Aviva PLC

Good morning, everyone. Thank you all for joining us for our half year results presentation, whether you're in the room or online. As always, I'll start today with an overview of our first half performance and an update on the strategic progress that we're making. I'm then going to hand over to Colin before wrapping up and moving on to Q&A. So let's start with the results. As you will have seen from the numbers, we've had a very strong first half and we have momentum. Aviva is growing. Value of new business is up 13%. Groceries and premium is up 6% and we've had £5 billion worth of net flows into our wealth business. Costs are down 2% as we maintain our focus on cost discipline and efficiency and profitability is improving. Own funds generation is up 46% and operating profit is up 14%. and we've delivered an excellent overall combined operating ratio of 94% despite the impact of inflation which demonstrates the benefits of the scale and diversification of our general insurance business. Finally, cash generation is good with almost 800 million pounds worth of remittances delivered in the first half and plenty more to come in the second half. These results are testament to the progress that we've made over the past two years in simplifying the business and building resilience. We now have a focused portfolio of high-quality, market-leading franchises. And importantly, we're emphasizing a stronger performance culture that I believe is driving tangible improvements. I think the results speak for themselves. So we're growing in insurance, we're growing in wealth and we're growing in retirement. In insurance we've achieved double-digit growth in commercial lines and we've showed discipline in personal lines where we anticipated the impact of inflation and we priced appropriately. A very strong performance. Health and protection was up 5% with solid performances in group protection and across our health business. In wealth, we've delivered a robust performance considering the very tough market conditions with net fund flows of £5 billion, representing 7% of opening assets under management. And we maintain stable net flows year on year in our workplace business. In retirement, volumes in annuities and equity release are up 12%. And we've seen continued activity in bulk purchase annuities in July with a positive outlook for the remainder of the year. UK and Ireland value of new business growth of 13% was driven by a 50% increase in annuities and equity release as BPA margins improved compared to the first half of last year. Now we know we're facing into very challenging macro environment but we have strong momentum and I have real confidence in the outlook for the remainder of 2022 and beyond. So turning now to capital. Our capital position remains very strong and Colin will go into this in more detail later. But our pro forma coverage ratio of 213% means we currently have significant headroom above our 180% target level. We also have healthy centre liquidity supported by sustainable cash generation from our businesses. Our asset portfolio is well positioned with diversification across asset classes, strong credit ratings and low loan to value in our commercial mortgage portfolio. Today we are announcing an interim dividend of 10.3 pence per share which is in line with the full year guidance that we have given and reflecting our confidence in the strength of the business and the underlying cash flow. Beyond our ordinary dividend there is also scope for additional capital returns. I've been clear on how we think about surplus capital, but let me repeat it again now. Surplus above 180% is available for investment in the business and or tactical bolt-on M&A to drive further growth. The bar for both is, as I've always said, high. But we will move if we identify the right opportunities, as we did with the recent acquisition of Succession Wealth and Azure's high net worth business. But where we can't achieve sufficient value through reinvesting in the business or through M&A, surplus capital will be returned to shareholders over time. So as we announced this morning that we anticipate returning further capital to our shareholders following the year end via a new share buyback programme which will of course be subject to market conditions and regulatory approval. And our preference is that the returns of surplus capital will be sustainable and regular over a number of years. But before you all get your calculators out, as Colin will explain, a significant element of the improvement in our capital is derived from short-term market movements, especially in interest rates. So we will need to be thoughtful and prudent about the appropriate amount and cadence of that capital return in this context. So moving on to our strategic priorities. In March this year, we set out our plan to transform the performance of Aviva. And while the world has changed significantly since then, our strategy has not. Despite the very real macro challenges, we believe that our direction is still the right one. And we've been busy delivering on the four strategic priorities. To remind you, they are customer, growth, efficiency and sustainability. And with the progress and momentum that I've already highlighted, I'm confident that we remain on track to deliver on the higher cash generation, own funds generation and cost reduction targets that we set out in March. So let's just review each of these four priorities in a bit more detail. Putting customers first is absolutely central to our strategy. We want more of them to stay with us for longer so that we can