Europe

Capitalising on our leading position in Europe

Aviva has a strong presence in France, Ireland, Italy, Poland and Spain and continues to grow in Russia and Turkey. We also have a strategic investment in Delta Lloyd in the Netherlands. With $1.7 trillion growth in life and pensions assets expected between 2009 and 2014¹, Europe (including the UK) has huge long-term potential for the Group.

Strategy

Our strategy is to invest and deepen our presence in Europe, with a clear focus on managing for value. Our Quantum Leap transformation programme is implementing a truly pan-European operating model across our markets. It underpins our operational achievements in the past year and continues to progress well.

We will take advantage of demographic opportunities by leveraging our scale, strong market positions and local expertise:

• Offering a range of life, pensions, general and health insurance and asset management products, providing the diversity and competitive strength that a combination of life and general insurance provides.
• Capitalising on our multi-distribution network, where our single brand will support our retail network and continue to grow our market-leading bancassurance franchise.
• Developing core strengths in product simplification and innovation, shared operational excellence, general insurance claims management, governance and risk management while remaining customer focused.

Delta Lloyd is independent of our other operations. Following a successful IPO in 2009, Aviva retained a 58.3% interest. In 2010 we chose not to exercise a scrip dividend option and this resulted in a dilution of the shareholding to 57.6%. We retain 54.0% of the voting rights.

Back to top

Market environment

Throughout 2010 many markets within Europe have faced a turbulent economy, including a suppressed housing market, political change and a shift in the regulatory environment. As a result, new regulations have been introduced which have created challenges for us as an insurer. These include pension legislation changes pending in Poland and new taxes introduced in France and Italy.

There has been volatility in the financial markets with sovereign and corporate debt concerns particularly for Ireland, Spain and Italy. This has had a corresponding impact on consumer sentiment in all markets, with customers preferring savings products that have an element of guarantee. We have chosen to manage our product propositions to balance this need while ensuring an appropriate focus on capital management and shareholder returns.

However, the economic environment also provides opportunities for us, not least the mergers of the Spanish savings banks, the €2.4 trillion² gap in pensions savings and changing customer sentiment. We will utilise our expertise across the region and leverage the capabilities provided by our transformation to deliver returns to shareholders and market-leading products to policyholders.

Back to top

Aviva Europe performance

Increased profit in a challenging market

Aviva Europe increased IFRS operating profits by 13% to £898 million (2009: £797 million) underpinned by disciplined capital management and driven by a pan-European distribution model through our retail and bancassurance channels.

Back to top

Life and pensions operating profit higher

Life and pensions sales were maintained at £13,537 million (2009: £13,523 million), a 3% increase on a local currency basis. A number of initiatives have been enacted in 2010 including a reduction in the guaranteed interest rate in Italy and the redesign of unit-linked products in France, Ireland and Poland. This has helped to deliver a strong performance in operating profits with a 17% increase to £893 million (2009: £761 million). Furthermore it has helped to achieve a margin of 3.7% and an IRR of 13% with a payback period of 7 years, in line with the group’s short term financial targets.

Back to top

Positive general insurance sales

General insurance and health net written premiums increased 4% to £1,953 million (2009: £1,883 million). This is supported by management action in Poland, where we have expanded the product offering sold through independent agents, strong growth in Italian personal motor and creditor business, and strong health sales in both Ireland and France. General insurance and health profits are 17% lower at £109 million (2009: £132 million) as a result of lower long term investment returns of £147 million (2009: £175 million). Adverse weather and a significantly lower level of reserve margin release than prior year has led to a COR of 103% (2009:103%).

Back to top

Customer-focussed, multi-channel distribution

We operate a pan-European distribution model through our retail and bancassurance channels. We benefit from offering both life and general insurance in France, Ireland, Italy, Poland and Turkey and will assess opportunities to leverage our skills across the region. We are a leader in bancassurance and continuously evaluate potential new relationships. This year we established a new general insurance bancassurance agreement with Ulster Bank in Ireland bringing our total number of bancassurance relationships to 55. Sales through the bancassurance channel increased by 9% to £8,040 million (2009: £7,353 million).

