Aviva UK: Winning In The UK November 2010
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Transcript of Aviva UK: Winning In The UK November 2010
8/7/2019 Aviva UK: Winning In The UK November 2010
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nn ng n e
8/7/2019 Aviva UK: Winning In The UK November 2010
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Aviva UK
No 1 insurance brand and customer franchise in the UK
No 1 insurance brand and customer franchise in the UK
• Brand strength and customer franchise
• UK’s largest insurer with 19 million customers• One of the top ten most valuable brands
• 1 in 3 households has an Aviva relationship
• Partner of choice
,
corporate partners and direct• Voted UK’s top Life, General and Health insurer by
intermediaries
• Partner to the UK’s top banks
• Significant contributor to Aviva results
• 44% of rou IFRS o eratin rofit
• 30% of worldwide L&P sales
• 47% of worldwide NWP
• UK Return on Capital Employed 12.8%
2
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Aviva UK
CEO Aviva UKMark Hod es
UK Life CEOToby Strauss
UK GI CEODavid McMillan
UK Commercial
DirectorUK CRO
Craig ThorntonUK HRD
Rupert McNeil
3
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Aviva UK
A unique opportunity for customers and shareholdersA unique opportunity for customers and shareholders
• Increase earnings from new and in-force business
• Capitalise on our multi-channel, multi-product strategy
• Win in an RDR world through strong brand andservice
• Underwriting and risk management capability
• Drive profitable growth
• Excellence in underwriting, claims management andcustomer service
• Expand profitably into business lines and segments
where underweight
UK
Drive outadditional
• Leverage brand to drive earnings from 19mcustomers
•
4
value
• Generate further cost and efficiency savings• Exploit capital diversification benefit
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Aviva UK
A leading competitive positionA leading competitive position
750)
650
rofit* (£
450
erating
250
350
IF
RS o
50
150
HY201
-50
5
(253)
* HY 2010 IFRS operating profit or reported equivalent (£m)AXA operating profit includes UK and Ireland, RBS operating profit includes international businesses
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Aviva UK
A unique opportunity for customers and shareholdersA unique opportunity for customers and shareholders
UK
Drive outadditional
6
value
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UK Life today
Performance transformed over last 5 yearsPerformance transformed over last 5 years
FY 2005 HY 2010 +/-
Operating Expenses £941m £379m
FY 2005 Q3 2010 +/-
, ,
Life & Pensions margin 1.8% 3.5% +170bp
New business IRR 10.6% 15.1%
Payback (years) 9 7
+450bp
2
7
Capital Intensity 5.3% 2.7%
+260bp
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UK Life today
We have driven substantive and permanent operational changeWe have driven substantive and permanent operational change
2005 Q3 2010
Systems rationalisation20 core admin systems 4 core admin systems
12,500 UK headcount(9 sites)
7,600 UK headcount(5 sites)
Site rationalisation
Over 5 million policies
98% of customeroperations in house
37% outsourced,16% offshoreFlexible cost base
Customer and Adviser Portale-commerce ca abilit
Distributor satisfaction41%
Distributor satisfaction76%
- --available on-line
Customer centric designCustomer satisfaction
38%Customer satisfaction
76%
8
Leadership and focus
Employee engagement
49%
Employee engagement
71%
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UK Life today
An ambitious programme has transformed our operating expense baseAn ambitious programme has transformed our operating expense base
UK Life expense base• £211m reduction in underlying
£941m
£730m800
900
1,000
)
• Continuing to operate in linewith expense allowances
500
600
700
penses (£ • P&L benefit of £100m by end
of 2012 reflecting costreduction and growth
200
300
400
erating e
• Pension scheme closure
• UK procurement
0
2005 2010 Est.
O • E-commerce / self-service
9
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UK Life today
A strong and diversified new business franchiseA strong and diversified new business franchise
Q3 2010 Mix(PVNBP) IRR Payback(Years) Margin CapitalIntensity
Pensions (inc. SIPP) 40% 12.8% 9 1.7% 3.5%
Bonds 17% 23.9% 6 1.5% 0.4%
Annuities 30% 22.2% 6 5.7% 2.0%
Protection 10% 13.9% 6 7.6% 8.7%
qu y e ease > . .
