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.
Strategy update
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.
Financial outcomes:
Dividend:
- Reaffirm progressive dividend policy
Financial targets:
- 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
Operating profit:
- 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).
Strategic priorities
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.”
*This announcement contains inside information. The person responsible for making this announcement on behalf of the Group is Kirstine Cooper (Group Company Secretary)
Watch presentations from Maurice Tulloch, CEO, and Jason Windsor, CFO
Download the Capital Markets Day 2019 presentation PDF (6.06 MB)
Transcript for video Aviva Capital Markets Day November 2019
1. Hello. I’m Maurice Tulloch, Group CEO of Aviva and today I want to talk about Aviva’s
strategy, our operating structure and ambition.
2. You know my ambition is to build a simpler, stronger, better Aviva.
3. First, we want to deliver sustainable, growing returns for our shareholders.
4. Our cash flows over the next four years will sustain a progressive dividend and reduce
debt.
5. But this strategy is not just about the dividend.
6. Aviva is an income stock, with tremendous growth potential.
7. We have great businesses with competitive advantage in their markets.
8. So, we will invest £1.3 billion over the next three years to sustain and build our
leadership positions, especially in higher return businesses such as General
Insurance and our new division – Investments, Savings and Retirement – where I
believe we are uniquely placed to win in the market.
9. Second, we are going to run Aviva better. We’re going to be more commercial,
focused, managing costs rigorously and being more disciplined in how we invest.
10. In fact, we’ve already started to do just that.
11. Let’s take one example – costs. We expect £60 million of in year savings in 2019 and
that’s going to rise to £150 million in 2020.
12. Third, we have refined our purpose, our vision and our strategy.
13. This provides you our employees with a North Star around which all of our actions
and decisions are based.
14. It makes clear to our customers and our shareholders what we stand for.
15. You know in the twenty plus years I have been here, Aviva has always had fantastic
people, who are passionate about what they do. That’s not going to change.
16. But there is going to be a different emphasis in the way we work.
17. We are focused on three strategic priorities:
a. Delivering great outcomes for our customers
b. Exceling at the fundamentals of insurance
c. Investing in sustainable growth
18. We have to offer simplicity and great service for our customers and distributors.
19. To do that, we need to be efficient and make good underwriting and pricing decisions.
20. We need clearer responsibility and decision making.
21. We want to make Aviva easier for investors to understand. And, crucially, we want to
give more clarity on our performance.
22. So today we have announced a new structure. We will have five divisions led by highly
experienced CEOs.
23. First is a division called Investments, Savings and Retirement, led by Euan Munro*,
which we see as a long-term growth engine. It includes Aviva Investors and our UK
savings business.
24. It’s a business with scale – we are already the number one workplace pension
provider in the UK with 3.5 million customers and Aviva Investors has over a third of
a trillion pounds under management.
25. With this new division we are creating a modern, integrated wealth management
business that covers the institutional, wholesale and retail markets.
26. Next is our Life business, led by Angela Darlington, incorporating annuities and equity
release, Protection and Health, and Heritage.
27. I expect this business to generate significant levels of capital and cash-flow over the
next 10 years to fund the dividend.
28. The third division is General insurance, led by Colm Holmes.
29. This is a £9 billion business with top two positions in UK, Canada and Ireland.
30. We will increase our ambition by targeting 20% general insurance premium growth
up to 2022.
31. Our fourth division led by Patrick Dixneuf, Europe, has achieved strong results in
recent years through a focus on the fundamentals of distribution, product mix and
expense efficiency.
32. And finally, turning to Asia.
33. Our focus here remains on maximising long-term value for our shareholders and we
have therefore decided to retain businesses in Singapore and China.
34. These businesses delivered strong results in 2018 and we expect them to pay
dividends to group centre in 2019.
35. And we are in discussions with our partners on the future of our businesses in
Vietnam and the joint venture in Indonesia, which I will update you on in due course.
36. So, to conclude, I have summarised our purpose, our strategy, our financial targets
and the key priorities.
37. This means a relentless focus on getting the fundamentals right and delivering on all
of our promises.
38. What I am delivering at Aviva is a company that is simpler, both internally and
externally.
39. Stronger, at operational execution
40. And better at rewarding shareholders with sustainable growing returns.
41. This should give you a clear sense of who we are, what we stand for and where
we’re going.
42. Thank you
*Subject to regulatory approval
- ENDS -
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Notes to editors:
- Aviva provides life insurance, general insurance, health insurance and asset management to 33 million customers.
- In the UK we are the leading insurer serving one in every four households and have strong businesses in selected markets in Europe, Asia and Canada. Our shares are listed on the London Stock Exchange and we are a member of the FTSE100 index.
- Aviva’s asset management business, Aviva Investors, provides asset management services to both Aviva and external clients, and manages over £346 billion in assets (as at 30 June 2019). Total group assets under management at Aviva group are £501 billion (as at 30 June 2019).
- Aviva helps people save for the future and manage the risks of everyday life; last year we paid £32.9 billion in claims and benefits on behalf of our 33 million customers.
- By serving our customers well, we are building a business which is strong and sustainable, which our people are proud to work for, and which makes a positive contribution to society.
- The Aviva newsroom at www.aviva.com/newsroom includes links to our image library, research reports and our news release archive.
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