|
Profit |
■ Operating profit up 13% to £1,325 million (HY15: £1,170 million)
■ Operating EPS up 1% to 22.4p (HY15: 22.1p)
■ IFRS profit after tax £201 million (HY15: £545 million) |
Capital |
■ Solvency II capital surplus £9.5 billion2 (FY15: £9.7 billion)
■ Solvency II coverage ratio3 of 174%2 (FY15: 180%)
■ Solvency II operating capital generation £1.2 billion
■ IFRS net asset value up 6% to 412p per share (FY15: 390p4)
■ Holding company liquidity £1.2 billion5 (February 2016: £1.3 billion) |
Cash |
■ Cash remittances £752 million (HY15: £495 million)
■ 2016 interim dividend up 10% to 7.42p (HY15: 6.75p) |
Growth |
■ General insurance net written premiums up 7%6 to £3,991 million (HY15: £3,678 million)
■ Life insurance value of new business up 7%6 to £583 million (HY15: £534 million)
■ Fund management operating profit up 48% to £49 million (HY15: £33 million)
■ UK Life platform AUM up 23% to £10.3 billion (FY15: £8.4 billion) |
Combined ratio |
■ 96.2% general insurance combined operating ratio (HY15: 93.1%)
■ HY16 combined operating ratio affected by an increase in natural catastrophe & weather claims (1.5%), Flood Re (0.6%) and commission strain from new distribution partnership (1.0%) |
|
|
6 months
2016
£bn
|
United Kingdom & Ireland Life |
0.7 |
United Kingdom & Ireland General Insurance & Health |
0.1 |
Europe |
0.6 |
Canada |
0.1 |
Asia and Other |
(0.3) |
Total |
1.2 |
|
6 months
2016
£m
|
6 months
2015
£m |
Sterling
% change
|
Life business |
1,226 |
1,021 |
20% |
General insurance and health |
334 |
422 |
(21)% |
Fund management |
49 |
33 |
48% |
Other* |
(284) |
(306) |
7% |
Total1 |
1,325 |
1,170 |
13% |
|
|
|
|
Operating earnings per share1 ** |
22.4p |
22.1p |
1% |
|
6 months
2016
£m
|
6 months
2015
£m |
Sterling
% change
|
Operating expenses |
1,696 |
1,498 |
13% |
Integration & restructuring costs |
105 |
172 |
(39)% |
Expense base |
1,801 |
1,670 |
8% |
|
|
|
|
Operating expense ratio |
53.4% |
52.8% |
0.6pp |
|
6 months
2016
|
6 months
2015
£m
|
Sterling
% change |
Constant Currency
% change2
|
United Kingdom & Ireland |
280 |
260 |
8% |
8% |
France |
103 |
98 |
6% |
(1)% |
Poland3 |
27 |
30 |
(9)% |
(11)% |
Italy |
71 |
39 |
82% |
71% |
Spain |
16 |
13 |
29% |
22% |
Turkey |
12 |
12 |
(6)% |
- |
Asia |
61 |
76 |
(20)% |
(23)% |
Aviva Investors |
13 |
6 |
106% |
106% |
Value of new business |
583 |
534 |
9% |
7% |
|
6 months
2016
|
6 months
2015
|
Change
|
United Kingdom & Ireland |
95.4% |
93.2% |
2.2pp |
Europe |
96.7% |
94.3% |
2.4pp |
Canada |
95.8% |
91.9% |
3.9pp |
General insurance combined operating ratio |
96.2% |
93.1% |
3.1pp |
|
6 months
2016
£m
|
6 months
2015
£m |
Sterling
% change |
IFRS profit after tax1 |
201 |
545 |
(63)% |
Basic earnings per share1 |
2.5p |
12.8p |
(80)% |
|
6 months
2016
|
6 months
2015
|
Sterling
% change
|
Interim dividend per share |
7.42p |
6.75p |
10% |
|
30 June
2016
|
31 December
2015
|
Sterling
% change
|
Estimated Solvency II cover ratio4,5 |
174% |
180% |
(6.0)pp |
Estimated Solvency II surplus5 |
£9.5bn |
£9.7bn |
(2)% |
IFRS net asset value per share (restated)6 |
412p |
390p |
6% |
|
0BOverview
|
Aviva is delivering consistency, stability and growth despite the challenging market backdrop.
Operating profit increased 13% to £1,325 million (HY15: £1,170 million) despite higher weather claims in general insurance, lower bulk purchase annuity sales in UK Life and new government levies.
