News release
4 November 2009
Aviva plc third quarter 2009 interim management statement
AVIVA REPORTS GBP27 BILLION WORLDWIDE SALES, SIGNIFICANT BALANCE SHEET
IMPROVEMENT AND POSITIVE 2009 TOTAL PROFIT OUTLOOK
Managing for - Worldwide total sales and life and pensions
profit sales both reduced by 11% due to lower consumer
demand and strategic actions
- Group margin in line with full year 2008 at
2.1%
- Outlook for 2009 total profitability remains
good
Strong uplift in - Enhanced IGD solvency surplus of GBP3.7 billion
capital and balance
sheet - 25% increase in MCEV NAV per share
at 520 pence from half year 2009
Increasing pace of - Successful partial IPO of Delta Lloyd,
transformation completion of sale of Australian life
business, UK reattribution and US listing
- Europe strategy to deliver synergies and
improve distribution and customer focus
- New executive team responsibilities announced
and new CFO appointed
Andrew Moss, Aviva's group chief executive, commented: "In recent months Aviva
has completed a number of strategic initiatives which, together with improving
financial markets, significantly increased our capital and balance sheet
strength. The outlook for the group's total profitability in 2009 is good
despite a reduction in sales driven by continuing customer caution and active
management of sales volumes to optimise profitability."In the past three
months we've completed the sale of our Australian life business, listed on the
New York Stock Exchange, announced future management changes and begun to send
a total of GBP0.5 billion to 805,000 UK customers as a result of our inherited
estate reattribution. "Yesterday's successful IPO of part of our holding in
Delta Lloyd was another significant milestone for Aviva, giving us further
opportunity to reallocate capital to other parts of the group. The changes we
have made increase our financial flexibility and position Aviva well for the
future."
Key financial highlights
Restated(1) Local
9 months 9 months Sterling currency
2009 2008 change change
GBPm GBPm % %
Total life and pensions sales 24,060 27,014 (11)% (19)%
(PVNBP)(2)
Total investment sales(3) 3,042 3,374 (10)% (16)%
Total long-term savings 27,102 30,388 (11)% (19)%
New business margin 2.1% 2.0%
30 30 Sterling
September June change
2009 2009 %
GBPm GBPm
MCEV Net asset value per share 520p 416p 25%
IFRS Net asset value per share 409p 349p 17%
IGD solvency surplus GBP3.7bn GBP3.2bn 16%
(1) Restated numbers reflect the move from European Embedded Value
(EEV) to Market Consistent Embedded Value (MCEV) basis
(2) All references to sales in this announcement refer to the present
value of new business premiums (PVNBP) unless otherwise stated. PVNBP
is the present value of new regular premiums plus 100% of single
premiums.
(3) Investment sales are calculated as new single premium plus the
annualised value of new regular premiums.
Information
Investor contacts Media contacts
Andrew Moss Hayley Stimpson
+44 (0)20 7662 2286 +44 (0)20 7662 7544
Philip Scott Sue Winston
+44 (0)20 7662 2264 +44 (0)20 7662 8221
Charles Barrows Andrew Reid
+44 (0)20 7662 8115 (0)20 7662 3131
Susie Yeoh James Murgatroyd/Matthew Newton
+44 (0)20 7662 2117 (Finsbury)
+44 (0)20 7251 3801
Timings Contents
Real time media conference call News release
07:30am (GMT) Overview...................1
Analyst conference call Business review............3
09:30am (GMT) Capital management.........7
Supplementary schedules...11
Media
There will be a conference call today for real-time media at 0730 hrs
(GMT). The conference call will be hosted by Andrew Moss, group chief
executive.
The Aviva media centre at www.aviva.com/media includes images, company
information and news release archive. Photographs are available on the
Aviva media centre at www.aviva.com/media.
Analysts
There will be a conference call today for analysts and investors at
0930 hrs (GMT) on +44 (0)20 7162 0125 (quoting "Aviva, Andrew Moss",
pass code 849792). This conference call will be hosted by Andrew
Moss, group chief executive.
Replay will be available until 18 November 2009 on +44 (0)20 7031
4064. The pass code for the whole conference call, including the
question and answer session, is 849792 and for the question and answer
session only the pass code is 2682077.
Page 1
OVERVIEW
Key milestones The period since the half year has been marked by the
delivered achievement of a number of milestones in the ongoing
transformation of Aviva.
