UK Life, Driving value through excellence Investor and Analyst Event, - - PowerPoint PPT Presentation

Andrew Moss NUL18.11.08

Investor and Analyst Event, Wednesday 6th May 2009

UK Life, Driving value through excellence

Andrew Moss NUL18.11.08

Disclaimer

This presentation may include oral and written “forward-looking statements” with respect to certain

• f 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 ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar

• meaning. By their nature, all forward-looking statements involve risk and uncertainty because they

relate to future events and circumstances which may be beyond Aviva’s control, including, among

• ther things, UK domestic and global economic and business conditions, market-related risks such

as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by the Aviva Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Aviva and its affiliates operate, as well as the other risks and uncertainties set forth in our 2008 Annual Report to Shareholders. As a result, Aviva’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva’s forward-looking statements, and persons receiving this presentation should not place undue reliance on forward-looking statements. Aviva undertakes no obligation to update the forward-looking statements made in this presentation

• r any other forward-looking statements we may make. Forward-looking statements made in this

presentation are current only as of the date on which such statements are made.

3

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 positioned to drive further value

4

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 outlook

Mark Hodges, Chief Executive Officer

• Strategic focus

David Barral, Marketing Director Questions & answers Lunch

5

An experienced and proven team

Mark Hodges

Chief Executive Officer

Toby Strauss

Chief Operating Officer

Ian Butterworth

Chief Information Officer

Graham Boffey

Distribution Director, Corporate & Consumer

Angela Seymour Jackson

Distribution Director, Intermediaries & Partners

David Barral

Marketing Director

Rita Agati

HR Director

John Lister

Finance Director

6

UK Life within Aviva

On all measures, UK Life is a key component of the Group result

Source: 2008 data for new business sales (PVNBP), IFRS and MCEV operating profit and 31 December 2008 life and related business embedded value.

Life New Business Sales MCEV Life Operating Profit Embedded Value

Rest of Group 67% UK Life 33% Rest of Group 65% UK Life 35% Rest of Group 67% UK Life 33% Rest of Group 68% UK Life 32%

IFRS Life Operating Profit

7

One Aviva

UK Life, fundamental to delivering One Aviva, twice the value

Purpose Prosperity & peace of mind Vision One Aviva, twice the value

• Manage composite

portfolio

• Build global Asset

Management

• Allocate capital

rigorously

• Increase customer

reach

• Boost productivity
• 98% meet or beat COR
• £500m cost savings by

2010

• Double IFRS EPS by

2012 at the latest

• 1.5 – 2 x dividend cover
• n IFRS post tax
• perating earnings

Aviva Investors

• Globally integrated business
• Transform the investment model
• Increase third party business

UK

Market leadership

• Address legacy
• Transform business

model

• Exploit UK synergies
• Generate capital

Europe

Scale, growth, capital

• Seize unique growth
• pportunities
• Leverage scale
• Generate capital
• N. America
• Optimise business

mix, growth & margin

• Generate net capital

returns

• Contribute to doubling

IFRS EPS by 2012

Asia Pacific

Scale, growth

• Prioritised portfolio
• Regional operating

model

• Investment required

Strategic priorities Targets

UK Life Market leadership

Drive up profitability Generate capital Operational excellence Competitive advantage

8

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 outlook

Mark Hodges, Chief Executive Officer

• Strategic focus

David Barral, Marketing Director Questions & answers Lunch

9

Driving up profitability

14.0% 10.6% New business IRR 3.5% 2.9% Life & Pensions margin1,2 £40m £140m Cost overrun

+/-

£751m £382m IFRS operating profit £883m £589m EV operating profit £679m £372m Existing Business operating return £11,669m £9,185m Life & Pensions sales (PVNBP)1

2008 2005

+27% +60bp +83% +50% +97%

2005 shown on an EEV basis, 2008 on a MCEV basis. 1Data shown on an EEV basis. 2Margin pre cost of capital and taxation, 2008 margin unaudited, published MCEV margin 1.7%.

