Investor & Analyst Seminar Aviva General Insurance 18 October 2005
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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 amongst 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 and impact of 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 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
Welcome Patrick Snowball Group Executive Director Aviva General Insurance
Today s Agenda Patrick Snowball - Welcome Andrew Moss - Aviva Patrick Snowball - Aviva General Insurance Mark Hodges - Continuing to Deliver Simon Machell - Substantial Value Creation Q&A Patrick Snowball - Closing Session Insight Sessions Lunch
Our Structure
Aviva Andrew Moss Group Finance Director Aviva
The Aviva Proposition A balanced portfolio of businesses providing flexibility, strength and diversity - Growing sustainable profits from General Insurance - The growth story of International Life - Competitive advantage in UK Life Generating 752m capital in H1 2005 to fund dividends and growth And a consistent 5% annual dividend increase Competitive Advantage from a Balanced Portfolio
The Foundations for Sustainable Growth 2000-2003 2004-2005 2006 > Surviving Positioning Delivering growth the storm for growth and value Cost reduction Operational excellence Major disposal programme Asia LTS entry Capital structure RAC acquisition China / India acceleration Russian office Renewed focus on customers Strategically Positioned to Grow Winning composite business model Benefits of scale Efficient frontier on capital Capitalise on financial strength Leverage financial expertise
The International Growth Story The European portfolio 500 400 300 200 100 0 New Business Contribution ( m)* 401 359 359 401 23% 249 249 113 159 195 240 240 2002 2003 2004 HY 2005 Full year total Half year total An increasing presence in Asia China - 9 cities Russia - Representative office India - Accelerating growth * New business contribution restated for EEV principles with the exception of 2002 and HY 2003 An International Growth Portfolio
The UK Life Opportunity Current growth approximately 5% before bulk transfers Gradual return to savings expected to accelerate in 2006 Poised to benefit and grow when demand returns Distributor Panel Members 4 others 5 others 5 others Key Protection Only Relationships Key Single Tie Relationships (across Bancassurance, Retail, and Building Society Channels) A Winning Proposition
A Balanced Portfolio H1 2005 World-wide business mix ( 17bn) Intl. Life 4%* UK General 17% Cont. Europe General 9% Intl. General 4% Cont. Europe Life 39% UK Life 27%** * Net written premiums from continuing operations. ** Based on PVNBP for life and pensions business plus investment sales The Benefits of Diversification
Capital Efficiency Diversification Benefits Group diversification and general insurance vs life investment % 35 Group diversification 30 25 Aviva 20 20% 40% 60% 80% G.I. business / total group economic capital Source: Aviva analysis Room for Further General Insurance Growth
Growing Profits from General Insurance 2001 2002 2003 2004* 2005* (HY) Net Written Premiums 7,850m 7,805m 8,524m 8,864m 4,599m Combined Operating Ratio 102% 102% 100% 97% 95% Operating Profit 1 769m 752m 830m 1,070m 607m ROCE** 12.0% 12.5% 16.4% 17.1% 18.7% All figures from continuing operations * FY 2004 and HY 2005 reported on an IFRS basis ** In relation to General Insurance and Health 1 Excludes Centre investment return Generating Cash and Capital for Aviva
Powerful Engine for Profitable Growth Patrick Snowball Group Executive Director Aviva General Insurance
Focus for Today s Session COR Target 98% or below Positive Global Market Environment Improving Rates in UK NUI s Sustainable Competitive Advantage RAC: 250m p.a. by 2008* Cost Savings : - Confirm 100 million profit impact in 2006 - Run rate 130 million p.a. 1.4 million Additional RAC Customers by 2008 *Profit stream associated with RAC acquisition on a like for like basis Powerful Engine for Profitable Growth
5bn Profit Since 2000 - Underpins the Aviva Result 1400 110 20 Operating Profit ( m) 1200 1000 800 600 400 200 COR % 105 100 95 18 16 14 12 10 8 6 4 2 ROCE % 0 2000 2001 2002 2003 2004 HY 2005 90 2000 2001 2002 2003 2004 HY 2005 0 COR Operating Profit ROCE Represents Worldwide General Insurance including Health. 2000 to 2003 are on a UK GAAP basis, 2004 onwards is IFRS. GI gives Aviva a Substantial Advantage
Worldwide 98% COR Target 102% 102% 102% Target < 100% COR to 2006 100% Target < 98% COR 98% 97% 94% 95% 2001 2002 2003 2004 HY 2005 Confidence in Our Ability to Deliver