We announced yesterday the successful IPO of our Dutch
business, Delta Lloyd, on Euronext Amsterdam,
which will realise gross proceeds of GBP1.03 billion
for a 42% stake. This is a significant strategic
milestone which will provide Aviva with the
flexibility to explore balance sheet restructuring and
further growth opportunities while enhancing the value
and liquidity of our retained stake in Delta Lloyd. It
was the largest IPO to complete in Western Europe this
year and we are delighted with the result.
In September we received final approvals for the
reattribution of the inherited estates of two of
our with profit funds. This month UK policyholders
participating in the reattribution will start
receiving payments totalling GBP0.5 billion, in time
for Christmas.
In October Aviva established a secondary listing in
the US and started trading on the New York Stock
Exchange through its level two ADR programme.
The US is a strategically important market from both a
customer and shareholder perspective. For certain US
investors this is a more convenient way to hold Aviva
shares and we expect our US shareholder base to
increase. It also brings significant additional
visibility for the Group in the world's largest
savings market.
On 1 October we completed the sale of our Australian
life business and wealth management platform realising
proceeds of GBP0.45 billion.
The financial benefits of Aviva's ongoing
transformation, such as maintaining group margins and
overall cost reductions, remain on track
as we announced at the half year and these are key
points of differentiation for Aviva as the economic
outlook in the markets in which we operate remains
uncertain.
New executive We have recently announced new responsibilities and
responsibilities succession in our executive team. Pat Regan will join
Aviva and succeed Philip Scott as chief financial
officer in February next year. Mark Hodges, who joined
the group board in 2008, will lead our combined UK
life and general insurance businesses and Igal Mayer
will move to head our operations in North America from
1 January to succeed Tom Godlasky. Andrea Moneta, CEO,
Europe, has joined the group board and is leading the
restructuring of our business in Europe.
Sales The sustained nature of the economic downturn
profitability continues to impact customers' keenness and ability
maintained to save, with many prioritising the repayment
of debt over new long-term savings commitments. In
this environment, Aviva has delivered long-term
savings sales of GBP27,102 million (2008 restated:
GBP30,388 million) a reduction of 11%(1) reflecting our
focus on profitability rather than volume of sales in
the current economic climate.
Our focus on improving the profitability of new
business meant that our UK life and pension sales
reduced by 25% but the margin for the year to
date improved to 2.5% (HY09: 2.1%). In Europe
(excluding Delta Lloyd) sales for the year to
date were resilient at GBP9,770 million (2008: GBP9,830
million) and benefited from favourable movement in the
euro. This was achieved whilst maintaining margins at
3.8% (HY09: 3.8%). Delta Lloyd sales were 11% lower at
GBP2,835 million reflecting lower levels of corporate
pension business in 2009. In North America, US sales
for the first nine months were down at GBP3,742
million (2008: GBP3,810 million), reflecting a focus
on the optimisation of capital through moderating
annuity sales and growing our life insurance business.
Finally, in Asia Pacific, economic conditions improved
in the third quarter but sales were 22% lower as
customers remained cautious about investing in unit-
linked savings products.
(1) All growth percentages quoted in this announcement are on a sterling
basis unless stated otherwise.
(2) Comparatives given are Q3 2008, unless stated otherwise
Page 2
Our broad distribution capability continues to serve
us well. Bancassurance life and pension sales were
resilient, 5% higher than the prior year at GBP7,043
million (2008: GBP6,736 million), benefiting from the
strength of the euro and demonstrating the value of
this revenue stream both to Aviva and to our bank
partners.
Work to improve the quality and sustainability of
earnings has also continued in the general insurance
business, both in the UK and overseas, resulting in a
combined operating ratio (COR) of 98% for the first
nine months of this year. However, premium volumes
have reduced, reflecting our stance on writing for
value not volume.
Increasing Our capital position has been further strengthened
financial following management actions and improved market
flexibility and conditions. Our IGD surplus stood at GBP3.7 billion as
balance sheet at 30 September (HY09: GBP3.2 billion). This does not
strength yet include the GBP0.4 billion uplift from the sale of
our Australian business, the additional GBP0.5 billion
from the Delta Lloyd IPO or the deduction of
GBP0.5 billion for policyholder payments as part of the
reattribution exercise.
The strength and quality of our balance sheet has been
further underlined by the significant recovery
reported today in our MCEV net asset value per share
from 416p to 520p. On an IFRS basis net asset value
per share has increased from 349 pence at 30 June 2009
to 409 pence at 30 September 2009.
