Aviva plc plc Aviva 2002 Interim Results 2002 Interim Results 1 - - PowerPoint PPT Presentation

Aviva Aviva plc plc 2002 Interim Results 2002 Interim Results

1 August 2002 1 August 2002

Agenda Agenda

• Business review

Business review Richard Harvey Richard Harvey

• Financial review

Financial review Mike Biggs Mike Biggs

• Results

Results

• Capital update

Capital update

• Questions & answers

Questions & answers

1 From continuing operations including life achieved operating profit before amortisation of goodwill and exceptional items 2 Before the effect of solvency margin 3 After adding back equalisation provision

Highlights Highlights

• Group operating profit

Group operating profit1 at £979m (2001: £977m) at £979m (2001: £977m)

• On MSSB basis operating profit at £757m (2001: £728m)

On MSSB basis operating profit at £757m (2001: £728m)

• Long

Long-

• term savings new business up 9% on APE basis

term savings new business up 9% on APE basis

• New business contribution

New business contribution2 up 6% to £289m up 6% to £289m

• General insurance profit of £480m with worldwide COR of

General insurance profit of £480m with worldwide COR of 101% (2001: 103%) 101% (2001: 103%)

• Interim dividend of 8.75p (2001: 14.25p)

Interim dividend of 8.75p (2001: 14.25p)

• Net asset value

Net asset value3 at 511p (31 Dec 2001: 524p, restated) at 511p (31 Dec 2001: 524p, restated)

• Strong financial position in worldwide group and UK life

Strong financial position in worldwide group and UK life

• AA rating (“very strong”) reaffirmed by S&P

AA rating (“very strong”) reaffirmed by S&P

Allianz Allianz 7 14 14 21 21 28 28 Aviva Aviva Generali Generali

Rank Rank 2001 2001 1 3 2 4 2000 2000 4 3 1 2 1999 1999 4 2 1 3

Source: Company accounts, Morgan Stanley

GWP GWP (€ (€ bn bn)

Aviva Aviva the largest life & pensions the largest life & pensions provider to Europe provider to Europe

European European strategic focus strategic focus Strong market Strong market positions positions

Axa Axa

75 75 150 150 225 225 300 300 Int'l Int'l Spain Spain Neths Neths Italy Italy Ireland Ireland France France UK UK

Life and pension sales Life and pension sales - APE £m APE £m

+ 26% + 26%

• 15%

15% + 25% + 25% + 30% + 30% + 12% + 12%

• 10%

10%

700 700

+ 44% + 44% APE growth APE growth

Strong growth from geographical diversity Strong growth from geographical diversity

Life & pension new business up 11% Life & pension new business up 11%

Bancassurance Bancassurance accounts for 20% of Group life & pension sales accounts for 20% of Group life & pension sales

Bancassurance Bancassurance sales doubled sales doubled

• Royal Bank of Scotland Group

Royal Bank of Scotland Group 391 391 339% 339%

• Italy

Italy 504 504 87% 87%

• Spain

Spain 352 352 31% 31%

• DBS (Singapore)

DBS (Singapore) 97 97 n/a n/a Total Total Increase Increase sales sales in sales in sales £m £m

50% equity 50% equity

Insurer

• Products
• Admin
• Asset mgt

Fee Fee

Joint Board aims to maximise value of JV

Bank

• Sales
• Marketing
• CRM

Value from Value from bancassurance bancassurance

• Structured to meet IRR

Structured to meet IRR

• Incentivise

Incentivise bank sales bank sales

• Structure according to markets

Structure according to markets

Assessing shareholder value in a Assessing shareholder value in a Sandler Sandler environment environment

• Recognition of need to stimulate savings

Recognition of need to stimulate savings

• Principles favour providers with scale, brand and

Principles favour providers with scale, brand and

• perational efficiencies
• perational efficiencies
• Examination of the viability of the new stakeholder

Examination of the viability of the new stakeholder product proposals product proposals

• Assessment of the attribution of the inherited estate

Assessment of the attribution of the inherited estate

COR* COR* 2002 2002 2001 2001 % % % % UK UK 101 101 103 103 France France 100 100 103 103 Ireland Ireland 100 100 104 104 Netherlands Netherlands 102 102 104 104 Aust Aust & NZ & NZ 102 102 103 103 Canada Canada 103 103 104 104 GROUP GROUP 101 101 103 103

Best general insurance results amongst European insurers Best general insurance results amongst European insurers

* Combined operating ratio * Combined operating ratio

Benefiting from refocused general Benefiting from refocused general insurance insurance

• Excellent results

Excellent results

• Improving risk profile

Improving risk profile

• Profit not volume

Profit not volume

• Strongly capitalised

Strongly capitalised and cash generative and cash generative businesses businesses

