Aviva Plc · LSE:AV.
Aviva — Investor Day (May 2009)
70 slides from Aviva's investor day presentation, May 6, 2009
Slide 1: UK Life, Driving value through excellence
UK Life, Driving value through excellence Investor and Analyst Event, Wednesday 6th May 2009 Andrew Moss NUL18.11.08
Slide 2: Disclaimer
Disclaimer This presentation may include oral and written “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. These forward-looking statements sometimes use words such as ‘an
Slide 3: Today
Today • UK Life is in excellent shape • Delivering a consistent and compelling strategy • Transforming the business to a modern, low cost and dynamic organisation • Delivering previous promises • Well positioned for growth, profit and value • Clear plans and priorities for the future UK Life, well p
Slide 4: Agenda
Agenda • UK Life in excellent shape Mark Hodges, Chief Executive Officer • Driving up profitability & generating capital John Lister, Finance Director • Delivering operational excellence Toby Strauss, Chief Operating Officer • Break and innovation demonstrations UK Life Management Team • Strategic o
Slide 5: An experienced and proven team
An experienced and proven team Mark Hodges Ian Butterworth Chief Executive Officer Rita Agati Chief Information Officer HR Director David Barral John Lister Marketing Director Finance Director Angela Seymour Jackson Toby Strauss Distribution Director, Graham Boffey Chief Operating Officer Intermedia
Slide 6: UK Life within Aviva
UK Life within Aviva Life New Business Sales IFRS Life Operating Profit UK Life UK Life 33% 33% Rest of Group Rest of Group 67% 67% MCEV Life Operating Profit Embedded Value UK Life UK Life 32% 35% Rest of Group Rest of Group 68% 65% On all measures, UK Life is a key component of the Group result So
Slide 7: One Aviva UK Life Market leadership
One Aviva Purpose UK Life Prosperity & peace of mind Market leadership Vision One Aviva, Drive up profitability twice the value Strategic Targets Generate capital priorities Operational excellence • Manage composite • 98% meet or beat COR portfolio • £500m cost savings by Competitive advantage • Bui
Slide 8: Agenda
Agenda • UK Life in excellent shape Mark Hodges, Chief Executive Officer • Driving up profitability & generating capital John Lister, Finance Director • Delivering operational excellence Toby Strauss, Chief Operating Officer • Break and innovation demonstrations UK Life Management Team • Strategic o
Slide 9: Driving up profitability
Driving up profitability 2005 2008 +/- Life & Pensions sales (PVNBP)1 £9,185m £11,669m +27% Life & Pensions margin1,2 2.9% 3.5% +60bp Cost overrun £140m £40m 71% New business IRR 10.6% 14.0% +340bp Existing Business operating return £372m £679m +83% EV operating profit £589m £883m +50% IFRS operatin
Slide 10: Widening the income and expense 'jaws'
Widening the income and expense ‘jaws’ Life & Pensions Sales and Operating Expenses 35% L&P Sales 25% • Increasing sales while growing margin 15% • Targeted cost reductions, 5% driving out inefficiencies and Growth reducing operating expenses 2005 2006 2007 2008 2009 -5% • Lower, more flexible and -
Slide 11: Driving up profitability
Driving up profitability 2005 2008 +/- Life & Pensions sales (PVNBP)1 £9,185m £11,669m +27% Life & Pensions margin1,2 2.9% 3.5% +60bp Cost overrun £140m £40m 71% New business IRR 10.6% 14.0% +340bp Existing Business operating return £372m £679m +83% EV operating profit £589m £883m +50% IFRS operatin
Slide 12: Generating capital
Generating capital 2005 2008 +/- New business capital strain(1) £488m £293m -40% Strain % of L&P sales (PVNBP)(2) 5.3% 2.5% -2.8pps Free surplus generation £365m £704m +93% £500m dividend paid over the last three years Delivering value to group (1) New business strain includes initial capital strain
Slide 13: Delivering operational excellence
Delivering operational excellence 2005 2009 Q1 +/- UK headcount 12,500 9,200 -26% Policies per headcount 1,032 1,485 +44% Core admin systems 20 4 -80% Value on scale platforms 60% 75% +15pps Distributor service rating 1 star 4 star +3 Customer recommendation score 38% 68% +30pps Employee morale scor
Slide 14: We have delivered our promises
We have delivered our promises • Rationalise costs 9 • Develop the business 9 • Simplify the legacy 9 • Strong balance sheet 9 • Value out of service 9 • Capital efficiency 9 • Manage retention 9 UK Life is in excellent shape 14
Slide 15: Hot topics
