UK Life, Driving value through excellence Investor and Analyst Event, Wednesday 6 th May 2009 Andrew Moss NUL18.11.08
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 ‘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 other 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 or 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. Andrew Moss NUL18.11.08
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 3
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 4
An experienced and proven team Mark Hodges Ian Butterworth Chief Executive Officer Rita Agati Chief Information Officer HR Director David Barral John Lister Finance Director Marketing Director Angela Seymour Jackson Graham Boffey Toby Strauss Distribution Director, 5 Intermediaries & Partners Distribution Director, Corporate & Consumer Chief Operating Officer
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 35% 32% Rest of Group Rest of Group 68% 65% On all measures, UK Life is a key component of the Group result 6 Source: 2008 data for new business sales (PVNBP), IFRS and MCEV operating profit and 31 December 2008 life and related business embedded value.
One Aviva UK Life Purpose Market leadership Prosperity & peace of mind Vision Drive up profitability One Aviva, twice the value Generate capital Strategic Targets Operational excellence priorities • Manage composite • 98% meet or beat COR Competitive advantage portfolio • £500m cost savings by • Build global Asset 2010 Management • Double IFRS EPS by • Allocate capital 2012 at the latest rigorously • 1.5 – 2 x dividend cover • Increase customer on IFRS post tax reach operating earnings • Boost productivity Aviva Investors • Globally integrated business • Transform the investment model • Increase third party business UK Europe N. America Asia Pacific Market leadership Scale, growth, capital • Optimise business Scale, growth mix, growth & margin • Address legacy • Seize unique growth • Prioritised portfolio opportunities • Generate net capital • Transform business • Regional operating returns model • Leverage scale model • Contribute to doubling • Exploit UK synergies • Generate capital • Investment required IFRS EPS by 2012 • Generate capital UK Life, fundamental to delivering One Aviva, twice the value 7
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 8
Driving up profitability 2005 2008 +/- +27% Life & Pensions sales (PVNBP) 1 £9,185m £11,669m +60bp Life & Pensions margin 1,2 2.9% 3.5% 71% Cost overrun £140m £40m +340bp New business IRR 10.6% 14.0% +83% Existing Business operating return £372m £679m +50% EV operating profit £589m £883m +97% IFRS operating profit £382m £751m Significant progress on delivering the One Aviva, twice the value agenda 9 2005 shown on an EEV basis, 2008 on a MCEV basis. 1 Data shown on an EEV basis. 2 Margin pre cost of capital and taxation, 2008 margin unaudited, published MCEV margin 1.7%.
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, driving out inefficiencies and 5% reducing operating expenses Growth 2005 2006 2007 2008 2009 -5% • Lower, more flexible and variable cost base -15% Operating Expenses -25% Expense over-run eliminated in 2009 10 Life & Pension sales calculated on an EEV basis for comparative basis.
Driving up profitability 2005 2008 +/- +27% Life & Pensions sales (PVNBP) 1 £9,185m £11,669m +60bp Life & Pensions margin 1,2 2.9% 3.5% 71% Cost overrun £140m £40m +340bp New business IRR 10.6% 14.0% +83% Existing Business operating return £372m £679m +50% EV operating profit £589m £883m +97% IFRS operating profit £382m £751m Significant progress on delivering the One Aviva, twice the value agenda 11 2005 shown on an EEV basis, 2008 on a MCEV basis. 1 Data shown on an EEV basis. 2 Margin pre cost of capital and taxation, 2008 margin unaudited, published MCEV margin 1.7%.
Generating capital 2005 2008 +/- -40% New business capital strain (1) £488m £293m -2.8pps Strain % of L&P sales (PVNBP) (2) 5.3% 2.5% Free surplus generation £365m £704m +93% £500m dividend paid over the last three years Delivering value to group 12 (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.
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 score 49% 68% +19pps We have transformed our operating model 13
We have delivered our promises � � • Rationalise costs • Develop the business � � • Simplify the legacy • Strong balance sheet � � • Value out of service • Capital efficiency � • Manage retention UK Life is in excellent shape 14
Hot topics Trading through the Commercial mortgages recession Re-attribution of the Brand re-launch inherited estate 15
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 • Market share increase at higher margin • Q1 net outflow only £0.1bn (excluding expected endowment maturities) • No unusual lapse experience Thriving in challenging markets 16 Quarterly sales (PVNBP) calculated on an MCEV basis. Market share based on ABI data.
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 17
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