Aviva Plc · LSE:AV.
Aviva — FY2002 Earnings Presentation
48 slides from Aviva's earnings presentation, Feb 26, 2003
Slide 1: 2002 Final Results
Aviva pic Z002 Final Results 26 February 2003
Slide 2: Agenda
2 Agenda n Business and strategic review Richard Harvey Group Chief Executive n Financial and capital review Mike Biggs Group Finance Director n Questions and answers
Slide 3: 2002 results highlights
3 2002 results highlights n Group operating profit1 £1,798m (2001: £1,983m) after £123m net charge for annuitant mortality n MSSB operating profit2 £1,296m (2001: £1,512m) n Life and pensions new business up 2% on APE basis n Worldwide general insurance COR of 101.4% n Dividend of 23.0p (2001: 38.0p
Slide 4: Industry trading conditions
4 Industry trading conditions (1) Life & savings n Long-term growth dynamics remain good n Current demand for savings weakened by falling equity markets n Bear market pressure on uncompetitive operating models and weaker capital players n Heavy UK regulatory activity moving from “review” towards “im
Slide 5: UK life regulatory
5 UK life regulatory n Challenge to 1% charge cap n will not write uneconomic business n Depolarisation: implement Q4 2003 n not expect material impact on IFA channel n Aviva well positioned with multi-distribution capability n Consultation phase for Pensions green paper, Sandler, With-profits revie
Slide 6: Capturing value from bancassurance
6 Capturing value from bancassurance Worldwide sales up by 50% Total New sales business £m margin UK (RBSG) 693 21.5% Spain (bank network) 1,252 51.3% Italy (bank network) 964 24.9% Singapore (DBS) 121 29.4% 3,030 35.1%
Slide 7: UK general insurance: Flexing product mix in the cycle
7 UK general insurance: “Flexing product mix in the cycle” UK general insurance GWP £m 6,000 5,000 Small 33% 36% 42% commercial 4,000 3,000 Personal 2,000 1,000 0 2000 2001 2002
Slide 8: Increased focus in 2003 on
8 Increased focus in 2003 on: n Capital management / returns n Sizing costs to revenues n Cash generation
Slide 9: Capital management: resilient position
9 Capital management: resilient position n Capital and cash generative model n Resilient CGUII structure n Strong UK life with-profit “realistic” capital n orphan estate £4.3bn n manage bonuses / MVAs / asset mix
Slide 10: Portfolio management: general insurance disposals in 2002
10 Portfolio management: captured value from general insurance disposals in 2002 Price Price / achieved NAV £m CGU Courtage (GI) 189 1.4x Larger risks: outside strategy Plus Ultra (GI) 152 2.9x Sub-scale GAUM (aviation) 30 2.0x Larger risks: outside strategy Aus/NZ (GI) 651 2.1x Very attractive offe
Slide 11: Invested £250m in life & savings distribution and Asia life
11 Invested £250m in life & savings distribution and Asia life in 2002 Netherlands: bancassurance JV with ABN Amro France: bancassurance with Crédit du Nord from 2004 and Médéric distribution in 2003 Italy: China: bancassurance JV life with BPCI business from 2003 Spain: extended top 3 bancassurance
Slide 12: Capital management / returns: 2003
12 Capital management / returns: 2003 n Raise capital hurdle rates on: n new developments n internal projects n Capital efficient deals n Products: aim to increase returns through pricing and product design Price for returns not volumes
Slide 13: Size costs to revenues: Aviva expense base already efficient
13 Size costs to revenues: Aviva expense base already efficient n £317m p.a. merger cost savings achieved n Market leading cost bases in Spain and Italy n >50% of Aviva vie in France through AFER has admin costs of 0.1% (vs market average of 0.33%) n Worldwide general insurance expense ratio1 11.3%
Slide 14: Cash generation
14 Cash generation n Dividend cut produced Operating statutory profit(1) self-sustaining, “cashflow” 21% Cont positive operating model 33% Europe & UK life Intl life n Strong statutory profit contribution from general insurance n Capital management disciplines and cost focus 46% support cash generat
Slide 15: Outlook
15 Outlook n Life sales environment remains difficult n New distribution coming on stream n Strong contribution from general insurance n Focus on: n capital management and returns n sizing costs to revenues n cash generation
Slide 16: Financial and capital review
Financial and capital review Mike Biggs Group Finance Director
Slide 17: Group headline results
17 Group headline results n Group operating profit1 of £1,798m (2001: £1,983m) after net annuitant mortality charge of £123m n On MSSB basis operating profit at £1,296m (2001: £1,512m) n Dividend cover on MSSB basis at 1.65 times n Operating EPS1 at 51.5p (2001: 55.5p) n Net asset value2 at 433p (31
