Aviva Plc · LSE:AV.
Aviva — FY2003 Earnings Presentation
52 slides from Aviva's earnings presentation, Feb 25, 2004
Slide 1: Aviva plc 2003 Results
AVIVA plc 2003 Results 25 February 2004 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 • General insurance Patrick Snowball Group Executive Director • Financial review Philip Twyman Group Executive Director • Q&A 2003 Final Results 3 25 February 2004 © Aviva plc
Slide 4: Aviva benefiting from operational improvements
Aviva benefiting from operational improvements • Focus on costs, cash and capital • Life profits benefiting from margin improvements • Built sustainable general insurance model Operating profit: Operating profit: Achieved profits basis 1 Modified statutory basis 2 £m £m £1,907m +6% £1,490m +17% 2000
Slide 5: Results highlights for 2003
Results highlights for 2003 • Life and pensions sales APE £2,377m (2002 £2,373m) • Life margins improved 26.1% (2002 24.4%) • General insurance COR* 100% (2002 102%) – excluding Pilot 99% • Dividend 24.15p +5% (1.82x covered) • ROCE* 12.7% (2002 9.7%) • NAV per share 502p (2002 433p) * On continuing
Slide 6: Impact of cost saving announcements in 2003
Impact of cost saving announcements in 2003 • Net benefit to the profit and loss account in 2003 of £65 million • Estimated net benefit to the profit and loss in 2004 of £85 million • Estimated gross annualised savings in 2005 of £250 million • Expensing initiatives eg: India offshoring (3,700 jobs
Slide 7: UK Life
UK Life • Norwich Union’s competitive position continues to strengthen • Market share Q3 2003 discrete 12.4% (2002 11.6%) • Improved H2 margin – Offsetting impact (c.2%) of economic assumption changes in 2003 % NU Life margins responding to pricing & expense actions 23.5 (discrete quarters) 23.2 23
Slide 8: Netherlands long-term savings
Netherlands long-term savings • Margin improvement from: – ABN Amro contribution (32.2% margin) – mix benefit: increased group pensions, less annuities – cost focus: budget freeze and shared service centre from 2004 % Dutch pre-tax margins 30 27.7 25 22.3 20 15 10 13.3 5 6.9* * Restated at 2001 econ
Slide 9: France long-term savings
France long-term savings • Outperformed unit-linked market (+1% vs market down c15%) • Supported by award-winning investment performance • Positive outlook for AFER • Pensions opportunity: launch products Q2 2004 • Crédit du Nord JV begins Q4 2004 2003 Final Results 9 25 February 2004 © Aviva plc
Slide 10: Aviva bancassurance (23% of life & pensions sales APE)
Aviva bancassurance (23% of life & pensions sales APE) • Margins 39.7%………. vs group average of 26.1% Aviva bancassurance life & pension sales (APE) £m 600 £541m +22% vs 2002 300 0 2000 2001 2002 2003 2003 Final Results 10 25 February 2004 © Aviva plc
Slide 11: Statutory profits emerging from early stages of Spanish growth business
Statutory profits emerging from early stages of Spanish growth business £m Spanish bancassurance pre-tax MSSB profits 60 50 40 30 20 10 0 2000 2001 2002 2003 2003 Final Results 11 25 February 2004 © Aviva plc
Slide 12: Long-term savings outlook
Long-term savings outlook • Aviva is Europe’s best placed life business to capture an upturn – Extensive distribution networks – Strong market positions – Developing in new markets (Eastern Europe, India, S.E Asia) – Unit-linked capability as demand returns – Pensions expertise to benefit from wides
Slide 13: Strong general insurance outlook
Strong general insurance outlook • Target Group COR of 100% for 2004-6 % of total* GI Combined operating ratios premiums 2003 2002 60 UK 99% 101% 6 France 102% 102% 7 Ireland 97% 100% 7 Netherlands 101% 105% 14 Canada 108% ** 102% (** Pilot added 7%) Group* 100% 102% Group 99% (excl Pilot) * Continu
Slide 14: Patrick Snowball, Group Executive Director
Patrick Snowball Group Executive Director
Slide 15: The world has changed
The world has changed • We are seeing a welcome increase in underwriting discipline in our target insurance markets 135% Market COR (ABI) Gilt Yields 130%8000 24% • Stable, low interest environment means insurers cannot subsidise 125% poor underwriting with high UK Market COR investment income 120%
Slide 16: How will Aviva deliver 100% COR?
