Aviva UK: Balance Sheet July 2010
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Transcript of Aviva UK: Balance Sheet July 2010
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8/7/2019 Aviva UK: Balance Sheet July 2010
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u y
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n rew oss
Group Chief Executive
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Capital, cash and profits
to simplify and clarify how we make money and our casheneratin abilit
Three core themes to the presentation
ke drivers of IFRS rofits demonstrate the resilience of Avivas
results even in tough economic conditions
capital generation is significant, resilient and will grow
disciplined allocation of capital will fund profitable growth
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a r c egan
Chief Financial Officer
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Capital, cash and profits
How we make money
What drives our IFRS result
How this converts to capital
How capital is turned into cash
ow we use e cas
6CapitalOverview EV IFRS
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Capital, cash and profits
.
2. Capital generation and utilisation ource an res ence o e, on- e cap ta
Disciplined capital investment to generate profitable
new business
Converting capital to dividends
. m e e va ue repor ng
4. IFRS profit drivers Life profit drivers
GI & Fund Management profit drivers
n ng expenses to t e pro t r ver ana ys s
7CapitalOverview EV IFRS
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A diversified portfolio with resilient profits
2.0bn2009 IFRS o eratin rofit
SustainableIFRS o eratin rofit
2.2 2.3
n
100%N.Am
Asia Pac
2.0280%
GI &Non-life
Euro e
60%
140% Life
UK
00%
2007 2008 2009
8CapitalOverview EV IFRS
by region by business
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A diversified portfolio and a strong return on capital
SustainableIFRS return on ca ital
2.0bn2009 IFRS o eratin rofit
1213
14100%
N.Am
Asia Pac
11
1080%
GI &Non-life
Euro e
6
860%
4
40% Life
UK
0
2
0%
2007 2008 2009
9CapitalOverview EV IFRSNote: IFRS return on capital based on operating profit post-tax and MI
by region by business
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Key elements of profits, capital and cash
IFRS
Capital generated
Internal dividends
Central liquidity
External dividends
10CapitalOverview EV IFRS
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Defining capital generation at Aviva
IFRS operating returnon Non-Life
Free surplus capital onLife existing business
IFRS operating profit
capital resource
0.6bn1.9bn
DAC
tax and minority interest
= Capital generated
Gross operatingcapital generation
1bn capital generated
2.5bn
Corporate centre
(1.5)bn(0.6)bn(0.5)bn
Dividend
new businessand debt
interest costs
Operating profits use an assumed long term investment return
Note: 2009 numbers net of tax and minorities 11CapitalOverview EV IFRS
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Reconciliation of IFRS to net capital generation
2009bn Total
IFRS operating profit before corporate costs 2.8
Less tax and minorities (0.9)
Net increase in required capital (0.4)
DA and other 0.5
Operational capital after investment in 1.0
12CapitalOverview EV IFRS
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Defining capital generation at Aviva
IFRS operating returnon Non-Life
Free surplus capital onLife existing business
IFRS operating profit
capital resource
0.6bn1.9bn
DAC
tax and minority interest
= Capital generated
Gross operatingcapital generation
1bn capital generated
IFRS operating profit drivers
1. Underwriting margin & COR
2. Investment margin
3. Expenses
2.5bn
IFRS total profitsCorporate centre
(1.5)bn(0.6)bn(0.5)bn
Dividend
new business
and debtinterest costs
Operating profits use an assumed long term investment return
Note: 2009 numbers net of tax and minorities 13CapitalOverview EV IFRS
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Analysis of capital generation and utilisation
IFRS operating returnon Non-Life
Free surplus capital onLife existing business
Capital maturity profile
Undiscounted capital flows
New business metrics
1. IRR
2. Payback
Gross operatingcapital generation
.