Slide 18: Delivering profitable new business
18 Delivering profitable new business 2002 2001 Contribution Margin Margin £m % % UK 290 23.6 25.8 France 69 30.9 33.9 Ireland 29 28.2 28.5 Italy 38 24.9 22.2 Netherlands 21 13.3 22.3 Spain 87 45.9 46.5 Other countries 44 13.9 9.6 Group 578 24.4 25.5 New business internal rate of return of 16%
Slide 19: Annuitant mortality – UK
19 Annuitant mortality – UK Achieved MSSB n In line with recent profits CMIB report Cohort Medium Medium n Own book has Net charge £123m nil better experience Maintaining prudent reserving strength
Slide 20: Life achieved operating profit
20 Life achieved operating profit 2002 2001 £m £m UK 699 850 n Net impact of UK France 228 227 annuitant mortality Ireland 75 79 strengthening of £123m Italy 52 55 n Adverse experience Netherlands 200 221 variances in the Poland 111 99 Netherlands offset by Spain 83 80 beneficial operating Other Eur
Slide 21: Life modified statutory result
21 Life modified statutory result 2002 2001 £m £m UK 626 689 n UK with-profit – France 142 160 impact of falling bonus Ireland 36 49 rates Italy 24 26 n Netherlands – Netherlands 111 214 lower investment Poland 66 46 returns and higher Spain 27 36 development spend Other Europe (19) (21) Internation
Slide 22: Excellent general insurance results
22 Excellent general insurance results COR* 2002 2001 % % UK 101 102 n Operating profit1 at France 102 104 £959m (2001: £924m) Ireland 100 101 n LTIR2 down £73m to Netherlands 105 104 £1,026m Canada 102 107 n Expense ratio2 of Continuing 11.3% (2001: 11.9%) operations 102 103 Aust & NZ 98 99 101 102
Slide 23: Other financials
23 Other financials n Fund management result of £5m (2001: £29m) n Corporate costs of £218m (2001: £187m) n Non-insurance: loss of £69m (profit of £7m) n Investment variances: loss of £3.5bn (2001: £2.6bn) n non-life variances: £1.2bn n life variances: £2.3bn n Adverse impact of economic assumption
Slide 24: Movement in equity shareholders’ funds
24 Movement in equity shareholders’ funds FY 2002 1h 2002 £bn NAV** £bn NAV** Start of period position 11.5 524p 11.5 524p Operating profit post-tax 1.2 0.6 Post-tax non-operating items – Goodwill, CER, P/L on sale 0.1 (0.1) – Impact of investment markets and economic assumption changes (2.5) (0.9)
Slide 25: Defined benefit pension schemes – Group
25 Defined benefit pension schemes – Group n FRS17 calculation shows a deficit of £456m (2001: surplus of £233m) groupwide n UK defined benefit scheme closed in 2001 n Contribution rate increased from 10% to 25% of pensionable salaries from 1 January 2003 n no P&L effect for 2003 n There is no immed
Slide 26: Equity content in shareholders’ funds
26 Equity content in shareholders’ funds Lower equity content in shareholders’ funds at £3.1bn (2001: £4.9bn) £bn 2001 year end 4.9 Change in market values (1.4) Disposal of Australia/ New Zealand (0.2) Divestment of strategic stakes (0.6) Net reinvestment 0.2 Foreign exchange 0.2 2002 year end 3.1
Slide 27: Impact of lower assets on future profits
27 Impact of lower assets on future profits n General and health insurance result n falls in opening values will mean lower investment returns in 2003: estimated impact of £125m n Life achieved operating profit result n reduction in expected returns for 2003 estimated at £175m Note: the estimated im
Slide 28: Capital strength of the group
28 Capital strength of the group
Slide 29: Strong capital bases in operations
29 Strong capital bases in operations Regulatory Realistic perspective perspective CGUII Group XSM* / solvency cover - NU Insurance XSM* / solvency cover - Worldwide general - Risk based capital insurance and health UK life Free asset ratio Orphan estate * XSM represents excess solvency capital over
Slide 30: Regulatory measure: operational capital
30 Regulatory measure: operational capital Excess solvency over required minimum margin CGUII plc NU Insurance Life General Major overseas subsidiaries CGUII CGUII plc group NU Insurance Available assets £2.6bn £4.9bn Available assets £0.6bn Required minimum £0.6bn £2.9bn Required minimum £0.3bn mar
Slide 31: General insurance: operational capital strength
31 General insurance: operational capital strength n RBC requirement CGUII plc NU Insurance 36% of NWP is £3.1bn Life General n Strong solvency Major overseas subsidiaries n Resilience to equity Regulated available market movements assets* – 31 Dec £5.5bn n £2.7bn available to Add: equalisation prov
