them to the roles and career development opportunities that suit them best. We have also introduced employee satisfaction measures into the calculation of executive pay and bonuses.
* Funds managed or administered by the Group's fund management operations
* Group EEV operating profit is calculated using long-term savings operating profit on an EEV basis before adjusting items. Group IFRS operating profit is calculated using long-term savings operating profit on an IFRS basis before adjusting items. 2004 to 2006 have been restated to reflect the new definition of IFRS operating profit – see page 132 for details.
Corporate centre Corporate costs for the year were £157 million (2006: £160 million). Within this, costs relating to staff profit share and incentive plans remained at £17 million (2006: £17 million). Central spend decreased to £114 million (2006: £126 million), reflecting the drive towards a leaner, activist centre. Project costs increased to £26 million (2006: £17 million) as we continue to invest in our brand and global finance strategy.
Life and pensions new business contribution after required capital 912 683
Split of life and pension sales 1 Individual pensions 28 2 Group pensions 9 6 Equity release 2
Returns to customers also improved and holders of with profits products saw the value of their policies increase between 5.4% and 5.8%, while holders of unit-linked funds and collective investments benefited from improved returns with 60% of funds in the first and second quartile.
We remain committed to providing a broad product offering to meet the needs of a wide range of customers. During the year, we continued to focus on simpler products, making two direct to consumer protection offerings, an over 50s life cover and our innovative simplified life insurance product, available through our new partnership agreement with the Post Office. Within the financial adviser market, we refreshed our enhanced annuity product, which offers preferential rates to customers who are expected to have a shorter than average life. In anticipation of the decline in appetite for UK commercial property, we extended and diversified our fund offering and focused on improving the performance of our UK equity funds. In the corporate market, we used our unique ability to combine life, general insurance and healthcare products to provide a comprehensive package of products directly into customers’ workplaces, developing a foothold in this growth area.
We have improved our Financial Adviser Service Awards rating for the second year running, receiving a three star rating in the Life & Pension and the Investment Provider categories. We also won the Best Investment Service award from Moneyfacts and were voted the best pension provider by Bankhall, one of the largest financial adviser networks. Independent research shows that over the year the percentage of advisers who rate our service as excellent or good has increased from 52% to 66%. Adviser service complaints are down 33%, to their lowest level for four years.
Business review continued: UK – General insurance, health and related services
A key part of our ongoing corporate social responsibility programme is our active engagement in addressing environmental issues. RAC has been named Breakdown/Recovery Company of the Year for the second year running in the Greenfleet Awards, an award recognising environmental best practice and innovation.
The Morley group overall performed strongly in 2007 against a background of volatility in financial markets and concern about the collapse of the US sub-prime mortgage market, with operating profit increasing to £91 million (2006: £79 million). Operating profit from fund management rose to £87 million (2006: £76 million), with £70 million being generated by our UK business (2006: £62 million) and £17 million from Morley’s overseas units (2006: £14 million). Our pooled pensions business contributed £4 million (2006: £3 million) to operating profit which is reported in the UK long-term savings segment. Our cost to income ratio remained broadly in line with its 2006 comparative at 73% (2006: 72%).
UK fund management In addition to sales under the Morley brand, we sell ISAs, unit trusts, open-ended investment companies (Oeics) and structured products under the Norwich Union and The Royal Bank of Scotland brands.
Our fund management operations in Europe are continuing to deliver strong investment performance for our customers and good operating results. Operating profits were lower than last year at £31 million (2006: £46 million), reflecting reduced performance fees in the Netherlands.
Our business partnership with AFER has progressed with a successful update of the core product and the addition of a multi-manager fund. This initiative was accompanied by marketing campaigns raising public awareness of the product’s competitiveness, which boosted sales volumes in the second half of the year. The other networks have implemented successful product developments supported by marketing campaigns, to encourage volumes, in what has been a difficult period for the market. We continue to be committed to ensuring that our customers receive best advice throughout their lifetimes.
Aviva Italy is the country’s sixth-largest life insurer, with a market share of 5.4%. Our distribution is principally through bancassurance and we have significant partnership relationships with UniCredit Group, Banca delle Marche, Unione di Banche Italiane (formerly known as Banche Popolari Unite) and Banco Popolare (formed from the merged Banca Popolare Italiana and Banco Popolare di Verona e Novara businesses).