Hot topics Trading through the Commercial mortgages recession Re-attribution of the Brand re-launch inherited estate 15
Slide 16: Trading through the recession – our progress
Trading through the recession – our progress Quarterly Sales Quarterly Market Share PVNBP £m % 3,500 15% 3,000 14% 2,500 13% 2,000 12% 1,500 11% 1,000 10% 500 9% 0 8% Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q1 08 Q2 08 Q3 08 Q4 08 Pension Bonds & other Annuities Protection • Sales slow but within forecast • M
Slide 17: Trading through the recession – our focus
Trading through the recession – our focus • Holding tight financial discipline for value – Rigorous hurdle rates – e.g. bulk purchase annuities – Re-pricing – group personal pensions, protection and annuities – Commission reduction – bonds and pensions – Withdraw unprofitable products – Inflation Pr
Slide 18: Commercial mortgage portfolio
Commercial mortgage portfolio Commercial Mortgage Portfolio Growth 1992-2008 £bn £bn 12 20 18 10 16 14 8 12 6 10 8 4 6 4 2 2 0 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Commercial UK NHS Healthcare Annuity Book (RH Scale) • Portfolio developed to support
Slide 19: A high quality portfolio
A high quality portfolio 31 Mar 2009 Portfolio Data 31 Mar 2009 Number of borrowers 536 Number of properties 3,473 Total UK Remaining UK Commercial commercial loans Number of tenants 6,110 commercial property £8.6bn mortgage portfolio Annual interest income £650m portfolio £8.9bn £11.4bn Annual rent
Slide 20: A well constructed and highly diversified portfolio
A well constructed and highly diversified portfolio Portfolio by Sector Portfolio by Region (compared to industry benchmark) (compared to industry benchmark) 60% 60% 50% 50% 47% 50% 40% 40% 37% 35% % of Portfolio % of Portfolio 30% 30% 26% 24% 25% 21% 22% 20% 20% 15% 14% 15% 12% 10% 8% 10% 8% 10% 6%
Slide 21: Portfolio developed on sound lending principles
Portfolio developed on sound lending principles 30 Dec 30 Jun 31 Dec 31 Mar 2007 2008 2008 2009 Interest service cover 1.29 1.28 1.30 1.31 Average loan to value 76% 81% 103% 105% Vacancy rates 3.8% 3.7% 4.1% 4.8% Interest arrears £0.1m £0.1m £0.2m £2.2m Interest arrears 0.01% 0.01% 0.02% 0.25% • Pri
Slide 22: Commercial mortgages summary
Commercial mortgages summary • Developed to support annuity business • Well constructed and diversified portfolio • Strong loan and interest service cover • Primarily long-term with limited short term maturities • Minimal arrears • Provisions of c£700m established (c7.9% of commercial property loans
Slide 23: Inherited estate reattribution – customer perspective
Inherited estate reattribution – customer perspective • Strong customer story – 1million customers benefit • Policyholder Advocate supportive • Incentive payment of £400m(1) that increase with the value of estate • Average payment per electing customer of £500(1) (minimum of £200) • 1st June electio
Slide 24: Inherited estate reattribution – shareholder perspective
Inherited estate reattribution – shareholder perspective • New deal reduces incentive payment, flexes with size of estate – Revalued at the average of 1 June, 1 July and 1 August • Plans in place to offset IGD impact in 2009 – Payment in Q4 – UK Life actions to contribute a further £200m • Policyhol
Slide 25: Inherited estate reattribution – shareholder perspective
Inherited estate reattribution – shareholder perspective • Significant capital and earnings benefits: – Provides £600m of new business capital strain funded from reattributed estate in first 5 years – 3 year cash payback – One off £156 million MCEV profit – One off £58 million IFRS profit – Ongoing
Slide 26: Inherited estate reattribution – shareholder perspective
Inherited estate reattribution – shareholder perspective Significant potential upside: • Post reattribution lapse increase of 1% would increase IFRS and MCEV results by £20m • 1% decrease in equity volatility would increase IFRS and MCEV results by £15m • 1% recovery in property values would increas
Slide 27: Maximising the re-brand opportunity
Maximising the re-brand opportunity • Aviva from 1st June • Awareness of name change 76% • Consideration trebled to 32% in just 3 months • World’s 4th most valuable insurance brand (c$6.1bn, Brand Finance global 500 report April 2009) • Individual recognition at core Intensive activity provides a re
Slide 28: Agenda