At the full year 2008 we established significant
provisions against future asset default experience in
our UK life business, taking the total default
provisions in respect of this business to GBP1.1
billion. As at the end of the third quarter 2009,
these remain unutilised, with no material default
experience in either our commercial mortgage
or corporate bond portfolio.
Following the improvement in the US credit markets,
unrealised losses on debt securities in our US
business moved from a net unrealised loss of GBP2.4
billion at 31 December 2008 to a net unrealised gain
of GBP0.4 billion at 30 September 2009.
Outlook We are making significant progress against our five
year strategy to transform Aviva. A number of key
initiatives have been delivered in the last quarter
which will allow us to consider opportunities created
by the economic downturn from a position of
considerable financial flexibility and strength.
Our total profitability outlook for 2009 remains good.
Management actions have been taken across the business
to maintain and improve margins where possible and
reduce costs. We have seen a strong rebound in
financial markets which, if sustained to the end of
the year, will have a positive effect on our overall
profits.
Page 3
BUSINESS REVIEW
Long-term savings
United Kingdom
In the UK, our focus remains on the successful delivery of our strategy
of product innovation, operational efficiency and disciplined financial
management. We believe this, combined with our broad product range,
wide distribution reach and potential for realising further value from
our significant existing book of business leaves us exceptionally well
placed to continue to deliver value for our shareholders and
customers.
Market conditions remained challenging and consequently life and
pensions sales were 25% lower at GBP6,664 million (2008: GBP8,845
million), with collective investments sales of GBP631 million (2008:
GBP1,243 million). Despite this, our life and pensions market share has
increased to 10.8%(1) (Half Year 2008: 10.4%).
As in the first half of 2009, we continued to focus on improving the
profitability of new business while maintaining rigorous capital
discipline. This has led to an improvement in margin to 2.5% up from
2.1% at the half year and a reduction in capital strain(2) as a
percentage of PVNBP to 3.2% (2008: 3.6%).
Our joint venture with the Royal Bank of Scotland has continued to
deliver a strong performance particularly through the simplified
pension proposition with life and pension sales increasing by 7% to
GBP972 million. The new business margin improved to 2.3% (2008: 1.8%).
Total pension sales were lower at GBP2,893 million (2008: GBP3,498
million) predominantly driven by economic conditions impacting both
consumer and employer behaviour. Rising unemployment coupled with
reduced pay settlements have reduced incremental payments to individual
pension schemes. Group and corporate pensions have continued to see a
move towards defined contribution schemes and a reduction in new
members as a result of lower recruitment activity.
Protection sales (excluding creditor) were in line with 2008 at GBP684
million supported by the success of our Simplified Life product which
is generating record levels of applications each week. Overall
protection sales were lower at GBP707 million (2008: GBP872 million) as
a result of the regulatory changes impacting creditor sales. During July
we launched our free life cover for new parents, an initiative which
has been very well received by customers, advisers and commentators as
we seek to highlight the GBP2.3 trillion protection gap that currently
exists in the UK. More recently we have increased the scope of our
critical illness cover with the aim of improving consumer confidence in
this product by making the level of cover more comprehensive.
Total annuity sales were GBP1,249 million (2008: GBP1,920 million). Our
disciplined approach to writing bulk purchase annuity sales at or above
our hurdle rate has meant that sales have reduced to GBP147 million
(2008: GBP642 million). Individual annuity sales of GBP1,102 million
(2008: GBP1,278 million) were 14% lower than the equivalent period last
year, although we are now seeing a significant increase in applications
compared to earlier in the year.
Bond sales have reduced to GBP1,602 million (2008: GBP2,399 million)
in a market that has contracted by 53%(1) since the first half of 2008.
We remain committed to writing business at acceptable levels of return
in a market where consumers are increasingly looking for guarantees. We
will be launching a new with-profits guaranteed product in November to
address this need.
We remain the number one provider in the equity release market with
sales growing by 37% to GBP213 million (2008: GBP156 million),
reflecting our attractive proposition and financial strength.
Our brand campaign has seen a significant increase in spontaneous
awareness, from 4% to 55% since last year, as we continue to leverage
our successful re-branding, driving consumer demand and customer
advocacy.