Corporate centreDividend
new business
and debtinterest costs
Operating profits use an assumed long term investment return
14CapitalOverview EV IFRS
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Key elements of profits, capital and cash
IFRS
Capital generated
Internal dividends
Central liquidity
External dividends
15CapitalOverview EV IFRS
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Central liquidity
2009bn
1.5 (0.5)
0.2 (0.6)3.5
.
2.2
(0.5)
2.5
3.0
1.4
.
1.5
2.0
0.5
1.0
0.0
Openingcentre
Dividendfrom regions
DL IPO anddisposals
Inheritedestate
Debt raised Interest andcentral costs
Dividendsnet of scrip
Closingcentre
17
liquidity payment liquidity
CapitalOverview EV IFRS
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Focused on generationand disciplined allocation of capital
A diversified ran e of life
Capital generationnet of tax and minorities
bn
2.5bn 1.5bn
2.5
and GI businesses with53 million customers
Generating material and
2.0
Non-life0.6bn
With an effective franchise
to profitably attract and
generate further capital
1.3bn1.5
Life
1.9bn
Key levers for growth:
-.1.0
generation
Increasing GI profits
More efficient capital.
0.0
investment
perat ngcapital
generated
nvestmentin new
business
un er y ngcapital
generated
expecteunderlying
capital
19CapitalOverview EV IFRS
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Strong historic life capital generation
2009
2.2
2.0
bn
UK 0.4
1.92 .
North America 0.2
1
.
Delta Lloyd 0.3
US capital for year 1 only 0.3
Underlying generation 2.0
Other (0.1)
0
2007 2008 2009
Total 1.9
20Capitalgeneration
Overview EV IFRS
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Resilience and improvement of capital generation
,
achieved one year early
Consultation around closure of UK final salary pension
scheme
Managing expenses
UK targeting pension, with profits and endowments
customers
Pan-European retention centre of excellence established
in France
Keeping our customers
Reduced shareholder equity exposure
sse an a y ura on ma c ng m s mpac o
interest rate changes
Limited losses on debt and mortgage book
balance sheet
21Capitalgeneration
Overview EV IFRS
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Strong future life capital generation
c. 8 billion undiscounted real world
Expected, undiscountedreal world cash flows
33bn
30
35cash flows to emerge over next 5 years
from existing book
33 billion to emer e over the life of
25
the book
2010 cash flows expected to be in line
15
.
Actual free surplus will be boosted by:
new business written over
8bn
5
10 e per o
Actions to improve value of the
existing book
0First5 yrs
Total
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Future presentation to provide breakdown of 1-5 year profile
Capital
generationOverview EV IFRS
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Opportunity to grow non-life capital generation
bn
Underwriting expertisebn
UK GI 0.4
Ongoing GI pricing action
across all regions contributes
to 98% COR target
Focus on pricing and
1.1
1
.
Europe GI 0.1
risk selection
Operational improvements
UK GI turning the corner into
profitable growth
0.7 0.7
0.6
0.8
.
North America
GI0.1
European market penetration Continuing improvement in
Canadian profitability0.4
.
