Aviva Plc · LSE:AV.
Aviva — H1 2010 Earnings Presentation
62 slides from Aviva's earnings presentation, 2010
Slide 1: Aviva plc Interim Results 2010
Aviva plc Interim Results 2010 1
Slide 2: Disclaimer
Disclaimer Cautionary statements: This should be read in conjunction with the documents filed by Aviva plc (the “Company” or “Aviva”) with the United States Securities and Exchange Commission (“SEC”). This announcement contains, and we may make verbal statements containing, “forward-looking statemen
Slide 3: Agenda
Agenda 1. Review of the business Andrew Moss 2. Financial results Patrick Regan 3. Summary and outlook Andrew Moss 4. Q&A 3
Slide 4: Review of the business
Andrew Moss Review of the business 4
Slide 5: Strong growth in profits and capital generation
Strong growth in profits and capital generation Strong growth in profits… • IFRS operating profit up 21% to £1.3 billion • MCEV operating profit up 21% to £2.0 billion • IFRS RoE of 14.6% (FY09: 10.9%) • IFRS NAV of 394p (FY09: 374p) Powerful capital generation… • £0.9 billion net operating capital
Slide 6: Strong growth in key performance metrics
Strong growth in key performance metrics IFRS Total IFRS profit Capital generation operating profit after tax £1,505m £0.9bn £1,270m 21% £1,049m x2 80% £747m £0.5bn HY09 HY10 HY09 HY10 HY09 HY10 Total sales New business GI COR IRR £25.3bn 12.0% 99% £24.4bn 4% 2.5 98% target ppt 97% 9.5% HY09 HY10 HY
Slide 7: UK Life – a strong performance
UK Life – a strong performance as we see the results of the transformation of the business L&P sales UK Life Cost base • Life product mix shift towards £5.2bn annuity and term assurance £4.7bn £429m • Reattribution generates 10% £120 million annual profits -12% Pensions, £2.9bn £379m • Structural re
Slide 8: UK GI – returning to growth and meeting profitability targets
UK GI – returning to growth and meeting profitability targets Net written premiums GI COR £2,049m • GI sales growth vs H2 2009 £1,942m 99% • Direct motor sales £1,817m 98% • RAC panel • Improved pricing techniques and “Aviva deal” advertising campaign • Strong retention rates across all classes of b
Slide 9: Aviva Europe – trading robustly in challenging times
Aviva Europe – trading robustly in challenging times Life sales up 13% New business IRR 13% • Life sales growth through £8.0bn 12% meeting consumer appetite for £7.1bn 20% guaranteed products Banc- • Clear Bancassurance leader in £4.1bn assurance £4.9bn Europe, with 51 agreements 3% • Strong Retail
Slide 10: Aviva Europe – Quantum Leap is delivering
Aviva Europe – Quantum Leap is delivering Life and GI operating profit • Life profits up 12% excluding Ireland reserve change: £471m £438m 29% • growing assets under management • focussing on underwriting disciplines Life • Claims centre of excellence delivering £330m £425m improved underlying GI pr
Slide 11: Delta Lloyd – sharpened focus on profitability
Delta Lloyd – sharpened focus on profitability Total sales IFRS operating profit • Life profits lower due to £2.81bn £2.83bn investment return assumptions 1% £235m £193m 22% • GI positive development in disability business offset by Life adverse weather £2.14bn £2.13bn -20% • Taking actions to focus
Slide 12: Strong momentum across North America
Strong momentum across North America US L&P sales US new business IRR • Regional profits doubled £3.2bn -27% £2.3bn 14% to £209 million • Profitable growth and capital Annuities self-sufficiency in the US 7% • Product mix shift towards life sales, lower annuity sales 35% • Disciplined pricing and £5
Slide 13: Asia Pacific – growing attractive franchise organically