Back to top

Delivering attractive propositions to our customers

We have leveraged best practice in pricing and underwriting principles across Europe in both life and general insurance. This enables us to bring attractive propositions to our customers while ensuring we generate appropriate returns for shareholders:

• CPPI Fund, a unit-linked product with an element of guarantee, has launched successfully in Poland, Ireland and France.
• In Turkey, we have launched a retirement savings product in anticipation of new pensions legislation. This has the potential to be a significant new market.
• ‘My Aviva Customer Bundling’ was launched as a pilot in Ireland to maximise cross-selling of general, life and health products for our most profitable customers.
• In Spain and Ireland we have offered customers additional peace of mind through innovative product enhancements providing market-leading breast cancer cover.

Back to top

Transformation delivers operational excellence

We’ve made good progress in developing our shared service capabilities to embed single and consistent ways of doing business. This combined with a management focus on cost discipline has enabled Aviva Europe to maintain like for like costs at the same level as 2009. This is a great achievement that negates the impact of inflation.

In addition to the pan-European product initiative above, another example of how we share expertise across the region is our approach to brand and marketing initiatives. This enables high media exposure via cost-efficient campaigns. Poland and Ireland rebranded in 2010; this was supported by the opening in Dublin of the Aviva Stadium and an extensive branding campaign in Poland. The ‘Faces’ advertising campaign, launched across France and Italy, clearly demonstrates the efficiencies gained from a single brand and extends the reach of Aviva’s global ‘You are the Big Picture’ campaign.

Back to top

Europe presents a significant opportunity

Europe has significant long-term potential for Aviva with a $1.7 trillion growth in life and pensions assets expected between 2009 and 2014. The strategic attractiveness of the region was underscored by research we conducted in 2010 into Europe’s pensions gap. For further detail see case study below.

Back to top

Outlook

There is evidence that economies in Europe are recovering at different rates as well as continuing uncertainty around legislative changes. However our geographic diversity means that we remain well positioned. As we look ahead, while there may be an element of uncertainty in some of our markets, the need for people to save and protect what they have allied with our clear strategic direction mean that we are optimistic about the long-term prospects for growth.

We expect consumer sentiment to continue to favour guaranteed savings products and the general insurance market to remain competitive. Our focus in 2011 will be on positively contributing towards group’s targets through margin growth and generating operational capital.

We will continue executing our strategy: driving operational excellence, maximising the value from our combination of life and general insurance and competitive distribution network, and deepening our presence in growth markets.

Back to top

Aviva Europe: Bridging the pensions gap

In 2010 Aviva Europe completed an assessment of the pensions gap across Europe for those retiring between 2011 and 2051. The ‘Mind the Gap’ pensions study shows the difference between:

• The pension provision needed for an adequate standard of living; and
• The pension amount they can currently expect to receive.

This pioneering research shows that European citizens need to find an additional €2.4 trillion³ in savings every year to fully close the gap. Using our depth and breadth of life experience in the region, we are working in close partnership with governments, local regulators and the European Commission to generate tangible solutions to increase pension savings, such as our proposal for a European Quality Standard for pensions and the issue of annual pensions statements to all citizens. While this raises significant challenges across Europe, it also demonstrates the size and potential of the European pensions market and the significant opportunity that exists for Aviva.

For further detail visit: www.aviva.com/europe-pensions-gap

Back to top

Delta Lloyd performance

Delta Lloyd is one of the top five financial services providers in the Netherlands, with a growing operation in Belgium. We continue to operate in a very saturated market, where cost reduction and economies of scale are becoming increasingly important. The focus for 2010 was on growth through cost discipline, strong capital and risk management, customer focus and leading market positions, Delta Lloyd increased IFRS operating profits by 34% to £536 million (2009: £399 million) driven by higher expected investment returns, higher fund management performance fees and improved expense margins. Life operating profit increased by 19% to £330 million (2009: £277 million). The life result was impacted by a change in longevity assumptions leading to an increase in the longevity provision as at year-end 2010 and a one-off negative impact of £483 million on the IFRS result before tax. General insurance COR improved to 95% (2009: 97%) with expense savings and reserve margin releases offsetting a higher claims ratio. Fund management operating profits are 268% ahead of prior year at £103 million (2009: £28 million). 

Delta Lloyd implemented a simplification plan during 2010 which aims to reduce the management cost base by 8% to €850 million by 2012.

Back to top

1. Oliver Wyman
2. Includes the 27 countries of the European Union and the countries of Russia and Turkey
3. Includes the 27 countries of the European Union and the countries of Russia and Turkey