How will Aviva deliver 100% COR? • Market Leadership • Financial Strength • Cost Efficiency – Claims control: expanding programme of supplier deals, already delivering £175m savings in UK (equivalent to 4.4% rate increase) – Continuing investment in operational efficiency and offshoring • Pricing •
Slide 17: Leading the UK market...
Leading the UK market... 30% Cumulative Increases - Personal (Motor & Home) 25% • Personal Lines 20% – ‘soft landing’ with Motor rate 15% increases stable 10% – market dominated by a few 5% key players 0% 2000 2001 2002 2003 Cumulative Increases - Commercial 80% 70% • Commercial Lines 60% – 11% grow
Slide 18: Investing for the future...
Investing for the future... NUI Expense Ratio Offshoring • Offshoring - including Canada 10.5% • Operational Efficiency - Efficiency targeting 0.5% reduction in expense ratio in 2004 Investment • Supply chain - delivering Supply chain £175m savings in UK, applying across Aviva GI Digital flood • Dig
Slide 19: In summary… sustainable profits from Aviva GI
In summary… sustainable profits from Aviva GI • External Environment – Increasing consolidation and focus on capital adequacy • UK Market – Sustained rate increases – ‘Soft landing’ in Personal Lines • Scale – Aviva leads target markets – Full multi-distribution strategy – Expansion of non-insurance
Slide 20: Financial review Philip Twyman
Financial review Philip Twyman Group Executive Director
Slide 21: Group headline results
Group headline results 2003 2002 Growth on constant currency Group operating profit1 – LAOP £1,907m £1,720m 6%† Group operating profit2 – MSSB £1,490m £1,218m 17 %† Dividend 24.15p 23.0p 5% Dividend cover 1.82x 1.51x Operating EPS1 53.2p 48.3p Net asset value3 502p 433p Post-tax return4 on capital 1
Slide 22: Improvement in H2 v H1 performance – LAOP
Improvement in H2 v H1 performance – LAOP 2003 • Life: H1 H2 • Improved margins across all businesses Life: £m £m • Marked new business improvements in the • New business profits 211 261 Netherlands: £26m due to ABN Amro; Spain: £13m; UK: £10m • Experience variance/operating (29) 55 assumptions • In
Slide 23: Improvement in H2 v H1 performance – MSSB
Improvement in H2 v H1 performance – MSSB 2003 • Life: H1 H2 • France: better profits as a result of increased Life: £m £m management fees and investment income UK 293 301 • Netherlands: Impact of improving economic conditions and higher interest rates France 80 99 Netherlands 29 78 • Poland: Impact
Slide 24: Delivering strong new business profits
Delivering strong new business profits 2003 FY 2002 Contribution Margin Margin* Margin £m UK 241 22.6% 21.3% 23.6% France 70 29.0% 29.5% 30.9% Ireland 23 28.5% 26.6% 28.2% Italy 45 23.2% 24.5% 24.9% Netherlands 62 27.7% 9.9% 13.3% Spain 134 54.4% 44.1% 45.9% Other countries 46 14.2% 12.0% 13.9% Grou
Slide 25: New business contribution – enhanced margins to shareholders
New business contribution – enhanced margins to shareholders Contribution Margin 2003 2002 2003 2002 £m £m % % Group contribution / margins 621 578 26.1 24.4 Cost of capital and tax (296) ( 267) Minority share ( 53) ( 33) Group contribution/margins 272 278 12.9 12.7 Contribution Margin By distributi
Slide 26: Corporate costs
Corporate costs 2003 2002 £m £m Central costs and share save schemes 176 192 Allocation to BU operating profit (76) - 100 192 Global finance transformation programme (GFTP) 60 26 160 218 Reallocation of deferred bonuses, profit shares, LTIPs to BU operations: UK general insurance: £39 million Overse
Slide 27: Cost savings – on target for £250m of annualised savings
Cost savings – on target for £250m of annualised savings Earned One-off Benefit to the profit Savings Costs and loss account £m £m £m UK Life 33 (8) 25 UK GI 98 (58) 40 Other businesses 18 - 18 Corporate 16 (34) (18) 165 (100) 65 • UK Life: Reduction in costs offset by fall in new business premiums.