Financial Review Financial Review

1 From continuing operations including life achieved operating profit before amortisation of goodwill and exceptional items 2 Before the effect of solvency margin 3 After adding back equalisation provision

Group financials Group financials

• Group operating profit

Group operating profit1 maintained at £979m maintained at £979m

• New business contribution

New business contribution2 up 6% to £289m up 6% to £289m

• General insurance profit of £480m with worldwide COR of

General insurance profit of £480m with worldwide COR of 101% (2001: 103%) 101% (2001: 103%)

• On MSSB basis operating profit at £757m (2001: £728m)

On MSSB basis operating profit at £757m (2001: £728m)

• Operating EPS

Operating EPS1 at 27.4p (2001: 27.5p) at 27.4p (2001: 27.5p)

• Net asset value

Net asset value3 at 511p at 511p (31 Dec 2001: 524p, restated) (31 Dec 2001: 524p, restated)

• Post

Post-

• tax return on capital of 11.0% (FY 2001: 9.7%, restated)

tax return on capital of 11.0% (FY 2001: 9.7%, restated)

New business profitability New business profitability

£m £m Group Group UK UK France France Spain Spain Italy Italy New business New business 289 289 164 164 34 34 33 33 16 16 contribution contribution Annual premium Annual premium 1,202 1,202 676 676 110 110 63 63 69 69 equivalent equivalent New business New business 24.0% 24.0% 24.3% 24.3% 31.0% 31.0% 52.3% 52.3% 23.3% 23.3% margin margin New business margin New business margin - 25.5% 25.5% 25.8% 25.8% 33.9% 33.9% 46.5% 46.5% 22.2% 22.2% FY 2001 FY 2001

UK UK 424 424 465 465 France France 111 111 110 110 Ireland Ireland 37 37 37 37 Italy Italy 30 30 24 24 Netherlands Netherlands 87 87 93 93 Poland Poland 47 47 44 44 Spain Spain 38 38 31 31 Other Europe Other Europe

• 28

28 International International 22 22 17 17 Total Total 796 796 849 849 2001 2001 £m £m 2002 2002 £m £m

Life achieved operating profit Life achieved operating profit

• UK: Impact of lower

UK: Impact of lower embedded value embedded value

• Benefits from

Benefits from bancassurance bancassurance partnerships in Spain, partnerships in Spain, Italy and DBS in Italy and DBS in International International

• Minimal operating

Minimal operating assumption and assumption and experience variances in experience variances in 2002 2002

1 From continuing operations

General insurance result General insurance result

• Operating profit

Operating profit1 up £53m to £480m up £53m to £480m

• Underwriting result

Underwriting result1 improvement of £74m improvement of £74m

• UK

UK + £34m + £34m

• Other

Other + £40m + £40m

• Improved COR

Improved COR1 ratio at 101% (2001: 103%) ratio at 101% (2001: 103%)

• Longer

Longer-

• term investment return

term investment return1 down £21m down £21m at £558m at £558m

Capital Capital

Strong and resilient capital base Strong and resilient capital base

• AA rating (“very strong”) reaffirmed by S&P

AA rating (“very strong”) reaffirmed by S&P

• GI & health capital

GI & health capital -

• £1.3bn in excess of risk based

£1.3bn in excess of risk based requirement requirement

• £3.2bn capital available to support overseas life businesses

£3.2bn capital available to support overseas life businesses

• UK life with

UK life with-

• profits

profits

Free asset ratio: Free asset ratio: 14.1% at 30 June 14.1% at 30 June 10.1% excluding implicit items 10.1% excluding implicit items Orphan estate of £4.7bn at 30 June Orphan estate of £4.7bn at 30 June Strong relative position Strong relative position

• Cash generative operating model after current levels of new

Cash generative operating model after current levels of new business business

Agenda Agenda

• Capital at group level

Capital at group level

• Operational capital strength

Operational capital strength

• Financing growth

Financing growth

Capital at group level Capital at group level

Strong and resilient capital base Strong and resilient capital base

Capital at group level Capital at group level

• AA rating (“very strong”) reaffirmed by S&P

AA rating (“very strong”) reaffirmed by S&P

• EU Directive Group solvency basis

EU Directive Group solvency basis

• 31 December 2001

31 December 2001 £1.7bn excess £1.7bn excess

• estimate at 30 June 2002

estimate at 30 June 2002 £1.5bn excess £1.5bn excess

• excludes strength of UK with

excludes strength of UK with-

• profit fund

profit fund

• Equity shareholder funds at 30 June of £11.3bn

Equity shareholder funds at 30 June of £11.3bn

• Capital employed in our businesses at 30 June of

Capital employed in our businesses at 30 June of £18.1bn £18.1bn

Operational capital strength Operational capital strength

Regulatory Regulatory Realistic Realistic

XSM* / solvency cover XSM* / solvency cover

• XSM* / solvency cover

XSM* / solvency cover

• Risk based capital

Risk based capital

Operational capital strength Operational capital strength

Regulatory Regulatory Realistic Realistic perspective perspective perspective perspective CGUII Group CGUII Group NU Insurance NU Insurance Worldwide Worldwide general insurance general insurance and health and health UK life UK life

