Aviva Europe Making a Quantum Leap. page 1

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1 Aviva Making a Quantum page 1

2 Disclaimer This presentation is for information purposes only. It should be read in conjunction with the documents filed by Aviva plc (the Company or Aviva ) with the United States Securities Exchange Commission ( SEC ). This presentation contains certain forward-looking statements with respect to certain of Aviva s plans current goals expectations relating to future financial condition, performance, results, strategic initiatives objectives. Statements containing the words believes, intends, expects, plans, seeks, aims, may, could, outlook, estimates anticipates, words of similar meaning, are forwardlooking. By their nature, all forward-looking statements involve risk 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 the economy generally; the impact of new government initiatives related to the financial crisis; defaults in our bond, mortgage structured credit portfolios; the impact of volatility in the equity, capital credit markets on our profitability ability to access capital credit; changes in general economic conditions, including foreign currency exchange rates, interest rates other factors that could affect our profitability; risks associated with arrangements with third parties, including joint ventures; inability of reinsurers to meet obligations or inavailability of reinsurance coverage; a decline in our ratings with Stard & Poor s, Moody s, Fitch A.M. Best; increased competition in the U.K. in other countries where we have significant operations; changes in assumptions in pricing reserving for insurance business (particularly with regard to mortality morbidity trends, lapse rates policy renewal rates), longevity endowments; a cyclical downturn of the insurance industry; changes in local political, regulatory economic conditions, business risks challenges which may impact dem for our products, our investment portfolio credit quality of counterparties; the impact of actual experience differing from estimates on amortisation of deferred acquisition costs acquired of in-force business; the impact of recognising an impairment of our goodwill or intangibles with indefinite lives; changes in valuation methodologies, estimates assumptions used in the valuation of investment securities; the effect of various legal proceedings 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 other risks associated with our acquisitions; the timing impact other uncertainties relating to acquisitions disposals relating to other future acquisitions, combinations or disposals within relevant industries. For a more detailed description of these risks, uncertainties other factors, please see Item 3, Risk Factors, Item 5, Operating Financial Review Prospects in Aviva s registration statement on Form 20-F as filed with the SEC on 7 October Aviva undertakes no obligation to update the forward-looking statements in this presentation or any other forward-looking statements we may make. Forward-looking statements in this presentation are current only as of the date on which such statements are made October 2009 Page 2

3 Andrew Moss Aviva Group CEO 3 22 October 2009 Page 3

4 Aviva Investor Analyst Event Purpose Two years into the five year One Aviva, twice the strategy Prosperity & peace of mind Vision One Aviva, We have communicated plans twice the progress in UK Life, UK GI, North America Aviva Investors Strategic priorities Manage composite portfolio Build global Asset Management Allocate capital rigorously Multi-channel customer reach Boost productivity Targets 98% meet or beat COR 500m cost savings by 2010 Double IFRS EPS by 2012 at the latest x dividend cover on IFRS post tax operating earnings Evidence of delivery with improving IRRs, cost savings reallocation of capital to improve returns Asset Aviva Management Investors Globally integrated business Transform the investment model Increase third party business UK Market leadership Drive up profitability Generate capital Insurance excellence Operational excellence Scale, growth, capital Seize unique growth opportunities One operating model Generate capital N. America Profitable growth Optimise business mix, growth & margin Diversify distribution products Generate net capital returns Progress with the partial IPO of Delta Lloyd Asia Pacific Scale, growth Prioritised portfolio Regional operating model Investment required 22 October 2009 Page 4 Source: UN (2009), CEA (2009), Aviva PFA Model (2008)

5 in context Significant part of the Aviva group Strong historic foundations Unique opportunity to establish a leadership position Clear execution strategies are already beginning to make a difference Poised to make a Quantum Long Term savings General Insurance Composite Long-term savings sales GI Health sales IFRS Operating profit 50% 35% 44% DL 11% UK 26% Other regions 24% DL 14% Other regions 18% UK 47% DL 14% Other regions 12% UK 44% HY for long-term savings sales (present of new business premiums investment sales), GI health sales (net written premiums) IFRS operating profit (before group debt interest costs) 22 October 2009 Page 5

6 Andrea Moneta Aviva CEO 6 22 October 2009 Page 6

7 The three key things I want you to take away today Great franchise in the world s largest market Quantum to become the undisputed leader One Aviva, twice the delivered by October 2009 Page 7 Source: UN (2009), CEA (2009), Aviva PFA Model (2008)