Hurricane Katrina Katrina modelled loss estimates $40 bn-$60bn - Largest in US history - No Aviva exposure in US * - Effects across other markets *Travel and PA claims are less than 1m Benefiting from US Exit in 2000
A Market Perspective UK Market Conditions - Market discipline - Competitive but improving market - NUI portfolio allows us to deliver consistent profitability 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Personal Motor Top 5 & Top 10 Market Shares by Press Release Class 2004 Personal Property Source: FSA and ABI Commercial Motor Commercial Property Commercial Liability Top 5 Top 10 Market Focus on Rating Discipline and Profitability
NUI s Business is Uniquely Balanced Source: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 11% 34% 8% 1% 27% 70% 14% 25% 2% 54% 16% 15% 4% 10% 9% NUI 2005 HY RBSI 2004 (e) Zurich 2004 (e) 2004 FSA Returns and NUI estimates of distribution NUI HY 2005 results RAC income stream is full half year for RAC Rescue and RAC Services Commercial: Broker Commercial: Non-Broker Personal: Broker Personal: Partnerships Personal: Direct RAC income stream Consistency and Quality of Performance
Continuing to Deliver Mark Hodges Managing Director Norwich Union General Insurance
Delivering Our COR Commitment Closer to Customers Service provider with Insurance at the Core and Care at the heart Customer Cost Acquisition effective and Retention Claims handling Multi product/ multi Multi channel Strong Financial Focus and Efficiency & U/W control Financial Low Cost and Underwriting provider Discipline Focus Economies on Personal of Scale and SME Wider Propositions Success is Built on all Elements Working Together
Multi Channel = Growth Direct NWP Growth ( m's) 1000 Substantial direct growth 22% in 2004 22% in half year 2005 750 500 9% 20% 22% Between 2002 and 2004 NUD grew by 300m NWP 250 1750 2001 2002 2003 2004 Partnership NWP Growth ( m's) Significant partnership growth 1700 1650 1600 Flexible distribution 1550 1500 2001 2002 2003 2004 Multi Channel Approach Delivers Growth
Multi Channel / Multi Product Advantage COR Expenses + Commission 100% 100% 80% 60% 80% 40% 20% 60% 0% CP Creditor CP Motor & Household Broker Commercial Broker Personal Direct Based on 2004 NUI performance Product and Channel Multi Channel Approach Delivers Profitability
Scale Source - Multi Product / Multi Channel Applications - Supply Chain - Data - Expense Efficiency Scale Drives Performance and Ability to Invest
Market Leading Rating & Innovation 2004 vs 2003 Cost Inflation NUI Rating Change NUI COR Competitive 2003 2004 Change Benefit Market Rating Change Personal Motor 6% 2% Homeowner 6% 5% Comm Motor 6% - Comm Property 4% 4% 102% 102% - 4% 99% 97% 2% 3% 97% 97% - 6% 91% 88% 3% 3% (2%) 4% (1%) 1% Scale Creates Sustainable COR
Scale Source - Multi Product / Multi Channel Applications - Supply Chain - Data - Expense Efficiency Outcome - Competitive benefit drives COR stability - Investment in future - 100,000 PAYD devices by end 2006 Scale Drives Performance and Ability to Invest Price Sensitive Not for further distribution Slide 7 13/10/2005
Financial and Underwriting Discipline Continued focus on personal lines and SMEs 1,500 accredited commercial underwriters targeted on future profit Significant reduction in large claims; 200 million avoided in the last three years Sum of Large Claim Cost 160m 140m 120m 100m 80m 60m 40m 20m 0 Large Claim Analysis (> 1m) 900 800 700 600 500 400 300 200 100 0 Commercial Property NEP ( m) 2000 2001 2002 2003 2004 Occurrence Year Underwriting Discipline and Focus Delivering Value
Customer Service and Retention Leadership and Morale High Morale Annualised Resignation Rate % Aggregate Leadership Scores % Sales & Reduced 18 16 90 Retention Attrition 14 12 10 8 80 Customer Satisfaction Increased Experience 6 4 2 0 70 2003 2004 2005 Service and Morale are Critical to Financial Performance
Leading Online Insurer New Sales 2005 Leading online insurer Expect 500k sales online in 2005 2004 2003 2002 2001 2000 car home travel 14% share of online insurance market Continued development of web site 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0 100,000 200,000 300,000 400,000 500,000 600,000 Channel Mix - Motor Jan 2004 Feb 2004 Mar 2004 Apr 2004 May 2004 Jun 2004 Jul 2004 Aug 2004 Se 2004 Oct 2004 Nov 2004 Dec 2004 Jan 2005 Feb 2005 Mar 2005 Apr 2005 May 2005 Jun 2005 Jul 2005 Aug 2005 Sep 2005 *Growth of motor and home web sales in 2005 Inbound Sales Web Sales Fastest Growing Web Insurer
