aviva uk analyst day: delivering value in the new business environment november 2010

8/7/2019 Aviva UK Analyst Day: Delivering Value In The New Business Environment November 2010

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Delivering value in the newbusiness environment

2 November 2010

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Disclaimer

Cautionary statements:

This should be read in conjunction with the documents filed by Aviva plc (the Company or Aviva) with the United States Securities and Exchange

Commission (SEC). This announcement contains, and we may make verbal statements containing, forward-looking statements with respect to certain

of Avivas plans and current goals and expectations relating to future financial condition, performance, results, strategic i nitiatives and objectives.

Statements containing the words believes,intends, expects, plans, will, seeks, aims, may, could, outlook, estimates and anticipates, and

words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty. Accordingly, there are or will be

important factors that could cause actual results to differ materially from those indicated in these statements. Aviva believes factors that could cause

actual results to differ materially from those indicated in forward-looking statements in the presentation include, but are not limited to: the impact of difficult

conditions in the global capital markets and the economy generally; the impact of new government initiatives related to the financial crisis; defaults and

impairments in our bond, mortgage and structured credit portfolios; changes in general economic conditions, including foreign currency exchange rates,

interest rates and other factors that could affect our profitability; the impact of volatility in the equity, capital and credit markets on our profitability andability to access capital and credit; risks associated with arrangements with third parties, including joint ventures; inability of reinsurers to meet obligations

or unavailability of reinsurance coverage; a decline in our ratings with Standard & Poors, Moodys, Fitch and A.M. Best; inc reased competition in the U.K.

and in other countries where we have significant operations; changes to our brands and reputation; changes in assumptions in pricing and reserving for

insurance business (particularly with regard to mortality and morbidity trends, lapse rates and policy renewal rates), longevity and endowments; a cyclical

downturn of the insurance industry; changes in local political, regulatory and economic conditions, business risks and challenges which may impact

demand for our products, our investment portfolio and credit quality of counterparties; the impact of actual experience differing from estimates on

amortisation of deferred acquisition costs and acquired value of in-force business; the impact of recognising an impairment of our goodwill or intangibles

with indefinite lives; changes in valuation methodologies, estimates and assumptions used in the valuation of investment securities; the effect of various

legal proceedings and regulatory investigations; the impact of operational risks; the loss of key personnel; the impact of catastrophic events on our

results; changes in government regulations or tax laws in jurisdictions where we conduct business; funding risks associated with our pension schemes;the effect of undisclosed liabilities, integration issues and other risks associated with our acquisitions; and the timing impact and other uncertainties

relating to acquisitions and disposals and relating to other future acquisitions, combinations or disposals within relevant industries. For a more detailed

description of these risks, uncertainties and other factors, please see Item 3, Risk Factors, and Item 5, Operating and Fi nancial Review and Prospects

in Avivas Annual Report Form 20-F as filed with the SEC on 30 March 2010. Aviva undertakes no obligation to update the forward looking statements in

this announcement or any other forward-looking statements we may make. Forward-looking statements in this presentation are current only as of the date

on which such statements are made.

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Agenda

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9.30 Q3 & Strategic update Andrew Moss

Q&A

10.45 Coffee

11.15 Winning in the UK Mark Hodges

Q&A

12.30 Lunch


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Q3 update

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Continuing strong results in Q3 2010

