85 Aviva plc 2011 Preliminary Announcement
Notes to the consolidated financial statements continued
A17 – Risk management continued Reinsurance credit exposures
The Group is exposed to concentrations of risk with individual reinsurers, due to the nature of the reinsurance market and the restricted range of reinsurers that have acceptable credit ratings. The Group operates a policy to manage its reinsurance counterparty exposures, by limiting the reinsurers that may be used and applying strict limits to each reinsurer. Reinsurance exposures are aggregated with other exposures to ensure that the overall risk is within appetite. The Credit Approvals Committee has a monitoring role over this risk. The Group’s largest reinsurance counterparty is Swiss Reinsurance Company Ltd (including subsidiaries). At 31 December 2011, the reinsurance asset recoverable, including debtor balances, from Swiss Reinsurance Company Ltd was £1,314 million. Securities finance
The Group has significant securities financing operations within the UK and smaller operations overseas. The risks within this business are mitigated by over-collateralisation and minimum counterparty credit quality requirements which are designed to result in minimal residual risk. The Group operates strict standards around collateral management, margin calls and controls. Derivative credit exposures
The Group is exposed to counterparty credit risk through derivative trades. This risk is mitigated through collateralising almost all trades (the exception being certain FX trades where it has historically been the market norm not to collateralise). The Group operates strict standards around collateral management and controls including the requirement that all ‘Over the Counter’ derivatives are supported by credit support annexes and ISDAs or their local equivalents unless otherwise agreed with the Group ALM team. Counterparites must have a minimum credit rating from rating agencies (S&P, Moody’s and Fitch) and the collateral process must meet certain minimum standards as set out by Group guidelines. Residual exposures are captured within the Group’s credit management framework. Many of the largest shareholder notional positions are exchange traded, rather than over the counter (OTC), with the added protection that provides (i.e. mitigated significantly through the protection offered by the exchange) and is controlled by the Group’s local asset management operations. Unit-linked business
As discussed previously, in unit-linked business the policyholder bears the market risk and credit risk, on investment assets in the unit funds, and the shareholders’ exposure to credit risk is limited to the extent that their income arises from asset management charges based on the value of assets in the fund. Impairment of financial assets
The following table provides information regarding the carrying value of financial assets that have been impaired and the ageing of financial assets that are past due but not impaired. Financial assets that are past due but not impaired
At 31 December 2011
Debt securities Reinsurance assets Other investments Loans Receivables and other financial assets
Neither past due nor impaired £m
0–3 months £m
3–6 months £m
6 months– 1 year £m
Greater than 1 year £m
152,988 7,112 30,152 27,582 7,650
— — — 6 134
— — — — 148
— — — — 2
— — — — 3
Carrying Financial value in the assets that statement of have been financial impaired position £m £m
264 — 8 528 —
153,252 7,112 30,160 28,116 7,937
Financial assets that have been impaired £m
Carrying value in the statement of financial position £m
Financial assets that are past due but not impaired
At 31 December 2010
Neither past due nor impaired £m
0–3 months £m
3–6 months £m
6 months– 1 year £m
Greater than 1 year £m
Debt securities Reinsurance assets Other investments Loans Receivables and other financial assets
167,334 7,084 36,671 42,045 7,983
— — 19 326 209
3 — 6 26 36
3 — 15 11 39
28 — 8 7 10
114 167,482 — 7,084 11 36,730 659 43,074 18 8,295
Credit investment criteria are set locally within overall credit limits prescribed by the Group Credit Approvals Committee and within the framework of the Group credit policy. The credit quality of financial assets is managed at the local business unit level. Where assets have been classed as ‘past due and impaired’, an analysis is made of the risk of default and a decision is made whether to seek collateral from the counterparty. There were no material financial assets that would have been past due or impaired had the terms not been renegotiated.