Life and Pensions Total 100% 15.1% 7 3.5% 2.7%
10
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UK Life today
Proactive pricing actions driving up IRRProactive pricing actions driving up IRR
IRR
Pricing actions include:
• Reduced commission on
14%
15%
16% bonds, individual pensionsand GPPs
• Successful launch of
12%
13% adviser charging pensionsproduct
• Protection re- ricin from 2
9%
10%
months to 2 days
• Annuities re-pricing from 1month to 1 da ostcode
8%
FY 2005 MixMovement
ExpenseReduction
PricingActions
Q3 2010
pricing
• Improved reinsurance for
11
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UK Life today
Experience broadly in line with long term assumptionsExperience broadly in line with long term assumptions
HY 2010
Persistency Shortterm
LongtermExperience
variances
Bonds
Protection
Mortality / Morbidity £12m
Management actions:
• Proactive management of bond
Persistency £(10)m
• Action on individual IFA accounts
• Protection la se alert for IFAs
Expenses £(8)m
• Improved customer and distributorcommunications
Total £(6)m
12IRR using short term persistency assumptions would be 14.8% vs. 15.1%
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UK Life today
Growing IFRS operating profits from a base of £800m+ paGrowing IFRS operating profits from a base of £800m+ pa
150
200
250
(£m
)HY 2009 Operating profit £368m
HY 2010 Operating profit £463m
0
50
100
rating profi
(200)
(150)
(100)
IFRS op
Newbusinessmargin
Technicalmargin
Unitlinkedmargin
Participatingbusiness
Spreadmargin
Expectedreturn
Acquisitionexpenses
Adminexpenses
DAC
• Disciplined financial management of new business, costs and in-force book
• Reattribution benefit of £120m per year
• Resilient rofits in a low interest rate environment
13
• Generating £400m+ of net operating capital per annum
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UK Life today
A strong competitive positionA strong competitive position
500
400
450
rofit (£m
250
300
350
erating
P
150
200
IF
RS Op
0
50
100
H1 2009 H2 2009 H1 2010
14
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UK Life today
Consistent strategy and disciplined execution – delivered distinctive positionConsistent strategy and disciplined execution – delivered distinctive position
500
400
it HY 2010
300
ating Prof
100IFRS Ope
0
NBC HY 2010
15
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UK Life market
Market growth and opportunityMarket growth and opportunity
The UK Life market is attractive:
• Demo ra hic trends and the demiseNumber of people aged 65
of defined benefit schemes willincrease the market by 30% over thenext 5 years
• UK retirement savings gap £318bn(1)
per year
• (2) .
• Ageing population creating
opportunities for new product
products e.g. Long term care
16(1) Source: “Mind the gap – quantifying Europe’s pensions gap,” Aviva & Deloitte, September 2010 (2) Source: Swiss Re Term and Health Watch 2010
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UK Life looking forward
Winning positions in our chosen growth marketsWinning positions in our chosen growth markets
Sectors and Products 3 yr CAGRmarket IRR Est. marketposition b Current Competitive Focusforecast vol
Individual(0.5)% 13.5% 6* 8%
Provide service and defend
GPP +10% 12.0% 4 11% Move to Top 3
Bonds +3% 23.9% 2 11%e ec ve grow w ere
value
Annuities +17% 22.2% 1 20% Consolidate No1 position
Core Protection (1)% 20.7% 2 15% Move to clear No1 position
17
Equity Release (3)% N/A 1 48% Consolidate No1 position
* IPP 2nd
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UK Life looking forward
Well placed to win in an RDR worldWell placed to win in an RDR world
Aviva UK Life channel & product analysis (NBC)* • To win in an RDR world requires:
