Aviva Plc · LSE:AV.
Aviva — H1 2008 Earnings Presentation
54 slides from Aviva's earnings presentation, 2008
Slide 1: Aviva plc Interim results 2008
Aviva plc Interim results 2008 Andrew Moss Group Chief Executive “Accelerating transformational change to deliver a unified and more profitable company” 1
Slide 2: Disclaimer
Disclaimer This presentation may include oral and written “forward-looking statements” with respect to certain of Aviva’s plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements sometimes use words such as ‘an
Slide 3: Agenda
Agenda Introduction Andrew Moss Group Chief Executive Review of 2008 interim results Philip Scott Group Finance Director Reattribution of the inherited estate Mark Hodges Chief Executive, UK Life One Aviva, twice the value Andrew Moss Progress and priorities Group Chief Executive Questions and Answe
Slide 4: Highlights
Highlights • Growth in operating profits and dividend – EEV operating profit up 12% to £1,719m – IFRS operating profit up 7% to £1,233m – Interim dividend up 10% to 13.09p • Financial strength in an uncertain economic environment – EEV net asset value per share of 702p (FY 2007: 772p) – Balance shee
Slide 5: Review of 2008 interim results
Review of 2008 interim results Philip Scott Group Finance Director 5
Slide 6: HY 2008 key highlights
HY 2008 key highlights • Life and pensions new business sales up 11% to £17.3bn • Life new business contribution up 19% to £656m at increased margin • GI COR 97% • EEV operating profit up 12% to £1,719m • IFRS operating profit up 7% to £1,233m • Profit before tax impacted by adverse investment varia
Slide 7: UK Life
UK Life HY08 HY07 £m £m • Record half year sales in 2008 for life and New business pensions: Life and pensions 5,863 5,820 – Q1 Market share 11.4% (YE07: 10.5%) Investment sales 840 1,595 – Life and pension sales up 1% New business contribution 183 178 – Investment sales down 47% Operating profit –
Slide 8: UK General Insurance
UK General Insurance HY08 HY07 • Meeting targets in tough market conditions £m £m • Combined operating ratio of 98% Operating profit (1) – Personal motor profitability improved Underwriting result 37 (46) having achieved rating increases of 5% LTIR 289 330 – Household rates up 10% – Commercial marke
Slide 9: Europe
Europe HY08 HY07 £m £m • Life and pensions sales up 15% New business – Favourable euro impact Life and pensions 8,431 7,353 – Good growth in Netherlands and Central and Eastern Europe Investment sales 526 778 – Lower volumes in Italy and Ireland New business contribution 347 283 • Margins up to 4.1%
Slide 10: North America
North America HY08 HY07 £m £m • Excellent sales growth of 28% with strong sales of annuities in challenging economic United States environment PVNBP 2,205 1,716 • New business contribution up 61%. Margin of 4.2% in line with FY07. New business contribution 92 57 • EEV operating profit increased but
Slide 11: Asia Pacific
Asia Pacific HY08 HY07 £m £m • Life and pension sales up 20% New business – Strong growth in China (2nd international Life Insurer) and India Life and pensions 784 654 – New business in Malaysia and Taiwan Investment sales 1,051 1,378 • Investment sales down 24% New business contribution 34 32 – One
Slide 12: Aviva Investors
Aviva Investors HY08 HY07 £m £m IFRS operating profit UK 28 33 • Significant progress towards global asset management business France 16 16 • IFRS profit of £49m reflects falls in property Canada 1 1 and equity markets leading to lower funds Other 4 8 under management Total Aviva Investors result 49
Slide 13: Life in-force business experience
Life in-force business experience UK International Total £m £m £m Experience variances Expenses (24) (22) (46) • Experience in line with assumptions Mortality 11 21 32 • Reduced UK expense variances due to cost reductions Persistency (10) 1 (9) • Favourable mortality in UK, France Other 18 48 66 and
Slide 14: Norwich Union Life net flows
Norwich Union Life net flows Half Year 2008: £(0.3) bn Bonds and £(0.3)bn savings £0.3bn £0.3bn Pensions £(0.3)bn £0.5bn Risk Non profit £(0.2)bn With profit £0.0bn Business no longer sold (endowments) £(0.6)bn Net flows HY 2008 Non With Profit Profit Total % of £bn £bn £bn funds Bonds and savings (
Slide 15: Investment variances %
Market movements 25 20% • Total profit impacted by 10% significant investment variances Investment variances % 20 • Market movements in 2008 Net assets (£bn) 0% 15 -10% • Equity markets down between -20% 10 13% and 20% -30% 5 • Bond yields rising 60bps in UK -40% and 40bps in Eurozone 0 -50% 2001 20
Slide 16: EPS performance historic and planned
EPS performance historic and planned 5 year 100 target • Fully committed to double IFRS EPS 80 total return over 5 years 15 % GR CA 60 EPS pence 40 Gap • Straight line was not anticipated to glide 20 path 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 • 2008 operating earnings on trac
Slide 17: Financial management
Financial management • Reattribution of UK inherited estate announced • £800m hybrid debt raised in May 2008 • Downside protection for further market deterioration • Global Finance Strategy aims to deliver: – MCEV for end 2008 reporting – Economic capital for Solvency II – SOx compliance (potential
