MARK WILSON 2015 HALF YEAR RESULTS TRANSCRIPT

2015 half year results and dividend

00.11: When you look at our 2015 half year results I think theres three key areas that people are
focussing on.
Obviously the numbers and the operating results, which are all going in the right direction. The
Friends integration and, of course, where we are at with Solvency II.
Well, the results today show some real tangible progress and youre seeing it through all the key
indicators. So, youre seeing operating profit up 9%; youre seeing our best COR thats the
combined ratio on the general insurance for eight years. You are seeing value of new business
which is the key measure of sales and growth thats up 25 per cent. Now thats at a time when
weve had the integration going on at the same time so thats quite an adequate result.
What youre seeing is, I think, the benefits in Aviva of real diversification. Weve got geographic
diversification, weve got product diversification - and you dont expect all countries or all business
lines to perform well at the same time.
The dividend of course is something that the investors really do focus on, and rightly so. And we
increased the dividend last year by 20 per cent and what youve seen in the first half of this year
the interim dividend is up 15 per cent. That should give investors and our shareholders a good
degree of confidence in our future and our cash flow.
Avivas turnaround
01.32: If you look at Aviva three years ago, it was a fundamentally different proposition. The
company had real issues and real challenges. We had a balance sheet that was fundamentally
broken; we had relationships with regulators around the world that were strained: staff morale was
extraordinarily low and we really didnt have any plans to grow in the future.
But as a business we also had a number of really important advantages. We had a huge customer
base that really can be a source of growth for the future. We had a brand thats probably
unparalleled in the financial services world. And we had technical expertise inside the company that
Id never seen before to that level of depth. So we had a lot of strengths as well.
Now, if you have a look now, we are in a different place albeit still with much more to do. Weve
ticked off a lot of the big issues that really everyone thought were unfixable.
The Friends Life acquisition is really fundamental in our transformation of Aviva. It really ticked off
some of the outstanding issues it really would have taken us probably another three years to do. It
added a lot of liquidity. It added capital and it added strength in some product areas, like large
corporate pension schemes that we just didnt have before. It just gives us more strength as an
overall group.

Integration of Friends Life

02.56: A lot of commentators were suggesting that thered be a lot of distraction with the Friends
Life integration - and, of course, it is a major project that is taking a lot of resource. But what weve
seen is that the UK Life business, in terms of their sales results, as measured by VNB [Value of New
Business] has been a very satisfactory outcome. The total UK Life sales are up 43 per cent. So thats
a pretty adequate outcome and strong growth in a market that has a lot of potential for us.

Ive been asked a lot hows the integration going? This is really our first big update to the
market. Well, lets look at a few things; so first of all we have the cost synergies. Thats 63 million
pounds after three months - that certainly is ahead of expectations in terms of the schedule for
getting this done. Thats some very good progress.
Another key part of the Friends Life integration is, of course, moving the assets from external fund
managers to our internal Aviva Investors. So far this year weve brought in 22 billion pounds direct
from the Friends Life into Aviva Investors and weve served notice on other fund managers, such as
Axa, to bring in a further 24 billion pounds.
For the last three years as a group, Aviva has been very consistent in what were trying to do for
shareholders. Our investment thesis is predicated on cash flow plus growth. And that hasnt
changed at all in fact the Friends Life acquisition helps that investment thesis a lot.

Life insurance
04.25: So turning to the life business line results. Globally weve seen a 25% increase in value of new
business. Thats despite the annuities and the pension changes in the UK and it really shows the
benefits of having diversity across our product range.
Within that you have some highlights of the UK which was a very strong performer. Italy was up
66%. Asia was also strong at 18%. Ireland also contributed as well to that, so youve seen a breadth
of performance across the life businesses.
Of note also is the product mix has changed. As a group we are now much less reliant on annuities.
That was a strategic decision we took in fact before the changes in UK pensions and annuities last
year. So that mix shows strength in the Group and youve seen the highly profitable protection
business go up over the same period.

General insurance
05.25: General insurance has been a work in progress now for us for a couple of years. For about six
years weve been declining in terms of our premium coming in. And although we dont target topline growth and are more interested certainly in underwriting profits, its nice to see that with our
product strategy we are now growing premium again. Maurice and the team have looked at their
product, theyve improved the analytics; theyve improved the underwriting around the Group and
changed their product mix as well.
Also weve seen the benefits of quite benign weather in the first half which has boosted our results.
But the result of all of those things is that weve had the best combined ratio, the best COR, for over
eight years.
One of the things that weve just announced is a[n] exclusive deal with TSB in the UK. Thats a pretty
good indication, I think, of where we are going.

