Aviva Plc - Half-year Report

AVIVA PLC 2019 INTERIM RESULTS ANNOUNCEMENT*

Maurice Tulloch, Chief Executive Officer, said:

Aviva has strong foundations to build upon but there is much to do to improve our performance.

Our performance is mixed, with operating earnings per share up 2%. We have delivered strong general insurance results with a combined ratio of 95.9%. In life insurance and asset management, operating profits declined due to challenging market conditions and the absence of a longevity reserve release.

In June we announced a plan to improve Aviva's performance and deliver an excellent experience for our customers. We have made a quick start; separating management of our life and general insurance businesses in the UK and bringing together UK Digital and UK General Insurance.

Our financial position remains strong with a capital surplus of £11.8 billion and £2.3 billion of cash at group. Maintaining such a healthy capital surplus is important as we continue to reduce our debt levels and safely navigate uncertain market conditions. Aviva is ready and resilient.

In line with our progressive dividend policy, the Board of Directors has increased the interim dividend by 3% to 9.50 pence per share.

I am working with the Board to refresh Aviva's strategy and we have decided to review the strategic options for our Asian businesses. Aviva's businesses in Asia have excellent growth and earnings potential and we are considering a range of options to help these businesses reach their potential.

I am confident that our combination of excellent insurance skills, a strong balance sheet and world class distribution and partners provide a strong foundation for Aviva's future success.

 

Profit

·      Operating EPS1,‡# up 2% to 27.3 pence (HY18: 26.8 pence)

·      Operating profit2,‡# up 1% to £1,448 million (HY18: £1,438 million)

·      IFRS profit after tax £1,180 million (HY18: £376 million)

·      Basic EPS 28.2 pence (HY18: 7.9 pence)

Dividend

·      Interim dividend per share up 3% to 9.50 pence (HY18: 9.25 pence)

Capital

·      Solvency II cover ratio3,‡ 194% (2018: 204%)

·      Solvency II capital surplus3 £11.8 billion (2018: £12.0 billion)

·      Operating capital generation# £0.8 billion (HY18: £0.9 billion)

·      IFRS net asset value per share 432 pence (2018: 424 pence)

Cash

·      Cash remittances# £1,582 million (HY18: £1,493 million)

·      Holding company liquidity £2.3 billion4 (February 2019: £1.6 billion)

‡    Denotes Alternative Performance Measures (APMs) which are key performance indicators of the Group used to measure our performance and financial strength. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

#    Denotes key performance indicators which are used by the Group to determine or modify remuneration. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

1    This measure is derived from the Group adjusted operating profit APM. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

2    Group adjusted operating profit is a non-GAAP Alternative Performance Measure (APM) which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

3    The estimated Solvency II position represents the shareholder view as defined in section 8.i of the Analyst Pack.

4    Stated as at end July 2019 .

 

* This announcement contains inside information. The person responsible for making this announcement on behalf of the Group is Kirstine Cooper (Group Company Secretary).

 

 

Key Financial Metrics

 

Operating profit1,‡#

 

6 months
2019
£m

6 months
2018
£m

Sterling % change

Full year
2018
£m

Life business

1,282

1,392

(8)%

2,999

General insurance and health

391

302

29%

704

Fund management

61

74

(18)%

146

Other2

(286)

(330)

13%

(733)

Total

1,448

1,438

1%

3,116

 

Operating earnings per share‡#

27.3p

26.8p

2%

58.4p

Cash remittances3,‡#

 

6 months
2019
£m

6 months
2018
£m

Sterling % change

Full year
2018
£m

United Kingdom3

983

1,216

(19)%

2,513

Canada

15

13

15%

28

Europe3

503

227

122%

483

Asia, Aviva Investors and Other

81

37

119%

113

Total

1,582

1,493

6%

3,137

Operating capital generation (OCG): Solvency II basis3,#

 

6 months
2019
£bn

6 months
2018
£bn

Sterling % change

Full year
2018
£bn

United Kingdom3

0.5

0.9

(44)%

2.2

Canada

0.1

-

N/A

0.1

Europe3

0.5

0.4

25%

0.9

Asia & Aviva Investors

-

-

N/A

0.1

Other

(0.3)

(0.4)

25%

(0.1)

Total

0.8

0.9

(11)%

3.2

Expenses

 

6 months
2019
£m

6 months
2018
£m

Sterling % change

Full year
2018
£m

Operating expenses

1,964

1,929

2%

4,026

 

Operating expense ratio

55.5%

54.9%

0.6pp

54.2%

Value of new business: Adjusted Solvency II basis (VNB)

 

6 months
2019
£m

6 months
2018
£m

Sterling % change

Full year
2018
£m

United Kingdom

196

198

(1)%

481

Europe

237

307

(23)%

517

Asia & Aviva Investors

102

98

4%

204

Total

535

603

(11)%

1,202

General insurance combined operating ratio (COR)

 

