Aviva plc: Interim management statement – 3 months to 31 March 2009
OVERVIEW
In announcing our first quarter sales for 2009, we should acknowledge that the world is a very different place to the same period last year: world equity markets have fallen between 30% and 50%, sterling has weakened significantly against the euro and the dollar, and many economies are now in recession. Against this challenging backdrop, Aviva has delivered more than £10 billion of new long-term savings sales in the first quarter (2008: £9,848 million) and maintained margins (full year 2008: 2.1%). This is a resilient and encouraging result. People are continuing to save with companies they can trust and our business has inbuilt strength through the diversity of its products, geography and distribution.
A clearer picture of the emerging trend in the current climate can be seen by comparing the first three months of this year with the final quarter of 2008. Worldwide life and pensions sales are 2% down on a local currency basis. Within this, sales in Europe have rebounded strongly, up 16%. In the UK life and pension sales are down by 17% following our decision not to write some corporate business where margins do not currently meet requirements, notably bulk purchase annuities. After excluding these large corporate transactions, consumer-driven sales remained relatively stable in the UK. In the US, sales are down 12% and annuity margins are beginning to rise as we seek to moderate volume growth and balance the high demand for attractive guaranteed products with our desired capital position. In Asia sales are down 6%.
Sales through bank partnerships accounted for almost a third of our life and pensions sales in the first quarter, with sales up 20% over the same period a year ago. While the banking sector has been through a tough period, customers are still turning to their banks for advice and banks are now keen to increase their focus on insurance sales as an important contributor to their earnings.
We have significantly enhanced our capital position over the last three months. We have taken action to increase the IGD capital surplus, the benchmark of capital strength in our industry, from £2.0 billion at the end of 2008 to £2.5 billion at the end of March, after deducting the 2008 final dividend. The significant take-up of the scrip dividend has reduced the cash and capital cost of the final dividend by nearly £0.2 billion and we intend to offer a scrip dividend to shareholders for 2009. We have increased equity hedges to provide important protection in the event of further equity market falls and we retain significant capital benefit if equity markets improve. Consequently a 40% fall in equity markets would reduce the IGD by only £0.2 billion at 31 March 2009 but a 40% rise in markets would benefit the IGD by £0.8 billion.
Performance in the first quarter was satisfactory in the general insurance business. People still want to protect their homes, cars and businesses. We remain on track to deliver a combined operating ratio in line with our group ‘meet or beat’ target of 98%.
The move to a global brand, a key part of the “One Aviva, twice the value” strategy, is well advanced. In the UK Norwich Union will become Aviva on 1 June and we will become Aviva in Ireland and Poland next year. Our UK campaign has proved highly effective. Lower media costs and greater effectiveness mean we have been able to cut the planned overall costs significantly. In a recent report by Brand Finance, Aviva was the only insurance brand to have moved up the rankings on brand valuation in the past year and is now ranked as the fourth most valuable insurance brand in the world.
The economic outlook remains uncertain for 2009. We remain steadfast in our focus on managing a healthy capital position while transforming our business to take advantage of profitable growth opportunities when the world economy recovers.
