Aviva Plc · LSE:AV.
Aviva — H1 2004 Earnings Presentation
23 slides from Aviva's earnings presentation, Aug 4, 2004
Slide 1: Interim results 2004
AVIVA plc Interim results 2004 Richard Harvey Group Chief Executive 4 August 2004 Disclaimer This presentation may contain certain “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
Slide 2: Agenda; Profit improvement sustained into H1 2004
Agenda • Overview Richard Harvey Group Chief Executive • Financial review Andrew Moss Group Finance Director • Q&A 3 © Aviva plc Profit improvement sustained into H1 2004 • Benefit of cost reductions, margin focus and strong general insurance profits Operating profit Achieved profits basis1 Modified
Slide 3: Results highlights for H1 2004
Results highlights for H1 2004 • Total sales incl inv products £7,889m +7% • Life and pensions sales (APE) £1,224m +2% • New business contribution £324m +10% • Life margins improved 26.5% (H1 2003 24.5%) • General insurance COR 97% (H1 2003 101%) • Interim dividend 9.36p +4% Strongly covered • ROCE
Slide 4: NU Life focus on margin; UK savings ratio
NU Life using market strength and cost levers to focus on margin • Tightening terms on pensions • Outsourcing 950 jobs (charge est. £30m H2 2004) • Unit-linked bond sales +84% to £577m • Strongly positioned for “multi-tie” with leading product range Norwich Union life margins % 24 23 22 21 20 2002 2
Slide 5: Aviva France and Netherlands: Delta Lloyd
Aviva France: outperformed strong market • Aviva France sales +21% (APE) – unit-linked +27% – total proportion of unit-linked sales = 32% vs 16% (H1 03) • Net margin improvement double that of gross • Fund management track record is key competitive advantage • Early signs of success in changing mix
Slide 6: Spain and Italy: growth and penetration opportunity
Spain: Drivers of growth are positive • 11.1m potential customers • 12.6% of clients have policies • Less than 1.5 policies per client Client Penetration • Ageing Population • 3,713 Branches • Low insurance • 20% growth next 5 years penetration Market Branch • Growing in new regions Growth Network 1
Slide 7: Strategic development in long-term savings; General insurance ahead of target
Strategic development in long-term savings • Turning focus to Asian life markets, positive developments in 2004: – Two more licenses in China – Opportunity to increase shareholding in India China Start Date: Jan 2003 • Beijing • Chengdu • Guangzhou India Hong Kong Start Date: June 2002 Purchase Date
Slide 8: UK general insurance: competitive advantage and scale advantages
UK general insurance: maintaining profits through competitive advantage Cumulative Increases – Personal (Motor & Home) 35% 30% • Expense ratio 10% 25% (6m 2003: 10.5%) 20% 15% • Supply chain savings over 10% £200m (annualised) in 2004 5% (£175m 2003) 0% 2000 2001 2002 2003 NUI Premiums NUI Claims Un
Slide 9: UK general insurance; Aviva summary and outlook
UK general insurance • Retail personal lines growth +19% (H1 2004) – Trend to direct from broker business – Conversion of Hill House Hammond on track (target additional 550,000 customers into NU Direct) – Benefit of increased scale and more profitable NU economics – £50m cost to achieve, from £60m i
Slide 10: Financial review: strong headline results across all businesses
Financial review Andrew Moss Group Finance Director Strong headline results across all businesses H1 2004 H1 2003 Growth † £m £m % Life achieved operating profit 800 705 14% Health 33 27 22% Fund management 17 10 70% General insurance 613 387 58% Non-insurance operations (15) (47) 68% Corporate cost
Slide 11: Life new business sales and profitability
Strong life new business sales in our larger markets H1 2004 • UK: improvement in unit-linked Sales Growth (2) sales; reduction in annuities APE (1) % £m • France: strong growth in unit- UK 547 3% linked sales France 145 21% • Netherlands: increased sales Ireland 44 13% from ABN AMRO and in group pe
Slide 12: Improved shareholder margins; Life achieved operating profits