Our Solvency II coverage ratio of 174%1,2 (FY15: 180%) remains toward the upper end of our working range. We have proven our resilience during a HY16 period of investment market volatility and record low interest rates.
Solvency II operating capital generation was £1.2 billion, and business unit cash remittances were £752 million (HY15: £495 million).
Interim dividend per share has increased 10% to 7.42p. We remain on track to deliver on the plan outlined at our recent investor day to increase the dividend payout ratio to 50% of operating EPS by the end of 2017, up from 42%3 in 2015.
The steps we have taken to improve strength, resilience and operational consistency are reflected in our results. We remain confident in our ability to deliver on our key commitments to grow earnings, cash and dividends. |
1BOperating profit
|
Operating profit increased 13% to £1,325 million (HY15: £1,170 million), driven by growth in UK Life, fund management and digital together with an additional 3 months contribution from Friends Life. This was partially offset by higher natural catastrophe and weather
claims in Canada and Europe, new Government levies and investment for future growth across a number of our businesses.
Life insurance operating profit increased 20% to £1,226 million (HY15: £1,021 million). In the UK, growth was driven by Friends Life integration synergies together with positive momentum in protection, savings and individual annuities, partially offset by lower bulk
purchase annuity sales. In Europe, our life business delivered stable operating profits on a constant currency basis, as growing protection and with-profits income were offset by a new government levy in Poland and higher project expenses in France. Operating profits from our Asia life business increased 49% to £118 million (HY15: £79 million) primarily due to an additional three months contribution from Friends Provident International.
General insurance & health operating profit declined 17% to £334 million (HY15: £400 million4). Underwriting profit of £165 million (HY15: £222 million) deteriorated
due to the £23 million Flood Re levy in the UK and a c.£55 million increase in weather and natural catastrophe claims following fires in Canada and floods in France. The investment return fell by £12 million to £171 million (HY15: £183 million4) due to lower bond yields. During the second half of 2016 we expect our general insurance operations to benefit from the RBCI acquisition in Canada
and distribution partnerships in the UK.
Fund management operating profit increased 48% to £49 million (HY15: £33 million). The result benefitted from higher average AUM following the transfer of £45.1 billion of Friends Life assets to Aviva Investors in 2015, an additional transfer of £1.5 billion
of Friends Life assets in HY16 and positive external fund flows. Operating expenses increased reflecting our continued investment to secure long-term growth. |
2BCapital
|
At 30 June 2016, our Solvency II coverage ratio was 174%1,2 (FY15: 180%). The resilience of our solvency position was proven during a period of heightened volatility in HY16. Despite bond yields at historic lows, a more
challenging outlook for corporate credit and asset price weakness following the Brexit vote, our Solvency II coverage ratio remains toward the top end of our working range.
We enter the current period of macro, political and market uncertainty with confidence in our capital position. We have limited sensitivity to interest rate risk, exposure to equity markets is modest and protected by hedging, we have a diverse and prudent bond portfolio and the commercial mortgage assets backing UK
annuities have an average LTV of 60% (FY15: 61%).
Solvency II operating capital generation was £1.2 billion during HY16, incorporating £1.5 billion from our operating business units, net of £0.3 billion of debt, corporate centre and other costs. |
|
3BFriends Life
integration |
The integration of Friends Life remains on track. At HY16, we had secured run-rate synergies of £201 million, up from £168 million at the end of 2015. We reiterate our expectation that the £225 million integration synergy target will be delivered by the end of 2016, one year ahead of our original plan.