(1)Source: Half Year 2009 ABI data
(2)Initial capital and associated required capital
Page 4
Following High Court and FSA approval in September, the deal to
complete the reattribution of our inherited estate was concluded on 1
October with 87% of policyholders voting and 96% of these voting in
favour of the offer. Our flexible offer meant that payments would
automatically increase if the average value of the inherited estate was
higher than GBP1.2 billion over June, July and August 2009. As the final
value was GBP1.25 billion, reattribution payments to those policyholders
who voted "Yes" will be around 7% higher. We are now working hard to
deliver payments to the vast majority of policyholders by Christmas.
We have continued to invest in our e-commerce capability and following
extensive research with the financial adviser community we have
launched our new Aviva for Advisers website. This includes a number of
system enhancements and provides a platform for monitoring their
business, saving them time and making it easier for them to work with
customers. Additionally, our innovative, market-leading on-line pension
tracker proposition is now available to over one million customers. All
of these innovations are designed to improve our customer service while
reducing costs.
Our business simplification programme continues to make great progress
with the completion of the outsourcing of the collective investments
administration to IFDS and the migration of legacy policies to Swiss Re
nearing completion, with the final migration due to complete early next
year.
We believe that the outcome of our strategic initiatives, financial
discipline and completion of the inherited estate reattribution have
put us in an excellent position to continue to deliver profitable
results during these uncertain times.
Europe
At our analyst and investor day on 22nd October we announced our new
strategy for our business in Europe. This strategy is two-fold: the
strategic management of our investment in Delta Lloyd, following the
IPO, as Delta Lloyd builds on its position of strength in its home
market, and our new strategy to make a 'Quantum Leap' in the
performance of our Aviva Europe businesses elsewhere in Europe.
Within Aviva Europe we have created a single business operating through
a strong presence in 12 markets, through two pan-European distribution
channels, bancassurance and retail, supported by pan-European product
development, operations, and governance. This will enable Aviva Europe
to take advantage of the significant growth potential and opportunities
in Europe, and contribute fully to the 'One Aviva, twice the value'
target. This includes a focus on growing our profits rather than
volumes.
Long term savings sales were GBP13,913 million (2008:
GBP13,660 million). Life and pensions sales were slightly below prior
year at GBP12,605 million (2008: GBP13,020 million) and on a local
currency basis sales were 13% down on prior year.
Aviva Europe
In the third quarter of 2009, we have again delivered a resilient sales
performance, supported by the continuing strength of the euro and the
diversity of our products and distribution channels. Life and pensions
sales for Aviva Europe were broadly in line with the prior year at
GBP9,770 million, (2008: GBP9,830 million). On a local currency basis
sales were 10% lower. Excluding the one-off items in 2008 relating to
the transfer of the Caja Murcia risk portfolio and the initial
contributions from compulsory pensions in Romania, sales were
maintained on a local currency basis. This is a good performance in
challenging market conditions. This has been achieved through a strong
bancassurance performance, where we have addressed consumer sentiment
for lower risk products through innovative with-profit guarantee
products, and a robust retail sales performance where our partnership
with AFER (a leading savings association in France) has performed
particularly well. Margin has been maintained at 3.8% (HY09: 3.8%).
Bancassurance
The bancassurance channel dominates our business in Italy and Spain and
we also have a strong presence in France. As the leading bancassurer
in Europe, we have sustained our performance by leveraging our unique
bancassurance model.
Overall bancassurance sales have risen by 9% to GBP5,384 million (2008:
GBP4,923 million) but are down 3% on a local currency basis. However
excluding the one-off transfer of the Caja Murcia protection portfolio
transfer of GBP170 million in 2008, bancassurance sales in local
currency were in line with the prior year as bank partners continue to
recognise the value of this revenue stream.
In Italy, bancassurance sales increased by 58% to GBP2,667 million
(2008: GBP1,683 million), up 40% on a local currency basis. This
significant growth reflects strong sales of protection and with-profit
guaranteed products, with the latter selling particularly strongly in
response to active marketing campaigns in the early part of the year.
Page 5
Bancassurance sales in Spain were 8% lower at GBP1,475 million
(2008: GBP1,596 million) and 18% down on a local currency basis.
Excluding the Caja Murcia transfer in 2008, sales are 8% down on a
local currency basis. Tough economic conditions have resulted in
consumers favouring short-term investment products; this has resulted
in reduced pension sales for us in this channel.
Bancassurance sales in France increased by 28% to GBP886 million (2008:
GBP691 million) and by 13% on a local currency basis. The improvement in
sales via Credit du Nord is mainly due to customers transferring their
savings into more attractive insurance products, moving away from
short-term banking products which offer lower interest rate returns.
