Aviva Plc · LSE:AV.
Aviva — FY2017 Earnings Presentation
67 slides from Aviva's earnings presentation, March 2018
Slide 1: Aviva plc Results 2017
Aviva plc Results 2017
Slide 2: Disclaimer
Disclaimer Cautionary statements: This should be read in conjunction with the documents distributed by Aviva plc (the “Company” or “Aviva”) through The Regulatory News Service (RNS). This presentation contains, and we may make other verbal or written “forward-looking statements” with respect to cert
Slide 3: Mark Wilson, Group Chief Executive Officer
Mark Wilson Aviva plc Group Chief Executive Officer 3
Slide 4: 2017 key metrics – strong across the board
2017 key metrics – strong across the board EPS Capital Cash Dividend EPS Capital Generation Cash remittance 27.4p per share 1 54.8p +7% £2.6bn £2.4bn +18% 2 3 Operating profit Solvency II ratio Centre liquidity 50% pay-out ratio 1 £3,068m +2% 198% £2.0bn +4pp 4 All footnotes on page 67
Slide 5: Growing EPS and dividend
Growing EPS and dividend EPS: +7% Dividend per share: +18% +18% +7% +12% +3% +15% +1% 27.4p 54.8p 23.3p 51.1p 20.8p 49.0p 49.7p 18.1p 2014 20151 20161 2017 2014 2015 2016 2017 5 All footnotes on page 67
Slide 6: Major markets – broad based profit growth across major markets
Major markets – broad based profit growth across major markets 1,4 5 UK France Poland Canada £2.2bn +13% £507m +20% £177m +26% £46m -83% Aviva Investors Ireland 6 Singapore Italy £168m +21% £86m +18% £110m +10% £213m +0% 6 All footnotes on page 67
Slide 7: Major markets – competitive advantages delivering results
Major markets – competitive advantages delivering results UK France Poland Canada 9 BPA sales up 3x VNB +14% >30% RoCE PYD adverse 1.3% Savings flows up 2x UL / protection: 48% of sales Life – positive mix shift Challenging auto market 7 7 7 7 GI COR 93.9% GI COR 94.5% GI COR 86.7% GI COR 102.2% Avi
Slide 8: Major markets – targeting above mid-single digit growth from 2018
Major markets – targeting above mid-single digit growth from 2018 UK France Poland Canada Savings, structural growth Mix, further optimisation GI, continued growth Recovery program BPA & GCS, expand appetite Unlock distribution potential Direct sales productivity Distribution breadth Digital direct,
Slide 9: Strategic investments support long-term growth
Strategic investments support long-term growth Market Population Growth drivers China 1.4bn • Broad geographic footprint with agency growth • Digital agency tools boosting productivity Hong Kong 7.4m • Disruption play • JV with Tencent approved Indonesia 261m • JV with No. 1 conglomerate (Astra) • G
Slide 10: Confidence in long-term growth prospects
Confidence in long-term growth prospects Structural growth Expanding capability Aviva advantage Auto-enrolment Big data & Artificial Intelligence Trusted brand DB de-risking Aviva Investors Composite Demographics Bulk Purchase Annuities Scale efficiency Welfare reform Global Corporate & Specialty Pa
Slide 11: £2bn capital deployment incrementally positive for EPS and cash-flow
£2bn capital deployment incrementally positive for EPS and cash-flow 2017 2018 Organic Digital, BPA, Invest to grow – self funding Savings, AI, growth HSBC partnership Aviva Investors, BPA, partnerships, GCS, LT savings c.£600m Bolt-on Vietnam, Existing markets focus (incl. Friends First) M&A Wealth
Slide 12: Checklist – 2017 Results
Checklist – 2017 Results 1 Grow EPS 54.8p, +7% growth Strong capital 3 198% , £2bn to deploy in 2018 Grow dividend 27.4p, 4th year of double digit growth Composite Benefits delivered across major markets Digital Growing digital revenues and interactions 12 All footnotes on page 67
Slide 13: Tom Stoddard, Chief Financial Officer
Tom Stoddard Chief Financial Officer
Slide 14: Operating profit