Asia Pacific – growing attractive franchise organically for the longer term Asia Pacific China / India Life sales sales • Improving customer confidence £794m £293m in investment markets 49% • Underlying life operating profit £532m* 40% of £35m up from £10m loss in £210m HY09 • £58m reserve release i
Slide 14: Aviva Investors – positive investment performance
Aviva Investors – positive investment performance and development of global infrastructure • Positive investment performance Aviva Investors Aviva Investors • 80% of institutional funds beating long term net external flows operating profit benchmark over one year (60% over three years) £793m £42m •
Slide 15: Executing a consistent strategy
Executing a consistent strategy Strategic Focus Actions UK and Europe • Strengthened leadership team • Remaining focused on these priority markets • Focus on capital generation North America • Profit growth and capital self- sufficiency • Disciplined investment in new business Asia Pacific • Organic
Slide 16: Financial results
Patrick Regan Financial results 16
Slide 17: Key performance metrics
Key performance metrics 1. New business and capital efficiency 2. IFRS operating profits 3. Capital generation 4. Total profits 5. Balance sheet 17
Slide 18: New business and capital efficiency
New business and capital efficiency 18
Slide 19: Profitable growth in sales – Life
Profitable growth in sales – Life £bn Life sales 20 £17.5bn £18.0bn Delta Lloyd 16 Asia Pac Life sales Unleveraged IRR N. America 12 HY09 HY10 HY09 HY10 £m £m % % Aviva 8 Europe UK 4,735 5,194 13% 15% 4 UK Aviva 7,071 7,992 13% 12% Europe 0 HY09 HY10 North 3,189 2,334 7% 14% America 14% Unleveraged
Slide 20: More efficient capital investment with lower payback period
More efficient capital investment with lower payback period £bn Capital invested 1 £0.9bn Capital invested in Payback period new business (years) £0.5bn 0.5 £bn HY09 HY10 FY09 HY10 UK (0.1) (0.1) 8 7 Aviva 0 (0.2) (0.3) 7 8 Europe HY09 HY10 North (0.5) (0.2) 14 4 America Yrs Payback period Asia Paci
Slide 21: Profitable growth in sales – GI & Health
Profitable growth in sales – GI & Health £bn 6 GI & Health NWP GI & Health NWP COR £4.9bn £5.0bn 5 HY09 HY10 HY09 HY10 Delta Lloyd £m £m % % Asia Pac UK 2,298 2,241 99% 98% 4 N. America Aviva 1,061 1,068 96% 102% Europe 3 Aviva Europe North 889 996 97% 96% America 2 Asia Pacific 22 32 n/a n/a UK 1 D
Slide 22: IFRS operating profits
IFRS operating profits AVIVA
Slide 23: IFRS income streams from a range of GI & Life sources
IFRS income streams from a range of GI & Life sources £m HY09 HY10 600 500 400 300 200 100 0 General New Underwriting Unit Participating Spread Expected insurance business margin linked business margin return income margin Life drivers New Operating Total Balance Capital business Profit profits shee
Slide 24: Growth in profits across a range of businesses
Growth in profits across a range of businesses IFRS operating profits HY09 HY10 Life GI Life GI £m UK 368 284 463 268 60 (8) (20) 1300 188 (20) 1,270 Aviva Europe 330 108 425 46 21 Delta Lloyd 148 59 119 81 1100 North America 24 87 86 132 1,049 Asia Pacific 70 7 35 (2) 900 Total Life / GI 940 545 1,
Slide 25: Summary IFRS life profit drivers
Summary IFRS life profit drivers £m HY09 HY10 Key: UK 368 463 Driver Aviva Europe 330 425 HY09 HY10 Variance Delta Lloyd 148 119 Pre-tax North America 24 86 operating profit Asia Pacific 70 35 Operating profit 940 1,128 940 1,128 20% Income DAC/AVIF Expenses and amortisation and other commissions 2,
Slide 26: New business income
