Aviva Plc · LSE:AV.
Aviva — Investor Presentation (April 2011)
68 slides from Aviva's investor presentation, April 2011
Slide 1: Investor presentation April 2011
Investor presentation April 2011
Slide 2: Disclaimer
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 statemen
Slide 3: Contents
Contents Page 1 Results & short term targets 4 2 Aviva’s strategy 13 3 Capital and cash 22 4 Balance sheet 25 5 Asset and liability management 36 6 Capital structure 41 7 IFRS profit drivers 45 8 Economic capital management 55 9 Regional results 58 3
Slide 4: Results overview
Results overview AVIVA
Slide 5: Overview
Overview A clear strategy • Increase focus and depth in 12 countries • Excelling in Life & GI, driving out composite value 1. A strong customer base, with a growing franchise 2. Tight cost control 3. A strong balance sheet Delivering against the targets • At least £1.5 billion operational capital in
Slide 6: A diversified portfolio – with resilient profits
A diversified portfolio – with resilient profits £2.55bn Sustainable 2010 IFRS operating profit IFRS operating profit £bn 2.55 Asia Pac 100% N.Am 2.3 2.2 GI & 2.0 80% Non-life 2 Europe 60% 40% Life 1 UK 20% 0% 0 by region by business 2007 2008 2009 2010 Results 6
Slide 7: Significant growth in all key performance metrics
Significant growth in all key performance metrics IFRS Net operating IFRS Return on Equity operating profit capital generated £1.7bn 14.8% £2,550m 10.9% 26% £2,022m 70% £1.0bn FY09 FY10 FY09 FY10 FY09 FY10 Funds under management Dividend NAV 621p £402bn 25.5p 454p £23bn £379bn 24p 6% 80p 374p EEV* I
Slide 8: Strong growth in Life & GI
Strong growth in Life & GI Life operating profit Life sales (PVNBP) Life IRR £2,318m £33.4bn 12.5% 2.5 4% 10.0% ppt 23% £32.0bn £1,887m FY09 FY10 FY09 FY10 FY09 FY10 GI & Health operating profit GI & Health sales (NWP) GI COR £1,050m £9.7bn 99% 9% £9.2bn 6% 97% £960m FY09 FY10 FY09 FY10 FY09 FY10 Re
Slide 9: Growing income whilst controlling expenses
Growing income whilst controlling expenses £m 8,000 Income 7,000 6,000 5,000 Expenses 4,000 FY09 FY10 Income = IFRS operating profit, gross of expenses Expenses = operating cost base Results 9
Slide 10: Significant improvement in NAV
Significant improvement in NAV 454p 80p 374p Pence per share IFRS MCEV IFRS NAV at year end 2009 374p 473p IFRS Profit and investment variances 68p 62p Dividends (net of scrip) and new (26)p (26)p FY09 FY10 621p shares issued Pension scheme revaluation 37p 37p Foreign exchange and other 542p 1p (4)p
Slide 11: Growing return on equity
Growing return on equity 15.8% 16% 14.8% 12.0% 12% 10.9% 10.2% 8.5% 8% 4% 0% Life GI Group FY09 FY10 Group IFRS return on equity stated after tax, minority interest, preference dividend and DCI over opening shareholders‟ funds Results 11
Slide 12: Looking ahead: a clear direction
Looking ahead: a clear direction Strategic Increasing focus portfolio and depth in 12 • Progress on portfolio changes in 2011 changes countries • UK: Continued market leadership with profitable Excelling in Life, sales growth General Insurance & • Europe: Rigorous focus on delivery & execution Opera
Slide 13: Aviva’s strategy
Aviva’s strategy AVIVA
Slide 14: Driving profit and dividend growth
