Part 4-MCEV Restatement of HY

RNS Number : 7561M
Aviva PLC
04 February 2009
 



Part 4 of 4 

Page 54


Statistical supplement: First time adoption

Financial impact of adopting MCEV methodology

The Group is replacing the EEV basis with the MCEV basis of reporting as its main measure of performance for life and related businesses. The basis of preparation and methodology adopted in compiling restated Group results and balance sheet for 2007 and the six months to 30 June 2008 is given on pages 22 to 26 of this announcement.

Reconciliation of segmental analysis of embedded value - EEV basis to MCEV basis

Embedded value
Reviewed 30 June 2008

EEV basis
as reported1
£m

Operational
assumption
changes
£m

Economic
changes
£m

Changes to
required capital
£m

Cost of Non Hedgeable Risk
£m

Other
impact
£m

MCEV

basis1 

£m

Less minority interest 
£m

MCEV
basis
£m

United Kingdom

6,547

(134)

(407)

(8)

(155)

(67)

5,776

-

5,776

France

2,602

-

178

9

(145)

(64)

2,580

(243)

2,337

Ireland 

1,036

(2)

121

-

(23)

10

1,142

(279)

863

Italy 

1,171

-

88

(10)

(15)

(13)

1,221

(620)

601

Netherlands (including Belgium and Germany)

3,759

(6)

(133)

(45)

(81)

2

3,496

(159)

3,337

Poland

1,014

165

223

-

(80)

(17)

1,305

(169)

1,136

Spain 

1,182

(36)

58

-

(48)

(2)

1,154

(520)

634

Other Europe

185

 -

29

-

(4)

1

211

-

211

Europe

10,949

121

564

(46)

(396)

(83)

11,109

(1,990)

9,119

North America

1,714

(70)

(622)

(32)

(28)

12

974

-

974

Asia

358

(10)

77

-

(7)

(2)

416

(12)

404

Australia

299

-

23

-

(18)

-

304

-

304

Asia Pacific

657

(10)

100

-

(25)

(2)

720

(12)

708

Total

19,867

(93)

(365)

(86)

(604)

(140)

18,579

(2,002)

16,577


  

Embedded value
Audited 31 December 2007

EEV basis
as reported1
£m

Operational
assumption
changes
£m

Economic
changes
£m

Changes to
required capital
£m

Cost of Non Hedgeable Risk
£m

Other
impact
£m

MCEV basis1 

£m

Less minority interest 
£m

MCEV 

basis 

£m

United Kingdom

7,106

(142)

183

(10)

(153)

(73)

6,911

-

6,911

France

2,660

-

208

12

(137)

28

2,771

(235)

2,536

Ireland 

999

(2)

114

-

(21)

1

1,091

(266)

825

Italy 

1,007

-

66

(9)

(22)

(2)

1,040

(551)

489

Netherlands (including Belgium and Germany)

4,176

(21)

(122)

(35)

(73)

49

3,974

(158)

3,816

Poland

942

143

191

-

(70)

(9)

1,197

(154)

1,043

Spain 

1,048

(33)

72

-

(41)

(4)

1,042

(472)

570

Other Europe

156

-

23

-

(2)

1

178

-

178

Europe

10,988

87

552

(32)

(366)

64

11,293

(1,836)

9,457

North America

1,588

(69)

(308)

(27)

(27)

49

1,206

-

1,206

Asia

337

(10)

71

-

(6)

(13)

379

(12)

367

Australia

300

-

23

-

(16)

-

307

-

307

Asia Pacific

637

(10)

94

-

(22)

(13)

686

(12)

674

Total

20,319

(134)

521

(69)

(568)

27

20,096

(1,848)

18,248


  

Embedded value
Audited 31 December 2006

EEV basis
as reported1
£m

Operational
assumption
changes
£m

Economic
changes
£m

Changes to
required capital
£m

Cost of Non Hedgeable Risk
£m

Other
impact
£m

MCEV basis1 

£m

Less minority interest 
£m

MCEV basis1 

£m

United Kingdom

6,636

(201)

278

37

(145)

(70)

6,535

-

6,535

France

2,291

-

168

10

(125)

11

2,355

(180)

2,175

Ireland 

892

(2)

100

-

(19)

