Aviva UK
Norwich Union generated record sales in 2007 despite tougher market conditions in the second half of the year. Total sales, including investments, were up by 6% to £14,406 million (2006: £13,601 million) benefiting from strong growth in bonds, annuities and collective investments. We successfully maintained our market share at 11.0% in the first nine months of 2007 (full year 2006: 10.9%)2, in line with our stated aim of growing at least in line with the market.
Total pensions sales were £4,376 million (2006: £4,707 million) with individual pensions sales decreasing 10% to £3,305 million (2006: £3,682 million) as the A-Day effect tapered away. We believe that the individual pension market should offer a more differentiated service and we have enhanced our product range to provide three options: full-service SIPP3, ‘SIPP-lite’4, which suits the needs of the majority of consumers at a more economical price, and stakeholder5 products. For the full-service SIPP marketplace, we continue to invest in our Lifetime proposition, sales of which increased 199% to £518 million (2006: £173 million)6. To enhance our proposition in the ‘SIPP-lite’ market, we recently announced that from April our individual personal pension product will include an income drawdown capability and an increased fund choice. Existing customers will be offered a wider fund range and improved e-commerce facilities free of charge and will be upgraded automatically without the need to re-broke any policies. Our ‘SIPP-lite’ proposition meets consumer demand for features they need without having to pay for additional functionality they are unlikely to use. In the stakeholder market, we have re-aligned our pricing to reflect the more price competitive proposition that this segment requires. As a result of these actions, we now have a more balanced and competitive pensions range, tailored to meet the requirements of consumer needs in all market segments.
Corporate pension sales increased by 4% to £1,071 million (2006: £1,025 million) as the trustee-based corporate pensions market remained active. We refreshed our defined benefit proposition at the end of the year and we therefore anticipate sales growth to continue into 2008.
Bond sales were up 17% to £4,192 million (2006: £3,588 million). In the second half of the year, as more cautious investors sought both secured and low risk funds at a time of market uncertainty, we were able to capitalise on this opportunity through our broad fund offering. As a result, with-profit sales increased by 38% to £1,208 million (2006: £878 million), unit-linked sales were up 4% at £2,468 million (2006: 2,368 million) and sales of unit-linked offshore bonds more than doubled, up 107%, to £280 million (2006: £135 million). We expect the bond market to slow as potential changes to capital gains tax (CGT) legislation create uncertainty around unit-linked bond sales, with 2008 sales growth dependent on the result of this review.
Collective investment sales increased by 12% to £2,751 million (2006: £2,455 million). Sales growth slowed in the second half of the year due to a decline in demand for UK commercial property funds. In response, we extended and diversified our fund offering and focused on improving the performance of our UK equity funds.
Annuity sales grew significantly by 30% to £1,965 million (2006: £1,511 million). We offer excellent service, remain competitively priced, and in November we refreshed our enhanced pension annuity proposition to meet the retirement needs of a wider range of customers. Enhanced annuity sales have exceeded expectations and the discrete fourth quarter sales were equivalent to those achieved in the whole of 2006. As part of our ambitions for the wider employee benefits market, we continue to secure more bulk purchase annuity (BPA) schemes and, in 2007, wrote 32 schemes at a value of £118 million, £64 million of which was written in the fourth quarter. The market has been and will remain extremely competitive and significant business volumes are transacted on terms which we regard as being uneconomic. We price selectively and will only write BPA business where the returns meet our profitability targets and where we can secure wider corporate benefit sales.
Protection sales were 14% lower at £879 million (2006: £1,024 million) due to slowdowns in both the payment protection insurance and housing markets. As a result of our partnership with the Post Office and the launch of an over-50s life cover product, whole-of-life7 sales increased 69% against the third quarter of 2007. We continue to develop new and simpler customer propositions for the Post Office and launched a simplified life protection product in November. We anticipate the challenging protection market conditions experienced in 2007 to continue into 2008.
Equity Release sales were down 23% to £243 million (2006: £316 million). In 2007, we have created a smaller, more efficient sales force and expanded our distribution opportunities, including a partnership agreement in October 2007 with the Premier Mortgage club, one of the largest mortgage clubs in the UK with over 10,000 members. With these developments, we expect our sales to improve in 2008.
Our bancassurance partnership with RBSG continued to deliver record sales, especially through the successful bond and collective investments propositions, with our share of total sales up by 36% to £1,587 million (2006: £1,169 million). This strong performance benefited from the release of two tranches of our enhanced structured bond between May and October and the launch of the Capital Protected Investment product in October, both of which proved popular in unsettled market conditions. Achieving the target of 1,000 sales advisers by the end of 2007 (2006: 760) contributed to the success of the joint venture this year. With its wide product range and increasingly productive and established sales force, we expect the joint venture to deliver further strong sales growth in 2008.
In 2006, we gave a medium term growth outlook for the UK long-term savings market of 5-10% on an annual premium equivalent (APE) basis. In 2007 we achieved sales growth of 6%, in line with this forecast. We remain positive in our outlook for the UK and believe that we will continue to grow at least in line with the market in 2008, given our strong distribution footprint and broad product offering and strengthened by our enhanced pension product range. However, given the uncertainty over the performance of the UK economy, market growth in 2008 may be slightly lower than 2007.
UK Floods
At the interim announcement in August, the impact of the UK floods during June and July was estimated at £340m, bringing the total expected adverse weather costs in 2007 to £400 million. Our UK general insurance business has now reviewed the weather experience in the second half of the year and the estimate has risen by £75 million to £475 million.
As expected the adverse weather conditions have had an impact on Aviva’s COR and we expect the group COR for the full year 2007 to be around 100%. Had the exceptional weather not occurred, then the group COR would have been 95%, 3% better than the “meet or beat” target of 98%.
- Total ABI market and latest available market share based on ABI total market data (including collective investments) on an APE basis.
- Full-service SIPP products are typically suited for the ‘high net worth’ market and offer an extensive range of funds (including property and exotic funds), flexible e-commerce for consumer and advisers, and income drawdown features.
- ‘SIPP-lite’ products are typically suited for the ‘mass-affluent’ market and offer a reasonable fund range, e-commerce and drawdown facilities to fit with the needs of this segment where the sophistication of the full SIPP is not needed.
- Stakeholder products are typically suited for the ‘lower end’ market and offer a restricted fund range without e-enablement and income drawdown capability.
- Included in collective investments sales.
- The whole-of-life market represents 6% of the total protection market (based on latest available ABI statistics) on an APE basis.
