Aviva PLC

ladies and gentlemen thank you for standing by welcome to today's conference call including analysts and investors at this time all participants are in a listen-only mode there'll be a presentation followed by a question and answer session at which time if you wish to ask a question you will need to press star 1 on your telephone and wait for your name to be announced I must advise you that this conference is being recorded today Thursday the 21st of May 2020 I would now like to hand the conference over to your speaker today Maurice Tulloch please go ahead sir

Thank you, operator. Good morning, everyone, and welcome to the call. Jason and I want to take the opportunity today to give you a brief update on how Aviva is progressing. Our failure results in March, I'm sure for many, feel like an eternity ago. And I suspect for many of us, it's amazing how much things have changed. COVID-19 has clearly presented significant challenges, working remotely, servicing our customers effectively, and for the broader global economy. Aviva was well prepared and has performed admirably. It has required us to make some difficult choices, preserving strength until there's more visibility on the path forward. And it has required us to adapt to how we operate. I'm extremely proud of our people, both those serving customers and those in the support functions. Their efforts mean we've been able to serve customers while also contributing to the wider community during times like these. This brings me on to today. You'll no doubt have read through the press release and the slides we published earlier this morning. It's not my intention to go through all the information in detail, but I want to cover off a few of the key messages before opening it up to Q&A. There are four key points I want you to take away from today. First, based on an analysis as of the 30th of April, our estimate of the COVID-19 claims impact on general insurance Incorporating Notified and Projected Claims is £160 million net of reinsurance. In this statement, we have outlined some of the component parts that make up this estimate and it assumes that lockdowns are in place till the end of June. It should be noted that we do not cover event cancellation or trade credit. On business interruption coverage, I'd also make a couple of observations. First, as we've highlighted to you previously, the vast majority of Aviva's commercial policies do not cover business interruption claims arising from COVID-19. However, there are likely to be pockets of exposures such as specialist schemes and some broker programs where claims may arise. These are complex to work through, will take time to quantify, and there is still some uncertainty in terms of potential outcomes. We at Aviva will work constructively with the FCA, whose efforts to expedite claims will help provide much needed certainty to customers and insurers. In the meantime, we assume business interruption costs up to our reinsurance event retention. And overall, including the estimated impacts across other parts of business, we've assumed approximately, as I noted, 106 million pounds for COVID-19 claims. The second point, Our investment portfolio was well positioned and continues to perform strongly. In our shareholder-backed corporate bond portfolio, we have circa 5% exposure to the retail, leisure, aviation, and oil and gas, the sectors most directly impacted by the crisis. So far this year, only 3% of this portfolio has been downgraded by a full letter and less than £10 million downgraded below investment grade. In our loan portfolio, we have transformed the asset quality over recent years and entered the crisis with low LTVs, 56% on average, and a high interest rate cover ratios at 2.9. We do, however, anticipate some pressure on covenants, but at the current time, we have not seen any meaningful impact on debt servicing. The third point I want you to take away is that we've maintained strong capital and strong liquidity. Our Solvency II cover ratio is estimated at 182% at the end of March. This is, of course, inclusive of the suspended final dividend for 2019, which will be considered in the fourth quarter. What's important to highlight is that within the capital ratio, we've built in additional prudence. We've incorporated a range of outcomes for COVID-19 insurance losses and made preemptive adjustments for lower property values. and anticipated future credit rating migration. On cash, our Holdco liquidity was £2.5 billion at the end of April. Remittances are likely to be well below the prior year for the first half, though should increase meaningfully in the second half of the year. We are deliberately taking a cautious and defensive position on capital and cash given the uncertain economic outlook. and finally, the last point, we've made a solid start to the year-end trading. In the first quarter, life new business volumes were up 28% year-over-year and our general insurance net written premiums increased 3%. As you might expect, given the confinement initiative of governments around the world, new business activity has been slower in April. While this has partially been offset by strong in-force retention and customer renewals, We expect half-year results to reflect this lower activity level. But our businesses, our people, and our customers have adapted well to the changing circumstances. And we are encouraged by early signs that activity has slowly begun to increase. That concludes my opening remarks. I predict we now invite questions from those on the call.

Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star 1 if you wish to ask a question. Your first question comes from the line of John Hocking, Morgan Stanley. Please go ahead. Your line is open.