5

976

(237)

739

Italy 

792

-

63

-

(12)

(3)

840

(441)

399

Netherlands (including Belgium and Germany)

3,867

-

(304)

(25)

(67)

75

3,546

(125)

3,421

Poland

719

143

141

-

(52)

(4)

947

(122)

825

Spain 

857

(30)

100

-

(34)

1

894

(383)

511

Other Europe

106

-

28

-

(2)

-

132

-

132

Europe

9,524

111

296

(15)

(311)

85

9,690

(1,488)

8,202

North America

1,478

(62)

(6)

(28)

(20)

(94)

1,268

-

1,268

Asia

209

(3)

34

-

(3)

13

250

(10)

240

Australia

251

-

22

-

(12)

-

261

-

261

Asia Pacific

460

(3)

56

-

(15)

13

511

(10)

501

Total

18,098

(155)

624

(6)

(491)

(66)

18,004

(1,498)

16,506

1.    Gross of minority interests


  

Page 55 

Statistical supplement: First time adoption continued 

Reconciliation of segmental analysis of Group operating earnings - EEV basis to MCEV basis

Group operating earnings
Reviewed 6 months 2008

EEV basis
as reported1
£m

Operational assumption changes 
£m

Economic changes
£m

Changes to required capital
£m

Cost of Non Hedgeable Risk
£m

Other
impact
£m

MCEV basis1

 £m

Less tax and minority interest 
£m

MCEV
basis2
£m

United Kingdom

471

18

(80)

2

(16)

22

417

(117)

300

France

297

-

(70)

-

-

14

241

(97)

144

Ireland 

30

-

13

-

-

(3)

40

(15)

25

Italy 

89

-

3

-

11

(2)

101

(67)

34

Netherlands (including Belgium and Germany)

139

42

(162)

(3)

(1)

20

35

(20)

15

Poland

103

5

15

-

(3)

(6)

114

(33)

81

Spain 

157

1

22

-

(5)

(2)

173

(113)

60

Other Europe

8

-

12

-

-

4

24

(4)

20

Europe

823

48

(167)

(3)

2

25

728

(349)

379

North America

139

(10)

(56)

(7)

2

6

74

(26)

48

Asia

23

(12)

29

-

-

(6)

34

(6)

28

Australia

24

-

6

-

(2)

(1)

27

(8)

19

Asia Pacific

47

(12)

35

-

(2)

(7)

61

(14)

47

Total

1,480

44

(268)

(8)

(14)

46

1,280

(506)

774

1.    Gross of tax and minority interests

2.    Net of tax and minority interests


Group operating earnings
Audited Full year 2007

EEV basis
as reported1
£m

Operational assumption changes 
£m

Economic changes
£m

Changes to required capital
£m

Cost of Non Hedgeable Risk
£m

Other
impact
£m

MCEV basis1

 £m

Less tax and minority interest
£m

MCEV
basis2
£m

United Kingdom

864

81

(26)

(67)

(9)

(21)

822

(247)

575

France

537

-

2

1

-

28

568

(227)

341

Ireland 

77

-

10

-

(2)

-

85

(30)

55

Italy 

137

-

5

(7)

(11)

13

137

(99)

38

Netherlands (including Belgium and Germany)

352

-

(20)

(3)

(2)

(11)

316

(99)

217

Poland

206

-

(25)

-

-

-

181

(52)

129

Spain 

239

(7)

8

1

(7)

(1)

233

(158)

75

Other Europe

(5)

(16)

8

(2)

(1)

(1)

(17)

5

(12)

Europe

1,543

(23)

(12)

(10)

(23)

28

1,503

(660)

843

North America

255

-

(103)

(11)

(12)

(5)

124

(44)

80

Asia

43

(12)

3

1

(2)

12

45

(11)

34

Australia

48

-

5

1 

(3)

(1)

50

(15)

35

Asia Pacific

91

(12)

8

2

(5)

11

95

(26)

69

Total

2,753

46

(133)

(86)

(49)

13

2,544

(977)

1,567

1.    Gross of tax and minority interests

2.    Net of tax and minority interests

  Page 56 

Statistical supplement: First time adoption continued 

Reconciliation of segmental analysis of life and pensions present value of new business premiums (PVNBP) - EEV basis to MCEV basis

