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Andrew Moss NUL18.11.08
Investor and Analyst Event, Wednesday 6th May 2009UK 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 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.
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 BoffeyDistribution Director, Corporate & Consumer
Angela Seymour JacksonDistribution Director,
Intermediaries & Partners
David BarralMarketing 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 Group67%
UK Life33%
Rest of Group65%
UK Life35%
Rest of Group67%
UK Life33%
Rest of Group68%
UK Life32%
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
on IFRS post tax operating earnings
Aviva Investors• Globally integrated business • Transform the investment model • Increase third party business
UKMarket leadership• Address legacy• Transform business
model• Exploit UK synergies• Generate capital
EuropeScale, growth, capital• Seize unique growth
opportunities• Leverage scale• Generate capital
N. America• Optimise business
mix, growth & margin• Generate net capital
returns• Contribute to doubling
IFRS EPS by 2012
Asia PacificScale, growth• Prioritised portfolio• Regional operating
model• Investment required
Strategic priorities
Targets
UK LifeMarket leadership
Drive up profitabilityGenerate capital
Operational excellenceCompetitive 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£140mCost overrun
+/-
£751m£382mIFRS operating profit
£883m£589mEV operating profit
£679m£372mExisting Business operating return
£11,669m£9,185mLife & Pensions sales (PVNBP)1
20082005
+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£140mCost overrun
+/-
£751m£382mIFRS operating profit
£883m£589mEV operating profit
£679m£372mExisting Business operating return
£11,669m£9,185mLife & Pensions sales (PVNBP)1
20082005
+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£365mFree surplus generation
2.5%5.3%Strain % of L&P sales (PVNBP)(2)
£293m£488mNew business capital strain(1)
20082005
-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
9,20012,500UK headcount
4 star1 starDistributor service rating
+/-
68%49%Employee morale score
75%60%Value on scale platforms
68%38%Customer recommendation score
420Core admin systems
1,4851,032Policies per headcount
2009 Q12005
+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
0
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 ShareQuarterly 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
0
2
4
6
8
10
12
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080
2
4
6
8
10
12
14
16
18
20
Commercial UK NHS Healthcare Annuity Book (RH Scale)
£bn
19
A high quality portfolio
£857mAnnual rental income
£650mAnnual interest income
6,110Number of tenants
15 yrsAverage remaining loan term
12.5 yrsAverage lease term
3,473Number of properties
536Number of borrowers
31 Mar 2009Portfolio 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
% o
f Por
tfolio
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
% o
f Por
tfolio
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£0.1mInterest arrears
0.01%
76%
1.29
30 Dec2007
0.25%0.02%0.01%Interest arrears
105%103%81%Average loan to value
1.311.301.28Interest service cover
31 Mar2009
31 Dec2008
30 Jun2008
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
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
on IFRS post tax operating earnings
Aviva Investors• Globally integrated business • Transform the investment model • Increase third party business
UKMarket leadership• Address legacy• Transform business
model• Exploit UK synergies• Generate capital
EuropeScale, growth, capital• Seize unique growth
opportunities• Leverage scale• Generate capital
N. America• Optimise business mix,
growth & margin• Generate net capital
returns• Contribute to doubling
IFRS EPS by 2012
Asia PacificScale, growth• Prioritised portfolio• Regional operating
model• Investment required
Strategic priorities
Targets
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 LifeMarket leadership
Drive up profitabilityGenerate capital
Operational excellenceCompetitive advantage
30
Driving up profitability
14.0%10.6%New business IRR
3.5%2.9%Life & Pensions margin1,2
£40m£140mCost overrun
+/-
£751m£382mIFRS operating profit
£883m£589mEV operating profit
£679m£372mExisting Business operating return
£11,669m£9,185mLife & Pensions sales (PVNBP)1
20082005
+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
0
2
4
6
8
10
12
14
16
18
Annuities Protection Pension 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
Mar
ket s
hare
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
% P
VN
BP
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%
Annuit ies, 21%
Individual pensions, 18%
Protect ion, 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 %
6796Capital strain £m
812Payback (years)
16.7%9.5%IRR
9.1%5.2%Margin
+/-20082005New 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 %
58153Capital strain £m
46Payback (years)
23.5%16.5%IRR
7.8%9.2%Margin
+/-20082005New 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 %
