Aviva PLC

Ladies and gentlemen thank you for standing by and welcome to Aviva Plc's Q3 2020 investor update. At this time all participants are in a listen early mode. After the presentation there will be the opportunity to ask questions by pressing star and one on your telephone keypad. I must also advise that the conference is being recorded so I would now like to hand to your speakers today company CEO Amanda Blanc and company CFO Jason Windsor. Please go ahead.

Thank you operator and good morning everyone and thank you for joining us for our Q3 trading update. I really hope everyone has been staying safe and well in these difficult times. I'm here with Jason, our CFO, who will take you through the Q3 trading performance shortly. But before I hand over to Jason to take you through the nine months trading update, I'd like to update you on two key areas. First, the progress we are making on the strategic options and priorities I set out in August. Second, as I promised we would, I would take you through the decisions we have made around our dividend. So in August I outlined three strategic priorities. Focus the portfolio, transform performance and financial strength. The first priority is to focus the portfolio on our strongest and most strategically advantaged businesses in the UK, Ireland and Canada. These are our core markets. where we have market leading positions can generate attractive returns and have the right to win. For our international markets in continental Europe and Asia, I said we would manage these for long-term shareholder value and I was clear that ultimately there may be better owners for these businesses than Aviva. Since August, I'm pleased to report that we have made good progress and have already announced £2 billion of disposals. all of which will be accretive to capital. We are continuing to work with a clear purpose and are exploring the options available to us elsewhere. I will touch upon this more in detail in a moment. Our second priority is to transform performance and we have started to make progress on this during Q3. I am pleased to report that we are delivering robust growth in our core businesses, especially in the key segments where we can achieve attractive margins and have long-term growth prospects. We have seen strong life insurance sales of 32 billion, including 5 billion of bulk purchase annuities in the year to date, which is more than double that of last year. There has been a 20% uplift in net fund flows in UK savings and retirement, achieving 6 billion. and Aviva Investors delivered 1.2 billion of third-party net fund flows. Our commercial lines net return premium is at 9%, building on the double-digit growth we achieved in 2019. And we are being recognised for our success, claiming a clean sweep of the British Insurance Awards last week, winning General, Personal and Commercial Lines Insurer of the Year. This is the first time any company has won all three awards together and we're very proud that our strong product offering and high service standards have been recognised in this way during a very challenging year for many of our customers. On costs, we are on track to exceed 150 million savings for the full year 2020. Furthermore, I can confirm that we will deliver the 300 million cost savings target by full year 2022 from our core markets of UK, Ireland, and Canada. And we will not rely on any of the disposals to achieve these savings. What is abundantly clear to me, however, is that Aviva needs to deliver meaningful change in order to truly transform our performance. We are already taking actions across a number of fronts. For example, rationalizing the number of products and legacy platforms. simplifying, automating and digitizing more of our customer journeys, removing the layers of bureaucracy, accelerating the reduction in our property costs and investing in our underwriting claims and sales capabilities. But we need to continue identifying the changes that are necessary and we need to execute them efficiently and effectively. My colleagues will tell you that they are clear on what is required and the change is underway. However, despite some initial success, transforming the performance of Aviva will take time and there is a great deal to do. But we're focused on delivery and I will update you as we make substantive progress. Our third priority is financial strength. Our Q3 results demonstrate that Aviva's balance sheet is in robust health. Solvency to capital surplus of 11.8 billion, Solvency to cover ratio of 195% at one percentage point from the half year. Central liquidity of 2.8 billion, which will be further strengthened by the disposal proceeds. I am reiterating my commitment to reducing Aviva's debt leverage ratio. We are intending to use the aggregate cash disposal proceeds of 1.5 billion from Singapore and Aviva Vita Italy to reduce debt. As we continue to work on the portfolio, there will be other opportunities over the next two years to do more of this. Let me now touch upon our portfolio actions in more detail. We have made good progress since August in our efforts to refocus the portfolio and have announced two billion of disposals. In September, we sold the majority of our Singapore business to a consortium led by Sing Life for a total of 1.6 billion. By retaining a 25% shareholding, we hope to benefit from the attractive future potential of that market, and this is consistent with our approach to managing our portfolio for long-term shareholder value. I'm pleased to confirm that we are on track to complete the deal next week, two months ahead of our original expectation. Earlier this week, we announced the sale of Aviva Vita Italy for approximately 400 million, with completion expected in Q2 2021. We have also completed the disposal of our Indonesian business and we expect to complete the sale of our Hong Kong interest by the end of this year. We are being decisive, we are focused on delivery and as you can see one by one we are ticking them off. Now I think it is worth saying that you shouldn't believe everything you read in the papers but I can confirm that we are exploring our options for France, Poland, the remainder of our Italian businesses and our joint ventures. These are complex businesses with multiple stakeholders and I want to be very direct in saying that it will take time for us to reach a conclusion. We will be disciplined in doing the right thing for our shareholders and our people. We will continue to manage these businesses for long-term shareholder value and we will update you as we make progress. Turning now to dividends. I said in August we would review our longer term dividend policy in light of our strategic priorities, the future shape of the group and our ongoing commitment to debt reduction. We are today announcing our new dividend policy, which we believe will deliver a sustainable and resilient ordinary dividend, covered by the capital generation, cash remittances and growth from our core businesses in the UK, Ireland and Canada. We expect to grow our ordinary dividends per share in the low to mid single digits. Aligned to this new dividend policy, we are announcing an interim dividend for 2020 of seven pence per share, which will be paid on the 21st of January, 2021. And subject of course to the board's final determination at the time, our current expectation is that the final 2020 dividend would be 14 pence per share, which would bring the total 2020 dividend to 21 pence per share. We will not be distributing a final 2019 dividend. This has been a challenging year with significant market volatility and we have taken the prudent decision to conserve our capital and enhance our financial strength to ensure that we are well positioned through this period of COVID and Brexit uncertainty. We absolutely understand the importance of dividends to our shareholders but we believe that now is the appropriate moment to align our dividend with our new strategy of focusing on the core markets. We have stress tested our capacity and believe that our go forward dividend will be sustainable and resilient. Future growth in the dividend will be driven by the transformed performance of our market leading businesses, by lower levels of debt and from the benefits of focusing the portfolio. An important component of aligning our new dividend policy to the core market is to clearly set out our new capital framework. We have been clear that financial strength remains a key priority, and this is at the heart of our capital framework. Our solvency to cover ratio working range will remain at 160 to 180%, although we intend that our cover will remain above this range as we go through the process of reshaping the group and reducing our debt. We are committed to reducing our Solvency II debt leverage ratio to below 30% and, as we reshape the group, this will likely result in us exceeding our 1.5 billion debt reduction target. Once we have reached the sub-30 Solvency II leverage ratio, we expect to return excess capital to shareholders when the cover ratio is above 180%. This approach is consistent with maintaining our strong credit rating metrics. In terms of how we think about deployment of excess capital, we are absolutely committed to generating strong and sustainable shareholder value. We will look to reduce debt, return capital to shareholders, and continue to invest in our core businesses where we see attractive opportunities to do so. We will carefully balance those priorities, and I will remind you that we already have a substantial amount of capital deployed within our core businesses to support growth. Now let me hand over to Jason who is going to take you through the Q3 financial performance and will provide some more colour on the dividends.