look after more of their needs and do that brilliantly. Only Aviva, with our unique model and our breadth of capabilities, can do that. We're supporting our customers. In February this year we had three storms in one week in the UK, receiving over 19,000 claims. We mobilised all of Aviva, including Canada, to manage these as quickly as possible, settling 10% of claims on the day. That's when Aviva are in action and it makes a real difference for our customers. We've made over 100 improvements to MyAviva and Aviva Connect and had half a million new MyAviva registrations in the last 12 months. This is good news because these customers are twice as likely to buy a second policy from us. and we are seeing the benefits of our actions in our ability to grow our franchise. We have 18.5 million customers, including over 15 million in the UK. In the first half, we've added over 150,000 customers in workplace alone and benefited from strong customer retention across our key lines. And finally, our progress is being recognised by our customers and intermediaries as evidenced by our results, the multiple awards and our number one ranking with brokers and IFAs. Now moving on to growth. Our strong revenue performance is a result of our simpler, more focused business and we benefit from scale and diversification which underpins our profitable growth as a group. But we can't rely purely on existing revenue streams. We're actively exploring new growth opportunities. In commercial lines, we've increased underwriting capacity for regional brokers and extended digital trading in the UK. In Canada, we've launched a multinational proposition for Canadian-owned businesses. We've extended our partnership with TSB to offer home and travelling insurance to TSB's 5 million UK customers. Aviva Zero, our new green motor proposition in UK motor with inbuilt carbon offset launched in March and has already sold over 10,000 policies and is growing exponentially. In wealth, we've enhanced our master trust proposition and launched open banking functionality. And there are many more innovations and growth initiatives in the pipeline. So we should turn now to the important topic of efficiency. Our growth has to be controlled and efficient. First half, controllable costs fell 2% as we maintained our cost discipline. With inflationary pressures high across the world, it's tougher to keep up net cost reduction, but we remain ambitious. We're simplifying customer journeys, reducing property costs, outsourcing in Aviva Investors, streamlining our IT and our product set, and all of those things generate efficiencies. We have taken all of the actions necessary to meet our previous cost reduction target by the end of this year. And we are now very focused on delivering the £750 million target that we announced in March. and we also remain committed to delivering top quartile efficiency for our customers and realizing more of the benefits of scale. All of this points to a new and permanent culture of operational efficiency that we are embedding across the group. So finally on sustainability, we're now ranked fifth amongst global insurers by Sustainalytics, which is well ahead of our UK peers. Aviva Investors has upgraded 88% of its European funds to meet the EU's sustainable product definition. That's around £50 billion worth of assets under management. And we're supporting our customers, communities and colleagues as the UK wrestles with financial inclusion and the worst cost of living crisis in decades. We have committed £15 million to community investment to provide advice and support to vulnerable people and vulnerable businesses. We continue to make it easier for our customers to protect themselves by providing affordable but robust product options and extending premium deferrals. And we are supporting 7,000 of our colleagues with a one-off payment to help them with rising energy costs. so it's been a strong start to the year but we don't operate in a vacuum we know that it is tough out there but we have excellent momentum and the benefits of our scale and diversify portfolio give us confidence that we can deliver for the remainder of the year and beyond we're doing what we said we would do one quarter one customer at a time so now I'm going to hand over to Colin and he's going to take you through the financials in more detail oh my gosh

Excellent. Thank you, Amanda. And good morning, everyone. It's great to be back in London for another results presentation, although it was a little easier from the audience. As Amanda explained, these results validate our strategy. We're focused enough to generate strong performance where we operate and sufficiently diversified to withstand challenges in any one particular line. Importantly, our balance sheet is strong. We've had an excellent first half. Owned funds generation is up 46% to half a billion pounds. Operating profit is up 14%, with underlying up even more, and controllable costs are down 2%. Our capital position has improved during the second quarter to 234%, 213 on a pro forma basis, and center liquidity is 2.7 billion pounds, improved by cash remittances during the period of 800 million pounds. From a trading perspective, revenue growth is strong, with LIFE VNB up 13%, £5bn of Wealth Net Flows and General Insurance Gross Written Premium up 6%. Profitability is also attractive, with LIFE Owned Funds Generation up 51% and a General Insurance Combined Operating Ratio of 94%, particularly positive when you take into account the impact of claims inflation. Let me start with our capital position, because that underpins our