Operating profit £m FY16 FY17 Change 1 Major markets UK Insurance1,4 1,946 2,201 13% Operating EPS Ireland (excl. Health) 73 86 18% Aviva Investors 139 168 21% 54.8p France (excl. Antarius) 421 507 20% Canada Poland 269 140 46 177 (83)% 26% +7% Italy 212 213 - Singapore 100 110 10% Total major marke
Slide 15: Net asset value
Net asset value 7 Basic EPS Opening NAV per share 414p at 1 January 2017 Operating profit 55p Ogden Dividends (25)p 35.0p 23.1p x 2.3 Share buyback (7)p 15.3p Investment variances (4)p FY15 FY16 FY17 & short-term fluctuations Pension movement (11)p Integration & restructuring costs AVIF amortisation
Slide 16: UK Insurance
4 UK Insurance 2 Operating profit Performance and priorities £m • Unique large scale composite with unparalleled distribution 13% and brand and a top 3 rank across multiple product lines 2,201 7% Health • Long term savings net flows near doubled to £5.6bn, BPA 1,946 GI volumes9 tripled to £2bn and P
Slide 17: UK Insurance profit drivers
UK Insurance profit drivers Life General Insurance +9% operating profit2 growth from core segments +4% operating profit2 growth Net written premiums (£m) Long-term savings • Organic growth in higher margin • £118bn AuA (+13%) 185 4,078 products & channels 142 • £20bn Platform AuA (+56%) 3,930 • +17%
Slide 18: Ireland
Ireland 2 Operating profit Performance and priorities £m • True Customer Composite (‘TCC’) with exceptional brand 18% recognition and 15% market share in GI GI 86 40% Life • +15% NWP: growth across all channels and Direct in particular 73 • COR7 improved to 91.4% (FY16: 92.4%) from robust fraud mana
Slide 19: Aviva Investors
Aviva Investors 2 Operating profit Performance and priorities £m • Strong growth engine with 25.7% ROE (FY16: 24.4%) 21% FM • Operating profit margin increased to 29% (FY16: 27%) 32% • Growing share of external clients: 21% of AuM and 34% of revenue at FY17, +5pp and +2pp respectively vs. FY16 • £35
Slide 20: France
France 2 Operating profit Performance and priorities £m 20% • Strong distribution footprint, with increased brand recognition providing an opportunity to expand our presence with 507 customers 6% GI & Health 421 104 Life • Outperforming the market in 2017: Unit-linked net inflows 399 (excl. Antarius
Slide 21: Canada
Canada 2 Operating profit Performance and priorities £m • Off-year for typically high ROCE franchise, #2 GI insurer with a diversified distribution and 10% market share 26% (83)% GI • 6.7pp swing in prior year development (‘PYD’): (1.3)pp adverse at FY17 vs. 5.4pp favourable at FY16 • 7Y trend of fa
Slide 22: Poland
Poland 2 Operating profit Performance and priorities £m 26% • High ROCE business with full TCC capabilities, multi- channel distribution, strong digital credentials and 15% 177 GI share of profit pool Life 1% 21 • VNB9 £57m (FY16: £54m); Maintained high quality mix with 139 140 protection & unit-lin
Slide 23: Italy
Italy 2 Operating profit Performance and priorities £m • Composite business with major bancassurance partnerships 23% - and a growing IFA franchise GI 212 213 Life • VNB9 more than doubled to £179m (FY16: £83m) from 42 45 higher volumes and improved with-profit margin; Capital- 172 light ‘hybrid’ pr
Slide 24: Singapore
Singapore 2 Operating profit Performance and priorities £m • Profitable franchise in leading wealth centre 10% Life 14% GI & Health • Top 6 life & health franchise / Opportunity to take additional 110 share through disruptive distribution strategy 100 • 29% growth in VNB9 to £123m with double-digit
Slide 25: Capital generation
Capital generation Actions include (£bn): Operating capital FL Part VIIs synergies 0.7 Underlying generation Other assumption & modelling changes 0.2 capital £2.6bn (net impacts) generation £1.7bn £(0.2)bn 198%3 £(0.5)bn £0.9bn £(0.8)bn 189%3 £2.2bn £(1.1)bn £0.4bn £12.2bn £11.3bn 31-Dec-16 BU under
Slide 26: Cash remittances
Cash remittances £m FY16 FY17 Change • Cumulative cash remittances (incl. proceeds from UK 10 1,187 1,800 52% completed disposals only) on track at £4.6bn* vs. £8bn 2016-18 target UK underlying 937 1,300 39% • £750m of Friends Life specials remitted to date vs. Friends Life special 250 500 100% 2016