Thanks Amanda. Good morning everybody. As Amanda just commented, we're making good progress delivering our priorities. We have strong and resilient businesses in the UK, Ireland and Canada. We're confident in our ability to grow in these markets sustainably and our Q3 results demonstrate just that. Let's look at our core markets first. In UK and Ireland life, we grew PV and BP 40% in the first nine months of the year. BPA volumes were £5 billion, an increase of 2.3 times relative to the first nine months of 2019, and 25% higher than our volumes for the whole of 2019. This includes the second deal with Marks and Spencer for £400 million. Balkan Newities is an important franchise for Aviva. Our brand, strong corporate relationships, and risk management capabilities all play an important role in supporting disciplined growth with clear hurdles on IRR and capital usage. Health and protection saw a 6% increase in sales, primarily driven by price increases in group protection and health, while individual protection trading remained competitive, impacted by COVID-19 disruption. Individual annuities and equity release was down 29% in the period, as the low-yield environment continues to impact demand for individual annuities. Trading in equity release was disrupted by confinement measures, but I would like to highlight that we won the Personal Finance Award for Best Equity Release Lender for the seventh year in a row, which is testament to our team and their response during the pandemic. In savings and retirement, net flows grew to £6 billion, a 20% increase on the prior year. Our workplace platform continued its strong momentum with flows up 23% to £3.8 billion. Net flows were also positive on the retail platform, up 5% to £2.6 billion, and we now have platform assets of £31 billion. Our advisor platform has continued to perform well, ranking third with a 10% share of net flows in the first nine months of the year. Aviva investors made solid gains with third-party net flows of £1.2 billion and internal net flows of £3 billion excluding heritage. In addition, our liquidity range generated £5.5 billion of external net flows over the first nine months compared to less than a billion in the prior period. Moving on to general insurance, net written premiums were flat at £5.8 billion. Commercial lines continued to perform strongly with growth of 10% and 8% in the UK and Canada respectively. This is primarily driven by property and liability rate increases which saw above inflation rate increases and targeted growth. Personal lines saw a 5% reduction in premiums as we continue to prioritize margins over volumes together with reduced activity levels from COVID disruption. Let's go to the next slide. and looking at the quarterly trends for our core businesses. Of course, it's been an unusual year as the trends show, particularly for individual annuities, equity release and protection. In savings and retirement, discrete Q3 flows were resilient, but remained muted compared to Q1, reflecting a cautious sentiment from ongoing macro and COVID uncertainty. Q3 volumes for BPA were up 43% on Q2, and this has led to a temporarily lower new business margin due to a timing mismatch with reinsurance and our target asset mix on those Q3 deals. You might remember we had a similar mismatch in the first half of 2018. And like you did in 2018, we expect our margins to have caught up by the end of the year. General insurance saw lower discrete premiums in Q3 compared to the prior quarter. This was mainly as a result of seasonality. Margins in GI were good in Q3, with strong underlying performance in the UK and Canada, partly offset by less benign weather. Our estimate for the impact at Q3 of COVID-19 net claims on general insurance has reduced to approximately £100 million, compared to £165 million at the half year. This mainly reflects further frequency benefits in the third quarter. I would also note that we haven't had to change our net VI claims estimate on the back of the SCA test case. As mentioned by Amanda, our international businesses in continental Europe and Asia are being managed for long-term shareholder value. This means that we will selectively participate in these markets and we will withdraw capital where appropriate, as seen with our recent announcements for both Singapore and Aviva Vita in Italy. Likely business sales in continental Europe and Asia decreased by 21% overall as a result of COVID-19 disruption and our continued actions to reduce the volume of with-profits business in France and Italy as part of our manage for value strategy. As you can see from the chart, there was a marked reduction in life premiums in the second quarter of 2020, which has recovered somewhat in Q3, but remains below 2019. In general insurance, trading has been resilient with net risk and premiums increasing by 4% in the first nine months of the year. The higher volume in France in Q1 is a factor of