2 - Long-term savings
Total long-term business sales for the first six months of the year were up 2% to £19,700 million (six months to 30 June 2007: £19,294 million). This performance is driven by 11% growth in life and pensions sales of £17,283 million (six months to 30 June 2007: £15,543 million), up 4% on a local currency basis. This was offset by a decrease of 36% in investment sales to £2,417 million (six months to 30 June 2007: £3,751 million) which have been impacted across all our regions by the current economic climate and volatile market conditions. Before the impact of exchange rate movements total sales were down 5%.
| 30 June 2008 | Sterling growth | ||||||
|---|---|---|---|---|---|---|---|
| Life and pensions £m |
Retail investments £m |
Total £m |
Life and pensions % |
Retail investments % |
Total % |
||
| Long-term savings sales | |||||||
| United Kingdom | 5,863 | 840 | 6,703 | 1% | (47)% | (10)% | |
| Europe | 8,431 | 526 | 8,957 | 15% | (32)% | 10% | |
| North America | 2,205 | - | 2,205 | 28% | - | 28% | |
| Asia Pacific | 784 | 1,051 | 1,835 | 20% | (24)% | (10)% | |
| Total new business sales on a present value of new business premium (PVNBP) basis |
17,283 | 2,417 | 19,700 | 11% | (36)% | 2% | |
In the United Kingdom total sales were down 10% to £6,703 million (2007: £7,415 million). Life and pensions sales were up 1% at £5,863 million (2007: £5,820 million) with growth in annuities and individual pensions sales offsetting a decrease in the sales of bonds. Investments sales were £840 million (2007: £1,595 million).
Aviva Europe delivered long-term business sales of £8,957 million (2007: £8,131 million), up 10%. Within this, life and pension sales were up 15% to £8,431 million (2007: £7,353 million). Removing the impact of the strong euro, sales were flat on a local currency basis, due to large decreases in Italy and Ireland, principally driven by the uncertain financial markets, offset by strong growth in the Netherlands and central and eastern Europe. Investment sales were down 32% to £526 million (2007: £778 million).
Sales in North America were up 28% to £2,205 million (2007: £1,716 million), reflecting higher funding agreement sales which increased by 147% to £375 million (2007: £152 million) and annuity sales of £1,579 million (2007: £1,293 million), up 22%.
Total long-term savings sales for Asia Pacific were £1,835 million (2007: £2,032 million). Within this, life and pension sales for the first half of the year grew by 20% to £784 million (2007: £654 million). This performance reflects the growth seen in China and India as well as the impact of the new businesses in Taiwan and Malaysia, together with favourable movements in exchange rates. Investment product sales fell 24% to £1,051 million (2007: £1,378 million).
Geographical analysis of life, pensions and investment sales
| Present value of new business premiums1 | ||||
|---|---|---|---|---|
| 6 months 2008 £m |
6 months 2007 £m |
Growth Sterling % |
Growth Local Currency % |
|
|
||||
| Life and pensions business | ||||
| United Kingdom | 5,863 | 5,820 | 1% | 1% |
| France | 2,010 | 1,832 | 10% | (4)% |
| Ireland | 648 | 889 | (27)% | (36)% |
| Italy | 1,275 | 1,818 | (30)% | (38)% |
| Netherlands (including Germany and Belgium) | 1,991 | 1,146 | 74% | 53% |
| Poland | 739 | 379 | 95% | 57% |
| Spain | 1,259 | 1,114 | 13% | (1)% |
| Other Europe | 509 | 175 | 191% | 174% |
| Europe | 8,431 | 7,353 | 15% | - |
| North America | 2,205 | 1,716 | 28% | 29% |
| Australia | 204 | 240 | (15)% | (25)% |
| China | 126 | 48 | 163% | 142% |
| Hong Kong | 138 | 162 | (15)% | (15)% |
| India | 95 | 57 | 67% | 59% |
| Singapore | 149 | 138 | 8% | (1)% |
| Other Asia | 72 | 9 | 700% | 691% |
| Asia Pacific | 784 | 654 | 20% | 11% |
| Total life and pensions | 17,283 | 15,543 | 11% | 4% |
| Investment sales2 | ||||
| United Kingdom | 840 | 1,595 | (47)% | (47)% |
| Netherlands | 221 | 365 | (39)% | (47)% |
| Poland | 46 | 141 | (67)% | (74)% |
| Other Europe | 259 | 272 | (5)% | (16)% |
| Europe | 526 | 778 | (32)% | (42)% |
| Australia | 840 | 1,030 | (18)% | (28)% |
| Singapore | 211 | 348 | (39)% | (45)% |
| Asia Pacific | 1,051 | 1,378 | (24)% | (32)% |
| Total investment sales | 2,417 | 3,751 | (36)% | (40)% |
| Total long term savings | 19,700 | 19,294 | 2% | (5)% |
| Navigator sales (included above) | 978 | 1,298 | (25)% | (33)% |
United Kingdom
Against a backdrop of difficult market conditions UK life increased life and pensions sales by 1% in a declining market, consolidating the 39% sales growth delivered over the last two financial years. First quarter market share grew to 11.4% (full year 2007: 10.5%). This has been achieved through the focused execution of our strategy, leveraging our broad product offering and distribution reach.