New business income Key: Driver Total New business income HY09 HY10 Variance 361 465 29% • Strong growth in individual and UK bulk purchase annuities and New business income APE 617 657 6% protection sales 179 230 28% Margin 29% 35% 6ppt • Significant increase in annuity margins Aviva Europe • Stron
Slide 27: IFRS underwriting margin
IFRS underwriting margin Key: Driver Total HY09 HY10 Variance Underwriting margin 352 369 5% • Impact of unwinding expense allowances in reserve has increased across all Expenses 131 165 26% businesses as book has grown Mortality & • Slightly lower positive 179 152 (15)% experience in Europe and the
Slide 28: Total IFRS investment return
Total IFRS investment return Key: Driver Investment return HY09 HY10 Variance 1,376 1,663 21% Unit linked margin Participating business Spread margin Expected return on shareholder assets 462 538 16% 373 370 (1)% 334 473 42% 207 282 36% AMC Bonus Spread (0.1) 113 120 7 66 64 (2) 98 134 36 Equity 7.3
Slide 29: Life expenses
Life expenses Key: Driver HY09 HY10 Variance Acquisition expenses and Admin expenses and renewal commissions commissions (500) (548) (10)% (629) (632) - Acquisition Existing expense expense 24% 26% (2)ppt 48 46 2 ratio (bps) ratio Average reserves APE (£m) 2,042 2,111 3% 263 276 5% (£bn) Acquisition
Slide 30: Expense base broadly flat on like-for-like basis
Expense base broadly flat on like-for-like basis Analysis of operational cost base HY HY £m £m 2009 2010 Var. 2,500 Life acquisition and admin expenses per 1,129 1,180 5% profit drivers 2,450 Excluding commissions, £90m (4%) reduction in (113) (234) 107% DAC and other items Restructuring overall cos
Slide 31: GI & Health profit drivers
GI & Health profit drivers Key: Pre-tax operating profit Driver 545 525 (4)% HY09 HY10 Variance GI Underwriting result Health underwriting Expected investment result return 113 91 (19)% 5 1 n/a 436 444 2% Net written 4,569 4,630 1% Average rate 4.7% 4.8% 0.1 ppt premiums Claims Average 65.3% 65.3% -
Slide 32: General Insurance performance
General Insurance performance GI & health NWP Group COR Current year improvement driven by: £m • Disciplined underwriting 97.3% (4.0)% and pricing techniques 2.4% 96.8% £5,044m £4,947m 5,000 • Rate increases, particularly 1.1% in private motor • Continuing cost efficiency and reduced expense ratio •
Slide 33: Strong growth in profits – Aviva Investors
Strong growth in profits – Aviva Investors Key: Driver £m HY09 HY10 HY09 HY10 Variance Aviva Investors 36 42 Other (1) 14 Pre-tax operating profit Fund Management 35 56 36 42 17% Total income Operating expenses 174 200 15% 138 158 (14)% Average fees 15.3 15.5 0.2 Cost/income ratio (bps) 79% 79% - Av
Slide 34: MCEV performance
MCEV performance PVNBP Value of New business new business margin £18.0bn £17.5bn £425m 3% £367m 16% 2.4% 2.1% HY09 HY10 HY09 HY10 HY09 HY10 Life MCEV Total MCEV MCEV NAV operating profit profit before tax £1,918m £1,336m 471p 461p £1,607m 19% 32% £1,015m HY09 HY10 HY09 HY10 FY09 HY10 New Operating T
Slide 35: Capital generation
Capital generation AVIVA
Slide 36: Continuing strong capital generation
Continuing strong capital generation GI & Life Gross capital generated HY09 HY10 £bn £bn UK 0.5 0.5 Aviva Europe 0.4 0.4 North America 0.3 0.4 Asia Pacific 0.1 - Delta Lloyd 0.1 0.1 Total 1.4 1.4 New Operating Total Balance Capital business Profit profits sheet 36
Slide 37: We expect a 50% increase in net capital generation
We expect a 50% increase in net capital generation HY 2010 vs H1 2009 Increased expectation £bn £bn FY10 HY10 HY10 £1.5bn 1.5 £1.4bn £0.5bn 1.5 50% HY09 £1.4bn FY10 HY10 £1.3bn 1.0 1.0 £0.9bn FY09 HY09 £1.0bn £0.9bn HY09 £0.5bn Operating New Underlying Underlying capital generated capital business c