Driving profit and dividend growth Increasing focus and depth in 12 countries Excelling in both Driving out composite value from the Life & General Insurance businesses Building on our core capabilities Demonstrating financial discipline through a range of short term targets Strategy 14
Slide 15: Aviva is currently in 30 countries…
Aviva is currently in 30 countries… North America Asia Pacific Canada China USA Hong Kong India Indonesia Malaysia Singapore South Korea Sri Lanka Europe and Middle East Taiwan Australia* Belgium Poland Czech Republic Romania France Russia Germany Slovakia Hungary Spain Countries in which Aviva oper
Slide 16: …we will focus on 12
…we will focus on 12 Europe North America / Asia UK Canada Countries must provide France US either: • $100 million contribution Ireland China to IFRS profits and 12% Italy India ROCE or Poland • $1 billion of franchise Spain value Russia Turkey 80% of our Life & GI profit already comes from these 12
Slide 17: Europe has highest potential growth in L&P assets
Europe has highest potential growth in L&P assets in the near term... European L&P assets expected to grow by 1.7 $1.7 trillion between 2009-2014 2009–14 Expected Increase in Assets 2009 Assets 1.3 8.1 1.5 3.9 1.6 Europe North Asia (inc UK) America (ex Japan) ($ trillion) Source: Oliver Wyman Strate
Slide 18: ...and there is a large additional savings need
...and there is a large additional savings need €bn In Europe, people retiring in the next 40 years need to save an 3,000 additional €2.4 trillion each year to fill the pensions gap 930 2,400 2,000 400 380 1,000 240 170 100 90 70 20 0 Ireland Poland Turkey Italy Spain France UK Russia Other EU Total
Slide 19: Driving profit and dividend growth
Driving profit and dividend growth IFRS operating Gross capital FY 2010 (£bn) Strategic direction profit contribution generation UK 1.4 0.9 Invest and deepen presence Invest and deepen presence in Europe 0.9 0.8 priority markets Delta 0.5 0.4* Hold for value Lloyd North 0.4 0.6 Focus on growing prof
Slide 20: Diversification brings wide-ranging benefits
Diversification brings wide-ranging benefits • 30 – 40% less capital required to write GI new Structural business Capital advantage • Solvency II will bring more clarity to this benefit Cost & • Cost & operational efficiencies efficiency • Sharing of key skills and capabilities Scale & efficiency •
Slide 21: Core strengths
Core strengths Marketing and • Multi channel access to customers • Pan European distribution model distribution • Bancassurance leadership • UK Bancassurance gains expertise • Brand strength • Material increase in brand awareness • Pricing sophistication – e.g. daily pricing • Pricing and product de
Slide 22: Capital and cash
Capital and cash AVIVA
Slide 23: 70% increase in net capital generation provides strong dividend cover
70% increase in net capital generation provides strong dividend cover 2010 vs 2009 Operating capital 2010 £bn Generated Usage Net £bn UK 0.9 0.1 1.0 FY10 £2.7bn Europe 0.8 (0.5) 0.3 FY10 £1.0bn North America 0.6 (0.3) 0.3 FY09 2.0 £2.5bn FY10 Asia Pacific - (0.1) (0.1) £1.7bn* Delta Lloyd* 0.4 (0.2)
Slide 24: Effective use of capital to grow shareholder value
Effective use of capital to grow shareholder value Improved life capital efficiency* Payback 2010 Capital IRR period 4.8% £bn Sales usage % years 3.8% UK Life 10.3 (0.1) 15 7 Europe Life 13.5 (0.5) 13 7 North America 4.7 (0.4) 14 4 Life Asia Pacific Life 1.6 (0.1) 11 13 FY09 FY10 Delta Lloyd Life 3.