commitment to our customers and shareholders. We started the year with a 244% solvency-to ratio. We paid shareholders over £4 billion in B shares and dividends, but importantly, we've generated half a billion pounds of operating capital. The real kicker to our solvency ratios come from market movements, as interest rates, spreads and forex have pushed up our cover ratio to 234%. When you take into account the billion pounds of committed debt reduction, payment into our staff pension scheme, and the consideration for succession wealth, our pro forma ratio falls to 213%, which is clearly materially above our 180% target. Consequently, and as we have announced today, we intend to consider returning further capital to our shareholders and expect to announce a new buyback program with our full year results, subject of course to market conditions and regulatory approval. I would further caution that in determining the level of buyback, we will also need to evaluate how much of the surplus created by market movements is appropriate for distribution. As Amanda said, we will be prudent when it comes to distributing capital created by market movements. While I expect return of capital to be of interest today, as a management team, we're really focused on return on capital. Profitability is improving, capital-like products are growing faster than capital-intensive ones, and we continue to right-size our capital base. UK Life had a single-digit return on capital in the first half of the year, but historically, BPA origination and our actuarial assumption review has typically led to a more profitable second half. We expect the same in 2022. Canada is our highest return business pre-diversification benefit. Post-diversification, the return is even higher. Today, we're reporting a 10.9% group return on equity post-leverage and diversification. And if we exclude our heritage business, which is low return on capital but a sizable cash generator, the return increases to 12.3%. For a group trading around Solvency II book value, we believe this offers investors significant value. While it has been a strong capital generating period for Aviva, we are not oblivious to the deteriorating economic conditions. We have a large balance sheet with significant credit exposure that we manage actively and prudently. Bear in mind that we have been operating under difficult economic conditions for some time and our asset risk is completely different following the sale of our European businesses. You can see from this slide that our largest asset class is corporate credit, of which 87% is externally rated investment grade and 13% internally rated. We have a long history in private debt with a robust internal credit rating model and these internally rated assets are secured loans with an average rating of single A quality. Over the past six months we've seen very few credit downgrades but obviously what happens next is most important. We're monitoring the portfolio closely and maintain significant credit provisions. Another area of focus is commercial mortgages where we have a seven billion pound portfolio. As a reminder, we've been offering commercial mortgages for decades and typically enter into long duration, fixed rate contract, posing limited refinancing risk to our borrowers. Our experience gives us an advantage in origination and management, and we've been actively restructuring this portfolio in years, which has significantly improved our loan to value ratio, which you can see from the slide. I'm sure you'll also be interested in how inflation affects us, and again, we've been monitoring this closely. Of our £260 billion of insurance liabilities, the vast majority are either unit-linked or fixed payout, with no inflation risk to shareholders. In the UK life business, we have £26 billion of inflation-linked liabilities which are matched by inflation-linked bonds. In general insurance, there is a clear inflation risk, but nobody is surprised by that at Aviva. In UK Motor, used car prices have increased around 30% in the second quarter, and we've seen double digit increases in repair costs, resulting in a spike in motor claims of around 12%. Now across the broad range of products distributed in the UK, inflation is running at 7-9%, with higher inflation and physical damage. We've been racing ahead of inflation, which has seen us lose volume with our retail motorbook down 4%. This same book of business had a 97% combined ratio. In other words, we shrunk into a deteriorating market where we could not achieve our required return on capital. In Canada, injuries are a bigger component of payout and policy limits do contain inflation to some extent. And across both Canada and the UK, we're seeing lower injury inflation compared to physical damage. But it is too soon to give the all clear on injury. And you can expect us to stay very close to trends in this area. Importantly, across our general insurance portfolio, we have re-evaluated trends for inflation and, where necessary, adjusted reserves for business already written. We have increased prices for new business. My final point on this slide is on outstanding debt. Following our £500 million debt raise in June, we could go till 2024 without refinancing. In a volatile market of higher rates and wider spreads, this is a good place to be. So overall, as a group, we're not particularly sensitive to inflation. Now onto the businesses. Our largest business of UK life, led by Doug Brown, has three clear revenue generating areas of insurance, wealth and retirement. In protection and health, sales are up 6%. Individual