seasonality. Now, moving on to financial strength, which is obviously one of our priorities. Our Q3 solvency ratio is 195%, well above our target working range. The one percentage point increase in the quarter reflects the operating capital generation, offset by the payment of our six pence interim dividend in relation to 2019. We also had to correct the application of a rule in our French Life Model, which together with model enhancements to better reflect negative interest rates, had a two-point impact on the Group Solvency Ratio. This had an estimated £250 million impact on Group OCG. It's worth highlighting that our Solvency II position at the end of September does not reflect the approximately eight-point benefit expected from the announced disposals of Singapore and Aviva Vita. and to be clear, nor does it reflect the tier 2 Canadian debt issued in October to refinance a Canadian dollar tier 3 note which matures in May 2021. Our shareholder corporate bond portfolio has continued to perform well, with no defaults and less than £15 million of bonds downgraded below investment grade. This compares very favourably with the broader market experience. A commercial mortgage portfolio is positioned fairly defensively following previous restructurings with solid collateral and low LTV on new lending. As such, it has remained resilient to date, but we continue to monitor positions very closely given the uncertain and difficult environment. Performance metrics in commercial mortgages have remained broadly stable since the half year. The LTV of the portfolio has not changed significantly. while only 2% of the loans are in arrears at Q3 compared to 1% at the half year. Moving on to central liquidity, which remained very strong at £2.8 billion at the end of October. We will maintain liquidity of at least £1 billion at centre. So in normal times, this means that ahead of dividend payments, you should expect group liquidity to be in the range of £1.5 to £2 billion in line with what we've said previously. It's important to recognise that as we restructure the group, group liquidity is likely to stay elevated, not least as it forms part of our plan to reduce debt in 2021 and 2022. What I want to do with this slide is explain why we have set the 2020 dividend at 21 pence per share. To do that, we set out the expected cash generation from our core business units. simply using the same targets from last year's investor debt. You can see that the sustainable cash flow for my core businesses is expected to be in the region of £1.6 billion per year. Once we allow for debt and centre costs, we have £1 billion of excess cash flow. And please remember, this is after growth and investment in the business. This allows for a 21 pence dividend with a comfortable £200 million of headroom. There are additional levers to drive up headroom, including better performance for the core businesses, lower expenses, the reduction in interest costs from redemptions in 2021 and 2022, and possible options to reduce our share count. Looking forward, we expect to grow dividend per share at low to mid single digits. Crucial to those remittances is the healthy solvency position of our core subsidiaries, on which I will give you some detail on the next slide. On this side, we set out the Q3 solvency ratios of our three core cash remitting subsidiaries and our reinsurance mixer. As you can see, all of the solvency positions are strong. They are all above risk appetites despite COVID-19 effects and capital markets volatility. I've also shown the key sensitivities for each of these subs. This shows the resilience to rates and spreads providing further confidence in the cash outlook and the new dividend policy. With the backdrop of COVID-19 and wider macro uncertainty, we've delivered strong growth in premiums and flows in our core markets while maintaining our financial strength. In the context of the disruption we've seen, these are solid trends. I wanted to highlight some points as we move toward the end of 2020. We expect The second half performance trends to be broadly consistent with the first half, and management actions and other to be ahead of previous guidance of 0.2 billion, mainly owing to UK Life longevity, albeit on its own, the longevity assumption change will be lower than in 2019. The impact of the Q4 lockdowns across the group is uncertain, but we are not expecting any significant increase in BI claims. Savings in retirement is having a strong year, but growth rates are expected to moderate due to strong Q4 comparisons. On cash and OCG, we expect the second half OCG to be broadly in line with the first half after absorbing the Prime's life modelling change. While cash remittances in 2020, as I mentioned at the half year meeting, will be below 2019, but the second half 2020 will be in excess of the second half in 2019, which is good progress this year. Thank you. I'll now hand back to Amanda to close the presentation.