RAC Acquisition RAC Direct Insurance - Significant growth potential - Additional 600k+ customers by 2008 - Conversion rate on AXA Direct book up 15% Brand Consideration Who would you consider using first for motor insurance? 25% Unprompted Prompted 20% 15% 10% 5% 0% AXA RAC More Than Tesco Churchill AA NU Direct Line Survey conducted by ICM, February 2005 Significant Growth Plans for RAC Direct Insurance
RAC Integration: Cost Synergies NUGI Leveraging Commercial Relationships Contact Centre Optimisation Process Improvement Transformation of Distribution First Notification of Loss (Club Line) Marketing RAC Insurance 37m Cost Synergies 36m Cost Synergies RAC Supply Chain and Procurement 45m Cost Synergies Centralising Support Functions 12m Cost Synergies Already Delivering Integration Cost Synergies
Substantial Value Creation Simon Machell Managing Director RAC
RAC: A Transformational Deal for NUI Home Insurance Travel Insurance Motor Insurance NUI Telematics Vehicle History Checking Huge growth potential Car Sales RAC Direct Insurance RAC Vehicle Inspection RAC RAC Financial Services RAC Auto Windscreens Driver Training RAC Rescue A Portfolio of Market Leading Brands
RAC Accelerates NUI Strategy Focus and efficiency Financial discipline Closer to Customers - Cost savings Integration benefits - Revenue synergies Customer Cost Acquisition effective and Retention Claims handling Multi product/ multi Multi channel Strong Financial Focus and Efficiency & U/W control Revenue growth Financial Low Cost and Underwriting provider Discipline Focus Economies on Personal of Scale and SME - Customer growth - Service propositions Wider Propositions RAC Provides Significant Non Cyclical Income
RAC: 6 Months on a Simple Business Model Roadside BSM Auto Windscreens Legal Services Claims Management Parts Insurance Loans RAC India LVL Hyundai Transfleet MOD Lex Commercials Airside Software Solutions Lex Auto Logistics Hotels Signs RAC Auto Windscreens RAC RAC Rescue NUI Supply Chain MSS RAC Services LVL Focus on Core Customer Service Propositions
RAC Integration: Cost Synergies 37m Cost Synergies 36m Cost Synergies RAC Rescue and Services divisions created Corporate office closed NUGI Rationalisation of call centres Back office off-shoring Supply Chain and Procurement 45m Cost Synergies 12m Cost Synergies Centralising Support Functions Already Delivering Integration Cost Synergies
RAC: Developing the Business RAC Rescue No1 for Customer Innovation and for Customer Service Grow individual membership by 800k by 2008-400k in Ireland via Hibernian Corporate partner deals in association with NUGI The RAC and NU Rescue brands cover the market An Excellent Base for Sustained Growth
RAC: Developing the Business RAC Services Deliver Operating Profit Growth of around 30m by 2008 - Transform BSM - Leverage RAC brand to grow HPI - Growth of loans business RAC Auto Windscreens Deliver Operating Profit Growth of around 10 m by 2008 Doubling RAC Profits by 2008
Summary - Accelerating the NUI Strategy RAC Integration Ahead of Plan Simplified Business Model On track to Deliver Cost Savings Exciting Opportunities for Revenue Growth Great People Delivering Excellent Service *Profit stream associated with RAC acquisition on a like for like basis Earnings of 250m by 2008 *
Summary Patrick Snowball Group Executive Director Aviva General Insurance
A Powerful Engine for Profitable Growth RAC integration ahead of plan Cost saving: - Confirm 100m profit impact in 2006 - Run rate 130 million p.a. Highly focused on core strategic benefits Increasingly positive on further benefits - Over 1.4m additional RAC customers by 2008-250m p.a. by 2008* COR target 98% or less *Profit stream associated with RAC acquisition on a like for like basis Growth, Stability, Cash Generation
Insight Sessions Group indicated by the logo on your name badge Aviva group please stay here for the insight session on the Web Norwich Union group please make your way into the body shop on my left, for the session on PAYD RAC group, please make your way into the body shop for the RAC Rescue session
Appendix
250m pre - tax profit by 2008 Like for like basis m approx RAC 2004 profit excluding Leyland discontinued business 80 40 2006 cost saves 100 60 In 2006 180 100 Building to in 2008: Cost saves to ultimate run rate 30 Revenue synergies and business growth 40 Pre tax profits from RAC acquisition by 2008 250 Benefiting Insurance result in 2006* m approx * Rescue business is classed as insurance under IFRS