Aviva Plc · LSE:AV.
Aviva — Investor Presentation (June 2011)
48 slides from Aviva's investor presentation, June 2011
Slide 1: Investor presentation June 2011
Investor presentation June 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: 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 4: 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 Overview & strategy 4
Slide 5: 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 6: 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 Ov
Slide 7: 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 Overview & Group IFRS return on equity stated after tax, minority interest, preference dividend and DCI over opening shareholders’ funds strategy 7
Slide 8: Strong progress continues with a good start to 2011
Strong progress continues with a good start to 2011 Life IRR 1Q11 1Q10 General insurance: UK 16% 14% • Strong premium growth and improved profitability Europe ex DL 13% 11% • UK GI sales up for the 5th consecutive North America 14% 13% quarter • Brand strategy working: 580,000 Asia Pacific 13% 12% a
Slide 9: 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 Overview & strategy 9
Slide 10: 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 11: We will focus on 12 countries
…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 12: Europe has highest potential growth in L&P assets in the near term
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) Overview & Source: Oliver Wyma
Slide 13: 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 Further 15% sold down leaving a 0.5 0.4* Lloyd minority holding N
Slide 14: 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 15: 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 16: 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 17: 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 18: 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 19: 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 19
Slide 20: 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 21: 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 22: 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 23: 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 24: Asset and liability durations across the Group 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 25: 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 26: 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 26
Slide 27: 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 28: 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% Planning to renew 50% or less of the hybrid debt that is called over the next 3 years, reducing 60% external debt by at least £700 million 50% 48% 42% Median 39% 39% 39% 39% 40% 37% 37%
Slide 29: 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 30: 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 31: 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 32: 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 33: 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 34: 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 35: 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 36: 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 37: 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 38: 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 39: 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 40: 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 41: 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 42: 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 43: 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 44: 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 45: 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 46: 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 47: 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 48: 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