Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aviva PLC (AVVIY, Financial) reported a 14% increase in operating profit to GBP875 million.
- Premiums in general insurance rose by 15%, with net flows in wealth up 16% and sales in insurance, wealth, and retirement up 12%.
- The company completed a GBP300 million share buyback and announced an interim dividend of 11.9p, up 7% year-on-year.
- Aviva PLC (AVVIY) has a strong capital position with a cover ratio of 205%.
- The company is seeing significant growth in its capital-light businesses, aiming for 70% of earnings from these areas by 2026.
Negative Points
- The UK general insurance business saw some reserve strengthening due to specific large losses and inflation impacts.
- The Canadian general insurance business experienced a higher combined operating ratio due to a small number of commercial lines losses.
- Equity release market has seen further contraction, impacting the retirement segment.
- The company faces ongoing challenges in achieving a sub-94% combined operating ratio in the medium term.
- There is uncertainty around the impact of future regulatory changes, particularly regarding the Solvency UK reforms.
Q & A Highlights
Q: Andy Sinclair from Bank of America. First, just a big drop in project spend in H1. Is that a sustainable level going forward? Second, on the reserve additions in the UK. Is that just a case of fixing the roof while the sun is shining or anything to be aware of there? Third, on Global Corporate and Specialty. What is your longer-term ambition for Aviva in that market?
A: Charlotte Jones, CFO: On project spend, the reduction is sustainable as long-term projects like IFRS 17 are concluding. On UK reserves, the additions are specific to large losses and inflation impacts, and we maintain a neutral outlook. Amanda Blanc, CEO: For Global Corporate and Specialty, we see significant growth opportunities with Probitas, enhancing our proposition for global customers.
Q: Rhea Shah from Deutsche Bank. Could you talk more about the bulk quotation tool and its outlook? What are your ambitions in the direct wealth space over the next few years? And could you give more color on home insurance pricing and motor pricing for the rest of the year?
A: Charlotte Jones, CFO: The bulk quotation tool, Aviva Clarity, has facilitated nearly 40 deals this year, contributing to higher margins. Amanda Blanc, CEO: We are investing in Direct Wealth, leveraging our strong brand and customer base. Home insurance rates are increasing due to supply costs, while motor rates are stabilizing after significant increases last year.
Q: Andrew Crean from Autonomous. How much should we expect the SCR to grow in a normal year? Can you unpick the Wealth target of GBP280 million? And what is the expected impact of the capital-light pivot on capital-heavy businesses?
A: Charlotte Jones, CFO: SCR growth varies with business dynamics, but we manage within capital strain budgets. Amanda Blanc, CEO: The GBP280 million wealth target will be driven by growth in workplace and adviser platforms, with Direct Wealth contributing post-2027. The capital-light pivot will enhance returns and reduce reliance on capital-heavy businesses over time.
Q: Unidentified Participant. On bulk annuities, how do you pivot to 70%-30% while writing GBP7 billion to GBP8 billion this year? What is your outlook for retail annuities? And how should we think about capital returns given your solvency position?
A: Charlotte Jones, CFO: The GBP7 billion to GBP8 billion target aligns with our capital strain management. Retail annuities show sustained demand, and we remain disciplined on pricing. Amanda Blanc, CEO: We continue to invest in growth and return capital to shareholders, maintaining optionality for future opportunities.
Q: Farooq Hanif from JPMorgan. What should the UK government do to encourage long-term growth in savings and productive assets? Are the investment returns in IWR sustainable? What are your intentions around debt leverage?
A: Amanda Blanc, CEO: The government should focus on auto-enrollment, increasing contribution rates, and simplifying advice. Charlotte Jones, CFO: Investment returns are managed for long-term value, and we maintain a balanced debt leverage strategy to support our AA rating.
Q: James Pearse from Jefferies. What impact might the new UK government have on the motor insurance market? Is the UK reserve strengthening a one-off? What are your interest rate assumptions for 2026 targets?
A: Amanda Blanc, CEO: We believe the motor insurance market is functioning well without the need for intervention. Charlotte Jones, CFO: The UK reserve strengthening is specific and we maintain a neutral outlook. Our interest rate assumptions are based on a full yield curve structure, with sensitivities managed through hedging.
Q: Dom O'Mahony from BNP Paribas Exane. Can you explain the strong growth in capital generation? What is your guidance on management actions for the full year?
A: Charlotte Jones, CFO: Capital generation growth is driven by favorable SCR runoff, lower capital strain, and diversification benefits. We maintain our guidance of GBP200 million for management actions.
Q: William Hawkins from KBW. What should be the structural difference between the Canadian and UK combined ratios?
A: Charlotte Jones, CFO: The UK is improving due to pricing actions and efficiency, while Canada remains stable. We aim for a sub-94% combined ratio medium-term, driven by disciplined underwriting and portfolio mix shifts.
Q: Nasib Ahmed from UBS. Is there a risk that the solvency UK benefit reverses? What is the outlook for AIG protection and Ogden rates?
A: Charlotte Jones, CFO: We feel comfortable with the solvency UK benefit and expect no significant changes. Amanda Blanc, CEO: The AIG acquisition enhances our product set and synergies. On Ogden rates, we maintain a neutral outlook and expect regulatory conclusions by early 2025.
Q: Abid Hussain from Panmure Liberum. Will Aviva Investors still be part of the mix in three to five years? Should you reset the BPA volume target beyond 2024? What is the outlook for equity release?
A: Amanda Blanc, CEO: Aviva Investors will remain integral, supporting our wealth and retirement strategies. We are not resetting the BPA volume target today. Charlotte Jones, CFO: Equity release demand is influenced by economic conditions, and we aim to remain competitive.
Q: Mandeep Jagpal from RBC Capital Markets. What is the average fee margin on Aviva Investors flows? What are your observations heading into the longevity review this year?
A: Amanda Blanc, CEO: We do not disclose fee margins. The new LTAFs will be part of our workplace default strategy. Charlotte Jones, CFO: We expect positive assumption changes in the second half, with some overlap between Solvency II and CSM impacts.
Q: Steven Haywood from HSBC. When do you expect to achieve a sub-94% combined ratio? What is your growth rate guidance for full-year 2024 group operating profit?
A: Charlotte Jones, CFO: We aim for a sub-94% combined ratio medium-term, balancing underwriting margins and overall profit. We expect strong operating profit growth in the second half, similar to the first half's 14% increase.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
