Aviva Plc · LSE:AV.
Aviva — Investor Day (July 2012)
45 slides from Aviva's investor day presentation, Jul 5, 2012
Slide 1: Focus Strengthen Perform
Focus Strengthen Perform Investor & Analyst event: 5 July 2012 1
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: Chairman's initial impressions of Aviva
Chairman's initial impressions of Aviva Aviva has great strengths that can be leveraged further, including our strong position in the UK and Ireland, France, Canada, Poland, Singapore and in certain higher growth markets. The Aviva brand has also become incredibly distinctive. Over the past few week
Slide 4: Chairman: the way forward
Chairman: the way forward Aviva will remain largely positioned in developed markets, with some modest growth options, delivering good returns and moderate growth from these markets. We will remain a composite insurer, but mainly in the UK and a few other markets and are determined to show the value
Slide 5: Focus Strengthen Perform
Focus Strengthen Perform Pat Regan 5
Slide 6: Below average TSR performance
Below average TSR performance Total Shareholder Return from 1 Jan 2006 to 31 Mar 2012 European / North American Peers (%) Sampo 103% Hannover Re 89% Prudential PLC 70% Chubb 66% ACE 57% Travelers 56% Legal & General 41% Standard Life 36 % Munich Re 30% RSA 22% Unum 18% Old Mutual 18% ZFS 15% Mapfre
Slide 7: Trading below our key European competitors
Trading below our key European competitors P/TNAV vs. RoTNAV 2.4x P / TNAV (12e) Prudential 2.2x 2.0x 1.8x RSA 1.6x Legal & General 1.4x Standard Life Zurich 1.2x 1.0x Allianz AXA 0.8x Aviva 0.6x 0.4x AEGON 0.2x 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% RoTNAV (13e) Source: Brokers 7
Slide 8: Feedback on Aviva
Feedback on Aviva Strengths But clear challenges Strong core businesses Complex business and a great brand Weaker than peers on Growing GI business with leverage and capital with improving CORs Eurozone volatility UK Life business Issues on performing strongly strategic execution A greater emphasis
Slide 9: Focus, Strengthen, Perform
Focus, Strengthen, Perform • Allocate capital to most attractive businesses • Improve underperforming segments Narrowed Focus • Exit non core businesses • Create an attractive portfolio foundation for the future • 160% – 175% economic capital surplus target range Financial Strength • Reduce capital
Slide 10: Narrowed focus – a thorough review of the business
Narrowed focus – a thorough review of the business Section Purpose 1 Aviva‟s business divided into 58 „cells‟ Divide Aviva into ‘cells’ Each cell is a significant profit centre 2 Cells ranked along dimensions of Overview of portfolio (1) financial performance; and (2) market prospects/competitive po
Slide 11: Cells assessed across four dimensions
Cells assessed across four dimensions What are the returns? How much cash is generated? Financial ranking Return on capital employed (% in 2012) Net cash returned (% in 2012): IFRS profit after tax and minority interest Cash dividend (cash transfer in UK GI) as relative to capital employed percentag
Slide 12: Narrowed focus
Narrowed focus Portfolio assessed on relative financial performance & market prospects / competitive position performance Performing Out- 15 cells Relative financial performance • Economic margin Median • IFRS ROCE Improve/ • Net cash return / turn around Capital 27 cells performance Under- Non-core
Slide 13: Categorisation of the cells
Categorisation of the cells Improve / Performing Non-core turn around 1a. Examples of performing cells in our higher growth markets – Poland Life, Singapore Life, Turkey L&P 1b. Examples of performing cells in our developed markets – UK personal property, Canada personal property, UK Life protection
Slide 14: Dynamic capital allocation
Dynamic capital allocation Improve / Performing Non-core turn around 15 cells 16 cells 27 cells Returns well above cost of capital Return • IFRS capital £6bn • IFRS capital £3bn Returns at or below cost of capital • IFRS OPAT £300m • IFRS OPAT £650m • ROCE 5% • ROCE 22% • IFRS capital £7bn • IFRS OP
Slide 15: Poland Life
Poland Life Performing: Higher growth Financial What are the returns? How much cash is generated? ranking Financial rank: (1) Financial rank: (1) 2 ROCE 2012 (%) NCR/CE 2012 (%) IFRS CE 2012 (£M) IFRS CE 2012 (£M) What is the value of new business? What is market position / growth prospects? Fin. ra
