When you look at our 2015 half-year results
I think there’s 3 key areas that people are focusing on. Obviously the
numbers in the operating results which are all going in the right direction. The
Friends integration and of course where we’re at with Solvency II. The results
today show some real tangible progress and you’re seeing it through all the key
indicators. So you’re seeing operating profit up 9%. You’re seeing our best COR
that’s the combined ratio on the general insurance for eight years. You are
seeing value of new business which is the key measure of sales and growth
that’s up 25%. Now that’s at the time we’ve had the integration going on at the same
time. So that’s quite an adequate result. What you’re seeing is I think
the benefits in Aviva of real diversification. We’ve got geographic
diversification, we’ve got product diversification and you don’t expect all
countries or all business lines to perform well at the same time. The
dividend of course is something that the investors really do focus on and rightly
so. And we increased the dividend last year by 20% and what you’ve seen in the
first half of this year the interim dividend is up 15%. That should give
investors and our shareholders a good degree of confidence in our future and our cash
flow. If you look at Aviva three years ago which was a fundamentally different
proposition, the company had real issues and real challenges. We had a balance sheet that
was fundamentally broken, we had relationships with regulators around the
world that were strained, staff morale was extraordinarily low and we really didn’t
have any plans to go in the future. But as a business we also had a number
of really important advantages. We had a huge
customer base that really can be a source of growth for the future. We have
a brand that’s probably unparalleled in the financial services world and we had
technical expertise inside the company that I’ve never seen before to that
level of depth. So we had a lot of strengths as well. Now if you have a look now we are
in a different place albeit still with much more to do. We’ve ticked off lot of
the big issues that rearly everyone thought were unfixable. The Friends Life
acquisition is really fundamental in our transformation of Aviva. It really ticked off some of the outstanding issues that really would have taken us probably
another three years to do. It added a lot of liquidity, it added capital and it added
strength in some product areas like large corporate pension schemes that we
just didn’t have before. It just gives us more strength as an overall group. A lot
of commentators were suggesting that there’d be a lot of distraction with the
Friend’s Life integration and of course it is a major project that’s taking a lot of
resource but what we’ve seen is that the UK life business in terms of their sales
results as measured by VNB has been very satisfactory outcome. The total UK life
sales are up 43% so that’s a pretty adequate outcome and strong growth in a market
that has a lot of potential for us. I’ve been asked a lot how is the integration going? This is really
our first big update to the market. Well let’s look at a few things; so first of all we have the cost synergies. That’s £63 million pounds after three months. That
certainly is ahead of expectations in terms of the schedule for getting it
done. Another key part of the Friends Life integration is of course moving the
assets from external fund manages to our internal Aviva Investors. So far this
year we’ve brought in £22 billion pounds direct from the Friends Life into Aviva
Investors and we’ve served notice on other fund managers such as Axa to
bring in a further £24 billion pounds. For the last three years as a group Aviva has been very consistent in what
we’re trying to do for shareholders Our investment thesis is predicated on cash
flow plus growth and that hasn’t changed at all, in fact the Friends Life
acquisition helps that investment thesis a lot. So turning to the life business line
results, globally we’ve seen a 25 percent increase in value of new business. That’s
despite the annuities and the pensions changes in the UK and it really shows
the benefits of having diversity across our product range. Within that you have some
highlights of the UK which was a very strong performer. Italy was up 66%. Asia
was also strong at 18%. Ireland also contributed as well to that so you’ve
seen a breadth of performance across the life businesses. Of note also is the
product mix has changed. As a group we’re now much less reliant on annuities that
was a strategic decision we took in fact before the changes in UK pensions and
annuities last year. So that mix shows strength in the group and you’ve seen the
highly profitable protection business go up over the same period. General insurance has been a work in
progress now for us for a couple of years. For about six years we’ve been declining
in terms of our premium coming in. And although we don’t target top-line growth
and are more interested certainly in underwriting profits, it’s nice to see that with our
product strategy we are now growing premium again. Maurice and the team have looked at their product, they’ve improved the analytics, they’ve improved the underwriting around the group and
changed their product mix as well. Also we’ve seen the benefits of quite benign
