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.

Thank you. Good morning, everybody. I've got three questions, please. First on BI, so firstly, Maurice, you mentioned something about the assumptions you made in terms of reinsurance protection on the BI claims. I wonder if you could give a little bit more detail about that, please. And then secondly, I just wondered where we were in terms of policy limits for BI. I think the assumptions you said are released to the end of June in terms of lockdowns. If we do see an extension beyond that, or maybe further lockdowns after a second peak, to what extent are we getting close to Thank you. Great. Thanks, John. Let me take the first two and I'll let Jason take the third one.

With reinsurance, we simply applied our property cat reinsurance program as per its standard operation. This does provide for non-damaged business interruption cover. The net retention across the UK, France and Ireland combined is £150 million and the net retention in Canada is $50 million. The assumption we've made in our preliminary estimate is that there remain some restrictions in place to the end of the second quarter and up to the current point in time that's the situation we're in. But clearly if we came out of confinement period and then a few months later we had subsequent lockdowns, we then expect to see further impacts. We have notified our reinsurers on the events, two events, one in the UK and one in Canada. Jason, do you want to take the solvency question?

Thanks, John. On the solvency figure, It's performed broadly as we would have expected in Q1 based on the sensitivities that we published at FY19. I think as I said at the results, we have been taking actions both last year and this year to reduce sensitivity, particularly to interest rates. That's probably the most obvious point, slight outperformance in markets such as France and Singapore and the UK. We've reduced interest rate sensitivity. You've also got some capital generation, which will have come through into that number. Just to be clear, that number is after taking significant reduction for credit rating migration. And as you probably read, we've repurposed the Brexit property allowance into the core assumptions. That doesn't have a big net effect, but that's actually now sets us up for an expectation of property price reduction. Thank you.

Thank you. And your next question comes from the line of Johnny Vo from Goldman Sachs. Please go ahead. Your line is open.

Good morning, guys. Just three questions, if I may. Just on a gross basis, you know, all the sort of COVID-19 impacts you're putting through insolvency for additional stress. sort of what sort of percentage point impact is that so net of the or or growth of the of the Brexit provisions and also have you applied the buffers to the group solvency number or have you applied it to the entity level and the third question is just in relation to the BPA volumes you know the volumes have been strong but has your appetite for this business moderated given the given the outlook and conditions that you're seeing thank you

Yeah, thanks Johnny. I'll take the third question and let Jason take the first two. In terms of BPA volume, certainly I wouldn't say our appetites changed. We still look at ensuring that we can get an adequate return on capital. We've had a good start to the year in terms of volumes. You've seen that obviously in our UK numbers. We also announced post Q1 another tranche from the co-op transaction and there's still a healthy pipeline but you know we're maintaining our discipline and looking at each on a case-by-case basis so no change in either appetite or strategy as it relates to that part of the market. Jason do you want to take the first two?

Sure, we'll go through the various areas that we have put into so there are There are three broad areas. One is the COVID-19 losses in general insurance, where we've taken the numbers that we've foreseen and we've published today, plus a stress position of that. I won't give you the exact number of that, but that's a significantly higher figure. In the property, as I just mentioned, we've taken the so-called Brexit allowance for property and repurposed that into core assumptions. that was approximately 400 million at year end so you can sort of see that how that comes through and then for the credit rating migration the five and the ten percent assumptions that we've made that's approximately two points on solvency which is about half the sensitivity as you might expect that we've published at the full year so that's the sort of total amount that we've taken in the and that's in the legal entities it's not done a group that's actually been cascaded through into obviously UK life for the annuities and for UK and Canada, primarily for the COVID losses. Brilliant, thank you.

Thank you. And your next question comes from the line of Ashik Masadi from JP Morgan. Please go ahead, your line is open.