In 2007 this approach resulted in higher new pension premiums including large group pension sales, and generated total sales growth of 25% to £2,944 million (2006: £2,346 million). Stronger annuity and pension sales more than offset the fall in unit-linked sales affected by industry concerns surrounding policy charges and a decline in mortgage related business. We continue to support our relationship with ABN AMRO bank through our insurance venture, and sales through the Florius brand owned by ABN AMRO commenced in April 2007.
On 21 January 2008, Delta Lloyd announced its agreement with SNS REAAL to buy Swiss Life Belgium for 1135 million. The transaction, which is conditional upon completion of SNS REAAL’s acquisition of the Dutch and Belgian activities of Swiss Life Holding and subject to approval from the relevant regulators and works council, is expected to be completed in the second quarter of 2008. The acquisition will give Delta Lloyd a top-5 position in the Belgian group life insurance market.
In 2007 we achieved exceptional satisfaction scores from our brokers with 88% responding that they would recommend Aviva to their customers. We remain committed to supporting the independent broker channel in Canada and we have invested significantly in helping brokers to protect their business and develop new growth opportunities.
IFRS IFRS EEV New New profit operating operating business business before tax profit profit PVNBP*contribution** margin** £m £m £m £m £m %
IFRS IFRS EEV New New profit operating operating business business before tax profit profit PVNBP* contribution** margin**
Fund management IFRS operating profit EEV operating profit £m £m £m £m
During my first year as Group Finance Director there has been significant activity across the Aviva finance community and our major achievements are set out on the right.
Accounting basis and capital employed by segment The table below shows how our capital, on an EEV basis, is deployed by segment and how that capital is funded.
Net asset value per share – EEV basis 772p 683p * The “Corporate” net liabilities represent the element of the pension scheme deficit held centrally.
The available capital of the with-profit funds is represented by the realistic inherited estate. The estate represents the assets of the long-term with-profit funds less the realistic liabilities for non-profit policies within the funds, 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, guarantees and promises. Realistic balance sheet information is shown below for the three main UK with-profit funds; CGNU Life, Commercial Union Life Assurance Company (CULAC) and Norwich Union Life & Pensions (NUL&P). These realistic liabilities have been included within the long-term business provision and the liability for insurance and investment contracts on the Group’s IFRS balance sheet at 31 December 2007 and 31 December 2006. Aviva recently announced a one off, special bonus of £2.3 billion in respect of the CGNU Life and CULAC with-profits funds, the impact of this special bonus is reflected in the numbers presented below.
In 2007 we have reviewed our group policy set. The policies have been refreshed, and set out in consistent language both the inherent risks Aviva faces and the minimum standards of control required to mitigate them. The policies clearly set out the roles and responsibilities of businesses, regions, policy owners, and group oversight committees, reflecting the change in organisational structure that has taken place in Aviva. These policies became effective on 1 January 2008, and will become fully embedded during 2008.
Our market risk policy sets out the minimum principles that business units are expected to follow in managing the assets backing the technical insurance liabilities. We have set standards for the way businesses should match their liabilities with appropriate assets, and have a clear decision-making and monitoring process to be followed when liabilities cannot be matched or a degree of mismatching is desired. We regularly monitor how business units are performing asset liability management (ALM) at both the group investment committee and group asset liability management committee. ALM issues are considered as part of our business risk reporting, and in determining ICA and Risk Based Capital requirements.
Note: Not Rated includes mortgages and other debt that does not attract an external rating.
Talking Talent Manage talent to maximise productivity and fulfilment of objectives for Aviva and the individual.
– Our customers, who rightly expect Aviva to treat them fairly and to be open and honest in the products and services we offer them
To help set up the new structure, there were a number of moves amongst our senior people in 2007 creating a better balance of talent across the group. In all circumstances where we undertake major structural change we seek to minimise the number of compulsory redundancies through voluntary turnover and redeployment. Where unavoidable redundancies take place we provide support to affected employees through outplacement services and job search assistance.
Teamwork is the lifeblood of Aviva. It means commitment to a common vision and objectives, depending on one another, pulling together and sharing knowledge and learning. It is creating a sense of community and belonging in how we operate as a business. It means taking pride in Aviva’s achievements.
We have developed a new global community investment strategy which is aligned to our “One Aviva, twice the value” vision. The global strategy will help us to channel financial and organisational support to areas in which we have real expertise to offer. The main areas of focus will be “financial education and literacy” and “coping with life trauma”. These two areas lie at the heart of what we do as an organisation and we believe we will be credible partners for other organisations and initiatives in these areas.