Slide 28: Capital position of the Group
Capital position of the Group 2003 2002 Total capital employed £20.5bn £17.3bn Equity shareholders’ funds £11.0bn £9.5bn EU Directive Group solvency* £2.4 bn excess £0.7bn excess (estimated) *Excludes strength of UK and Irish life funds. Group capital and solvency levels strengthened 2003 Final Resu
Slide 29: Strength of consolidated CGUII and NUI Groups – risk based capital basis
Strength of consolidated CGUII and NUI Groups – risk based capital basis Available assets* - £7.6bn • Stability and reduced COR has reduced 8 risk based capital requirement 7 Available assets* - £5.8bn 6 • RBC now 34% of NWP 5 4 • £4.3 billion of excess capital to support 3 the life business, equate
Slide 30: UK Life – capital strength of with profit funds
UK Life – capital strength of with profit funds 2003 Statutory free asset ratio 16.2% Realistic orphan estate £4.3bn • Free asset ratio of NUL&P includes implicit items for non profit business only • Orphan estate measured on realistic basis and stated after the cost of guarantees, options and promi
Slide 31: Aviva outlook
Aviva outlook • Encouraging prospects for long-term savings growth • Margin before volume • Efficiency improvements remain a focus • Strong and sustainable outlook for general insurance earnings 2003 Final Results 31 25 February 2004 © Aviva plc
Slide 32: Questions and answers
Questions and answers
Slide 33: AVIVA
AVIVA
Slide 34: Appendices
Appendices • Market positions • Capital slides and other financials • UK Life capital slides 2003 Final Results 34 25 February 2004 © Aviva plc
Slide 35: Strong market positions
Strong market positions Rank Market share Rank Market share Life Life (est.) GI GI (est.) UK 1 12% 1 14% France 10 4% Top 15 2.4% Netherlands 4 11% 4 8% Spain 1 10% - - Italy 8 4% n/a <1% Ireland 3 11% 1 22% Canada - - 2 9% Poland 2 15% - - Singapore 5 9% 2 9% Turkey 1 14% Top 15 2% Australia Top 10
Slide 36: Operational capital - Group structure
Operational capital - Group structure Aviva plc Holding company which has issued all the sub debt Australia The life business only Morley UK Fund CGUII plc NU Insurance UK Life Management Life General The old CGU general insurance The NU general Includes all the life businesses of: business which ho
Slide 37: Strength of general insurance groups – regulatory basis
Strength of general insurance groups – regulatory basis CGUII and NUI – solus § Increase in XSM due to: 5 5.9x § Net asset values; and 4.5 4 § injection of equity capital following 3.5 3.6x hybrid issue XSM 3 2.5 2 1.5 RMM § Strong excess positions on both 1 individual and consolidated basis 0.5 0 2
Slide 38: 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 £3.7bn £6.2bn Available assets £1.0bn Required minimum £0.5bn £3.0bn Required minimum £0.3bn margi
Slide 39: Realistic measure – operational capital
Realistic measure – operational capital Risk based capital – worldwide GI & health Aviva plc CGUII plc NU Insurance Life General Major overseas subsidiaries 2003 Final Results 39 25 February 2004 © Aviva plc
Slide 40: Risk based capital
Risk based capital Shareholders’ capital employed* - £4.5bn Risk based capital - £3.3bn 34% NWP - £9.6bn • Current capital requirement 34% of net written premium from continuing operations • RBC stochastic model factors in market, credit, underwriting and reserve tail risk • 99% confidence of meetin
Slide 41: Capital support available for overseas life operations
