Aviva UK

Wi i iin th
Winning the UK
Aviva UK

No 1 insurance brand and customer franchise in the UK

• Brand strength and customer franchise

• UK’s largest insurer with 19 million customers
• One of the topp ten most valuable brands
• 1 in 3 households has an Aviva relationship

• Partner of choice
• Unparalleled customer reach through intermediaries
intermediaries,
corporate partners and direct
• Voted UK’s top Life, General and Health insurer by
intermediaries
• Partner to the UK’s top banks

• Significant contributor to Aviva results

• 44% of g
group
p IFRS operating
p gpprofit
• 30% of worldwide L&P sales
• 47% of worldwide NWP
• UK Return on Capital Employed 12.8%

2
 Aviva UK

CEO Aviva UK
Mark Hodges
g

UK Commercial
UK GI CEO UK Life CEO UK CRO UK HRD
Director
David McMillan Toby Strauss Craig Thornton Rupert McNeil
Cathryn Riley

3
Aviva UK

A unique opportunity for customers and shareholders

• Increase earnings from new and in-force business

• Capitalise on our multi-channel, multi-product strategy
Life Excel in Life • Win in an RDR world through strong brand and
service
• Underwriting and risk management capability

• Drive profitable growth

• Excellence in underwriting, claims management and
GI Excel in GI customer service
• Expand profitably into business lines and segments
where underweight

Drive out • Leverage brand to drive earnings from 19m

additional customers
UK composite • Extend and deepen new bancassurance relationships
• Generate further cost and efficiency savings
value
• Exploit capital diversification benefit
4
 Aviva UK

A leading competitive position

m)

750
profit* (£m

650

550
perating p

450
0 IFRS op

350

250
HY2010

150

50

-50
(253)
* HY 2010 IFRS operating profit or reported equivalent (£m)
AXA operating profit includes UK and Ireland, RBS operating profit includes international businesses 5
Aviva UK

A unique opportunity for customers and shareholders

Life Excel in Life UK Life

GI Excel in GI

Drive out
additional
UK composite
value
6
UK Life today

Performance transformed over last 5 years

FY 2005 HY 2010 +/-

IFRS operating profit £382m £463m

Operating Expenses £941m £379m

FY 2005 Q3 2010 +/-

Life & Pensions (PVNBP) £9 185m

£9,185m £7 631m
£7,631m

Life & Pensions margin 1.8% 3.5% +170bp

New business IRR 10.6% 15.1% +450bp

2
Payback (years) 9 7
+260bp
Capital Intensity 5.3% 2.7%

7
 UK Life today

We have driven substantive and permanent operational change

2005 Q3 2010

20 core admin systems Systems rationalisation 4 core admin systems

12,500 UK headcount 7,600 UK headcount

Site rationalisation
(9 sites) (5 sites)
98% of customer 37% outsourced,
Flexible cost base
operations in house 16% offshore
Over 5 million p
policies
Limited e
e-commerce
commerce e commerce & self
e-commerce self-serve
serve
available on-line
Distributor satisfaction Customer and Adviser Portal Distributor satisfaction
41%% e-commerce capability
p y 76%%
Customer satisfaction Customer satisfaction
Customer centric design
38% 76%
Employee engagement Employee engagement
Leadership and focus
49% 71%
8
 UK Life today

An ambitious programme has transformed our operating expense base

UK Life expense base

• £211m reduction in underlying
cost base
1,000 £941m
900 • Continuing to operate in line
800 £730m with expense allowances
m)
xpenses (£m

700 • P&L benefit of £100m by end

600 of 2012 reflecting cost
500 reduction and growth
absorption
perating ex

400
300 • Pension scheme closure
200 • UK procurement
Op

100 • E-commerce / self-service

0
2005 2010 Est.