Life and pensions sales were £5,863 million (2007: £5,820 million). Investments sales were £840 million (2007: £1,595 million), as current economic conditions continue to impact consumer attitudes to saving for the future.
Total sales included another strong half year from our bancassurance partnership with the Royal Bank of Scotland Group. Sales were up 12% on the same period of 2007 reflecting the commitment of both partners to the ongoing development of this successful relationship.
Total pensions sales were broadly in line with the equivalent period last year. Pensions sold directly to individuals performed particularly strongly, up 22%, supported by sales of our new SIPP-Lite product. Annuities were up 39% to £1,286 million which includes BPA sales of £418 million. Individual annuities sold through the open market option increased 70% on the same period last year.
In a market which has been adversely impacted by a steep reduction in mortgage applications, we held the level of our protection sales, benefiting from the strength of our joint venture with RBSG and other partnerships. Bond sales fell 16% as the market re-aligned to the new tax regime. Falls in unit-linked bonds were offset by strong performances elsewhere, with 55% growth in with-profits bonds to £885 million and 65% growth in offshore unit-linked bonds to £149 million.
We have a programme of new product initiatives and we continue to focus on further strengthening our distribution footprint. To date we have made our successful Simplified Life protection product available through IFAs; expanded our enhanced annuity proposition, making it available to a wider range of customers; realigned our stakeholder pensions pricing to reflect the more price competitive proposition that this segment requires; launched our SIPP-Lite product, as part of our retirement solutions strategy; launched our Capital Protected Plan, responding to increasing customer demand for more certainty from their investments, and most recently enhanced our pricing capabilities for annuity business, increasing the number of factors we consider during quotation to optimise rates for over 70% of customers.
The market has remained volatile during the first half of the year and we expect this to continue throughout 2008. Product categories most susceptible to the economic situation, in particular protection and single premium savings, will face low or negative growth compared to the same period last year, leading to an overall flat or slightly falling market for the full year. Our ongoing investment in propositions and the development of our distribution footprint will enable us to deliver sales at least in line with the market whilst maintaining margins.
Europe
Overall sales in Europe were up 10% to £8,957 million (2007: £8,131 million) supported by the strength of the euro. On a local currency basis sales were down 4%, following growth of 14% in the first six months of 2007, reflecting difficult market conditions for life and pensions business and investment sales in a number of countries within the region. This is a resilient performance, achieved through the strength of our geographical diversity and a multi-channel distribution strategy.
We have had strong growth in the Netherlands, where three group pension schemes contributed £758 million, and growth has also been strong across central and eastern Europe. However, a number of countries have experienced lower consumer demand for long-term savings products and the performance of the bancassurance distribution channel has been significantly affected by banks prioritising their savings products following reduced liquidity in the banking sector. Trading conditions in Ireland, Italy and Spain were particularly challenging, although Spain benefited from sales of £180 million, including one-off transfers amounting to £151 million, through Cajamurcia, our most recent Spanish bancassurance partnership.
In Ireland, overall life and pension sales were down 27% against the same period last year. This reflects the slowdown in economic growth, a falling property market and the one-off impact of maturing Special Savings Incentive Account (SSIA) contracts in 2007. In Italy, sales were down 30% reflecting difficult market conditions and the timing of marketing campaigns.