The recession in Ireland has led to a drop in bancassurance sales of
37% to GBP302 million (2008: GBP482 million), a 45% decrease on a local
currency basis, reflecting trends in the Irish life insurance industry
as a whole. These factors have had a similar impact on retail sales.
The reduction in bancassurance sales in Poland is principally because
2008 sales included significant volumes of short-term endowment
policies sold through Deutsche Bank before this special promotion
closed in September 2008.
Retail
We have a significant retail franchise and are building a single retail
operating model with common tools and methods supported by centralised
sales support. The retail network is the predominant sales channel for
our businesses in France and Poland, and is also strong in Ireland.
Overall retail sales volumes were 11% down at GBP4,386 million (2008:
GBP4,907 million) and 17% down on a local currency basis. In 2008, we
benefited from GBP506 million of one-off initial contributions from the
launch of compulsory pensions in Romania. Excluding these, retail sales
were broadly in line with the prior year.
Retail sales in France were up 20% to GBP2,654 million (2008: GBP2,204
million), an increase of 6% on a local currency basis. With a decline
in consumer appetite in unit-linked products, our range of simple, easy
to understand and customer orientated with-profit products is highly
attractive. This is particularly the case with our partnership
with AFER where we have increased our customer base to 700,000.
In Poland, retail life and pensions sales were down 32% to
GBP727 million (2008: GBP1,071 million), a reduction of 25% on a local
currency basis. Within this, pension volumes have reduced significantly
as a result of new Polish pension legislation announced in the first
half of this year.
Delta Lloyd
Life and pension sales through Delta Lloyd are 11% lower than prior
year at GBP2,835 million (2008: GBP3,190 million), 22% lower in local
currency. This decrease mainly reflected lower levels of corporate
pension business in 2009 compared with 2008 and was partly offset by
the inclusion of sales from Swiss Life Belgium which Delta Lloyd
acquired in June 2008.
Investment product sales more than doubled to GBP684 million (2008:
GBP272 million) reflecting strong sales of Delta Lloyd's Euro Credit
fund.
North America
In the USA new business sales of GBP3,742 million (2008: GBP3,810
million) were slightly lower on a sterling basis, but down 22% on a
local currency basis. This was due to our continued focus on greater
capital efficiency by moderating the pace of annuity sales and growing
our life insurance business, coupled with no funding agreement sales in
2009 (2008: GBP621 million). Excluding the impact of funding agreement
sales, annuity and life sales were down 7% over the same period last
year on a local currency basis, and up 17% on a sterling basis. New
business margin at 0.5% is in line with half year 2009 and above the
same period last year.
Sales of annuities for the year to date have increased by 16% to
GBP3,167 million (2008: GBP2,736 million), but reduced by 9% on a local
currency basis.
Customers continued to seek products with guarantees and recognise
Aviva as one of the stronger market participants. However, as reported
in our half year announcement, demand for annuities in the first half
of the year exceeded our desired production and we took actions to
ensure that the overall business mix for the year was consistent with
our strategic goals. These actions, whilst enhancing annuity
profitability, resulted in a slowdown in sales in the third quarter
although we expect to see increased volumes in the last quarter of the
year.
Page 6
Life product sales, which mainly include indexed universal life and
term assurance products, were 27% higher at GBP575 million (2008: GBP453
million), and were level with the same period last year on a local
currency basis. This is a strong result when set in the context of
a US market which experienced a decline of 23% in the first six months
of the year as a result of economic conditions. We remain confident
that recent steps we have taken, which include expanding into the
brokerage general agency market and leveraging the use of our
existing life and annuity channels, will position us for future growth.
Asia Pacific
Life and pension sales were 22% below the prior year at GBP1,049 million
(2008: GBP1,339 million), 30% down on a local currency basis, mainly
reflecting the uncertainty associated with the volatile economic
environment across the region. Although the economic conditions
improved in the third quarter, customers remained cautious about
investing in unit-linked savings products. However, we have benefitted
from the inclusion of sales from the South Korea joint venture,
which now represent 20% of life and pension sales in the region
and from favourable exchange rate movements.
Within these totals, sales of life and pension products in Asia fell by
25% to GBP788 million (2008: GBP1,053 million). This was mainly as a
result of the uncertain economic environment and the decision
to scale back the sale of capital intensive products in Hong
Kong, Taiwan and Malaysia and the loss of two bancassurance partners
in India. This was partly offset by continued strong performance
from South Korea and improved sales in China in the third quarter. The
new business margin for the first nine months of the year was 2.6%,
which was an improvement on the first half of 2009 but below prior
year.
