Regional overviews: UK
One Aviva triangle
Dear Shareholder,
Our UK general insurance business has had a difficult year. We saw the worst floods for 60 years, affecting 45,000 of our home insurance customers and 6,000 small business customers. Our priority has been to provide first class service to them during these difficult times and I am pleased to report that we have provided industry-leading service in returning customers to their homes and property.
To realise the potential in “one Aviva, twice the value”, we are transforming our UK general insurance business to improve the underlying performance of the portfolio and to be cost leaders in order to deliver benefits of scale consistent with our market-leading position. Our strategy is to focus on insurance fundamentals to maximise returns through the insurance cycle. This means disciplined underwriting and pricing, controlling the impact of claims inflation and providing excellent customer service.
Looking to the future, I believe that we have a strategy that will allow us to maintain our market-leading position through simplifying our structure, maximising the benefits of scale by rigorously managing our expense base and re-engineering our operations to provide efficient and effective service to customers. To achieve these aims, we have already taken market-leading rating action across many segments of our business, and have announced several measures to bring our expense base in line with the industry "best of breed" within the United Kingdom.
Igal Mayer
Chief executive, Norwich Union Insurance
UK – General insurance, health and related services
| IFRS profit before tax £m |
IFRS operating profit £m |
Combined operating ratio* % |
Net written premium £m |
Underwriting result £m |
|
| 2007 | 241 | 433 | 106 | 5,896 | (214) |
| 2006 | 1,130 | 1,118 | 95 | 6,000 | 394 |
* General insurance business only.
IFRS operating profit
Net written premium sales of UK general insurance
Split of net written premium by class of business (general insurance only)
| % | |
|---|---|
| 1 Personal motor | 26 |
| 2 Homeowner | 22 |
| 3 Personal other | 15 |
| 4 Commercial motor | 12 |
| 5 Commercial property | 15 |
| 6 Commercial other | 10 |
| Total | 100 |
Norwich Union Insurance (NUI) is the leading general insurer in the UK, with a market share of 15%. Our principal goal is to deliver across the insurance cycle by producing consistent earnings and creating long-term shareholder value. Our Norwich Union and RAC brands are both strong and trusted, and we have an excellent reputation for value and service to customers and distributors.
We provide a range of insurance products focused on personal and small business customers, together with a range of motoring solutions through RAC and associated brands. We have a multi-distribution strategy, selling our full portfolio of products through brokers, partners such as banks and building societies, and direct to our customers through our two leading brands, NUD and RAC. Our headquarters are in Norwich and we operate from 35 locations in the UK, India and Sri Lanka.
We adhere to a clearly defined and communicated underwriting strategy supported by strong financial disciplines, and we aim to achieve continuous improvement in the efficiency, effectiveness and simplicity of our processes and structures.
2007 was a tough year for our general insurance business in the UK as we experienced a combination of higher weather claims and competitive conditions in most lines of business. In particular it was a year that will be remembered for the summer flooding experienced in the north and west of England. Following the events in June and July last year, NUI helped over 45,000 households and 6,000 businesses get back on their feet after the floods, and has made interim or full payments to 99% of those affected. Supporting our customers when they need us most and to provide them with peace of mind is, of course, what NUI is here for. In response to these events we ensured a network of loss adjusters, contractors and claims teams were on site at the time (including our mobile advice centre manned by claims and repair specialists) and call centre staff numbers were doubled to deal with the extra calls we received.
The action we took during the summer floods is a clear example that providing excellent customer service to our partners, brokers and policyholders is a top priority for NUI, a fact recognised by a number of achievements in 2007. NUI has been voted General Insurer of the Year at the Insurance Times Awards for the fifth successive year, demonstrating the confidence and trust that independent brokers have in NUI. We were also voted General Insurer of the Year at the Personal Finance & Savings Readership Awards. NU Direct’s Retention team won Customer Service Team of the Year at the National Customer Service Awards. RAC has been rated as number one for motorists in the annual JD Power survey for the second consecutive year and was also named as Breakdown and Recovery Company 2007 by the Institute of Transport Management recognising the efficient and reliable service offered.
A key part of our ongoing corporate social responsibility programme is our active engagement in addressing environmental issues. RAC has been named Breakdown/Recovery Company of the Year for the second year running in the Greenfleet Awards, an award recognising environmental best practice and innovation.
