Aviva Plc · LSE:AV.
Aviva — FY2008 Earnings Presentation
42 slides from Aviva's earnings presentation, March 2009
Slide 1: Aviva plc Preliminary results 2008
Aviva plc Preliminary results 2008
Slide 2: Disclaimer
Disclaimer This presentation may include oral and written “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. These forward-looking statements sometimes use words such as ‘an
Slide 3: Agenda
Agenda Overview Andrew Moss Chief Executive Officer 2008 preliminary results Philip Scott Chief Financial Officer Review of the business Andrew Moss Chief Executive Officer Questions and Answers
Slide 4: 2008 was an exceptionally tough year….
2008 was an exceptionally tough year….
Slide 5: But we continue to make real progress
But we continue to make real progress
Slide 6: Key messages
Key messages • Strong operating results • IFRS operating profits up 4% to £2,297 million • MCEV operating profits up 10% to £3,358 million • Total profits impacted by adverse investment variances • Strong balance sheet • Strengthened reserves and provisions • IGD surplus of £2.0 billion at 31 Decemb
Slide 7: Strong balance sheet
Strong balance sheet • Undertaken a thorough review of the value of assets and liabilities • Unrealised losses of 8% against the debt security portfolio • Strengthened provisions against asset impairment • eg: Provisions/write offs in UK Life annuity book increased by £550 million • A well diversifi
Slide 8: Focus on capital
Focus on capital • IGD surplus of £2 billion at 31 December 2008 • Range of measures available to manage the surplus • Disciplined capital and balance sheet management • Vanilla risks, not exotic • Limited inorganic activity in 2008 • Decreased emphasis on sales targets in 2009 balancing volume vs r
Slide 9: Dividend
Dividend • 2008 dividend of 33.0p - 1.9 x covered, • Maintained in spite of large investment variances in 2008 • Our dividend policy states: “Our intention is to increase the dividend on a basis judged prudent using a dividend cover in the 1.5 to 2.0 times range as a guide, while retaining capital t
Slide 10: Aviva plc Preliminary results 2008
Aviva plc Preliminary results 2008 Philip Scott Chief Financial Officer
Slide 11: 2008 results
2008 results • Life and pensions new business sales up 11% to £36.3bn • Global GI COR of 98% • IFRS operating profit up 4% to £2,297m, with operating EPS of 62.9p per share • MCEV operating profit up 10% to £3,358m • IFRS loss after tax of £885m, with total return EPS of (36.8)p per share • Net asse
Slide 12: UK Life
UK Life 2008 2007 • Record sales in 2008 for life and pensions: £m £m • Full year market share 11.3% (2007: 10.5%) New business • Life and pension sales up 1% Life and pensions 11,858 11,797 • Margin of 1.7% (2007: 2.4%) lower due to Investment sales 1,485 2,751 greater amount of annuity business Va
Slide 13: UK General Insurance
UK General Insurance 2008 2007 • Making progress against the £m £m transformational agenda Operating profit* Underwriting result 63 (221) • Combined operating ratio of 99% • Net written premium down due to exiting LTIR 579 642 lower margin business Non-insurance 2 17 • Rate increases across all majo
Slide 14: Europe
Europe 2008 2007 • Life and pensions sales up 8% £m £m New business • Favourable euro impact Life and pensions 16,990 15,684 • Growth in Netherlands and Central and Investment sales 764 1,572 Eastern Europe Value of new business 478 502 • Lower volumes in Italy and Ireland Operating profit • Margins
Slide 15: North America
North America 2008 2007 • Excellent sales growth of 57% - sales £m £m doubled over two years since acquisition United States PVNBP 5,715 3,646 • Value of new business £55m and margin 1.0% (2007: 1.4%) Value of new business 55 52 • IRR 11% (2007: 12%) Life MCEV operating profit 201 124 • IFRS down du
Slide 16: Asia Pacific