Slide 16: Poland Life
Poland Life Performing: Higher growth Aviva is ranked 4th in a fast growing market, with market share of 7%, good brand awareness and strong profitability across all metrics. Plan to improve main Direct Sales Force channel and broaden distribution mix, and further improve the cross-sell ratio in exi
Slide 17: Canada GI Personal Property
Canada GI Personal Property Performing: Developed Financial What are the returns? How much cash is generated? ranking Financial rank: (21) Financial rank: (6) ROCE 2012 (%) NCR/CE 2012 (%) 12 IFRS CE 2012 (£M) IFRS CE 2012 (£M) What is the value of new business? What is market position / growth pros
Slide 18: Canada GI Personal Property
Canada GI Personal Property Performing: Developed Aviva is ranked 3rd overall in the Canadian personal property market (8.1% market share). The business has seen good growth while turning round profitability via sophisticated pricing. Continue steady growth while maintaining improved profitability a
Slide 19: Ireland GI
Ireland GI Improve / Turn around: Developed Financial What are the returns? How much cash is generated? ranking Financial rank: (37) Financial rank: (26) ROCE 2012 (%) NCR/CE 2012 (%) IFRS CE 2012 (£M) IFRS CE 2012 (£M) What is the value of new business? What is market position / growth prospects? F
Slide 20: Ireland GI
Ireland GI Improve / Turn around: Developed The business remains the market leader with market share of 16%. Market volumes have fallen sharply and softening continues. The expense base is high and returns are lower than the market. Via integration with the UK, investment in the Irish Transformation
Slide 21: UK Life Bulk Purchase Annuities
UK Life Bulk Purchase Annuities Non core Financial What are the returns? How much cash is generated? ranking Financial rank: (19) Financial rank: (44) ROCE 2012 (%) NCR/CE 2012 (%) IFRS CE 2012 (£M) IFRS CE 2012 (£M) What is the value of new business? What is market position / growth prospects? Fin.
Slide 22: UK Life Bulk Purchase Annuities
UK Life Bulk Purchase Annuities Non core Aviva is ranked second with 21% of the Bulk Purchase Annuity (BPA) market. Big ticket BPAs remain very competitive, with unacceptable returns on capital; small schemes can offer margins similar to the individual segment from time to time. Solvency II is likel
Slide 23: Financial strength
AVIVA Financial strength 23
Slide 24: Economic capital vs. peers
Economic capital vs. peers Economic Capital* Ratios As Disclosed 2010 Cover % 2011 Cover % Calibration Co. 1 223 Co. 1 225 99.95% • Comparison of Economic Capital* („EC‟) made difficult Co. 2 202 Co. 2 165 99.50% by inconsistent methodologies and disclosure between peers Co. 3 178 Co. 3 150 99.50% •
Slide 25: Economic capital
Economic capital Estimated economic* capital Q1 2012 Sensitivities based on Q1 position Q1 2012 145% 145% Interest Rates +100bps 153% £17.6bn Equity +20% 150% Property +20% 152% Credit Spreads +100bps 132% Interest Rates -100bps 129% £12.1bn Equity - 20% 141% Property - 20% 139% Credit Spreads -100b
Slide 26: The benefit of diversification by risk type
The benefit of diversification by risk type Less Credit Risk 78% diversification Equity 75% benefit Property 45% GI Claim Volatility 39% Life Lapse 29% GI Catastrophe 24% Expenses 24% Life Longevity 21% Operational 13% Inflation 11% More Interest 10% diversification benefit Mortality 6% 0% 10% 20% 3
Slide 27: The benefit of diversification by business
The benefit of diversification by business France Life 79% Less diversification USA Life 76% benefit UK Life 75% Benefits of Composite – FY 2011 Italy Life 64% Spain 59% 36% £18.9bn £6.8bn Diversification UK GI 44% Ireland Life 44% Diversification £12.1bn between France GI 35% businesses £4.6bn Cana
Slide 28: How we are going to get there
How we are going to get there Economic capital* 175% Credit reduction & other hedging Performance Cutting back improvement on annuities 160% Disposals & exits 145% Q1 12 Time Mechanisms for and impact from increasing capital surplus Impact of disposals Impact of actions on profits • Decreases requir
Slide 29: Options to manage the Economic Capital surplus
