The FINANCIAL -- Andrew Moss, Aviva’s group chief executive, commented:
"In the fourth quarter we increased sales across all our regions and saw the first signs of an improved appetite to save among our customers. European bancassurance was particularly strong.
"In 2009 as a whole we have successfully managed new business to ensure the right balance between volume, capital efficiency and profitability. This means we have deliberately foregone sales in some areas.
"We also achieved a number of important milestones in the final three months of the year, in particular the IPO of our Dutch subsidiary, Delta Lloyd, building further momentum in the delivery of our ‘One Aviva, twice the value’ strategy.
"We start 2010 in a strong position. Our focus remains on growing our business profitably and improving our operational efficiency so that we can fully benefit as our major markets return to economic growth."
Overview
Aviva made substantial progress in 2009, building momentum in the delivery of our "One Aviva, twice the value" strategy. We concluded the successful IPO of Delta Lloyd, simultaneously monetising some of the value of our shareholding and updating the governance arrangements at our Dutch subsidiary. We completed the sale of our Australian business and are just concluding the payment of £0.5 billion to policyholders in the reattribution of the UK inherited estate.
"Against the backdrop of tough market conditions Aviva has also delivered a robust sales performance, with total long-term savings new business of £36 billion, having managed new business flows with a strict focus on capital efficiency and profitability. In addition, we have significantly strengthened our capital position with an estimated IGD solvency surplus at the 2009 year-end of £4.5 billion," Aviva informs.
Sales in the fourth quarter were encouraging and we saw an improvement in customers’ propensity to save. Life and pensions sales were higher in all regions compared to the previous quarter, with a particularly strong performance in both bancassurance and retail channels in Europe.
Aviva is in a strong position at the start of 2010. We remain focused on growing our business profitably and improving our operational efficiency. This, together with our strong capital position and customers’ clear preference for brands they can trust, means that we will be well positioned as our major markets return to economic growth this year.
Long-term savings
United Kingdom
Throughout 2009 Aviva’s UK Life business has continued to follow a consistent strategy of proposition development, improving operational efficiency, enhancing customer and distributor service levels and disciplined financial management.
Exceptional economic conditions have impacted consumer confidence and reduced activity across the UK market. Against this backdrop, life and pension new business sales were £8,914 million (2008: £11,858 million) with collective investment sales of £1,049 million (2008: £1,485 million) and, while remaining focussed on profitability, we have marginally improved our life and pension market share to 10.6%1 (Q3 2008: 10.5%). An encouraging performance has been seen in the fourth quarter of 2009, with life and pension sales growing 17% and collective investment sales growing 96% over third quarter levels.
Life and pension sales through our joint venture with the Royal Bank of Scotland grew by 3% to £1,246 million (2008: £1,211 million) underpinned by over 10% growth in both pension and core protection sales compared with previous year.
Total pension sales were £3,752 million (2008: £4,753 million) with the fall due, in part, to the reduced number of large schemes written compared with the same period last year. The pension market has continued to be impacted by lower consumer confidence, limited salary increases and higher unemployment, resulting in falls in both increments and group scheme membership. Significant progress has been made in improving our pension proposition, with our innovative market-leading Pension Tracker being one of the reasons we were recognised as Pension Provider of the Year at the 2009 Personal Finance Awards.
At the end of 2009 we reopened our Wrap and Sipp platforms to new business and we see this as a key platform for growth going forward.
Sales of protection products (excluding creditor) were £940 million (2008: £890 million). Growth has been driven primarily by our on-line Simplified Life proposition which has played a major part in delivering, in the fourth quarter of 2009, our highest level of quarterly sales in the last two years. Overall protection sales (including creditor) were lower at £965 million (2008: £1,126 million), driven by the impact of the regulatory changes affecting creditor business.
Total annuity sales were lower at £1,897 million (2008: £2,433 million) due to lower bulk purchase annuity volumes of £175 million (2008: £826 million) as we remain resolute in achieving a minimum level of return. Sales of individual annuities were 7% higher at £1,722 million (2008: £1,607 million) reflecting our ability in a contracting market to provide an annuity income, using our market-leading pricing capability, which takes account of customers’ individual circumstances. New applications almost trebled during 2009 and the fourth quarter saw record new business volumes. Further refinement of our postcode pricing approach will allow us to build on this momentum in 2010.
Equity release sales have increased to £276 million (2008: £250 million). While a number of other providers have exited this market we recognise that it plays an important part in the retirement plans of customers and we remain fully committed to retaining this proposition as part of our product offering.
