6th Jan 2005 09:02
Aviva PLC06 January 2005 6 January 2005 Aviva announces early adoption of European Embedded Value principles Aviva plc ("Aviva") announces that it will adopt the European Embedded Value1 ("EEV") principles, developed by the CFO Forum2, as the basis for itssupplementary life reporting in its 2004 preliminary results to be published on9 March 2005. In addition to statutory disclosures, Aviva's 2004 preliminary results willinclude supplementary reporting for life operating results and embedded value onan EEV basis in place of reporting on the previously reported achieved profitsbasis. The adoption of the EEV principles will not affect the basis of reporting thestatutory results, the regulatory capital position or the dividend payingcapacity of the Group. Impact of changes on the operating result: No material impact on group operating profit as reported at the full year 2003and interim 2004 results is expected as a result of the adoption of the EEVprinciples by the Group. In addition there is not expected to be any materialimpact on the level of life new business contribution, either before or afterthe cost of capital, other than for the inclusion of Norwich Union EquityRelease3 ("NUER") in the life EEV operating result as described below. Impact of changes on the embedded value: The overall impact on life embedded value, as reported at 31 December 2003 and30 June 2004, is expected to be a reduction of less than 5% at each reportingdate. In accordance with EEV principles this incorporates the cost of fundingthe life element of the pension fund deficit which accounts for approximately aquarter of this expected reduction. Andrew Moss, Aviva's group finance director, said: "The adoption of EuropeanEmbedded Value principles across the European insurance sector will, over time,lead to greater transparency and comparability for investors, which we fullysupport. We are committed to improving clarity of financial reporting and arepleased that our Global Finance Transformation Programme has put us in aposition to adopt this improved basis of value reporting early. The enhanceddisclosure will assist the market in areas where we believe discounts have beenapplied to our reported embedded value." Analyst / Investor meeting: Aviva will host an analyst / investor meeting at 9.30am (GMT) on 13 January 2005to provide further information on the changes arising from the introduction ofEEV and will publish a number of restatements to its supplementary lifereporting for the following periods: - 2003 full year results - 2004 interim results - quarterly life new business sales and margins commencing from the first quarter 2003 Details of the meeting, which will be held in London, and which will include ateleconference facility, will be notified shortly. -We will provide an abridgedanalyst pack with extensive disclosures at 7.00am (GMT) on 13 January 2005. Key changes in methodology In adopting the EEV principles, Aviva will make a number of key changes from thepreviously reported achieved profits basis: - an explicit allowance will be made for the cost of financial options and guarantees using stochastic modelling techniques; - the required solvency capital for EEV purposes will be established at levels in excess of the EU minimum; - taking into account the explicit allowance for the risks described above and the existing prudence in life technical reserving Aviva has reviewed and amended its economic assumptions; - a significant proportion of the results in the life service companies, in particular the reported losses in Norwich Union Life Services4 ("NULS") in the UK, that are currently reported under "non-insurance", will be included in the life EEV operating result and embedded value; - profits made in the Group's asset management businesses that relate to managing internal life funds, particularly for Morley in the UK and Aviva Gestion d'Actifs in France, that are currently reported under "fund management", will be included in the life EEV operating result and embedded value; - the results of NUER in the UK, that are currently reported under " non-insurance", will be included in the life EEV operating result and embedded value; - the element of the pension fund deficit that relates to UK life and other related businesses will be incorporated into the life embedded value at a cost equivalent to the discounted value of expected future post-tax contributions. Life new business sales and margins: The main industry measure of life new business sales under EEV will be thepresent value of new business premiums ("PVNBP"), which is equal to total singlepremiums plus the discounted value of new regular premiums. In addition to reporting PVNBP, Aviva will continue to report new business on anannual premium equivalent or APE basis (10% of single premiums plus newannualised regular premiums) in 2005, to assist in comparisons as the rest ofthe life insurance industry transitions to EEV reporting. Aviva's full year 2004 new business announcement, to be made on 25 January 2005,will be disclosed as total sales (single premiums plus regular premiums) and assales on an APE basis. Full year new business sales on a PVNBP basis will beprovided as part of the 2004 preliminary results announcement, together withfull year new business contribution. New business margins will be calculated as new business contribution divided bynew business sales on a PVNBP basis from the 2004 preliminary results onwards. Enquiries: Investors and analysts: Steve Riley, investor relations director Tel: 020 7662 8115 James Matthews, head of investor relations Tel: 020 7662 2137 Media: Hayley Stimpson, director of external affairs Tel: 020 7662 7544 Sue Winston, head of group media relations Tel: 020 7662 8221 Robert Bailhache, Financial Dynamics Tel: 020 7269 7200 Notes to Editors: 1. Embedded Value is a method of reporting the economic value of lifeinsurance business. This information helps investors to value life insurancecompanies. Until now, the basis for preparation for this supplementaryinformation has varied by country and in some cases by company within a country.This has made it difficult for investors and analysts to compare relativeperformance. 2. The CFO Forum www.cfoforum.nl is a high-level group formed by the ChiefFinancial Officers of 19 major European listed and non-listed insurancecompanies. Its aim is to discuss issues relating to proposed new accountingregulations for their businesses and how they can create greatertransparency for investors. The Forum was created in 2002 and launched a setof embedded value principles in May 2004 ("European Embedded Value") thatits members across Europe have agreed to adopt for their 2005 publishedaccounts, with early adoption encouraged. 3. Norwich Union Equity Release is the leading provider of equity releaseproducts to homeowners in the UK. 4. Norwich Union Life Services is the administration company for Aviva's lifebusiness in the UK. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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