8 opportunity in Quantum Focus sessions Making money creating Conclusions Q & A 8 22 October 2009 Page 8

9 A huge market with significant growth potential 800m+ population 40tr personal financial assets 4tr premiums in next five years 4tr L&P assets Large mature markets Emerging markets with significant potential Composite Aviva s presence Life & pensions Source: CEA, AXCO Aviva Analysis October 2009 Page 9 Source: UN (2009), CEA (2009), Aviva PFA Model (2008)

10 Leadership is there to be grasped 9% an Market Shares, 2007 (Life Non-Life GWP) (Life Non-Life GWP) an Insurance Market Shares Market Share 8% 7% 6% 5% 4% 3% 2% 7.3% 6.3% 5.8% 4.8% 3.0% 2.4% 2.4% 1.7% 1.7% 1.6% Highly fragmented market Macro, micro industry trends 1% 0% Allianz Generali Axa Aviva CNP Zurich Crédit Agricole Ergo AEGON Fortis Opportunity in adversity Notes: Market size, taken from 2007 CEA data, deflated to account for business written outside of other non-primary insurance income Source: CEA, ABI, AEGON Reports Accounts Includes UK Conclusions Focus Making money creating Page 10

11 Aviva is uniquely positioned Strengths in 15 markets Covering 80% of GDP premium Region Aviva Share of GDP L&P PVNBP GI NWP H1 09 m H1 09 m France 14.5% Top 10 2, Irel 1.4% Top Top Italy 11.7% Top 10 2, Lithuania 0.2% Top Pol 2.7% Top Russia 8.5% Top Spain 8.1% Top 5 1,394 - Turkey 3.7% Top Czech Rep 1.1% 17 - Hungary 0.8% Top Slovakia 0.5% 1 - Romania 1.0% Top Belgium 2.6% Top Germany 18.6% Netherls 4.4% Top 5 1,351 Top % 9,913 1,946 Source: IMF creating Page 11

12 Aviva is uniquely positioned Strengths in 15 markets Covering 80% of GDP premium In different stages of development 10 Developed markets Life Insurance Penetration (GWP/GDP) % High potential markets France Irel Slovakia Czech Rep Romania Lithuania Market bubble size proportionate Turkey Russia 0 to premiums - 10,000 20,000 30,000 40,000 50,000 GDP per Capita (PPP) ( ) Source: AXCO creating Page 12 Pol Hungary Italy Spain Belgium Netherls Germany

13 Aviva is uniquely positioned Strengths in 15 markets Covering 80% of GDP premium In different stages of development With an enviable competitive footprint * Regionalisation (Continental ) defined as premium generated outside home market UK as a percentage of total premium generated in Regionalisation* 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: CEA, Aviva Analysis2009 creating Page 13 CNP Zurich Credit Agricole AXA ING Groupama Number of markets AEGON Allianz Generali Bubble size proportionate to premiums

14 Aviva is uniquely positioned Strengths in 15 markets Covering 80% of GDP premium In different stages of development With an enviable competitive footprint Capabilities across all product lines distribution channels Life Distribution Models Source: CEA, 2009 creating Page 14

15 Aviva is uniquely positioned Strengths in 15 markets Covering 80% of GDP premium In different stages of development With an enviable competitive footprint Capabilities across all product lines distribution channels Two clear leading brs creating Page 15

16 A clear strategy to exploit the an opportunity Quantum game changing for the industry Aviva Delta Lloyd IPO strategic management creating Page 16

17 opportunity in Quantum Focus sessions Making money creating Conclusions Q & A All data in the following sections refers to Aviva excluding Delta Lloyd 22 October 2009 Page 17

18 Quantum is transforming our business From the pack to undisputed leader From twelve businesses to one creating Page 18

19 We set the vision defined the journey Today we focus on the first phase Value Which will deliver our Twice the commitment by 2012 By extracting building capabilities Thanks to our QUANTUM LEAP in the industry 2X 2008 Consolidation reorganisation of existing businesses today Integration of new businesses Repositioning new growth Time creating Page 19 19

20 Quantum is built on three pillars creating Page 20

21 Single operating model In markets Pooled Distribution Customer management & Marketing Product IT, Operations & Shared Services Markets focused on distribution with a strong centralised support Synergies in IT, operations, customer service with pan an sharing of services Centralisation of production, keeping strong radar for each market/segment Governance State of the art governance creating Page 21

