Investor & Analyst Seminar on the UK General Insurance Business 20 May 2003

Transcription

1 Investor & Analyst Seminar on the UK General Insurance Business 20 May 2003

2 Disclaimer This presentation may contain certain 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. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are 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, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which Aviva and its affiliates operate. 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. Aviva undertakes no obligation to update the forward looking statements contained in this presentation or any other forward looking statements we may make.

3 Strategic Overview Patrick Snowball

4 We ve asked you here today To share our strategic insights and the NUI Management team s thinking on how we will be setting the agenda for the GI market... sustaining our position as UK s No 1 Insurer and a reliable source of quality earnings for Aviva

5 AVIVA and NUI Aviva achieved operating profit of 1,798m* MSSB Operating Profit Other GI 14% UK Life 33% General Insurance operating profit of 959m* UK GI operating profit of 611m UK GI 32% Cont. Europe & Intl Life 21% Representing c.17% of Aviva NWP......and 32% of MSSB operating profit from key business areas * From continuing and discontinuing operations

6 NUI continues to be the Clear Market Leader Market Share Others 49% Allianz 4% Churchill 4% NUI 16% R&SA 10% ZFS 6% D.Line 5% AXA 6% 5.5bn GWP 5bn premium income 18,000 staff 771 locations in 5 households We 1 in insure 5 vehicles on the road 1 in 5 households We insure 1 in 4 vehicles on the road 700,000 UK businesses 700,000 UK businesses 1.9 million claims in 2002 (36,000 per week) Source: Data Monitor - based on 2001 GEP figures

7 A Team that Delivers What we promised in 2001: Norwich Union Will... Continue to deliver shareholder value Use its scale to lead the market to the benefit of its shareholders and customers Use our market leading position to win in the emerging market place

8 Against a backdrop of Change and Uncertainty Terrorism Flooding Changing Customer Expectations Capacity Constraints Pressure on traditional distributors Falling stock-market Increasing litigation Emergence of new forms of distribution Impact of Technology Mergers among insurers on Internal Processes New insurers Increasing Regulation Reinsurance

9 Against a backdrop of Change and Uncertainty Terrorism Capacity Constraints Pressure on traditional distributors New insurers Flooding Changing Customer Expectations Falling stock-market We continued to deliver: UK GI Operating Profit of 611m Retained low cost position Dominant position in the market 9 Product Launches Led industry response to Flooding Regulation and Personal Injury Increasing litigation Emergence of new forms of distribution Impact of Technology Mergers among insurers on Internal Processes Increasing Regulation Reinsurance

10 Our View of Core Markets Distribution is changing market as much as product More than one underwriting cycle Personal market : - Motor - rate increases in line with inflation - Homeowners - attitude to insurability for flooding Commercial market hardening with rate increases over next 18 months Balanced portfolio gives us choice and sustainable profits

11 A Strategy that delivers Quality of Earnings A focus on less volatile GI business - personal and SME s A balanced personal and commercial portfolio - allowing us to manage the cycle An integrated approach to multi channel distribution - maximising the strength of our brand Disciplined underwriting and pricing - profit before volume Strong financial controls - ROCE consistently above Group hurdle rate Scale and expertise - driving cost efficiency and market influence

12 The Challenges Ahead in Personal Lines The growth in customer diversity and expectation Importance of factors while shopping have changed since % 35% 30% 25% 20% 15% 10% 5% 0% Best quality Best choice Cheape st price Saving the most time Most personal service Source: nvision

13 The Challenges Ahead in Personal Lines The entry and success of branded distributors Ins Customers (millions) Supermarket Potential Sainsbury Estimates based on reported figures Tesco 2007

14 Trends in Distribution 20, Significant Consolidation among Brokers Number of Brokers Commercial Brokers Brokers Personal CPs & Direct Personal Brokers % of Market GWP Shrinking volume of personal lines business controlled by Insurance Brokers Strong growth in Direct Branded selling channels (Corporate Partner & Source: NUI Analysis; ABI (2002) and Datamonitor (2002) 0 Direct) Greater stability in the Commercial market

