Aviva plc: Worldwide long-term savings new business– 12 months to 31 December 2008
Long-term savings
United Kingdom
In 2008 Aviva UK achieved its highest ever life and pensions sales of £11,858 million (2007 restated: £11,797 million). Total long-term savings sales were 8% lower than the previous year, in line with the UK market, which is expected to have contracted for the first time in five years.
Our compelling combination of balanced distribution, broad product choice and continued innovation was evident in the 2008 performance. Our results were underpinned by higher sales through the joint venture with the Royal Bank of Scotland Group, with sales up 1% to £1,639 million (2007 restated: £1,615 million), the success of our pensions strategy, which enabled us to recapture market share and excellent progress in the corporate sector, which accounted for 17% of the total UK sales (2007: 8%).
At the start of last year we refreshed our strategy for the retirement savings market. As a result, total pension sales increased by 14% to £4,753 million (2007 restated: £4,156 million). We introduced products which can be better tailored to the changing life stages of individual customers, with increased fund choice, flexible drawdown capability and significantly enhanced e-commerce functionality. These enhancements have already enabled us to shape our commission terms to increase profitability, and will continue to do so.
The mortgage market bore the brunt of the economic crisis with a 61% decline in mortgage approvals last year. However, our protection sales fell by 9% to £1,126 million (2007 restated: £1,241 million). This is a relatively strong performance and shows both the strength of our partnerships and the popularity of the new, simpler protection products. E-commerce has played an important part in our success in this market and currently nearly 30% of applications are through this on-line channel.
Total annuity sales increased by 24% to £2,433 million (2007 restated: £1,965 million), reflecting strong growth in our bulk annuity business. Last year Aviva UK won 39 new bulk purchase annuity (BPA) schemes and BPA sales rose to £826 million (2007 restated: £118 million). We are benefiting from a ‘flight to quality’ in this sector, because of our well-developed, market-leading products. In individual annuities, enhanced pricing capability helped us to deliver good growth in the open market with improved profitability. However, stock market falls have impacted this market because customers’ pension fund values have been eroded, causing them to delay retirement decisions1.
Overall bond sales fell 21% to £3,296 million (2007 restated: £4,192 million). In 2008, we continued to reshape our approach to this market, by moving away from lower margin products and focusing on improving returns through targeted commission reductions. Consequently, sales of unit-linked bonds were 67% lower, compounded by the effect of capital gains tax changes and investment market turbulence. However, this was offset by 62% growth in sales of with-profit bonds at £1,952 million (2007 restated: £1,208 million) and 34% growth in sales of off-shore bonds at £375 million (2007 restated: £280 million).
The property, fixed interest and equity markets all faced challenging economic conditions throughout the year and, consequently, our collective investment sales decreased by 46% to £1,485 million (2007: £2,751 million).
The uncertain economic outlook for the UK makes it difficult to forecast what the market growth rate will be in the short to medium term. We expect the trends experienced in 2008 to continue throughout 2009. In the current environment we will maintain our focus on rigorous capital discipline and on driving higher returns through operational efficiency, product innovation and targeted commission changes. Our approach to targeted commission reductions is complementary to the direction that the Financial Services Authority’s Retail Distribution Review is taking, for both pensions and investments.
We are optimistic that we can deliver profitable growth in these turbulent times because of the resilience of our business model and our confidence in the strategy that we have been pursuing in recent years.
- A recent survey (carried out by Life Trust Insurance in December 2008) indicated that nearly a quarter of people can no longer afford to retire at the age they had planned.