• A strong brand
• Diverse distribution
• Well positioned products
• Excellent service
NBC by Product &Channel
IFA
Building
Socs
EBCs Retail Total
Bonds 3% 4% - - 7%
• Successfully launched RDRcompliant pensions products
• Well positioned in largely
Individual Pensions 10% 1% 1% - 12%
GPP 2% - 2% - 4%
Corporate pensions - - 1% - 1%
market
• IFA segmentation used to identify
winners
nnu es -
Protection 7% 9% 4% 1% 21%
Equity release 3% - - 2% 5%
• RDR resilient bancassurancerelationships growing
• Continue to build customer
RDR impact
Limited RDR impact
18•HY 2010
EBCs – Employee Benefit Consultants
capability through e-commerce
investment
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UK Life Summary
A growing business winning in its marketplaceA growing business winning in its marketplace
Sustainable £400m+ er annum net o eratin ca ital
Product IRR of at least 12%, with payback of 10 years or less
Growing IFRS operating profits of £800m+ per annum
P&L benefit of £100m from cost reduction activity by 2012
Win in an RDR world
19
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Aviva UK
A unique opportunity for customers and shareholdersA unique opportunity for customers and shareholders
UK
Drive outadditional
20
value
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UK GI today
Leading distribution franchise and core insurance excellenceLeading distribution franchise and core insurance excellence
• A market leader with >10% share
•
• No1 for Commercial SME
• Two great direct brands - Aviva and RAC
LeadingDistributionFranchise
• No1 for GI Bancassurance
• Underwriting excellence and largest underwriting footprint(28 branches, 1,800 underwriters)
• Leading edge pricing (Aviva Risk Index “ARi”)
• 7 operational Centres of Excellence delivering scale and bestpractice
InsuranceExcellence
21
• Award winning service
• Purchasing power and claims supply chain management
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UK GI today
We have driven substantive and permanent operational changeWe have driven substantive and permanent operational change
2005 Q3 2010
Operations 2010 Programme27 processing centres95% of work done in 7Centres of Excellence
IT cost base £325m‘IT 2010’ efficiency and
effectiveness programmeIT cost base £190m
19,300 UK headcount Business automation, off-shoringand outsourcing
13,100 UK headcount
Shift from paper / manual toe-commerce
On-line Direct sales 44%On-line Direct servicing 0%
On-line Direct sales 62%On-line Direct servicing
20%
Consistent leadershipNo 1 Commercial Insurer
voted by brokersNo 1 Commercial Insurer
voted by brokers
22
ons s en message an
engagement
mp oyee engagemen
58%
mp oyee engagemen
63%
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UK GI today
An ambitious programme has transformed our operating expense baseAn ambitious programme has transformed our operating expense base
• £546m reduction in
UK GI expense base
£459m1,600
1,800
,
m)
Disposals (1)
• P&L benefit of £100m by endof 2012 reflecting cost
£950m
800
1,0001,200
,
xpenses ( reduction and growth
absorption
, m
200
400
600
pe
rating e
• UK procurement
• E-commerce / self-service0
2005 Proforma
O
2010 Est.
(1) Non (1) Non- -core disposals : MSS, HPI, Auto Windscreens, BSM, RAC France core disposals : MSS, HPI, Auto Windscreens, BSM, RAC France 23
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UK GI today
Active cycle managementActive cycle management
94%6,000
NWP and COR Actions to drive profitability
• 2003-06 rew volumes at attractive
98%5,000
CORs
• 2007-09 actions to maintain
profitability
102%
4,000• Exited unprofitable
relationships (Schemes, MGAs,
Partners)P (£m
)
COR
106%
3,000
• Focus on most profitable brokersegments (Club110 and B.I.G.)