Slide 27: Capital deployment – 2018 £2bn available
Capital deployment – 2018 De-leveraging Retiring hybrid debt €500m 6.875% T2 (May*) c£0.9bn+ $575m 7.875% RT1 (Nov*) *Optional first call dates £2bn M&A budget Bolt on M&A Friends First Ireland Focus on existing major markets available €130m & Digital/Data capabilities c£0.6bn expected completion 1H
Slide 28: Allocating resources to deliver growth and cash
Allocating resources to deliver growth and cash Group ROE Allocating resources Driving cash & efficiency • Big Data/AI & customer • Complete pending divestitures propositions • Special remittances from UKI • Distribution relationships capital synergies • Aviva Investors • Internal focus on Economic
Slide 29: Sources of EPS growth
Sources of EPS growth 2018 outlook 2017 operating EPS growth Targeting operating EPS growth >5% + Organic growth in major markets: >5% + Partial rebound in Canada: 1-2% + 2017 capital returns: c2% + 2018 planned capital returns: 1-1.5% (with full benefit in 2019) 54.8p c(2)% c3% c(1.5)% c(2)% c6% c3
Slide 30: Results and Targets
Results and Targets Operating EPS Capital Cash Dividend Operating EPS Solvency II ratio 3 Cash remittances 27.4p per share (+18%) 1 54.8p +7% 198% £2.4bn 50% pay-out ratio Aiming for >5% £3bn to deploy over On track to deliver Targeting 55-60% growth p.a. 2018-19 £8bn 2016-18 pay-out ratio by 2020 3
Slide 31: Appendix
Appendix
Slide 32: Life
Life
Slide 33: Life operating profit snapshot
Life operating profit snapshot 2 Global UK4 2,882 1,758 2,642 1,523 2,442 1,431 2,044 1,050 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 Europe4 Asia 904 876 873 244 241 235 791 87 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 33 All footnotes on page 67
Slide 34: Profit drivers (Global life)
Profit drivers (Global life) Underwriting margin New business (PVNBP9) 3.7% 3.6% 3.6% £625m 3.3% £569m £580m NB margin £463m 2.6% 2.6% Acq. Margin 2.4% 2.3% £35,037m £40,795m £24,407m £29,765m FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 Investment return (AUM / margin) Admin expenses & unit cost 38bps 8
Slide 35: Investment revenues (Global life)
Investment revenues (Global life) Investment revenue mix Unit linked (reserves/AMC) 2,768 2,679 104bps 103bps 2,287 289 166 109 98bps 97bps 289 1,901 185 215 734 647 Expected return 204 187 619 Spread 152.0bn 168.6bn 624 Participating 129.9bn 1,579 1,634 85.8bn 1,268 Unit linked 886 FY14 FY15 FY16 F
Slide 36: Life profit drivers (UK)
Life profit drivers (UK ) 4 Underwriting margin New business (PVNBP9) £310m 4.3% 4.3% £280m 3.8% 3.7% £250m NB margin Acq. Margin 2.4% £146m 2.1% 1.8% 2.2% £23,764m £16,236m £18,142m £12,009m FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 Investment return (AUM / margin) Admin expenses & unit cost 61bps 60
Slide 37: UK profit overview
UK profit overview £m Operating profit2 Margin Driver FY16 FY17 ∆ FY16 FY17 Target range FY16 FY17 £m £m % bps % bps New (77) (74) 4% n/a n/a (90)-(100) Long Term 88bn 105bn Existing 219 259 18% 25bps 25bps 25-30bps Savings (Opening assets) (Opening assets) Total 142 185 30% New 305 335 10% 11% 8% 7
Slide 38: Investment revenues (UK)
Investment revenues (UK) Investment revenue mix Unit linked (reserves/AMC) 1,316 1,281 88bps 83bps 1,178 59 93 267 271 75bps 73bps 196 164 Expected return 192 698 150 Spread 65 116.8bn 133 Participating 106.7bn 91 847 89.4bn 739 798 Unit linked 409 46.7bn -1 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 P
Slide 39: Life profit drivers (Europe)
Life profit drivers (Europe ) 4 Underwriting margin New business (PVNBP9) £259m 2.9% 2.8% 2.8% £237m £239m 2.5% NB margin £215m 2.4% 2.7% Acq. Margin 2.6% £11,678m £12,065m £9,663m £9,059m FY14 FY15 FY16 FY17 FY1411 FY15 FY16 FY17 Investment return (AUM / margin) Admin expenses & unit cost 112bps 10