Asia Pacific 2008 2007 • Life and pension sales up 8% £m £m New business • Strong growth in China – up 66% Life and pensions 1,720 1,595 • A good start in South Korea, Taiwan and Malaysia Investment sales 1,746 2,660 • Investment sales down 34% Value of new business 43 65 • Equity market down around
Slide 17: Aviva Investors
Aviva Investors 2008 2007 • Significant progress towards developing a £m £m global asset management business IFRS operating profit UK 64 70 • IFRS profit of £114m reflects lower asset Europe 35 43 management fees and increased costs outside the UK North America 14 27 Asia Pacific 1 7 • Funds under m
Slide 18: Total IFRS profits
Total IFRS profits 2008 2007 £m £m Operating profit 2,297 2,216 • Operating profit up 4% Integration and restructuring costs (326) (153) Exceptional items (551) - Amortisation and impairment of goodwill and intangibles and profit on disposal of subsidiaries and associates (176) (64) • Investment var
Slide 19: Non-recurring charges
Non-recurring charges £m £m • Costs to deliver cost savings on Integration and restructuring track Exceptional costs to deliver cost savings 287 Other integration and restructuring costs 39 • Aviva investors transformation 326 and closure of underperforming Exceptional items businesses Latent claims
Slide 20: Market consistent embedded value
Market consistent embedded value MCEV is a conservative reporting methodology which is impacted by volatile investment markets • Risk free rates calculated with reference to the market • Spread returns are booked only when they are earned • Widening credit spreads reduce assets without a correspondi
Slide 21: Market consistency in the current market
Market consistency in the current market • In stable markets, swap rates Indicative European corporate bond spreads are a suitable proxy for risk-free 500 returns 450 • In the current market, risk free 400 returns in excess of swaps can 350 be earned 300 • EV risk free rates adjusted by 150bps for U
Slide 22: MCEV key performance indicators
MCEV key performance indicators • PVNBP up 11% with record Key performance indicators: 2008 2007 sales in the UK and US • Value of new business and PVNBP £36,283m £32,722m margins lower due to greater mix of spread business in the Value of new business* £780m £897m UK and the Netherlands Margins* 2.
Slide 23: NAV per share – MCEV and IFRS basis
NAV per share – MCEV and IFRS basis Investment variances analysis: Total Value of in-force £4.8bn MCEV IFRS Net assets/Net Worth £4.9bn £m NAV £m NAV Total £9.7bn p p As at 31 December 2007 19,998 763 12,946 494 Operating Profit after tax 2,262 86 1,719 66 Investment variances (9,734) (371) (3,986)
Slide 24: IGD Solvency surplus
IGD Solvency surplus £bn • IGD surplus is margin over Capital Resource Requirement Actual IGD solvency surplus 2.9 31 December 2007 • Solvency cover 1.3 times* Operating profits and other income 0.9 • Downside protection increased Hybrid debt 1.0 • Sensitivity to equities: UK life non-profit surplus
Slide 25: Assets prudently valued: Estimated IGD surplus of £2.0bn
Assets prudently valued Estimated IGD surplus of £2.0bn Total capital £20.9bn Net assets not in IGD £5.4bn (1) Regulatory capital resources £15.5bn IFRS net Estimated IGD assets surplus £2.0bn £14.4bn IGD net assets £9.0bn 26% Capital resource requirement (2) £13.5bn Lower Tier 1 40%1 Lower Tier and
Slide 26: Aviva Capital Generation
Aviva Capital Generation Capital Generation 2008* 2.5 2.0 1.5 £bn 1.0 0.5 0.0 Life in-force Non-Life Increase in Free Interest Costs External Capital profits less Profits capital operational dividends net generated new business requirements capital of scrip credit after financing strain generated co
Slide 27: A strong balance sheet
A strong balance sheet • Equities marked to market and additional hedging provides significant shareholder protection • A high quality debt portfolio, valued at fair value • 94% investment grade or insurance rated • Unrealised losses of £13.1bn on total debt securities of £150.6bn or 8% of total por
Slide 28: A strong balance sheet