15 Insurance Companies face a Choice Spontaneous Awareness - Financial Services 30% 20% Over time insurers will face a choice 10% 0% HSBC Abbey National Norw ich Union Direct Line RSA AXA Cornhill The Research Business International - Q % 40% 30% 20% Lloyds TSB Trust Scores Q Norw ich Union Nationw ide Direct Line RSA Churchill Zurich AXA Zurich TRBI - Q Become a white label insurance supplier to other brands - Leverage the insurer s brand and relationship with end customer (either direct or with partners) Many insurers do not have a choice but we do

16 Opportunities to Broaden the Earnings Stream 1. By focusing on how customers will buy insurance Customers focus on products/services that include insurance Customers focus on insurance Growing willingness to buy a range of products from trusted brands Increased customer satisfaction and multiple product holding leads to higher retention Market dynamics and technology are challenging the boundaries of the insurance sector and the nature of risk

17 Opportunities to Broaden the Earnings Stream 2. By increasing the access we have to customers Insurers focus on (supply to) Customers Insurers focus on (supply to) Retailers/ Intermediaries Long term profitability is higher if you have access to customers Access to customers via direct channel or by working with partners The more insurers are pushed into a white label position the lower the margins.. although can bring short term financial benefit and scale to supply chain

18 A Strategy to deliver Profitable Growth Delivering enhanced service levels and value to customers Extending our range of customer offerings by leveraging our supply chain Building the appeal of our propositions and the brand to counter the pressure of product commoditisation Working with our distribution partners to maximise the value delivered to customers and protect margins Innovating in product design and risk assessment

19 An Improved Formula for Success Increase Customer Access Maintain position as a low cost provider Strong financial disciplines and underwriting control Philosophy Cost effective incident management and claims handling Focus on Personal and SME Wider Customer Propositions

20 Recap We have delivered our promises The quality and consistency of earnings is central to our strategy Our strengths are a source of competitive advantage We have a sound road map for long term growth and success NUI is one of the few insurers that can chose its future and so protect and enhance earnings

21 Business Performance Mark Hodges

22 Key Messages Consistent results Based on consistent strategy Outperforming the market Key provider of cash in the group Basis for continued delivery

23 Consistent Results Delivery Norwich Union NUI * GWP m 1,338 1,589 2,605 5,274 5,256 5,461 COR 105% 104% 103% 104% 102% 101% Expense Ratio 14.2% 12.1% 10.1% 10.7% 10.5% 10.4% ROCE 15% 15% 16% * 2000 Excluding Floods

24 Sustained Out-performance COR % 116% 114% 112% 110% 108% 106% 104% 102% 100% COR (NUI) COR (UK Market avg) COR (European Peer Group) COR (NUI) including floods Source of data: Company data

25 Sustained Out-performance 140% 130% 120% COR (NUI) Best of UK Majors Worst of UK Majors COR (NUI) including floods COR % 110% 100% 90% 80% Source of data: Company data

26 Consistent Results Delivery Norwich Union NUI * GWP m 1,338 1,589 2,605 5,274 5,256 5,461 COR 105% 104% 103% 104% 102% 101% Expense Ratio 14.2% 12.1% 10.1% 10.7% 10.5% 10.4% ROCE 15% 15% 16% * 2000 Excluding Floods

27 Sustained COR % Improvements Personal Lines Norwich Union NUI GWP * m Personal Motor 105% 108% 105% 103% 103% 1,258 Homeowners 104% 100% 95% 94% 99% 1,098 Personal Creditor 87% 95% 96% 94% 100% 688 Total 105% 101% 100% 98% 101% 3,147 * 2000 Excluding Floods

28 Multi-Distribution Approach Net Written Premium % By Channel 80% 70% 60% Intermediary Corporate Partners Direct 50% 40% 30% 20% 10% 0%

29 Sustained COR % Improvements Personal Lines Norwich Union NUI GWP * m Personal Motor 105% 108% 105% 103% 103% 1,258 Homeowners 104% 100% 95% 94% 99% 1,098 Personal Creditor 87% 95% 96% 94% 100% 688 Total 105% 101% 100% 98% 101% 3,147 * 2000 Excluding Floods

