Aviva Plc · LSE:AV.
Aviva — H1 2003 Earnings Presentation
37 slides from Aviva's earnings presentation, Jul 31, 2003
Slide 1: AVIVA plc 2003 Interim Results
AVIVA plc 2003 Interim Results 31 July 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: Agenda
Agenda • Overview Richard Harvey Group Chief Executive • Financials Mike Biggs Group Finance Director • Q&A • ABN Amro Niek Hoek Chairman, Delta Lloyd bancassurance • Q&A 2003 Interim Results 3 31 July 2003 © Aviva plc
Slide 4: Management team from 1 August 2003
Management team from 1 August 2003 Richard Harvey Group Chief Executive Philip Scott Patrick Snowball Philip Twyman Mike Biggs Gary Withers Group Executive Group Executive Group Executive Group Finance Chief Executive Director Director Director Director Norwich Union Life Life International General
Slide 5: Results highlights
Results highlights • Group operating profit1 £828m Effect of lower investment returns on lower opening • MSSB operating profit2 £638m asset base • Profit before tax £850m (2002: loss £462m) • ROCE 11.0% (12m 2002: 9.7%) • Life and pensions sales maintained at £1.2bn APE • Margins maintained at 24.5%
Slide 6: UK life resilience from broad product range
UK life resilience from broad product range • Market following re-pricing leadership • With-profit bond sales now 6% of UK life & pensions Norwich Union life & pensions new business (discrete quarter APE) 350 £m 175 0 Q1 Q2 Q3 Q4 Q1 Q2 2002 2002 2002 2002 2003 2003 2003 Interim Results 6 31 July 200
Slide 7: UK regulatory reviews
UK regulatory reviews • Charging structure:- – must provide for economic distribution and product manufacture – is key to bridging savings gap – 1% insufficient for new “Sandler” style products 2003 Interim Results 7 31 July 2003 © Aviva plc
Slide 8: Aviva bancassurance
Aviva bancassurance (25% of total life & pensions sales) • Early phase of development (most deals post 2000) • Margins 35.5%………. vs group average of 24.5% • Encouraging statutory profits of £24m (2002: £13m) from Spain Aviva bancassurance life & pension sales £m 450 FY 400 350 APE 300 FY APE £299m 2
Slide 9: Strong general insurance performance
Strong general insurance performance Combined operating ratios 6 months % of total* GI 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) • Expense ratio* 10.9% (2002: 11.1%, 200
Slide 10: UK general insurance: multi-channel
UK general insurance: multi-channel • Growing direct personal lines business • Over 40% of personal lines “direct” Net written premium % by channel 100% Commercial: 36% 42% 75% Broker 50% 31% 17% Personal: Broker Personal: Corp 24% 25% 24% partnerships 9% 17% Personal: Direct 0% 2000 H1 2003 2003 In
Slide 11: Cost saving initiatives
Cost saving initiatives • Estimated P&L benefit of £30m in H1 2003 – including 700 UK job reduction • Full year 2003 estimated P&L benefit £60m – after £30m charge for recently announced 900 UK job reduction – after incremental investment of £50m in GFTP & offshoring • Estimated full year 2004 P&L g
Slide 12: Outlook
Outlook • UK life – sales stabilising – market consolidating to larger players • Product innovation to meet changing consumer demand • Substantial bancassurance opportunity • Strong general insurance earnings • Drive cost efficiencies • Seek further improvement in ROCE 2003 Interim Results 12 31 Jul
Slide 13: Financial and capital review
Financial and capital review Mike Biggs Group Finance Director
Slide 14: Group headline results
Group headline results • Group operating profit1 of £828m (2002: £955m) • On MSSB basis operating profit at £638m (2002: £733m) for continuing operations • Operating EPS1 at 22.5p (2002: 26.7p) • Net asset value2 at 468p (31 Dec 2002: 433p) • Post-tax return3 on capital of 11.0% (31 December 2002: 9
Slide 15: Delivering stable new business margins
Delivering stable new business margins 2003 HY 2002 FY 2002 Contribution Margin Margin Margin £m UK 117 22.0% 24.3% 23.6% France 35 29.3% 31.0% 30.9% Ireland 11 28.5% 25.7% 28.2% Italy 27 23.0% 23.3% 24.9% Netherlands 22 21.5% 15.8% 13.3% Spain 68 49.0% 52.3% 45.9% Other countries 17 10.4% 9.7% 13.9
Slide 16: Life achieved operating profit
Life achieved operating profit H1 2003 H1 2002 £m £m UK 339 424 • Impact of lower embedded France 90 111 value and economic assumptions at start of 2003 - Ireland 31 37 £56m Italy 33 30 Netherlands 69 87 • Increasing benefits from bancassurance arrangements Poland 40 47 in Spain and Italy Spain 71 3
Slide 17: Life modified statutory result
Life modified statutory result H1 2003 H1 2002 £m £m UK • UK: with-profit – impact of – with profit 64 122 falling bonus rates – non profit 229 245 France 80 71 • UK: non-profit – fall in annual management fees Ireland 18 17 Italy 14 19 • Delta Lloyd – impact of Netherlands 29 70 provision for guara
Slide 18: General insurance results
General insurance results Operating H1 2003 H1 2002 Profits £m £m UK 313 303 • Impact of lower LTIR of £65m France 15 25 • Strong results across Europe Ireland 43 21 benefiting from better than expected weather-related Netherlands 12 11 claims of £40m Other Europe 16 28 • Group COR 99%, excluding Ca