71% Significant progress on delivering the One Aviva, twice the value agenda +340bp

10

Widening the income and expense ‘jaws’

• Increasing sales while growing

margin

• Targeted cost reductions,

driving out inefficiencies and reducing operating expenses

• Lower, more flexible and

variable cost base Expense over-run eliminated in 2009

Life & Pensions Sales and Operating Expenses Growth

Life & Pension sales calculated on an EEV basis for comparative basis. Operating Expenses L&P Sales

• 25%
• 15%
• 5%

5% 15% 25% 35% 2005 2006 2007 2008 2009

11

Driving up profitability

14.0% 10.6% New business IRR 3.5% 2.9% Life & Pensions margin1,2 £40m £140m Cost overrun

+/-

£751m £382m IFRS operating profit £883m £589m EV operating profit £679m £372m Existing Business operating return £11,669m £9,185m Life & Pensions sales (PVNBP)1

2008 2005

+27% +60bp +83% +50% +97%

2005 shown on an EEV basis, 2008 on a MCEV basis. 1Data shown on an EEV basis. 2Margin pre cost of capital and taxation, 2008 margin unaudited, published MCEV margin 1.7%.

71% Significant progress on delivering the One Aviva, twice the value agenda +340bp

12

Generating capital

+/- £704m £365m Free surplus generation 2.5% 5.3% Strain % of L&P sales (PVNBP)(2) £293m £488m New business capital strain(1) 2008 2005

• 2.8pps

+93% Delivering value to group

• 40%

(1) New business strain includes initial capital strain and changes in required capital. (2) Life & Pensions sales calculated on an EEV basis for comparative basis.

£500m dividend paid over the last three years

13

Delivering operational excellence

9,200 12,500 UK headcount 4 star 1 star Distributor service rating +/- 68% 49% Employee morale score 75% 60% Value on scale platforms 68% 38% Customer recommendation score 4 20 Core admin systems 1,485 1,032 Policies per headcount 2009 Q1 2005 +44% +15pps +19pps

• 80%

+3 +30pps We have transformed our operating model

• 26%

14

We have delivered our promises

• Rationalise costs
• Simplify the legacy
• Value out of service
• Manage retention

UK Life is in excellent shape

• Develop the business
• Strong balance sheet
• Capital efficiency

15

Hot topics

Trading through the recession Brand re-launch Commercial mortgages Re-attribution of the inherited estate

16

Trading through the recession – our progress

Thriving in challenging markets

• Sales slow but within forecast
• Market share increase at higher margin
• Q1 net outflow only £0.1bn (excluding expected endowment maturities)
• No unusual lapse experience

500 1,000 1,500 2,000 2,500 3,000 3,500 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 PVNBP £m Pension Bonds & other Annuities Protection 8% 9% 10% 11% 12% 13% 14% 15% Q1 08 Q2 08 Q3 08 Q4 08 %

Quarterly Market Share Quarterly Sales

Quarterly sales (PVNBP) calculated on an MCEV basis. Market share based on ABI data.

17

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 Protected Guarantee bond

• Benefit from ongoing innovation through 2009

– Customer portal – Adviser portal – Pensions tracker – Customer data e.g. Protection postcode rating Focus on profitable growth

18

Commercial mortgage portfolio

A portfolio to support profitable growth in our annuity business

• Portfolio developed to support profitable growth in our annuity business
• Producing higher yielding fixed rate assets (average 164bps above gilts since 2000)

Commercial Mortgage Portfolio Growth 1992-2008 £bn

2 4 6 8 10 12 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2 4 6 8 10 12 14 16 18 20

Commercial UK NHS Healthcare Annuity Book (RH Scale)

£bn

19

A high quality portfolio

£857m Annual rental income £650m Annual interest income 6,110 Number of tenants 15 yrs Average remaining loan term 12.5 yrs Average lease term 3,473 Number of properties 536 Number of borrowers 31 Mar 2009 Portfolio Data

• No high risk lending such as interest only loans with high LTVs
• All loans secured by first charge on properties
• Strong matching of lease terms to remaining loan terms
• Business written with experienced property professionals with strong track records

Cautiously constructed portfolio

Remaining UK commercial loans £8.6bn NHS Healthcare £2.5bn Gov’t Tenants £0.3bn Total UK commercial mortgage portfolio £11.4bn Commercial property portfolio £8.9bn