9
 UK Life today

A strong and diversified new business franchise

Mix Payback Capital

Q3 2010 IRR Margin
((PVNBP)) ((Years)) Intensityy

Pensions (inc. SIPP) 40% 12.8% 9 1.7% 3.5%

Bonds 17% 23.9% 6 1.5% 0.4%

Annuities 30% 22.2% 6 5.7% 2.0%

Protection 10% 13.9% 6 7.6% 8.7%

E it Release
Equity R l 3% >25 0%
>25.0% N/A 5 5%
5.5% N/A

Life and Pensions Total 100% 15.1% 7 3.5% 2.7%

10
 UK Life today

Proactive pricing actions driving up IRR

Pricing actions include:

IRR • Reduced commission on
16% bonds, individual pensions
15%
and GPPs

14% • Successful launch of

adviser charging pensions
13%
product
12%
p g from 2
• Protection re-pricing
11%
months to 2 days
10%
• Annuities re-pricing from 1
9%
month to 1 day, postcode
8% pricing
FY 2005 Mix Expense Pricing Q3 2010
Movement Reduction Actions • Improved reinsurance for
protection products

11
 UK Life today

Experience broadly in line with long term assumptions

Persistency Short Long

Experience term term
variances HY 2010
Pensions
Mortality / Morbidity £12m Bonds
Protection

Persistency £(10)m Management actions:

• Proactive management of bond
surrenders and endowment maturities
Expenses £(8)m • Action on individual IFA accounts

• Protection lapse
p alert for IFAs

• Improved customer and distributor

Total £(6)m
communications

IRR using short term persistency assumptions would be 14.8% vs. 15.1%
12
 UK Life today

Growing IFRS operating profits from a base of £800m+ pa

250 HY 2009 Operating profit £368m

erating profitt (£m)

200 HY 2010 Operating profit £463m

150
100
50
0
IFRS ope

(50)
(100)
(150)
(200)
New Technical Unit Participating Spread Expected Acquisition Admin DAC
business margin linked business margin return expenses expenses
margin margin

• Disciplined financial management of new business, costs and in-force book

• Reattribution benefit of £120m per year
• Resilient p
profits in a low interest rate environment
• Generating £400m+ of net operating capital per annum

13
 UK Life today

A strong competitive position

500
Profit (£m))

450

400
IFRS Operating P

350

300

250

200

150

100

50

H1 2009 H2 2009 H1 2010

14
 UK Life today

Consistent strategy and disciplined execution – delivered distinctive position

500
IFRS Operrating Proffit HY 2010

400

300

200

100

0
0 50 100 150 200 250

NBC HY 2010
15
 UK Life market

Market growth and opportunity

The UK Life market is attractive:

Number of people aged 65
g p
• Demographic trends and the demise
of defined benefit schemes will
increase the market by 30% over the
next 5 years
• UK retirement savings gap £318bn(1)
per year
• Protection gap of £2 4 trillion((2))
£2.4
• Ageing population creating
opportunities for new product
innovation in health and income
products e.g. Long term care

(1) Source: “Mind the gap – quantifying Europe’s pensions gap,” Aviva & Deloitte, September 2010
(2) Source: Swiss Re Term and Health Watch 2010
16
 UK Life looking forward

Winning positions in our chosen growth markets

3 yr CAGR Est. market

Current
Sectors and Products market IRR position by
p y Competitive
p Focus
Share
forecast vol

Individual Provide service and defend

(0.5)% 13.5% 6* 8%
Pensions/SIPP value

GPP +10% 12.0% 4 11% Move to Top 3

Selective
S l ti growth th where
h
Bonds +3% 23.9% 2 11%
value

Annuities +17% 22.2% 1 20% Consolidate No1 position

Core Protection (1)% 20.7% 2 15% Move to clear No1 position

Equity Release (3)% N/A 1 48% Consolidate No1 position

* IPP 2nd 17
 UK Life looking forward

Well placed to win in an RDR world

Aviva UK Life channel & product analysis (NBC)* • To win in an RDR world requires:
• A strong brand
Banks &
NBC by Product & • Diverse distribution
IFA Building EBCs Retail Total
Channel
Socs • Well positioned products
Bonds 3% 4% - - 7% • Excellent service
Individual Pensions 10% 1% 1% - 12% • Successfully launched RDR
GPP 2% - 2% - 4% compliant pensions products
Corporate pensions - - 1% - 1% • Well positioned in largely
A
Annuities
iti 22% - 17% 11% 50% unaffected protection and annuity
Protection 7% 9% 4% 1% 21% market

