Insurance Excellence in UK P&C Igal Mayer, Chief Executive, Norwich Union Insurance Goldman Sachs European Financials Conference Berlin 2008
Disclaimer This presentation may include oral and written forward-looking statements with respect to certain of Aviva s plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements sometimes use words such as anticipate, target, expect, estimate, intend, plan, goal, believe or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond Aviva s control, including, among other things, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by the Aviva Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Aviva and its affiliates operate, as well as the other risks and uncertainties set forth in our 2007 Annual Report to Shareholders. As a result, Aviva s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva s forward-looking statements, and persons receiving this presentation should not place undue reliance on forward-looking statements. Aviva undertakes no obligation to update the forward-looking statements made in this presentation or any other forward-looking statements we may make. Forward-looking statements made in this presentation are current only as of the date on which such statements are made.
European Financials Conference: Climbing a wall of uncertainty
An increasingly global company 60 billion Sales 30 billion 3% 5% 24% 34% 34% Asia Pacific North America 10% UK GI UK life Europe FY 2007 sales 49bn (1) 9% 25% 12% 29% 40% General Insurance 75% Long Term Savings FY 2000 (1) 2007 total long-term savings new business sales and G.I. and health net written premiums FY 2007
One Aviva, twice the value Purpose Prosperity & peace of mind Vision One Aviva, twice the value Purpose Vision Strategic priorities Manage composite portfolio Build global Asset Management Allocate capital rigorously Increase customer reach Boost productivity Targets 98% meet or beat COR Long Term Savings growth targets 350m cost savings by end 2009 Double IFRS EPS by 2012 at the latest 1.5 2 x dividend cover 12.5% ROCE Group strategy and targets Asset Aviva Management Investors Globally integrated business Transform the investment model Increase third party business UK Market leadership Address legacy Transform business model Exploit UK synergies Generate capital Europe Scale, growth, capital Seize unique growth opportunities Leverage scale Generate capital N. America Double scale Focus: top 5 in chosen segments Integrate '07 Expand products, distribution 08+ Asia Pacific Scale, growth Prioritised portfolio Regional operating model Investment required Regional / BU strategies
Our priorities: realising the potential of One Aviva Our purpose The leading UK P&C insurer Purpose Vision Capital generator for the group UK Strategic priorities Targets Our priorities iti Delivering across the cycle: Market leadership Address legacy Transform business model Exploit UK synergies Generate capital UK Europe N.America Asia Pacific - Expense management - Building core insurance capability - Flattening the impact of claims inflation - Winning customers & brokers A Focus on Insurance Excellence
The UK market leader Rest of Market 37.6% HBOS 2.5% BUPA 3.4% Allianz 4.0% Source: Datamonitor 2007 AIG 5.2% Aviva 14.4% Zurich 5.6% AXA 6.5% RBSI (including Direct Line) 12.3% RSA 8.5% Consolidated market top 6 insurers have over 50% market share Aviva is the largest P&C insurer in UK Top 1 or 2 position in all our major classes Unique business model - Balanced mix of personal and commercial - Multi-distribution - Powerful brands Consistently delivering performance - 98% or better COR since 2004 1-3.9bn operating profit over last 5 years (1) Excludes impact of 2007 summer floods Our composite model and scale delivers market advantage
Unparalleled distribution reach DIRECT BROKERS PARTNERS 3,000 brokers Banking Retail Affinity Powerful brands #1 in the SME market Insurer of the year 2003 to 2007 over 100 others Leading shares in each channel
Forward Focus: Insurance Excellence Retailer Insurer Historical retail focus to build distribution
Forward Focus: Insurance Excellence Insurance excellence Building core insurance capability Expense management & scale benefits Retailer Insurer Operational excellence & customer service Pride and passion for insurance Focus on the fundamentals
Insurance Excellence: A New Operating Model Sales and Operations Marketing Underwriting, Pricing and Product Support Functions Simplified structure