Hi, good morning, Marisa and Jason. Just a couple of questions I have is, First of all, if I look at your commercial mortgage portfolio, I mean, you mentioned that the LTV is like sub 60% and the interest cover is about 2.9 times. So why do you think that there will be some issues with the governance? So if you can give us some clarity on that and on what part of the book out of the total 8 billion, 7.6 billion you have, how much part of the book you think could be under risk? The second one would be, about the French capital position. Could you update us? What's the situation in that, including the PPE buffers? I mean, is it still okay? Or, I mean, you think you will not be able to upstream cash? And just on that cash point, if I look at the liquidity at the holding company, it has barely moved between February and April. So what is driving that? I mean, have you got any upstreaming in the past two months or when you're waiting for second half to start upstreaming cash? Thank you.

Great morning Ashik. Jason, do you want to?

Sure. So on the commercial mortgages, what we've done is take a forward-looking view of prices, which we have to do to work out the valuation of the loans and the credit rating. That's the way they work through the model. So that's sort of part of our normal process. The LTVs, as you say, overall are strong. We have no particular loans that are not paying interest but we do have those that have got much higher LTVs, clearly that's an average across the piece and we would expect as property prices fall, we have LTV covenants and interest covenants that protect us and we'll be constructive with borrowers to make sure that we can work through those those together, but we're not flagging anything particularly new here. Obviously the retail sector is the one we talked about before and we do have an exposure as we've laid out to that. On the French side, actually capital in Q1 in France is strong. We published the SFCR so you can have a look at the local numbers at the end of Q1. It's not that dissimilar to the year end, if anything, slightly higher. As I said a moment ago, we've taken a number of steps in France to reduce credit risk, to reduce equity risk, and to reduce interest rate risk, and we've got slightly tighter matching, which all helps the capital position. The group solvency number does not include PPE. If we did include it, and it is included in the local number, that would be three points extra on the group number. and that's consistent with the presentation that we made at the year end. And just on Holco liquidity, obviously inflows and outflows have been about the same as the position hasn't changed. We haven't had any particularly large outflows or inflows. We've had some smaller remittances and some usual operating costs and interest payments, but there's nothing really to report at that level.

Okay, that's very clear. Thank you.

Thank you and your next question comes from the line of Colin Kelly UBS please go ahead your line is open.

Thank you very much and good morning all just questions related to the liquid asset portfolio if that's okay so you mentioned you've taken allowance for future credit rating downgrades or potential downgrades does that apply to both the corporate bond portfolio and the illiquid asset portfolio, i.e. has there been an explicit downgrade applied to the illiquid asset portfolio firstly? And then following up on the commercial real estate loan question, based on the likelihood that there will need to be some financial restructuring of some of those assets with higher LTV and lower interest coverage, when do you expect that that will occur? Is that a 2Q event or later? And related to that, I mean, how often, are those assets re-rated for the purposes of calculating the matching adjustment if you could give some details on that and then just lastly on the remittances so you've mentioned the expectation of lower remittances presumably for this year that's that's a common you know primarily lower cash flow but is there any allowance there for enhanced regulatory scrutiny on local entity ratios going forward, or is that outlook based on a mix of both cash flow and regulatory scrutiny, or just based on the cash flow impacts that you're expecting at this point? Thank you.

You're going to test me if I can remember all those columns. I will try. If I don't hit every point, then please come back to me. On credit rating downgrades, that is relating to corporate bonds, the migration, the 5% and the 10%. The illiquid assets are based on a modelled outcome and therefore we use internal ratings but the adjustments that we've made to property prices go into our model that then gives us a rating that we then apply. So in effect that's embedded in our process and that's really part of your second question on the matching adjustment. That's done at every balance sheet date. We run that through an assumed property price and credit rating migration assumption. As you say, just to be super clear, we are expecting those downgrades to come. If they don't come, then this can come back into the capital base, but we're just trying to get ahead of what we see as part of a downturn in the market for credit. I think it's far too early on the restructuring side to think of any loans that we're going to have to actively start to restructure. We're not in that place at all at this stage and obviously we're looking forward to people getting back to work and businesses getting back and operating normally. On the remittances side, really what we've been doing is trying to manage capital in each legal entity We've been listening to regulators across the entire group. The PRA's made a statement, EOPA's made a statement, most of our major regulators in Europe made a statement following EOPA, which have had slightly different implications. So we are consciously being in listening mode with our regulators and making sure that we protect the solvency of all the legal entities across the group. As Maurice said in his opening remarks, We will expect remittances in the second half, but not so much in the first half.