Analysis of UK general insurance and health results
| IFRS operating profit | Net written premiums | |||
| 2007 | 2006 | 2007 | 2006 | |
| Norwich Union Insurance | 380 | 1,081 | 5,440 | 5,583 |
| Aviva Re | 53 | 36 | 50 | 59 |
| NU Healthcare | – | 1 | 406 | 358 |
| United Kingdom | 433 | 1,118 | 5,896 | 6,000 |
RAC in 2007
Our RAC roadside assistance business has grown during the past year, with 9 million customers now on the books. In France, RAC won a contract to provide assistance to 2.2 million Aviva insurance customers. In addition, RAC now manages Hyundai’s customer service operation in the UK, and established a presence in the banking sector with membership provided to HBOS account holders.
RAC was named breakdown and recovery company of the year by both the Institute of Transport Management and the Greenfleet Awards 2007. It was praised for providing top-quality motoring benefits and high levels of customer service across Europe, and was recognised for its efforts towards environmental best practice. Motorists also voted RAC top for roadside assistance for the second consecutive year in a survey conducted by consumer research company JD Power and Associates.
For more information visit
www.rac.co.uk
In our core insurance markets, we have continued to use our leading position to provide rating leadership in the current very competitive marketplace. In personal motor, following the correction in the second half of 2006, rating has been broadly in line with claims inflation at 6% (2006: average increase of 5%), which has helped contribute to an improved combined operating ratio in this business line of 102% (2006: 104%). In August we announced average rating increases of 10% on household buildings and contents policies following almost a decade of flat rates in the market. This has contributed to an overall homeowner rate increase of 7% in the year (2006: 3%).
In commercial lines, during the last quarter of 2007 we targeted increases at smaller risks and underperforming segments after experiencing four years of market rate reductions across the board. Overall these increases, commencing in November 2007, averaged 3.5% although rates still decreased by 2% across all commercial lines in 2007 (2006: 3% reduction).
Generally, the market is showing some sign of hardening. In private motor there is now a clear upward trend particularly within the broker channel and we expect this to continue in 2008. There are signs that household is beginning to move too as insurers react to several years of flat rates and the summer floods. In commercial lines, most large insurers are applying modest rate increases and this too is expected to continue in 2008. In both the personal and commercial markets there are still elements of severe price competition but the overall direction is upwards.
In terms of our financial performance, NUI has experienced a very challenging year. The tough market conditions are reflected in net written premiums which have fallen by 3% to £5,440 million (2006: £5,583 million) and have also contributed to the decrease in operating profit from its record level of £1,081 million in 2006 to £380 million in 2007. However, the weather had the most significant impact on our 2007 results, with the summer flooding and storms in January 2007 adversely affecting profit by £475 million (2006: £75 million benefit). We continue to prudently manage our reserves to avoid future adverse claims experience. Our 2007 operating profit benefited from £430 million (2006: £385 million) in respect of prior years. Of this total, £215 million is non-recurring in nature (2006: £220 million). Our combined operating ratio rose to 106% (2006: 95%). Excluding the adverse weather, the ratio would have been 97%.
The cost and efficiency programme announced in September 2006 will deliver its anticipated benefits of £125 million from 2008. Despite the benefits accruing from this programme in 2007, our expense ratio of 13.9% is in line with the 2006 ratio, reflecting the pressure on business volumes and the fact that overall rating has been behind cost inflation. We are committed to operational efficiency and, in October, we announced a programme to leverage the investments we have already made and deliver further cost savings. The programme will be introduced in three phases. Phase one is already in train and is set to deliver £200 million of annualised savings by the end of 2008. The remaining phases will concentrate on simplifying our structure (a process that is already well underway) and re-engineering service and processing centres designed to deliver additional benefits in 2009 and beyond.
Floods – Service provided
Norwich Union demonstrated its commitment to those affected by the flood crisis earlier this year. As is the case with any significant event, a major incident response team was instigated to manage the large increase in claims and to work with our customers, providing tips on restoration, discussing concerns and arranging accommodation. We purchased 200 mobile caravans to provide emergency accommodation and an NU-branded bus carried a team to help in any way they could.
For more information visit
www.aviva.com