146148Capital strain £m
912Payback (years)
12.4%8.2%IRR
1.6%1.2%Margin
+/-20082005New 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 %
2677Capital strain £m
149Payback (years)
7.7%9.7%IRR
0.1%0.8%Margin
+/-20082005New 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
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2005 2006 2007 2008
PVN
BP
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
0
1
2
3
4
5
6
7
-50 0 50 100 150 200Channel growth %
Cha
nnel
mar
gin
%
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 operational 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
0
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 of 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
0
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
751723629382Reported for the year
--130-• Pension Scheme deficit funding by WP
-167149-• PS06/14
One-off items:
627556435382Underlying business profitability
2008£m
2007£m
2006£m
2005£m
Sustainable drivers of IFRS growth in plan
43
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
on IFRS post tax operating earnings
Aviva Investors• Globally integrated business • Transform the investment model • Increase third party business
UKMarket leadership• Address legacy• Transform business
model• Exploit UK synergies• Generate capital
EuropeScale, growth, capital• Seize unique growth
opportunities• Leverage scale• Generate capital
N. America• Optimise business mix,
growth & margin• Generate net capital
returns• Contribute to doubling
IFRS EPS by 2012
Asia PacificScale, growth• Prioritised portfolio• Regional operating
model• Investment required
Strategic priorities
Targets
UK Life, Driving Value Through Excellence
Generating capital
• Strong and resilient capital position
• Self-financing capital model
• Well capitalised with-profit business
UK LifeMarket leadership
Drive up profitabilityGenerate capitalOperational excellenceCompetitive advantage
44
Generating capital
+/-
£704m£365mFree surplus generation
2.5%5.3%Strain % of L&P sales (PVNBP)2
£293m£488mNew business capital strain1
20082005
-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 Existingbook surplus
Capitaltransactions
One offbenefits
Newbusiness
strain
Dividends toGroup
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
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
on IFRS post tax operating earnings
Aviva Investors• Globally integrated business • Transform the investment model • Increase third party business
UKMarket leadership• Address legacy• Transform business
model• Exploit UK synergies• Generate capital
EuropeScale, growth, capital• Seize unique growth
opportunities• Leverage scale• Generate capital
N. America• Optimise business mix,
growth & margin• Generate net capital
returns• Contribute to doubling
IFRS EPS by 2012
Asia PacificScale, growth• Prioritised portfolio• Regional operating
model• Investment required
Strategic priorities
Targets
UK Life, Driving Value Through Excellence
Operational excellence
• Offshoring and outsourcing
• Simplification
• Service
• RBS Joint Venture
• Retention
• Culture and leadership
UK LifeMarket leadership
Drive up profitabilityGenerate capital
Operational excellenceCompetitive 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 Operations2005
Customer Operations2009
Increased flexibility and efficiency of operations
36%Outsourced
18% offshore
46% In-house98%
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 on-line
Mandatory change £9m
Mandatory change £4m
55
Site rationalisation
Life Customer Operations2005 Footprint
Life Customer Operations2009 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
PuneChennai
Bangalore
56
Simplification
Driving efficiency into the business
1,032 1,0691,148
1,485
800
1,000
1,200
1,400
1,600
2006 2007 2008 2009
Polic
ies
Scale OperationsIn-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.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2005 2006 2007 2008
58
Service
1 Financial Advisor awards
2005Service 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%
59
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 engagedover 100 closedZero engagement Active distributor
management
Trained financial advisors
Retention training ‘in the line’
2005 2009
Focused strategy driving retention activity across the business
60
Culture and leadership
Investment in leadership, capability and engagement
Talking Talent 7,900 employees
Leadership Capability63% 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%
61
Customer Driven Design
Removing waste, improving efficiency
IPP New Business ProcessingReduction from an average of 39 days to 14 days
No.
of c
usto
mer
day
s
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 c
usto
mer
day
s
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 eCommerce64
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
68
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
69
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 2009UK Life, Driving value through excellence
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