Slide 40: Investment revenues (Europe)
Investment revenues (Europe ) 4 Investment revenue mix Unit linked (reserves/AMC) 148bps 1,153 1,170 1,171 135bps 138bps 126 1,019 13 84 6 93 29 122bps 9 79 Expected return 527 487 Spread 534 472 Participating 42.3bn Unit linked 37.9bn 36.8bn 34.0bn 464 459 546 585 FY14 FY15 FY16 FY17 FY14 FY15 FY16
Slide 41: General insurance & health
General insurance & health
Slide 42: General insurance and health (Group)
General insurance and health (Group) Operating profit2 Net written premium 808 833 10,035 765 9,134 700 8,300 8,090 FY14 FY151 FY161 FY17 FY14 FY15 FY16 FY17 GI Combined operating ratio7 Investments Average assets LTIR % 95.6% 95.0% 100.1% 96.6% 2.8% 2.6% 2.4% 2.5% 31.6% 30.5% 30.9% 31.3% C&E ratio
Slide 43: General insurance and health (UK)
General insurance and health (UK ) 4 Operating profit2 Net written premium 466 443 423 4,444 4,587 389 4,181 4,214 FY14 FY151 FY161 FY17 FY14 FY15 FY16 FY17 GI Combined operating ratio7 Investments Average assets LTIR % 106.3% 94.6% 95.8% 93.9% 2.8% 2.7% 2.7% 32.5% 2.4% 33.6% 31.1% 32.9% C&E ratio L
Slide 44: General insurance and health (Canada)
General insurance and health (Canada) Operating profit2 Net written premium 269 3,028 214 2,453 189 2,104 1,992 46 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 GI Combined operating ratio7 Investments Average assets LTIR % 102.2% 3.1% 96.0% 93.9% 93.0% 2.7% 30.0% 30.5% 30.6% 29.5% 2.3% C&E ratio 2.5% Los
Slide 45: General insurance and health (Europe)
General insurance and health (Europe ) 4 Operating profit2 Net written premium 223 2,100 2,258 168 1,921 1,777 146 155 FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17 GI Combined operating ratio 7 Investments Average assets LTIR % 97.8% 95.3% 95.1% 93.3% 2.4% 2.3% 28.5% 28.9% 29.1% 2.2% 2.2% 30.2% C&E ratio
Slide 46: Earnings per share
Earnings per share
Slide 47: Operating earnings per share
Operating earnings per share FY16 FY17 Group operating profit2 3,010 3,068 Less operating tax (706) (639) Minority Interest (147) (134) DCI and fixed rate tier 1 notes (68) (65) Preference shares (17) (17) Total operating earnings after tax, MI & DCI and preference shares 2,072 2,213 Weighted averag
Slide 48: Basic earnings per share
Basic earnings per share FY16 FY17 Operating profit2 attributable to shareholders 2,072 2,213 Investment return variances and economic assumption changes on long-term business 313 86 Short-term fluctuation in return on investments backing non long-term business (398) (250) Economic assumption change
Slide 49: Returns
Returns
Slide 50: Operating return on total capital employed
Operating return on total capital employed 30.1% 25.7% 24.4% 22.0% 16.2% 15.7% 13.4% 13.9% 13.5% 13.4% 14.0% 12.5% 12.9% 11.8% 2.4% UK4 Canada Europe 4 Asia FM FY15 FY16 FY17 50 1. Following a correction to accounting and modelling for annual management charge rebates in UK Life, prior year comparat
Slide 51: Operating return on total capital employed & return on equity
Operating return on total capital employed & return on equity Group return on capital employed Group return on equity 10.8% 14.1% 9.8% 13.2% 9.7% 12.5% FY15 FY16 FY17 FY15 FY16 FY17 51 All footnotes on page 67
Slide 52: Analysis of operating return on equity
Analysis of operating return on equity ` Weighted average £m Before tax After tax shareholders’ funds including Return on Equity % non-controling interests United Kingdom Life 1,758 1,425 11,191 12.7% United Kingdom General Insurance 443 357 1,637 21.8% United Kingdom 2,201 1,782 12,828 13.9% Canada
Slide 53: Capital & cash flows
Capital & cash flows
Slide 54: Solvency II own funds by tier
Solvency II own funds by tier Regulatory view* Shareholder view FY17 £bn % of SCR % of own funds • Regulatory view of own funds Tier 1 22.9 131% 77% adjusted by £4.8bn due to T1 unrestricted 20.3 116% 69% with-profits funds, pension T1 restricted 2.6 15% schemes and other pro-forma 9% adjustments Ti