Okay, thanks a million. You remember them all, so thank you. That's lucky. Thanks, Colin.

Thank you. And your next question comes from the line of Trevor Moss, Agency Partners. Please go ahead, your line is open.

Good morning, gents. A couple of little questions, if I may. Do you have an NAV estimate at this stage? I noticed that was missing. And secondly, could you give an indication of the new business volumes by major country in Europe, so Italy, France, Poland, please?

Morning, Trevor. Yeah, go ahead, Jason.

Yeah, do you want me to take that? So on the, we don't, We're not providing IFRS financial statements. We've given you an NAV on a Solvency II basis, which you can see in the statement. And broadly, I wouldn't expect that to be a significantly different move to IFRS. Again, we don't have that number. I'm not disclosing it, but the broad movements wouldn't be that dissimilar in the IFRS balance sheet. I think on the new business side, we've given some I don't really know why you didn't give those numbers because unit link volumes and hybrid volumes and with profit volumes

Thank you. And your next question comes from the line of Blair Stewart, Bank of America. Please go ahead. Your line is open.

Thank you. Good morning, gentlemen. Three questions, I think, maybe one clarification. First question, just with regards to reinsurance, is it possible to say Thank you very much. Maybe not for now, but in the future it would be good to get an estimate or an idea of how much of the book is exposed to higher LTVs. I don't know if you can comment on that. Thirdly, just on deleveraging, what are your intentions with respect to deleveraging near term? Should we take that your conservatism around cash and capital would mean that deleveraging might be pushed out towards the end of the planning period? and finally, if I may, just on the comment on the dividend I think you made, Maurice, and it'll be reviewed in Q4. What does that mean for thinking around the interim dividend? Thank you.

Great, thanks Blair and Morning as well. Let me start with the dividend question first. I'll kind of reiterate what I said on reinsurance and give Jason the other question. So on the dividend, as previously announced, The Board took the decision to suspend the dividend and we have committed to revisit that in the fourth quarter. And while we had and continue to have strong capital and liquidity, our view is COVID-19 presents uncertainty that we think is unprecedented in recent history. We firmly believe that this merits a more cautious and prudent approach to capital management. which, together with the guidance we provided by our lead regulator, the PRA, led to the decision to suspend the dividend. I expect our capital and equity to remain strong, but note there remains significant uncertainty around COVID-19. As previously indicated, the Board will come back to that decision on dividend in Q4, and we'll assess the facts and circumstances at that time. On the reinsurance, I think your specific question, and I'll reiterate the net retention, the UK, France and Ireland is combined, that's 150 million sterling, and the net retention in Canada is 50 million. We have assumed that the current restrictions with respect to lockdowns remain in place until the end of the second quarter, but if we came out of that confinement period, and then hypothetically went into another subsequent lockdown, then we would expect to see further impacts. Now that estimate that we've put out based on reported and modeled claims is under one event.

Jason, do you want to take the other question? The LTVs for the commercial mortgage bearer are disclosed in the annual report in the APAC. I think we've got, of the 7.6, 6.2 billion is less than 70%. You can see the bands. So we give all the bands up to the amounts in note C5 of the APAC if you want to have a look at that after the call. I think on deleveraging, we're mindful of the target. We do have significant debt due for call and redemption in 2022. So that does give us some flexibility as we look forward into that. We haven't made any firm decisions on that, but we are As we say in the release, taking a cautious approach to capital management.

