Aviva Plc · LSE:AV.
Aviva — Merrill Lynch conference (October 2003)
28 slides from Aviva's conference presentation, Oct 8, 2003
Slide 1: Merrill Lynch conference: Living in a 1% world
Merrill Lynch conference “Living in a 1% world” 8 October 2003 Richard Harvey Group Chief Executive
Slide 2: Disclaimer
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 uncertai
Slide 3: Aviva in a "1% world"
Aviva in a “1% world” • Long-term savings: – Investing for higher growth and margin – Low unit costs key to new business margins • General insurance: – Invest for superior claims performance – Cost reduction • Allocate capital to higher growth and margin businesses 3 © Avi va plc
Slide 4: Investing in high growth opportunities
Investing in high growth opportunities UK: Netherlands: bancassurance JV bancassurance JV with RBOS with ABN AMRO Entered France: Lithuania life bancassurance from Poland China: from 2004 JV life business Spain: created Italy: created top from 2003 leading life 6 life business business Singapore & H
Slide 5: Aviva bancassurance in H1 2003
Aviva bancassurance in H1 2003 (25% of total life & pensions sales) • Early phase of development (most deals post 2000) • But expertise back to 1989 with UniCredito • Margins 35.5%………. vs group average of 24.5% Aviva bancassurance life & pension sales £m 450 FY APE 300 FY +56% vs HY 2002 HY 150 HY F
Slide 6: Leading cost positions in Italy & Spain
Leading cost positions in Italy & Spain • One “factory” leads to scaleable cost advantages Italy Spain Expense as % premiums, 2001 Expenses as % of premiums, H102 % 5 % 5 4 4 3 3 2 2 1 1 0 0 Consolidated Top 15 Aviva Total Aviva life Italian life (Aseval) Spanish companies companies life market 6 So
Slide 7: Aviva in Eastern Europe: Asia on our doorstep
Aviva in Eastern Europe “Asia on our doorstep” Lithuania Poland •Population: 4m •Population: 39m •Life = 0.30% of GDP •Life = 1.07% of GDP •Launched 2001 •1992 £5m greenfield investment •11% market share, No. 4 •In 2002: •No 1 private Pensions (29% of market) •18% of total life market •40% of indivi
Slide 8: India & China growth opportunities
India & China growth opportunities • India • JV partnership (26%) with Dabur Group from June 2002 • Distribution agreements provide access to over 25 million potential customers: – Canara Bank (ranked 2nd with 2,400 branches) – Lakshmi Vilas Bank (regional bank, 209 branches) – ABN AMRO – American E
Slide 9: UK life: Norwich Union market leader
UK life: • Norwich Union is the market leader • Market share 1996 5.2% 11.8% H1 2003 • Capital advantage including orphan estate estimated at £4.5bn (30.6.03) • Market leading product range • Multi-distribution expertise in place • Pricing increases • Management actions to reduce expenses 9 © Avi va
Slide 10: Future of UK life with-profits
Future of UK life with-profits • Smoothed investment philosophy remains attractive • With-profits has outperformed equity-linked! • Sandler supports concept • Consolidation around few providers with strong estates – 40 out of 62 WP funds closed in last 2 years 10 © Avi va plc
Slide 11: Where 1% charge in the UK is profitable
Where 1% charge in the UK is profitable • 1% charge can work where case premiums are large and persistency is high • Cat standard ISAs (max charge 1%) unsuccessful – Similar to “Sandler” proposed products • Larger end of 1% pensions market is profitable – Includes Group schemes (fee basis) – Aviva s
Slide 12: UK life price cap decides reachable market
UK life price cap decides reachable market Breakeven case size by distribution channel* 900 Reduction 800 in yield 700 £ 600 1% APE 500 400 300 1.5% 200 100 0 Worksite IFAs Direct Bank enrollers sales force * Individual cases 12 Source:Oliver Wyman research using regular premium contracts © Avi va p
Slide 13: General insurance: Strong statutory earnings support longer-term life growth