PVNBP
Reviewed 6 months 2008

EEV basis
as reported1
£m

Economic
changes
£m

Other
changes
£m

MCEV 

basis1 

£m

Less minority interest 
£m

MCEV
basis2
£m

United Kingdom

5,863

160

(13)

6,010

-

6,010

France

2,010

57

(5)

2,062

(370)

1,692

Ireland 

648

27

24

699

(175)

524

Italy 

1,275

31

(1)

1,305

(656)

649

Netherlands (including Belgium and Germany)

1,991

226

(132)

2,216

(120)

1,965

Poland 

739

97

115

951

(124)

827

Spain 

1,259

73

(20)

1,312

(599)

713

Other Europe

509

157

-

667

-

667

Europe

8,431

668

(19)

9,081

(2,044)

7,037

North America

2,205

22

-

2,227

-

2,227

Asia

580

139

(34)

684

(4)

680

Australia

204

8

-

212

-

212

Asia Pacific

784

147

(34)

896

(4)

892

Total

17,283

997

(66)

18,345

(2,048)

16,166


PVNBP
Audited Full year 2007 

EEV basis
as reported1
£m

Economic
changes
£m

Other
changes
£m

MCEV 

basis1 

£m

Less minority interest
£m


MCEV
basis2
£m

United Kingdom

11,655

170

(28)

11,797

-

11,797

France

3,662

128

-

3,790

(633)

3,157

Ireland 

1,730

49

1

1,780

(445)

1,335

Italy 

2,924

51

-

2,975

(1,691)

1,284

Netherlands (including Belgium and Germany)

2,944

185

4

3,133

(192)

2,941

Poland 

844

124

151

1,120

(154)

966

Spain 

2,392

77

(35)

2,433

(1,210)

1,223

Other Europe

418

35

-

453

-

453

Europe

14,914

649

121

15,684

(4,325)

11,359

North America

3,602

44

-

3,646

-

3,646

Asia

990

92

59

1,141

(8)

1,133

Australia

439

15

-

454

-

454

Asia Pacific

1,429

107

59

1,595

(8)

1,587

Total

31,600

970

152

32,722

(4,333)

28,389

1.    Gross of minority interests

2.    Net of minority interests

  Page 57 

Statistical supplement: First time adoption continued 

Reconciliation of segmental analysis of value of new business - EEV basis to MCEV basis

Value of new business
Reviewed 6 months 2008

EEV basis
as reported1
£m

Operational assumption changes
£m

Economic
changes
£m

Changes to required capital £m

Cost of non-hedgeable risk £m

Other
impact
£m

MCEV basis1

£m

Less tax and minority interest 
£m

MCEV
basis2
£m

United Kingdom3

154

(1)

(77)

(1)

(15)

13

73

(20)

53

France

52

-

25

1

(10)

1

69

(31)

38

Ireland 

2

-

8

-

(2)

-

8

(2)

6

Italy 

29

-

8

(1)

-

(1)

35

(23)

12

Netherlands (including Belgium and Germany)

15

4

(33)

(6)

(9)

(8)

(37)

6

(31)

Poland

18

6

11

-

(3)

(1)

31

(9)

22

Spain 

124

(7)

24

-

(10)

(1)

130

(87)

43

Other Europe

5

-

15

-

(1)

-

19

(3)

16

Europe

245

3

58

(6)

(35)

(10)

255

(149)

106

North America

68

-

(71)

(4)

(5)

4

(8)

3

(5)

Asia

15

-

20

-

(1)

(8)

26

(5)

21

Australia

6

-

3

-

(3)

-

6

(2)

4

Asia Pacific

21

-

23

-

(4)

(8)

32

(7)

25

Total

488

2

(67)

(11)

(59)

(1)

352

(173)

179

1.    Gross of tax and minority interests

2.    Net of tax and minority interests

Value of new business
Audited 31 December 2007

EEV basis
as reported1
£m

Operational assumption changes
£m

Economic
changes
£m

Changes to required capital 

£m

Cost of non-hedgeable risk £m

Other
impact
£m

MCEV basis1

 £m

Less tax and minority interest 
£m

MCEV
basis2
£m

United Kingdom3

305

(27)