30 Sustained COR % Improvements Commercial Lines Norwich Union NUI GWP * m Commercial Motor 110% 109% 113% 105% 102% 729 Commercial Property 104% 108% 108% 104% 100% 775 Commercial Liability 152% 158% 131% 126% 114% 335 Total 106% 110% 111% 108% 102% 2,314 * 2000 Excluding Floods

31 Flexing Product Mix Across Cycle Net Written Premium m 3,500 3,000 2,500 Personal Commercial London Market 2,000 1,500 1,

32 Sustained COR % Improvements Commercial Lines Norwich Union NUI GWP * m Commercial Motor 110% 109% 113% 105% 102% 729 Commercial Property 104% 108% 108% 104% 100% 775 Commercial Liability 152% 158% 131% 126% 114% 335 Total 106% 110% 111% 108% 102% 2,314 * 2000 Excluding Floods

33 Proven Business Model COR% NUD TIM Single System Personal L&E Acquisition FIMDIC Merger Savings Exit London Markets Single Data Mart Supply Chain e-broking Telematics Digital Flood Offshore Capability * ex NU ex CGU NUI * 2000 excluding floods

34 Self Financing Investment Impact On Expense Ratio 10.4% Total Underlying 80m

35 Claims Supply Chain Savings. 100m in 2002 Loss Adjuster Motor Legal Property Contents

36 Internal Disciplines Factor in PSB enhanced capital requirements Limit balance sheet exposures Prudent reserving Generate reinsurer confidence Provide a strong internal control environment

37 Insights From Reserving Work Household Claims Costs By Peril Theft Weather Escape of Water Fire Other Accidental Damage Subsidence

38 Internal Disciplines Factor in PSB enhanced capital requirements Limit balance sheet exposures Prudent reserving Generate reinsurer confidence Provide a strong internal control environment

39 Conclusions Consistent results delivered Market portfolio approach Sound reserving philosophy Continuous investment in innovation and efficiency Strong financial control

40 Leveraging NUI s scale advantage Bridget McIntyre

41 Four case studies to demonstrate: Strength of our competences - evolution of the NUI underwriting box creates value for commercial insurance Scale advantage which cannot be copied - distribution - innovation in motor and household

42 Case Study 1: Commercial - Focussing on the fundamentals NUI s Underwriting Box Prem Per Insured 150k NON CONV BUS CAUTION This business will normally be outside the Underwriting Box Refer to relevant Commercial Segment COLL- ECTIVE 75k CONST SERVICES LIABILITY MOTOR TRADE OTHERS FLEET PROPERTY OWNERS PROPERTY Entry criteria

43 Focussing on the fundamentals Continuous improvement Major UK Market losses 2001/ Wood Group - Edinburgh City Centre - Corus - Center Parcs - Triumph Motorcycles Total cost circa 500m NUI exposure around 8m 1.6% when our commercial market share is 17%

44 Sector specialism - Delivering profitable growth Commercial Segments 1, % 1,100 1, % 60.0% m 1,000 ECR % 55.0% % 45.0% / / / / / / / / / / / / / 12 GWP ( M) ECR (%) 40.0%

45 Case study 2: Distribution - proactive or reactive? NUI s current capability - Fully integrated multi distribution insurance company (FIMDIC) part of the NUI formula for success broad mix to deliver customer choice creates ability to take account of emerging market trends manage across the portfolio to deliver consistency through the cycle

46 Distribution - emerging trends Consolidation Growth of power brand Fast response direct players Ageing broker population Impact of regulation

47 NUI s platform for change CUSTOMERS Corporate Partners Intermediaries Corporate Partner Retail Capability IB Product Development & Pricing Customer Servicing Claims Management

48 NUI s platform for change CUSTOMERS Corporate Partners Value Semi Intermediaries Partners Direct Foundation Self On Site Serve Tailored Partners Props Corporate Partner Retail Capability U/W IB Acquiring Product Development & Pricing business Customer Servicing Claims Management

49 Case study 3: Household pricing Generating value from our personal lines data - improved risk selection - improved pricing - consistent rules Implemented in motor, now expanded to cover household