UK Life is now effectively operating as a single entity. Over the course of the integration, we have reduced our property footprint by 258,000 square feet and transferred £46.6 billion of assets to Aviva Investors. |
4BLife insurance:
Value of new business: MCEV basis (VNB) |
VNB increased 7%5 to £583 million (HY15: £534 million). In the UK, VNB growth was 6% with gains in protection, savings and individual annuities offset by weaker sales volumes in bulk purchase annuities and equity
release. VNB from our European life businesses increased 14%5 driven by a strong result in Italy where we have followed through on our turnaround initiatives. In Asia, VNB declined 23%5 primarily as a result of the discontinuation of the DBS bancassurance relationship in Singapore. We recently launched our Aviva Financial Advisors network in Singapore. |
5BGeneral insurance
|
General insurance net written premiums increased 7%5 to £3,991 million (HY15: £3,678 million) reflecting our new partnership agreement with Homeserve in the UK and improved competitiveness across the Group as
we benefit from operating expense reductions, our investment in digital and Solvency II diversification benefits. The Group combined operating ratio (COR) deteriorated by 3.1 percentage points to 96.2% (HY15: 93.1%). This reflected the impact of the Flood Re levy in the UK (0.6%), an increase in natural catastrophe claims mainly from fires in Canada and floods in France (1.5%), a reduction in prior year reserve releases (0.5%) and commission strain from our new distribution
partnership in the UK (1.0%). |
6BFund management
|
Growth drivers from our fund management business are pointing in the right direction. External fund net flows have turned positive (£0.6 billion) and, together with an additional transfer of £1.5 billion of Friends Life assets and favourable market movements, assets under management (AUM) have grown 10% to
£319 billion (FY15: £290 billion). The AIMS range of funds continues to make excellent progress, with AUM more than doubling during HY16 to £6.2 billion (FY15: £3 billion). Our UK Life platform also continues to increase in scale, with AUM increasing 23% during HY16 to £10.3 billion (FY15: £8.4 billion). |
7BDigital
|
We continue to make strong progress with our digital transformation. Registrations on MyAviva, a key leading indicator, have surpassed 3 million (FY15: 2.3 million). We are investing significantly in our digital and direct capabilities to make dealing with Aviva simple and convenient.
In the UK, we will have all of our customer information on a single database by the end of 2016. This will enable customers to see all their policies in one place, and deal with us whenever and however they choose. |
8BExpenses
|
Operating expenses increased 13% to £1,696 million (HY15: £1,498 million). Growth was primarily due to an additional quarter from Friends Life, new government levies and foreign exchange. Excluding these factors, operating expenses were broadly flat, with realisation
of Friends Life synergies in UK Life and savings in UK General Insurance offset by investment for growth in our acorn businesses (Aviva Investors, Asia and Digital) and higher project related expenses in France. There remains more to do in this area. |
9BOutlook
|
We are committed to maintaining a strong and resilient balance sheet, a sustainable dividend and growing operating earnings. While uncertainty in the economic outlook may persist in the short term, we have not observed major disruption to our operating activities and we continue to target mid-single digit growth in
operating profit over the medium term. We will maintain our self-help agenda, focusing on improving expense efficiency and reallocating capital to businesses with the highest returns and growth potential. |
|
10BOverview |
Operating earnings per share increased 1% to 22.4p (HY15: 22.1p), with an additional three months contribution from Friends Life, offset by higher weighted average share count. Within the operating result, we had £24 million of foreign exchange benefits, £27 million
of increased expenses from the Flood Re levy in the UK and asset levy in Poland and a c£55 million increase in weather and natural catastrophe claims driven by forest fires in Canada and floods in France. Excluding these items, progression in operating EPS is consistent with our medium term objective of mid-single digit growth.
IFRS profit after tax declined to £201 million (HY15: £545 million), and was adversely impacted by non-cash market variances as at 30 June 2016, including the revaluation of our Euro-denominated and other debt obligations at a lower exchange rate.
At the end of HY16, our Solvency II capital ratio was 174%1,2 (FY15: 180%), down 6 percentage points compared with the end of 2015. Solvency II operating capital generation from our business units was £1.5 billion
during HY16. Total Solvency II operating capital generation after centre, debt and other costs was £1.2 billion.
At our recent investor day, we outlined plans to increase our dividend payout ratio to 50% of operating EPS in 2017, up from 42%3 in 2015. We remain confident in our ability to deliver on this plan and have increased our interim dividend by 10% to 7.42p (HY15:
6.75p). |
11BBalance sheet |
The actions taken in recent years to improve our balance sheet enabled us to manage the challenging investment market conditions in HY16. Our Solvency II ratio of 174%1,2 (FY15: 180%) remains toward the upper end of our
working range and we continue to have modest levels of sensitivity to fluctuations in investment markets.
We have maintained a prudent approach to managing risk. Asset and liability durations are closely matched and we have maintained a high quality corporate bond exposure, with only 1.1% of the shareholder backed bond portfolio securities rated below investment grade. We have seen limited levels of defaults from the portfolio
over many years and, despite the downgrade of the UK sovereign credit rating in the wake of Brexit, the ratings of our corporate bond portfolio have been stable.
The commercial mortgage portfolio backing our UK annuity portfolio remains strongly positioned. The average loan-to-value ratio of the portfolio is 60% (FY15: 61%), the average loan interest cover ratio has increased to 2.14x (FY15: 2.05x) and
we had negligible loans in arrears (HY16: £0.1 million, FY15: £9 million).