• Disciplined underwriting and
N
2,000
2003 2004 2005 2006 2007 2008 2009
Aviva UK GI NWP Market COR (Source FSA returns) Aviva UK GI COR
sophisticated pricing (ARiimplemented, early creditor
pricing action)
24
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UK GI today
UK GI has a strong competitive position compared to its peersUK GI has a strong competitive position compared to its peers
300
(£
m)
200
250
ting profit
100
150
IFRS op
er
0
50
HY10
(50)
Q3 YTD 2010 % COR 96
(253)
25
HY 2010 % COR 98 99 83 95 101 100 120
* HY 2010 IFRS operating profit or reported equivalent (£m)AXA operating profit and COR include UK and Ireland, RBS operating profit includes international businesses but COR is UK business only
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UK GI today
High quality book with significantly improved current year profitabilityHigh quality book with significantly improved current year profitability
1,200
£mOperating profit • Underwriting, pricing and
claims handling delivering
800
1,000improving claims costs
• Reserving confirmed byregular independent reviews
200
400 • Distribution ratio reducedfrom 40% (2007) to 33%(2010 HY)
(200)
0
2005 2006 2007 2008 2009 HY 2010
Axis Title
Prior year Current year
• Profits relatively resilient tolow interest rate environment
96 95 106 99 99 98COR %Reported
26
Q3 YTD 2010 96
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UK GI today
Core strengths in underwriting, pricing and claims managementCore strengths in underwriting, pricing and claims management
80%
5.7%
6.0%
26%
28%P
Reducing commercial lines claims frequency
Direct PM New Business Rating Vs Market
Hardening personal motor rates
20%
40%
5.1%
5.4%
22%
24%
oper t yM
oto
0%
AA Comp UKDI
4.8%20%2007 2008 2009 2010
Motor Property
“ ”Drivin commercial lines underwritin
2008 2009 2010
• Operational centres of excellence, poolingexpertise and best practice
• Claims intelligence team targeting organised
excellence:
• Local underwriting including “Bonusunderwriters”
fraud rings
• Strong litigation avoidance processes –
saving c£5k per claim
• rd
• Underwriting innovation (Hawkeye mapping
tool, Commercial Ari, flood data)
• Cleanse the book a continuous process
• own network
27
“poorest” performers
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UK GI today
Personal lines – growing personal motor into a hardening marketPersonal lines – growing personal motor into a hardening market
1,600
’s)
Strong advertising Better risk selection
10% C
on Proportion of UKDI motor customers
800
uotes (000
5%
er si onR a
ARi risk group 2008 2010
1 - 3 28% 13%
0Q1 2009 Q3 2010
Qt e
4 - 7 39% 39%
8 - 10 33% 48%
Internet Conversion Rate Quotes
Improving fundamentalsUKDI Car - BI
ARi Risk Group 1 -3 4 - 7 8 - 10130
140
150
u
ency
Retention rate 68% 72% 78%
Cancellation rate 25% 11% 7%100
110
120
Indexed fre
28
Conversion rate 4% 11% 13%2005 2006 2007 2008 2009 2010
Accident Year
Aviva indexed frequency Third party working group
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UK GI today
UK GI is growing profitablyUK GI is growing profitably
050
100 £m UK GI Net Written Premium• UKDI motor customer growth of
160,000 to Q3 2010
£1,053m
£1,029m
£1,050m
000
• ,Q3 2010 versus 150,000 for the
whole of 2009
•£996m
£937m
950
2,300 brokers
• Strong growth in commercialnew business, 2010 YTD up
£880m
£913m
850
900 £82m on 2009
• Commercial Property
persistency at the highest levels
800
s nce
• Successful re-entry intoCorporate Risks with projected
750
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
29
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UK GI looking forward
Executing strategy for profitable growthExecuting strategy for profitable growth
UK GI market share 2009• Refreshing aggregator proposition in
2011
• Launch RAC Home panel Q1 2011
• Complete direct pricing roll-out toadditional 700 brokers
Segmentar esize£bn
Direct Affinity Broker
• Exploit market-leading SME franchise
• Levera in broker se mentation BIG
Personal 23.5 11.6% 16.1% 6.5%
SME 10.6 1.5% 1.6% 17.5%
Club 110, Bonus)
• Targeting under penetrated industry
segments and expanding risk appetite
Corporate
(inc Lloyds)
9.9 N/A N/A 2.5%
• Build out controlled expansion of
corporate risks and specialty lines
Total 44.0 10.0% 13.8% 8.2%
Source: ABI Returns 30
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UK GI looking forward
Controlled expansion in corporate risks and specialty linesControlled expansion in corporate risks and specialty lines
Appetite extension - £6bn market
Eg:pabili
ty SME core business - £10bn market
UK Corporates
Property
Liability
C Eg:
Property
Liability
Motor and Fleet o or an ee
LocalAuthorities
D&O
Group PA
Engineering
Fidelity Guarantee
Marine
31Risk AppetiteLow
Construction
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UK GI Summary
A strong business well positioned to win in its marketplaceA strong business well positioned to win in its marketplace
