Aviva Plc · LSE:AV.
Aviva — Friends Life Group — H1 2014 Earnings Presentation
37 slides from Aviva's earnings presentation, Aug 6, 2014
Slide 1: Friends Life Group Limited Half Year 2014 Results
Friends Life Group Limited Half Year 2014 Results 6 August 2014
Slide 2: Important notice
Important notice This presentation has been prepared by Friends Life Group Limited for information purposes only and is the sole responsibility of Friends Life Group Limited. This presentation does not constitute of form part of an offer to sell or invitation to purchase any securities of Friends Li
Slide 3: Key messages
Key messages Strong execution of our strategy Cash today – building towards 1.3x coverage • Lombard disposal and increased share buy-back improves 2013 pro forma dividend coverage ratio to 1.17x(1) • SFS up 15% in H1 2014. On track for low double digit percentage FY 2014 SFS growth Cash tomorrow – g
Slide 4: Lombard disposal
Lombard disposal Demonstrating commitment to returning cash when appropriate Increased share buy-back • PRA approval to return the full initial consideration of £317m to shareholders • Demonstrating confidence in our resilient capital base and strong balance sheet • Demonstrates our commitment to de
Slide 5: Agenda
Agenda Interim 2014 results trading update Tim Tookey Execution of our strategy Andy Briggs Q&A 5 5
Slide 6: Interim 2014 results trading update
Interim 2014 results trading update Basis of preparation Lombard • Reported as “discontinued operations” • Excluded from operating results • Remains within the Group’s capital measures OLAB business • Transferred to Heritage division from International division • Comparatives restated accordingly Re
Slide 7: Interim 2014 financial highlights
Interim 2014 financial highlights Strategy delivering strong cash growth Sustainable free surplus, £m Free surplus expected return, £m IFRS based operating profit, £m Earnings 11.85p 11.53p per share +15% +2% 171 -7% 163 329 336 159 142 HY 2013 HY 2014 HY 2013 HY 2014 HY 2013 HY 2014 MCEV operating
Slide 8: Sustainable free surplus
Sustainable free surplus Continued strong cash generation Sustainable free surplus Divisional performance Heritage division, £m £m HY 2013 HY 2014 Expected return from in-force 329 336 business 233 181 Investment in new business (98) (88) Underlying free surplus 231 248 +7% UK division, £m Developme
Slide 9: UK & Heritage expected return
UK & Heritage expected return Free surplus emergence in line with 2014 expectations Free surplus emergence Initiatives delivered • As expected the run-off of the in-force UK & Heritage emergence, £m book has been more than offset by: +£23m • Heritage initiatives - Phase 1 of with-profits annuity rea
Slide 10: Insurance businesses: Heritage
Insurance businesses: Heritage Heritage activities deliver strong underlying free surplus growth Heritage H1 2014 performance drivers Underlying free surplus, £m • Expected return up 7% driven by: HY 2013 HY 2014 • Delivery of phase 1 with-profit annuity Expected return 236 252 reallocation • FLI as
Slide 11: Asset-based businesses: Corporate Benefits
Asset-based businesses: Corporate Benefits New business growth driving positive operating leverage Corporate Benefits Drivers of performance Underlying free surplus, £m Assets under administration, £bn H1 2013 H2 2013 H1 2014 (0.9) 0.3 20.8 1.3 20.1 17.8 Income 55 62 bps 55 62 bps 60 60 bps NFF2; £0
Slide 12: Insurance businesses: Protection
Insurance businesses: Protection Strong sales growth; satisfactory cash performance Protection New business Underlying free surplus, £m APE, £m VNB, £m +21% H1 2013 H2 2013 H1 2014 32 43 31 H1 H2 H1 Expected return 14 16 15 2013 2013 2014 45 47 PVNBP margin, % INB (21) (23) (22) 39 11.0 12.9 9.2 Und
Slide 13: Insurance businesses: Retirement Income