Sorry guys, thank you for that. Can I come back just on the first question, Maurice? Are you prepared to give the gross and net Covid claims under that one event scenario? And if it was two events with a second lockdown, do you have reinsurance reinstatements in place or would that need to be renegotiated separately? And should we take from your dividend comment that during a period of time where we're under suspension, that there will be no interim dividend at this stage?

Yes, on the reinsurance, we do have adequate reinsurance in place. I'm not going to give the specifics on reinstatement premiums. and on the loss estimates we're giving the net today which is based on when we incorporate notified and projected claims and that's 160 million now.

Just on the reinstatements we have significant number of reinstatements which we have not used and I think it's pretty unlikely that we would even with multiple lockdowns use all of the reinstatements that we have so we are Thank you very much. Thank you and your next question comes from the line of Abid Hussain, Credit Suisse. Please go ahead, your line is open.

Hi, morning all. Thanks for taking my questions. I think I've got three questions. Firstly, I just want to follow up on Blair's question on the net or the gross losses from COVID. So your estimate is based on the assumption of a lockdown until the end of June. Can you just give us an indication of how do we extrapolate those losses if the lockdowns remain in place? The second question is on the motorbook. I'm just curious, what are you assuming for claims frequency or claims inflation overall for the motorbook? um given that there is a material implied benefit from the 160 versus the gross level of Covid related claims um and actually i do have a final question another one on on your longevity versus mortality exposure um i think you said that the net exposure is uh is expected to be neutral i would have thought you'd be net positive because your immunity book outweighs the the life and terms from this book um Can you just explain why it's not positive? Is it because you've been re-insuring longevity in recent years? Thank you.

Great morning, Abbott. Thanks for your questions. Let me give a little bit more color on business eruption. So let me start off. Aviva's standard terms and conditions for business eruption do not cover claims relating to the current pandemic or notified diseases. Specified diseases that are covered are clearly listed and do not include COVID-19. For us, this has been a clear position since we reworded the policies following the SARS outbreak. Now there are a small number of Aviva customers that may have purchased cover through a broker or a scheme that's not on our Aviva standard terms in which we may provide cover. We're working closely with those schemes and customers and brokers to ensure all valid claims are paid as quickly as possible. and where coverage is clear, we've already started actually making payments. So, you know, as I've reiterated previously, based on the analysis 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. I think your second question on frequency, Like others, we have seen frequency down in some product lines, and that's ranged between 20% down to 50% down, depending on various jurisdictions. That has provided an offset. I'd also add, though, that we have seen increased severity and some higher claims in other lines. Also, we saw pre-COVID in motor and home in the UK, certainly the February storm. Our working estimate in terms of lockdown as we think about frequency benefits is at the end of June we think the world starts to slowly return. But there's lots of variability. It's been one of the things that many governments are encouraging people not to use public transport. So we could very quickly see the number of cars on the roads increase pretty significantly. Jason, do you want to take the other question?

Yes. So on the longevity and mortality, we've got a broadly balanced book. The claims on individual protection, I've said this on a few occasions, are largely reinsured. Not entirely, but across the term books, largely reinsured. Some of the older stuff, the whole of life and the like, we do have an exposure there. The primary exposure we have is on UK group protection. which is clearly a working age level and the typical terms of that are four times salary. So you can imagine sort of 100 to 150,000 being sort of average frame. On the annuity side which is a much bigger book, the experience that we're seeing today is clearly and sadly of course mortality in elderly which is Thank you.

And your next question comes from the line of Oliver Steele, Deutsche Bank. Please go ahead, your line is open.

Morning, Maurice. Morning, Jason. Three questions. The first is, are you prepared to give us any indication as to what claims are in dispute relative to what you've put aside so far? Second question is, I didn't quite get the answer you gave to Johnny Vo. Did you say that the property price changes you'd assumed had only come through in the legal entities, but not at the group level? And if it is coming through at the group level, can you just explain the impact of that in a bit more detail? Because the saving you've made on the Brexit provision doesn't look to be big enough relative to the And then the third question, slightly different, is what impact would you expect if UK bond yields turn negative?