Insurance Excellence Expense management - the promise of scale UK best of breed expense ratio 1 applied to NUI channel / product mix Personal Lines NUI Expenses UK Best of Breed Best of Breed Co. 2 Motor 16.1% 12.3% Property 11.0% 9.7% Creditor 1.3% 1.3% RAC Rescue 27.5% 27.5% Commercial Lines Motor 13.8% 8.2% Property 16.3% 15.2% Liability 11.6% 11.6% Direct Line, Fortis Direct Line, NU NU NU Brit Axa NU NUI Total 13.9% 12.0% Source: FSA Returns (2006) (1) Expense ratios exclude CHE and commission (2) Based on leading cost performance in channel, weighted to reflect NUI mix Ambition to deliver industry leading expense ratio
Insurance Excellence Expense management - the promise of scale Inflation and one-off Costs 11 (38) (125+) Programme 1: Prioritisation and focus e.g. 76m reduction in marketing spend (200) 33m reduction in IT costs Expense ratio 13.9% 52m less change activity Total 200m savings already in train for 2008 Expense ratio 12.4% Expense ratio reduced from 13.9% to 12.4% 3 Starting RAC 2006 C&E Prog. 1 2008 point integration 2 savings (1) e.g. Investment in brand and technology, VAT on offshoring and pre-contracted property and IT costs (2) Over and above c 60m in 2006 (NB: 54m additional benefits outside overhead cost base) (3) Additional benefits exist outside overhead cost base Ambition to deliver industry leading expense ratio
Insurance Excellence Expense management - the promise of scale Inflation and one-off Costs 11 (38) (125+) Progress has been good: (200) 114 less senior managers than last year simplifying our business Expense ratio 13.9% IT project spend halved Expense ratio 12.4% Marketing campaigns consolidated 3 Starting RAC 2006 C&E Prog. 1 2008 point integration 2 savings (1) e.g. Investment in brand and technology, VAT on offshoring and pre-contracted property and IT costs (2) Over and above c 60m in 2006 (NB: 54m additional benefits outside overhead cost base) (3) Additional benefits exist outside overhead cost base Programme 1: Confident in our delivery
Insurance Excellence Expense management - the promise of scale Inflation and one-off Costs 11 Expense ratio 13.9% (38) (125+) (200) Further activity planned to realise ambition Programme 2: Re-engineering service and processing centres Dealing with inherited legacy Fewer products from over 70 to under 20 Increasing self service Right first time reduce follow up enquiry by 50% Expense ratio 12.4% 3 Starting RAC 2006 C&E Prog. 1 2008 point integration 2 savings (1) e.g. Investment in brand and technology, VAT on offshoring and pre-contracted property and IT costs (2) Over and above c 60m in 2006 (NB: 54m additional benefits outside overhead cost base) (3) Additional benefits exist outside overhead cost base Programme 2 focus on re-engineering our service offering
Programme 2: Re-engineering service & processing centres Operations Today 2010 End State Vision Glasgow Bishopbriggs Dundee Perth Personal Mixed Commercial Noida Bishopbriggs Perth Personal Mixed Commercial Noida Leeds Belfast Bradford Sheffield Liverpool Manchester Cheadle Stretford Birmingham Leicester Norwich Pune Cheadle Manchester Stretford Leicester Norwich Pune Bristol Basildon Ipswich Southend Bangalore Chennai Southend Bangalore Southampton Exeter Worthing Offshore locations to be confirmed following ongoing commercial negotiations with offshore partners Operational & service excellence
Programme 2: Re-engineering service & processing centres 2010 End State Vision Centres of Excellence Create 7 Centres of Excellence \ 1) PL Sales and Servicing (incl. HNW and IB) 2) Commercial Lines Sales and Servicing 3) Collections 4) Liability and Bodily Injury Claims 5) Personal Motor Claims 6) Commercial Motor Claims 7) Household Claims (incl. Commercial Property) Personal Mixed Commercial Levers Primary Customer Access Channels (As Is / To Be) - Illustrative Contact Channel Web Self service Sales 50% / 60% Servicing 0% / 39% Claims Reporting 0% / 5% Claims Tracking 0% / 30% Direct Telephony 50% / 40% 100% / 61% 100% / 95% 100%/ 70% Bishopbriggs Perth Noida Broker SS EDI Telephony SS ebroking 80% / 85% 20% / 15% 4% / 40% 0% / 5% 100% / 95% 0% / 5% 0% / 30% 100% / 70% 0% / 30% Telephony 96% / 60% 100% / 95% 100% / 70% Cheadle Manchester Stretford Leicester Norwich Southend Bangalore Pune CP Web Self service Telephony 5% / 24% 95% / 76% 0% / 18% 100% / 82% 0% / 5% 100% / 95% 0% / 30% 100% / 70% We will create seven Centres of Excellence to consolidate like functions, simplify processes and drive overall performance to best-in-class standards Offshore locations to be confirmed following ongoing commercial negotiations with offshore partners Operational & service excellence