2011 UK General Insurance COR to be 97% or better
P&L benefit of £100m from cost reduction activity by 2012
Controlled expansion of risk appetite in Corporate and Specialty Lines
Scale and efficient claims management
32
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Aviva UK
A unique opportunity for customers and shareholdersA unique opportunity for customers and shareholders
UK
Drive outadditional
33
value
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Aviva UK
Diversification brings wide-ranging benefitsDiversification brings wide-ranging benefits
Brand• Integrated branding advantages
• GI advertising benefits the life business in the
CustomerDifferentiation
• Drive value from our shared customer base
Distribution• Ability to adapt to changing customer demands
• Leadershi in bancassurance
Cost &
Scale &efficiency • Exploit opportunities to combine common
Structural • Making best use of our capital and benefiting
,
advantage from the advantages of our diversified business
34
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Aviva UK today
Outstanding brand awareness since launchOutstanding brand awareness since launch
63%
60%
70%
50%
rec ne
57%
39%
33%
40%
32% Scottish Widows
29%
20%20% 18% Legal & General
26% More Than
4%
11%
10%10%
an ar e
14% Esure
35YouGov Brand Index data – a Nationally representative daily sample of over 2000 people
0%
Dec '08 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
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Aviva UK today
Common customer base brings significant opportunityCommon customer base brings significant opportunity
Household income• Similar customer profiles mean
insights can be exploited across
• Concentration on mid-marketcustomers brings both loyalty and
Pre-retired
stage
a grea er va ue
• 1.27 policy holding per customer
•Family
Non-family
Lif
products
• Broad product range covers all
36
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Aviva UK today
No 1 bancassurance provider - the partner of choiceNo 1 bancassurance provider - the partner of choice
LIFE GI
Personal Commercial
• Proven ability to improve partnersales penetration - Santander
• Single relationship managerlines lines
Lloyds
building deep relationshipsacross all products – and co-
ordinated globally
Santander
opportunities
• Creation of unified IT platform
giving partners:
RBS
• Lower training and
integration costs
• Re-use data across Life /
CIS
GI products
• Higher cross-sales
• Bancassurance IRR of 15%
37
and COR of 96% YTD 2010
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Aviva UK today
Scale benefits from UK modelScale benefits from UK model
• Over £700m reduction in
underlying cost baseUK ex ense base
£2.4bn2.5
3.0
)
• Significant shared servicesbenefits over the last 10 years– a third of cost base is
£1.7bn
1.5
2.0
enses (£b
• c. £275 million to NAV and atleast £50 million cost savings
0.5
1.0
rating exp pa rom e c osure o e
final salary pension schemes
• P&L benefit of £200m by end
0.0
2005 2010 Est.
Ope 2012 re ect ng cost re uct on
and growth absorption
38
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Aviva UK today
Strong and disciplined focus on generation and allocation of capitalStrong and disciplined focus on generation and allocation of capitalStrong and disciplined focus on generation and allocation of capital
• UK region significant contributor to
Group economic capitaldiversification benefit
• Sustainable ongoing net capitalgeneration of £800m+ (excludingone offs) through:
• Reduction in UK Life newbusiness strain
£535m
• Benefits of reattribution
• Rigorous management of costs• Growing IFRS operating profits
2009 2010 Est.
39
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Aviva UK
A unique opportunity for customers and shareholdersA unique opportunity for customers and shareholders
• Increase earnings from new and in-force business
• Capitalise on our multi-channel, multi-product strategy• Win in an RDR world through strong brand and
service
• Underwriting and risk management capability
• Drive profitable growth
• Excellence in underwriting, claims management andcustomer service
• Expand profitably into business lines and segmentswhere underweight
UK
Drive outadditional
• Leverage brand to drive earnings from 19m
customers
• Extend and deepen new bancassurance relationships
40
value
• Generate further cost and efficiency savings
• Exploit capital diversification benefit
A i UK fi i l
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Aviva UK financial summary
A growing business exploiting its unique positionA growing business exploiting its unique position
+
Life product IRR of at least 12%, with payback of 10 years or less
2011 UK General Insurance COR to be 97% or better
P&L benefit of £200m from cost reduction activity by 2012
Increasing IFRS operating profit and ROCE
41