Capital generation on target

GI & Health NWP GI COR

Expected FY10

1.0bn

1.5bn

FY09

7.1bn

7.3bn

3Q103Q09

50%

4%

12%

10%

Long term savings sales

27.1bn

28.6bn

New business IRR

3Q103Q09 3Q10FY09

6%

2%points

3Q09 3Q10

97%

98%

5

HY IFRSoperating profit*

HY10HY09

1,270m

1,049m 21%

* Includes 80m UK special distribution receivable in 1H only


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6

Life sales YTD IRR YTD

3Q09m

3Q10m

Growth%

FY09%

3Q10%

UK 6,664 7,631 15 14 15

Europe 9,770 10,640 9 13 12

North America 3,742 3,668 (2) 7 14

Asia Pacific 788 1,153 46 6 10

Delta Lloyd 2,835 2,462 (13) 6 6

Australia 261 - n/a 11 -

Life & pensions 24,060 25,554 6 10 12

Investment sales 3,042 3,039 -

Long termbusiness sales

27,102 28,593 6

Growing Life sales and profitability

Long Term Savings

Continued focus on profitable new business

UK sales up 15% at strong IRR of 15%,

sales growth across the product range

continued move in mix away frombonds

Europe sales up 9%

rebalanced sales mix

focus on capital efficient products

North America sales on track, IRRimproved to 14%

change in mix of sales towards morecapital efficient life products

significant improvement in IRR

Asia Pacific sales up 46% with improvingIRR

Delta Lloyd sales down 13%, largely due toclosure of loss-making German operation tonew business


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GI returning to growth: 97% COR (96% in the UK)

General insurance

GI businesses returning to growth and CORimproved to 97% (3Q09: 98%)

4% underlying current year CORimprovement

UK sales up 3%

third consecutive quarter of growth

building momentum following exit fromunprofitable business in 2008/9

marketing campaigns proving effective

RAC panel showing strong growth

Europe sales up 2%

growth in Italy, Poland and Turkeyoffset by France and Ireland

COR reflects adverse weather in1H10

North America sales up 10%

reflects action taken in 2009 to exitpoorly performing business

Benefitting from higher averagepremiums

Delta Lloyd sales steady with COR of 97%

General Insurance net writtenpremiums YTD

3Q09m

3Q10m

Growth%

COR%

UK 3,319 3,412 3 96

Europe 1,435 1,468 2 103

North America 1,351 1,480 10 98

Delta Lloyd & Other962 976 1 97

Total 7,067 7,336 4 97

8,900

9,000

9,100

9,200

9,300

9,400

9,500

9,600

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Rolling 12 month net written premiums

m


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Q3 2010: improving NAV

HY10 Proforma3Q10

424p

394p

IFRS NAV

NAV

Increase principally due to earningsin Q3

Proforma Q3 includes 10p additionalbenefit from agreed closure of pensionscheme

HY10

497p

461p

MCEV NAV

Proforma3Q10


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Aviva today

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Significant transformation under One Avivatwice the value

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Structural & portfolio changes

Reallocation of capital

450 million raised from sale of

Australia, with annual profits ofc. 40 million

470 million allocated to thereattribution with annual profitsof 120 million

1 billion raised from Delta Lloyd IPO

500 million cost saves target achieved ayear early

c. 275 million to NAV and at least50 million cost savings pa from theclosure of the UK final salary pensionschemes

Proactive management of the balance

sheet through the financial crisis

Operational transformation

UK Life transformation

UK GI book cleansed

Europe Quantum Leap wellunder way

North America profitability

turnaround

Asia Pacific value accelerating

Global integration and growthof Aviva Investors

Uniting the Group under one brand


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Significant ongoing cost savings

5,750

5,144

267121 387

133209

119

388

4,000

4,500

5,000

5,500

6,000

FY08

FX,M&A

+

ExceptionalsFY08

In

flation

UK

Europe

exDL

Delta

Lloyd

Other(inc.G

roup)

ExceptionalsFY09

FY09

13% reduction in costs in 2009

500 million cost savings achieved and more to come

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m


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800

850

900

4,000

4,500

5,000

5,500

HY09 HY10

General Insurance

NWP EXPENSES

flowing through to results in 2010

0

500

1,000

1,500

2,000

2,500

3,000

HY09 HY10

Life

INCOME EXPENSES

Notes: Life income includes underwriting margins, investment return and new business margin GI net written premiums includes both GI and health

Expenses: Life expenses include acquisition and administration expenses. GI expenses include commission andother operating expenses 12

mNWPm Expensesm


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Strategy in a changing world

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Uncertainty and lower disposable income drives

increasing preference for security

Capital more scarce leading to more local,focused ambitions

Solvency II and greater regulatory scrutiny

Looking forward

A more fragmented world withdivergent economies, low interest rates for longer

Higher customer risk appetite

Capital rich companies with global ambitions

Solvency I and light touch regulation

Pre crisis

Decade of strong growth

GI cycle peaked GI past low point and into slow upturn


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Objective: driving profits and dividend growth


Where should we operate?

