Aviva Plc · LSE:AV.
Aviva — Merrill Lynch Conference 2002
26 slides from Aviva's conference presentation, Oct 10, 2002
Slide 1: Higher risk vs lower growth: The challenge ahead
AVIVA plc Richard Harvey Group Chief Executive Higher risk vs lower growth The challenge ahead Merrill Lynch Conference 10 October 2002
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: Aviva agenda
Aviva agenda g Risks reduced in many areas g Markets are difficult short-term, ….. but longer-term growth prospects remain excellent g Cash generative operating model
Slide 4: Lower insurance industry risk
Lower insurance industry risk Regulatory g Increased company governance Rating agencies Transparency g Capital re-structuring g Improving capital management techniques (RBC) g Realistic pricing (terrorism / weather / liability) g UK Life: - investment risk often borne by policyholder - reserving for
Slide 5: Aviva: Risk reduction in general insurance
Aviva: Risk reduction in general insurance g Exited long-tail exposures EXITS US GI g Immunised group from substantial London market increase in asbestosis claims Brazil GI Spain GI Germany GI g 9/11 claims under £35m Belgium GI French broker commercial GI South Africa GI g Reinsurance reten
Slide 6: The rewards of focus in general insurance
The rewards of focus in general insurance COR % of total group 6 months non-life 2002 2001 premiums % % 54 UK 101 103 6 France 100 103 6 Ireland 100 104 5 Netherlands 102 104 8 Aust & NZ 102 103 12 Canada 103 104 GROUP 101 103 * Combined operating ratio
Slide 7: Aviva: Scale advantages in UK general insurance
Aviva: Scale advantages in UK general insurance UK general insurance expense ratios % 25 Zurich 20 AXA Credit Suisse Allianz 15 RSA Norwich Union 10 1997 1998 1999 2000 2001 Source: FSA returns
Slide 8: UK life regulatory risks?
UK life regulatory risks? g Sandler g Lower charges do not stimulate savings g Attribution of orphan estate is potentially attractive g Depolarisation g RBOS JV products to stay bank branded (NU manufactured) g NU expects to be a net beneficiary overall
Slide 9: UK life - market concentration
UK life - market concentration g Winners have strong brands and scale advantages g Lower unit costs critical to value generation g Change management skills central to success Market share % 12 CGU NU NU Post Merger 10 8 6 4 2 5.16% 7.70% 8.08% 8.99% 10.6% 11.5% 0 1996 1997 1998 1999 2000 2001
Slide 10: Aviva: UK life - Target reduction of >20% in unit costs
Aviva: UK life - Target reduction of >20% in unit costs % Acquisition costs / APE* 30 *Excluding commission 25 20 15 10 1999 2000 2001 2002 2003 2004
Slide 11: Aviva agenda
Aviva agenda Risks reduced in many areas Markets are difficult short-term, ….. but longer-term growth prospects remain excellent Cash generative operating model
Slide 12: Increased deposits in the short-term will flow back into long-term savings
Increased deposits in the short-term …. …... will flow back into long-term savings European investment mix 100% Other 90% 80% Life/Pensions 70% 60% Equities 50% Mutual Funds 40% Bonds 30% 20% Deposits 10% 0% 2000 2001 2002E 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E Source: Deutsche Bundesbank,
Slide 13: Significant scope for European life & pensions
Significant scope for European life & pensions g Pensions reform across Europe raising public awareness of need to save g Savings ratios to increase EUR ‘ooos Savings per capita, 2001 140 120 100 80 60 40 20 0 UK France Germany Italy Spain USA Source: Deutsche Bundesbank, Banque de France, Banca d’I
Slide 14: Investing into lower penetrated insurance markets and bancassurance growth
Aviva: Investing into lower penetrated insurance markets and structural bancassurance growth New markets UK: bancassurance JV with RBOS - Hungary - Lithuania France: - India Italy: - China bancassurance created top 6 from 2004 LTS business Spain: Singapore & created top 5 HK LTS business bancassuran
Slide 15: Different bancassurance models for different markets
Different bancassurance models for different markets g Equity JVs for RBOS and Spain g Commission based in Italy, Singapore & HK g Hurdle rates of >10% IRR Insurer Bank -Products 50% equity Fee -Sales -Admin -Marketing -Asset mgt Fee 50% equity -CRM Joint Board aims to maximise value of JV
Slide 16: Bancassurance sales doubled in H1 02
Bancassurance sales doubled in H1 02 Total Increase sales in sales £m g Royal Bank of Scotland Group 391 339% g Italy 504 87% g Spain 352 31% g DBS (Singapore) 97 n/a Bancassurance accounts for 20% of Aviva life & pension sales
Slide 17: Life & pension new business up 11% H1 02
Life & pension new business up 11% H1 02 Life and pension sales - APE £m APE growth UK + 12% France - 10% Ireland + 30% Italy + 25% Neths - 15% Spain + 26% Int'l + 44% 0 75 150 225 700 700 300
Slide 18: Aviva agenda
Aviva agenda Risks reduced in many areas Markets are difficult short-term, ….. but longer-term growth prospects remain excellent Cash generative operating model
Slide 19: Aviva has a cash generative model
Aviva has a cash generative model Post-tax statutory operating profits £bn 6 months 2002 Profit from in-force 0.7 Cash strain from new non-profit business (0.3) High quality Life statutory profits (after new business strain) 0.4 earnings General insurance & health 0.3 Corporate / other - Borrowing (
Slide 20: UK life with-profit free asset ratio
UK life with-profit free asset ratio Free asset ratio* Including Excluding implicit implicit items items 31 Dec 2001 14.7% 10.8% 30 June 2002 14.1% 10.1% g No allowance in FAR calculation for liabilities to move ……but with-profit bonuses are on a glide-path g FSA moving to realistic “risk based” ana
Slide 21: UK life with-profit: orphan estate
UK life with-profit: orphan estate Realistic measure of with-profit strength £bn 6 £5.2bn £4.7bn g Resilient to equity market falls 4 g Orphan estate is after a realistic estimate of policyholders’ reasonable expectations g With-profit funds of £48bn at 30 2 June 0 31 Dec 01 30 Jun 02
Slide 22: Strong and resilient capital base
Strong and resilient capital base g £350m per annum funds from dividend saving g Cash generative general insurance business g Strong realistic with-profit life fund position g AA rating (“very strong security”) reaffirmed by S&P g Aviva reviewed end July (FTSE-100 sub 4,000) Sufficient capital to fu
Slide 23: Aviva summary
Aviva summary g Re-structuring of general insurance has reduced risk, improved focus and produced excellent results for shareholders g Long-term savings growth will come from strong and developing market positions………but difficult short- term outlook g Capital: cash generative model : sufficient for
Slide 24: Appendix
Appendix
Slide 25: Aviva positioning
Aviva positioning g 7th largest worldwide insurer g UK’s largest insurer g Strong platform in Continental Europe 6m 2002 premiums / sales* Cont. International Life 5% Europe Life 30% UK 70% General Life* 30% 17% General UK Life 35% Cont Europe General 7% International General 6% ** Continuing Contin
Slide 26: Aviva: Great market positions
Aviva: Great market positions Scale in chosen markets Depth not width Long term savings General insurance Top 5 UK Top 5 Netherlands UK Spain Netherlands Ireland Canada Poland Australia Turkey New Zealand Singapore Ireland Singapore Top 10 Italy France Australia