A strong balance sheet • Provisions increased in the current environment • UK annuity business: £1.13bn default provision against £14bn of assets – Consisting of • UK corporate debt provision increased by £300m to £460m • UK mortgage loss provisions increased by £250m to £670m – Equivalent to • 86 b
Slide 29: Analysis of IFRS balance sheet assets
Analysis of IFRS balance sheet assets Policyholder Participating Shareholder Total assets Assets fund assets assets analysed £m £m £m £m Goodwill AVIF and intangible assets 194 950 9,469 10,613 Investment Property 4,126 7,555 2,745 14,426 Loans 1,799 8,702 31,736 42,237 Debt Securities 19,588 79,566
Slide 30: Group mortgage loans
Group mortgage loans Summary of shareholder assets Group £27.0bn Other £1.5bn • UK commercial mortgage portfolio developed over a period of 30 years to back annuity liabilities, with no material losses incurred since 1992 • 25% effectively government backed • Well diversified across the UK and secto
Slide 31: UK Commercial mortgages
UK Commercial mortgages Loan and interest service cover remains strong Dec Jun 2008 2008 Remaining UK Commercial commercial Total UK loans property Loan Service Cover 1.17 1.16 commercial £8.2bn finance mortgage (CPF) Interest Service Cover 1.30 1.28 portfolio portfolio £11.8bn Gov’t tenants £0.3bn
Slide 32: Corporate debt - a high quality, diverse portfolio
Corporate debt - a high quality, diverse portfolio Shareholder debt Direct shareholder exposure to corporate debt of £26.3bn securities £51.4bn £m AAA/ AA / A Insurance BBB Less Un Total rated than rated BBB UK 4,449 - 1,023 39 15 5,524 Corporate debt Netherlands 2,237 - 330 2 233 2,802 securities £
Slide 33: US asset portfolio
US asset portfolio High quality and prudently stated Financial investments £23.6bn • Quality of financial investments is strong • 93% of corporate bonds are investment grade or insurance rated • 98% of CMBS / RMBS are AAA rated - 99% of RMBS is agency guaranteed • A well diversified portfolio with l
Slide 34: Aviva plc Preliminary results 2008
Aviva plc Preliminary results 2008
Slide 35: Aviva is well positioned
Aviva is well positioned £m 5000 2008 MCEV operating profit • Profit flows are less susceptible to a downturn 4000 GI • Over 50 million customers globally 3000 • 80% of profits from in-force book and GI • Diversity in the composite model 2000 Life in-force • Strong multinational GI business with dis
Slide 36: Strong presence in our home market
Strong presence in our home market 2008 IFRS operating Competitive strength from market leadership profit by region in the UK £m 3000 • Nearly half IFRS operating profits derived from UK businesses UK Life 2000 UK Life & GI • Highest ever sales in 2008 • UK Life market share jumped 3% to 14% in Q4 2
Slide 37: The right strategy
The right strategy Purpose Prosperity & Purpose peace of mind Vision One Aviva, twice the value Vision Strategic Targets priorities • Manage composite • 98% meet or beat COR portfolio • £500m cost savings by • Build global Asset 2010 Management • Double IFRS EPS by • Allocate capital rigorously 2012
Slide 38: Focus on efficiency
Focus on efficiency • £340 million of the £500 million cost savings target secured • Primarily in the UK • Leaner ‘One Aviva’ operating model being developed • IT data centre outsourcing to EDS • Shared services in UK, Ireland, France, Canada and Asia • Sale of offshoring business to WNS • Outsourci
Slide 39: Key messages
Key messages • Strong operating results • IFRS operating profits up 4% to £2,297 million • MCEV operating profits up 10% to £3,358 million • Total profits impacted by adverse investment variances • Strong balance sheet • Strengthened reserves and provisions • IGD surplus of £2.0 billion at 31 Decemb
Slide 40: Weathering the storm
AVIVA the storm ing Weather
Slide 41: Questions and answers
AVIVA Questions and answers
Slide 42: Aviva plc Preliminary results 2008
Aviva plc Preliminary results 2008