Net asset value (NAV) per share increased 22p to 412p (FY15: 390p3). Operating profit, positive foreign exchange movements and favourable IAS 19 pension revaluation more than offset payment of the final dividend,
negative short term investment variances and amortisation of AVIF. Investment variances included a c.£250 million adverse impact reflecting the Group's lowered expectations for future property prices and rental income. |
Capital generation
and cash-flow |
Operating capital generation on a Solvency II basis after debt, centre and other costs was £1.2 billion in HY16. We reiterate our expectation of 5-10 points of capital generation in 2016, after allowing for payment of dividends, but before economic and market variances. Our life businesses delivered £1.3
billion of Solvency II operating capital generation, general insurance contributed £0.2 billion and other businesses (including debt and centre costs) consumed £0.3 billion.
Remittances increased to £752 million (HY15: £495 million). Consistent with our messages at previous interim results, we evaluate remittances on a full year basis. Liquidity at centre was £1.2 billion4 (February
2016: £1.3 billion). |
|
13BBusiness unit performance |
In UK and Ireland life, operating profit increased 25% to £711 million (HY15: £569 million). In addition to the incremental impact of an extra quarter from Friends Life, operating profit grew due to the realisation of integration synergies, improved asset mix on annuities
and positive momentum in protection and long-term savings. This was partially offset by the 27% reduction in annuity sales, with higher individual annuity volumes overshadowed by a decline in bulk purchase annuity sales. Long-term savings assets under management increased to £95 billion (FY15: £88 billion) on the back of £2.0 billion of net flows. Within this, platform assets under administration continue to grow strongly, up 23% during HY16 to £10.3
billion (FY15: £8.4 billion).
Operating profit from our UK and Ireland general insurance and health business declined 3% to £231 million (HY15: £239 million). The underwriting result was stable in UKGI at £115 million (HY15: £115 million) with increased
costs associated with the Flood Re levy (£23 million) and higher weather claims offset by improved prior year development and our continued focus on portfolio rebalancing and expense management. The longer term investment return for UK & Ireland general insurance fell to £93 million (HY15: £121 million). Excluding the impact of the reduction in the internal loan, investment income in the UK & Ireland general insurance fell
£6 million to £93 million (HY15: £99 million).
Our European insurance businesses delivered operating profit of £430 million (HY15: £431 million). Life operating profit of £395 million (HY15: £372 million) was stable in constant currency terms with growth in protection
and with-profits products offset by lower unit-linked asset management charges, a new regulatory asset levy in Poland and higher expenses as we invested in a number of projects in France. General insurance operating profit fell to £35 million (HY15: £59 million) mainly reflecting adverse weather experience in France which experienced severe flooding in 2Q16.
In Canada, general insurance operating profit fell to £88 million (HY15: £131 million). Underwriting profit declined to £42 million (HY15: £82 million) with forest fires in Alberta and lower levels of prior year development
partially offset by improvement in claims frequency. The longer term investment return fell to £47 million (HY15: £51 million) due to lower investment yields.
Fund management operating profit increased 48% to £49 million (HY15: £33 million). This was driven by the increase in average AUM following the onboarding of £45.1 billion of Friends Life assets in 2015 and additional £1.5 billion in HY16. The result also
benefitted from improved net fund flows and assets under management. The AIMS range of funds continues to make strong progress, more than doubling assets under management during HY16 to £6.2 billion (FY15: £3 billion).
Operating profit from our Asian insurance businesses increased to £112 million (HY15: £75 million) reflecting a full six month contribution from Friends Provident International (FPI). Excluding FPI, results were stable despite the discontinuation of the DBS relationship
in Singapore. |
|
Investor contacts
|
Media contacts
|
Timings
|
Chris Esson
+44 (0)20 7662 8115 David Elliot +44 (0)20 7662 8048 |
Nigel Prideaux
+44 (0)20 7662 0215 Andrew Reid
+44 (0)20 7662 3131 Sarah Swailes +44 (0)20 7662 6700 |
Presentation slides: 07:00 hrs BST
www.aviva.com Real time media conference call: 07:30 hrs BST
Analyst presentation: 08:30 hrs BST
Live webcast: 08:30 hrs BST http://www.avivawebcast.com/interim2016/ |
|
|
|
AVIVA PLC |
|
|
|
By: /s/ K.A. Cooper |
|
|
|
K.A. Cooper |
|
Group Company Secretary |