Aviva plc: Worldwide long-term savings new business – 12 months to 31 December 2006
Aviva UK
2006 was a record year for Norwich Union with total sales including investments up 35% to £13,962 million (2005: £10,345 million). This exceptional growth was broad based, underpinned by an increase in customer confidence and supported by A-Day and buoyant equity markets. This result included, in particular, a very strong performance in collective investments and bonds. Sales excluding pensions increased 32%, demonstrating the strength and breadth of the company’s proposition, and distribution footprint.
Total sales of £13,962 million are before the impact of year-end assumption changes in relation to persistency on regular premium pensions business. The impact of these changes on headline sales is estimated at £361 million, reducing total sales on a PVNBP basis to £13,601 million. Norwich Union will revisit its overall 2006 persistency assumptions in relation to pension and bond business. The effect of pension and bond assumption changes on UK EEV operating return and new business margin is expected to be offset by other assumption changes. These other assumption changes include the beneficial impact of reserving changes introduced by PS06/14 (Prudential changes for insurers) that the company will early adopt for its 2006 year end and the benefit of a proportion of the future pension deficit funding payments being borne by the UK with-profit funds. Further disclosure will be provided at the preliminary announcement on 1 March 2007.
The company has made good progress on service standards during the year and expects to increase its full year 2006 market share (full year 2005: 10.5%).
Sales momentum continued throughout the year, with sales in the second half of the year reaching £7,063 million ahead of those in the first half of the year (H1 2006: £6,899 million). Fourth quarter sales totalled £3,498 million, 25% ahead of 2005 (fourth quarter 2005: £2,804 million).
The effective implementation of the company’s A-Day strategy resulted in total pension sales of £5,068 million, 40% ahead of 2005 (£3,616 million). Individual pensions, including group personal pensions, increased by 56% to £4,043 million (2005: £2,597 million). Discrete fourth quarter sales were up 16% to £843 million (Q4 2005: £730 million) despite the anticipated reduction in volume in stakeholder pensions resulting from the change to the charging structure earlier in the year. This increase included business with a higher profitability than in the equivalent quarter of 2005. Sales of Self-invested personal pensions (SIPP), launched through Norwich Union’s Lifetime wrap platform in 2006, totalled £173 million1.
Corporate pension sales were stable at £1,025 million (2005: £1,019 million) in a market which will continue to contract as volumes shift from trustee-based corporate pension schemes into group personal pension products.
The 2006 pensions market was boosted by the legislative changes around A-Day that led to advisers, trustees and employers reviewing existing pension arrangements. The impact of A-Day is now diminishing but is still expected to buoy the market to a lesser extent in 2007.
Collective investment sales more than doubled, up 112% to £2,455 million (2005: £1,160 million). The company expanded its offerings to include two new equity-based funds and new property funds during the year, including property investment opportunities outside the UK. A global property fund was launched in the fourth quarter, followed by a new European property fund in January 2007. The company continues to draw on the significant expertise of Morley Fund Management, which is an acknowledged leader in the property investment arena.
Bond sales were very strong at £3,588 million, 37% ahead of 2005 (2005: £2,615 million). Popular choices for investors have been property, with-profit and guaranteed funds, including the company’s unique guarantee-backed with-profit bond.
This retail price index (RPI) guarantee bond has led to a resurgence in with-profit bond sales which increased by 93% to £902 million (2005: £468 million). Unit-linked sales continued to perform strongly, increasing by 26% to £2,368 million (2005: £1,879 million).
Norwich Union’s bancassurance partnership with The Royal Bank of Scotland Group had an excellent year with sales of £1,607 million, up 48% on the previous year (2005: £1,085 million). Norwich Union’s share was £1,169 million, 58% ahead of 2005 (2005: £742 million). Increased sales of individual pensions, boosted by A-Day, and strong collective investment growth, underpinned by a successful ISA season, have supported this result. Norwich Union’s with-profit RPI guarantee bond was also well received within branches during the year, where increased sales have supported growth in margin. Throughout the year, the business has benefited from a continued increase in focus from both partners. The number of sales advisers rose to more than 760 at the end of 2006, with a target of 1,000 by the end of 2007.
Protection sales increased 3% to £1,024 million (2005: £995 million). The company’s focus in 2006 has been on maintaining product volume and profitability, while improving the level of service it provides to the adviser market and increasing its direct to consumer presence.
Total annuity sales were slightly down at £1,511 million (2005: £1,585 million). Focus throughout the year continued to be on profitable individual annuity sales to policyholders. The bulk purchase annuity (BPA) market became increasingly competitive in 2006 and the company was selective in the schemes it chose to quote on. Norwich Union intends to be a long-term player in the BPA market, supported by strong experience and knowledge in the individual annuity market, and benefiting from its recognised brand, strong annuity capability, administration and excellent service. It will continue to look at writing BPA business only where the returns generated meet its profitability targets.
Equity release sales of £316 million were lower (2005: £374 million), with sales impacted by increased competition as new providers entered the market. Norwich Union and the multi-tie network Openwork set up an equity release lead referral scheme in October.
During 2006, Norwich Union has developed products that are more accessible and provide an easy sales experience for the customer. In September, the company launched an innovative and simplified life product, providing a fast quote, simple application option for those seeking protection products. This was followed in October with its “make sense of it” website, responding to consumer demand for simple information that is easy to understand. The site covers the basics of investments, pensions and annuities with further information on protection to be added this month. For advisers, Norwich Union launched its IFA fund website, which offers a one-stop shop where advisers can download literature, obtain up to date fund statistics and view the latest commentary from fund managers.
Norwich Union anticipates market growth2 of between 5-10% in 2007 and aims to grow at least in line with the market.
- Included in collective investment sales.
- Market growth projection is on an annual premium equivalent basis
