Aviva Plc · LSE:AV.
Aviva — Investor Presentation (2006)
22 slides from Aviva's investor presentation, 2006
Slide 1: Building competitive advantage through risk and capital management
Building competitive advantage through risk and capital management Andrew Moss Group Group Finance Finance Director Director AVIVA AVIVA plc plc © Aviva plc
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: Contents
Contents Introduction Significant developments in capital management Economic capital Financing growth Efficient capital structures Pricing for risk Effective ALM Alternative financing techniques Conclusions © Aviva plc
Slide 4: Introduction
Introduction 120 100 80 Base = 100 60 40 20 0 Apr-00 Aug-00 Apr-01 Aug-01 Apr-02 Aug-02 Apr-03 Aug-03 Apr-04 Aug-04 Apr-05 Aug-05 Apr-06 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Aviva FTSE 300 Insurance FTSE 300 Eurofirst The last bear market highlighted capital weaknesses and the importance
Slide 5: Drivers of market underperformance
Drivers of market underperformance Under performance driven by falling equity market acting as a catalyst for concerns over risk and capital issues within the industry Risk and capital management Capital strength weaknesses concerns • Market failures Uncertainty = • Dividend cuts • Emergence of Sect
Slide 6: Significant developments in capital management
Significant developments in capital management 2000 2006 2010 Rebuilding capital strength Risk mitigation GROWTH FINANCING Risk and return optimisation Economic risk and capital management External regulatory and market drivers IGD/ FGD Solvency II Prudential sourcebook IFRS Phase 2 EEV Rating agenc
Slide 7: Economic capital
Economic capital Historic rules/ factor based models used by regulators and rating agencies create competitive distortions: • Risk insensitivity • Inconsistency across different sectors and jurisdictions • Limited recognition of the significant benefits of diversification • Management of multiple, o
Slide 8: Traditional capital measures vs economic capital
Traditional capital measures vs economic capital Illustrative Capital Comparison Capital employed VIF Rating agency capital Economic capital capital Hybrid Regulatory capital IFRS NAV Minimum required capital Additional available capital Capital deductions Capital increments Regulatory: Rating agenc
Slide 9: Capital and risk management governance structure in Aviva
Capital and risk management governance structure in Aviva Aviva’s Asset Liability Group Board Management Committee responsible for integrating risk and Group Risk capital disciplines across the Group Appetite - Authoritative action oriented Asset Liability committee comprised of Executive Management
Slide 10: Financing Growth
Financing Growth The insurance industry is very competitive and advantage can be gained through optimising use of capital to enhance returns and finance growth: • Efficient capital structures - Utilising efficient forms of financing - Diversified business model - Organic capital generation • Pricing
Slide 11: Utilising efficient forms of financing
Utilising efficient forms of financing Significant capital issuance across the industry over last 5 years (€45.4bn Equity, €38.3bn hybrid), driven by a number of factors including: • rebuilding capital following challenging equity markets • introduction of IGD and increased regulatory capital requir
Slide 12: Capital Raising: Aviva's position
Capital Raising: Aviva’s position Since the NU/ CGU merger in 2000 Aviva has Aviva borrowings: Senior v Subordinated raised £3.8bn of hybrid capital, with the objective 100% 90% of optimising its capital structure through 80% issuance of cost efficient regulatory capital 70% 60% 50% Hybrid issuance
Slide 13: Diversification Benefits
Diversification Benefits Illustrative Capital Requirements for a diversified insurance Group Level 1&2 Capital employed Level 3&4 Required capital Required capital after Required capital after before any diversification within diversification across legal diversification and across risk types entiti
Slide 14: Aviva's diversified business model
Aviva’s diversified business model Sales £35bn(1) 41% International Life Aviva International 54% International General 12% Insurance 18% UK General Insurance Aviva UK 46% 29% UK Life (1) 2005 total long-term savings new business sales and GI and health new business premiums (2) Excluding Corporate C
Slide 15: Diversification benefits: Industry view
Diversification benefits: Industry view • The CRO Forum is an industry technical Measured diversification effects, Chief Risk Officer Group formed to focus on developing and Forum member companies promoting industry best practice in risk management • A key element of this is to contribute to shaping
Slide 16: Organic Capital Generation
Organic Capital Generation • The ability to self generate capital organically to support dividends and finance growth remains an important consideration for both investors and the Group’s capital regulators • Net of financing, Aviva has consistently strong operational capital generation, supported b
Slide 17: Profitable growth – optimising returns: General Insurance
Profitable growth – optimising returns: General Insurance Aviva General Insurance: Growing premium income ... ... whilst increasing profitability £ bn COR % Operating Profit £ bn 10.4 110 2.0 10.0 COR Operating Profit 9.6 105 1.5 9.2 100 1.0 8.8 95 0.5 8.4 8.0 90 0 2000 2001 2002 2003 2004 2005 2000
Slide 18: Pricing informed by sophisticated risk measurement tools
Pricing informed by sophisticated risk measurement tools Creating competitive advantage through increasingly sophisticated and market leading risk measurement and selection techniques e.g. • Economic modelling of catastrophe exposures • Flood mapping • Telematics Telematics: Pilot started 2 years ag
Slide 19: Profitable growth – optimising returns: Life insurance
Profitable growth – optimising returns: Life insurance • Focus on optimising both capital efficiency and value creation • Pricing and product decisions increasingly influenced by economic capital and improved understanding of risk • Economic modelling supporting enhanced ALM to reduce risk and optim
Slide 20: Utilising alternative financing techniques
Utilising alternative financing techniques Enhanced understanding of economic capital requirements and benefits of demonstrating/ achieving fungibility will lead to increased use of alternative sources of financing such as securitisation. Aviva has already undertaken a number of securitisation trans
Slide 21: Securitisation
Securitisation • Securitisation can be used to align regulatory and rating agency capital positions more closely with the “true” economic capital position. • For example a VIF Monetisation converts intangible VIF capital to cash which improves the quality of capital and enhances the rating agency an
Slide 22: Conclusions
Conclusions Much progress has been made across the industry in recent years and continued development will further enhance the position. • capital strength rebuilt • risk management processes significantly improved • important advances already made in regulatory capital regime and significant furthe