* XSM represents excess solvency capital over required minimum m * XSM represents excess solvency capital over required minimum margin argin

Free asset ratio Free asset ratio Orphan estate Orphan estate

Operational capital Operational capital -

• regulatory

regulatory

Group structure Group structure

UK Life UK Life

Australia Australia

Aviva plc Aviva plc NU Insurance NU Insurance CGUII CGUII plc plc

Major overseas subsidiaries

General General Life Life

Operational capital Operational capital -

• regulatory

regulatory

Excess solvency over required minimum margin Excess solvency over required minimum margin

XSM* XSM* 31 Dec 01 31 Dec 01 £2.7bn £0.4bn £2.7bn £0.4bn 30 June 02 ( 30 June 02 (est est) £2.7bn £0.4bn £2.7bn £0.4bn

* XSM represents excess solvency capital over required minimum m * XSM represents excess solvency capital over required minimum margin argin

Aviva plc Aviva plc NU Insurance NU Insurance CGUII CGUII plc plc

Major overseas subsidiaries

General General Life Life

NU Insurance Available assets £0.8bn Required minimum £0.4bn margin XSM* - 30 June £0.4bn Cover 2.0x CGUII CGUII plc group Available assets £3.1bn £5.2bn Required minimum £0.4bn £2.5bn margin XSM* - 30 June £2.7bn £2.7bn Cover 7.3x 2.1x

* XSM represents excess estimated solvency capital over required * XSM represents excess estimated solvency capital over required minimum at 30 June 2002 minimum at 30 June 2002

Operational capital Operational capital -

• regulatory

regulatory

NU Insurance NU Insurance Life Life

Major overseas subsidiaries

General General CGUII CGUII plc plc

Efficient structure provides regulatory capital strength Efficient structure provides regulatory capital strength

UK Life UK Life Aviva plc Aviva plc NU Insurance NU Insurance CGUII CGUII plc plc

Major overseas subsidiaries

General General Life Life

Operational capital Operational capital -

• realistic

realistic

Risk based capital Risk based capital -

• worldwide GI & health

worldwide GI & health

Australia Australia

Exceeding GI risk based capital requirements providing Exceeding GI risk based capital requirements providing further flexibility for financing growth further flexibility for financing growth

£ £3.3bn at 30 June 2002 3.3bn at 30 June 2002 £ £4.6bn 4.6bn £ £9.2bn 9.2bn

* excluding goodwill of * excluding goodwill of £0.3bn and after adding back the 0.3bn and after adding back the equalisation equalisation provision of provision of £0.3bn 0.3bn ** net written premium represents 12 month rolling average excl ** net written premium represents 12 month rolling average excluding premiums from business disposed, CGU uding premiums from business disposed, CGU Courtage Courtage

36%

Risk based capital Risk based capital

Worldwide general insurance & health Worldwide general insurance & health

RBC stochastic model factors in market, credit, underwriting and RBC stochastic model factors in market, credit, underwriting and reserve tail risk reserve tail risk 99% confidence of meeting statutory solvency margin over a 5 yea 99% confidence of meeting statutory solvency margin over a 5 year period, after r period, after allowing for planned business growth allowing for planned business growth Capital requirement of £3.3bn or 36% of net written premium Capital requirement of £3.3bn or 36% of net written premium Net written Net written premium** premium** Risk based Risk based capital capital Shareholders’ Shareholders’ capital employed* capital employed*

NU Insurance NU Insurance Life Life

Major overseas subsidiaries Major overseas subsidiaries

General General CGUII CGUII plc plc

Regulated available Regulated available assets* assets* - 30 June 30 June £6.0bn £6.0bn Add: equalisation provision Add: equalisation provision £0.3bn £0.3bn Less: Less: GI & health RBC requirement** GI & health RBC requirement** (£3.1bn) (£3.1bn) Capital available to support Capital available to support

• verseas life businesses
• verseas life businesses

£3.2bn £3.2bn

* Represents aggregate available assets of CGUII group £5.2bn * Represents aggregate available assets of CGUII group £5.2bn and NU Insurance £0.8bn and NU Insurance £0.8bn ** Worldwide risk based capital requirement of £3.3bn less Aust ** Worldwide risk based capital requirement of £3.3bn less Australia GI risk based capital requirement of £0.2bn ralia GI risk based capital requirement of £0.2bn