Insurance businesses: Retirement Income Volumes maintained; a more competitive proposition Retirement Income New business Underlying free surplus, £m APE, £m VNB, £m H1 2013 H2 2013 H1 2014 44 39 28 H1 H2 H1 Expected return 5 5 6 2013 2013 2014 32 34 PVNBP margin, % 30 INB 3 (9) (12) 13.6 11.5 9.4 U
Slide 14: Insurance businesses: FPI
Insurance businesses: FPI Continuing challenging markets but re-platforming on track FPI New business Underlying free surplus, £m APE, £m VNB, £m H1 2013 H2 2013 H1 2014 9 12 5 H1 H2 H1 Expected return 44 33 28 2013 2013 2014 70 PVNBP margin, % INB (24) (15) (14) 57 47 2.8 1.8 1.5 Underlying free 20
Slide 15: IFRS based operating profit
IFRS based operating profit Results in line excluding one-offs IFRS based operating profit Group IFRS based operating profit contribution Heritage division, £m £m HY 2013 HY 2014 In-force surplus 282 275 116 131 Expected return on shareholder 29 41 assets1 UK division, £m Finance costs1 (60) (60) 10
Slide 16: IFRS based operating profit
IFRS based operating profit Robust underlying earnings despite lower annuity margins Group IFRS based operating profit £m +2% 13 (15) 171 (2) 169 (7) 12 172 (13) 159 New business strain With-profits annuity realloc. £5m 2013 positive experience £(13)m Other £1m HY 2013 HY 2013 New business Reduced L
Slide 17: MCEV operating profit
MCEV operating profit Improving economics constrained by lower VNB Group MCEV operating profit MCEV operating profit contribution Heritage division, £m £m HY 2013 HY 2014 Expected existing business 108 124 +15% 141 140 contribution Value of new business 85 65 -24% Development costs (25) (22) UK divi
Slide 18: Capital and cash
Capital and cash Strong capital position supporting cash return IGCA surplus and sensitivities to market movements Strong capital position £bn • Estimated IGCA surplus of £2.2bn Coverage 238% 235% • Capital base remains resilient to market ratio movements 3.81 3.81 IGCA surplus sensitivities to mark
Slide 19: Agenda
Agenda Interim 2014 results trading update Tim Tookey Execution of our strategy Andy Briggs Q&A 19 19
Slide 20: Strong execution of our strategy
Strong execution of our strategy Excellent market positions to drive growing cash, and hence support progressive dividend 1. Revenue optimisation initiatives 3. Retirement Income 2. Corporate Benefits Ambition is to grow cash to more than offset in-force run off (1): – c. £30m p.a. in the shorter te
Slide 21: Revenue optimisation initiatives
Revenue optimisation initiatives Offset the steeper run off in the shorter term Annuities in WPFs – total Period Asset Migration – total £66bn(1) Combined impact £4.3bn(1) £17bn £17bn of fixed Impact on SFS: up to £2bn income assets +£16m p.a. from 2013 transferred to 2014 FLI £12bn of assets transf
Slide 22: Corporate Benefits
Corporate Benefits 1 in 7 DC savers; Corporate market expected to triple over the next decade Pensions customers Corporate Benefits 2.3m customers Key Initiatives • 648 schemes auto-enrolled 1.3 1.0 • 108,000 net increase in members • Master Trust launched £48bn AUA • Direct offer transfers 21 27 Ne
Slide 23: Retirement Income in maturing pensions
Retirement Income 1 in 9 maturing pensions, market expected to triple over the next decade Substantial flow of FL assets coming into Target existing mass affluent customer retirement (1) base - mostly non-IFA advised (2) Go elsewhere Key areas of focus: Customer Engagement; Platform/Product; Asset M
Slide 24: Retirement Income – Customer engagement
Retirement Income – Customer engagement Significant activity driving good annuity sales Customer research(1) Evidenced by good annuity sales in Q2 • Majority of mass affluent customers who do not have an advisor would not want to pay more than £500 for advice • Two thirds not aware of the potential
Slide 25: Retirement Income – Platform / Product
