Aviva PLC (LON:AV) has today provided an operating update.
Maurice Tulloch, Aviva Group Chief Executive Officer, said:
“In responding to COVID-19, Aviva moved quickly to support our customers, introducing a range of measures to help, including financial assistance. I am proud of how Aviva’s people have adapted and maintained excellent day to day service for our customers when they need us most.”
“Aviva had a solid first quarter of trading. General Insurance sales increased 3% and we had a strong performance in Life Insurance where new business increased 28%. Based on analysis as at 30 April, our estimate of the COVID-19 claims impact on general insurance, incorporating notified and projected claims, is £160 million net of reinsurance.”
“At 31 March, our estimated solvency ratio remains strong at 182% and incorporates COVID-19 related impacts. The economic outlook remains uncertain and will affect our business, however the strength of our capital and liquidity means we are well positioned to manage this crisis and continue to support our customers.”
Highlights
First quarter trading
· Aviva made a strong start to the year. Life new business sales (PVNBP) rose 28% to £12.3 billion (1Q19: £9.6 billion) and value of new business‡ (VNB) grew 18% to £311 million (1Q19: £263 million);
· General insurance net written premium gained 3% to £2.4 billion (1Q19: £2.3 billion). Excluding COVID-19 impacts, Canada achieved strong underwriting results while the UK was affected by February storms;
· A quick and smooth transition to working remotely has enabled us to maintain strong customer service.
Capital and liquidity
· Aviva is taking a prudent approach on capital and cash given the uncertain economic outlook;
· At 31 March, Aviva’s Solvency II cover ratio‡# is estimated at 182% and reflects COVID-19 related impacts;
· The reduction in cover ratio compared with FY19 (206%‡#) is consistent with our published sensitivities and primarily reflects capital markets impacts, in particular the widening of corporate credit spreads, reductions in risk free yields and declines in equity markets;
· We have moved early to recognise the impact that COVID-19 could have on our business through:
- Allowance for a range of COVID-19 impacts in general insurance;
- Updated UK property assumptions at 1Q20: Brexit property allowance released; 15% fall in commercial property; 12% fall in residential property followed by long-term growth; and
- Adjustment for potential future credit rating downgrades (full letter downgrade on 10% of BBB rated bonds and 5% on bonds rated A and above) in our UK annuity corporate bond portfolio.
· Solvency II estimated own funds per share# at 31 March was 372 pence per share (FY19: 423 pence);
· At 30 April, Aviva’s holding company liquidity was £2.5 billion.
Impact on general insurance claims
· We are still in the early stages of claims development on COVID-19 and so its ultimate impact on Aviva still has a high level of uncertainty;
· However, based on analysis as at 30 April, our estimate of COVID-19 related claims in our general insurance businesses, incorporating notified and projected claims, is £160 million net of reinsurance;
· This is based on estimated claims in business interruption insurance, other commercial lines and travel insurance and allows for favourable impacts in other product lines.
Investment portfolio
· Aviva’s high quality investment portfolio continues to perform well;
· In our shareholder corporate bond portfolio, approximately 5% is invested in sectors most directly impacted by COVID-19, such as airlines, retail, leisure, and oil & gas;
· In 2020, our shareholder-backed corporate bond portfolio has had no defaults. Less than £10 million of bonds have had credit ratings downgraded below investment grade to the end of the first quarter, while just 3% of the portfolio has been downgraded to a lower rating “letter”;
· Our commercial mortgage portfolio has a low loan to value ratio and strong interest cover. We anticipate pressure on covenants for some borrowers, however, at the present time this has not translated into any meaningful impact on debt service;
· Further detail on investments can be downloaded at: www.aviva.com/investors/presentations
Outlook
· COVID-19 provides unprecedented uncertainty and could give rise to a severe economic downturn. This may adversely impact our results, not least potential changes in investment performance, capital generation and remittances;
· Early 2Q20 trends have seen new business sales decline across many of our businesses due to worldwide Government enforced confinement measures. While customer activity levels have risen somewhat more recently as we help distributors and customers manage through these measures, sales volumes for the year overall are likely to remain below expectations;
· In addition to the estimated general insurance claims impact from COVID-19, financial market performance and economic activity are also likely to impact revenues in our savings and asset management businesses, which are sensitive to asset values.