Other non-life (0.1) Continuing focus on cost
savings, 350 million savings
achieved in the UK
since 2007
0.2
COR 94% 100% 98% 99%
Aviva Investors
Continuing drive for
external FUM
2006 2007 2008 2009
23Capitalgeneration
Overview EV IFRS
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Capital generation enables sustained andgrowing dividend payments
Gross operating Resilient and predictable withcapital generated plans for growth
Interestand corporatecentre costs
Stable average 6% interest on
hybrid debt
Rebased and sustainable with
plans for growth
Net available forinvestment innew business
Disciplined capital investment
24Capitalgeneration
Overview EV IFRS
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Disciplined investment in new business
Payback period less than 10 years
mprov ng ren o new us ness va ue per cap a nves e
25Capitalallocation
Overview EV IFRS
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2009 actual performance
Ca ital2009bn
SalesPVNBP
invested in
life IRRPayback
period
UK 8.9 0.2 14% 8 years
Europe 13.5 0.5 13% 7 years
or mer ca . . years
Asia Pacific 1.4 0.1 8% 20 years
Delta Lloyd 3.7 0.2 6% 33 years
US Capital for
r 1 onl - 0.2
Total 32.0 1.5
26Capitalallocation
Overview EV IFRS
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Actions taken for improvement
Reattribution of the inherited estate provides access to additional
m o cap a or new us ness over nex years
UK life product mix shift towards annuity and term assurance sales
UK
Targeting shift towards unit linked business in EuropeEurope
Pricing actions on annuity business AXXX reinsurance deal in the USA
North America
Growing businesses with aim to establish scale
Asia Pacific exit from capital intensive products in Hong Kong,
Mala sia and Taiwan
Asia Pacific
Partial IPO of Delta Lloyd
Delta Lloyd
27Capitalallocation
Overview EV IFRS
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Returns in line with assumptions
Operating variances andassumption changes
m
2005* (22)
*
2007 (135)
2008 (84)
2009 239
Total (8)
28* 2005-6 on an EEV basis Capitalallocation
Overview EV IFRS
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Embedded Value reporting
introducing additional Real World EV reporting
MCEV:
s a use u oo or r s managemen
underpins Solvency II
Real World EV:
is a better measure of value
is comparable with other UK insurance companies
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Summary life profit drivers
DriverKey:
million 2009 2008
Life 1,887 1,694
Pre-taxoperating profit
2009 2008Variance
to 2008
,
Fund Management 133 123
Other, non insurance (214) (198)
Central costs and debt (744) (520), ,
Operating profit 2,022 2,297
Income
4,424 4,109 8%
DAC/AVIF
amortisation and other
(237) 69 n/a
Expenses
(2,300) (2,484) 7%
New business margin Investment return Acquisition expenses Admin expenses
792 784 1%
Underwriting margin
2,949 2,758 7% (950) (1,159) 18% (1,350) (1,325) (2)%
32
683 567 20%
LifeIFRS
CapitalOverview EVNote: There is a positive FX contribution of 100m included in the2009 IFRS operating profit result
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Diversified range of life profits contributes to resilience
2008 2009m
1500
500
0Underwriting
mar inUnit
linkedParticipating
businessSpreadmar in
Expectedreturn
Acquisition
expenses
Admin
expenses
DAC, AVIF
& Other
Newbusiness
-500
marginmargin
-1000
-1500
33LifeIFRS
CapitalOverview EV
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New business margin
DriverKey:
2009 2008Variance
to 2008
Lower APE reflects a disciplined
approach to writing new business
across the group in difficult
New business margin
792 784 1%
Improved new business margin on
APE due to pricing actions
particularly in UK, US and Asia
, ,
Margin 21% 18% 3ppt
New business margin reflects
premiums less initial capital
reserves
34LifeIFRS
CapitalOverview EV
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Underwriting margins
DriverKey:
683 567 20%2009 2008
Variance
to 2008
Underwriting margin improvement
reflects:Expenses 263 135 95%
DL expense savings
stable risk portfolios
good mortality profits
Mortality &
longevity381 382 -
Persistency 39 50 (21)%
Mortality and persistency margins