Bond sales were £2,024 million (2008: £3,296 million). The reduction compared with 2008 is in line with our focus on value driven by our commission reductions and the withdrawal of the Inflation Protected Guarantee option. We have delivered new propositions, including the recent launch of a With-Profit Guaranteed bond, and increased the fund choice on our Investment Portfolio bond.
The reattribution of our inherited estate began on 1 October and is now almost complete. We received an overwhelmingly positive response with more than 87% eligible policyholders voting, and 96% voting in favour of the offer. Over 90% of the 740,000 cheques issued so far have been deposited.
"We expect the market to remain tough in the short-term as the impact of the recession continues to influence demand for investment and savings products, but the strength of our brand, broad product range and distribution reach have left us well placed to continue driving growth," Aviva says.
Europe
In 2009, our European business, including Delta Lloyd, achieved a robust sales performance despite challenging market conditions across the region. Long term savings sales were 6% up at £18,704 million (2008: £17,716 million), a reduction of 2% on a local currency basis. Life and pensions sales were in line with prior year at £17,188 million (2008: £16,952 million), a 6% decrease on a local currency basis.
As we announced in October 2009, our strategy in Europe is two fold: firstly to make a "Quantum Leap" in the performance of Aviva Europe, creating one market leading pan-European business from 12 federated businesses, and secondly the strategic management of our subsidiary Delta Lloyd, where Aviva now holds a 58% stake having raised €1.1 billion total gross cash proceeds following the IPO in November 2009.
Aviva Europe
In 2009, Aviva Europe achieved an excellent sales performance in the context of an extremely difficult market environment with volatile equity markets and property market uncertainty. Life and pensions sales were up 5% at £13,523 million (2008: £12,855 million) and were broadly in line on a local currency basis. Excluding the one-off items in 2008 relating to the transfer of the Caja Murcia risk portfolio and the initial contributions from compulsory pensions in Romania, sales were 11% higher on a sterling basis and were 4% up on a local currency basis. In 2009, fourth quarter sales of £3,753 million were 39% higher than those achieved in the third quarter, reflecting improvements in customer confidence and the diversity of our products and distribution channels.
We have made significant progress in our migration to a single Aviva brand. From January 2010, we have operated as Aviva in Ireland and we will complete our brand migration programme in June when we will operate as Aviva in Poland.
We have delivered a strong bancassurance performance through responding to customers’ needs by offering innovative guaranteed products, and our retail sales performance is improving with our partnership with AFER, a leading savings association in France, achieving record sales. Our focus on new business profitability means that we took actions, in both distribution channels, on product mix and product design which have helped us to offset the impact of customer preferences for more capital intensive products such as savings with guarantees.
Bancassurance
We continue to exploit our leading and unique bancassurance franchise, which is the major component of our businesses in Italy and Spain and is also strong in France and Ireland.
Sales increased by 14% to £7,146 million (2008: £6,266 million), a 5% increase on a local currency basis. Excluding the one-off transfer of the Caja Murcia protection portfolio of £170 million in 2008, bancassurance sales were up 8% on a local currency basis. This is a strong performance as bank partners continue to recognise the value of this revenue stream.
Bancassurance sales in Italy increased by 63% to £3,285 million (2008: £2,021 million), a 47% increase on a local currency basis. This growth reflects strong sales of with-profit guaranteed products driven by active marketing campaigns in the early part of the year. Protection sales increased by 54% supported by our partnership with Banco Popolare created in 2008.
In Spain, bancassurance sales were in line with the prior year at £2,209 million (2008: £2,206 million), a 9% decrease on a local currency basis. Excluding the Caja Murcia transfer in 2008, sales are broadly level on a local currency basis. Sales in the fourth quarter increased by 103% over third quarter levels, with a strong uptake in pensions driven by marketing campaigns at the end of the Spanish tax year.
Bancassurance sales in France increased by 27% to £1,141 million (2008: £898 million), a 15% increase on a local currency basis. Through offering competitive and simple guaranteed return products, our partnership with Credit du Nord has capitalised on customers transferring their savings from short-term deposit products into more attractive insurance products. Unit-linked bond sales were impacted by uncertainty in the financial markets in 2009, but started to increase towards the end of the year with improving customer confidence.
Bancassurance sales in Poland were significantly lower than 2008 due to the large volumes of short-term endowment policies sold through Deutsche Bank as a special promotion in 2008.