Slide 55: Solvency II – sensitivities
Solvency II – sensitivities Impact on Solvency cover ratio (SCR) 31/12/2017 SCR : 198%3 25bps increase in interest rate 4% 100bps increase in interest rate 15% 25bps decrease in interest rate (6)% 50bps decrease in interest rate (12)% 10% increase in market value of equity 2% 10% decrease in market
Slide 56: External debt – a balanced maturity profile
Subordinated External debtdebt – aprofile balanced maturity profile £1,300m Restricted Tier 1 Tier 2 Tier 3 £869m £878m £800m 12.000% £799m £700m 7.875% 6.125% £425m £450m £621m £600m £577m £500m £400m £400m 7.875% £162m 8.25% £210m £500m 6.625% £444m 6.875% 6.875% 5.9021% £266m 8.250% 6.875% 6.875%
Slide 57: Preference shares
Preference shares 4 separate issues of preference shares • Ability to cancel expensive preference shares through capital reduction** General Accident plc preference shares* £250m £21m p.a. interest costs 140m 8.875% shares of £1, paid in January & July £140m • High cost, non-tax deductible, cumulati
Slide 58: External debt cash flow
Excess centre External debtcash – aflow balanced maturity profile 2,398 2,213 185 (549) (66) 1,656 (183) 12.000% 56 6.125% 7.875% 8.25% 6.625% 6.875% 6.875% 5.9021% 8.250% Dividends 6.875% Internal Cash remitted 6.875% External 5.902% Central spend Internal Other 8.250% Excess centre received intere
Slide 59: Balance sheet
Balance sheet
Slide 60: Total managed assets
Total managed assets Assets by liabilities covered Participating assets by type £m 133,535 125,162 358,048 346,216 76,863 70,349 Euro-style 125,162 UK With-profits 133,535 56,672 54,813 style Participating funds FY16 FY17 Policyholder funds Shareholder funds Shareholder assets by type 153,729 79,780
Slide 61: Shareholder assets
Shareholder assets Shareholder assets by type Corporate debt by rating £m Total: £24,433m 79,780 79,157 8% Government debt 8% 10% 43% 30% Corporate bonds 1% 22,883 22,418 Other debt Mortgage loans AAA A Less than BBB Other AA BBB Non-rated 28,133 24,433 Government debt by rating 2,335 2,699 Total: £
Slide 62: Shareholder assets
Shareholder assets Corporate bonds by industry Loans by type Total: £24,515m 18% 15% 8% 2% 5% 2% 7% 1% 14% 9% 17% 20% 82% Financials - Banks Communications Loans & advances to banks Financials - Insurance & other Real estate Healthcare, Infrastructure & PFI other loans Utilities Oil & gas Mortgage l
Slide 63: Shareholder assets – Mortgage loans
Shareholder assets – Mortgage loans Mortgage loans Commercial real estate portfolio Total: £20,189m Commercial: £7,547m 17% LTV 95% 83% 85% 61% 58% 56% 37% Loans in arrears 1,583 1,492 46% 446 9 Loan 2.1x 2.2x 2.5x interest 1.4x 1.4x 1.5x Healthcare, infrastructure & PFI cover Commercial FY12 FY13 F
Slide 64: Other
Other
Slide 65: Disposals – 2017 estimated contributions
Disposals – 2017 estimated contributions Consideration Completion Operating profit Operating profit Operating EPS IFRS NAV (Impact (before tax & MI) (after tax & MI) (p) net of proceeds) (£m) Antarius €500m 1Q17 22 6 0.2 Included Spain (Part I) €475m Sept. ‘17 51 18 0.4 Included Spain (Part II) €202
Slide 66: Estimated amortisation of acquired value of in-force
Estimated amortisation of acquired value of in-force £500m FPI £400m FL UK Other Aviva businesses £300m £200m £100m £0m 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 This is our latest estimated projection as provided at FY17 and is subject to a number of factors including the effects
Slide 67: Footnotes
Footnotes 1. 2016 and 2015 exclude the impact from an outward quota share reinsurance agreement written in 2015 and completed in 2016 in Aviva Insurance Limited (AIL) and the effects of Ogden in 2016. 2. Adjusted operating profit is an Alternative Performance Measure (APM) which is used by the Group