The life and pensions business in France increased by 10% against the same period last year, reflecting the strength of the euro. On a local currency basis sales declined by 4% as sales through the bank and broker channels decreased due to lower demand for unit-linked products. However, we out-performed the overall market, which declined by 7%1 mainly due to growth in sales through our partnership with AFER, France’s largest savings association, following last year’s successful product modernisation.
1 In GWP terms, the Fédération Française des Sociétés d’Assurance (FFSA) states that the French market for life individual products has declined 7% as at 30 June 2008.
Our businesses in central and eastern Europe grew life and pension sales 125% to £1,248 million (2007: £554 million). In Poland sales increased by 95%. This reflects a strong performance by Aviva’s direct sales force in the pensions market, the success of our new regular premium product, Nowa Perspectywa, sold through the broker channel and a limited-period promotion of a savings product in the first quarter of the year in the bank channel. Significant growth was experienced in Romania, where sales were boosted by an initial surge of pension contracts written as a result of government reforms to the provision of compulsory pensions. While we expect some additional sales resulting from this reform in the third quarter, these sales are one-off in nature and boosted our sales by £252 million in the first half of the year. In Turkey, sales increased by 50% reflecting the commencement of our bancassurance arrangement with Akbank and success in the pensions market.
We have a strong portfolio of businesses across Europe and while 2008 is expected to continue to present challenging conditions in a number of countries across the region we remain confident in achieving our medium term growth target to deliver average long-term savings new business growth of 10% over the period 2007 to 2010, while growing new business profit at least as fast.
North America
In the United States, we have built upon the impressive growth achieved in 2007 with a further increase of 28% in new business sales to £2,205 million (2007: £1,716 million). This strong growth was accomplished despite a volatile economic environment in the US and we remain fully confident in our target to double the sales in our US business while maintaining margins within three years of the acquisition of the former AmerUs business.
In the first quarter of 2008, we became the number one seller in both the indexed annuity market and the indexed life insurance market. In the indexed annuity market we now have a 21% market share with three of our products appearing in the top 10. In the first half of 2008 we contracted with nearly as many Independent Marketing Organisations (IMOs) as we did in the past two years combined and we added more than 2,300 new agents to our annuity distribution network.
Sales of annuities increased by 22% to £1,579 million (2007: £1,293 million), a significant accomplishment given a challenging economic environment that was highlighted by increasing competitive pressures, volatile equity markets and changing interest rates. Our continued growth demonstrates a consumer demand for products with guarantees, particularly in light of the current investment climate. While competitive pressures have increased, current and future product launches, combined with marketing programmes and expanding distribution, support our ongoing confidence for future growth.
On 25 June, the U.S. Securities & Exchange Commission held an open meeting and one of the topics covered was a proposed new rule that would have the effect of classifying equity indexed annuities as securities for regulatory purposes. Indexed annuities are valuable products that fill an important financial need for many consumers and we expect indexed products to be an important part of our product offering for years to come.
Life sales totalled £251 million (2007: £271 million), a decrease of 7% from prior year reflecting our product rationalisation programme, implemented during late 2007, to focus on higher margin life products. We expect higher new sales in the second half of this year through a combination of new product launches, marketing programmes and growth in the indexed life insurance market.
Funding agreement sales were very strong at £375 million (2007: £152 million), an increase of 147% over the prior period as we took advantage of favourable market circumstances. Funding agreement sales, an integral part of our product portfolio, are large corporate transactions and will continue to grow as market opportunities arise.
Asia Pacific
Total long-term savings sales for Asia Pacific were £1,835 million (2007: £2,032 million). Within this, life and pension sales for the first half of the year grew by 20% to £784 million (2007: £654 million). This performance reflects both the growth seen in China and India as well as the impact of the new businesses in Taiwan and Malaysia, together with favourable movements in exchange rates.
In China, sales through the joint venture life business Aviva-COFCO increased by 163% reflecting ongoing distribution expansion. We have increased our presence in the country to eight provinces, with a total of 32 city branches (2007: seven provinces, 17 city branches). In India our share of total sales from Aviva’s joint venture with the Dabur Group increased 67% reflecting the on-going expansion of the direct sales force and development of bancassurance partnerships.