Retail
We continue to build on our significant retail franchise as we develop a single pan-European retail operating model with common tools and methods supported by centralised sales support. The retail network is the predominant sales channel for our businesses in France and Poland, and is also strong in Ireland.
Retail sales were 3% down at £6,377 million (2008: £6,589 million), a 7% decrease on a local currency basis. In 2008, we benefited from £545 million of one-off initial contributions from the launch of compulsory pensions in Romania. Excluding these, retail sales were in line with the prior year on a local currency basis.
In France, retail sales performance was strong, up 26% to £3,750 million (2008: £2,982 million), a 14% increase on a local currency basis. Our partnership with AFER continues to be extremely successful with our range of simple, easy to understand products. AFER is a highly trusted savings association and has increased sales by 41% growing its customer base by 5% to 712,000 in 2009.
In Poland, retail sales were down 24% to £1,061 million (2008: £1,401 million), a 17% decrease on a local currency basis. The sales total for the fourth quarter of 2009 includes a positive benefit from changes to assumptions for average policy duration. Within the year, pension volumes reduced as these products become less attractive for providers and distributors as a result of recent Polish pension legislation changes. Further pension legislation proposals from the Polish government are expected in 2010 and we are actively engaging with the regulator as proposals are developed.
Retail sales in Ireland reduced by 2% to £636 million (2008: £646 million), an 11% decrease on a local currency basis. This reflects the poor economic climate, which impacted the Irish life insurance industry as a whole and an increasingly competitive marketplace.
Investment sales in Aviva Europe were up significantly on 2008 at £852 million (2008: £460 million). Consumer sentiment improved over the course of the year, with a softening of customers' attitudes to investment risk and a consequent transfer of funds into more actively managed products. Our Absolute Tactical Asset Allocation fund was particularly successful in Italy and Spain, supported by focused marketing campaigns. Sales into Global Convertible funds improved, supported by our long established expertise in this area, and we continue to see renewed interest in emerging market bonds.
Delta Lloyd
Life and pension sales through Delta Lloyd were 11% lower than 2008 at £3,665 million (2008: £4,097 million), a 19% decrease on a local currency basis. This was due to lower levels of corporate pension business reflecting reduced activity in this market in the early part of this year. In 2009, Delta Lloyd secured two large corporate pension schemes totalling £372 million compared with five schemes totalling £1,106 million in 2008.
Individual savings sales were also lower, affected by competition from rival bank products since the introduction of "banksparen" products at the beginning of 2008. In 2009, Delta Lloyd also sold £219 million (2008: £38 million) of "banksparen" products2 within its own banking operation. The lower life and pension sales were partly offset by a full year's contribution from Swiss Life Belgium, which Delta Lloyd acquired in June 2008.
Investment product sales more than doubled to £664 million (2008: £304 million) reflecting strong sales of Delta Lloyd’s Euro Credit fund.
North America
In the USA new business sales of £4,545 million (2008: £5,715 million) were 20% lower on a sterling basis and 33% lower on a local currency basis. This reflected our continued focus on increasing capital efficiency by moderating the pace of annuity sales compared to the prior year, growing our life insurance business and our decision not to write funding agreement sales in 2009 (2008: £848 million). Excluding the impact of funding agreement sales written in 2008, life and annuity sales were down 7% over the same period last year and 21% lower on a local currency basis. Our fourth quarter sales have shown positive growth from the third quarter this year, increasing by 45%, reflecting both an improvement in annuity and life sales.
Sales of annuities for the year have decreased by 13% to £3,674 million (2008: £4,244 million), and by 27% on a local currency basis. Sales in the fourth quarter were up 44% over the third quarter sales, with the number of pending applications significantly higher than at the previous quarter end. Customers continue to seek products with guarantees and recognise Aviva as one of the stronger market participants. However, demand for annuities in the first half of the year exceeded our desired production, so we took actions to focus on capital efficiency and ensure that the overall business mix for the year was consistent with our strategic goals.
Life product sales, which mainly include indexed universal life and term assurance products, were 40% higher at £871 million (2008: £623 million), and 19% higher on a local currency basis. This is a strong result when set in the context of a US life market which declined 19% through the first nine months of 2009. Our fourth quarter sales were 47% higher than the third quarter of this year. Our innovative products and actions to build distribution through expansion into the brokerage general agency market and leveraging our existing life and annuity channels provide confidence in our position for future growth.