Slide 25: Balance sheet
Balance sheet AVIVA
Slide 26: Balance sheet assets remain high quality
Balance sheet assets remain high quality FY09 FY10 Government Bonds £bn £bn • 96% investment grade Government bonds 17.0 19.1 • Limited exposure to higher risk sovereigns Corporate bonds 33.7 38.7 • Minimal losses Asset backed securities 8.3 6.8 Corporate Bonds Other 1.0 1.3 • 90% investment grade o
Slide 27: A strong credit track record
A strong credit track record A demonstrable track record of credit outperformance across a range of funds Debt securities, Exceptionally high quality mortgage portfolios mortgages, loans & cash 91% of shareholder Minimal impairments over many years investments £1.3 billion provisions in place Equiti
Slide 28: Continuing low levels of losses
Continuing low levels of losses UK Corporate bonds Aviva USA 116bps 60bps 40bps 31bps 10bps < 5bps 2008 2009 2010 2008 2009 2010 UK mortgage portfolio Delta Lloyd mortgage portfolio 38bps 36bps* 1bp 1bp 1bp 2bps Nil 2008 2009 2010 2007 2008 2009 2010 * 36bps = £57 million loss Balance sheet 28
Slide 29: The mortgage portfolio
The mortgage portfolio FY10 Mortgages & loans UK Dec Dec Dec Commercial Property 2010 2009 2008 £10.2bn UK Healthcare & PFI Annual interest income £623m £641m £643m £2.8bn DL residential Other non- £6.9bn Annual rental income £828m £842m £853m securitised mortgages £1.9bn Securitised mortgages Renta
Slide 30: Small direct shareholder equity exposure
Small direct shareholder equity exposure Equity holding Significant hedging remains in place £m IGD impact (net of tax and MI) 1,000 £3.4bn sold in 2007 500 £3.4bn when FTSE was at 6400 0.0 40% 30% 20% 10% 0% 10% 20% £1.1bn Aviva holding -500 -1,000 Hedged £4.2bn Delta Lloyd Unhedged -1,500 holding
Slide 31: Overview of the balance sheet liabilities
Overview of the balance sheet liabilities Aviva’s balance sheet Shareholder liabilities Other assets Capital £18bn £35bn Property £13bn Cash £25bn Shareholder GI (Non-profit) £16bn Other invest. £130bn £37bn Equity £49bn Policyholder (Unit-linked) Life £85bn £84bn Debt and loans Policyholder & £211b
Slide 32: General insurance liabilities
General insurance liabilities Predictable short tail reserves With a record of positive prior year development Average claims paid in first year as a % of claims reserves (2006-09) A proxy for speed of settlement 60% 97% COR at Q3 2010 57% 55% 52% 50% Reserve releases every year at a Group level 48%
Slide 33: Life insurance liabilities
Life insurance liabilities Limited operating experience and assumption changes EEV/MCEV basis* - £m 550 350 Average impact on EV 150 of 0.65% per annum -50 -250 2006 2007 2008 2009 2010 IFRS basis - £m 250 200 150 Average impact on net 100 IFRS liabilities of 50 0.04% per annum 0 -50 2006 2007 2008
Slide 34: Participating funds
Participating funds £137bn Fund characteristics Limited downside risk • Support from reattributed assets for reorganised funds and UK • 90:10 policyholder/shareholder split inherited estate for other funds £53bn • Limited guarantee risk • Active investment strategy and ALM • AFER – 100% to policyhol
Slide 35: Aviva’s pension schemes
Aviva’s pension schemes Actions Result (£bn) Pension scheme accounting basis deficit (£bn) 2.5 • Aviva and RAC schemes closed reducing liabilities 0.3 0.6 • Aviva scheme 2 1.7 – Long-term funding agreement in place 1.5 0.3 – £378 million deficit funding payment in 2010 0.4 • Updated mortality assump
Slide 36: Asset / Liability management
Asset / Liability management 36
Slide 37: A conservative and disciplined approach to ALM
A conservative and disciplined approach to ALM Clear benefits of asset and liability duration matching at point of sale Limited impact A highly Limited on in-force Limited predictable Limited requirement to book from re-investment earnings liquidity issues “force sell” interest rate risk stream asse
Slide 38: Asset and liability durations are well matched
Asset and liability durations across the Group are well matched Durations of assets and liability by region Duration in years (HY 2010) 12 Assets Liabilities • Assets and liabilities are duration matched at point of sale 10 • Regional in-force portfolios are 8 reviewed regularly to ensure continued
Slide 39: Limited guarantee risk
