Long-term savings Aviva Europe

Long-term savings Aviva Europe

In 2009, Aviva Europe achieved an excellent sales performance in the context of an extremely difficult market environment with volatile equity markets and property market uncertainty. Life and pensions sales were up 5% at £13,523 million (2008: £12,855 million) and were broadly in line on a local currency basis. Excluding the one-off items in 2008 relating to the transfer of the Caja Murcia risk portfolio and the initial contributions from compulsory pensions in Romania, sales were 11% higher on a sterling basis and were 4% up on a local currency basis. In 2009, fourth quarter sales of £3,753 million were 39% higher than those achieved in the third quarter, reflecting improvements in customer confidence and the diversity of our products and distribution channels.

We have made significant progress in our migration to a single Aviva brand. From January 2010, we have operated as Aviva in Ireland and we will complete our brand migration programme in June when we will operate as Aviva in Poland.

We have delivered a strong bancassurance performance through responding to customers’ needs by offering innovative guaranteed products, and our retail sales performance is improving with our partnership with AFER, a leading savings association in France, achieving record sales. Our focus on new business profitability means that we took actions, in both distribution channels, on product mix and product design which have helped us to offset the impact of customer preferences for more capital intensive products such as savings with guarantees.

Bancassurance

We continue to exploit our leading and unique bancassurance franchise, which is the major component of our businesses in Italy and Spain and is also strong in France and Ireland.

Sales increased by 14% to £7,146 million (2008: £6,266 million), a 5% increase on a local currency basis. Excluding the one-off transfer of the Caja Murcia protection portfolio of £170 million in 2008, bancassurance sales were up 8% on a local currency basis. This is a strong performance as bank partners continue to recognise the value of this revenue stream.

Bancassurance sales in Italy increased by 63% to £3,285 million (2008: £2,021 million), a 47% increase on a local currency basis. This growth reflects strong sales of with-profit guaranteed products driven by active marketing campaigns in the early part of the year. Protection sales increased by 54% supported by our partnership with Banco Popolare created in 2008.

In Spain, bancassurance sales were in line with the prior year at £2,209 million (2008: £2,206 million), a 9% decrease on a local currency basis. Excluding the Caja Murcia transfer in 2008, sales are broadly level on a local currency basis. Sales in the fourth quarter increased by 103% over third quarter levels, with a strong uptake in pensions driven by marketing campaigns at the end of the Spanish tax year.

Bancassurance sales in France increased by 27% to £1,141 million (2008: £898 million), a 15% increase on a local currency basis. Through offering competitive and simple guaranteed return products, our partnership with Credit du Nord has capitalised on customers transferring their savings from short-term deposit products into more attractive insurance products. Unit-linked bond sales were impacted by uncertainty in the financial markets in 2009, but started to increase towards the end of the year with improving customer confidence.

Bancassurance sales in Poland were significantly lower than 2008 due to the large volumes of short-term endowment policies sold through Deutsche Bank as a special promotion in 2008.

Retail

We continue to build on our significant retail franchise as we develop a single pan-European retail operating model with common tools and methods supported by centralised sales support. The retail network is the predominant sales channel for our businesses in France and Poland, and is also strong in Ireland.

Retail sales were 3% down at £6,377 million (2008: £6,589 million), a 7% decrease on a local currency basis. In 2008, we benefited from £545 million of one-off initial contributions from the launch of compulsory pensions in Romania. Excluding these, retail sales were in line with the prior year on a local currency basis.

In France, retail sales performance was strong, up 26% to £3,750 million (2008: £2,982 million), a 14% increase on a local currency basis. Our partnership with AFER continues to be extremely successful with our range of simple, easy to understand products. AFER is a highly trusted savings association and has increased sales by 41% growing its customer base by 5% to 712,000 in 2009.

In Poland, retail sales were down 24% to £1,061 million (2008: £1,401 million), a 17% decrease on a local currency basis. The sales total for the fourth quarter of 2009 includes a positive benefit from changes to assumptions for average policy duration. Within the year, pension volumes reduced as these products become less attractive for providers and distributors as a result of recent Polish pension legislation changes. Further pension legislation proposals from the Polish government are expected in 2010 and we are actively engaging with the regulator as proposals are developed.

Retail sales in Ireland reduced by 2% to £636 million (2008: £646 million), an 11% decrease on a local currency basis. This reflects the poor economic climate, which impacted the Irish life insurance industry as a whole and an increasingly competitive marketplace.

Investment sales in Aviva Europe were up significantly on 2008 at £852 million (2008: £460 million). Consumer sentiment improved over the course of the year, with a softening of customers' attitudes to investment risk and a consequent transfer of funds into more actively managed products. Our Absolute Tactical Asset Allocation fund was particularly successful in Italy and Spain, supported by focused marketing campaigns. Sales into Global Convertible funds improved, supported by our long established expertise in this area, and we continue to see renewed interest in emerging market bonds.