General insurance: Strong statutory earnings support longer-term life growth Combined operating ratios % of total* GI 6months premiums 2003 2002 58 UK 99% 101% 7 France 100% 100% 7 Ireland 97% 100% 7 Neths 98% 102% 13 Canada 115%** 103% (** Pilot added 13pp) Group* 101% 101% Group 99% (excl Pilot) 1
Slide 14: Pricing environment
Pricing environment • Orderly pricing market Discipline Never been so little capital in general insurance market at this point of the pricing cycle Lower inv Balance return from Credit rating agencies sheet bonds vs disciplines equities 14 © Avi va plc
Slide 15: Expense ratio benefiting from merger savings and efficiency reviews
Expense ratio benefiting from merger savings and ongoing efficiency reviews Aviva general insurance expense ratio* % 13 12 11 10 12m 12m 12m 6m 2000 2001 2002 2003 15 *Continuing operations © Avi va plc
Slide 16: Leveraging cost advantage out of Aviva's growing expertise in India
Leveraging cost advantage out of Aviva’s growing expertise in India • Call centre / claims processes supports UK general insurance capacity and efficiency • Live from July 2003 (1,000 jobs by end 2003) • Consider other applications Virtual call 1,000 centre/claims employees processes 16 end 2003 © A
Slide 17: Investing in superior claims performance
Investing in superior claims performance Expense ratio Commissions UK • Re-underwritten portfolios Claims costs • Total incident management • India claims processing • Pay As You Drive pilot • Digital flood mapping 17 © Avi va plc
Slide 18: Digital flood mapping
Digital flood mapping Aeroplane digitally mapped height of UK + Add data on river water flows and soil moisture = Captured flood risk data on every house 18 © Avi va plc
Slide 19: Shrewsbury: Upper Severn Catchment flood outline
Shrewsbury: Upper Severn Catchment SH 1 in 100 year flood outline 19 © Avi va plc
Slide 20: SY3 postcode
SY3 7 (postcode) Previously, all properties thought to flood 20 © Avi va plc
Slide 21: SY3 postcode: properties that flood
SY3 7 (postcode) Properties that don’t flood Properties that flood Only 28% of properties in this postcode flood 21 © Avi va plc
Slide 22: Flood mapping benefits
Flood mapping benefits • Underwrite more accurately than competitors – Avoid vulnerable properties – Estimated saving of £80m (of £195m) from UK floods in 2000 • Reduce earnings volatility • Underwriting data advantage across all of book 22 © Avi va plc
Slide 23: Aviva cost saving initiatives in first half 2003
Aviva cost saving initiatives in first half 2003 • Estimated P&L net benefit of £60m for 2003 – after cost to achieve saves and incremental investment spend on GFTP and offshoring – includes cost of UK job reduction of 1,600 announced to July 2003 • Estimated full year 2004 P&L gross benefit of £175
Slide 24: Aviva summary
Aviva summary • Geographical choice for capital allocation • Scale advantages • Reducing costs • Gaining market share in profitable life markets • Targeting consistent across cycle earnings from general insurance • ROCE 11% for 6m 2003 (9.7% 12m 2002) 24 © Avi va plc
Slide 25: Appendix
Appendix 25 © Avi va plc
Slide 26: Aviva overview
Aviva overview 6 months 2003 premiums / sales* (£15.7bn) • Leading pan-European life insurer 73% 72% Life** Life* 27% G.I. • Focused general insurance business Intl. Life 4%** Cont. (personal & SME commercial) Europe Life 34%** UK General 16% UK Life Cont 35%** Europe General 6% Intl. General 5% 26
Slide 27: Valuable business franchises from strong market positions
Valuable business franchises from strong market positions Rank Market share Rank Market share Life Life (est.) GI GI (est.) UK 1 12% 1 14% France 10 4% Top 15 2.5% Netherlands 4 10%* 3 9%* Spain 1 12% - - Italy 6 5% n/a <1% Ireland 4 11% 1 24% Canada - - 2 9% Poland 2 18% - - Singapore 3 11% 2 9% Tu
Slide 28: Capital: resilient position
Capital: resilient position • Enhanced by sub-debt issue of £1.6bn Sept 2003 • Self financing model – strong statutory profits from general insurance – 2002 dividend cut • Resilient CGUII structure (holds major overseas subs) – can withstand significant equity market falls • Strong UK life with-prof