Equity release 3% - - 2% 5% • IFA segmentation used to identify

winners
Total 47% 14% 25% 14% 100%
• RDR resilient bancassurance
RDR impact relationships growing
Limited RDR impact
Not impacted by RDR • Continue to build customer
capability through e-commerce
investment
•HY 2010
EBCs – Employee Benefit Consultants 18
UK Life Summary

A growing business winning in its marketplace

Sustainable £400m+ p
per annum net operating
p g capital
p

Product IRR of at least 12%, with payback of 10 years or less

Growing IFRS operating profits of £800m+ per annum

P&L benefit of £100m from cost reduction activity by 2012

Win in an RDR world

19
Aviva UK

A unique opportunity for customers and shareholders

Life Excel in Life

GI Excel in GI UK GI

Drive out
additional
UK composite
value
20
UK GI today

Leading distribution franchise and core insurance excellence

• A market leader with >10% share

• Multi channel and multi product
Leading
Distribution • No1 for Commercial SME
Franchise • Two g
great direct brands - Aviva and RAC
• No1 for GI Bancassurance

• Underwriting excellence and largest underwriting footprint

(28 branches, 1,800 underwriters)

Core g edge
• Leading g ppricing
g ((Aviva Risk Index “ARi”))
Insurance • 7 operational Centres of Excellence delivering scale and best
Excellence practice
• Award
A d winning
i i service
i
• Purchasing power and claims supply chain management
21
 UK GI today

We have driven substantive and permanent operational change

2005 Q3 2010
95% of work done in 7
27 processing centres Operations 2010 Programme
Centres of Excellence

‘IT 2010’ efficiency and

IT cost base £325m IT cost base £190m
effectiveness programme

Business automation, off-shoring

19,300 UK headcount 13,100 UK headcount
and outsourcing

On-line Direct sales 62%

On-line Direct sales 44% Shift from paper / manual to
On-line Direct servicing
On-line Direct servicing 0% e-commerce
20%

No 1 Commercial Insurer No 1 Commercial Insurer

Consistent leadership
voted by brokers voted by brokers

Employee engagement Consistent message and Employee

E l engagementt
58% engagement 63%

22
 UK GI today

An ambitious programme has transformed our operating expense base

UK GI expense base
• £546m reduction in
2 000
2,000 underlying cost base
1,800 Disposals (1)
£459m
1,600 • P&L benefit of £100m by end
£m)

of 2012 reflecting cost

1 400
1,400
xpenses (£

reduction and growth

1,200 £950m absorption
1,000
800
Operating ex

£1 496m
£1,496m • Pension schemes closure
600
• UK procurement
400
• E-commerce / self-service
200
0
2005 Proforma 2010 Est.

(1) Non-
Non-core disposals : MSS, HPI, Auto Windscreens, BSM, RAC France 23
 UK GI today

Active cycle management

NWP and COR Actions to drive profitability

6,000 94%
• 2003-06
2003 06 grew volumes at attractive
CORs

• 2007-09 actions to maintain

5,000
98% profitability
WP (£m)

• Exited unprofitable

COR
4,000 relationships (Schemes, MGAs,
102% Partners)
NW

• Focus on most profitable broker

3,000 segments (Club110 and B.I.G.)
106% • Disciplined underwritingg and
sophisticated pricing (ARi
2,000 implemented, early creditor
2003 2004 2005 2006 2007 2008 2009 pricing action)
Aviva UK GI NWP Market COR (Source FSA returns) Aviva UK GI COR

24
 UK GI today

UK GI has a strong competitive position compared to its peers

300
ating profit** (£m)

250

200
HY10 IFRS opera

150

100

50

(50)
(253)

Q3 YTD 2010 % COR 96

HY 2010 % COR 98 99 83 95 101 100 120

* HY 2010 IFRS operating profit or reported equivalent (£m)

AXA operating profit and COR include UK and Ireland, RBS operating profit includes international businesses but COR is UK business only 25
 UK GI today

High quality book with significantly improved current year profitability

£m
Operating profit • Underwriting, pricing and
1,200 claims handling delivering
improving claims costs
1,000
800 • Reserving confirmed by
regular independent reviews
600
400 • Distribution ratio reduced
from 40% (2007) to 33%
200
((2010 HY))
0
2005 2006 2007 2008 2009 HY 2010 • Profits relatively resilient to
(200)
Axis Title
low interest rate environment
Prior year Current year