· In life insurance, mortality and longevity claims experience arising from COVID-19 are expected to broadly offset;
· We are supporting customers and the broader community, not least through our £43 million contribution to various funds and charities, and our numerous customer support initiatives;
· We remain committed to achieving our 2022 targets, however, COVID-19 is expected to provide additional challenges to achieving these targets. We remain focused on enhancing customer and operational fundamentals to drive improved returns, better efficiency and cash-flow.
Supporting customers, colleagues and the community
Aviva has put in place a wide range of help for our customers, our people and our communities during these challenging times.
For our customers experiencing financial difficulties we have introduced a variety of help across our different markets including: payment deferrals, automatic cover extension and reduced motor premiums for personal motor customers who use their car less. For customers who are NHS workers we are offering additional support such as free car breakdown cover and enhanced home insurance cover for personal belongings.
Across our communities we have committed £43 million to help those most affected by the crisis. This includes a £10 million1 donation to our long-standing partner, the British Red Cross, to direct help to those that need it most; a £5 million contribution to NHS Charities Together, an £18.5 million contribution to the COVID-19 support fund established by the Association of British Insurers and further financial support to several communities where we operate including in Milan, Toronto and Singapore. In France we are also supporting the economy by allocating €100 million within our investment portfolio to invest in innovative SME businesses, especially in the health, medical research and environment sectors and the tourism industry.
Our people continue to provide excellent service to our customers and almost all of our people are working from home. Our people continue to be paid as normal and Aviva is not making use of the UK Government funded scheme to furlough Aviva employees.
More information on the support Aviva is providing can be found at: https://www.aviva.com/about-us/coronavirus-advice/
First quarter trading highlights
In life and savings, global new business volumes (PVNBP) rose 28% in the first quarter to £12.3 billion (1Q19: £9.6 billion) while VNB‡ grew 18% to £311 million (1Q19: £263 million).
UK Life new business sales were up 162% to £2.9 billion (1Q19: £1.1 billion). This was principally driven by a strong start to the year in bulk purchase annuities, where Aviva wrote £1.7 billion in the first quarter. New business trends were also pleasing in Protection, with sales up 20% to £0.5 billion (1Q19: £0.4 billion).
In UK Savings and Retirement, net fund flows were £2.3 billion, an increase of £0.7 billion over the first quarter of 2019 (1Q19: £1.6 billion). This benefited from sustained growth in sales across both workplace savings (+27%) and retail savings (+42%). In a context of considerable market volatility, Aviva Investors saw third party net fund outflows‡ reduce to £0.2 billion in the first quarter (1Q19: £0.9 billion outflows) while our liquidity range generated £2.8 billion of external net inflows (1Q19: £0.5 billion inflows).
Europe Life new business sales declined 14% to £3.3 billion (1Q19: £3.8 billion). In France, unit-linked volumes rose 62% helped by the continued roll-out of the new pension product, while with-profits sales were reduced by 40%. In Italy, new business volumes were tightly controlled, leading to a 48% reduction in stand-alone with-profits products. Hybrid volumes represented 68% of sales (FY19: 56%) in the first quarter.
In Singapore, new business volumes were up 57% to £0.4 billion (1Q19: £0.3 billion) with continued strong performance from the Financial Advisor channel.
In General Insurance, global net written premiums (NWP) rose 3% to £2.4 billion (1Q19: £2.3 billion).
In the UK, NWP increased 1% to £1.0 billion (1Q19: £1.0 billion). We continue to proactively evolve the business mix in UKGI, with continued growth in SME and GCS resulting in a 9% increase in commercial lines volumes partly offset by lower premiums in intermediated personal lines. Excluding COVID-19 estimated impacts, UK underwriting results in the first quarter were adversely affected by the February storms (c. £70 million estimated impact). This compared with very benign weather experienced in the prior period.