31 Mar 2009

20

A well constructed and highly diversified portfolio

12% 6% 24% 8% 50% 15% 35% 3% 47% 0% 10% 20% 30% 40% 50% 60% Industrial Leisure Office Other Retail % of Portfolio

Portfolio well diversified geographically, by sector, borrower and tenant

• Underweight in the office sector (most volatile) and slightly overweight in retail (less volatile)
• Underweight in London (most volatile) when compared to the IPD Commercial Property Universe
• c6,500 commercial tenants, our biggest with a 5% share and 10 others with around 1%

21% 5% 14% 26% 25% 6% 3% 37% 8% 10% 22% 15% 6% 2% 0% 10% 20% 30% 40% 50% 60% London East Anglia Midlands South North Scotland Wales % of Portfolio

Portfolio by Sector (compared to industry benchmark) Portfolio by Region (compared to industry benchmark)

UK commercial property loans portfolio as at 31 March 2009

UK Life Benchmark

21

Portfolio developed on sound lending principles

Strong interest service cover, low vacancy rates and interest arrears

• Primary focus on income quality and longevity to support loan service and debt reduction
• Strong loan and interest service cover
• Minimal interest arrears at ¼ of 1 per cent of annual interest
• Provisions of c£700m established (c7.9% of commercial property loans)

4.8% 4.1% 3.7% 3.8% Vacancy rates £2.2m £0.2m £0.1m £0.1m Interest arrears 0.01% 76% 1.29 30 Dec 2007 0.25% 0.02% 0.01% Interest arrears 105% 103% 81% Average loan to value 1.31 1.30 1.28 Interest service cover 31 Mar 2009 31 Dec 2008 30 Jun 2008

22

Commercial mortgages summary

A high quality commercial mortgage portfolio

• 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)
• Proven and effective loss mitigation process
• No new defaults year-to-date

23

Inherited estate reattribution – customer perspective

A deal that flexes the incentive payment to the size of the estate

• 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 election commences
• Individual choice
• No majority vote
• 1st October effective date

(1) Based on estate value of £1.2bn and 80% take-up

24

Inherited estate reattribution – shareholder perspective

A good deal for shareholders

• 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

• Policyholder incentive payment acquires:

– Assets backing the estate (£1.5bn at 31.12.08)* – Assets and Liabilities backing the cost of guarantees (£3bn at 31.12.08)*

* Based on 100% policyholder take-up

25

Inherited estate reattribution – shareholder perspective

Significant capital and return benefits

• 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 IFRS profit c£50m per annum

26

Inherited estate reattribution – shareholder perspective

A good deal for shareholders with significant upside potential 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 increase IFRS and MCEV results by £8m
• 50bps narrowing of credit spreads would increase IFRS and MCEV results by £16m

27

Maximising the re-brand opportunity

Intensive activity provides a real opportunity to re-position UK Life

• 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

28

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 outlook

Mark Hodges, Chief Executive Officer

• Strategic focus

David Barral, Marketing Director Questions & answers Lunch

29

• Manage composite

• Build global Asset

• Allocate capital

• Increase customer

• Boost productivity
• 98% meet or beat COR
• £500m cost savings by

• Double IFRS EPS by

• 1.5 – 2 x dividend cover
• n IFRS post tax
• perating earnings

• Globally integrated business •

• Address legacy
• Transform business

• Exploit UK synergies
• Generate capital

• Seize unique growth
• pportunities
• Leverage scale
• Generate capital
• N. America
• Optimise business mix,

• Generate net capital

• Contribute to doubling

• Prioritised portfolio
• Regional operating

• Investment required

UK Life, Driving Value Through Excellence

Drive up profitability

• Improve quality of earnings
• Grow market position
• Reshape business mix
• Drive margin and IRR

improvements

• Reduce new business strain
• Greater value from large back book

UK Life Market leadership Drive up profitability

Generate capital Operational excellence Competitive advantage

30

Driving up profitability

14.0% 10.6% New business IRR 3.5% 2.9% Life & Pensions margin1,2 £40m £140m Cost overrun

+/-

£751m £382m IFRS operating profit £883m £589m EV operating profit £679m £372m Existing Business operating return £11,669m £9,185m Life & Pensions sales (PVNBP)1

2008 2005

+27% +60bp +83% +50% +97%

2005 shown on an EEV basis, 2008 on a MCEV basis. 1Data shown on an EEV basis. 2Margin pre cost of capital and taxation, 2008 margin unaudited, published MCEV margin 1.7%.

