Aviva UK
Winning in the UK
Aviva is the leading insurance brand and customer franchise in the UK. Our combination of life, health and general insurance, together with motoring services from RAC, is unique in its scale and breadth in the UK market. We are the UK’s largest insurer with 19 million customers, and one in three households has a relationship with us. Customers can choose to buy our products through intermediaries, our corporate partners or from Aviva direct and we have become the partner of choice for many of the UK’s biggest organisations. We are ranked as one of the UK’s top ten most valuable brands.
Strategy
We want to become the most recommended company in our market – by our customers, distributors and our people. To do this we aim to excel in each of the markets in which we operate, while creating additional value by operating our life and general insurance businesses together. We aim to maintain our market leadership by:
- Offering a broad range of market-leading products across long-term savings, health, general insurance and motoring services
- Growing our unparalleled distribution network, maximising the potential of our strong brand and being the partner of choice for intermediaries, banks and other corporate partners
- Maintaining a clear focus on the customer; simplifying our processes and improving our service and retention, while increasing the number of policies each customer holds
- Managing a controlled expansion of our risk appetite into attractive growth markets where we are underweight, such as corporate risks and specialty lines
- Ensuring strong financial discipline, including excellence in underwriting, claims management, asset liability management and an ongoing focus on costs.
Market environment
In 2010 economic uncertainty continued, with its consequent impact on consumer confidence, discretionary spending and investment performance. However the long-term savings market returned to growth, following two consecutive years of contraction. We gained market share in annuities and core protection as customers turned to strong brands they can trust, like Aviva. The general insurance market remained highly competitive. The most notable trend in 2010 was a rise in personal motor premiums across the industry in response to the recent increases in bodily injury claims costs and frequencies. Elsewhere, the competitive environment has constrained increases in homeowner and commercial lines.
An excellent year with momentum building in profit, sales and service across our UK business
In 2010 we delivered strong and profitable growth across our UK business. IFRS profit increased 21% to £1,411million; clearly demonstrating the significant value generated from our unique combination of life and general insurance businesses.
We significantly increased our distribution strength during the year by expanding our corporate partnerships across our UK businesses while at the same time being voted the UK’s top insurer by insurance intermediaries across life, general insurance and health.
Our continued disciplined focus on operational capital generation across our UK businesses resulted in a 85% increase to £973 million.
Our life business is winning in an attractive marketplace
We delivered a record result in our UK life business with IFRS operating profits up 26% to £850 million as we drove increased earnings from our new and in-force business. We have created competitive advantage from our strong and diversified new business franchise, leading brand and multi-distribution.
Total long-term savings were up 19% to £11,846 million and life and pensions sales increased 16% to £10,298 million. The UK market is growing again and we grew our market share for the third consecutive quarter (Q3 2010 11%; Q3 2009 9.7%) with a strong performance in annuities and core life protection. We increased margins significantly to 3.4% (2009: 2.8%) through our disciplined approach to business mix, costs and capital. Our IRR was 15% with a reduced payback period of 7 years. We are wellplaced for the Retail Distribution Review (RDR) in 2013 with our diverse distribution and broad product range.
Significant opportunity for future earnings growth as general insurance performance accelerates
Our general insurance and health business delivered a strong performance with IFRS operating profit increasing 8% to £579 million and our general insurance combined operating ratio improving from 99% to 96%, demonstrating the quality of our portfolio and our continuing focus on cost control. Our enhanced pricing and risk selection techniques enable us to more accurately recognise individual risks with the most competitive premium, which in turn has been reflected in our improved claims experience. Our approach to reserving and prior year releases has remained consistent to previous years.
Our general insurance business has delivered four consecutive quarters of sales growth with net written premiums 5% higher at £4,046 million. Our direct business is growing fast with over one million customers holding direct motor policies with Aviva, 200,000 more than at the start of 2010. Direct pricing has been rolled out to 2,300 brokers making a significant contribution to our growth and RAC Panel sales have more than doubled. We continue to exploit our market leading SME franchise in commercial lines and SME net written premiums increased 7%. We have made good progress in building our corporate risks and specialty lines business through the controlled expansion of our risk appetite and the recruitment of specialist expertise. We are attracting high-quality risks with £50 million of new gross premiums and a COR of 81%. Our disciplined approach to risk selection, claims excellence and our geographical spread helped mitigate some of the effects of the adverse winter weather experienced in late November and December. We have received over 23,000 weather related property claims for homes and businesses at a cost of £60 million above our long-term average weather assumptions. Weather in the rest of the year was better than expected, despite the January freeze, taking the overall impact to £40 million above long-term average for the whole of 2010.