Improved shareholder margins Contribution Margin H1 2004 H1 2003 H1 2004 H1 2003 FY 2003 £m £m % % % Group contribution / margins 324 297 26.5 24.5 26.1 Cost of capital and tax (155) (153) Minority share (26) ( 25) Group contribution/margins 143 119 13.2 11.2 12.9 Contribution Margin H1 2004 H1 2003
Slide 13: Life MSSB profits; General insurance business profits
Life MSSB profits – businesses generating capital and cash H1 2004 H1 2003 £m £m • UK with profit: impact of falling bonus rates: £(10) million UK With profit 54 64 • Improvement in the Netherlands as Non profit 235 229 a result of change in bond yields: France 84 80 £25 million Ireland 12 18 Italy
Slide 14: Other financials; Capital strength maintained
Other financials H1 2004 H1 2003 Growth † £m £m % Life achieved operating profit 800 705 14% Health 33 27 22% Fund management 17 10 70% General insurance 613 387 58% Non-insurance operations (15) (47) 68% Corporate costs (94) (56) (68%) Unallocated interest (224) (198) (13%) Operating profit (1) 1,1
Slide 15: Strength of general insurance capital
Strength of general insurance capital – regulatory basis CGUII and NUI – solus CGUII Group and NUI – consolidated £bn £bn 5 4.9x 6.0x 8 2.2x 2.2x 4.5 7 4 6 3.5 3 5 2.5 4 2 3 1.5 2 1 0.5 1 0 0 June Dec June Dec 2004 2003 2004 2003 • Solvency 1 introduced minimum capital requirement concept (MCR): imp
Slide 16: UK Life capital strength; Questions and answers
UK Life – capital strength of with profit funds Estimated 30 June 31 December 2004 2003 Statutory free asset ratio 14.3% 16.3% Realistic orphan estate £4.2bn £4.3bn Risk capital margin £1.8bn £1.6bn • Free asset ratio of NUL&P includes implicit items for non profit business only • Realistic orphan e
Slide 17: Appendices; Operational capital - Group structure
Appendices • Capital slides and other financials 33 © Aviva plc Operational capital - Group structure Aviva plc Holding company which has issued all the sub debt Australia The life business only Morley UK Fund CGUII plc NU Insurance UK Life Management Life General The old CGU general insurance The N
Slide 18: Strength of general insurance capital; Operational capital
Strength of general insurance capital – regulatory basis CGUII and NUI – solus CGUII Group and NUI – consolidated 4.9x 6.0x 2.2x 2.2x 5 8 4.5 7 4 6 3.5 3 5 2.5 4 2 3 1.5 2 1 0.5 1 0 0 June Dec June Dec 2004 2003 2004 2003 • Solvency 1 introduced minimum capital requirement concept (MCR): impact of £
Slide 19: Realistic measure; Risk based capital
Realistic measure – operational capital Risk based capital – worldwide GI & health Aviva plc CGUII plc NU Insurance Life General Major overseas subsidiaries 37 © Aviva plc Risk based capital Shareholders’ capital employed* - £4.6bn Risk based capital - £3.3bn NWP - £9.8bn 34% (annualised) • Current
Slide 20: Capital support for overseas life operations
Capital support available for overseas life operations CGUII plc NU Insurance Life General Major overseas subsidiaries 30 June 2004 31 December 2003 £bn £bn Regulated available assets* 7.4 7.2 Add: equalisation provision 0.4 0.4 Less: 2004: 34% (2003: 34%) NWP of GI and health risk based capital req
Slide 21: Realistic solvency by fund; With-profit asset mix
Realistic Solvency by Fund 30 June 2004 Statutory Basis Realistic Basis With Profits Free Assets Orphan Free Estate RCM (2) Excess Cover Asset (net of RMM) £bn £bn £bn £bn times Ratio CGNU Life 16.8% 1.0 1.4 0.4 1.0 3.8 CULAC 12.2% 1.1 1.5 0.4 1.1 3.5 NUL&P (1) 14.4% 1.5 1.3 1.0 0.3 1.2 Total 14.3%
Slide 22: Movement in equity shareholders' funds; Review of performance AOP
Movement in equity shareholders’ funds (after adding back the claims equalisation provision) £m NAV 31 December 2003 11,329* 502p Operating profit post-tax 722 32p Post-tax non-operating items – Goodwill, P/L on sale and other exceptional items (102) (5p) – Impact of investment markets and economic
Slide 23: Review of performance: H104 v H203 MSSB
Review of performance: H104 v H203– MSSB • Life MSSB movement includes: 2004 2003 H1 H2 Life: £m £m • Impact of foreign exchange as euro weakened in first six months: £(15) million UK 289 301 • Non-recurrence of one-off profits of £30 million in France 84 99 Poland and UK in H2 2003 Netherlands 54 7