Should we be a composite?

What do we need to be better at?


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Countries in which Aviva operates

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Aviva is currently in 30 countries

BelgiumCzech RepublicFrance

GermanyHungaryIrelandItalyLithuaniaNetherlands

PolandRomaniaRussia

SlovakiaSpainTurkeyUAEUKLuxembourg*

Europe and Middle East

* Aviva Investors only

CanadaUSA

North America

ChinaHong KongIndiaIndonesiaMalaysia

SingaporeSouth KoreaSri LankaTaiwanAustralia*

Asia Pacific


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Geographic focus in UK & Europe

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Italy

France

Spain

Ireland

UK

Poland

Mkt share Population

Conditions met

Today Future

No 1 61m Top 10 Life 62m

Top 3 4m

Top 10 Life 59m No 1 Pension

No 2 Life38m

Top 5 Life 45m Top 5 Life 139m

No 1 PensionNo 4 Life

77m TurkeyRussia

Countries must provideeither:

$100 millioncontribution to IFRS

profits and 12%ROCE

or

$1 billion of franchisevalue

Invest and deepen our presence in these chosen markets


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2009 Assets

200914 Expected Increase in Assets

European L&P assets expected to grow by$1.7 trillion between 2009-2014

Source: Oliver Wyman

Europe has highest potential growth in L&P assets inthe near term...

8.1

1.7

Europe(inc UK)

1.6

1.5

Asia(ex Japan)

($ trillion)

3.9

1.3

NorthAmerica

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2070

90100

170

240

380

400

930 2,400

0

1,000

2,000

3,000

Ireland Poland Turkey Italy Spain France UK Russia Other EUcountries

Total

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In Europe, people retiring in the next 40 years need to save anadditional 2.4 trillion each year to fill the pensions gap

bn

Source: Mind the gap quantifying Europes pensions gap,Aviva & Deloitte, September 2010

...and there is a large additional savings need

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We have significant competitive strengths in the UKand Europe

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Benefits of scale

Broad product range

Wide customer base

Multi-channel delivery

Diversity of risk and earnings

Single brand

UK

Competitive scale advantage

Risk/GI52%

Savings48%

Savings71%

Risk/GI29%

Market leading bancassurance franchise

Well established positions in chosen markets

Pan-European approach under Quantum leap

Competitive distribution advantage

Europe(inc DL)

Sales

Update

plannedfor 2011

UKupdatetoday

Aviva has 5.5% of Life and 2.5% of GI market share in our European markets


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We have significant competitive strengths in the UKand Europe

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Benefits of scale

Broad product range

Wide customer base

Multi-channel delivery

Diversity of risk and earnings

Single brand

UK

Competitive scale advantage

Risk/GI77%

Savings23%

Savings28%

Risk/GI72%

Market leading bancassurance franchise

Well established positions in chosen markets

Pan-European approach under Quantum leap

Competitive distribution advantage

Europe(inc DL)

Profit

Update

plannedfor 2011

UKupdatetoday

Aviva has 5.5% of Life and 2.5% of GI market share in our European markets


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Maximising the value of Delta Lloyd

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Delta Lloyd must provide either:

$100 million contribution to IFRSprofits and 12% ROCE

or

$1 billion of franchise value Profit growth

Net capital contributor

Hold for value

Delta Lloyd

Today Future

Profit ROCE Franchise n/a n/a

Partial IPO raised1 billion and reduced Avivas

shareholding to 58%


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Managing for profit in North America

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Countries must provide either:

$100 million contribution to IFRS

profits and 12% ROCE

or

$1 billion of franchise value

Canada

No 2 in the EIA market

Net capital contributor

Organic growth withemphasis on life

No acquisitions, no plans toenter variable annuity market

USA

Today Future


Today Future


No 2 in the GeneralInsurance market

Profit growth by capitalisingon scale

Consistent capital contributor


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Growing value in Asia Pacific

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China

Continued franchise growth

Long term increased focuson key markets

Exit Taiwan

India

Franchise valuemaximised through apan-Asian business

Asian countries

Today FutureProfit ?ROCE ?Franchise

Today Future

Profit ?ROCE ?Franchise

Countries must provide either:

$100 million contribution to IFRS


or


Value estimate of 3 x the 700 million invested to date?


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Growing the franchise of Aviva Investors

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Aviva Investors must provide

either: $100 million contribution to IFRS


or


Continued growth in thirdparty assets to drivefranchise value

Aviva Investors

Today Future

Profit ROCE Franchise


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Increasing focus and depth

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Italy

France

Spain

Ireland

UK

Poland

Turkey

Russia

Canada

US

China

India

80% of our Life & GI profit already comes from these 12 countries

Europe North America / Asia


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Compositeinsurer

Should we be a composite?

Excel in GI

Drive outadditionalcomposite

value

Excel in Life

Insurer


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0

100

200

300

400

500

600

Underwritingmargin

Unitlinkedmargin

Participatingbusiness

Spreadmargin

Expectedreturn

Resilient and balanced earnings

Newbusinessincome

HY m

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Generalinsurance

Asset & liabilityduration matchingprovides a predictablenet income stream

Investment yieldsabove guaranteelevels with hedges inplace where required

Strong cost control tomaintain profits in lowinterest environment

Over 75% of income derived from risk earnings

Savings

Risk


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Capital

Cash

Cost &

efficiency

Customer, brand& distribution

Structuraladvantage

Differentiation

Scale &efficiency

Diversification brings wide-ranging benefits

30 40% less capital required to write GI newbusiness

Solvency II will bring more clarity to this benefit

Complementary cash flow characteristics

Half of cash flow generated from GI businesses

Cost & operational efficiencies

Sharing of key skills and capabilities

53 million customers and growing

Integrated brand advantages

Global leadership in bancassurance

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Technical

excellence

Pricing and product development

Underwriting

Claims management

Marketing anddistributionexpertise

Multi channel access to customers Bancassurance leadership

Brand strength

Operationaleffectiveness

Customer value management :retention, cross selling

Straight through processing to drivequality and efficiency

Financialdiscipline

Clear framework for capitalallocation

Managing investment risk & gearing

Selective portfolio changes / M&A


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Technical

excellence

Operationaleffectiveness

Marketing anddistributionexpertise

Financialdiscipline

Pricing and product development

Underwriting

Claims management

Multi channel access to customers Bancassurance leadership

Brand strength

Customer value management :retention, cross selling

Straight through processing to drivequality and efficiency

Clear framework for capitalallocation

Managing investment risk & gearing

Selective portfolio changes / M&A

Pan European distribution model UK Bancassurance gains

Material increase in brand awareness

Pricing sophistication e.g. daily pricingof UK annuities

Bancassurance pricing action in Italy Early identification & action on BI claims

Company of the year & improvingcustomer net promoter scores

Improving retention levels

Track record of significant cost savings

20 January analyst event to focus onthe balance sheet

Clear capital allocation framework

Short term financial deliverables


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Short term financial deliverables

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Deliver at least 1.5 billion operational capital in 2011

2011 general insurance COR to be 97% or better

Deliver a Life IRR of at least 12% with payback of 10 years or less

Additional cost savings of 200 million and a further

200 million efficiency gains by end 2012


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Summary

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Driving profit and dividend growth

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Excelling in both

Life & General Insurance

Increasing focus and depth in 12 countries

Building on our core capabilities

Driving out composite value from the

businesses

Demonstrating financial discipline through a range of short term targets


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Delivering value in the newbusiness environment

Q&A

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aviva uk analyst day: delivering value in the new business environment november 2010

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