In Australia, sales were down 15%. However, 2007 included the benefit of a one-off transfer of group pensions business of £64 million as well as the £21 million impact of a favourable change to superannuation legislation. Excluding the one-offs and the impact of exchange rate movements, underlying sales grew by 16% against the prior year, driven by higher sales of protection and retail products.
Life and pension sales in Singapore increased by 8%, mainly due to the favourable effect of exchange rate movements. On a local currency basis sales were 1% down on the prior year following the withdrawal of the ‘Big-e’ product, which contributed £70 million of sales in half year 2007, partly offset by the impact of new product initiatives. In Hong Kong, our products are mainly investment related and aggressive competition together with the volatile market contributed to a 15% decrease in sales.
Investment sales in the period under review fell by 24% to £1,051 million (2007: £1,378 million), affected by the current volatile market conditions. Further to this, investment sales in Singapore were adversely impacted by a change to local pension laws which restricts external contributions from the government pension fund. Prior year investment sales were boosted by a one-off impact of £227 million due to the favourable changes in Australian superannuation legislation.
Looking forward, the second half of the year will remain challenging if the markets continue to be volatile. However, given our plans to continue to expand our distribution network and develop our relationships with our business partners, we remain confident in achieving our medium-term sales target to grow long-term savings new business sales by an average of at least 20% a year to 2010.
Present value of life new business premiums
The present value of new business premiums (PVNBP) is derived from the single and regular premiums of the products sold during the financial period and are expressed at the point of sale. The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts. The projection assumptions used to calculate PVNBP for each product are the same as those used to calculate new business contribution. The discounted value of regular premiums is also expressed as annualised regular premiums multiplied by a Weighted Average Capitalisation Factor (WACF). The WACF will vary over time depending on the mix of new products sold, the average outstanding term of the new contracts and the projection assumptions. The table below sets out the factors required to derive PVNBP by business units.
| 6 months 2008 |
6 months 2007 |
||||||
|---|---|---|---|---|---|---|---|
| Regular premiums £m |
WACF | Present value of regular premiums £m |
Single premiums £m |
PVNBP £m |
PVNBP £m |
||
| |||||||
| United Kingdom | |||||||
| Individual pensions | 218 | 4.3 | 929 | 1,068 | 1,997 | 1,819 | |
| Group pensions | 40 | 5.6 | 225 | 202 | 427 | 582 | |
| Annuities | – | – | – | 1,286 | 1,286 | 927 | |
| Bonds | – | – | – | 1,628 | 1,628 | 1,939 | |
| Protection | 80 | 4.8 | 384 | 61 | 445 | 443 | |
| Equity release | – | – | – | 80 | 80 | 110 | |
| United Kingdom | 338 | 4.6 | 1,538 | 4,325 | 5,863 | 5,820 | |
| France | |||||||
| Euro funds1 | 13 | 5.6 | 73 | 1,291 | 1,364 | 979 | |
| Unit-linked funds | 23 | 5.2 | 120 | 435 | 555 | 780 | |