Great morning as well, Oliver, and thanks for the question. About 95% of our commercial policies follow the Aviva standard terms and conditions. Those standard terms and conditions are pretty clear and as I alluded to earlier have been enforced for a number of years. We do have a small set of policies that come from brokers or various schemes. We actually welcomed the SCA review. We think that decision will hopefully bring greater clarity and certainty for customers on business interruption policies. We hope that approach will accelerate the determination in some instance on complex technical matters. Where we have clear coverage, we've already started making payments on business of action claims and that will continue.

I'll go even firmer than Morris and say we're not in disputes with anybody and we've read more about this in the press than we have in our actual own claims processes. You can infer from that what you wish. On the property side, sorry if I wasn't clear, the provisions are in the legal entities and then the group is just a consolidated, diversified consolidated position of the legal entities. So I think what Johnny was referring to is will that reduce capital in the subsidiaries and hence have an implication for cash remittances and it potentially could. So there's nothing much else to say on that. I wasn't quite sure what you said about it.

Can I just come back to you on that? Because in your sensitivities you show a 20% decrease in the value of commercial property as being 9 points and residential 6 points. And a 400 million saving on the Brexit provision would be about 2 points. I'm trying to work out the math as to why your solvency ratio doesn't seem to have moved a lot further on these assumptions.

Yeah, so the assumption, these are, depends on what the period is over those. They're one-off movements. I think these are effectively five-year numbers that we've given you today. Well, for residential, it's 12% immediate, followed by growth RPI plus three quarters of a percent which is our long-standing house price assumption. So really it's the long-term impact that does affect the resi side. On commercial, it's a one-off impact of 15% and we don't assume any growth in commercial over the five-year period. So in total, we've flagged that that was around 400 million on surplus at the full year and that number hasn't changed materially. There's some small changes in that and it is quite leathered. So the sensitivities that you're referring to are slightly stronger than the numbers that we've put into the balance sheet to date. On negative yields, we've been dealing with negative yields in France for about nine months now. I mean there's no sort of cliff edge effect of that in getting used to it but we are we set up to reduce interest rate sensitivity all the way down so you know clearly it's not great for savers or for the investment income in the business but from a balance sheet perspective you know we set ourselves up and our current stress position would already anticipate potential for negative yield, so we sort of hold capital assuming that is a plausible scenario. There's nothing to point to.

Okay, thank you very much.

Thank you. And your next question comes from the line of Dom O'Mahony from Exam BMP Paribas. Please go ahead, your line is open.

Thanks, folks. I hope you and yours are keeping well Thanks for taking the questions. Three, if that's all right. Just coming back to the COVID claims, wondering if you could help us bridge from the 200 to the 160. So clearly there's an offset between the frequency benefits and non-BI extra claims. Are those two big numbers or two small numbers? And what's in them? So for instance, are charity contributions, goodwill payments, and so on, are they in that mix? Secondly, thinking beyond business interruption, one of the open questions is potential future liability claims. Do you accommodate an assumption for future liability claims in those numbers? So, for instance, do you have any care home exposure, for instance, which is one of the topics that is coming up now. And finally, on On the deleveraging, I guess, very specifically, you have a 500 million DCI instrument coming up to call in July. Judging by your approach to capital and the dividend, you've taken the judgment that you should be retaining capital right now rather than using it up. Would it be fair to infer that means you won't be calling that instrument? Thank you.