Thanks, Jason. So, to finish, let me summarise the key points. Firstly, we've made a good start in identifying the group, selling Singapore, and now a major business in Italy. We have a new dividend policy which is sustainable, resilient and which we intend to grow by low to mid single digits based on our core markets of the UK, Ireland and Canada. Thirdly, we have solid foundations from which we can transform performance and grow our business. We have market leading positions in our core markets and have identified profitable areas that we can grow. Our robust performance in 2020 demonstrates just that. There is a great deal to do, but let me reassure you that meaningful change is underway at Aviva. And we are focused on execution and delivery as we seek to unlock value for our shareholders. So thank you for that, for listening. Now let me hand back to the operator and we'll open the lines for Q&A.

Thank you. Ladies and gentlemen, to ask a question, please press star and one on your telephone keypad. And if you wish to cancel it, you can press the hash key. Once again, I want to ask a question. Your first question comes from John Hawking from Morgan Stanley. Please go ahead.

Thank you. Good morning, everybody. I've got three questions, please. Starting with the capital return, the debt deleveraging target, you talk about potential return in capital once the debt deleveraging target is reached in 2022. Is that the the end of 2022? I see you've got a couple of big bond calls during 2022 so is it possible we start seeing capital flow during 2022 as it might be between 2023? That's the first question. Second question, in terms of the proceeds, is the interpretation here that the proceeds minus the debt and averaging subject to 180 percent, something to pressure that everything else will come back to shareholders? So there's an implicit message here there's going to be no that material imagine every day that's the second question and then just finally a little more detail on the on slide seven when you're talking about the dividend growth there's a comment that the the different growth might might benefit from management value portfolio actions I'm sure they're confused about that because I thought the difference being set on this on three core businesses so it is there you know interpreting that correctly is there any chance that you can see a step up in the in the ordinary dividend through the management value thanks very much