Asia Pacific
Total long-term savings sales for Asia Pacific were £2,663 million (2008: £3,466 million). Life and pension sales were 21% below prior year at £1,356 million (2008: £1,720 million), 30% lower on a local currency basis, reflecting the impact of the volatile economic environment across the region, which abated towards the last quarter of the year. The fourth quarter sales were also impacted by the sale of the Australian business, which completed on 1 October 2009. Excluding the Australian business, life and pension sales increased by 20% between the third and fourth quarters of 2009 reflecting a positive change in trend and outlook for the region. However for the year, sales for Asia fell by 19% to £1,095 million (2008: £1,351 million).
Our joint venture in South Korea continues to perform strongly with sales of £288 million (2008: £149 million) and now represents 21% of life and pension sales in the region. Sales growth is being led by the bancassurance channel with our partner Woori Bank and its subsidiaries, and the successful growth of our agency force.
Our joint venture in China, Aviva-COFCO, opened its tenth provincial branch ahead of the 2010 target and recorded a 15% increase in sales to £340 million (2008: £296 million), down 4% on a local currency basis, reinforcing our position as one of the top three foreign insurers in the market.
Sales in Singapore, Hong Kong, India and our other Asia markets are lower than 2008 as a result of the uncertain economic environment throughout the year which led to increased investor caution, as well as our decision to scale back on the sale of capital intensive products in a number of our markets, namely Hong Kong, Taiwan and Malaysia, in line with our overall strategy to improve capital efficiency. The steps which we have taken to enhance this efficiency and protect profitability include modifying product mix and product repricing. Lapses and persistency are also key challenges for the industry in the current environment and several initiatives have been launched to increase customer retention, focusing on customer service and product design.
Investment product sales were lower than prior year at £1,307 million (2008: £1,746 million), 32% lower on a local currency basis, as a result of heightened investor caution and lower disposable income throughout the year. Our fourth quarter result was also impacted by the disposal of the Australia life business on 1 October, although sales through Aviva Investors continued in this market. Singapore investment product sales are broadly in line with the prior year due to improving investor sentiment in the latter half of the year.
General Insurance
In our general insurance business we continue to write business for profit not for volume, with the trends in business volumes broadly in line with the first nine months of the year. However, we have seen exceptional weather claims of around £100 million in the final quarter of the year which will impact the combined operating ratio for the full year. This has been driven particularly by the storms in both Ireland, where exceptional claims were around £80 million, and in the UK.
Returning to top-line growth is a priority in our UK general insurance business. Through the year we invested in building the Aviva brand in the UK. This has established us well in customers’ minds and already the Aviva brand is as strong as Norwich Union was a year ago. Through our "Aviva deal" direct marketing campaign we sold more motor policies in the fourth quarter than in the same period in the previous three years.
In addition, in January this year we launched our Corporate Risks business focusing on larger corporate risks. Reaction has been positive with a number of contracts already secured.
Fund Management
Aviva Investors
Following a turbulent start to the year, market conditions continued to improve alongside increased risk appetite among investors. In this environment, Aviva Investors has continued to develop its business focusing on third party and cross border sales opportunities. We have accumulated assets during 2009 and have developed a strong sales pipeline across all asset classes and markets.
Full year 2009 net inflows totalled £0.9 billion, of which £2.4 billion were sourced from third party clients, which offset outflows of £1.5 billion from Aviva group companies. The overall total from group companies included strong inflows into the French and North America Life Business, although these were more than offset by significant maturities in our UK with-profit funds.
Our liquidity fund range continued to generate interest through the year attracting strong inflows in France and the UK, and our Continental Europe distribution channel continued to contribute meaningfully to sales performance through our SICAV fund range. Convertible and tactical asset allocation funds were the primary drivers of sales into this range, supported by focused sales and marketing campaign.
Our absolute focus on our clients is bringing results. Aviva Investors was ranked first quartile in the UK-focused Greenwich Quality Index, which measures both investment quality and client service. Client service achieved a significant improvement with first quartile ranking in the 2009 survey and investment quality moved up to second quartile from fourth in 2007. In addition, we continue to deliver improving investment performance globally, with particular success in Australia and France where over 90% of our funds outperformed their benchmark. Our fund management capabilities have been recognised externally. Among many independent accolades, Aviva Investors was named SRI Provider of the year at the European Pensions 2009 Awards and the Aviva Investors Listed Property Fund won the award for best Australian Listed Property Fund at the annual AFR Smart Investor Awards.
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