The UK business has also pioneered digital flood mapping to more closely match risk to premium and has showcased flood resistant and resilient measures to assist customers with climate change adaptation.
Age 51 Joined the Group in 1999. Formerly held senior HR positions with WH Smith plc, ICL plc, Priory Hospitals Group and General Electric plc. Previously also Group HR Director for Norwich Union plc and HR Director for Norwich Union Insurance and Norwich Union Life. Holds a law degree and is a companion of the Chartered Institute of Personnel Development.
The Board has adopted a procedure whereby directors may, in the performance of their duties, seek independent professional advice at the Company’s expense if considered appropriate. No director obtained any such independent professional advice during 2007.
In line with the Combined Code requirement the Board undertook a review of the effectiveness of all its committees during the year, including the Corporate Social Responsibility Committee.
The Committee meetings are attended by Andrew Moss, Group Chief Executive (other than when his own remuneration is being discussed) and John Ainley, Group Human Resources Director. The Group Company Secretary acts as secretary to the Committee. The Chairman attends when discussing the remuneration of the Group Chief Executive.
Annual Bonus Plan £641,250 Bonus is a function of the degree of achievement of 2007 targets (112.5% of basic salary) as follows: Financial 29.7% (maximum 50%) Employee 6.8% (maximum 10%) Customer 8.4% (maximum 10%) Personal 30.0% (maximum 30%).
Overview of the effect on former executive directors For those executive directors who left employment with the Company in 2007 or as at 31 December 2007 were under notice, the overview is as follows: Richard Harvey, former Group Chief Executive (Retired from the Company on 31 July 2007) Element Amount Commentary
Annual Bonus Plan £523,950 (99.8% of basic – Mr Harvey received a bonus based on unaudited half year salary prorated for the seven financial results and personal performance. Given his retirement, months of the year worked) the award was paid wholly in cash in August 2007.
Employee and customer targets (each accounting for up to 10% of annual bonus) are set taking into account performance to date and aspirations for the future. The employee targets on leadership and engagement are derived from the Group’s global climate survey in which all business units participate and which over 42,000 staff completed in 2007. This survey is delivered through an independent third party able to provide extensive external benchmark data. Our current aim is to reach the relevant global and national norms on leadership and engagement. Our aspiration is to be at the upper quartile positions over time.
Between 31.5% and 37.5% Prorata between 15% and 50% on a straight-line basis 37.5% and above 50%
The current LTIP succeeds a previous long term incentive plan, the last awards under which were made in 2004 and vested in 2007. For the 2007 LTIP release, at the end of the performance period, on TSR the Company was ranked eighth out of the 20 companies in the comparator group (34.9% vesting) and ROCE was 32.4% (30% vesting). The total vesting was therefore 64.9%. The 35.1% of the award which did not vest lapsed.
Aviva Deferred Bonus Plan – 2004 118,478 – 118,478 – – 527.5 763.5 March 2007
The companies which compose the current LTIP comparator group for TSR purposes were chosen on the basis of product and geographic match to Aviva and are listed above. The TSR graph for the comparator group has been plotted using both the 19 companies (excluding Aviva) in the comparator group for pre-2005 grants and the 15 companies (excluding Aviva) in the group for grants in 2005 to date.
Contract dates Director Date current contract commenced Andrew Moss 1 January 2007 Philip Scott 15 November 2006 Tidjane Thiam 3 April 2006 Patrick Snowball 15 November 2006 Richard Harvey 15 November 2006
Non-compete – During term of directorship and for six months after leaving.
7. Members of the Defined Benefit section of the Pension Scheme made a contribution of 5% of their pensionable salary.
2. For former directors, the amounts disclosed relate to their awards held at the date of resignation from the Board.
The interests held by each person who was a director at the end of the financial year in the ordinary shares of 25 pence each in the Company are shown below. All the disclosed interests are beneficial. The table also summarises the interests in shares held through the Company’s various all-employee and executive share schemes. Details of the options and long term incentive awards are shown on pages 101 to 102 and the Aviva Share Plan is described on page 110.
** Patrick Snowball resigned from the Board with effect from 8 May 2007.
Use of estimates All estimates are based on management’s knowledge of current facts and circumstances, assumptions based on that knowledge and their predictions of future events and actions. Actual results can always differ from those estimates, possibly significantly.
All borrowing costs and repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the most recently assessed standard of performance of the existing asset will flow to the Group and the renovation replaces an identifiable part of the asset. Major renovations are depreciated over the remaining useful life of the related asset.