Okay, thanks, John. So, firstly, I think on the capital returns and the debt and leveraging and the timeline for that. I mean, clearly, we're not going to be committed to any timeline today. But I think, you know, what we've said is that we are exploring all the options in terms of how we manage the managed for value portfolio. and that we're also being clear that we do intend to operate within the 160 to 180 solvency ratio and that we will return the excess capital once we have done our debt reduction, which is a key priority for us. That debt leverage ratio needs to be below 30% and as Jason outlined in his speech, there are opportunities that we will have to do that. Thank you all very much. We've said the excess capital will be returned to shareholders, but we've also been clear about investing in the business. I think that we've already got significant investments within the business. You talk about M&A. Clearly, at this point in time, we have much on our plate. We have the priorities that we've set out here. but you know we will never say never on that. Jason did you want to pick up on the third question on dividend growth?

Sure I think what we've done John is anchor the core the dividend to the core business and the remittances from those businesses so there is nothing baked in for value or remittances from the managed for value markets so any remittances or The investment proceeds or capital withdrawal would be additive to the group's financial strength so we could use that to reduce debt or possibly in due course reduce share count both of which would be additive to the headroom in terms of cash flow for share.

Okay, thank you very much.

Thanks John. Your next question comes from James Shook from Citigroup. Please go ahead.

Hi, thank you for taking my questions and good morning everybody. So a few things for me. and the rest of you. Thank you very much. In terms of the investment mix, so your solvency level is well above the target range. It's more tricky to actually deploy that capital and it depends on cash flow and all the requirements around debt. It's easier to reduce that solvency level by increasing your investment mix or the risk profile within that investment risk. So I just want to get an understanding for how you might deploy that solvency through increased capital requirements on the investment side, please. Thank you.

Okay, thank you. So I'll let Jason pick up your second question. On your first question around the sovereignty too and funds having an impact, of course that's the case. And I think what you'll have seen is our disciplined approach to the way that we have handled the first two deals, both in Singapore and in Aviva Vita Italy, which have been accretive. And I think that has been something which we have been very conscious that we are managing for value. And I think that disciplined approach will continue I think as far as France is concerned, you know, as I said, for France, for Poland, for the rest of the Italian businesses and the joint ventures, and we are at the stage of exploring our options. Jason, did you want to pick up the second point?

Yeah, on the golden ticket, I mean, there's nothing to say on that. That's actually, there's no new news on it. It's behaving very much in line with what we've seen for many, many years now. So there's no new news. on that. In terms of capital deployment, we don't have big plans to re-risk the balance sheets. I think we've set out that we've taken that interest rate exposure wherever we can. We don't think that's rewarded. We've reduced exposure at the margin to equities. We've got property exposures and bond exposures, as you would imagine, which is core and integral to the growth of any insurance company. But there is you know reasonable level of risk within the balance sheet we're certainly we're not aggressively positioned as we go into 2021 and deliberately so and I don't see that changing in the near term okay that's very helpful thank you your next question comes from Oliver Steele from Deutsche Bank please go ahead good morning thanks for taking my question

The first question I guess is really about timing. I mean it's really hard to understand why you're planning to wait maybe till 2022 before you actually return some of the excess cash you've got. I mean just you know if you're going to use Singapore and Aviva Vita to pay down the maturing debt over the next two years then implicitly you've already got a billion above your immediate target for cash flow for cash. and then I look forward and I can see that you're covering your due diligence cost out of the UK and Canadian operations by themselves which means all of the excess cash flow coming from France, Poland and the rest of Italy over the next however long until you sell them is going to be in excess of that so can you explain why you're being so slow in actually returning any cash rather more quickly? I don't think actually there are any other questions for us asking because I've asked

Jason do you want to pick that one up?

Well in terms of timing I mean with the first phase Amanda's been in robot four months you know we've managed to announce not complete you know two divestments one we expect to complete next week so it is early days but we are pleased with the progress that we've made so far you know as we go into 2021 that is a very big year in terms of the development of the company we don't want to be drawn today on and it's specifics around capital return. We've got two redemptions coming up in Q2. We've got one we've already pre-financed on the debt side, the Canadian one, as I mentioned in the script. We've got two more redemptions in Q2. So that's 600 million that will net rejection in Q2. That's sort of step one. As Amanda mentioned, we've got really big redemptions in 2022. We'll look at all options to reduce debt, but that is the priority. and then depending on how we progress you know we'll think through but what we wanted to do today is give you a very clear framework for leverage for cash and for capital so you can take that and make your own assumptions.