71% +340bp Significant progress on delivering the One Aviva, twice the value agenda

31

2 4 6 8 10 12 14 16 18 Annuities P rotection P ension Bonds

Sustaining our market share….

• 11.3% overall L&P market share in 2008

benefiting from: – Launch of Simplified Life proposition in 2006 – Income Drawdown launch 2007 – Flight to quality Q3/Q4 2008 – Growth in bulk purchase annuity business with 39 schemes won in 2008

• Top 3 ranking in all L&P product lines

(1) Excluding all BPAs: Aviva UK Life share of BPA market 9%, Market share and position based on FY08 ABI returns

Richer mix and overweight in risk business

Market share

Overall market share

14% 16% 10% 9% Market Share 2008

(1)

32

… while enhancing returns …

• Commission bill maintained at c£550m as

PVNBP grew by 27% by: – Reducing individual pension, group pension and bonds commissions – Greater proportion of bond commission fund-based versus initial commission for IFAs – Growth of fee-based Employee Benefit Consultant business

• New business expenses reduced by £27m

despite volume growth by – Customer service efficiencies, – e-Commerce and – Improved mix

Significantly leveraging pricing, commission and expenses

2005 – 2008 New Business Margin Improvement % PVNBP

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 2005 2006 2007 2008 Margin % Commission Paid % NB Expenses %

33

…and moving our mix towards higher margin risk products

Driving profitability, driving value

• Good growth in annuities through:

– Innovative pricing using rating factors and – Compelling BPA proposition to 50 EBCs

• Protection down only 19% despite collapse in

mortgage market – Excellent growth of Simplified Life product

• Individual Pension growth supported by market

leading e-Commerce

• Group and corporate pensions secured 18

schemes in Q4 2008, £788m PVNBP

• Bonds impacted by market conditions and CGT

changes

Group life business moved from protection to GP in 2008 for comparative growth purposes

PVNBP share of 2008 portfolio

Bonds, 28% Corporate & Group Pensions, 21 % Annuities, 21 % Individual pensions, 1 8% Protection, 9% Other, 4%

1

+49% 2005 – 2008 Sales Growth (33)% +53% +41% +26% (19)%

34

Our focus on annuities is delivering benefits

• Extra rating factors (size/postcode/marital status & smoker status) delivering

underwriting profit

• Increase speed to market and flexibility of rating changes
• Established strong BPA proposition
• Reduced capital in market place drives increased returns

New business margin shown on an EEV basis.

2.8% 6.1% Capital strain % 67 96 Capital strain £m 8 12 Payback (years) 16.7% 9.5% IRR 9.1% 5.2% Margin +/- 2008 2005 New Business +3.9pps +7.2pps 4 yrs

• 30%
• 3.3pps

IRR benefits from improved pricing, lower expenses and capital efficiency

35

Our focus on protection is delivering benefits

• Highly competitive market with downward pressure on core mortgage and term products
• Improved re-insurance structures & reduced re-insurance costs
• Differentiated pricing by Channel / Distributor
• Implementation of enhanced rating factors
• IRR benefits from lower capital requirements from PS06/14

5.1% 12.5% Capital strain % 58 153 Capital strain £m 4 6 Payback (years) 23.5% 16.5% IRR 7.8% 9.2% Margin +/- 2008 2005 New Business +7.0pps 2 yrs

• 62%
• 7.4pps
• 1.4pps

New business margin shown on an EEV basis.

IRR benefits from improved pricing, lower expenses and capital efficiency

36

Key actions to improve margins in pensions

• Increased operational efficiency reducing new business costs
• Commission levels reduced in 2008 and 2009 to date. Key actions include:

– GPP 3% reduction in initial commission, 0.05% increase in FOC charge Q4 08 – IPP single premium commission reduced by 0.5% to 6.0% Q1 09

• Implementation of customer agreed remuneration

3.2% 4.9% Capital strain % 146 148 Capital strain £m 9 12 Payback (years) 12.4% 8.2% IRR 1.6% 1.2% Margin +/- 2008 2005 New Business +0.4pps +4.2pps 3 yrs

• 1%
• 1.7pps

New business margin shown on an EEV basis.