(AG) Operations held for sale Assets and liabilities held for disposal as part of operations which are held for sale are shown separately in the consolidated balance sheet. The relevant assets are recorded at the lower of their carrying amount and their fair value, less the estimated selling costs.
Expenses 6 (39,884) Claims and benefits paid, net of recoveries from reinsurers (27,121) (23,444) (5,157) Change in insurance liabilities, net of reinsurance (3,507) (2,620) (2,968) Change in investment contract provisions (2,018) (6,002) 4,297 Change in unallocated divisible surplus 2,922 (558)
(iii) The criteria for treating an item as an adjustment, outside operating profit, have been refined to limit these to significant items only. The Financial Services Compensation Scheme and other levies are now included in operating profit.
Neither of these adjustments has any impact on profit for the year, operating profit or earnings per share in 2006, nor on retained earnings, net assets or total equity at either 1 January 2006 or 31 December 2006.
Liabilities Gross insurance liabilities (278) (14) (292) Deferred tax liability (5) (1) (6) Payables and other financial liabilities (26) – (26) Other liabilities (3) – (3)
The book and fair values of the assets and liabilities at the date of acquisition were: £m
The results of the Hamilton companies have been included in the consolidated financial statements of the Group with effect from 1 November 2007, and have contributed £1 million to the consolidated profit before tax.
(vii) Other In addition to the goodwill arising on the above acquisitions, the Group also made a number of smaller acquisitions, giving rise to additional goodwill of £1 million. Total goodwill arising in the year was £115 million (see note 16(a)).
Realised gains and losses 49 124 Unrealised gains and losses (see policy J) 65 208
Commission expenses for insurance and participating investment contracts 3,351 2,919 Change in deferred acquisition costs for insurance and participating investment contracts (627) 210 Deferrable costs for non-participating investment contracts 265 230 Other acquisition costs 1,348 1,376 Change in deferred acquisition costs for non-participating investment contracts (279) (159)
(a) The longer term investment return, net of expenses, attributable to the general insurance and health business result was £1,029 million (2006: £1,073 million).
(f) The table below shows the sensitivity of the Group’s general insurance and health operating profit before tax to changes in the longer term rates of return: Movement in investment return for By Change in £m £m
Carrying amount * On insurance and participating investment contracts. ** On non-participating investment contracts.
Policy loans 1,316 1,217 Loans to banks 7,576 3,295 Securitised mortgage loans (see note 23)
Assumptions Outstanding claims provisions are estimated based on known facts at the date of estimation. Case estimates are generally set by skilled claims technicians, applying their experience and knowledge to the circumstances of individual claims. The ultimate cost of outstanding claims is then estimated by using a range of standard actuarial claims projection techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. The main assumption underlying these techniques is that a company’s past claims development experience can be used to project future claims development and hence ultimate claims costs. As such, these methods extrapolate the development of paid and incurred losses, average costs per claim and claim numbers based on the observed development of earlier years and expected loss ratios. Historical claims development is mainly analysed by accident period, although underwriting or notification period is also used where this is considered appropriate. Claim development is separately analysed for each geographic area, as well as by each line of business. Certain lines of business are also further analysed by claim type or type of coverage. In addition, large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or separately projected in order to reflect their future development.
Claims payments made in the year, net of recoveries (7,779) (7,232) Other movements in the claims provisions 36 (7)
Estimate of net ultimate claims 6,173 5,855 5,851 5,882 6,688 7,197 8,363
In the loss development tables shown above, the cumulative claim payments and estimates of cumulative claims for each accident year are translated into sterling at the exchange rates that applied at the end of that accident year. The impact of using varying exchange rates is shown at the bottom of each table. Disposals are dealt with by treating all outstanding and IBNR claims of the disposed entity as “paid” at the date of disposal.
Return of premium guarantee Hibernian Life has written two tranches of linked bonds with a return of premium guarantee after five or six years. The provision for these at the end of 2007 is £0.1 million (2006: £nil). It is estimated that the provision would not increase if equity markets were to decline by 10% from year end 2007 levels by £1.4 million. It is estimated that the provision would increase if interest rates were to increase by 1% from year end 2007 levels by £0.1 million.
General insurance and health Outstanding claims provisions 1,634 1,659 Provisions for claims incurred but not reported 84 79 Provision for unearned premiums 511 484 Other technical provisions 5 2
Changes in reinsurance asset recognised as income 3 4 Reinsurers’ share of portfolio transfers and acquisitions 18 1 Foreign exchange rate movements 6 (3)
An actuarial report has been submitted for each of the defined benefit schemes within the last three years, using appropriate methods for the respective countries on local funding bases.