Limited guarantee risk US Savings business European Savings business* Insurance liabilities by guarantee (FY09, $bn) Insurance liabilities by guarantee (FY09, €bn) 30 14 25 12 20 10 8 15 6 10 4 5 2 0 0 0% (0-1%) (1-2%) (2-3%) (3-4%) (4-5%) (>5%) 0% (0-1%) (1-2%) (2-3%) (3-4%) (4-5%) (>5%) • Average
Slide 40: Limited interest rate sensitivity
Limited interest rate sensitivity MCEV sensitivity to 100bps change in reference rates 30% 1% increase in reference rates 20% 1% decrease in reference rates 10% 0% FY09 -10% -20% -30% -40% Co. 1 Co. 2 Co. 3 Co. 4 Co. 5 Co. 6 Co. 7 Co. 8 Co. 9 Co. 10 Co. 11 Aviva Co. 12 ALM 40
Slide 41: Capital structure
Capital structure AVIVA
Slide 42: Aviva’s capital position
Aviva’s capital position Aviva’s capital structure 2010 £23.8bn £0.9 billion debenture loans Senior debt £0.6 billion commercial paper Borrowing Short term borrowing at low interest rates £6.1bn £4.6 billion tier 2 hybrid capital Treated as equity for solvency and rating Preference purposes shares &
Slide 43: Debt leverage in line with market median
Debt leverage in line with market median HY10 External debt and preference shares / Tangible total capital 70% 64% 60% 50% 48% 42% Median 39% 39% 39% 39% 40% 37% 37% 35% 35% 30% 20% 10% 0% Europe 1 Europe 2 Europe 3 Europe 4 Europe 5 Aviva UK 1 UK 2 UK 3 UK 4 European peer group UK peer group Capita
Slide 44: Debt call dates
Debt call dates Planning to renew 50% or less of the hybrid debt that is called over the next 3 years, reducing external debt by at least £700 million £m Capital The planned reduction in hybrid debt assumes no material change in circumstances structure 44
Slide 45: IFRS profit drivers
IFRS profit drivers AVIVA
Slide 46: Improved performance flowing through to profit
Improved performance flowing through to profit IFRS operating profits FY09 FY10 Life GI Life GI £m UK 672 535 850 579 3,000 Aviva Europe 761 132 893 109 +23% +9% +51% Delta Lloyd 277 143 330 146 68 (61) North America 85 144 174 222 2,600 90 2,550 431 Asia Pacific 92 6 71 (6) Total Life / GI 1,887 96
Slide 47: Summary IFRS life profit drivers
Summary IFRS life profit drivers £m FY09 FY10 Key: UK 672 850 Driver Aviva Europe 761 893 FY09 FY10 Variance Delta Lloyd 277 330 Pre-tax North America 85 174 operating profit Asia Pacific 92 71 Operating profit 1,887 2,318 1,887 2,318 23% Income DAC/AVIF Expenses and amortisation and other commissio
Slide 48: Life new business income
Life new business income Key: Driver Total New business income FY09 FY10 Variance 813 1,021 26% • Growth in annuities, UK protection and group personal New business income APE 1,143 1,310 15% pension sales 402 499 24% Margin 35% 38% 3ppt • Benefit of business mix on margin Aviva Europe New business
Slide 49: IFRS life underwriting margin
IFRS life underwriting margin Key: Driver Total FY09 FY10 Variance Underwriting margin 783 881 13% Higher expense margins in Delta Lloyd and growth of the in-force book Expenses 356 438 23% Mortality & Lower profits in Europe and the US 377 353 (6)% offset by higher profits in UK longevity Persisten
Slide 50: Total IFRS life investment return
Total IFRS life investment return Key: Driver Investment return FY09 FY10 Variance 2,865 3,226 13% Unit linked margin Participating business Spread margin Expected return on shareholder assets 938 999 7% 660 682 3% 676 890 32% 591 655 11% AMC Bonus Spread (0.1) 111 108 (3) 59 60 1 94 114 20 Equity 7
Slide 51: Life expenses
Life expenses Key: Driver FY09 FY10 Variance Acquisition expenses and Admin expenses and renewal commissions commissions (945) (1,084) (15)% (1,408) (1,360) 3% Acquisition Existing expense expense 25% 27% (2)ppt 53 48 5 ratio (bps) ratio Average reserves APE (£m) 3,746 3,943 5% 267.7 284.6 6% (£bn)
Slide 52: GI & Health profit drivers
GI & Health profit drivers Key: Pre-tax operating profit Driver 960 1,050 9% FY09 FY10 Variance GI Underwriting result Health underwriting Expected investment result return 74 232 214% 30 31 3% 875 846 (3)% Net written 8,492 8,920 5% Average rate 4.6% 4.6% - premiums Claims Average 66.7% 64.5% 2.2pp
Slide 53: General Insurance performance
General Insurance performance Group COR 99.1% (3.3)% 1.3% 96.8% (0.3)% FY09 Underlying Weather Prior year FY10 current year reserves improvement GI & Health NWP £m GI COR FY09 FY10 FY09 FY10 UK 4.3 4.5 99% 96% Aviva Europe 1.9 2.0 103% 103% North America 1.8 2.0 100% 97% Delta Lloyd & others 1.2 1.2