Capital support available for overseas life operations CGUII plc NU Insurance Life General Major overseas subsidiaries 2003 2002 £bn £bn Regulated available assets* – 31 December 7.2 5.5 Add: equalisation provision 0.4 0.3 Less: 2003: 34% (2002: 36%) NWP of GI and health risk based capital requireme
Slide 42: Operational capital - UK life regulatory structure
Operational capital - UK life regulatory structure UK Life CU life Unit-linked CGNU life NU life & pensions 2003 Final Results 42 25 February 2004 © Aviva plc
Slide 43: Movement in equity shareholders’ funds
Movement in equity shareholders’ funds (after adding back the claims equalisation provision) £m NAV 31 December 2002 9,782* 433p Operating profit post-tax 1,215 54p Post-tax non-operating items – Goodwill, P/L on sale and other exceptional items (88) (4p) – Impact of investment markets and economic
Slide 44: Global Finance Transformation Programme
Global Finance Transformation Programme (GFTP) A globally co-ordinated set of local projects Meeting mandatory requirements Positioning for the future Benefits Benefits • IFRS readiness • Enhanced financial management with greater flexibility • Meeting FSA PSB/ICA requirements for decision making •
Slide 45: With Profits “Realistic” Solvency in UK LIFE
With Profits “Realistic” Solvency in UK LIFE Mike Urmston Chief Actuary Norwich Union Life
Slide 46: “Realistic” methodology for with profit funds
“Realistic” methodology for with profit funds • NU Life fully supports the development of “realistic” reporting methodology for with profits business – Provides greater transparency of the true underlying strengths of the funds – Represents a meaningful measure of all future liabilities of the funds
Slide 47: NU Life approach to realistic reporting
NU Life approach to realistic reporting • Significant investment made by NU Life to produce high quality sophisticated measurement tools • Stochastic models under development for each separate with profit fund with dynamic decision making on bonuses, asset mix etc • Some approximation has been used
Slide 48: Realistic Solvency by Fund
Realistic Solvency by Fund With Profits Free Assets Realistic Statutory Free (net of RMM) Orphan Estate Asset Ratio £bn £bn CGNU Life 16.0% 0.9 1.3 CULAC 13.6% 1.1 1.6 NUL&P 17.7% 1.8 1.4 Total 16.2% 3.8 4.3 1. Free asset ratio of NUL&P includes implicit items for non profit business only 2. Realist
Slide 49: Further Developments
Further Developments • FSA still consulting on CP195 and further changes likely • Risk Capital Margin (RCM) likely to be applied to realistic liabilities. The RCM will be a more sophisticated resilience test involving falls in equity markets, movements in interest rates, changes in credit margins et
Slide 50: Management Actions
Management Actions • Action on bonuses has been taken - both regular and final bonuses - consistent with assumptions in PPFM and realistic reporting • Equity backing ratios (proportion of with profit asset shares held in equities and property) set with regard to asset liability management studies –
Slide 51: Health Warning
Health Warning • New methodology is still under development and some changes can be anticipated in approach, assumptions and data • Comparisons between life companies can be misleading where they are at different stages of development of the methodology and are using different underlying assumptions
Slide 52: With-profit asset mix – 31 December 2003
With-profit asset mix – 31 December 2003 Other: 4% (Dec 02: 4%) Equity: 38% Fixed income (Dec 02: 35%) securities: 42% (Dec 02: 44%) Property: 16% CGNU, CULAC, NUL&P consolidated (Dec 02: 17%) 2003 Final Results 52 25 February 2004 © Aviva plc