Agenda • UK Life in excellent shape Mark Hodges, Chief Executive Officer • Driving up profitability & generating capital John Lister, Finance Director • Delivering operational excellence Toby Strauss, Chief Operating Officer • Break and innovation demonstrations UK Life Management Team • Strategic o
Slide 29: UK Life, Driving Value Through Excellence
UK Life, Driving Value Through Excellence • Improve quality of earnings UK Life • Grow market position Market leadership • Reshape business mix Purpose Drive up profitability • Drive margin and IRR Prosperity & peace of mind Generate capital improvements Vision One Aviva, twice the Operational excel
Slide 30: Driving up profitability
Driving up profitability 2005 2008 +/- Life & Pensions sales (PVNBP)1 £9,185m £11,669m +27% Life & Pensions margin1,2 2.9% 3.5% +60bp Cost overrun £140m £40m 71% New business IRR 10.6% 14.0% +340bp Existing Business operating return £372m £679m +83% EV operating profit £589m £883m +50% IFRS operatin
Slide 31: Sustaining our market share
Sustaining our market share…. Market Share 2008 • 11.3% overall L&P market share in 2008 benefiting from: 18 – Launch of Simplified Life proposition in 16 2006 14 – Income Drawdown launch 2007 12 Overall market share – Flight to quality Q3/Q4 2008 (1) 10 Market share – Growth in bulk purchase annuit
Slide 32: … while enhancing returns …
… while enhancing returns … 2005 – 2008 New Business • Commission bill maintained at c£550m as Margin Improvement PVNBP grew by 27% by: – Reducing individual pension, group 7.00% pension and bonds commissions 6.00% – Greater proportion of bond commission 5.00% fund-based versus initial commission fo
Slide 33: …and moving our mix towards higher margin risk products
…and moving our mix towards higher margin risk products 2005 – 2008 Sales Growth • Good growth in annuities through: (33)% Ot her, 4% – Innovative pricing using rating factors and (19)% Prot ect ion, 9% – Compelling BPA proposition to 50 EBCs Individual pensions, +49% 18% • Protection down only 19%
Slide 34: Our focus on annuities is delivering benefits
Our focus on annuities is delivering benefits New Business 2005 2008 +/- Margin 5.2% 9.1% +3.9pps IRR 9.5% 16.7% +7.2pps Payback (years) 12 8 4 yrs Capital strain £m 96 67 -30% Capital strain % 6.1% 2.8% -3.3pps • Extra rating factors (size/postcode/marital status & smoker status) delivering underwr
Slide 35: Our focus on protection is delivering benefits
Our focus on protection is delivering benefits New Business 2005 2008 +/- Margin 9.2% 7.8% -1.4pps IRR 16.5% 23.5% +7.0pps Payback (years) 6 4 2 yrs Capital strain £m 153 58 -62% Capital strain % 12.5% 5.1% -7.4pps • Highly competitive market with downward pressure on core mortgage and term products
Slide 36: Key actions to improve margins in pensions
Key actions to improve margins in pensions New Business 2005 2008 +/- Margin 1.2% 1.6% +0.4pps IRR 8.2% 12.4% +4.2pps Payback (years) 12 9 3 yrs Capital strain £m 148 146 -1% Capital strain % 4.9% 3.2% -1.7pps • Increased operational efficiency reducing new business costs • Commission levels reduced
Slide 37: Key action in place to improve margins in bonds
Key action in place to improve margins in bonds New Business 2005 2008 +/- Margin 0.8% 0.1% -0.7pps IRR 9.7% 7.7% -2.0pps Payback (years) 9 14 5 yrs Capital strain £m 77 26 66% Capital strain % 2.9% 0.8% 2.1pps • Persistency assumptions strengthened • IFA commission rates reduced by 1% Q4 08 • Alloc
Slide 38: Key action in place to improve margins in bonds
Key action in place to improve margins in bonds Bonds PVNBP 2005 - 2008 4,000 3,500 3,000 2,500 PVNBP 2,000 1,500 1,000 500 0 2005 2006 2007 2008 Unit Linked Unitised With Profits Offshore Other • Unit linked bonds managed for value via commission and allocation changes • With Profits will reduce as
Slide 39: Generating superior returns through channel mix
Generating superior returns through channel mix Life & Pensions New Business Channel and Margin Growth 2005-08 Increased focus on corporate channel 7 • BPA with pricing discipline Retail • Innovative GPP e-commerce 6 proposition Corporate Channel margin % 5 • Actively promoted by 30 out of 40 RBS JV
Slide 40: Driving value from sizeable back-book
Driving value from sizeable back-book In-Force Operating Profits 2005-2008 £m • Maturity of back book generating increased 800 ROEV 7.1% absolute returns 700 600 ROEV 4.9% • Reduced expense over-run through 500 operational initiatives, on target to eliminate 400 in 2009 300 • Improved focus on reten
Slide 41: With profit fund persistency