22 Strong management clear accountability Bancassurance Retail Customer Management Marketing Products IT Operations Human Resources Finance David Angulo Adam Uszpolewicz Alfredo Montalbano Stephen Marini Cathryn Riley Andrew Moffat Tim Harris Markets Markets Jean Pierre Menanteau Ignacio Izquierdo Stuart Purdy Andrea Battista Maciej Jankowski Asta Ungulaitiene Markets Andrey Dubinin Janos Bartok Karel Vesely Shah Rouf GI Ertan Firat 7 Life* Meral Egemen Pan-an governance A winning team united by one bold vision very clear accountability 377 years of experience Pan an leadership local market knowledge *Joint venture with Sabanci Holding creating Page 22 22

23 Executing a clear bold master plan Seven key strs that impact all aspects of our business Banca Retail CMM Products IT & Ops HR Finance Retail Customer Management & Marketing Products IT & Operations Customer Management Human Resources Grow revenue profitability making sales marketing as effective efficient as possible Products Investment Management Centralised product development investment management single product catalogue Cost & Productivity Right size the cost base to deliver sustainable savings from 2009 beyond GI Claims Management Leverage Aviva best practice to reduce claims unit costs Shared Services Centres of excellence shared processes to reduce costs support our vision Data Single database to facilitate CRM provide insightful real time MI Governance Single legal entity state of the art capital risk management Finance. being executed ruthlessly creating Page 23

24 This is our Quantum From To Twelve federated businesses One Pan an Business One Head Office Pan an distribution organisation Multiple, complex products Multiple systems processes Complex legal entity structure Sub optimal capital allocation risk management Customer centric product catalogue shorter time to market Shared systems processes Simplified structure under single holding company Fungible capital, state of the art capital risk processes creating Page 24

25 journey has started it s already delivering PLC Board approve vision & strategy 30 Sep 08 New management & accountability in place 21 Nov 08 Pan an capital allocation & risk management 01 Jan 09 Launch of Quantum 01 Apr 09 Centralised procurement 30 Apr 09 continued creating Page 25

26 journey has started it s already delivering Pan an GI claims laboratory 1 May 09 Pan an retention initiative 12 May 09 Single change portfolio 5 Jul 09 Delta Lloyd strategy relationship clarified 6 Aug 09 Pan an holding company 12 Oct 09 continued creating Page 26

27 journey has started it s already delivering Robust set of financial results creating Page 27

28 Robust set of financial results Achieved in tough times HY1 08 HY1 09 Local Currency Growth Life pension sales 8,039m (1) 7,920m Adv 1% Margin 3.7% (1) 3.8% Fav 0.1pp GI health volumes 1,249m (2) 1,188m Adv 5% GI COR 97% 96% Fav 1pp Expenses (3) 606m 578m Fav 7% IFRS operating profit 524m 464m Adv 11% (1) Restated to show underlying position; 4.0% including one-off CajaMurcia transfer Pillar II pension legislation change in Romania (2) HY 08 restated on a like-for-like basis reflecting the acquisition of the Irish health business in May 2008 (3) After adjusting for FX, acquisitions, inflation restructuring Life - sales flat in difficult market - margins improved due to action on product mix, partly offset by customer preference for guarantees GI - COR improving due to rate - leading the market in Irel France on pricing action Expenses - 7% improvement after absorbing wage cost inflation IFRS Operating Profit - lower asset s expected return rates creating Page 28

29 Robust set of financial results Cost base falls 7% in real terms after absorbing wage cost inflation m % reduction HY 2008 Inflation Cost savings BaU cost base HY 2009 Rebring restructuring costs Published cost base HY 2009 creating Page 29

30 Robust set of financial results Supported by a high quality balance sheet Total investments Fair Fair Total bn 1 2 Other Debt Securities - Government Debt Securities - Corporate bonds Debt Securities - Other Total Debt Securities Equity Property (including investment property) Other (including unit trusts) Loans Cash TOTAL % of assets classified as FV1 or 2 99% of total investments carried at FV 67bn debt securities of which 95% are investment rated including 35% AAA - rated creating Page 30