Slide 32: UK Life – capital strength
32 UK Life – capital strength 31 December 2002 31 Dec 30 June 31 Dec 2002 2002 2001 Orphan estate £4.3bn £4.7bn £5.2bn Free asset ratio – including implicit items 11.8% 14.1% 14.7% – excluding implicit items 7.7% 10.1% 10.8% Orphan estate – after allowing for realistic assessment of liabilities and
Slide 33: Group financial strength and results
33 Group financial strength and results n Capital strength n Statutory basis resilient n Realistic basis very strong n Prudent financial management n Robust operating performance in difficult markets n Dividend supported by statutory profits
Slide 34: Appendices
Appendices
Slide 35: Capital at a group level
35 Capital at a group level n Equity shareholders’ funds at 31 December of £9.5bn n Capital employed in our businesses at 31 December of £17.3bn n EU Directive Group solvency basis n 31 December 2002 £0.7bn excess n excludes the strength of the UK and Irish life funds n Cash generative operating mod
Slide 36: Operational capital
36 Operational capital Group structure Aviva plc Australia CGUII plc NU Insurance UK Life Life General Major overseas subsidiaries
Slide 37: Regulatory measure – operational capital
37 Regulatory measure – operational capital Excess solvency over required minimum margin Aviva plc CGUII plc NU Insurance Life General Major overseas subsidiaries XSM* 31 Dec 01 £2.7bn £0.4bn 30 June 02 (est) £2.7bn £0.4bn 31 Dec 02 (est) £2.0bn £0.3bn * XSM represents excess solvency capital over r
Slide 38: Regulatory measure – operational capital
38 Regulatory measure – operational capital Excess solvency over required minimum margin CGUII plc NU Insurance Life General Major overseas subsidiaries CGUII CGUII plc group NU Insurance Available assets £2.6bn £4.9bn Available assets £0.6bn Required minimum £0.6bn £2.9bn Required minimum £0.3bn ma
Slide 39: Realistic measure – operational capital
39 Realistic measure – operational capital Risk based capital – worldwide GI & health Aviva plc Australia CGUII plc NU Insurance UK Life Life General Major overseas subsidiaries
Slide 40: Risk based capital
40 Risk based capital Worldwide general insurance and health Shareholders’ £4.0bn capital employed* Risk based £3.1bn at 31 Dec 2002 capital Net written premium** 36% £8.6bn * Excluding goodwill of £282m and after adding back the equalisation provision of £314m. ** 2002 net written premiums excludin
Slide 41: General insurance: operational capital strength
41 General insurance: operational capital strength n RBC requirement CGUII plc NU Insurance 36% of NWP is £3.1bn Life General n Strong solvency Major overseas subsidiaries n Resilience to equity Regulated available market movements assets* – 31 Dec £5.5bn n £2.7bn available to Add: equalisation prov
Slide 42: Operational capital - regulatory
42 Operational capital - regulatory UK life structure UK Life CU life Unit-linked CGNU life NU life & pensions
Slide 43: UK Life – capital strength
43 UK Life – capital strength Free asset ratio £bn Orphan estate 2002 2001 6 £5.2bn £4.3bn Including implict 4 items 11.8% 14.7% 2 Excluding implicit items 7.7% 10.8% 0 2001 2002 Resilient capital base
Slide 44: Internal capital generation
44 Internal capital generation Post-tax statutory operating profits 2001 2002 £bn Actual Pro forma Actual Profit from in-force 1.4 1.4 1.4 Cash strain from new non-profit business (0.6) (0.6) (0.7) Life statutory profits (after new business strain) 0.8 0.8 0.7 GI & health 0.6 0.6 0.6 Corporate / oth
Slide 45: With-profit asset mix – 31 December 2002
45 With-profit asset mix – 31 December 2002 4% 44% (2001: 1%) (2001: 31%) 17% (2001: 14%) 35% (2001: 54%) Fixed interest Equity Property Other
Slide 46: Strong market positions
46 Strong market positions Rank Market share Rank Market share Life Life (est.) GI GI (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 13% – – Australia Top 10
Slide 47: Expenses as proportion of premium income
47 Italy – Aviva has a market leading cost base 2001 expense ratios 5% Expenses as proportion of premium income 4% 3% 2% 1% 0% Consolidated Aviva Other leading All top 15 life Leading non- life companies bancassurers companies bancassurers Source: ANIA
Slide 48: Spain – an efficient bancassurance platform
48 Spain – an efficient bancassurance platform Acquisition and administration costs (% of premium, 2Q02) 4.99% 5 4 (%) 3 2 1.83% 1.64% 1 0 Aseval Largest Spanish Total Spanish life bancassurers market Source: ICEA, data regarding 2Q02