COR % 96 95 106 99 99 98
Reported

Q3 YTD 2010 96

26
 UK GI today

Core strengths in underwriting, pricing and claims management

Reducing commercial lines claims frequency Hardening personal motor rates
Direct PM New Business Rating Vs Market
28% 6.0%
80%

Prroperty
26% 5.7%
60%
Motorr

24% 5.4% 40%

22% 5.1% 20%
20% 4.8% 0%
2007 2008 2009 2010 2008 2009 2010
Motor Property AA Comp UKDI
Driving commercial lines underwriting “Claims
Claims Inflation Busting
Busting” in motor:
excellence: • Operational centres of excellence, pooling
• Local underwriting including “Bonus expertise and best practice
underwriters” • Claims intelligence team targeting organised
• Underwriting innovation (Hawkeye mapping fraud rings
tool, Commercial Ari, flood data) • Strong litigation avoidance processes –
• Cleanse the book a continuous process saving c£5k per claim
• Achieving significant rate increases on • Capture 3rd party claims and place through
“poorest” performers own network

27
 UK GI today

Personal lines – growing personal motor into a hardening market

Strong advertising Better risk selection

1,600 10%

Conv
Proportion of UKDI motor customers
0’s)

version Ra
uotes (000

ARi risk group 2008 2010

800 5%
1-3 28% 13%
Qu

ate
4-7 39% 39%
0
Q1 2009 Q3 2010 8 - 10 33% 48%
Internet Conversion Rate Quotes

150 UKDI Car - BI Improving fundamentals

quency

140
130 ARi Risk Group 1 -3 4-7 8 - 10
Indexed freq

120
Retention rate 68% 72% 78%
110
100 Cancellation rate 25% 11% 7%
90
2005 2006 2007 2008 2009 2010 Conversion rate 4% 11% 13%
Accident Year
Aviva indexed frequency Third party working group
28
 UK GI today

UK GI is growing profitably
100
£m UK GI Net Written Premium
• UKDI motor customer growth of
160,000 to Q3 2010
050
• RAC Panel sales of 246,000
246 000 to
£1,053m £1,050m Q3 2010 versus 150,000 for the
000 £1,029m
whole of 2009

• Direct personal motor prices to

£996m
2,300 brokers
950

• Strong growth in commercial

£937m new business, 2010 YTD up
900
£82m on 2009
£913m
• Commercial Property
850
£880m persistency at the highest levels
since
i 2008 (84%)

800 • Successful re-entry into

Corporate Risks with projected
first year growth of c£50m
750

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

29
 UK GI looking forward

Executing strategy for profitable growth

• Refreshing aggregator proposition in

UK GI market share 2009 2011
Market
M k t • Launch RAC Home panel Q1 2011
Segment size Direct Affinity Broker
• Complete direct pricing roll-out to
£bn
additional 700 brokers
Personal 23.5 11.6% 16.1% 6.5%
• Exploit market-leading SME franchise
SME 10.6 1.5% 1.6% 17.5% • Leveraging broker segmentation (BIG,
Club 110, Bonus)
Corporate • Targeting under penetrated industry
9.9 N/A N/A 2.5%
(inc Lloyds) segments and expanding risk appetite

Total 44.0 10.0% 13.8% 8.2%

• Build out controlled expansion of
corporate risks and specialty lines

Source: ABI Returns 30

 UK GI looking forward

Controlled expansion in corporate risks and specialty lines

Appetite extension - £6bn market

SME core business - £10bn market

apability

Eg:
Ca

Eg: UK Corporates
Property Property
Liability Liability
Motor and Fleet Motor and Fleet
Group PA Local
Engineering Authorities
Fidelity Guarantee D&O
Construction M i
Marine