reflect conservative reserving for unit
linked, risk and spread business
Expense margin represents unwind
of annual expense allowance on risk
business and assumption changes
35LifeIFRS
CapitalOverview EV
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Investment return
Investment return
Participating Expected return on
The return we are
making on unit
business shareholder assets
Our share of the
bonus to
The return we are
making on ourThe return we make
on shareholder netlinked business policyholders on
with profit and other
participating
business
annuity and non-
linked investment
business
assets
36LifeIFRS
CapitalOverview EV
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Investment return
DriverKey:
2,949 2,758 7% 2009 2008Variance
to 2008
Unit linked margin Participating business Spread margin Expected return on
1,021 963 6% 573 643 (11)% 863 657 31%
492 495 (1)%
AMC115 109 6
Bonus49 58 (9)
Spread126 112 14 Equity 7.3% 8.3%
(1.0)
Average
reserves(bn)
89.1 88.4 1%Averagereserves(bn)
117.1 111.0 6%Average
reserves(bn)
68.4 58.6 17%Property 5.8% 6.8%
(1.0)
ppt
(0.3). .ppt
Annual management
charge increase
reflecting business mix
in UK and Europe
Lower regular and
special UK with-profits
bonus
Reserves increased
Increase due to pricing
action in the US
Reserves increase due
to rowth in annuit
37
mainly due to AFER
in France
business in UK and US
LifeIFRS
CapitalOverview EV
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Expenses
DriverKey:
2009 2008Variance
to 2008
Acquisition expenses
(950) (1,159) 18%
Admin expenses
(1,350) (1,325) (2)%
APE 3,745 4,277 (12)% Existing expense 49 51 2
Acquisitionexpenseratio
25% 27% 2 ppt
ra o ps
Average reserves
(bn)274.6 258.0 (6)%
Acquisition expenses including
commission incurred in writing
new business less deferred
Expenses and renewal
commissions incurred on
managing the existing book
38LifeIFRS
CapitalOverview EV
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Linking expenses to the profit driver analysis
m 2009 2008 Var.Analysis of OperationalCost Base (by Region)
5,750
121 387
6,000
13%* reduction in 2009
u
admin expenses per
profit drivers
2,300 2,484 (7)%
Excluding commissions 282 323 13%
115
133
2095,144
5,500
Life operationalexpenses
2,018 2,161 (7)%
119 388
4,500
, , ,
FM expenses 373 351 6%
-
4,000
08 g,
d
A n K
L yd c.
g,
d
09
Operational expenses 4,756 5,368 (11)%
Restructuring,FY
Restructurin
integrationa
brandFY0
FX&M
Inflati U
Europeex
DeltaLlo
Other(i
Group
Restructurin
integrationa
brandFY0
FY integration and brand
Total expense base 5,144 5,750 (11)%
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500m cost reduction target exceeded one year ahead of schedule
Note: After adjusting for FX and M&AIFRS
ExpensesCapitalOverview EV
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Improved underlying General Insurance
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Improved underlying General Insurance
combined operating ratio
Expense ratioGroup COR
(3.9%)
3.2%
98%
UK: Cost savings target of
350 million achieved
27 o erational sites reduced to 998.1%
99.1%
1.3%0.4%
96%
Europe: Further cost savings to
come through Quantum Leap
94%Claims ratio
90%
92%
UK: enhanced risk selection
-
88%
claims programme
North America: improvements to2008Underlying
improvementWeather Creditor Reserves 2009
41Non-life
IFRSCapitalOverview EV
F d t fit d i A i I t
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Fund management profit drivers Aviva Investors
m 2009 2008Driver
Key:
Pre-tax operating profit
Aviva investors 115 114
Other 18 9
2009 2008Variance
to 2008
115 114 1%unManagement
133 123
Total income
409 388 5%
Operating expenses
294 274 (7)%
Cost/income ratioAverage
fees
(bps)
17.7 16.4 1.3
Averageassets
bn
231 237 (3)%
42Non-life
IFRSCapitalOverview EV
C l i
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Conclusion
Confidence in capital generation
Stron and sustainable life rofits and cash flows
Combined with GI profits currently at cyclical low
A growing franchise with disciplined capital investment
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Inherited estate reattribution
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Inherited estate reattribution