Asset management
06.21: And moving to asset management, Ive said for quite some time asset management is a work
in progress it will take longer to get the fund flows in than the turnaround in the other life and
general insurance businesses. And to do that you need a hero product - you need a series of
products that really make people stand up and look at what we are doing in that asset management
business. For us, that product is AIMS, Aviva Investors Multi-Strategy.

Now, its been going for about twelve months and [in] that first twelve months, it has outperformed
its peers. So its done exactly what we wanted it to, weve had a lot of interest in it. It already has
1.7 billion pounds of assets in those funds. In terms of the rest of asset management, we also have a
number of customer-focussed platforms.

Areas for improvement

07.09: Its all very easy to look at our results and look at the metrics going the right way and think
everything is going well. And at the high level that may be true. But its not all good.
Theres still a number of areas in the group that I think were quite unhappy with the performance. I
think although weve made some progress on expenses, particularly in the Friends Life integration,
the expense reductions in the first half, in my view could have been better.
I think some parts of Europe did not perform as well as they have in the last two years albeit that
theyd had a couple of very good years and there was a lot of headwinds from currency.

Solvency II
07.47: Solvency II has been one of those projects thats seems like its been neverending. In fact as
a Group, weve spent around about 400 million pounds and an extraordinary amount of
management time and that is a figure that we are not very proud of. Its entirely unacceptable.
Nevertheless, the hard work on Solvency II and getting ready for it is just about done. The, what I call
the envelope of uncertainty, for where we will come out has reduced a lot and reduces each week,
as each week passes and weve already submitted our model now to the PRA for approval. We
would fully expect to get that model approved in December and I think Im pretty happy about
where we are.

Balance sheet
08.34: We also need to consider that the Group is in a fundamentally different position with its
balance sheet than it was just a few short years ago. Our debt ratio on an S&P basis is down to 27
per cent- well within our range. Our Group central liquidity is at 1.6 billion pounds thats versus 200
million pounds just a few short years ago. Our internal loan balance is now set at 2.7 billion pounds,
versus 5.8 billion pounds just a few years ago and its right on track to get to 2.2 billion pounds which
is our target for the end of the year.

True Customer Composite and Digital First

09.12: So as a Group Avivas now moving to a different phase of its turnaround. We are really done
with the fix part of it and now we are now moving into, much more into, the transform and grow
phase of our turnaround.
Our strategic anchor, of course, is about being a true customer composite, digital first and operating
in a certain number of markets.
Now Aviva has this strategic competitive advantage, built in for the fact that we have so many
customers and that we are a composite insurer. And in the digital world to be successful, in my view,
you must be a composite insurer. Customers want simplicity, they want convenience and we can
provide all that to them.

Now weve separated out all of our digital businesses, weve put them under a separate company,
with a separate board and thats headed by Chris and Andrew and the team and they are making
some real progress in terms of these customer propositions. And my objective here is to increase our
products per customer from a paltry 1.7 products per customer at the moment to over 3.
Weve got our Digital Garage in Hoxton Square, which is in the middle of Shoreditch, which is the
FinTech hub in the UK. And in Singapore as well we are starting up another Digital Garage there and
that really looks an exciting initiative.
So the digital and direct businesses now have over 1 billion pounds revenue in them. But its not just
about revenue, its also about the cost base you put there. So weve taken 100 million pounds out of
the rest of the business, thats per annum, and weve reallocated that to digital. There is a global
insurance revolution going on and its called Digital and Aviva wants to lead that revolution.

Outlook
10.52: So where are we now? Am I happy with the results - well of course Im not! But I am happy
that we are making some progress towards where we need to be. I think our strategy is clear, with
our strategic anchor. I think our investment thesis of cash flow and growth is equally clear. I think
our people and our team - weve got the right people in our team to deliver what we are saying. I
think weve made some tangible progress towards the Friends Life integration and Solvency II - so
thats two big issues that I think we are making good progress on. And so I think we are pretty
confident about where we are going.
But what weve got to do is keep delivering and weve got to keep delivering at a pace that Im
comfortable with and Im not really known for my patience.
-ends-