In Australia, life and pension sales were down by 9% to GBP261 million
(2008: GBP286 million) due to the closure of a capital protection
product at the end of 2008 and lower superannuation and group risk sales
resulting from less movement in the employment market. This was partly
offset by an increase in higher margin protection sales which improved
the overall margin. The sale of the Australia Life and Navigator
business was completed on 1 October 2009.
Investment product sales in Australia and Singapore were lower than the
prior year at GBP1,103 million (2008: GBP1,491 million). This decrease
mainly reflected the economic climate with heightened investor caution
and lower disposable income.
General insurance
The third quarter combined operating ratio (COR) was 98%, in line with
our 'meet or beat' target and we remain committed to this target going
forward. Our third quarter COR has been impacted by higher than
expected commercial claims in our Canadian business.
United Kingdom
In the UK our focus is firmly on improving the quality of our earnings
by reshaping the book for sustainable profit, improving our core
insurance capability and controlling the costs of distribution. As a
result, premium volumes have reduced reflecting our stance on writing
business for profit not volume. The UK market remains very challenging
with intense competition across both personal and commercial classes
and whilst this continues to place pressure on business volumes, we
have implemented a number of initiatives, such as our 'Get the Aviva
Deal' advertising campaign, to attract and retain high quality new
business and existing customers.
Despite the difficult economic and market conditions, the improvements
in our core insurance capability and enhanced risk selection mean we
are confident this will translate into lower claims ratios in the
future in addition to our already proven management of the distribution
ratio.
Page 7
Europe
Aviva Europe
In Europe, our general insurance and retail products are sold
predominantly through our retail channel. We have well established
general insurance and health operations in France and Ireland and
developing businesses in Italy, Poland and Turkey.
In France, premiums are holding up well in a mature and intensely
competitive market. In Ireland, where we lead the market, we continue
to follow our strategy of pricing for value in the face of aggressive
competition. As a result premium volumes have decreased on the prior
year. In contrast, our Irish health business is delivering the
strongest growth in the market, outperforming our competitors in terms
of new members. In Italy our general insurance business is also
performing well, and is growing through the emerging bancassurance
channel.
Delta Lloyd
Delta Lloyd general insurance premiums (excluding health) are ahead of
2008 due to the acquisition of the general insurance portfolio of Swiss
Life Belgium which was acquired in June 2008.
North America
The Canadian GI business continues to grow despite highly competitive
market conditions and targeted rate increases on specific risks.
Consistent with the trend seen in the Canadian GI industry, the
business has seen a higher level of claims incidence including severe
weather events and an increase in large commercial property losses. In
the highly competitive market in which we operate, we have continued to
drive key business initiatives including standardisation, streamlining
and automation of personal lines underwriting and the growth of our
commercial lines business. Our Claims Service Guarantee introduced in
2008 which promises customers a refund of their full premium if they
are not happy with our service continues to be an innovative
proposition to the Canadian customer.
Fund management
Aviva Investors
Following a turbulent start to the year, market conditions have
continued to improve alongside increased risk appetite among investors.
In this environment, Aviva Investors has continued to develop its
business focusing on third party and cross border sales opportunities.
We have developed a strong sales pipeline across all asset classes and
markets at a time when investors' risk appetite appears to be growing.
Net inflows in the year to September 2009 totaled GBP0.7 billion, of
which GBP2.4 billion were sourced from third party clients, which offset
outflows of GBP1.7 billion from Aviva group companies. The overall total
from group companies included strong inflows on our non-profit
businesses, which were more than offset by significant maturities in
our with-profit funds.
The business saw further interest in its liquidity fund with strong
inflows in France and the UK. Convertible and tactical asset allocation
funds also contributed meaningfully to sales performance with both
generating strong sales in Continental Europe.
Our absolute focus on our clients is bringing results. Aviva Investors
was ranked first quartile in the Greenwich Quality Index which measures
both investment quality and client service. Client service achieved a
significant improvement with first quartile ranking in the 2009 survey
and investment quality moved up to second quartile from fourth in 2007.
In addition, we continue to deliver improving investment performance
globally, with particular success in Australia, where over 90% of our
funds outperformed their targets.