UK defined benefit schemes 137 150 UK defined contribution schemes 44 51 Overseas defined benefit schemes 54 63 Overseas defined contribution schemes 19 20
Alternative measurement methods There are alternative methods of measuring liabilities, for example by calculating an accumulated benefit obligation (the present value of benefits for service already rendered but with no allowance for future salary increases) or on a solvency basis, using the cost of buy out benefits at a particular date. A buy-out valuation will almost always be the highest estimate of the pension deficit, as it assumes that the entire liability will be settled in one payment, with all obligations transferred to an insurance company. However, there are only a limited number of organisations that would be able to buy out the pension liabilities in schemes of the size and geographical spread of those in our Group, and they would naturally seek to make a profit on the transaction. The full buy-out cost would only be known if quotes were obtained from such organisations but, to illustrate the cost of a buy-out valuation, an estimate for the main UK scheme is that the year end liabilities of £7.2 billion could be valued some £3.7 billion higher, at £10.9 billion.
The overall rates of return are based on the expected returns within each asset category and on current asset allocations. The expected returns are developed in conjunction with external advisers and take into account both current market expectations of future returns, where available, and historical returns. The figures for the total expected return on scheme assets in the following section are stated after deducting investment expenses.
Expected rates of return – Where the relevant insurance policies are in segregated funds with specific asset allocations, their expected rates of return are included in the appropriate line in the table in section (ii) above.
Total fair value of assets 8,103 7,475 3 – 231 206 477 456 8,814 8,137
Other actuarial gains/(losses) (see (iv) above) (210) 822 612 72 684 Buy-outs and other transfers 6 (6) – (2) (2) Changes in asset admissibility – – – 152 152 Exchange rate movements on foreign plans 157 (163) (6) (85) (91)
(d) One of the Group’s UK long-term business subsidiaries, Norwich Union Equity Release Limited (NUER), has transferred the beneficial interest in certain portfolios of lifetime mortgages to various UK building societies, retaining a proportion of the interest earned. The transfers qualify for partial derecognition and, as such, the interest receivable on the mortgages is recognised as an asset within non-securitised mortgage loans, carried at fair value, with a corresponding liability recognising the fair value of future interest payable to the building societies. This liability has previously been recognised within borrowings. As this liability does not represent actual operational borrowings, but a liability to pay a proportion of future interest receivable on the mortgages to the building societies, the liability has been reclassified to other liabilities.
(g) Aviva USA litigation In November 2006, the Group completed the acquisition of the AmerUs Group, a US-based insurer. In common with other companies operating in the sector, AmerUs is subject to litigation, including class-action litigation, arising out of its sale of equity-based index-linked annuity products. The Group is aware of a multi-district class action filed against AmerUs in Pennsylvania but is not aware of any adverse development. The directors continue to monitor the situation and consider that the litigation will not have a material effect on the Group’s ability to meet shareholder expectations.
The Group has capital commitments to its joint ventures of £nil (2006: £nil) and to other investment vehicles of £157 million (2006: £14 million).
Further disclosures on the Group’s regulatory capital position are also set out in the capital section of the business review and in note 54, Capital Statement. The purpose of note 54, which is prepared in accordance with FRS27, is to set out the financial strength of the Group and provide an analysis of the disposition and constraints over the availability of capital to meet risks and regulatory requirements.
Property price risk The Group is subject to property price risk due to holdings of investment properties in a variety of locations worldwide. Investment in property is managed at business unit level, and will be subject to local regulations on asset admissibility, liquidity requirements and the expectations of policyholders as well as overall risk appetite. The Investment Committee also actively monitors property assets owned directly by the Group.
At 31 December 2007, the Group had entered into a number of interest rate swap agreements to mitigate the effects of potential adverse interest rate movements, and to enable close matching of assets and liabilities.
Guarantees: embedded floor (guaranteed return), maturity guarantee, guaranteed death benefit, guaranteed minimum rate of annuity payment.
The adequacy of the Group’s general insurance claims provisions is ultimately overseen by the Group Reserving Committee, which covers both life and general insurance reserving.
For long-term business in particular, sensitivities of EEV performance indicators to changes in both economic and noneconomic experience are continually used to manage the business and to inform the decision making process. More information on EEV sensitivities can be found in the presentation of results on an EEV basis in the supplementary notes to this report.