Slide 18: IGD Solvency surplus
IGD Solvency surplus £bn Actual IGD solvency surplus – 2.9 FY07 • Solvency cover 1.3 times Total recognised income (ex 0.5 investment variances) • Downside protection increased Fair value losses on investments (0.7) Hybrid debt 0.8 • Sensitivity to equities: External dividend (0.4) Equity movement £
Slide 19: Analysis of Assets
Analysis of Assets • Aviva’s balance sheet remains strong and of high quality • Equities are principally held to back policyholder liabilities • The largest single asset class is Debt Securities, of which 94% are investment grade (with 1% below investment grade, and 5% not rated). • The Group contin
Slide 20: Analysis of Assets - Loans
Analysis of Assets - Loans • Falling property prices have increased the number of loans to value over 100% but the Group’s loan portfolio is of a very high standard, with over 99% of loans neither past due nor impaired • Mortgage loans of £890m have LTV> 100%. The amount not covered by property valu
Slide 21: Summary
Summary • Growth in operating profit and dividend • Financial strength in an uncertain economic environment • Accelerating transformational change in Finance • Significant progress with the reattribution of the inherited estate 21
Slide 22: Reattribution of the inherited estate
Reattribution of the inherited estate Mark Hodges CEO, UK Life 22
Slide 23: Reattribution of the inherited estate
Reattribution of the inherited estate • Timeline November 2006 Policyholder Advocate appointed February 2008 £2.1bn special distribution announced July 2008 Up to £1bn policyholder incentive payment agreed in principle Q4 2008 Election mailing Summer 2009 Cash paid to electing policyholders • Policy
Slide 24: Reattribution of the inherited estate
Reattribution of the inherited estate Element set aside for CGNU Life / CULAC special distribution Value of Allocation Policyholder Shareholder Remaining estate basis share share estate £bn % £bn £bn £bn Value of estate @ 31 Dec 07 (FTSE 6456) 5.0 90:10 2.1 0.25 2.65 Market value and other movements
Slide 25: Shareholder benefits assuming 100% election
Shareholder benefits assuming 100% election • Post tax financial reporting impacts – IFRS: • £220m profit from special distribution (over 3 years, starting 2008) • £390m one-off reattribution profit in 2009 (£800m at 31 December 2007 market levels) – MCEV: • £25m profit from special distribution in
Slide 26: One Aviva, twice the value
One Aviva, twice the value Transformational change 26
Slide 27: One Aviva, twice the value
One Aviva, twice the value Purpose Prosperity & peace of mind Purpose Vision One Aviva, twice the value Vision Strategic Targets priorities • Manage composite • 98% meet or beat COR portfolio • Long Term Savings • Build global Asset growth targets Management • £500m cost savings by • Allocate capita
Slide 28: Outlook in the current economic environment
Outlook in the current economic environment • Maintaining our focus to deliver Aviva’s objectives and targets – Continuing to invest in order to achieve the benefits of One Aviva, twice the value • Responding to the current economic environment – Actively managing investments • Successfully held UK
Slide 29: Uniting under a single brand
Uniting under a single brand – Developing the brand proposition for our customers and our employees 29
Slide 30: Accelerating transformational change
Accelerating transformational change • Range of senior management appointments (European CEO, Spain, Italy, Poland) • A key priority: Our customers – Introducing a single measure of customer advocacy to track progress – Over 1 million customers benefiting from the reattribution and special bonus • M
Slide 31: Accelerating transformational change
Accelerating transformational change • Tackling the operational cost base – Increasing the cost savings target to £500m • Of which £211m has been delivered – Business unit initiatives: e.g. Spain: introducing “One Aviva” operationally, 10% minimum cost saving • Sharing expertise – Asia Pacific: usin
Slide 32: Regional review and outlook
Regional review and outlook if
Slide 33: UK Life – continuing operational improvement
UK Life – continuing operational improvement Mark Hodges Chief Executive Market Leadership ● Address legacy ● Transform business model ● Exploit UK synergies ● Generate capital 33
Slide 34: UK Life – continuing operational improvement
UK Life – continuing operational improvement EEV operating profit growth IFRS operating profit growth 1000 1000 HY1 CAGR 13 % HY1 CAGR 39 % Market 750 750 Leadership £ million £ million 500 500 ● Address legacy 250 250 ● Transform 0 0 business 2005 2006 2007 2008 2005 2006 2007 2008 model HY 2008 up
Slide 35: UK General Insurance – delivering transformational change
UK General Insurance – delivering transformational change Igal Mayer Chief Executive Market Leadership ● Address legacy ● Transform business model ● Exploit UK synergies ● Generate capital 35
Slide 36: UK General Insurance – delivering transformational change