Slide 38: Total profits
Total profits AVIVA
Slide 39: IFRS profit after tax
IFRS profit after tax HY09 HY10 • Integration & restructuring £m £m costs: Operating profit 1,049 1,270 • Mainly UK, Quantum Integration & restructuring costs (148) (72) Leap & Solvency II Delta Lloyd exceptional items including (117) • Delta Lloyd exceptional - compensation costs and German restruc
Slide 40: Annualised IFRS return on equity
Annualised IFRS return on equity 16% 15.2% 14.6% IFRS return on equity based 12.0% on operating profit after tax 12% and minority interests over 10.9% 10.0% opening shareholders‟ funds 8.5% 8% 4% 0% Life GI Group FY09 HY10 New Operating Total Balance Capital business Profit profits sheet 40
Slide 41: Net asset value per share
Net asset value per share Pence per share IFRS MCEV Final salary pension scheme: • Planned closure Net asset value at 31 December 2009 374p 471p • Funding agreement: Profit and investment variances 53p 29p • £365 million expected to be paid in the year Dividends net of scrip (10)p (10)p • NAV impact
Slide 42: Balance sheet
Balance sheet AVIVA 42
Slide 43: IGD solvency remains resilient
IGD solvency remains resilient £bn 5 £4.5bn (0.5) 0.5 (0.4) (0.3) 4 £3.8bn 3 2 1 0 IGD Surplus Pension funding Operating profits Market Dividends IGD Surplus Dec 09 net of other movements net of scrip Jun 10 income/expenses inc FX Key movements in H1 2010 • One off £0.5 billion impact of strengtheni
Slide 44: Shareholder assets
Shareholder assets FY09 HY10 HY09 HY10 Government bonds £bn £bn % % • 97% investment grade & insurance Government bonds 17.0 17.3 16% 15% rated, zero defaults Corporate bonds 32.5 37.1 30% 33% • £538 million in Greece, Portugal & Spain Asset backed securities 8.3 7.6 8% 7% Corporate bonds Other 1.0
Slide 45: Summary and outlook
Andrew Moss Summary and outlook 45
Slide 46: Growing from a position of strength
Growing from a position of strength A powerful cash generator In the world’s largest life and pensions market With multiple, diverse and complementary income streams from Life, GI and asset management Investing to grow the franchise... ... and paying a growing dividend 46
Slide 47: Q&A
Aviva plc Interim Results 2010 Q&A 47
Slide 48: Appendix
Appendix AVIVA 48
Slide 49: Appendix index
Appendix index • Update on specific 2010 plans • Regional IFRS life operating profit drivers ‒ UK Life ‒ Aviva Europe ‒ Rest of World ‒ UK investment return ‒ Aviva Europe investment return ‒ Rest of the world investment return ‒ UK Life expenses ‒ Aviva Europe life expenses ‒ Rest of the world life
Slide 50: Update on specific 2010 plans to drive value, earnings & dividend growth
Update on specific 2010 plans to drive value, earnings & dividend growth • Grow RAC panel proposition and direct business • Expand risk appetite to build mid-size Corporate GI UK Building • Build Wraps and SIPP market share slowly • Grow the protection business • Increase penetration of bancas
Slide 51: UK Life IFRS operating profit drivers
UK Life IFRS operating profit drivers £m HY09 HY10 300 200 DAC, AVIF, 100 other Acquisition Admin expenses expenses 0 New Underwriting Unit Participating Spread Expected business margin linked business margin return margin -100 -200 • Strong new business income on annuity business • Investment margi
Slide 52: Aviva Europe Life IFRS operating profit drivers