With profit fund persistency WP Persistency • 2005 and 2006 experience adversely impacted: £m 30 – With profit pensions, bonds, low cost endowment exits 20 10 – MVR removal in 2006 saw increase in level of bond surrenders 0 -10 • Persistency profits made in the last 2 years -20 • Likely to reverse f
Slide 42: Growing IFRS operating earnings
Growing IFRS operating earnings 2005 2006 2007 2008 • 2nd & 3rd tranche of special £m £m £m £m distribution will benefit 2009 & 2010 Underlying business profitability 382 435 556 627 One-off items: • 64% higher underlying profit • PS06/14 - 149 167 - driven by: • Pension Scheme deficit funding by WP
Slide 43: UK Life, Driving Value Through Excellence
UK Life, Driving Value Through Excellence • Strong and resilient capital position UK Life Market leadership • Self-financing capital model • Well capitalised with-profit business Drive up profitability Purpose Prosperity & peace of mind Generate capital Vision One Aviva, twice the Operational excell
Slide 44: Generating capital
Generating capital 2005 2008 +/- New business capital strain1 £488m £293m -40% Strain % of L&P sales (PVNBP)2 5.3% 2.5% -2.8pps Free surplus generation £365m £704m +93% £500m dividend paid over the last three years Delivering value to group 1 New business strain includes initial capital strain and c
Slide 45: Actively managing the capital position
Actively managing the capital position With Profit funds • Dynamically hedging impact on cost of guarantees of equity market and interest rate risk • Managing funds in line with their Principles and Practices of Financial Management – Changing asset mix – Reducing bonus rates Non Profit funds • Hedg
Slide 46: UK Life, a strong capital position
UK Life, a strong capital position Capital Position by Fund 31 December 2008 3,500 3,000 2,500 2,000 £m 1,500 1,000 500 CGNU CULAC NUL&P WP NUA NUL&P NP Shareholder fund Long-term fund Required capital Well capitalised and managed funds, in excess of required capital Note: NUL&P shareholder fund inc
Slide 47: UK Life driving up net worth
UK Life driving up net worth Net worth Surplus Generation • £1.2bn increase in net worth over three years: 5,000 – Existing book surplus of £1.6bn 4,500 – Capital transactions releasing VIF of 4,000 £0.8bn 3,500 – One off benefits from PS06/14 of £0.3bn 3,000 – Exceptional market falls £0.3m £m 2827
Slide 48: With-profit business well capitalised
With-profit business well capitalised Realistic Excess Capital in With Profit Funds 2005-2008 (Pillar 1 Peak 2) 1,800 1,600 1,400 • With-profit funds all show significant 1,200 surpluses 1,000 £m 800 • No burn-through risk pre or post reattribution 600 400 200 - CGNU CULAC NUL&P Strong capital posit
Slide 49: Driving up profitability and generating capital
Driving up profitability and generating capital • Good market share, strong presence in growth areas • Driving portfolio to more profitable product and channel mix, decisive pricing and commission action • Eliminating the expense over-run and extracting value from the back book • Sustainable underly
Slide 50: Agenda
Agenda • UK Life in excellent shape Mark Hodges, Chief Executive Officer • Driving up profitability & generating capital John Lister, Finance Director • Delivering operational excellence Toby Strauss, Chief Operating Officer • Break and innovation demonstrations UK Life Management Team • Strategic o
Slide 51: UK Life, Driving Value Through Excellence
UK Life, Driving Value Through Excellence • Offshoring and outsourcing UK Life Market leadership • Simplification • Service Drive up profitability Purpose Prosperity & peace of mind Generate capital • RBS Joint Venture Vision One Aviva, Operational excellence • Retention twice the value Strategic pr
Slide 52: The start of the journey
The start of the journey 2005 A strategic opportunity to drive value • Labour intensive organisation Offshoring and outsourcing • High cost base Simplification • Complex inflexible IT & processes Service • Poor service levels RBS Joint Venture • Product complexity Retention • Minimal retention activ
Slide 53: Offshoring and outsourcing
Offshoring and outsourcing Customer Operations Customer Operations 2005 2009 36% Outsourced 98% In-house 46% In-house 18% 98% In-house offshore Increased flexibility and efficiency of operations 53
Slide 54: Simplification