Operational capital strength Operational capital strength

Summary so far… Summary so far…

• Efficient structuring

Efficient structuring

• Strong solvency

Strong solvency

• Resilience to equity

Resilience to equity market movements market movements

• £3.2bn available to

£3.2bn available to support overseas support overseas life businesses life businesses

(equivalent to over 2x (equivalent to over 2x minimum solvency minimum solvency requirement) requirement)

Operational capital Operational capital -

• regulatory

regulatory

UK life structure UK life structure

NU life & pensions NU life & pensions

CGNU life CGNU life CU life CU life

UK Life UK Life Unit Unit-linked linked

Free asset ratio Free asset ratio* * Including Including Excluding Excluding implicit implicit implicit implicit items items items items 31 Dec 2001 31 Dec 2001 14.7% 14.7% 10.8% 10.8% 30 June 2002 30 June 2002 14.1% 14.1% 10.1% 10.1%

Free asset ratio of 14.1% at 30 June Free asset ratio of 14.1% at 30 June

UK life free asset ratio UK life free asset ratio

* incorporating resilience rules as at 30 June 2002 * incorporating resilience rules as at 30 June 2002 Free asset ratio definition: total assets less total liabilit Free asset ratio definition: total assets less total liabilities / total liabilities ies / total liabilities

2 4 6 31 Dec 01 31 Dec 01 30 Jun 02 30 Jun 02 £5.2bn 5.2bn £4.7bn 4.7bn £bn bn

Operational capital Operational capital UK with UK with-

• profit

profit -

• orphan estate
• rphan estate
• Represents realistic

Represents realistic measure of with measure of with-

• profit

profit strength strength

• After a realistic estimate

After a realistic estimate

• f policyholders’
• f policyholders’

reasonable expectations reasonable expectations

• With

With-

• profit funds of £48bn

profit funds of £48bn at 30 June at 30 June

Financing growth Financing growth

Profit from in Profit from in-force force 1.4 1.4 1.4 1.4 0.7 0.7 Cash strain from new non Cash strain from new non-profit business profit business (0.6) (0.6) (0.6) (0.6) (0.3) (0.3)

Life statutory profits Life statutory profits (after new business strain)

(after new business strain)

0.8 0.8 0.8 0.8 0.4 0.4 GI & health GI & health 0.6 0.6 0.6 0.6 0.3 0.3 Corporate / other Corporate / other (0.1) (0.1) (0.1) (0.1)

• Borrowing

Borrowing (0.3) (0.3) (0.3) (0.3) (0.2) (0.2) Post Post-tax operating profits tax operating profits 1.0 1.0 1.0 1.0 0.5 0.5 Dividend Dividend (0.9) (0.9) (0.5) (0.5) (0.2) (0.2) Retained to fund growth Retained to fund growth 0.1 0.1 0.5 0.5 0.3 0.3

Additional required solvency margin Additional required solvency margin (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) Retained after solvency margin Retained after solvency margin

• 0.4

0.4 0.2 0.2

Internal capital generation Internal capital generation

Pro forma 2001 capital generation of £0.4bn as a result of divid Pro forma 2001 capital generation of £0.4bn as a result of dividend cut end cut Post Post-tax statutory operating profits tax statutory operating profits 2001 2001 Actual Actual £bn bn Actual Actual Pro forma Pro forma 6 months 2002 6 months 2002

Strong and resilient capital base Strong and resilient capital base

• AA rating (“very strong”) reaffirmed by S&P

AA rating (“very strong”) reaffirmed by S&P

• GI & health capital

GI & health capital -

• £1.3bn in excess of risk based

£1.3bn in excess of risk based requirement requirement

• £3.2bn capital available to support overseas life businesses

£3.2bn capital available to support overseas life businesses

• UK life with

UK life with-

• profits

profits

Free asset ratio: Free asset ratio: 14.1% at 30 June 14.1% at 30 June 10.1% excluding implicit items 10.1% excluding implicit items Orphan estate of £4.7bn at 30 June Orphan estate of £4.7bn at 30 June Strong relative position Strong relative position

• Cash generative operating model after current levels of new

Cash generative operating model after current levels of new business business

A resilient and well A resilient and well-diversified business diversified business

Summary Summary

• Solid results despite environment

Solid results despite environment

• Capital strength

Capital strength

• AA rating (“very strong”) reaffirmed by S&P

AA rating (“very strong”) reaffirmed by S&P

• Driving performance out of each business

Driving performance out of each business

Questions & Answers Questions & Answers