IRR benefits from improved pricing, lower expenses and capital efficiency

37

Key action in place to improve margins in bonds

• Persistency assumptions strengthened
• IFA commission rates reduced by 1% Q4 08
• Allocation rate reductions by up to 2% Q1 09
• Guaranteed Fund Commission reduction Q2 09
• IPG profit impacted by market volatility and withdrawn from 17th April 2009

New business margin shown on an EEV basis.

0.8% 2.9% Capital strain % 26 77 Capital strain £m 14 9 Payback (years) 7.7% 9.7% IRR 0.1% 0.8% Margin +/- 2008 2005 New Business 66% 2.1pps

• 0.7pps
• 2.0pps

5 yrs

38

Key action in place to improve margins in bonds

• Unit linked bonds managed for value via commission and allocation changes
• With Profits will reduce as IPG withdrawn
• Offshore bond business under review

Bonds PVNBP 2005 - 2008

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2005 2006 2007 2008 PVNBP Unit Linked Unitised With Profits Offshore Other

Continuing participation in this market dependent on favourable returns

39

Generating superior returns through channel mix

Bubble size represents 2008 sales calculated on a PVNBP basis (EEV)

Corporate B Soc Retail IFA 1 2 3 4 5 6 7

• 50

50 100 150 200

Channel growth % Channel margin %

Increased focus on corporate channel

• BPA with pricing discipline
• Innovative GPP e-commerce

proposition

• Actively promoted by 30 out of 40

target accounts Excellent RBS JV growth

• 80% growth in Bancassurance

market share

• 50% increase in sales consultants

RBS JV

Life & Pensions New Business Channel and Margin Growth 2005-08

High growth in richer margin channels

40

Driving value from sizeable back-book

• Maturity of back book generating increased

absolute returns

• Reduced expense over-run through
• perational initiatives, on target to eliminate

in 2009

• Improved focus on retention - keeping an

existing customer generates 3 times as much value as attracting a new customer

In-Force Operating Profits 2005-2008

Expected Experience 679

ROEV 4.9% ROEV 7.1%

Rigorous focus on eliminating experience variances

100 200 300 400 500 600 700 800 2005 2005 2008 2008 372

£m

41

With profit fund persistency

WP Persistency

• 2005 and 2006 experience adversely impacted:

– With profit pensions, bonds, low cost endowment exits – MVR removal in 2006 saw increase in level

• f bond surrenders
• Persistency profits made in the last 2 years
• Likely to reverse following reattribution

– 1% lapse results in £20m additional IFRS profit

With profit persistency is better than our allowances

• 30
• 20
• 10

10 20 30 2005 2006 2007 2008

£m

42

Growing IFRS operating earnings

(1) Share of historic pension scheme deficit funding borne by shareholders charged to with-profit fund DAC write down following increases to lapse assumptions

• 2nd & 3rd tranche of special

distribution will benefit 2009 & 2010

• 64% higher underlying profit

driven by: – £225m of expense saving initiatives (£200m delivered) – Lower new business strain – Higher annual management charges and WP bonus as markets rose

• Reattribution will further

enhance future earnings

• (85)
• Other

124

• Special distribution

751 723 629 382 Reported for the year

• 130
• Pension Scheme deficit funding by WP
• 167

149

• PS06/14

One-off items: 627 556 435 382 Underlying business profitability 2008 £m 2007 £m 2006 £m 2005 £m

Sustainable drivers of IFRS growth in plan

43

• Manage composite

• Build global Asset

• Allocate capital

• Increase customer

• Boost productivity
• 98% meet or beat COR
• £500m cost savings by

• Double IFRS EPS by

• 1.5 – 2 x dividend cover
• n IFRS post tax
• perating earnings

• Globally integrated business •

• Address legacy
• Transform business

• Exploit UK synergies
• Generate capital

• Seize unique growth
• pportunities
• Leverage scale
• Generate capital
• N. America
• Optimise business mix,