Insurance Excellence Expense management - the promise of scale UK best of breed expense ratio 1 applied to NUI channel / product mix Personal Lines NUI Expenses UK Best of Breed Best of Breed Co. 2 Motor 16.1% 12.3% Direct Line, Fortis Property 11.0% 9.7% Direct Line, NU Creditor 1.3% 1.3% NU RAC Rescue 27.5% 27.5% NU Aim to be UK low cost producer Commercial Lines Motor 13.8% 8.2% Property 16.3% 15.2% Liability 11.6% 11.6% Brit Axa NU NUI Total 13.9% 12.0% Delivering the promise of scale
Insurance Excellence Building core insurance capability Premium rating leadership Motor rates: 16% Q4 2006 Household rates: 10% Q3 2007 Commercial rates: 5% November 2008 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% Commercial Lines Trends Progress being made but market conditions are still tough 3.1% 1.6% 1.1% Liability Property Motor ZERO Demonstrating leadership in the market
Insurance Excellence Flattening impact of claims inflation 0 % Impact of claims initiatives on inflation (Major Classes) Personal Motor Household Commercial Motor Commercial Property Commercial Liability Underlying Inflation Inflation after Benefits Commercial Motor - Average Settlement Cost 2000 2001 2002 2003 2004 2005 2006 2007 Track record of delivering significant cost reduction 2007: Delivered > 75m benefit 2008 plans in train to deliver 100m+ of sustainable benefits across: bodily injury costs recoveries credit hire bill claims settlement Efficiency makes it easier for our customers Flattening the impact of inflation through to 2010
Insurance Excellence Winning customers & brokers Customers Summer floods 2007 50% by Xmas, 80% by Easter World class 80% net promoter score in RAC Re-launch our flagship, Norwich Union Direct Brokers Insurer of the Year five years running Grew file count in a shrinking 2007 market Clear commitment to independent brokers Will sign up to deals based on sustainable, long term models Winning in a highly competitive market
Offshore locations to be confirmed following ongoing commercial negotiations with offshore partners One Aviva, twice the value Retailer Insurer Sales and Marketing Underwriting, Pricing and Product Operations Support Functions Bishopbriggs Perth 2010 End State Vision Personal Mixed Commercial Noida Create 7 Centres of Excellence 1) PL Sales and Servicing (incl. HNW 4) Liability and Bodily Injury Claims \ and IB) 2) Commercial Lines Sales and Servicing 5) Personal Motor Claims 3) Collections 6) Commercial Motor Claims 7) Household Claims (incl. Commercial Property) Primary Customer Access Channels (As Is / To Contact Channel Sales Servicing Claims Reporting Claims Tracking Be) - Illustrative Web Self service 50% / 60% 0% / 39% 0% / 5% 0% / 30% Direc t Telephony 50% / 40% 100% / 61% 100% / 95% 100%/ 70% SS EDI 80% / 85% 0% / 5% 0% / 30% Telephony 20% / 15% 100% / 95% 100% / 70% Brok er SS ebroking 4% / 40% 0% / 5% 0% / 30% Telephony 96% / 60% 100% / 95% 100% / 70% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Cheadle Manchester Stretford Leicester Norwich Pune CP Web Self service Telephony 5% / 24% 95% / 76% 0% / 18% 100% / 82% 0% / 5% 100% / 95% 0% / 30% 100% / 70% -4.0% -6.0% -8.0% Southend Bangalore Liability Property Motor ZERO
Offshore locations to be confirmed following ongoing commercial negotiations with offshore partners One Aviva, twice the value Retailer Insurer Sales and Marketing Underwriting, Pricing and Product Operations Support Functions Bishopbriggs Perth 2010 End State Vision Personal Mixed Commercial Noida Create 7 Centres of Excellence 1) PL Sales and Servicing (incl. HNW 4) Liability and Bodily Injury Claims \ and IB) 2) Commercial Lines Sales and Servicing 5) Personal Motor Claims 3) Collections 6) Commercial Motor Claims 7) Household Claims (incl. Commercial Property) Primary Customer Access Channels (As Is / To Contact Channel Sales Servicing Claims Reporting Claims Tracking Be) - Illustrative Web Self service 50% / 60% 0% / 39% 0% / 5% 0% / 30% Direc t Telephony 50% / 40% 100% / 61% 100% / 95% 100%/ 70% SS EDI 80% / 85% 0% / 5% 0% / 30% Telephony 20% / 15% 100% / 95% 100% / 70% Brok er SS ebroking 4% / 40% 0% / 5% 0% / 30% Telephony 96% / 60% 100% / 95% 100% / 70% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% Cheadle Manchester Stretford Leicester Norwich Pune CP Web Self service Telephony 5% / 24% 95% / 76% 0% / 18% 100% / 82% 0% / 5% 100% / 95% 0% / 30% 100% / 70% -4.0% -6.0% -8.0% Southend Bangalore Liability Property Motor ZERO Building Aviva from the inside
One Aviva, twice the value Outlook UK GI cash generator to fuel global growth Progress to date 200m cost savings in train More to come Rates Motor / home Commercial = >inflation = positive territory Commitment remains to 98% of better globally Insurance Excellence
Insurance Excellence in UK P&C Igal Mayer, Chief Executive, Norwich Union Insurance Goldman Sachs Insurance Conference Berlin 2008