CAPITAL MANAGEMENT
IGD solvency
The estimated group regulatory capital surplus position based on the EU
Insurance Groups Directive increased to GBP3.7 billion as at 30
September 2009 (GBP3.2 billion at 30 June 2009) after taking into
account the 2009 interim dividend net of scrip (at 46% uptake). This
does not yet include the GBP0.4 billion uplift from the sale of our
Australian business, the additional GBP0.5 billion from the Delta Lloyd
IPO or the deduction of GBP0.5 billion for policyholder incentive
payments as part of the reattribution exercise. The considerable
increase in the surplus IGD position is a result of the positive market
movements and operating results offset by the interim dividend.
The Group continues to actively manage its exposure to negative market
movements. As a result the Group Solvency surplus would reduce by GBP0.5
billion as of 30 September 2009 if global equity markets should fall by
40%. A 40% rise in markets would benefit the IGD by GBP1.3 billion.
Page 8
Net asset value
Our estimated net asset value per share on an MCEV basis has increased
from 416 pence at 30 June 2009 to 520 pence at 30 September 2009,
benefitting from the strong improvement in equity markets, the
narrowing of credit spreads, foreign exchange movements increasing the
value of the Group's overseas businesses and the benefit from a
reduction in the staff pension scheme deficit. This does not include
the impact of the interim dividend which was declared in August. This
would decrease the MCEV and IFRS net asset values by 10 pence and 9
pence respectively.
In contrast with EEV, MCEV does not include the value of any future
credit spread earnings. In the first half of 2009 these credit spread
earnings (after tax and minority interest) were around GBP200 million
(excluding one-off items). If a capitalisation factor of 5 times were
applied to the annualised amount, this would give an additional
embedded value of GBP2 billion (73 pence per share) in respect of these
earnings.
On an IFRS basis estimated net asset value per share has increased from
349 pence at 30 June 2009 to 409 pence at 30 September 2009.
Our capital position remains strong, aligned with the position at half
year. At full year 2008 we established significant provisions against
future asset default experience in our UK Life business, taking the
total default provision in respect of this business to GBP1.1 billion.
At the end of the third quarter this remains unutilised, with no
material deterioration in default experience in either our commercial
mortgage or corporate bond portfolio. In addition to this, interest
service cover on our commercial mortgage portfolio remains stable at
1.3 times and our commercial mortgage portfolio average LTV has reduced
to 104% (HY09: 106%).
In the US, at 31 December 2008, there were net unrealised losses on
debt securities of GBP2.4 billion. Following an improvement in US credit
markets in 2009, this has moved to a net unrealised gain of GBP0.4
billion at 30 September 2009. This demonstrates the strength of the
fixed income portfolio of which 94% is investment grade or insurance
rated. Default and impairment losses in the first nine months of the
year were GBP70 million (2008: GBP138 million).
Ratings
The Standard & Poor's (S&P) rating of the main operating subsidiaries
are AA- ("very strong") with a Negative outlook. The group is rated Aa3
("excellent") by Moody's with a Negative outlook. AM Best's ratings of
the main operating subsidiaries are A ("excellent") with a Stable
outlook.
SIGNIFICANT TRANSACTIONS POST 30 SEPTEMBER 2009
On 1 October 2009 Aviva announced the completion of the sale of its
Australian life business and wealth management platform. The total
proceeds of the Australian sale are expected to be GBP0.45 billion
(AUD0.9 billion), with the majority received on completion. The sale of
the business will uplift the group IGD by GBP0.4 billion.
Aviva also announced yesterday the completion of the Delta Lloyd
initial public offering ("IPO") and the shares commenced trading on
Euronext Amsterdam. The IPO will raise gross proceeds of GBP1.03 billion
(EUR1.12 billion), including the 10% over-allotment option, and will
generate a pro forma IGD benefit of GBP0.5 billion.
Following High Court and FSA approval in September, the deal to
complete the reattribution of our inherited estate was concluded on 1
October with 87% of policyholders voting and 96% of these voting in
favour of the offer. The total value of the inherited estate for the
reattribution is GBP1.25 billion, with GBP0.5 billion to be paid from
shareholder funds to policyholders, mostly before the end of the year.
This is estimated to reduce Group IGD by GBP0.5 billion.
Page 9
Notes to editors
- Aviva is the leading provider of life and pension products in
Europe (including the UK) with substantial positions in other
markets around the world, making it the world's fifth largest
insurance group based on gross worldwide premiums at 31 December
2008.
- Aviva's principal business activities are long-term savings, fund
management and general insurance, with worldwide total sales* of
GBP51.4 billion and funds under management of GBP381 billion at 31
December 2008.