| Protection business | 14 | 6.4 | 89 | 2 | 91 | 73 | |
| Total life and pensions | 50 | 5.6 | 282 | 1,728 | 2,010 | 1,832 | |
| Ireland | |||||||
| Life and savings | 19 | 5.0 | 95 | 201 | 296 | 459 | |
| Pensions | 46 | 3.7 | 169 | 183 | 352 | 430 | |
| Total life and pensions | 65 | 4.1 | 264 | 384 | 648 | 889 | |
| Italy | 58 | 5.4 | 316 | 959 | 1,275 | 1,818 | |
| Netherlands (including Belgium and Germany) | |||||||
| Life | 34 | 6.6 | 225 | 255 | 480 | 420 | |
| Pensions | 45 | 8.3 | 372 | 1,139 | 1,511 | 726 | |
| Total life and pensions | 79 | 7.6 | 597 | 1,394 | 1,991 | 1,146 | |
| Poland | |||||||
| Life and savings | 23 | 5.2 | 120 | 323 | 443 | 205 | |
| Pensions | 26 | 8.3 | 215 | 81 | 296 | 174 | |
| Total life and pensions | 49 | 6.8 | 335 | 404 | 739 | 379 | |
| Spain | |||||||
| Life and savings | 61 | 5.4 | 331 | 541 | 872 | 898 | |
| Pensions | 36 | 5.4 | 193 | 194 | 387 | 216 | |
| Total life and pensions | 97 | 5.4 | 524 | 735 | 1,259 | 1,114 | |
| Other Europe | 64 | 6.9 | 440 | 69 | 509 | 175 | |
| Europe | 462 | 6.0 | 2,758 | 5,673 | 8,431 | 7,353 | |
| United States | |||||||
| Life | 30 | 8.0 | 239 | 12 | 251 | 271 | |
| Annuity | – | – | – | 1,579 | 1,579 | 1,293 | |
| Funding agreements | – | – | – | 375 | 375 | 152 | |
| North America | 30 | 8.0 | 239 | 1,966 | 2,205 | 1,716 | |
| Asia | 69 | 4.8 | 330 | 250 | 580 | 414 | |
| Australia | 32 | 3.2 | 103 | 101 | 204 | 240 | |
| Asia Pacific | 101 | 4.3 | 433 | 351 | 784 | 654 | |
| Total life and pensions | 931 | 5.3 | 4,968 | 12,315 | 17,283 | 15,543 | |
Analysis of sales via bancassurance channels
| Present value of new business premiums1 | |||||||
|---|---|---|---|---|---|---|---|
| 6 months 2008 £m |
6 months 2007 £m |
Growth local currency2 % |
|||||
| |||||||
| Life and pensions | |||||||
| United Kingdom | 628 | 575 | 9% | ||||
| France | 487 | 417 | 3% | ||||
| Ireland | 349 | 435 | (30)% | ||||
| Italy | |||||||
| Unicredit Group | 575 | 1,106 | (54)% | ||||
| Banca Popolare Italiana group | 127 | 175 | (36)% | ||||
| Banca delle Marche | 13 | 39 | (71)% | ||||
| Banca Popolari Unite | 526 | 479 | (4)% | ||||
| 1,241 | 1,799 | (39)% | |||||
| Netherlands | 227 | 199 | – | ||||
| Poland | 291 | 46 | 409% | ||||
| Spain | |||||||
| Bancaja | 312 | 405 | (32)% | ||||
| Caixa Galicia | 137 | 201 | (40)% | ||||
| Unicaja | 330 | 258 | 12% | ||||
| Caja España | 114 | 89 | 13% | ||||
| Caja de Granada | 54 | 59 | (20)% | ||||
| Cajamurcia | 180 | – | – | ||||
| 1,127 | 1,012 | (2)% | |||||
| Other Europe | 27 | – | – | ||||
| Europe | 3,749 | 3,908 | (16)% | ||||
| North America | 6 | 27 | (78)% | ||||
| Asia Pacific | 312 | 166 | 79% | ||||
| Total life and pension sales | 4,695 | 4,676 | (9)% | ||||
| Investment sales3 | |||||||
| United Kingdom | 242 | 202 | 20% | ||||
| Total bancassurance sales | 4,937 | 4,878 | (8)% | ||||
Detailed worldwide life and pension new business
| Single | Regular | PVNBP | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 6 months 2008 £m |
6 months 2007 £m |
Local currency growth1 |
6 months 2008 £m |
6 months 2007 £m |
Local currency growth1 |
Local currency growth1 |
|||
| |||||||||
| United Kingdom | |||||||||
| Individual pensions | 1,068 | 959 | 11% | 218 | 211 | 3% | 10% | ||
| Group pensions | 202 | 367 | (45)% | 40 | 42 | (5)% | (27)% | ||
