Aviva Plc · LSE:AV.
Aviva — Goldman Sachs Financials Conference 2003
24 slides from Aviva's conference presentation, Jun 18, 2003
Slide 1: Surviving in a low interest rate environment
1 Philip Scott Executive Director Aviva plc “Surviving in a low interest rate environment” Goldman Sachs Financials Conference Rome 18 June 2003
Slide 2: Disclaimer
2 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 results. By their nature, all forward-looking statements involve risk and uncert
Slide 3: Agenda
3 Agenda z Long-term savings – Matching consumers to products – Margins z General insurance z Capital and risk management
Slide 4: Consumer risk appetite lags equity market
0 500 1000 1500 2000 2500 3000 3500 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 FTSE ALL- Jan-80 Jan-81 Jan-82 ALL-SHARE Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 equity products Jan-92 Jan-93 Retail investment in Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 risk Jan-00 Jan-01
Slide 5: Offer broad fund choice - Norwich Union Life (UK)
5 Offer broad fund choice - Norwich Union Life (UK)
Slide 6: Consumer expectations will align to investment market returns
6 Consumer expectations will align to investment market returns z Evidence in France (low inflation country) is that demand for “lower” return / low risk products remains robust z Expect period of consumer adjustment in countries (eg UK) where equity-linked content was higher z Industry needs to man
Slide 7: Attraction of equity-linked will return
7 Attraction of equity-linked will return z Deposit 2-4% z UK 10 year gilts c.4% z Property ? ? z UK FTSE-100 dividend yield 3.4%
Slide 8: Innovate on product design
8 Innovate on product design z Use guarantees provided by investment banks z Price guarantee into policy New policy designs UK Life structured bonds Value policy value Investment guaranteed after 5 years Equity content 40% to capture upside Time
Slide 9: Broad product range enables insurers to flex marketing spend towards demand
9 Broad product range enables insurers to flex marketing spend towards demand NU Life Sales 2002 APE Equity Release Other 3% Annuities 4% 8% Mortgage Term & Protection 5% 9% Bonds & Savings 21% Investment Funds 3% Group Pensions 10% Indiv. Pensions 37%
Slide 10: Increase in savings levels required to meet retirement aspirations
10 Increase in savings levels required to meet retirement aspirations Reduced state Lower retirement investment returns benefits Customers need to invest more Ageing population
Slide 11: Bancassurers have excellent access to deposits
11 Bancassurers have excellent access to deposits z Bancassurance accounts for over 50% of new business sales in Spain, Italy and France z Aviva bancassurance: – Accounted for 22% of Aviva’s new business in Q1 2003 – Sales +60% in Q1 2003 vs Q1 2002 – Margins 35.1% vs Group average of 24.4% for 2002
Slide 12: What can management do to offset pressure on margins?
12 What can management do to offset pressure on margins? z Leverage scale to increase “pricing” z Best “pricing” conditions for 10 years z Focus capital towards higher margin products z Reduce expenses – Grow “e” activity z Aviva will size cost to revenues where necessary, drawing on its cost reduct
Slide 13: Conditions are a catalyst to re-structuring
13 Conditions are a catalyst to re-structuring z Shake-out of weaker, inefficient operators z Increased market shares for strongest UK life & pensions market shares 12 10 28% Rest 37% 8 APE £bn 24% 6-10 6 22% 4 41% 48% Top 5 2 0 1999 2000 2001 2002
Slide 14: Aviva's UK life market share more than doubled
14 Aviva’s UK life market share more than doubled z Competitive advantage through capital strength, brand, market leading product range Aviva’s UK life market share % 12 11.4% 10 8 6 5.2% 4 2 0 1996 1997 1998 1999 2000 2001 2002
Slide 15: General insurance
15 General insurance z Increased focus on underwriting as investment returns fall z Understand COR link to ROC z Capital scarcity supporting:- – pricing – management discipline
Slide 16: Aviva: Driving general insurance earnings
16 Aviva: Driving general insurance earnings Aviva Combined operating ratios % of total* GI 2001 2002 premiums 61 UK 102% 101% 6 France 104% 102% 5 Ireland 101% 100% 5 Neths 104% 105% 13 Canada 107% 102% Group* 103% 102% *Continuing operations
Slide 17: Capital & cash management techniques
17 Capital & cash management techniques Reinsurance capital Reduce payback Securitisation periods “Cashless financing” from emerging surpluses
Slide 18: Bringing the cashflow horizon closer
18 Bringing the cashflow horizon closer APE Illustration of protection policy cashflows 200% 100% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 -100% -200% Policy Year -300% -400% Pre Reinsurance -500% Post Reinsurance
Slide 19: RBC will optimise risk management and capital allocation
RBC will optimise risk management and 19 capital allocation Aviva RBC application Risk Management Capital Assessment Reinsurance and Allocation Efficient Strategy Use Of Capital Performance Management Strategic Planning Product Pricing
Slide 20: Guarantees on in-force books
20 Guarantees on in-force books z UK: guaranteed annuity options were responsible for the demise of Equitable Life z Hedge or fund historic guarantees z Aviva in UK fully funded – Orphan estate struck after allowance for guarantees – Orphan estate £4.3bn at 31/12/02 (additional >£4bn already provide
Slide 21: Surviving in a low interest rate environment
21 Thri vSurviving in a low interest rate environment z Modelling techniques will optimise capital allocation and risk management z Ageing populations underpin growth z Equities will become more attractive! z High volume / low cost survivors z Competitive positions of strongest insurers significantl
Slide 22: Appendix
22 Appendix
Slide 23: Aviva overview
23 Aviva overview 12 months 2002 premiums / sales* (£28bn) z Leading pan- pan-European life insurer 72% 72% z Focused general insurance business Life** Life* 28% G.I. 70% z Exited long- long-tail general insurance liabilities in 2000 Life z Bancassurance expansion Intl. Life 5%** z Rebased dividend
Slide 24: Aviva: strategic focus on top positions
24 Aviva: strategic focus on top 5 positions Rank Market share Rank Market share Life Life (est.) G Ins G Ins (est.) UK 2 11% 1 16% France 10 4% Top 15 2.5% Netherlands 4 10%* 4 9%* Spain 3 7% – – Italy 6 5% n/a <1% Ireland 4 11% 1 24% Canada – – 2 9% Poland 2 18% – – Singapore 3 11% 2 9% Turkey 3 1