Aviva holds investor briefing on UK life business and reattribution

Aviva holds investor briefing on UK life business and reattribution

Aviva plc (”Aviva”) will hold an investor and analyst briefing on their UK life business at 0930hrs today at their corporate headquarters in London.

Aviva’s UK life business is the leading life and pensions provider in the UK and has undergone transformational change to become a low cost organisation which is well positioned for future growth, profitability and capital generation.

During the presentation Mark Hodges, CEO of Aviva UK Life and his team will show that the business is in excellent shape. It has a consistent and compelling strategy; is delivering against its promises and has clear plans and priorities for continuing to increase profitability in the future. They will set out a range of metrics to demonstrate the progress made between 2005 and 2008, including:

A 27% increase in life and pension sales from £9.2 billion to £11.7 billion1
Improved margins, from 2.9% to 3.5%1
Improved IRR on new business on an unlevered basis from 10.6% to 14%
More than an 80% increase in the embedded value existing business operating return from £370 million to £680 million and
An increase in underlying IFRS operating profits of 65% from £380 million to £630 million.
Mark Hodges will also be setting out in detail the shareholder’s case for proceeding with the reattribution of the inherited estates in the CULAC and CGNU with profits funds. The offer will enhance the cashflow profile of the UK life business and will yield significant financial benefits. For an expected policyholder incentive payment of £400 million2 for the inherited estate, payable in late 2009, shareholders will expect to gain

Access to around £600 million of additional capital over five years to fund new non-profit business.
An IRR of at least 13.5% and a three year cash payback period for the incentive payment. Policyholder behaviour and a recovery in debt and property markets would offer significant potential upsides.
One-off profits of around £150 million on an MCEV basis and £60 million on an IFRS basis, with on-going earnings on the value of the estate of around £50 million per annum thereafter.
Plans are already in place to offset the initial IGD impact of the incentive payment by the time it is made. Around half of the impact will be mitigated through Aviva UK Life initiatives, with the remainder through other group actions. We expect the transaction to improve the IGD surplus thereafter.

Further information on what the proposed reattribution means for policyholders is contained in a separate announcement made today.

Mark Hodges commented: “In the last three years we have worked tirelessly to transform Aviva UK Life into a genuinely market leading company. We have made a great deal of progress against the strategy that I set out in October 2006, and the results of the changes we have made are evident in our earnings, improved margins and customer metrics.

“My senior management team and I are looking forward to demonstrating how we will continue to be winners in today’s market in the UK, both in terms of profitability, capital efficiency and of market share.

“We have announced today that we are going ahead with the reattribution of the inherited estate. Whilst markets mean that the payout will be lower, we believe that policyholders have a right to share in the benefits of the inherited estate. Each customer will be able to choose whether they wish to accept the cash payment - it will not be a majority vote. This is a deal that is beneficial both for our customers and our shareholders. Most importantly we have plans in place to ensure that the payments we make to the policyholders, alongside the actions on solvency, mean that there will be no adverse impact from this transaction on the group’s solvency surplus.”

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