| Annuities | 1,286 | 927 | 39% | – | – | – | 39% | ||
| Bonds | 1,628 | 1,939 | (16)% | – | – | – | (16)% | ||
| Protection | 61 | 107 | (43)% | 80 | 63 | 27% | – | ||
| Equity release | 80 | 110 | (27)% | – | – | – | (27)% | ||
| United Kingdom | 4,325 | 4,409 | (2)% | 338 | 316 | 7% | 1% | ||
| France | |||||||||
| Euro funds2 | 1,291 | 925 | 23% | 13 | 9 | 30% | 22% | ||
| Unit-linked funds | 435 | 631 | (39)% | 23 | 28 | (28)% | (38)% | ||
| Protection business | 2 | 1 | 100% | 14 | 12 | – | 10% | ||
| Total life and pensions |
1,728 | 1,557 | (2)% | 50 | 49 | (11)% | (4)% | ||
| Ireland | |||||||||
| Life and savings | 201 | 337 | (48)% | 19 | 26 | (37)% | (43)% | ||
| Pensions | 183 | 257 | (38)% | 46 | 46 | (12)% | (28)% | ||
| Total life and pensions |
384 | 594 | (43)% | 65 | 72 | (21)% | (36)% | ||
| Italy | |||||||||
| Life and savings | 959 | 1,456 | (42)% | 58 | 72 | (29)% | (38)% | ||
| Netherlands (including Belgium and Germany) | |||||||||
| Life | 255 | 219 | 2% | 34 | 32 | (6)% | – | ||
| Pensions | 1,139 | 394 | 154% | 45 | 40 | (2)% | 83% | ||
| Total life and pensions |
1,394 | 613 | 100% | 79 | 72 | (4)% | 53% | ||
| Poland | |||||||||
| Life and savings | 323 | 130 | 98% | 23 | 14 | 35% | 74% | ||
| Pensions | 81 | 64 | 1% | 26 | 16 | 30% | 36% | ||
| Total life and pensions |
404 | 194 | 66% | 49 | 30 | 32% | 57% | ||
| Spain | |||||||||
| Life and savings | 541 | 669 | (29)% | 61 | 43 | 24% | (15)% | ||
| Pensions | 194 | 126 | 36% | 36 | 16 | 100% | 57% | ||
| Total life and pensions |
735 | 795 | (19)% | 97 | 59 | 45% | (1)% | ||
| Other Europe | 69 | 51 | 19% | 64 | 31 | 92% | 174% | ||
| Europe | 5,673 | 5,260 | (6)% | 462 | 385 | 5% | – | ||
| United States | |||||||||
| Life | 12 | 26 | (54)% | 30 | 35 | (14)% | (7)% | ||
| Annuity | 1,579 | 1,290 | 23% | – | 1 | (100)% | 23% | ||
| Funding agreements | 375 | 152 | 148% | – | – | – | 148% | ||
| North America | 1,966 | 1,468 | 35% | 30 | 36 | (17)% | 29% | ||
| Asia | 250 | 184 | 28% | 69 | 48 | 38% | 34% | ||
| Australia | 101 | 146 | (39)% | 32 | 29 | (3)% | (25)% | ||
| Asia Pacific | 351 | 330 | (3)% | 101 | 77 | 22% | 11% | ||
| Total life and pensions |
12,315 | 11,467 | 1% | 931 | 814 | 7% | 4% | ||
Detailed worldwide investment sales analysis
| Single | Regular | PVNBP | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 6 months 2008 £m |
6 months 2007 £m |
Local currency growth1 |
6 months 2008 £m |
6 months 2007 £m |
Local currency growth1 |
Local currency growth1 |
|||
| |||||||||
| United Kingdom | |||||||||
| Peps/ISAs/Unit Trusts/OIECS/SIPPs | 732 | 1,475 | (50)% | 442 | 442 | – | (47)% | ||
| United Kingdom | 732 | 1,475 | (50)% | 44 | 44 | – | (47)% | ||
| Netherlands (including Belgium and Germany) | |||||||||
| Unit Trusts | 221 | 365 | (47)% | – | – | – | (47)% | ||
| Poland | |||||||||
| Mutual Funds | 43 | 139 | (75)% | 3 | 2 | – | (74)% | ||
| Other Europe | |||||||||
| UCITS | 259 | 272 | (16)% | – | – | – | (16)% | ||
| Europe | 523 | 776 | (42)% | 3 | 2 | – | (42)% | ||
| Asia Pacific | |||||||||
| Unit Trusts | 73 | 80 | (20)% | – | – | – | (20)% | ||
| Navigator | 978 | 1,298 | (33)% | – | – | – | (33)% | ||
| Asia Pacific | 1,051 | 1,378 | (32)% | – | – | – | (32)% | ||
| Total investment sales | 2,306 | 3,629 | (41)% | 47 | 46 | – | (40)% | ||