So if I can just sort of follow up quickly I mean are you specifically saying there will be no cash return over and above the normal dividend until 2022 or are you saying that actually it depends on how things progress?

I think what we're saying is that we're at the early stages of exploring the options for the other markets, in particular the plants, Poland, Italy, etc. And that whilst we do that, we said that we will keep more capital above our working range and we will focus on the debt reduction. So we're just not being specific about the actual timelines today. We're just giving you the framework. but clearly we will not hold on to excess capital. It is our plan to return that when we feel that we have completed the work that we need to do.

Thank you. Thank you very much.

Your next question comes from Blair Stewart from Bank of America. Please go ahead.

Thank you. I was going to ask the same question but I won't try and ask it in a different way. I'll leave it at that but a couple more. As you sell down businesses, what's your expectation in terms of what happens to the SCR on a Solvency II basis? Should we just assume that that reduces in line with the footprint of the businesses that you're being sold or are there any that are particularly heavy or light from an SCR perspective? Just to try and get a better handle on the modeling there. Second question is, you said low to mid single digit growth on the dividend. I think one of your competitors said the same and that translated to between 3% and 6%. I wonder if you'll be drawn on something a bit more specific. And finally, the UK life solvency dropped a bit during the year, clearly lots of moving parts, but I'm just wondering if the increase in bulks had a bearing on that. Thank you.

Okay, thank you. I'll pick up the second question if Jason picks up the first and the third question. So as far as the low to mid single digit growth, no, we're not going to be drawn on an exact number. It's low to mid single digits. I think that what we will say is that we are confident about the ability to be able to do that because if you look at the UK, Ireland and Canada businesses, we have seen already from the Q3 performance that there is a really strong and robust performance there. So we will continue obviously to do that. You saw the growth in BPAs. and a number of others. So, we see the growth in workplace savings. We see that the commercial lines market is hardening. So, we see the opportunity to really capitalize upon that. We also see the potential to improve the efficiency of the organization. So, we've already, again, made progress there in terms of simplifying, but we also see more opportunity to do that. You know, Jason outlined that obviously the debt reduction will reduce the interest cost. and more opportunity to grow it there and then the real benefits of focusing the portfolio so you know we have to you have to note that we we have not assumed any dividends from the managed for value markets so you know we we're confident in that in that and but not to be drawn on a specific number Blair but thanks for asking Jason do you want to pick up one and three yeah sure the SCR and

The intensity of the businesses is very different. I'll use the two helpful examples, Singapore and Aviva Vita. We sold three quarters of Singapore for just over a billion, one and a half times our own funds and got four points of capital benefit. We sold Aviva Vita for £350 million approximately. I got four points for capital benefit. So you can see in our own funds, you can see the difference, you know, that comes through in the group at the level of SCR intensity, particularly the continental European businesses where the SCR intensity is much, much higher. In terms of UK Life, yes, obviously has fallen a little bit. I mean, partly that's payment of dividends. You know, we have got cash in the group from UK Life. There is a little bit of impact from bulks, the temporary The point that I mentioned has impacted that by, if I take 100 million of capital, that will unwind relatively quickly in Q4 and the residual is, as you might imagine, has been a bit of macro uncertainty this year. So market levels are still a little bit lower than at the start of the year.

Thank you.

Your next question comes from Andrew Crean from Autonomous. Please go ahead.

Good morning all. Sandra Green. Just three questions, if I might. When you do decide to return capital, can you give us some idea as to whether you have a preference for buybacks or specials? Secondly, could you remind me how you define your 30% leverage? Is that done on IFRS or owned funds? And if it's IFRS, is it including Goodwill and the Thank you very much. Thank you. Thank you very much.

Thank you very much. on that excess capital. The priority is the debt reduction and once we feel the group's in the right place, then we will balance the return to the shareholders with some investments in our future growth. Jason, did you want to pick us up?