Options to manage the Economic Capital* surplus Significantly • Review a new strategic plan with the Board above target 175% On track to achieve • Maintain within range 160% - 175% 160% • Continue working on central plan • If necessary increase amount of central plan actions Below target - Reduce ne
Slide 30: Reduced leverage
Reduced leverage FY11 External debt and preference shares / Tangible total capital 80% 70% 67% 60% 50% 41% Median 39% 39% 37% 40% 34% 35% 33% 31% 30% 26% 25% 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 Planned reduction of £700m
Slide 31: Improved performance
Improved performance • Revenue growth where possible • Expense productivity • Lower losses and claims • Increase return on equity through capital efficiency 31
Slide 32: Performance improvement programme will drive the next phase
Performance improvement programme will drive the next phase David McMillan will lead this initiative Establish Establish cell cell action objectives & plans & Monitor delivery. Carry out cell targets deliver Continue performance analysis performance Drive group-wide performance improvement improveme
Slide 33: Aligning cells with financial objectives
Aligning cells with financial objectives Higher growth markets / cells Developed markets / cells High growth market with high Moderate or lower growth markets probability potential in mid-term offering strong and stable profitability Invest to grow at or faster than the Sustain in-force and NB retur
Slide 34: Group-wide performance improvement themes
Group-wide performance improvement themes • Develop Higher Growth segment, seek revenue opportunities in Focused growth Developed markets where available • Develop additional cross-segment revenue streams Revenue growth • Reduce exposure to Life guarantee products – where possible Product portfolio
Slide 35: £400 million new expense productivity savings
£400 million new expense productivity savings £400 million new cost savings Small Group Centre • £100 million from removing the regional structure, IT transformation and medium term restructuring • £200 million from delayering and other operating model changes and Aviva Investors & Ireland restructu
Slide 36: Reduction in middle management
Reduction in middle management Old structure had 9 intervening New structure has 5 intervening layers and a median span of layers with a median span of control of 4 control of 8 1 1 2 2 3 3 4 4 5 5 6 7 8 9 36
Slide 37: Key metrics to measure performance
Key metrics to measure performance Life IRR using economic capital metrics Cost / income ratio and GI COR Operating Capital Generation IFRS operating profit after restructuring costs ROCE 37
Slide 38: Focus Strengthen Perform
AVIVA Focus Strengthen Perform
Slide 39: Actions since the AGM
Actions since the AGM Strategy & Commercial Focus • Strategic review completed and a new strategic plan approved by the Board • Advisers appointed to review options for exits • Top 100 managers‟ objectives aligned to the new strategy, senior management team meeting held Organisation & Culture • Chan
Slide 40: We will end up being
We will end up being Focused Financially strong Performing 40
Slide 41: Q&A
AVIVA Q&A Al
Slide 42: Appendix
AVIVA Appendix 42
Slide 43: IGD capital position
IGD capital position IGD Volatility of IGD caused by: 159% • French UCGs 151% 149% • Delta Lloyd (which will reduce when 135% the holding falls below 20%) • Market movements, specifically Italian Government exposures (regulatory £3.8bn £3.2bn £3.0bn change has since reduced volatility) £2.2bn • UK a
Slide 44: Reconciliation of capital employed to the cell analysis
Reconciliation of capital employed to the cell analysis Total IFRS capital employed – Opening position 2012 (£bn) 1.3 20.6 3.5 6.2 6.7 2.8 Performing Improve/ Non core Other/ outside Minority IFRS Total Turnaround of cells/ interest capital consolidation employed adjustments 44
Slide 45: The inter-divisional balance will not materially change within this plan
The inter-divisional balance will not materially change within this plan Aviva Insurance Limited Lending consolidates to zero at a group level Liquidity at group level UK GI makes UK GI receives interest for £4.8bn* liquidity making the liquidity available to other available entities in Aviva Insura