Slide 19: Other financials
Other financials • Fund management result of £10m (2002: £3m) • Non-insurance: loss of £47m (2002: loss of £28m) • Investment variances: profit of £0.3bn (full year 2002: loss of £3.5bn) – non-life variances: £0.1bn – life variances: £0.2bn • Adverse impact of economic assumption changes of £217m as
Slide 20: Corporate costs
Corporate costs H1 2003 H1 2002 FY 2002 £m £m £m Central costs and Sharesave schemes 82 86 192 GFTP 12 10 26 94 96 218 Allocation to BU operating profit (38) - - 56 96 218 Reallocation of deferred bonuses, profit shares, LTIPs to BU operations: – UK general insurance - £23m – Overseas general insura
Slide 21: Global finance transformation programme
Global finance transformation programme (GFTP) • To build a common infrastructure over next 3 years • Satisfies increasing EU regulatory demands • Builds IAS reporting capability • Enhances corporate governance, capital and financial management capability • Provides a platform for future cost saving
Slide 22: Movement in equity shareholders' funds
Movement in equity shareholders’ funds (after adding back the claims equalisation provision) £m NAV 31 December 2002 9,783 433p Operating profit post-tax 507 23p Post-tax non-operating items – Goodwill, P/L on sale and other exceptional items (61) (3p) – Impact of investment markets and economic ass
Slide 23: Capital at a group level
Capital at a group level • Equity shareholders’ funds at 30 June of £10.2bn (31 December 2002: £9.5bn) • Capital employed in our businesses at 30 June of £18.5bn (31 December 2002: £17.3bn) • EU Directive Group solvency basis – 31 December 2002 £0.7bn excess – estimate at 30 June 2003 £0.7bn excess
Slide 24: Strong capital bases in operations
Strong capital bases in operations • Strong regulatory capital position in our operations – Excess solvency cover • CGUII plc 4.3 times cover (2002: 4.2 times cover) • CGUII Group 1.7 times cover (2002: 1.7 times cover) • NU Insurance 3.1 times cover (2002: 2.2 times cover) • GI & health capital –RB
Slide 25: Questions and answers
Questions and answers
Slide 26: Slide 26
Slide 27: Appendices
Appendices
Slide 28: Operational capital: Group structure
Operational capital Group structure Aviva plc Australia CGUII plc NU Insurance UK Life Life General Major overseas subsidiaries 2003 Interim Results 28 31 July 2003 © Aviva plc
Slide 29: Regulatory measure – operational capital
Regulatory measure – operational capital Excess solvency over required minimum margin Aviva plc CGUII plc NU Insurance Life General Major overseas subsidiaries XSM* 31 Dec 02 £1.9bn £0.3bn 30 June 03 (est) £2.1bn £0.6bn * XSM represents excess solvency capital over required minimum margin. 2003 Inte
Slide 30: Regulatory measure – operational capital
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 £2.7bn £5.2bn Available assets £0.9bn Required minimum £0.6bn £3.1bn Required minimum £0.3bn margi
Slide 31: Realistic measure – risk based capital, GI & health
Realistic measure – operational capital Risk based capital – worldwide GI & health Aviva plc Australia CGUII plc NU Insurance UK Life Life General Major overseas subsidiaries 2003 Interim Results 31 31 July 2003 © Aviva plc
Slide 32: Risk based capital: worldwide general insurance and health
Risk based capital Worldwide general insurance and health Shareholders’ £4.0bn capital employed* Risk based £3.3bn at 30 June 2003 capital Net written premium** 36% £9.1bn * Excluding goodwill of £401m and after adding back the equalisation provision of £342m. ** net written premium represents 12 mo
Slide 33: General insurance: operational capital strength
General insurance: operational capital strength • RBC requirement CGUII plc NU Insurance 36% of NWP is £3.3bn Life General • Strong solvency Major overseas subsidiaries • Resilience to equity market Regulated available movements assets* – 30 June £6.1bn • £3.1bn available to support Add: equalisatio
Slide 34: Operational capital - regulatory UK life structure
Operational capital - regulatory UK life structure UK Life CU life Unit-linked CGNU life NU life & pensions 2003 Interim Results 34 31 July 2003 © Aviva plc
Slide 35: UK Life – capital strength
UK Life – capital strength Free asset ratio Orphan estate £bn 30 June 31 Dec 6 2003 2002 £4.5bn Including £4.3bn implicit items 14.0% 11.8% 4 Excluding implicit items 10.0% 7.7% 2 0 31 Dec 2002 30 June 2003 Resilient capital base 2003 Interim Results 35 31 July 2003 © Aviva plc
Slide 36: Self financing model
Self financing model Post-tax statutory operating profits 2003 £bn 2001 2002 Actual Actual Actual 6 months Profit from in-force business 1.4 1.4 0.6 Cash strain from new non-profit business (0.6) (0.7) (0.2) Life statutory profits 0.8 0.7 0.4 GI & health 0.6 0.6 0.3 Corporate / other (0.1) (0.1) (0.
Slide 37: With-profit asset mix – 30 June 2003
With-profit asset mix – 30 June 2003 3% (Dec 02: 4%) 17% 44% (Dec 02: 17%) (Dec 02: 44%) 36% (Dec 02: 35%) Fixed interest Equity Property Other 2003 Interim Results 37 31 July 2003 © Aviva plc