The leverage ratio is on a own funds basis, so that does not include any big surfaces or any goodwill, just to be clear. And then diversification, I mean, the proceeds, you said the proceeds would clearly be cash and they wouldn't be affected by diversification. In terms of the capital benefits, it depends. I think I've said in the past that, you know, on the non-life side, that is about 35% reduction in STR because of the diversification of the life. I think of the life businesses, the international life businesses relative to the UK, in terms of total SCR reduction. It used to be 10, it's probably slightly higher because of interest rates have moved around a bit. So it's somewhere between 10 and 15% of undiversified SCR is a benefit from diversification from international life companies.

Thank you.

Your next question comes from from Credit Suisse. Please go ahead.

Hi everybody, thank you very much, hope you're well. Just a couple of questions around transformation in the UK. So it seems to me that attractive areas on the GI side are to grow in commercial and particularly on SME and also to look at digitalization and transformation of UKGI. Can you talk a little bit more about what sort of capital commitment you would put towards that and what your plans are to accelerate that if there are any? And then conversely, would you revisit UK sort of legacy back foot disposals in life? What are your thoughts on that? Thank you.

Okay, thank you for that. So on the transformation point. So look, I think we do see that there are a number of opportunities to transform the performance across the UK business. We already start from a very strong position as the number one commercial line insurer. And I think we also have some very strong proof points around digitization. To just remind you, in the plan, we already have over £400 million worth of investment in the core businesses of the UK, Ireland and Canada. So there is already investment set aside to grow these businesses. We've seen good, strong growth in commercial lines so far this year, and we see the opportunity to continue to do that as we move forward. Over 50% of our customer journeys are already digitized. We now see the opportunity to take that to to the next level and we see the priority as you know creating a and the opportunity for our customers to be able to look at all of their products. So we've seen the number of logins on Maya Viva this year is about 28 million. And we've seen a big increase in terms of the Maya Viva app as people are looking at their workplace pension and then looking at their motor policies or their home policies. So we see the opportunity to continue to enhance that customer experience. So I think it's an important part of what we do, but we will also allocate capital to, you know, the bulk purchase annuity business, the pensions business. We see that there are strong areas of growth that we are already strongly positioned in and the market is growing and therefore we have the opportunity to continue to grow that. And in the other area that we will invest in is our brand. We have a number one brand in UK insurance which is a great position to be but we've not invested in that brand over the last number of years. So we plan to relaunch the brand next year. and we're targeting the businesses to deliver upper quartile efficiency. So there's a range of measures around where we'll allocate our capital and how we'll do it, whether it's teams of people, technology platforms, capital to grow. But I think we feel very confident about the business and the opportunities that we have there. Your second question around revisiting the UK legacy business, that is not something that we are looking at at the moment. you know we we believe that that business has an important role to play in terms of the cash flow in the UK life business and I think we discussed that at the half year and that strategy hasn't changed.

And just quickly on transformation I mean basically what you're saying is that sort of major significant M&A is not on the list?

So look what we're saying is that we've got a plenty of other focus areas to focus on at the moment and we believe that we are already at the number one player in the UK. We're in a pretty strong position both in GI and in life. But on that, we never say never.

Okay, thank you very much. Thank you.

Your next question comes from Greg Patterson from KBW. Please go ahead.

Good morning, everybody. I hope everyone's safe. Can you hear me? We can. Hi, Greg. Yeah, I'll do my customary three questions. One is, I wonder if you could give us an idea of what the bulk annuity margin in the third quarter would be if you had normalised through asset allocation and reinsurance. And the reason I ask this is you said previously that the first half margin was temporarily boosted by very favourable conditions. So I don't know what normalised margin is for this year. Second question is RSA Intac. There's a major increase in the competitive position of a competitor in Canada. I wonder if you could venture some thoughts on how that would impact you or the competitive landscape in Canada. And the third thing is just to check the remittance table that you produced to explain what your base dividend is. Am I correct that the central costs and debt reduction component of that table is and the current debt reduction program.

Yeah, okay. Jason, do you want to pick up the first question?

Sure, the first one, the box is slightly elevated first off, but something, a VNB margin of around 4% is a pretty decent guide. Clearly Q3, you know, was nothing like that. But as I said, you know, we do expect it to normalize as we get the assets invested and strike the reinsurance deals.

On your second question about RSA in tech, obviously very interesting development over the last number of weeks. I think in terms of our position in Canada, we already have a top three position in that market. We see that there is significant headroom for growth, particularly in commercial lines. And of course, we already have the partnership with RBC, which is the strongest financial services brand are all in that market. So we see really exciting opportunities to continue to grow there. On your third question, I think it's a relatively straightforward yes.