Benefiting from the trust, confidence and visibility of being the UK’s leading insurance brand and customer franchise
We have 19 million customers in the UK, meaning that one in three households has an Aviva relationship and we continue to invest in developing our brand and customer franchise.
We have embedded strong customer focus in everything we do by making it part of our reward package for every member of staff. In 2010 service improved across our business on all measures and we launched a number of innovative new services that allow customers to benefit from our expertise through their mobile devices.
The Aviva brand is strong; customer recognition and consideration levels improved in 2010 with spontaneous awareness at 54% at the year end. We have also adopted a single approach to TV advertising using Paul Whitehouse which has both contributed to growing customer interest and sales.
Our unrivalled product range means Aviva can meet customer needs throughout their lives and our customer research highlights the significant opportunity we have to increase value and deliver a wider service to our UK customers. The number of customers who hold multiple Aviva products is growing and we are focussing on further developing this.
Becoming the partner of choice
Our strategic partnerships with leading banks and other leading organisations delivered strong financial results in 2010 with an IRR of 15% and a COR of 96%.
We are now the leading UK bancassurer based on both new business volume and breadth of offer. We strengthened this market-leading distribution with some significant wins in 2010 and will build further on these in 2011. In our exclusive relationship with Santander we are adding life protection products to our existing general insurance distribution agreement. Our long-term successful strategic partnership with RBS was renewed in 2010 on the basis of a new exclusive distribution agreement for the sale of life, protection and pensions products. In general insurance we also secured or renewed ten partnership arrangements with bank and building society partners in 2010.
Driving value across our UK business for customers and shareholders
In 2010 total costs including brand and restructuring have fallen by £200 million to £1.7 billion. Costs continue to be an area of focus and we remain on track to deliver £200 million of cost and efficiency gains by the end of 2012.
Following consultation with our staff, we are closing our UK final salary pension schemes to future accrual from 1 April 2011. This will reduce the pension fund deficit benefiting Aviva’s net asset value by £286 million and reducing future funding costs by approximately £50 million per year.
We continue to simplify our business and improve our service to customers. Our new online services mean that 95% of new online general insurance customers receive their documents electronically.
Outlook: A growing business with a unique opportunity
Aviva is growing profitably in the UK and we expect this momentum to continue in 2011 as we benefit from our strong brand, broad product range and diverse distribution.
The long-term savings market continues to show resilience and is growing. While we remain cautious about the economy overall, we expect to continue to grow as we extend our competitive advantage and retain a disciplined approach. The growth dynamics in the UK market remain compelling with new research from Aviva finding that the UK has the largest pensions gap per person in Europe at £318 billion overall; in addition 61% of families have no life insurance protection. As a trusted brand Aviva is well placed to respond.
The general insurance market remains competitive. Through disciplined deployment of our capital we will extend our risk appetite and business mix to drive superior returns. At the heart of this will be continued excellence in our risk selection and underwriting.
We will drive additional and unique benefit from operating our life and general insurance businesses together and have clear plans to expand distribution, develop our customer agenda and further improve cost management.
Aviva Premiership Rugby sponsorship
Aviva has become the new title sponsor of English rugby union’s top-flight league. Under the four-year £20 million deal, the world-leading rugby union competition became Aviva Premiership Rugby from September 2010. When combined with our sponsorship of UK Athletics it provides year-round visibility of the Aviva brand. The Aviva Premiership includes more than 135 games each season, watched by 1.7 million people at the grounds and many more on Sky, ITV and ESPN. The deal also allows Aviva to extend its grassroots programme designed to encourage young people to get involved in sport. The 12 rugby clubs in the Aviva Premiership are committing 15,000 man hours to work with 36,000 pupils at 600 primary schools in England, as well as providing them with equipment and teacher training.