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34 Channel View a well balanced mix H1 09 Investments H1 H sales 400 Retail 82bn 4.5bn Significant retail franchise with cash generative back book 1H 09 m IFRS Operating Profit Bancassurance 31bn 4.6bn 3m GI at COR 91% 173m Life EB at 98bps* 118m GI at 96% COR 275m Life EB at 66bps* Life EB GI profit Life NB Total retail profit 275 m 118 m (42)m 351 m Profitable bancassurance life business, with exciting GI opportunity Life EB GI profit 173 m 3 m - Life NB (36)m (50) (36)m Life NB at 4.3% margin (42)m Life NB at 3.0% margin Total retail profit 140 m (100) Notes: EB & NB denote net IFRS operating profit or loss on Life existing business new business respectively Return on assets bps calculated as annualised Life EB IFRS Operating Profit divided by average assets under management, expressed as basis points creating Page 34

35 Product view - a diverse product portfolio Payback Period LIFE & PENSIONS Margin IRR (Years) 121m GI 96% COR 12.4% ROE H1 09 IFRS Operating Profit Mainly Retail Savings pensions 2.0% 9% 8.2 Protection 22.0% 31% 5.7 Annuity 3.7% 9% 8.4 Aviva 3.8% 13% 7.8 Life IRR 13%, impacted by tough market conditions (17% in FY08) Banca Retail Highly profitable protection business currently less than 10% of sales significant opportunity 370m Life 3.8% margin 13 % IRR GI & Health COR Personal 99% Commercial 90% General Insurance 96% Health 98% Aviva 96% GI COR improving 96% for first half 2009 creating Page 35

36 Bancassurance: committed growing Consistently dominated life distribution in key markets - before, during after the financial crisis Significant GI growth opportunity Life Bancassurance Market Shares ( ) GI Bancassurance Growth ( ) Bancassurance share of Life Market (%) 80% 70% 60% 50% 40% 30% 20% 10% 0% Spain Italy n.a. France n.a Bancassurance Share of GI Market (%) 12% 10% 8% 6% 4% 2% 0% Spain 7.9% 7.1% 7.3% 6.1% Italy Italy 1.6% 1.7% 1.8% 1.1% 10.2% 2.10% Source: CEA, ANIA, ICEA, 2009 creating Page 36

37 Bancassurance: our leading position No. of partners Successfully executing our strategy Increasing number of high quality partners Aviva Other insurers 46 agreements Over 20,000 branches Access to over 30m bank customers Source: The Banker, 2008 creating Page 37

38 Bancassurance: mutually compelling agreements Deliver high through a state of the art business model Perpetual agreements with robust exit clauses Growth at marginal cost Aviva retains management control Alignment of partner interests Single distribution platform drives cost effectiveness New business margin 4.3% New business IRR 15% creating Page 38

39 Bancassurance an exciting opportunity Common channel approach Leverage unique business model Aviva in a box - scalable bancassurance platform Managed through multiple points of contact Significant mix & growth opportunities Focus on protection GI growth opportunity Leverage low cost per policy Grow at marginal cost Undisputed leading partner of choice Improve customer retention by 10% Grow protection sales by 30%, increasing margin Triple current GI contribution creating Page 39

40 an Retail Market an Retail Market (Life GI) Share of Market 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 105bn 58bn 35bn 15bn 10bn 23bn 2.5% 1.0% 0% 20.0% 0.4% 0.8% 10.1% 0.7% 2.7% 11.1% 8.4% 6.0% 246bn 1.8% 7.8% France Italy Spain Irel Pol CEE Aviva Retail Life Retail GI Markets Total Life GI GWP Aviva GI Retail Market Share Aviva Life Retail Market Share 620bn market ( 260bn Life, 360bn GI) Aviva Retail share 4.3%* Life 7.8% GI 1.8% Retail market growth ( ) 3.5% p.a. * Retail premiums in Aviva markets total 246bn Source: CEA, AXCO Aviva Analysis 2009 creating Page 40

41 Retail a great growing franchise Retail steady growth builds significant franchise m 12,000 10,000 8,000 6,000 4,000 2,000 0 Aviva Retail sales CAGR +6% GI NWP Life PVNBP (2008 & 2007 MCEV, 2006 & 2005 EEV) 9 million customers Diverse distribution - IFAs/Brokers (8,000) - DSF (10,000) - Phone/Web Captive networks generate 75% of new business Large profitable life back-book Profitable GI business with growth potential creating Page 41

42 Retail an exciting opportunity New governance New tools Single channel ownership Performance benchmarking De-couple distribution from production Innovative front end Product bundling dynamic pricing Remunerate for Improve performance Increase productivity by 30% Increase customer retention by 10% Lower network costs by 10% creating Page 42

43 opportunity in Quantum Focus sessions Making money creating Conclusions Q & A 22 October 2009 Page 43

44 Now let's look in detail creating Page 44