Simplification 2005 2009 Closed over 300 550 systems systems System decommissioning 20 core admin 4 admin systems systems ‘Fix’ or migrate strategy Mandatory Mandatory change £9m change £4m Site rationalisation 12,500 UK 9,200 UK headcount headcount eCommerce & self-serve 7 million policies Limited
Slide 55: Site rationalisation
Site rationalisation Life Customer Operations Life Customer Operations 2005 Footprint 2009 Footprint Glasgow Pune Bangalore Bangalore Chennai Newcastle Sheffield York York Sheffield Norwich Norwich Stevenage Bristol Bristol Southampton Eastleigh Eastleigh Reduction in fixed costs; nine key sites to
Slide 56: Simplification – Scale Operations
Simplification Scale Operations In-force Policies per Headcount 1,600 1,400 Policies Managing 44% more 1,200 1,485 policies per head in 2009 1,000 1,148 1,032 1,069 800 2006 2007 2008 2009 Driving efficiency into the business 56
Slide 57: RBS Joint Venture
RBS Joint Venture Long-term Savings sales (PVNBP £m) 1,800 • 119% sales growth 1,600 • 80% growth in Bancassurance 1,400 market share 1,200 1,000 • Promotion of Life, Pensions and 800 Investment products 600 400 • 50% increase in sales 200 consultants 0 • Well positioned to benefit from 2005 2006 20
Slide 58: Service
Service 2005 Q1 2009 Service Promises for all products 1 Financial 4 Financial Advisor awards Advisor awards £6m invested in our Distributor satisfaction Communications Distributor satisfaction 41% 76% 61% reduction in Customer satisfaction Customer satisfaction complaints 38% 68% Customers recomm
Slide 59: Retention
Retention 2005 2009 Transactional customer Specialist team of retention 30 experts retaining 11,000 service experts customers 3,000 customers without No financial advice on Trained financial advisors advisers receiving financial existing products advice Retention training ‘in the 55,000 customers re
Slide 60: Culture and leadership
Culture and leadership Leadership Capability 63% new Directors Employee Engagement CII accredited Service Academy 3,000 graduates 68% 49% Talking Talent 7,900 employees Bonuses aligned to IFRS profit 2005 2009 Brand Engagement £2.6m investment in our people Investment in leadership, capability and e
Slide 61: Customer Driven Design – IPP New Business Processing
Customer Driven Design IPP New Business Processing Reduction from an average of 39 days to 14 days No. of customer days Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr09 Removing waste, improving efficiency 61
Slide 62: Customer Driven Design – GPP Valuations Processing
Customer Driven Design GPP Valuations Processing Reduction from an average of 52 days to 3 days No. of customer days Dec 08 Jan 09 Feb 09 Mar 09 Apr09 Removing waste, improving efficiency 62
Slide 63: Operational excellence: The journey does not stop here
Operational excellence: The journey does not stop here Customer Portal Adviser Portal On-line Pensions Significant investment in eCommerce 63
Slide 64: Operational excellence: Customer Portal
Operational excellence: The journey does not stop here Customer Portal Significant investment in eCommerce 64
Slide 65: Operational excellence: Adviser Portal
Operational excellence: The journey does not stop here Adviser Portal Significant investment in eCommerce 65
Slide 66: Operational excellence: On-line Pensions
Operational excellence: The journey does not stop here On-line Pensions Significant investment in eCommerce 66
Slide 67: Expectations
Expectations • 55% outsourced or offshored Operational • 2.7m policies migrated Leverage • Flexible & efficient • Continuing to reduce fixed costs • 80% Protection NB on-line • 90% Bonds NB on-line eCommerce • Over 7 million policies on-line • 70k customers using pensions tracker by 2010 • 68% Emplo
Slide 68: Agenda
Agenda • UK Life in excellent shape Mark Hodges, Chief Executive Officer • Driving up profitability & generating capital John Lister, Finance Director • Delivering operational excellence Toby Strauss, Chief Operating Officer • Break and innovation demonstrations UK Life Management Team • Strategic o
Slide 69: Innovation Demonstrations
Innovation Demonstrations Unlocking Value from Customer Data On-line Pensions Clive Bolton, Director of Annuity Business Pricing and Retention Brian Bussell, Director of Marketing, Pensions Adviser Portal Customer Portal Billy Burnside, Head of Distribution, E-business Chris Abrathat, Head of Market
Slide 70: UK Life, Driving value through excellence
UK Life, Driving value through excellence Investor and Analyst Event, Wednesday 6th May 2009 Andrew Moss NUL18.11.08