Aviva Plc - Capital Markets Day 2019
Aviva plc Capital Markets Day 2019
Today, we are presenting our strategy to simplify Aviva into a leading international savings, retirement and insurance business delivering for our customers, shareholders and communities. We will achieve this by delivering great customer outcomes, excelling at the fundamentals and investing in sustainable growth. These actions will drive higher returns for our shareholders. At the same time, we remain committed to our progressive dividend policy, our deleveraging plan and maintaining the financial strength of the Group.
Following a review of our group strategy and our businesses, we have simplified Aviva into five operating divisions: Investments, Savings & Retirement; UK Life; General Insurance; Europe Life; and Asia Life.
Investment, Savings & Retirement: the biggest financial challenge globally, and an exciting growth opportunity for Aviva, is helping people save for retirement with sufficient income. We are announcing today that Aviva's new IS&R business will take on that challenge. We will build on our expertise from across the group to provide the first holistic savings and retirement solutions business in the UK.
UK Life: our strategy in UK Life is to capitalise on our capabilities and leading market positions to generate significant levels of cash-flow to fund a sustainable group dividend. UK Life will also reinvest in profitable new business to increase cash-flows over the long-term.
General Insurance: we are targeting significant profitable growth in our General Insurance businesses through speed, simplicity and efficiency for our customers, and our distribution partners. We will strengthen personal lines performance while maintaining growth momentum and attractive margins in commercial lines.
Europe Life: we have focused European franchises with a strong operational track record. We will continue to focus on the fundamentals of distribution, product mix and cost efficiency to improve our performance.
Asia Life: we are retaining our businesses in Singapore and China which support our strategy of meeting customers' saving and insurance needs. These are profitable businesses, delivering attractive growth and generating positive cash-flow. We have agreed the sale of our stake in our Hong Kong joint venture, Blue, to our partner Hillhouse Capital, and we are in discussions with our partners in relation to our business in Vietnam and joint venture in Indonesia.
Reaffirm progressive dividend policy
Solvency II return on equity: 12% (2022)
Group operating capital generation: £7.5 billion (2019-22 inclusive)
Cash in-flows to centre: £8.5 - 9.0 billion (2019-22 inclusive)
Cost reduction: £300 million net saving (2022)
Debt leverage: £1.5 billion debt reduction (2019-22)
Capital and cash:
Solvency II cover ratio 195% (3Q19); £2.2 billion centre cash
2019 operating profit expected to be broadly in line with management expectations, including an estimated £300-400 million of net management actions (2018: £350 million).
Across Aviva's businesses, we will deliver our strategy and enhance performance through three priorities.
Deliver great customer outcomes: providing a simple, reliable, rewarding customer experience for businesses and individuals.
Excel at the fundamentals: focus on underwriting, claims, investment performance and cost efficiency to enhance business performance.
Invest in sustainable growth: we are investing £1.3 billion over the next three years to transform Aviva into a simpler, stronger and better business.
IFRS in 2019 and beyond
For 2019, management expects operating profit to be broadly in line with their expectations. Consistent with the operating trends reported in our 2019 interim results, we have seen continued progress in Canada and stronger sales in bulk purchase annuities, offset by weaker results in Aviva Investors and UK personal lines insurance.
Today we set out how we will use primarily economic metrics to report our performance. We are also highlighting the following with respect to future operating profit:
- In 2019, we estimate a contribution of £300-£400 million from management actions, reflecting favourable development of longevity reserves and other items. In the longer-term we are signalling an expected range of £0 to £200 million per annum;
- Amortisation of internally generated intangible assets, such as software, is now to be presented as an operating expense. In 2018, this expense was £112 million; and
- The planned sale of FPIL, which contributed £151 million to operating profit in 2018, but no cash.
Maurice Tulloch, Chief Executive Officer, said:
"Aviva is a business with ambition. We are investing in new services, new products and new technology. We expect growth, especially in higher return businesses such as General Insurance and Asia and also, from our new Investment, Savings & Retirement business."
"Aviva's focus is delivering sustainable growing returns to shareholders. Our forecast cash flows are more than sufficient to sustain our dividend, reduce debt and grow Aviva. Our return on equity target of 12% underpins our progressive dividend for the long-term."
"Our strategic review has been rigorous and thorough. I am committed to running Aviva better. We will be more commercially focused, manage costs rigorously and be more disciplined in how we invest. We will excel at the basics, giving customers a simpler, faster and more convenient service. Getting these fundamentals right will result in a simpler, stronger, better Aviva, while also improving returns for shareholders."