* Based on 2008 published life and pensions PVNBP on an MCEV basis,
total investment sales and general insurance and health net written
premiums, including share of associates' premiums.
The Aviva media centre at www.aviva.com/media includes images, company
and product information and a news release archive.
- All figures have been translated at average exchange rates applying
for the period. The average rates employed in this announcement are
1 euro = GBP0. 88 (9 months to 30 September 2008: 1 euro = GBP0.78)
and GBP1 = USD1.54 (9 months to 30 September 2008: GBP1 =
USD1.95).
- Growth rates in the press release have been provided in sterling
terms unless stated otherwise. The supplements following present
this information on both a sterling and local currency basis.
- Definition: Present value of new business premiums (PVNBP)
PVNBP is derived from the single and regular premiums of the
products sold during the financial period and is expressed at the
point of sale. The PVNBP calculation is equal to total single
premium sales received in the period plus the discounted value of
regular premiums expected to be received over the term of the new
contracts. The discount rate used reflects the appropriate
risk-free rate for the country and duration of business. The
projection assumptions used to calculate PVNBP for each product are
the same as those used to calculate new business contribution. The
discounted value of regular premiums is also expressed as
annualised regular premiums multiplied by a Weighted Average
Capitalisation Factor (WACF). The WACF will vary over time
depending on the mix of new products sold, the average outstanding
term of the new contracts and the projection assumptions.
- Cautionary statements:
This should be read in conjunction with the documents filed by Aviva
plc (the "Company" or "Aviva") with the United States Securities and
Exchange Commission ("SEC").
This announcement contains, and we may make verbal statements
containing, "forward-looking statements" with respect to certain of
Aviva's plans and current goals and expectations relating to future
financial condition, performance, results, strategic initiatives and
objectives. Statements containing the words "believes", "intends",
"expects", "plans", "seeks", "aims", "may", "could", "outlook", "estimates"
and "anticipates", and words of similar meaning, are forward-looking. By their
nature, all forward-looking statements involve risk and uncertainty.
Accordingly, there are or will be important factors that could cause actual
results to differ materially from those indicated in these statements. Aviva
believes these factors include, but are not limited to: the impact of
difficult conditions in the global capital markets and the economy generally;
the impact of new government initiatives related to the financial crisis;
defaults in our bond, mortgage and structured credit portfolios; the impact of
volatility in the equity, capital and credit markets on our
profitability and ability to access capital and credit; changes in
general economic conditions, including foreign currency exchange rates,
interest rates and other factors that could affect our profitability;
risks associated with arrangements with third parties, including joint
ventures; inability of reinsurers to meet obligations or unavailability
of reinsurance coverage; a decline in our ratings with Standard &
Poor's, Moody's, Fitch and A.M. Best; increased competition in the U.K.
and in other countries where we have significant operations; changes in
assumptions in pricing and reserving for insurance business
(particularly with regard to mortality and morbidity trends, lapse
rates and policy renewal rates), longevity and endowments; a cyclical
downturn of the insurance industry; changes in local political,
regulatory and economic conditions, business risks and challenges which
may impact demand for our products, our investment portfolio and credit
quality of counterparties; the impact of actual experience differing
from estimates on amortisation of deferred acquisition costs and
acquired value of in-force business; the impact of recognising an
impairment of our goodwill or intangibles with indefinite lives;
changes in valuation methodologies, estimates and assumptions used in
the valuation of investment securities; the effect of various legal
proceedings and regulatory investigations; the impact of operational
risks; the loss of key personnel; the impact of catastrophic events on
our results; changes in government regulations or tax laws in
jurisdictions where we conduct business; funding risks associated with
our pension schemes; the effect of undisclosed liabilities, integration
issues and other risks associated with our acquisitions; and the timing
impact and other uncertainties relating to acquisitions and disposals
and relating to other future acquisitions, combinations or disposals
within relevant industries.
For a more detailed description of these risks, uncertainties and other
factors, please see Item 3, "Risk Factors", and Item 5, "Operating and
Financial Review and Prospects" in Aviva's registration statement on
Form 20-F as filed with the SEC on 7 October 2009. Aviva undertakes no
obligation to update the forward-looking statements in this
announcement or any other forward-looking statements we may make.
Forward-looking statements in this announcement are current only as of
the date on which such statements are made.
Aviva plc is a company registered in England No. 2468686.
Registered office
St Helen's
1 Undershaft
London
EC3P 3DQ
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