Slide 54: Fund management
Fund management Key: £m FY09 FY10 Driver Aviva Investors 115 97 FY09 FY10 Variance Delta Lloyd 28 103 Other (10) 1 Pre-tax operating profit Fund Management 133 201 133 201 51% Total income Operating expenses 731 803 10% (598) (602) (1)% Average fees 17.4 18.6 1.4 (bps) Average assets 289 315 9% £bn
Slide 55: Economic Capital Management
Economic Capital Management 55
Slide 56: Financial risk management at Aviva
Financial risk management at Aviva Economic Capital Calibrated to AA, benefiting from diversification Management Balance sheet Efficient, underpinning returns to shareholders Shareholder assets & Measured risk with a track record of limited losses liabilities Asset/Liability Low risk with limited in
Slide 57: Overview of economic capital (FY09)
Overview of economic capital (FY09) Capital surplus within the range of a Aviva’s risk profile AA calibrated risk appetite Other market 8% Surplus Credit £4.8bn Operational 25% 12% Equity £17.6bn 12% Life 15% Required Interest £12.8bn rate 10% GI 18% Aviva’s capital model Available Capital Credit &
Slide 58: Regional results
Regional results AVIVA
Slide 59: Growth in sales and profits in UK – Life
Growth in sales and profits in UK – Life L&P sales New business IRR £10.3bn 15% Increased sales, returns £8.9bn 16% and profits 14% Pensions, • Record and sustainable profits £5.7bn bonds of £850 million £5.8bn Improved 7 year Payback payback • Substantive and permanent 45% 8 years operational chang
Slide 60: Growth in sales and profits in UK – GI
Growth in sales and profits in UK – GI Net written premiums GI COR* £4.5bn Improved sales, COR and profits 99% £4.3bn 6% Four consecutive quarters of GI 96% sales growth • Strong retention levels • Growth in Direct and the RAC panel Significant improvement in current year COR due to: FY09 FY10 FY09
Slide 61: Resilience and profit growth in Europe – Life
Resilience and profit growth in Europe – Life L&P sales New business IRR £13.5bn £13.5bn Resilience and growth in profits Pensions, 13% 13% Resilient new business in a period WP savings of continued economic volatility £10.1bn £10.9bn Second half sales lower due to: Payback Payback • Legislative cha
Slide 62: Improved sales in Europe – GI
Improved sales in Europe – GI but COR remains high Net written premiums GI COR Improved sales, £2.0bn COR remains high £1.9bn 103% 103% 4% • GI sales growth across the portfolio offset by a tougher environment in Ireland • Health franchise continues to grow • Profit reflects a fall in investment ret
Slide 63: Significant profit improvement in North America
Significant profit improvement in North America L&P sales New business IRR £4.7bn 14% Significant increase in £4.5bn 4% Life profits Profitable growth and capital Annuity £3.7bn self-sufficiency £3.6bn 7% Improved 4 year • Diversification of business mix payback with a focus on life sales 15% Paybac
Slide 64: Value growth in Asia Pacific
Value growth in Asia Pacific L&P sales New business IRR Increased sales, returns £1.6bn 11% and profits 48% • Scale and mix drives a 6% 500 bps IRR improvement £1.1bn Improved • Bancassurance contributes 13 year payback 51% of sales, a 76% increase Payback 25 years from 2009 • Resilient and growing
Slide 65: Profit growth and further investment in fund management
Profit growth and further investment in fund management Operating profits Increase in profits £201m Growth in profits driven by Delta Lloyd emerging markets profits 51% Delta £133m Lloyd Delta Lloyd Continuing investment in Aviva Investors Aviva Aviva • Investment in capability and Investors Investo
Slide 66: Delta Lloyd – strong profit growth
Delta Lloyd – strong profit growth Life PVNBP* GI&H NWP Strong operating performance £3.3bn £3.1bn £1.2bn £1.2bn • Life new business IRR -6% improvement due to mix and cost savings • Three-fold asset management IRR IRR* COR COR profit growth to £103 million 7% 97% 95% 6% • Continuing low investment
Slide 67: Contacts
Contacts AVIVA
Slide 68: Contacts
Contacts Aviva Investor Relations Aviva Media Relations www.aviva.com/investor-relations www.aviva.com/media Charles Barrows Nigel Prideaux Investor Relations Director Group Communications Director [email protected] [email protected] Jonathan Price Sue Winston Head of Investor Relatio