Yes, morning. Thanks, Tom, and all the best to you and your family as well. We haven't given a specific breakdown. What I have outlined is the 160. You're right to note in R&S we talk about the 200. There's a number of moving parts that go both ways in the bridge, so it's not just pure frequency. And obviously, as I said, the frequency benefits that we have seen, and not just on the motor line, which is the 20% to 50%, but we've also seen some favorable experience on the property line. We also include in there estimates for things like surety losses that may or may not arise. We include estimates for construction. We do include estimates for liability. We do provide cover to some care homes in the UK and I've taken that into account. I think the other part of your question is do we include our contributions in there? The answer is no, we do not.

That's just, just to be clear, that's claims, those figures, the 200 and the 160 both relate purely to general insurance claims. On the DCI, yep, there's a call date coming up. I mean, we would typically call things, you know, that's a sort of expectation in the market. I'm not communicating anything on that today. However, and we are working through that, but I just can only repeat what I said earlier that, you know, we are in capital preservation mode more broadly and we're thoughtful around, you know, the strength of balance sheet and the leveraging, as I said earlier, we've got plenty of scope to revisit that in 2022 when we've got very significant debt due for call in that year.

Dom, I should have added on, yeah, I'll just add one other comment. Dom, on the care homes, we're currently not writing new business and we are supporting our existing customers, but on those renewals, we're being very clear on the language and making adjustments to the renewal terms.

Very clear. Thanks, folks.

Thank you. And your next question comes from the line of Andrew Queen, Autonomous. Please go ahead. Your line is open.

Good morning, all. Three questions. Can I actually follow up on two of the questions? Firstly, Oliver's question around about the hit from the property downgrade. I mean, just using the sensitivity, it looks as though the two property assumptions are about minus 11 points. Net of the release of the Brexit is plus four, which would give you a net minus seven points. Is that mathematics right? Secondly, following up on Dom's question, In Europe, it's quite clear that business interruption issues are being solved by voluntary contributions. And therefore, could you actually give us the figures for your voluntary contributions in places like France and Italy, which are part of the COVID cost and the way they're dealt with then? And then thirdly, you've talked about being committed to the 2022 targets, but saying that COVID-19 Thank you. I'll kick up on the first one. I'll try that again. The sensitivities are the day one impact with no further growth. The numbers

in the press release. So the 15% for commercial property is an assumed 15% reduction, and that's by year five. For residential property, it's a 12% reduction followed by growth. So that will take you to whatever it will be by year five or year 10 across the board. So the sensitivities in the annual report are stronger because they are the impact, day one, of that single stress. So across the board. The Brexit provision is pretty similar. to what we have done. So you can see that that was largely a repurposing of Brexit into the core assumptions and that's about 400 million in terms of solvency.

So net-net, what is that in terms of solvency points?

Net-net. On the, that was about flat. Yeah, the other thing, the sensitivities, Just to be clear, I'm talking about UK annuities here, Andrew, so as I think about it, there's clearly non-UK commercial property and other non-annuity commercial property, which is probably contributing to the higher figure as well in the annual report. On the long-term target, I'll have a go at that, Maurice might want to comment. But we're still very focused on achieving our return on capital target of 12%. That's a multi-year build towards that on an underlying basis, as we've said, around cost reduction, product optimization, and smarter use of capital across the group. There's no change there. Clearly, business activity, particularly in some of the savings side, will be challenged. But we will adapt accordingly. We've still got significant strength from the enforced value So there's a lot for us to go at across that, but there's no change to the prioritization of good quality new business and return on capital across the piece, coupled with absolute discipline on expense efficiency. And that's really what we are, as we've said since November, absolutely committed to.

Andrew, I would echo Jason's comments. We still remain committed to achieving our 2022 targets across the board. Obviously, COVID-19 certainly provides additional challenges, but we're remaining focused on enhancing customer operational fundamentals to drive improved returns. Obviously, we're off to a good start with our trading results in Q1. As I alluded to, and would be expected. They have slowed down in April, but encouragingly in the last 10 days, we've started to see some early signs of them coming back. I think you also had a comment on our portion of the voluntary contributions in France, 100 million euros. Jason, if I've got the wrong number here in my scribbles, please correct me, but that's our share.