UK General Insurance – delivering transformational change The external environment remains competitive • Personal lines rates improving Market • Commercial rate increases averaging 2% Leadership • Broker consolidation putting upward pressure on commission rates ● Address legacy • Short term inflatio
Slide 37: UK General Insurance – delivering transformational change
UK General Insurance – delivering transformational change Inflation and (38) one-off Costs11 (125+) (200) Market Leadership Expense ratio 13.9% ● Address legacy Expense ratio ● Transform 12.4% Aiming for an business expense ratio of model less than 11% 3 Starting RAC 2 2006 C&E Prog. 1 2008 point in
Slide 38: Europe – a market leading position
Europe – a market leading position Andrea Moneta Chief Executive Scale, growth, capital • Seize unique growth opportunities • Leverage scale • Generate capital 38
Slide 39: Europe – a market leading position
Europe – a market leading position NBC post cost of capital growth EEV Operating profit HY1 CAGR 13% HY1 CAGR 19% 500 Scale, growth, 400 1500 capital £ million 1250 300 1000 £ million 200 750 • Seize unique 500 growth 100 250 opportunities 0 0 2005 2006 2007 2008 2005 2006 2007 2008 • Leverage scale
Slide 40: North America - USA on track to double scale
North America - USA on track to double scale Tom Godlasky Chief Executive Double scale • Focus: top 5 in chosen segments • Expand products, distribution ’08+ 40
Slide 41: North America - USA on track to double scale
North America - USA on track to double scale Pro-Forma PVNBP Growth EEV operating profit 8000 1000 HY1 CAGR 28% HY1 CAGR 52% Double scale 6000 US$ million 750 US$ million 4000 • Focus: top 5 in 500 chosen 2000 250 segments 0 0 2005 2006 2007 H1 08 2006 2007 2008 • Expand products, HY 2008 update dis
Slide 42: Asia Pacific – a growing presence
Asia Pacific – a growing presence Simon Machell Chief Executive Scale, growth • Prioritised portfolio • Regional operating model • Investment required 42
Slide 43: Asia Pacific – a growing presence
Asia Pacific – a growing presence Growth in Asia Pacific PVNBP EEV Operating Profit 1500 HY1 CAGR 14% Scale, growth HY1 CAGR 33% 100 75 £ million 1000 £ million • Prioritised 50 portfolio 500 25 • Regional 0 0 2005 2006 2007 2008 2005 2006 2007 2008 operating model HY 2008 update • Investment requir
Slide 44: Accelerating the delivery in China
Accelerating the delivery in China China PVNBP Foreign Life Insurers Market Share for period from Jan-May 2008 (by total premium)1 AIA 200 19% HY1 CAGR 99% Others 34% £ million AVIVA-COFCO 100 11% CITIC-Prudential Allianz 9% 0 6% CIGNA-CMC 2005 2006 2007 2008 ING-Capital 7% 7% Generali China 7% Rece
Slide 45: Aviva Investors – executing the strategy
Aviva Investors – executing the strategy Alain Dromer Chief Executive Aviva Investors • Globally integrated business • Transform the investment model • Increase third party business 45
Slide 46: Aviva Investors – executing the strategy
Aviva Investors – executing the strategy IFRS operating profit 125 Aviva Investors 100 £million 75 • Globally 50 integrated 25 business 0 2005 2006 2007 2008 • Transform the investment HY 2008 progress model • UK investment portfolios restructured • Launched new funds on SICAV platform with more pla
Slide 47: Summary
Summary • Growth in profits and continuing financial strength – Increased EEV and IFRS operating profits – 10% increase in dividend – Strength in our balance sheet and capital position • Fully committed to delivering the targets – Accelerating transformational change across Aviva – Increase in cost
Slide 48: Questions and Answers
Aviva plc Interim results 2008 Questions and Answers
Slide 49: Appendix
Aviva plc Interim results 2008 Appendix
Slide 50: Regional performance
Regional performance North Asia Aviva UK Europe America Pacific Investors Other Group £m £m £m £m £m £m Total sales 9,535 11,140 2,976 1,849 - - 25,500 Long term savings new business 6,703 8,957 2,205 1,835 - - 19,700 New business contribution 183 347 92 34 - - 656 New business margin (gross) 3.1% 4
Slide 51: Earnings per share
Earnings per share IFRS EEV pence per pence per share share HY08 HY07 HY08 HY07 Operating profit 30.1 28.1 39.4 38.6 Investment return variances and economic assumption (25.1) (82.1) changes Integration and restructuring costs (4.0) (4.0) Amortisation, impairments and exceptional items (4.9) (4.8) P
Slide 52: Aviva Capital Generation
Aviva Capital Generation Capital Generation Half-Year 2008 1.5 1.0 0.5 £ bn 0.0 Life in-force Non-Life Increase in Free Interest Costs External Capital Hybrid issue Foreign Cost of Pension Investment Net capital profits less Profits capital operational dividends net generated exchange acquisitions f
Slide 53: UK General Insurance – analysis of result
UK General Insurance – analysis of result UK GI underwriting result (1) £m • 2008 weather in line with normal expectations, compared with impact 2007 Actual - 6 months to 30 June 2007 (46) from January storms and June floods in 2007 Weather impact 235 • Reduction in prior year claims Movement in pri
Slide 54: Aviva plc Interim results 2008
Aviva plc Interim results 2008 54