• Generate net capital

• Contribute to doubling

• Prioritised portfolio
• Regional operating

• Investment required

UK Life, Driving Value Through Excellence

Generating capital

• Strong and resilient capital position
• Self-financing capital model
• Well capitalised with-profit business

UK Life Market leadership

Drive up profitability

Generate capital

Operational excellence Competitive advantage

44

Generating capital

+/- £704m £365m Free surplus generation 2.5% 5.3% Strain % of L&P sales (PVNBP)2 £293m £488m New business capital strain1 2008 2005

• 2.8pps

+93% Delivering value to group

• 40%

1 New business strain includes initial capital strain and changes in required capital.2 Life & Pensions sales calculated on an EEV basis for comparative basis.

£500m dividend paid over the last three years

45

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

• Hedging market risk associated with AMCs
• Raising regulatory capital
• Tightening our underwriting criteria further on commercial mortgages

Maintaining and managing our credit risk exposure

Experts at managing capital risks

46

UK Life, a strong capital position

Note: NUL&P shareholder fund included in NUL&P NP section Capital Position by Fund 31 December 2008 500 1,000 1,500 2,000 2,500 3,000 3,500 CGNU CULAC NUL&P WP NUA NUL&P NP

£m

Shareholder fund Long-term fund Required capital

Well capitalised and managed funds, in excess of required capital

47

2827

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

2005 Existing book surplus Capital transactions One off benefits New business strain Dividends to Group Other 2008

£m

UK Life driving up net worth

Net worth Surplus Generation

• £1.2bn increase in net worth over three years:

– Existing book surplus of £1.6bn – Capital transactions releasing VIF of £0.8bn – One off benefits from PS06/14 of £0.3bn – Exceptional market falls £0.3m

• This has allowed us to fund:

– New business strain of £0.7bn – Dividends to group of £0.5bn

In tough financial markets, increasing capital strength while growing the business

48

With-profit business well capitalised

• With-profit funds all show significant

surpluses

• No burn-through risk pre or post

reattribution Strong capital position

Realistic Excess Capital in With Profit Funds 2005-2008 (Pillar 1 Peak 2)

• 200

400 600 800 1,000 1,200 1,400 1,600 1,800 CGNU CULAC NUL&P £m

49

Driving up profitability and generating capital

Driving value through financial and capital excellence

• 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 underlying earnings
• Strong capital position, self-financing business model delivering returns
• An inherited estate reattribution deal that creates capital opportunities

50

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 outlook

Mark Hodges, Chief Executive Officer

• Strategic focus

David Barral, Marketing Director Questions & answers Lunch

51

• Manage composite

• Build global Asset

• Allocate capital

• Increase customer

• Boost productivity
• 98% meet or beat COR
• £500m cost savings by

• Double IFRS EPS by

• 1.5 – 2 x dividend cover
• n IFRS post tax
• perating earnings

• Globally integrated business •

• Address legacy
• Transform business

• Exploit UK synergies
• Generate capital

• Seize unique growth
• pportunities
• Leverage scale
• Generate capital
• N. America
• Optimise business mix,

• Generate net capital

• Contribute to doubling

• Prioritised portfolio
• Regional operating

• Investment required

UK Life, Driving Value Through Excellence

Operational excellence

• Offshoring and outsourcing
• Simplification
• Service
• RBS Joint Venture
• Retention
• Culture and leadership

UK Life Market leadership

Drive up profitability Generate capital

Operational excellence

Competitive advantage

52

The start of the journey

• Labour intensive organisation
• High cost base
• Complex inflexible IT & processes
• Poor service levels
• Product complexity
• Minimal retention activity
• Lack of employee engagement

2005 Offshoring and outsourcing A strategic opportunity to drive value Simplification Service RBS Joint Venture Culture and leadership Retention

53

98% In-house

Offshoring and outsourcing

Customer Operations 2005 Customer Operations 2009

Increased flexibility and efficiency of operations

36% Outsourced 18%

• ffshore

46% In-house 98% In-house

54

Simplification

2005 2009

System decommissioning ‘Fix’ or migrate strategy 20 core admin systems 4 admin systems Simplified operating environment 550 systems Closed over 300 systems 12,500 UK headcount 9,200 UK headcount Site rationalisation eCommerce & self-serve Limited eComm 7 million policies