NWP in Canada was up 8% to £0.6 billion (1Q19: £0.6 billion) reflecting premium rate increases across all lines together with new business policy growth in personal and global corporate segments. Excluding COVID-19 estimated impacts, our Canadian underwriting results showed continued progress in accident year profitability and also benefited from benign weather during the first quarter.
In Europe, NWP increased 2% to £0.7 billion (1Q19: £0.6 billion) reflecting steady progress across most markets, with the largest contribution to growth coming from commercial lines in France. Excluding COVID-19 estimated impacts, underwriting results were marginally better compared with 1Q19.
Estimated general insurance impact
We are still in the early stages of claims development on COVID-19 and so its ultimate impact on Aviva still has a high level of uncertainty attached to it. However, based on analysis as at 30 April, our estimate of COVID-19 related claims in our general insurance businesses, incorporating notified and projected claims, is £160 million net of reinsurance. This estimate incorporates the following components:
Business interruption: we estimate claims from business interruption of approximately £200 million, net of reinsurance across global GI. The vast majority of our commercial policies do not cover business interruption claims arising from COVID-19. However, we anticipate potential areas of exposure in certain specialist schemes and broker programmes, and we have paid claims in the UK and Canada where coverage exists. In the UK, we will work constructively with the FCA to ensure we can establish an expedited process that will bring much needed certainty to customers and insurers.
Other general insurance impacts: We anticipate claims may arise from some other general insurance products, including travel, surety, construction, and other commercial lines and we have made estimates for claims in these areas. We have also included an allowance for favourable impacts in other product lines, that are expected to partially offset COVID-19 claims across our international general insurance businesses. Aviva does not provide insurance for event cancellation or trade credit.
The continuing nature of the event means that these figures are subject to significant uncertainty. Our estimates assume the Government confinement measures are in place through to the end of the second quarter.
Notes to editors
· All comparators are for the first quarter of 2019 position unless otherwise stated.
· All figures have been translated at average exchange rates applying for the period, with the exception of the capital position which is translated at the closing rates on 31 March 2020. The average rates employed in this announcement are 1 euro = £0.86 (Q1 2019: 1 euro = £0.87) and CAD$1 = £0.58 (Q1 2019: CAD$1 = £0.58). Growth rates in this announcement have been provided in sterling terms unless stated otherwise.
· For information on how Aviva is helping our people, customers and communities impacted by COVID-19 visit: www.aviva.com/covid-19-our-response/
· For a more detailed description of risks faced by our business, please see the ‘Risk factors’ section in Aviva’s most recent Euro Medium Term Note Programme Prospectus (updated May 2020) https://www.aviva.com/investors/credit-ratings-and-debt/
· Aviva is a leading international savings, retirement and insurance business. We exist to be with people when it really matters, throughout their lives – to help them make the most of life. We have been taking care of people for more than 320 years, in line with our purpose of being ‘with you today, for a better tomorrow’.
· Our vision is to earn our customers’ trust as the best place to save for the future, navigate retirement and insure what matters most to them. In 2019, we paid £33.2 billion in claims and benefits on behalf of our 33.4 million customers.
· We operate through five business divisions: Investments, Savings & Retirement; UK Life; General Insurance; Europe Life; and Asia Life; and focus on three strategic priorities: deliver great customer outcomes, excel at the fundamentals and invest in sustainable growth.
· Total group assets under management at Aviva group are £510 billion and our Solvency II capital surplus is £12.6 billion (FY19). Our shares are listed on the London Stock Exchange and we are a member of the FTSE 100 index.
· For more details on what we do, our business and how we help our customers, visit www.aviva.com/about-us
· The Aviva newsroom at www.aviva.com/newsroom includes links to our image library, research reports and our news release archive. Sign up to get the latest news from Aviva by email.
· You can follow us on Twitter: www.twitter.com/avivaplc/
· You can follow us on LinkedIn: www.linkedin.com/company/aviva-plc
· For the latest corporate films from around our business, subscribe to our YouTube channel: www.youtube.com/user/aviva
· We have a Globelynx system for broadcast interviews. Please contact the Press Officer noted above if you would like to make a booking.