7

(3)

(26)

22

278

(83)

195

France

117

-

54

1

(19)

(8)

145

(64)

81

Ireland 

25

-

15

-

(3)

-

37

(11)

26

Italy 

61

-

19

-

(3)

-

77

(57)

20

Netherlands (including Belgium and Germany)

53

(1)

(22)

(6)

(9)

(7)

8

(5)

3

Poland

32

6

15

-

(5)

-

48

(14)

34

Spain 

173

(13)

37

-

(12)

(4)

181

(124)

57

Other Europe

(5)

-

15

-

-

(4)

6

(2)

4

Europe

456

(8)

133

(5)

(51)

(23)

502

(277)

225

North America

108

-

(38)

(8)

(6)

(4)

52

(18)

34

Asia

27

-

32

-

(4)

(6)

49

(10)

39

Australia

16

-

4

-

(4)

-

16

(5)

11

Asia Pacific

43

-

36

-

(8)

(6)

65

(15)

50

Total

912

(35)

138

(16)

(91)

(11)

897

(393)

504

1.    Gross of tax and minority interests

2.    Net of tax and minority interests   

Page 58 

New business premiums and analysis of PVNBP 

Reviewed 30 June 2008


Regular
premiums
£m

Weighted
average
capitalisation
factor

Present value
of regular
premiums
£m

Single
premiums
£m

Present value
of new business
premiums (PVNBP)
£m

United Kingdom






- Individual pensions

218

4.4

970

1,068

2,038

- Group pensions

40

4.2

170

202

372

- Annuities

-

-

-

1,286

1,286

- Bonds 

-

-

-

1,628

1,628

- Protection

80

6.8

545

61

606

- Equity release

-

-

-

80

80

United Kingdom Total

338

4.9

1,685

4,325

6,010

Europe






France






- Eurofunds

13

6.4

83

1,291

1,374

- Unit-linked funds

23

6.6

152

435

587

- Protection business

14

7.1

99

2

101


50

6.7

334

1,728

2,062

Ireland






- Life and savings

19

5.5

105

201

306

- Pensions

46

4.6

210

183

393


65

4.8

315

384

699

Italy






- Life and pensions

58

6.0

346

959

1,305


58

6.0

346

959

1,305

Netherlands 
(including Belgium and Germany)






- Life

34

8.1

275

255

530

- Pensions

45

9.2

416

1,139

1,555


79

8.8

691

1,394

2,085

Poland






- Life and savings

23

6.5

149

323

472

- Pensions

26

15.3

398

81

479


49

11.2

547

404

951

Spain






- Life and savings

61

5.7

350

541

891

- Pensions

36

6.3

227

194

421


97

5.9

577

735

1,312

Other Europe






- Life and pensions

64

9.3

598

69

667


64

9.3

598

69

667

Europe Total

462

7.4

3,408

5,673

9,081

North America






- Life

30

8.7

261

12

273

- Annuities

-

-

-

1,579

1,579

- Funding agreements

-

-

-

375

375

North America Total 

30

8.7

261

1,966

2,227

Asia Pacific






Asia






- Life and pensions

69

6.3

434

250

684


69

6.3

434

250

684

Australia






- Life and pensions

32

3.5

111

101

212


32

3.5

111

101

212

Asia Pacific Total

101

5.4

545

351

896

Total

931

6.3

5,899

12,315

18,214

  Page 59 

New business premiums and analysis of PVNBP 

Audited 12 months 2007


Regular
premiums
£m

Weighted
average
capitalisation
factor

Present value
of regular
premiums
£m

Single
premiums
£m

Present value
of new business
premiums (PVNBP)
£m

United Kingdom






- Individual pensions

389

4.3

1,653

1,717

3,370

- Group pensions

83

2.1

171

615

786

- Annuities

-

-

-

1,965

1,965

- Bonds 

-

-

-

4,192

4,192

- Protection

131

7.9

1,028

213

1,241

- Equity release

-

-

-

243

243

United Kingdom Total

603

4.7

2,852

8,945

11,797

Europe






France






- Eurofunds

17

7.0

119

1,930

2,049

- Unit-linked funds

53

6.8

361

1,225

1,586

- Protection business

20

7.6

152

3

155


90

7.0

632

3,158

3,790

Ireland






- Life and savings

40

5.1

203

627

830

- Pensions

99

4.2

412

538

950


139

4.4

615

1,165

1,780

Italy






- Life and pensions

107

5.7

608

2,367

2,975


107

5.7

608

2,367

2,975

Netherlands 
(including Belgium and Germany)