Impact before tax on shareholders’ equity (£m) Interest Interest Equity/ Equity/ Assurance Annuitant rates rates property property Expenses mortality mortality +1% –1% +10% –10% +10% +5% –5%
Impact before tax on shareholders’ equity (£m) Interest Interest Equity/ Equity/
Third party funds under management Unit trusts, OEICs, Peps and Isas 25,868 20,574 Segregated funds 54,422 43,672
The Group received income from related parties from transactions made in the normal course of business. Loans to related parties are made on normal arm’s length commercial terms.
Income Dividends received from subsidiaries 2,568 865 Interest receivable from Group companies 158 219 Profit on disposal of subsidiary – 94 Net investment income 4 34
The fair value of the subordinated debt at 31 December 2007 was £3,006 million (2006: £3,076 million). The fair value of the 9.5% guaranteed bonds 2016 at 31 December 2007 was £249 million (2006: £275 million). The fair value of the commercial paper is considered to be the same as its carrying value.
Loans to and from subsidiaries are made on normal arm’s length commercial terms. The maturity analysis of the related party loans is as follows: Loans owed by subsidiaries
Opinion In our opinion the alternative method of reporting long-term business for the year ended 31 December 2007 has been properly prepared in accordance with the EEV Principles, using the methodology and assumptions set out on pages 251
4,319 Profit before tax 2,937 4,165 (1,459) Tax on operating profit (992) (1,028)
Liabilities of the long-term business (264,429) – (264,429) (243,590) – (243,590) Liabilities of the general insurance and other
Covered business includes the Group’s share of our joint venture operations including our arrangement with The Royal Bank of Scotland Group (RBSG) and our operations in India, China, Turkey, Malaysia and Taiwan. In addition, the results of Group companies providing significant administration, investment management and other services and of Group holding companies have been included to the extent that they relate to covered business. Together these businesses are referred to as “Life and related businesses”.
The contribution generated by new business written during the year is the present value of the projected stream of after tax distributable profit from that business. New business contribution before tax is calculated by grossing up the contribution after tax at the full corporation tax rate for UK business and at appropriate rates of tax for other countries. New business contribution has been calculated using the same economic assumptions as those used to determine the embedded value as at the start of the year and operating assumptions used to determine the embedded value as at the end of the year, and is rolled forward to the end of the financial year. New business contribution is shown before and after the effect of required capital, calculated on the same basis as for in-force covered business.
7. In Poland lapse assumptions have been changed following continued favourable experience. In Spain, lapse assumptions have been strengthened mainly on risk products.
The value of in-force covered business includes “cost of required capital” – the effect of holding shareholders’ capital to support the level of required capital and allowing for projected future releases.
Investment return assumptions are generally derived by major product class, based on hypothecating the assets at the valuation date. Future assumed reinvestment rates are consistent with implied market returns at 31 December 2007. Rates have been derived using rates from the current yield curve at a duration based on the term of the liabilities, or directly from forward yield curves where considered appropriate. Assumptions about future investment mix are consistent with long-term plans. In most cases, the investment mix is assumed to continue unchanged throughout the projection period. The changes in assumptions between reporting dates reflect the actual movements in risk free yields in the United Kingdom, the Eurozone and other territories. The principal economic assumptions used are as follows: United Kingdom France
2. Standard deviations have been calculated by accumulating a unit investment for the required number of years in each simulation, taking the natural logarithm of the result, calculating the variance of this statistic, dividing by the projection period (nth years) and taking the square root. This makes the result comparable to implied volatilities quoted in investment markets.
United Kingdom RBS Life Investments Limited (49.99%) RBSG Collective Investments Limited (49.99%) The Group also has interests in several property limited partnerships. Further details are provided in note 18.
For overseas shareholders, an overseas payment service is available, which allows shareholders in over 30 countries worldwide to have dividends credited directly into their bank accounts in local currencies, normally costing less than paying in a sterling cheque. Dividend mandate forms for overseas shareholders can be obtained via the Company’s website at www.aviva.com/dividendmandate or by contacting the Registrar.
ShareGift The Orr Mackintosh Foundation operates a purely voluntary charity share donation scheme for shareholders who wish to dispose of small numbers of shares when the dealing costs or minimum fees makes it uneconomical to sell them. Details of the scheme are available from ShareGift at www.sharegift.org or can be obtained from the Company’s Registrar.
Banks and nominee companies 14,794 2.37 2,265,097,530 86.40 Pension fund managers and insurance companies 97 0.02 105,077 0.00