Retirement Income – Platform / Product Further developing our market leading platform, alongside our annuities Customer research(1) Existing corporate wrap platform • Three quarters want the security of a fixed income but only a quarter intend to buy an annuity • Simple product • Need to be able to
Slide 26: Retirement Income – Asset Management model
Retirement Income – Asset Management model Best of breed is a competitive advantage Customer research(1) Where customers’ assets are currently invested • Many customers are unaware of what their Corporate Benefits pension is invested in • Want a safe investment choice at retirement £7.4bn at • No de
Slide 27: Summary
Summary Strong execution of our strategy Cash today – building towards 1.3x coverage • Lombard disposal and increased share buy-back improves 2013 pro forma dividend coverage ratio to 1.17x(1) • SFS up 15% in H1 2014. On track for low double digit percentage FY 2014 SFS growth Cash tomorrow – growin
Slide 28: Agenda
Agenda Interim 2014 results trading update Tim Tookey Execution of our strategy Andy Briggs Q&A 28 28
Slide 29: Appendices
Appendices 29
Slide 30: Group underlying free surplus
Group underlying free surplus 7% growth in underlying free surplus Group underlying free surplus HY 2014 £m Insurance Asset-based Total Ret. Corporate Prot. Heritage FPI Income Benefits Expected 15 6 252 28 301 Income 60 return INB (22) (12) (19) (14) (67) Outgoings (47) Other1 1 Underlying Underlyi
Slide 31: IFRS result after tax
IFRS result after tax Reflects expected outsourcing investment and Solvency II costs Group IFRS result after tax Group non-recurring costs £m £(55)m 200 (5) Separation & Integration 159 25 (55) 150 129 (16) 16 Solvency II, finance 100 (24) transformation and other (145) 50 0 (16) (27) -50 (43) (26)
Slide 32: MCEV development to 30 June 2014
MCEV development to 30 June 2014 Dividend cost offset by operating earnings Change in net Group MCEV £m HY £m 2014 UK 1,485 Heritage 4,098 6,500 FPIL 494 -2% Lombard 310 134 Corp. 193 (108) (663) 6,065 (52) (13) (28) Total (268) 5,724 6,000 5,923 (199) 5,724 Narrowing of credit spreads £92m 5,500 In
Slide 33: Balance sheet
Balance sheet Continued high asset quality Overview of balance sheet Rating of £11bn corporate bond assets HY 2014 IFRS balance sheet Shareholder assets and assets <BBB / backing non-profit business Not Rated AAA £130bn £130bn BBB 3% £bn % 11% Other £8bn Held for sale 18% liabilities Cash 3 19% Held
Slide 34: Group restatement
Group restatement Lombard treated as discontinued operation HY 2013 FY 2013 £m Group Group Group Group Lombard Lombard IFRS operating profit As reported Restated As reported Restated New business strain (55) (16) (39) (97) (31) (66) In-force surplus 319 37 282 541 68 473 Long-term investment return
Slide 35: Impact of Lombard disposal to Group financials
Impact of Lombard disposal to Group financials FY 2013 HY 2013 FY 2012 Group Group Group Group Group Group Lombard Lombard Lombard (as reported) (restated) (as reported) (restated) (as reported) (restated) £m SFS 331 6 325 147 5 142 300 (4) 304 Dividends paid to Group NA 13 NA NA 4 NA NA 4 NA VNB 20
Slide 36: Non-core OLAB restatement
Non-core OLAB restatement HY 2013 FY 2013 £m As reported Restated As reported Restated Non-core Non-core IFRS operating profit FPI Heritage OLAB FPI Heritage FPI Heritage OLAB FPI Heritage New business strain (24) (8) (13) (11) (21) (40) (25) (16) (24) (41) In-force surplus 79 153 24 55 177 140 264
Slide 37: UK & Heritage expected return
UK & Heritage expected return Free surplus emergence run-off restated to include non-core OLAB Free surplus emergence as reported Free surplus emergence restated 18 March 2014 for non-core OLAB business £m £m +£39m +£39m 600 600 500 500 400 400 300 300 200 200 100 100 0 0 ’12 ’13 ’14 ’15 ’16 ’17 ’18