Aviva Plc · LSE:AV.
Aviva — Fact Sheet (April 2004)
20 slides from Aviva's fact sheet, Apr 15, 2004
Slide 1: Realistic Reporting - With Profit Funds - an explanation!
Realistic Reporting - With Profit Funds - an explanation! April 2004 Mike Urmston Chief Actuary Norwich Union Life Presentation Title Slide 1 15/04/2004 © Aviva plc
Slide 2: Agenda
Agenda 1.0 Introduction - Why? 2.0 Implementation - How do we do it? 3.0 Definitions - What do the concepts mean? 4.0 Results - What do the results tell us? 5.0 Norwich Union Results 6.0 Management actions - PPFMs Investment Policy Bonus policy 7.0 Questions & Answers Presentation Title Slide 2 15/0
Slide 3: 1. Introduction - Why?
1. Introduction - Why? • Provides greater transparency of the true underlying strength of the funds • Represents a meaningful measure of all future liabilities of the funds, including guarantees and options, future bonuses and shareholder profits • Previous Free Asset Ratios published in FSA returns
Slide 4: 2. Implementation - How do we do it?
2. Implementation - How do we do it? • Very complex sums! Many hundreds of PCs! Norwich Union has hundreds! • Significant investment to produce high quality sophisticated measurement tools • Stochastic models - many thousands of simulations of with profit funds • Management decisions need to be buil
Slide 5: 2. Implementation - How do we do it?
2. Implementation - How do we do it? • Link to Principles & Practices of Financial Management (PPFM) developed for each with profit fund - to be published 1 May 2004 • Audited results required at 31 December 2004 • FSA still consulting on details of new reporting regime. Lack of consistency and tota
Slide 6: 3. Definitions - What do the concepts mean?
3. Definitions - What do the concepts mean? Asset shares - individual pots of money - allow for accumulation of premiums paid, investment performance, mortality experience, expenses, tax, profits etc. - aggregated to total asset shares for the fund Guarantees/options - Many and various eg. Guarantee
Slide 7: 3. Definitions - What do the concepts mean?
3. Definitions - What do the concepts mean? Risk Capital Margin - similar to previous FSA resilience test eg. 25% fall in equities? 20% fall in property? 1% rise/fall in fixed interest yields? Credit margins worsen? Persistency rates worsen? FSA still consulting on details. ABI guidelines at 31/12/0
Slide 8: 4. Results - Case study: weak fund
4. Results - What do the results tells us? Case Study - different with profit funds Fund 1 • The fund appears fine on a statutory basis. However, it has a lot of “free assets” backing terminal bonus • The fund is weak on a realistic basis • The liabilities of the fund are mature, with a significant
Slide 9: 4. Results - Statutory basis, weak fund
4. Results - What do the results tells us? Case Study - different with profit funds Features - Fund 1 Following 30% STATUTORY BASIS Central equity fall With Profits Assets 10,000 9,141 Mathematical reserves 8,722 8,604 Required Minimum Margin 388 388 Other liabs 219 166 With-Profit liabilities 9,330
Slide 10: 4. Results - Realistic basis, weak fund
4. Results - What do the results tells us? Case Study - different with profit funds Features - Fund 1 Following 30% REALISTIC BASIS Central equity fall With Profits Assets 10,000 9,169 Asset shares 8,385 7,648 Gtee costs 870 989 Other liabs 219 152 With-Profit liabilities 9,474 8,789 Risk Capital Ma
Slide 11: 4. Results - Case study: strong fund
4. Results - What do the results tells us? Case Study - different with profit funds Fund 2 • The fund is strong on a realistic basis and on a statutory basis • The fund is younger, with the majority of its liabilities being Unitised With Profits • The fund’s strength has led to a high equity proport
Slide 12: 4. Results - Statutory basis, strong fund
4. Results - What do the results tells us? Case Study - different with profit funds Features - Fund 2 Following 30% STATUTORY BASIS Central equity fall With Profits Assets 10,000 8,532 Mathematical reserves 8,377 8,089 Required Minimum Margin 340 328 Other liabs 281 241 With-Profit liabilities 8,997
Slide 13: 4. Results - Realistic basis, strong fund
4. Results - What do the results tells us? Case Study - different with profit funds Features - Fund 2 Following 30% REALISTIC BASIS Central equity fall With Profits Assets 10,000 8,599 Asset shares 7,507 6,527 Gtee costs 980 1,034 Other liabs 270 119 With-Profit liabilities 8,757 7,680 Risk Capital
Slide 14: What do the results tell us?
Results - What do the results tell us? • Old statutory reserves not responsive enough to market movements - lead to a misleading solvency picture and incorrect management actions • New realistic regime shows true surplus assets after allowing for all future liabilities, guarantees and options, and r
Slide 15: 5. Norwich Union Results
5. Norwich Union Results • Norwich Union very much welcomes the new realistic reporting regime and the improved transparency it provides. • Norwich Union has worked with FSA on the design and implementation of this new regime throughout 2002/3. • Investment policy, payouts, and Principles and Practi
Slide 16: 5. Norwich Union Results
5. Norwich Union Results Realistic assets in Statutory excess of Free Asset Realistic Assets in Risk Capital liabilities and Capital Ratio excess of liabilities Margin RCM coverage £bn £bn £bn CGNU Life 16.0% 1.3 0.4 0.9 3.05 CULAC 13.6% 1.6 0.3 1.3 4.71 NUL&P 17.7% 1.4 0.9 0.5 1.60 Total 16.2% 4.3
Slide 17: 5. Norwich Union Results
5. Norwich Union Results • New business is written predominantly in CGNU and CULAC, the two stronger life companies. The equity backing ratio in these companies is 65%. • NUL&P policyholders remain in a strong company with an equity backing ratio of 52%. This compares favourably with most of the UK
Slide 18: 6. Management Actions
6. Management Actions • Principles & Practices of Financial Management (PPFM) - published 30 April 2004 - guarantee charges if appropriate - direct link to realistic reporting • Investment policy - Equity Backing Ratio • Asset Liability Management - reduce risks through closer matching of guaranteed
Slide 19: Health Warning
Health Warning • New methodology is still under development and some changes can be anticipated in approach, assumptions and data. • Comparisons between offices can be misleading where offices are at different stages of development of the methodology and are using different underlying assumptions. P
Slide 20: Presentation Title Slide 20 © Aviva plc
Presentation Title Slide 20 15/04/2004 © Aviva plc