Low
Risk Appetite
31
UK GI Summary

A strong business well positioned to win in its marketplace

Profitable growth through disciplined underwriting

2011 UK General Insurance COR to be 97% or better

P&L benefit of £100m from cost reduction activity by 2012

Controlled expansion of risk appetite in Corporate and Specialty Lines

Scale and efficient claims management

32
Aviva UK

A unique opportunity for customers and shareholders

Life Excel in Life

GI Excel in GI

Drive out
additional
UK composite UK
value
33
 Aviva UK

Diversification brings wide-ranging benefits

• Integrated branding advantages

Brand • GI advertising benefits the life business in the
UK

Differentiation
Customer • Drive value from our shared customer base

• Ability to adapt to changing customer demands

Distribution
• Leadership p in bancassurance

Scale &
efficiency Cost & • Exploit opportunities to combine common
efficiency processes share best practice and standardise
processes,

Structural • Making best use of our capital and benefiting

Capital
advantage from the advantages of our diversified business

34
 Aviva UK today

Outstanding brand awareness since launch

70%

63%
60%
59% Direct
Di t LiLine

57%
50%

40% 39%

33% 32% Scottish Widows

30% 32% Prudential
29%
26% More Than

20% 20% 18% Legal & General

15% Standard
St d d Life
Lif
11% 14% Esure
10% 10%

4%
0%
Dec '08 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010
YouGov Brand Index data – a Nationally representative daily sample of over 2000 people 35
 Aviva UK today

Common customer base brings significant opportunity

• Similar customer profiles mean

Household income insights can be exploited across
Life and GI
• Concentration on mid-market
customers brings both loyalty and
Retired
a greater
t value
l
e stage

Pre-retired • 1.27 policy holding per customer

• 9% of customers hold Life and GI
Life

Family
products
Non-family • Broad product range covers all
life stages

36
 Aviva UK today

No 1 bancassurance provider - the partner of choice

• Proven ability to improve partner

LIFE GI sales penetration - Santander
Personal Commercial • Single relationship manager
Protection Savings Health RAC
lines lines building deep relationships
across all products – and co-
Lloyds
ordinated globally
Barclays • Life and GI combined pricing
opportunities
Santander
• Creation of unified IT platform
giving partners:
HSBC
• Lower training and
RBS integration costs
• Re-use data across Life /
Nationwide
GI products
CIS • Higher cross-sales
• Bancassurance IRR of 15%
Post Office
and COR
CO off 96%
% YTD 2010

37
 Aviva UK today

Scale benefits from UK model

• Over £700m reduction in

underlying cost base
UK expense
p base
3.0 • Significant shared services
benefits over the last 10 years
£2.4bn
2.5 – a third of cost base is
n)
Operating expenses (£bn

shared
2.0 £1.7bn
• c. £275 million to NAV and at
1.5 least £50 million cost savings
pa from
f the
th closure
l off the
th UK
1.0 final salary pension schemes

0.5 • P&L benefit of £200m by end

2012 reflecting
fl ti costt reduction
d ti
0.0 and growth absorption
2005 2010 Est.

38
Aviva UK today

Strong and disciplined focus on generation and allocation of capital

Strong and disciplined focus on generation and allocation of capital

• UK region significant contributor to

Group economic capital
£950m
diversification benefit
• Sustainable ongoing net capital
generation of £800m+ (excluding
one offs) through:
£535m
• Reduction in UK Life new
business strain
• Benefits of reattribution
• Rigorous management of costs
• Growing IFRS operating profits
2009 2010 Est.

39
Aviva UK

A unique opportunity for customers and shareholders

• Increase earnings from new and in-force business

• Capitalise on our multi-channel, multi-product strategy
Life Excel in Life • Win in an RDR world through strong brand and
service
• Underwriting and risk management capability

• Drive profitable growth

• Excellence in underwriting, claims management and
GI Excel in GI customer service
• Expand profitably into business lines and segments
where underweight

Drive out • Leverage brand to drive earnings from 19m

customers
additional
UK composite
• Extend and deepen new bancassurance relationships
• Generate further cost and efficiency savings
value • Exploit capital diversification benefit
40
Aviva UK financial summary

A growing business exploiting its unique position

£800m+ per annum net operating capital

£800m

Life product IRR of at least 12%, with payback of 10 years or less

2011 UK General Insurance COR to be 97% or better

P&L benefit of £200m from cost reduction activity by 2012

Increasing IFRS operating profit and ROCE

41
Aviva UK

Q&A