Yeah, well, 100 million in France is actually from the investment portfolio. So what we've done is commit to invest 100 million euros in things like medtech and other healthcare and other sectors that are relevant to the COVID-19 response, something that we did in the industry. There's a contribution to a solidarity fund in France. If I'm not mistaken, it's about 5 million euros. Give or take, Andrew. Okay, so not great. No, I think Italy and elsewhere, there's ones and twos elsewhere. The significant contribution, part of the 43, the number that we've given you is in the UK, Red Cross, it's the ABI fund, and it's the NHS charities. Thank you.

Thank you. And your next question comes from the line of Fahad Changhazi, Mediobankr, please go ahead, your line is open.

Hello, hi there. Sorry, I know you've answered this question many, many times, but just to be absolutely sure on the sensitivities, the sensitivity of this close is a drop in property and commercial prices and that's sustained for five years, whereas what you've done is 12% reduction in house prices and then 75 bps four years after and no increase in commercial, right? Right. And can I just ask you then, in terms of the 12% drop and the 15% drop, how have you come to those assumptions? Because they seem harsher than what the UK banks are incorporating at this time.

That's interesting. I mean, we looked at a number of inputs from external consultants. We work on the commercial side very much with asset managing VEBA investors and get views. Clearly, there's very few transactions, so it's highly subjective. We have no crystal ball over here, but we're just taking inputs that we can see. We're trying to be reasonable. Within that 15%, of course, is a range of effects in different sectors. So that's an average overall, as you might imagine. And then on the property side, there is an external consultancy that we, on the residential side, there's an external consultancy that we use. We look for other data points. Again, we're just trying to bring together Best information that we have and are in judgement to put something into the balance sheet. Again, it is of course subjective. That's great. Thank you very much.

Thank you. And your next question comes from the line of Gordon Atkin, RBC. Please go ahead. Your line is open.

Hi, sorry. I hope you're all well, guys. My questions will be answered. Thank you.

Thanks, Gordon. Thanks, Gordon. Great to hear from you.

Thank you. and your next question comes from the line of Stephen Haywood, HSBC. Please go ahead, your line is open.

Good morning, thanks. A couple of questions please. On the favourable impacts that you've included in your 160 million net claims, can you give an amount that you've included for favourable impacts here and tell me how much, sorry, whether it is And then the second question is on the hospitality insurance group action naming Aviva and QBE targeting your business interruption material damages policies. Is this included within your net claims figure or is it in addition? And if you have any other Thank you for that question.

Let me start with your second one and I'll ask Jason to deal with the first one. I'm not going to comment on any specific action, but what I have said, if you look at Aviva's standard terms and conditions, which is circa 95% of our policies, there isn't cover. for claims relating to current pandemic and notified losses. We work on a specified diseases basis, and those are clearly listed, which does not list COVID-19. Those policies have been in place. The change was made around the time of SARS, so about 17 years ago, and they've been very clear. We do have a small number, you know, as I alluded to earlier, that WorkCover may exist. They've been purchased through a broker or scheme. They're not on our standard wordings. and we've been working closely with those customers and brokers and paying valid claims as quickly as possible where coverage is clear. We've already started making payments. The estimate that we did provide was based on analysis as of the 30th of April and that includes both notified and projected claims. Thank you very much. you know it's it would be too simple to take the 200 into the 160 and assume that was all simple frequency benefits there are a number of moving parts so we've also made provisions for potential liability claims claims which may or may not arise out of our surety business and construction business and you know we have seen you know favorable trends in terms of Thank you. I'd now like to hand the call back for closing remarks. Yes, thank you operator. So I appreciate everyone's time this morning. I think as you can see from the results Aviva's had a strong first quarter. We've seen increased new business sales with life sales up 28% and the general insurance sales up 3%. We've outlined our capital and liquidity position that has held up well at 182%. We've also Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers please stand by.