6 months
2019

6 months
2018

Change

Full year
2018

United Kingdom

95.7%

94.3%

1.4pp

93.8%

Canada

97.5%

104.6%

(7.1)pp

102.4%

Europe

92.9%

93.5%

(0.6)pp

93.4%

Asia & Other

111.2%

125.0%

(13.8)pp

122.1%

Total

95.9%

97.4%

(1.5)pp

96.6%

Profit after tax

 

6 months
2019
£m

6 months
2018
£m

Sterling % change

Full year
2018
£m

IFRS profit after tax

1,180

376

214%

1,687

Basic earnings per share

28.2p

7.9p

257%

38.2p

Interim dividend

 

6 months
2019

6 months
2018

Sterling % change

Interim dividend per share

9.50p

9.25p

3%

Capital position

 

30 June
2019

31 December 2018

Sterling % change

30 June
2018

Estimated shareholder Solvency II cover ratio4,‡

194%

204%

(10)pp

187%

Estimated Solvency II surplus4

£11.8bn

£12.0bn

(2)%

£11.0bn

Net asset value per share

432p

424p

2%

411p

‡    denotes APMs which are key performance indicators. There have been no changes to the APMs used by the Group during the period under review.

#    denotes key financial performance indicators used as a base to determine or modify remuneration.

1    Group adjusted operating profit is a non-GAAP Alternative Performance Measure (APM) which is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Analyst Pack.

2    Other includes other operations, corporate centre costs and group debt and other interest costs.

3    Following the UK's decision to leave the European Union, the Ireland branches of the UK business have been transferred to Ireland effective March 2019. As a result the Ireland business is now reported within Europe instead of the United Kingdom for all metrics. Comparative balances have been restated accordingly.

4    The estimated Solvency II position represents the shareholder view only. See section 8i for more details.

 

 

 

Chief Executive Officer's report

Overview

In the first half of 2019, Aviva's operating profit1,‡# rose 1% to £1,448 million (HY18: £1,438 million). Operating earnings per share2,‡# increased 2% to 27.3 pence (HY18: 26.8 pence) while basic earnings per share rose 3.6 times to 28.2 pence (HY18: 7.9 pence).

The Board of Directors has declared an interim dividend of 9.50 pence per share, an increase of 3%. The interim dividend is consistent with our progressive dividend policy and reflects the underlying performance of the business.

Strong financial foundations

Aviva's priority is to maintain capital strength and balance sheet prudence, while further reducing debt leverage. Our progress on strengthening our balance sheet was recognised last month by Standard & Poor's, which upgraded our financial strength rating to AA-, and it is pleasing to note that all three of the major rating agencies rate Aviva in the AA range.

In the first half of 2019, our Solvency II surplus3 remained strong at £11.8 billion (2018: £12.0 billion). The solvency cover ratio3,‡ declined by ten percentage points to 194% (2018: 204%), primarily due to the fall in interest rates, with UK and European 10 year swap rates down 0.39% and 0.64% respectively.

Cash remittances‡# increased to £1,582 million (HY18: £1,493 million), benefiting from changes in the timing of dividend payments from a number of business units. This underpinned an increase in centre liquidity to £2.3 billion4 (February 2019: £1.6 billion). Our centre cash position reinforces our strength and resilience and will provide capacity for our plans to reduce debt by at least £1.5 billion by the end of 2022.

Better fundamentals

Aviva's solid fundamentals are reflected in our results in the first half and they are also being recognised externally, with Aviva winning the Best of the Best Insurer at the Insurance Post British Insurance Awards. We are focused on further enhancing these fundamentals and ensuring the group works cohesively so that we can build and capitalise on our collective strength.

We have now moved to separate management structures for UK Life and UK General Insurance. We also completed the alignment of our UK Digital business under UK General Insurance, which will help us to capitalise on our leading digital capabilities and become more efficient in our direct to consumer and price comparison businesses.

Aviva continues to make progress in relation to its insurance fundamentals. We are extending our technical excellence in underwriting and data science across the group, delivering quantitative and behavioural insights that improve risk selection. Our progress on digital has allowed us to enhance customer experience, increase connectivity with our distribution partners and provide distinctive products and services that have helped to win and retain customers across our business.

However, more needs to be done. Our results reinforce Aviva's need to reduce complexity, improve efficiency and apply greater commercial rigour to how we run our business.

We are targeting a £300 million per annum net reduction in operating expenses5 by 2022 and we are moving forward with this programme at pace. The transformation team is now fully in place and plans are mapped for savings across business units, functions and group centre. We have made some early progress; during the second quarter, the total number of contractors was reduced by nearly 7% and we also began to rationalise planned project expenditure. Accordingly, while operating expenses increased 2% to £1,964 million (HY18: £1,929 million) as we carried forward unacceptably higher run-rate costs from the second half of 2018 into the current year, we expect full year operating expenses to be lower in 2019 than the prior year.