protection is down 7% as a result of the more subdued housing and investment markets, but group protection is up 31% and health up 8%. Our wealth business has £140 billion of assets under management and during the period we added £5 billion of net flows, mostly through workplace, which is benefiting from low unemployment and wage inflation. Our resale platform business still generated £2.3 billion of net flows, but recent flows are lower, reflecting volatility and the cost of living challenges on our customers. and in retirement, we wrote 1.9 billion pounds of bulk purchase annuities in the period on higher margin. Individual annuities continue to trend lower, but with higher interest rates, we could see stabilization if not growth in this product line. And equity release has grown 27%, reflecting an enhanced proposition and the current economic conditions. The team has done an excellent job on efficiency, reducing costs by 6% in difficult conditions. We've spoken a bit about our general insurance business already, our UK general insurance business already. We've managed volume in personal lines during a difficult period and grown into the hard market of commercial. Our personal lines combined ratio is 97% and commercial lines 94%. We're seeing the benefits of higher reinvestment rates flow through into operating profit and where this turned out to be broadly in line with long-term average after a difficult start to the year. and what is a challenging retail market, Adam Winslow and his team are managing the cycle and delivering an attractive return on capital. Going forward, it appears that the motor market is showing signs of hardening and we're still seeing attractive conditions in commercial lines. Moving to our Canadian business, led by Jason Storer, performance share continues to be very strong. Gross written premiums are up 6% in local currency, 12% in sterling. Calls of 94% in personal lines and 87% in commercial reflect relatively benign weather and the attractive position we find ourselves within the cycle. While Canada has generated more profit than the UK and Ireland, the cycle and weather are more extreme, leading to potentially more volatility. The underlying cause of the two businesses are actually not that far apart and as a group we produced a 93.7% underlying combined ratio Aviva Investors' profits do not reflect the progress being made within the business as Mark Versi and his team continue to focus on sustainable investment while improving efficiency The various disposals have impacted funds under management, but in very difficult conditions for the asset management industry, we have generated positive external fund flows. Excluding one of costs, we have also maintained profit levels. Importantly, Aviva Investors remains on track to deliver its illiquid origination targets for the year, supporting our growth ambition in the UK bulk purchase annuity market. Now before I hand back to Amanda, let's take stock of our external targets and progress towards them. With strong solvency and operating performance, we're confident in hitting our remittance and capital generation targets. Costs are down 2% and while inflation is a major headwind, we're focused on reducing £750 million of costs by 2024. Our dividend is in line with our commitment and today we're letting you know of our intention to return more capital through a share buyback program. We're behind on our 10% growth ambition and wealth net flows, but well ahead in VMB growth. Our better than 94% combined ratio target looks within our grasp, probably a bit sooner than we expected. All in all, Aviva has made excellent progress, but there's still so much more to go for. Back to you, Amanda.

Thanks Colin. So before we get to Q&A, let's just take a quick moment to wrap up. We've had an excellent start to the year. Aviva's growing, costs are down, profitability is improving, and cash generation is good. But we know it's a difficult environment out there. However, I do strongly believe that we are best positioned because we do have leading franchises. We have a formidable brand and we have the combination of insurance, wealth and retirement which clearly brings benefits as is evidenced by the numbers that we are reporting today. We have the right strategy to unlock the unique advantages of our model, whether that's across the customer scale, the diversification, and I believe we're executing on that. And finally and importantly, our balance sheet is strong and resilient. We've set out an attractive dividend and capital management framework and shareholders have the prospect of additional capital returns. but we do believe this is just the beginning. There's such a lot to still go for to satisfy our big ambitions. So we have the strategy, we have the leadership, we have the people in place to deliver on Aviva's promise like never before. So thank you for listening. I'm sure there are lots of questions. So we're going to move to Q&A. Now we have some people on phone lines and obviously some people in the room. So please, if you are an analyst dialed in on Teams, can you click on the raise your hand button if you would like to ask a question, which I'm sure we're all more than familiar with. And when we call your name, you'll need to unmute your line to speak. But first, I am going to start In the room, so just give me a moment to just get sat down and we will start with questions in the room. So please, when you lift your hand, can you say who you are and where you're from? That's more for the benefit of the people online. So Farooq, can I start with you, please?