Summary

  • Aviva is a leading Savings, Retirement and Insurance business since 1696.
  • Aviva helps its 31.6 million customers make the most –out of life, plan for the future.
  • Cash remittances during 2020 were £1.5 billion (2019: £2.6 billion including £500 million special dividend from UK Life and £172 million special remittance from Italy).

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Company Overview

Aviva (LSE:AV, OTC:AVVIY) is a leading Savings, Retirement and Insurance business, helping its 31.6 million customers make the most out of life, plan for the future, and have confidence that if things go wrong the company will be with them to put it right.

The company operate through businesses in its Core markets of the UK, Ireland and Canada and its other International businesses, which are managed for long-term shareholder value.

Since 1696, Aviva has been there for its customers when it really matters. Aviva is here to help them make the most of life and know that if things go wrong, the company will be with them to put it right. The company's purpose inspires it to do the right thing. It reflects that Aviva is deeply invested in its customers, its communities, its people, its shareholders and its planet.

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Aviva's strategy is centred on putting the customer first, having a strong social purpose, focusing on where the company can win, execution discipline, and ultimately creating value for its shareholders.

Aviva has three strategic priorities for the Group:

  • Focus the portfolio;
  • Transform performance; and
  • Financial strength.

Business Model

Aviva helps its 31.6 million customers make the most –out of life, plan for the future, and have confidence that if things go wrong the company will be with them to put it right.

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Financial Highlights

Cash remittances

Cash remittances during 2020 were £1.5 billion (2019: £2.6 billion including £500 million special dividend from UK Life and £172 million special remittance from Italy). The vast majority of these, £1,359 million (2019: £1,909 million including £500 million special dividend from UK Life) came from its Core markets. Remittances from Manage-for-value Businesses were £127 Million (2019: £613 million) due to regulatory restrictions and its cautious approach given the continuing economic and market uncertainty.1

Profits

Group Adjusted operating profit of £3,161 Million (2019: £3,184 million) and operating earnings per share 60.8 pence (2019: 60.5 pence) were stable. IFRS profit for the year was £2,910 million (2019: 2,663 million) while basic earnings per share increased to 70.2p (2019: 63.8p). Adjusted operating profit from Core markets was resilient at £2,492 million (2019: £2,558 million).

Group adjusted operating profit remained resilient despite the negative impacts of COVID-19 as the company delivered strong results in general insurance, bulk annuities, as well as its savings and retirement propositions, with lower profits from its Heritage business reflecting its gradual run-off. The company's Manage-for-value operations also performed well on an IFRS basis. The main impact of COVID-19 was felt in general insurance where the total estimated impact amounted to a loss of £17 million. Within its Core general insurance markets, the impact was greater at £84 million, as business interruption claims net of reinsurance were only partly offset by favourable impacts of reduced economic activity in other product lines tempered by higher profit-contingent commission payments to distributors.

Cost reductions

The company's approach to efficiency initiatives was also brought into focus as a result of COVID-19. Although some costs were reduced, for example travel, the company incurred incremental expenditure including the IT spend required to allow all of its employees to work remotely. The company also contributed £43 million to community support initiatives. Despite these headwinds Aviva has delivered £180 million of cumulative savings since 2018. The company remain on track to reduce controllable costs by £300 million by 2022 and will deliver this solely from Core markets.

Solvency II operating capital generation (OCG)

Solvency II OCG decreased to £1,932 million (2019: £2,259 million) while Solvency II OCG excluding the impact of capital actions, non-economic assumption changes and other non-recurring items, was stable at £1,414 million (2019: £1,433 million). Total Solvency II OCG1 was impacted by changes made to its French life model which corrected a mis-applied rule, partly mitigated by an increase in offsetting Group diversification benefits, as well as a positive contribution from management actions of £518 Million (2019: £826 million). This included positive impact of assumption changes (including longevity releases) albeit lower than in 2019.

Solvency II OCG from Core markets increased 5% to £1,948 million (2019: £1,850 million) driven by a strong performance in general insurance.

Solvency II return on equity (RoE)

Solvency II RoE was 9.8% (2019: 14.3%), lower primarily owing to changes to modelling in its French life business which corrected a mis-applied rule, and significantly lower benefit from longevity assumption changes in UK Life. Underlying performance, excluding the impact of capital actions, non-economic assumption changes and other non-recurring items, Solvency II RoE increased to 9.8% (2019: 8.1%) driven by underlying improvements in UK Life, due to bulk purchase annuities (BPA) new business, and in its UK and Canada General Insurance businesses.

Liquidity

At end February 2021, centre liquidity was £4.1 billion (February 2020: £2.4 billion) with the increase primarily driven by the receipt of disposal proceeds for its Singapore, Hong Kong, Indonesia and FPI businesses, partially offset by payment of dividends.

Solvency II debt leverage

Solvency II debt leverage ratio remained at 31% in 2020 (2019: 31%), with an increase in total debt offset by an increase in own funds.

During the first half of 2020, Aviva issued £500 million of tier 2 subordinated debt in advance of redeeming £500 million of restricted tier 1 securities in July. In October 2020, the company issued C$450 million of tier 2 subordinated debt pre-financing a C$450 million instrument maturing in May 2021. With high levels of centre liquidity held at Group centre the company reduced its commercial paper in issue by £130 million over 2020.

The Board approved, on 3 March 2021, an £800 million liability management exercise. This tender offer, alongside upcoming debt maturities and optional first calls in the first half of 2021, allows it to reduce its Solvency II debt leverage ratio by 4 percentage points by half year 2021.