- Life

68

8.0

544

434

978

- Pensions

92

9.1

834

1,321

2,155


160

8.6

1,378

1,755

3,133

Poland






- Life and savings

28

6.3

177

264

441

- Pensions

35

15.1

530

149

679


63

11.2

707

413

1,120

Spain






- Life and savings

80

5.7

457

1,192

1,649

- Pensions

34

6.2

215

569

784


114

5.9

672

1,761

2,433

Other Europe






- Life and pensions

73

4.4

318

135

453


73

4.4

318

135

453

Europe Total

746

6.6

4,930

10,754

15,684

North America






- Life

70

8.2

575

42

617

- Annuities

1

4.0

4

2,596

2,600

- Funding agreements

-

-

-

429

429

North America Total 

71

8.2

579

3,067

3,646

Asia Pacific






Asia






- Life and pensions

114

6.0

683

458

1,141


114

6.0

683

458

1,141

Australia






- Life and pensions

54

3.5

191

263

454


54

3.5

191

263

454

Asia Pacific Total

168

5.2

874

721

1,595

Total

1,588

5.8

9,235

23,487

32,722



  Page 60 

Statement of Directors' responsibilities in respect of the Market Consistent Embedded Value (MCEV) basis

When compliance with the European Insurance CFO Forum Market Consistent Embedded Value Principles (MCEV Principles), published in June 2008, is stated, those principles require the directors to prepare supplementary information in accordance with the methodology contained in the MCEV Principles and to disclose and explain any non-compliance with the guidance included in the MCEV Principles.

In preparing this supplementary information, the directors have done so in accordance with these MCEV Principles and have also fully complied with all the guidance included therein, 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 immediate annuities, deferred annuities and other US contracts. Specifically, the directors have:

-    determined assumptions on a realistic basis, having regard to past, current and expected future experience and to relevant external data, and then applied them consistently;

-    made estimates that are reasonable and consistent; and,

-   provided additional disclosures when compliance with the specific requirements of the MCEV Principles is insufficient to enable users to understand the impact of particular transactions, other events and conditions and the Group's financial position and financial performance.


By order of the Board 





Philip Scott

Chief Financial Officer


Date: 3 February 2009                 

  Page 61

Independent auditors' report to the directors of Aviva plc on the consolidated Market Consistent Embedded Value financial statements for the year ended 31 December 2007

We have audited the consolidated Aviva MCEV financial statements of the Group for the year ended 31 December 2007 which comprises the Summarised Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, and the Group MCEV Analysis of Earnings for the year ended 31 December 2007; the Reconciliation of Movements in Consolidated Shareholders' Equity, the Summarised Consolidated Balance Sheet, the Reconciliation between Shareholder's equity on an IFRS basis and an MCEV basis and the Segmentation of summarised consolidated balance sheet as at 30 June 2008 together with the related notes on pages 22 to 53; and the sections on adoption of market consistent embedded value methodology and impact on results on pages 2 to 14 and the statistical supplement on pages 54 to 59. The consolidated Aviva MCEV financial statements have been prepared in accordance with the basis of preparation set out on pages 22 to 26. 

We have reported separately on the statutory Group financial statements of Aviva plc for the year ended 31 December 2006 and the year ended 31 December 2007. The information contained in the consolidated Aviva MCEV financial statements should be read in conjunction with the financial statements prepared on an IFRS basis. This information is described within the consolidated Aviva MCEV financial statements as having being audited.

This report is made solely to the Company in accordance with our engagement letter dated 23 January 2008. Our audit work has been undertaken so that we might state to the Company those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility or liability to anyone other than the Company for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The directors are responsible for preparing the consolidated Aviva MCEV financial statements under the basis of preparation as set out on pages 22 to 26.