Aviva Europe Life IFRS operating profit drivers £m HY09 HY10 400 300 200 100 Acquisition Admin DAC, AVIF, expenses expenses other 0 New Underwriting Unit Participating Spread Expected business margin linked business margin return -100 margin -200 -300 -400 • New business income growth, particularly
Slide 53: Rest of World Life IFRS operating profit drivers
Rest of World Life IFRS operating profit drivers £m HY09 HY10 400 300 200 100 Acquisition Admin DAC, AVIF expenses expenses & Other 0 New Underwriting Unit Participating Spread Expected business margin linked business margin return -100 margin -200 -300 • Strong new business income from pricing acti
Slide 54: UK investment return
UK investment return Key: Driver Investment return HY09 HY10 Variance 412 466 13% Expected return on Unit linked margin Participating business Spread margin shareholder assets 147 177 20% 137 109 (20)% 80 82 3% 48 98 104% AMC Bonus Spread 0.8 94 100 6 61 48 (13) 75 72 (3) Equity 7.0% 7.8% (bps) (bps
Slide 55: Aviva Europe investment return
Aviva Europe investment return Key: Driver Investment return HY09 HY10 Variance 532 593 11% Expected return on Unit linked margin Participating business Spread margin shareholder assets 289 310 7% 158 191 21% 25 26 4% 60 66 10% AMC Bonus Spread (0.1) 142 143 1 55 64 9 74 85 11 Equity 7.3% 7.2% (bps)
Slide 56: Rest of World investment return
Rest of World investment return Key: Driver Investment return HY09 HY10 Variance 432 604 40% Expected return on Unit linked margin Participating business Spread margin shareholder assets 26 51 96% 78 70 (10)% 229 365 59% 99 118 19% AMC Bonus Spread (0.1) 53 94 41 146 132 (14) 114 175 61 Equity 7.3%
Slide 57: UK Life expenses
UK Life expenses Key: Driver HY09 HY10 Variance Acquisition expenses Admin expenses and and commissions renewal commissions (187) (183) 2% (177) (178) - Acquisition Existing expense expense 30% 28% 2ppt 36 34 2 ratio (bps) ratio Average reserves APE 617 657 6% 97 104 7% (£bn) Sales growth absorbed f
Slide 58: Aviva Europe Life expenses
Aviva Europe Life expenses Key: Driver HY09 HY10 Variance Acquisition expenses Admin expenses and and commissions renewal commissions (212) (275) (30)% (238) (240) (1)% Acquisition Existing expense expense 26% 30% (4)ppt 45 44 1 ratio (bps) ratio Average reserves APE 813 904 11% 105 109 4% (£bn) Sli
Slide 59: Rest of World Life expenses
Rest of World Life expenses Key: Driver HY09 HY10 Variance Acquisition expenses Admin expenses and and commissions renewal commissions (101) (90) 11% (214) (214) - Acquisition Existing expense expense 17% 16% 1ppt 70 68 2 ratio (bps) ratio Average reserves APE 612 550 (10)% 61 63 3% (£bn) Slight red
Slide 60: Debt securities – a high quality, diverse portfolio
Debt securities – a high quality, diverse portfolio Shareholder debt securities £62.5bn Direct shareholder exposure to debt securities of £62.5bn AAA / Insurance Less than £m AA / A rated BBB BBB Unrated Total Corporate debt securities Corporate debt 21.9 1.9 11.5 1.5 0.3 37.1 £37.1bn Other debt: Ce
Slide 61: MCEV – key financial highlights
MCEV – key financial highlights HY09 HY10 Change £m £m £m % Long-term business IFRS profit / 1,607 1,918 19% MCEV earnings GI & Health 545 525 (4)% Fund management (4) 13 n/a Other operations and regional costs (99) (33) 67% Corporate centre (46) (54) (17)% Group debt and other interest costs (318)
Slide 62: MCEV – key financial highlights
MCEV – key financial highlights New business Life operating PVNBP margin profit HY09 HY10 HY09 HY10 HY09 HY10 £m £m % % £m £m UK 4,735 5,194 2.1 3.4 345 559 Aviva Europe 7,071 7,992 3.8 3.6 776 893 North America 3,189 2,334 0.5 0.2 120 271 Asia Pacific 698 794 2.3 2.3 37 38 Delta Lloyd 1,780 1,732 (