• n-line

Mandatory change £9m Mandatory change £4m

55

Site rationalisation

Life Customer Operations 2005 Footprint Life Customer Operations 2009 Footprint

Bristol Eastleigh Glasgow Sheffield Southampton Newcastle Norwich Stevenage York Bristol Eastleigh Norwich Sheffield York

Reduction in fixed costs; nine key sites to five

Bangalore Pune Chennai Bangalore

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Simplification

Driving efficiency into the business

1,032 1,069 1,148 1,485 800 1,000 1,200 1,400 1,600 2006 2007 2008 2009 Policies

Scale Operations In-force Policies per Headcount Managing 44% more policies per head in 2009

57

RBS Joint Venture

• 119% sales growth
• 80% growth in Bancassurance

market share

• Promotion of Life, Pensions and

Investment products

• 50% increase in sales

consultants

• Well positioned to benefit from

RDR Driving growth in strategic distribution channels

Long-term Savings sales (PVNBP £m)

Life & Pensions sales (PVNBP) calculated on an EEV basis.

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2005 2006 2007 2008

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Service

1 Financial Advisor awards 2005

Service Promises for all products £6m invested in our Communications 61% reduction in complaints Listening to 56k customers & 17k distributors

4 Financial Advisor awards Operating model driving service improvements across the board

85% distributor interactions ‘One & Done’

Q1 2009

Distributor satisfaction Customer satisfaction Customers recommend us Distributors recommend us Distributor satisfaction Customer satisfaction Customers recommend us Distributors recommend us

57% 57% 38% 41% 86% 77% 68% 76%

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Retention

30 experts retaining 11,000 customers 3,000 customers without advisers receiving financial advice 55,000 customers retained this year within BAU Specialist team of retention experts Transactional customer service No financial advice on existing products No proactive retention 500 accounts engaged

• ver 100 closed

Zero engagement Active distributor management Trained financial advisors Retention training ‘in the line’

2005 2009 Focused strategy driving retention activity across the business

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Culture and leadership

Investment in leadership, capability and engagement

Talking Talent 7,900 employees Leadership Capability 63% new Directors CII accredited Service Academy 3,000 graduates Bonuses aligned to IFRS profit Brand Engagement £2.6m investment in our people 2005 2009

Employee Engagement

49% 68%

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Customer Driven Design

Removing waste, improving efficiency 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

62

Customer Driven Design

Removing waste, improving efficiency 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

63

Operational excellence: The journey does not stop here

Customer Portal On-line Pensions Adviser Portal

Significant investment in eCommerce

64

Operational excellence: The journey does not stop here

Customer Portal

Significant investment in eCommerce

64

65

Operational excellence: The journey does not stop here

Adviser Portal

Significant investment in eCommerce

66

Operational excellence: The journey does not stop here

On-line Pensions

Significant investment in eCommerce

67

Expectations

• 80% Protection NB on-line
• 90% Bonds NB on-line
• Over 7 million policies on-line
• 70k customers using pensions tracker by 2010
• £5m investment
• Redesign across all products
• 85% distributor transactions One & Done
• 40% reduction in waste

Operational Leverage eCommerce Brand and People Customer-driven design

• 55% outsourced or offshored
• 2.7m policies migrated
• Flexible & efficient
• Continuing to reduce fixed costs
• 68% Employee Engagement
• 86% Distributor Satisfaction
• 77% Customer Satisfaction
• 5 Star Service

The business is now engineered to deliver sustainable operational effectiveness

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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 outlook

Mark Hodges, Chief Executive Officer

• Strategic focus

David Barral, Marketing Director Questions & answers Lunch

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Innovation Demonstrations

Unlocking Value from Customer Data On-line Pensions Adviser Portal Customer Portal

Clive Bolton, Director of Annuity Business Pricing and Retention Brian Bussell, Director of Marketing, Pensions Billy Burnside, Head of Distribution, E-business Chris Abrathat, Head of Marketing, E-commerce

Andrew Moss NUL18.11.08

Investor and Analyst Event, Wednesday 6th May 2009

UK Life, Driving value through excellence