50 Flooding - background Aviva plc

51 Flood Modelling: Shrewsbury

52 SY3 7 28% of properties within this postcode area flood. Properties that DO flood

53 SY3 7 28% of properties within this postcode area flood. Properties that don t flood Properties that DO flood

54 A Comparison of Environment Agency and Norwich Union Flood Outlines for Eastern Shrewsbury EA outline NUI outline

55 Case Study 4: Mobility Solutions

56 Roadside Assistance NU Rescue launched January 2003 Individual pricing linked to likelihood of use Range of services 60,000 customers in four months - 20% more than forecast - premium income circa 3.1 million to end Q1 - plan to write 126,000 policies this year

57 Car provision Partnership with Lex and Oneswoop to launch yournucar.com - competitive pricing - finance deals - free NU rescue Exploring car provision following write offs NUI building a virtual forecourt

58 PAYD TM insurance Piloting August 2003 using telematics technology Technology here to stay Exclusive patent Fairer prices and monthly premiums based on use Monthly billing

59 Rate of fatal and serious accidents A roads: Built-up Other roads: Built-up Other roads: Non-built-up A roads: Non-built-up Motorways

60 Pay As You Drive In Pay As You Drive insurance Your monthly insurance premium you pay by direct debit is PAYD monthly billing Steve Riley Your Pay As You Drive insurance statement January 2003 Your Policy Number MOT Summary of usage Your Pay As You Drive insurance this month is There is no need to change your direct debit. Year to date your credit is Total mileage this month 845 Total mileage since commencement of policy (August to January inclusive) 5,732 How we have calculated your monthly usage bill for this month Miles covered Pence per Mile Premium charged Motorway p 3.21 Dual Carriageway p 4.68 Built up areas p 8.86 Non built up areas p Mileage based cost summary Your discounts Early riser Off Peak Weekend Commuter route Total discounts earned this month High risk charges No. of days Charge per day Premium charged Rainy days Ice/Snow days Total high risk charges this month Static risk Premium Total Monthly Usage Premium Insurance Premium Tax 2.07 Total insurance Premium Tip of the Month You will see that your bill includes 8.00 for use in the snow, which occurred on 14 January. Our research shows that the risk of collision when snow is lying on the ground is approximately 5 times as high as on a dry day. If you have to drive in the snow then we recommend: signal all manoeuvres much earlier than normally keep speed extremely low remember that pedestrians may slip and fall at any time treat cyclist as accidents waiting to happen Norwich Union Insurance Limited Registered in England No Registered office 8 Surrey Street Norwich NR1 3NG Member of the Aviva group Registered In England No Registered Office St Helen s 1 UndershaftLondon EC3P 3DQ Members of the General Insurance Standards Council

61 MOBILITY SOLUTIONS ROLLOUT CORE INSURANCE DRIVING SCHOOL YOUNG DRIVERS (START OF DRIVING CAREER) PROPOSITION MOBILITY SOLUTIONS MOBILITY INFORMATION SERVICES PAY AS YOU DRIVE PILOT PAY AS YOU DRIVE PRODUCT Car Provision Car Management NU RESCUE CARS FOR CUSTOMERS OVER 45 S PROPOSITION END OF DRIVING CAREER PROPOSITION Travel and Alternatives to Car Driver Training Excellent Incident Service REHABILITATION (PHYSIOFAST) MOT/SERVICE PRODUCT NUI as Motoring Services Aggregator TODAY 1H2003 2H Beyond 2005

62 Overall summary and conclusions NUI in a unique position Being good at core insurance Scale creates efficiency and capacity for innovation - telematics/digital mapping cannot be copied New propositions make NUI strategy visible and tangible

63 NUI Summary

64 NUI Summary Strong opportunities for Growth - both in core insurances and through wider propositions Sustainable Competitive Advantages Our Scale and Brand can be successfully leveraged Attractive ROCE Ability to deliver Consistency of Earnings in a changing market

65 Q & A

66 Investor & Analyst Seminar on the UK General Insurance Business 20 May 2003