Our responsibilities, as independent auditors, in relation to the consolidated Aviva MCEV financial statements are set out in our engagement letter dated 23 January 2008. We report to you our opinion as to whether the consolidated Aviva MCEV financial statements have been properly prepared in all material respects in accordance with the basis of preparation set out on pages 22 to 26. We also report to you if we have not received all the information and explanations we require for our audit of the consolidated Aviva MCEV financial statements.

We read other information contained in the Aviva MCEV announcement and consider whether it is consistent with the consolidated Aviva MCEV financial statements. 

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the consolidated Aviva MCEV financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the consolidated Aviva MCEV financial statements, and of whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the consolidated Aviva MCEV financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of the consolidated Aviva MCEV financial statements.

Opinion

In our opinion the consolidated Aviva MCEV financial statements. for the year ended 31 December 2007 have been properly prepared, in all material respects, in accordance with the basis of preparation set out on pages 22 to 26.


Ernst & Young LLP

London

Date: 3 February 2009 

Page 62 

Independent auditors' report to the directors of Aviva plc on the consolidated Market Consistent Embedded Value financial statements for the six months ended 30 June 2008


We have been engaged by the Company to review the half-yearly consolidated Aviva MCEV financial statements for the six months ended 30 June 2008 which comprises the Summarised Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, the Group MCEV Analysis of Earnings for the six months ended 30 June 2008; the Reconciliation of Movements in Consolidated Shareholders' Equity, the Summarised Consolidated Balance Sheet, the Reconciliation between Shareholder's equity on an IFRS basis and an MCEV basis and the Segmentation of summarised consolidated balance sheet as at 30 June 2008 together with the related notes on pages 22 to 53; and the sections on adoption of Aviva market consistent embedded value methodology and impact on results on pages 2 to 14 and the statistical supplement on pages 54 to 59. The half-yearly consolidated Aviva MCEV financial statements have been prepared in accordance with the basis of preparation set out on pages 22 to 26.

We have reported separately on the condensed financial statements of Aviva plc for the six months ended 30 June 2008. The information contained in the consolidated Aviva MCEV financial statements should be read in conjunction with the financial statements prepared on an IFRS basis. This information is described within the half-yearly consolidated Aviva MCEV financial statements as having being reviewed.

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practice Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities 

The half-yearly consolidated Aviva MCEV financial statements are the responsibility of, and have been approved by, the directors. The Directors are responsible for preparing the half-yearly consolidated Aviva MCEV financial statements in accordance with the basis of preparation set out on pages 22 to 26.

Our Responsibility 

Our responsibilities, as independent auditors, in relation to the half-yearly consolidated Aviva MCEV financial statements are set out in our engagement letter with you dated 23 January 2008. We report to you our opinion as to whether the half-yearly consolidated Aviva MCEV financial statements have been properly prepared, in all material respects, in accordance with the basis of preparation set out on pages 22 to 26. 

We read other information contained in the Aviva MCEV announcement and consider whether it is consistent with the consolidated Aviva MCEV financial statements.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review consists of making enquiries, primarily with Group management and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 

Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the half-yearly consolidated Aviva MCEV financial statement for the six months ended 30 June 2008 are not prepared, in all material respects, in accordance with the basis of preparation set out on pages 22 to 26.




Ernst & Young LLP

London

Date: 3 February 2009

  Page 63 

Glossary

Definitions of Group key performance indicators and other terms

Asymmetric risk
Risks that will cause shareholder profits to vary where the variation above and below the average are not equal in distribution.
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.
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.
EU solvency
The excess of assets over liabilities and the world-wide 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.
Funds under management by Aviva
Represents all assets actively managed or administered by the fund management operations of the Group.
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.
Holding company
A legal entity with a function of being a consolidating entity for primary financial reporting of covered business.
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. 
Market consistent
A measurement approach where economic assumptions are such that projected asset cashflows are valued consistently with current market prices for traded assets.
MCEV
Aviva's Market Consistent Embedded Value 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 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)
The risk-free return that can be earned on investments in the currency of the liability being valued. 
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 1st July 2007, the risk-free rate is taken as swaps except for UK and Netherlands immediate annuities and immediate annuities, deferred annuities and other US contracts. 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.
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 beginning of each year and is stated after the effect of any frictional costs. Unless otherwise stated, it is also quoted net of tax and minority interests.


End of Part 4 of 4.





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