Solvency II capital

At 31 December 2020, Aviva’s Solvency II shareholder surplus was £13.0 billion and Solvency II shareholder cover ratio was 202% (2019: £12.6 billion and 206% respectively). Solvency II net asset value per share was 442 pence (2019: 423 pence). Solvency II OCG of £1,932 million (2019: £2,259 million) and the benefits of disposals were offset by capital market movements driven mainly by the impact of the reduction in interest rates over the course of the year and the payment of dividends in the period.

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Aviva plc 2021 Interim Results

Cash remittances

12 August 2021;Cash remittances during the first half of 2021 were £1,296 million (HY20: £150 million) with the vast majority of these, £1,063 million (HY20:  £108 million) delivered from its continuing operations. Remittances were depressed in 2020 owing to volatility arising from COVID-19. Strong remittances in 2021 represent stronger performance and the improved capital positions of the major subsidiaries.2

Profit

Operating profit of £1,132 million (HY20: £1,225 million) and operating earnings per share of 21.0 pence (HY20: 23.4 pence) decreased owing to reduced operating profit from discontinued operations. In the first half of 2020 profits included Friends Provident International Limited and Aviva Singapore, the disposals of which completed in the second half of 2020.

IFRS loss for the period was £198 million (HY20: profit £874 million) while basic earnings per share decreased to (6.2) pence (HY20: 20.0 pence) as a result of non-operating items including a charge of £538 million on the expected loss on disposal of France and investment variances on its continuing operations. The company expect to recognise a profit on disposals of Poland and the remaining Italian operations on completion in the second half of the year.

Operating profit from continuing operations increased by 17% to £725 million (HY20: £621 million). In UK & Ireland Life operating profit decreased due to lower bulk purchase annuity volumes and margins and a reduction in the value of non-recurring items compared to the first half of 2020, however this was offset by strong results in Protection & Health and its General Insurance business. This benefitted from a continuation of lower claims frequency, improvements in underwriting performance and reduced COVID-19 related GI claims. The company's strategic investments also performed well with strong results from Singapore helped by the success of a new long-term care product.

Cost reduction

Aviva has maintained its focus on efficiency, achieving a further reduction in costs despite headwinds from inflation and targeted investments in growth, including the relaunch of its brand. Controllable costs from continuing operations, excluding cost reduction implementation and IFRS 17 costs, fell by 2% to £1,378 million (HY20: £1,408 million). The company remain on track to deliver a £300 million net cost reduction, against its 2018 baseline, from its continuing operations in 2022.

Beyond this initial target the company will maintain its focus on efficiency over the long term by ensuring all of its business lines deliver top-quartile performance – a dynamic ambition that will underpin ongoing improvements over time.

Solvency II operating own funds generation (OFG) and Solvency II operating capital generation (OCG)

Total Solvency II OFG increased 12% to £710 million (HY20: £632 million) as the higher contributions from GI markets, due to lower motor and travel claims as well as benign weather experience and a reduction in COVID-19 related claims compared to the prior year, were partially offset by lower bulk purchase annuity volumes and margins in UK Life and the sale of Aviva Singapore in 2020.

Total Solvency II OCG decreased to £578 million (HY20: £890 million) while Solvency II OCG excluding the impact of capital actions, non-economic assumption changes and other non-recurring items, increased to £629 million (HY20: £534 million). The increase in Solvency II own funds generation was offset by the impact of lower capital management actions in both UK Life (H120 included de-risking activity and a change to the internal reinsurance vehicle) and Group operations (primarily due to re-risking as the company exited equity hedges).

Solvency II OCG from UK, Ireland, Canada and Aviva Investors increased by 31% to £841 million (HY20: £640 million) driven by lower claims in general insurance partially offset by lower capital management actions in UK Life.

Solvency II return on equity (Solvency II RoE)

Solvency II RoE was higher at 8.0% (HY20: 7.1%) primarily reflecting the increase in Solvency II operating own funds generation owing to improvements in COVID-19 experience on its general insurance business, partially offset by lower volumes and margins on bulk purchase annuities.

Liquidity

At end July 2021, centre liquidity was £2.8 billion (February 2021: £4.1 billion) with the decrease primarily driven by payment of the final 2020 dividend of £0.6 billion and debt repayments of £2 billion (including £0.1 billion premium on tender) partly offset by cash remittances to Group of £1.3 billion and disposal proceeds of £0.5 billion.

Solvency II debt leverage

Solvency II debt leverage ratio decreased to 26% in the first half of 2021 (FY20: 31%), reflecting its debt reduction actions of £1.9 billion.

Solvency II capital

At 30 June 2021, Aviva’s Solvency II shareholder surplus was £12.0 billion and Solvency II shareholder cover ratio was 203% (FY20:  £13.0  billion and 202% respectively). Solvency II net asset value per share was 433 pence (FY20: 442 pence) as Solvency II operating own funds generation and the reduction in the value of subordinated liabilities were more than offset by the payment of dividends, and adverse non-operating movements in own funds driven by higher interest rates.

The company's pro forma Solvency II cover ratio allowing for the completion of previously announced divestments, and an assumed capital return of £4 billion as well as a further external debt reduction of c.£1 billion is estimated at 195%. Central liquidity, also allowing for a £0.7 billion reduction in internal debt is estimated at £2.7 billion. The estimated SCR of £9.3 billion allowing for the remaining disposals, includes a c.£2 billion benefit from Group diversification.

References

  1. ^ https://www.aviva.com/content/dam/aviva-corporate/documents/investors/pdfs/reports/2020/aviva-plc-annual-report-and-accounts-2020.pdf
  2. ^ https://www.aviva.com/content/dam/aviva-corporate/documents/investors/pdfs/results/2021/aviva-hy2021-analyst-pack.pdf
Tags: GB:AV US:AVVIY
Created by Asif Farooqui on 2022/01/22 08:09
     

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