Well, you know, we try to just give a sense, but it's really anchored on 2020. We have not factored into that in its significant cost reduction. It's really where we are, and nor we factored in significant debt reduction. That will come through as we do it.

The reason I ask the question is the new rate or the gross amount includes your targets for remittances, which obviously include the $400 million in capital, et cetera, et cetera. So it's adjusted for expectations, but the deduction is not adjusted for expectations, which implies that the headroom is actually higher than $0.2 billion. That's what I was alluding to. Is that a fair thought process?

Well, as I say, we haven't baked in all of the cost days into the expectation, particularly in the group figure. You know, that number does bump around a bit due to tax and other kind of warm-up project costs and things. But I think if you were to sort of annualize 19 and 20 on average, 0.6 is a good place, which is why we use that number. You know, looking forward, you know, you see that, you know, the pressure is down on that for the two reasons I just mentioned, cost reduction coming through and lower interest costs.

Excellent. Thank you very much. and your final question comes to Ming Xu from Panama Gordon. Please go ahead.

Hi. Good morning, everyone. Just three questions, please. First, your nine-month solvency position and cash, central cash, all look very strong. What is holding you back for not paying any more of the four-year 19 final dividend? And my second question is going forward, just on your, based on you running a business on your core focus market, What is the minimum central liquidity you would need at Centre? And the third question is, in terms of the BI, I think there's a comment you mentioned on the BI and more costs paying out due to the recent lockdown. And in terms of the recent policies you've sold, the new business, have you changed all your BI wording? Thank you. Okay, thank you.

I'll pick up one and three, Jason, you can pick up two. In terms of folio 19, I think we are keen to say today that we're back in the business of paying dividends, that we have declared the 2027 pence per share interim dividend and given an unexpected total 2020 dividend of 21 pence per share. So we recognise the environment. It's been a challenging year. We took the prudent decision earlier this year in discussion with the regulators and everything else to conserve our capital position and enhance our financial strength to make sure that we were well positioned through the period of COVID and Brexit uncertainty and I think that from today really what we want to do is to look ahead and we're just reinforcing the financial strength as one of our key priorities. On your third question around business interruption, There were two parts to that question. Have we changed the policy wordings? I think our policy wordings were on the whole largely very clear, but changing the policy wordings will require us to go through a renewal period. So we will be making sure that all the policy wordings are very clear as we renew policies. And many of the larger policies, as you will know, renew either the 1st of January or end of March, beginning of April. from as far as the the business interruption estimates are concerned what you see is that our business interruption estimates have actually not changed and what you're seeing is the benefit of frequency coming through in the numbers which I think Jason outlined. Jason on the on the...

I think what they've had in my script I'll just go over again and you know we aim to have a billion minimum in group treasury but Thank you.

and you have one more question from the line of Stephen Hayward from HHEC.

Thanks very much. I just wanted to ask a couple of quick questions please. On the misapplied French solvency rule, could you tell me what the impact was on the actual French local solvency ratio please? And then secondly, on the assumptions you have in your solvency ratio about credit downgrade defaults and UK property, Can you provide an update on the actual experience performance versus your assumptions and whether or not there's potential for these assumptions to be improved in the future?

Thank you very much.

I'll take the second first if I may. So on the on the downgrade assumption we kept that in at Q3 as I said it was something like 10% of triple Bs and 5% of As that were downgraded. That stayed in. We've seen about 7% in the first nine months of the year. So I think it's actually reasonably prudent now. We've started to see agencies catch up, and I think that will bring us up with events probably by the year end that we won't need to have overlays, but really we'll take our decisions carefully. On the French side, what we've disclosed today is the impact on the group. Two points, insolvency there. We aren't providing the disclosure in France. What I can say is it was a specific issue to France and the French subsidiary does remain well capitalized and we don't expect any capital needs in the French side as a consequence of this. Okay, thanks for the update.

Thank you. I think that's the end of the questions. So with that, I just want to thank you all for all of your questions this morning and for listening. Jason and I really appreciate it and hopefully at some point we'll actually get to physically see you. But thank you very much.

Thank you. That does conclude today's presentation. Thank you all for joining. You may now disconnect.