weather in the first half which has boosted our results But the result of
all of those things is that we’ve had the best combined ratio, the best COR
for over eight years. One of the things that we’ve just announced is an exclusive
deal with TSB in the UK. That’s a pretty good indication I think of where we’re going. And moving
to asset management, I’ve said for quite some time asset management is a work in
progress it will take longer to get the fund flows in than the turnaround in
the other life and general insurance businesses. And to do that you need a
hero product, you need a series of products that really make people stand
up and look at what we’re doing in that asset management business. For us that
product is AIMS, Aviva Investors Multi Strategy. Now it’s been going for
about 12 months and in that first 12 months it has outperformed its peers. So it’s
done exactly what we wanted it to, we’ve had a lot of interest in it. It already has
£1.7 billion pounds of assets in those funds. In terms of the rest of
asset management we also have a number of customer-focused platforms. It’s all very easy to look at our
results and look at the metrics going the right way and think everything is going well. And
at the high level that may be true but it’s not all good. There’s still a number of
areas in the group that I think we’re quite unhappy with the performance. I
think although we’ve made some progress on expenses particularly in the Friends Life
integration, the expense reductions in the first half in my view could have
been better. I think some parts of Europe did not perform as well as they have in
the last two years albeit they’ve had a couple of very good years and there was
a lot of headwinds from currency. Solvency II has been one of those
projects that seems like it’s been never ending. In fact as a group we’ve spent
around about 400 million pounds in an extraordinary amount of management time
and that is a figure that we’re not very proud of. Its entirely unacceptable. Nevertheless the hard work on Solvency II and getting ready for it is
just about done. The what I call the envelope of uncertainty from where we will come
out has reduced a lot and reduces each week as each week passes. And we have
already submitted our model now to the PRA for approval. We would fully expect to get that
model approved in December and I think I’m pretty happy about where we are. We
also need to consider that the group is in a fundamentally different position with
its balance sheet than it was just a few short years ago. Our debt ratios on an S&P
basis is down to 27 percent well within our range. Our group central liquidity is at
£1.6 billion pounds that’s versus £200 million pounds just a few short
years ago. Our internal loan balance is now sitting at £2.7
billion pounds versus £5.8 billion pounds just a few years ago and it’s right on
track to get to £2.2 billion pounds which is our target before the end of the year.
So as a group Aviva is now moving to a different phase of its turnaround. Really down with the fix part of it and now we’re moving into much more into
the transform and grow phase of our turnaround. Our strategic anchor of course
is about being a true customer composite, digital first and operating in a
certain number of markets. Now Aviva has the strategic competitive advantage
built in for the fact that we have so many customers and that we are a composite insurer. And in the digital world to be successful in my view you must be a
composite insurer. Customers want simplicity, they want convenience and we
can provide all that to them. Now we’ve separated out all of our digital
businesses, we’ve put them under separate company, with a separate board and that’s
headed by Chris and Andrew in the team and they’remaking some real progress
in terms of those customer propositions. And my objective here is to increase our
products per customer from a paltry 1.7 products per customer at the moment
to over three. We’ve got our digital Garage in Hoxton Square which is in
the middle of Shoreditch which is the fintech hub in the UK. And in Singapore as well
we’re starting up another digital Garage there and that really looks an
exciting initiative. So the digital and direct businesses now have over £1billion pounds of revenue in them. But it is not just
about revenue it’s also about the cost base you put there. So we have taken £100million pounds out of the rest of the business, that’s per annum, and
we’ve reallocated that to digital. There is a global insurance revolution going on and
it’s called digital and Aviva wants to lead that revolution. So where are we now? Am
I happy with the results, well of course I’m not but I am happy that we’re making
some progress towards where we need to be. I think our strategy is clear with our
strategic anchor, I think our investment thesis of cash flow and growth is equally clear. I
think our people and our team have got the right people in our team to deliver what
we’re saying. I think we’ve made some tangible progress towards the Friends
Life integration and Solvency II, so that’s two big issues that I think we are
making good progress on and so I think we’re pretty confident about where we’re
going. But what we’ve got to do is keep delivering and we’ve got to keep delivering at a pace
that I’m comfortable with. And I’m not really known for my patience.