Operational Capital IFRS MCEV
Operating profit
New business margins and
IRRs are not impacted
Operating profit
Earn expected return on:
Assets backin estate
Gross capital generation
Assets and the return
earned on those assets is Earn expected return on:
Assets backing estate
c. 30m pa;
c. 45m pa;
Assets backing non-profit
business held in NWPSF
e n requ re cap a
No benefit to gross capital
generation until restrictions
lifted in c. 6 ears time Assets backing non-profit
business held in NWPSFto extent not offset by
movement in liabilities;
movement in liabilities;
Assets backing
guarantees to extent
Capital invested innew business
Assets backing
guarantees to extent
not hedged
not hedged
Also recognise financial
unwind of guarantee costs
Access to 650 million held
in required capital over
5 year period
unwind of guarantee costs
Non-operating profit
Im act of investment
Non-operating profit
Impact of investment
variances on above
is used so capital invested
in new business will reduce
Benefit of c. 100m in 2010
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variances on above
Life IFRS profit drivers income
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Life IFRS profit drivers income
Income U/L Spread Protection Par Unallocated
Newbusinessmargin Newbusinesscashflows(excludingacquisitionexpenses)basedonactualvolumes
Premiumslessinitialreserves.Includesexpectedinvestmentreturntoendofyear
Excludesvariancesinoperatingexperienceorassumptions
Underwritingmargin
Expenses Protection Allowanceinvaluationbasisforexpenses
Mortality Protection Allowanceinvaluationbasisformortalitylessactualclaims&benefitsUL Chargesmadetopolicyholderslessactualclaims&benefits
Expectedchangeinliabilityforanyguaranteesoroptionssubjecttomortalityrisk
Persistency All Actualreservesreleasedless surrenderbenefitspaid
nnua managemen c argesonun n e us ness ase onexpec e nves men re urns
Excludesriskchargesandcosts
Expectedchangeinliabilityforanyguaranteesoroptionsthatdependoninvestmentreturn
Participatingbusiness UK/Ireland shareholders'shareofactualbonusdeclared
Continental artici atin shareholders' share
US closedblockprofits
Spreadmargin Spread Expectedinvestmentreturnlessunwindofliability/amounts creditedtopolicyholders
Excludesriskchargesandcosts
Protection
Expected
investment
return
less
valuation
discount
rate
applied
to
opening
liabilityExpectedchangeinliabilityforanyguaranteesoroptionthatdependoninvestmentreturn
Expectedreturn Returnonassetscoveringsolvencymarginandadditionalsurplus
Basedonlongertermratesofreturnappliedtoexpectedaveragefundsundermanagement
updatedforfundflowsandoutflows
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Life IFRS profit drivers expenses
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Life IFRS profit drivers expenses
Expenses U/L Spread Protection Par Unallocated
Acquisitionexpenses Newbusinessacquisitioncommissionandexpenseslessdeferredcosts
Admin
expenses
Maintenance
expenses
and
renewal
commission
on
existing
business
DAC/AVIFamortisation AmortisationofDAC,AVIFandimpactofregulatorychanges,reservingmethodologychanges
andother orotheroneoffitems
IFRSlifeo eratin rofitInvestmentvariances AMCsbasedonactualinvestmentreturnlessAMCsbasedonexpectedreturns
andeconomic Spreadbasedonactualinvestmentreturnlessspreadbasedonexpectedreturns
assumptionchanges Varianceincurrentactualandassumedfutureinvestmentreturnlessexpectedinvestmentreturn
TotalIFRSlifeprofit
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2009 IFRS result
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2009 IFRS result
Income statement 2009 2008
Operating profit 2,022 2,297
Investment return variances and assumption changes on long term business
UK provisions for credit default - (550)
Unit-linked provisions in DL and France - (260)
Spain: Write back/(write-off) of UDS 160 (220)
Other (235) (601)
o a ,
Short term fluctuations and assumption changes on non-long term business 152 (913)Impairment and amortisation of goodwill and intangibles (206) (183)
Integration / restructuring costs (286) (326)
Exceptional items 45 (551)
Profit / Loss before tax 1,805 (1,300)Tax (490) 415
Profit / Loss for the year 1,315 (885)
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