Aviva plc Q3 2023 Trading Update

Continued capital-light growth momentum and delivery across our diversified Group

Strong and resilient capital position. Outlook for capital returns unchanged

Guidance reaffirmed for 5-7% operating profit growth in 2023. On track to exceed Group medium-term targets

Amanda Blanc, Group Chief Executive Officer, said:

"Aviva has delivered nine months of strong growth. We have clear trading momentum, driven by our uniquely diversified business, as well as our leading positions in growing markets.

"We have continued to expand our capital-light businesses, which now make up over half of our portfolio. We see significant opportunities to generate further higher return, capital-light growth in the future as we prioritise these segments.

"General Insurance premiums grew 13%, reflecting the strength of our operations in the UK, Canada, and Ireland, across both commercial and personal lines. Our workplace pensions business continues to shine, with flows up 26% on the back of over 350 new corporate customers, and higher auto enrolment contributions due to wage inflation. Health sales are also buoyant, up 56%.

"Customers are our number one focus, and we helped them with claims following wildfires, hail and flooding in Canada. Also, after storms Babet and Ciarán in the UK we've had teams on the ground helping our customers, arranging repairs to damaged properties and providing alternative accommodation.

"Aviva's prospects are very positive. We expect to beat our medium-term financial targets and, in line with previous guidance, grow operating profit by 5-7% this year, despite higher weather-related claims.

"I am extremely confident that Aviva will continue to deliver more for shareholders, and we reiterate our guidance for a total dividend of c.33.4p for 2023, and further regular and sustainable returns of surplus capital."

Continued capital-light growth momentum

•    General Insurance gross written premiums (GWP) up 13% at constant currency to £8.0bn. UK&I GWP up 15% and Canadian GWP up 11% at constant currency, both driven by strong rate, new business volumes and retention.

•    Group undiscounted combined operating ratio (COR) was 96.3% (9M22⁴: 94.2%), reflecting the impact of Q3 wildfires and other adverse weather in Canada, offset by continued rate increases and disciplined underwriting. On a discounted basis the Group COR was 92.5% (9M22⁴: 93.1%).

•    Protection & Health sales², were up 23% with strong growth in Individual Protection, and in Health which was supported by higher corporate new business.

•    Wealth net flows of £6.4bn represented 6%³ of opening assets under management, but were 9% lower than 9M22 due to the impact of the challenging market volatility on Platform. Workplace net flows were up 26% to £5.1bn (9M22: £4.1bn) driven by strong new business and the impact of wage inflation.

•    Retirement sales², were up 2% with higher BPA and Individual Annuity volumes. Year-to-date BPA volumes are
c.£5.5bn as at the date of this update.

•    Q3 YTD baseline controllable costs⁵ of £2.0bn were down 1% versus 9M22. This reflects our strong focus on cost efficiency in an inflationary environment. We remain on track to deliver our £750m cost reduction target this year, a year earlier than planned.

Further good progress on strategic delivery

•    In September we announced the exit of our Singapore joint venture for a total consideration of c.£850m⁶. This further simplifies the Group's geographic footprint following the successful international disposal programme completed in 2021. The sale is expected to close in Q1 2024.

•    We also announced the acquisition of AIG's UK protection business for £460m⁶. This will accelerate Aviva's growth in the attractive UK protection market and continue our progress in repositioning the Group towards capital-light growth.

•    The acquisition, which is expected to close in H1 2024, will broaden distribution, add over 2.5m customers across individual and group protection, and deliver significant capital and expense synergies.

•    At our 'In Focus' investor and analyst briefing in October we set out how Wealth is central to Aviva's strategy and plays a critical role in the Group. The wealth market presents significant opportunities for Aviva to generate sustainable, capital-light growth, and we have an ambition to reach at least £250bn in assets and at least £280m in operating profit⁷ per annum in five years' time.

Strong solvency and liquidity positions

•    Estimated Solvency II shareholder cover ratio remains strong at 200% (HY23: 202%).

•    The movement in the quarter was primarily driven by positive total capital generation, more than offset by the interim dividend. The sale of Singapore (+c.8pp) and acquisition of AIG's UK protection business (-c.5pp) will be reflected in our solvency position on their respective closing.

•    Pro forma Solvency II debt leverage ratio of 30.6% (HY23 pro forma: 30.3%).

•   Centre liquidity (October 2023) remains strong at £1.5bn (July 2023: £1.6bn) and is after repayment of the senior notes that matured in October, marking the conclusion of our deleveraging programme.

•    The Group's shareholder asset portfolio remains defensively positioned and continues to perform well.

Confident outlook reiterated

•    Our continued momentum and consistent delivery reinforces our confidence in the Group's prospects, financial targets and outlook.

•    We remain on track to exceed the Group's medium-term targets. We expect to beat our own funds generation (£1.5bn p.a. by 2024) and cash remittances (>£5.4bn cumulative 2022-24) targets, and to deliver our target of £750m gross cost reduction by 2024 one year early.

•    Since the end of Q3, the UK has been impacted by Storms Babet and Ciarán. Our focus during and after these events has been on helping our affected customers. We currently estimate that year-to-date weather-related claims across the Group, including these two recent UK storms, are within our annual long-term average (LTA) weather assumption, which is c.4pp of the undiscounted COR.

•    Our 2023 guidance for 5-7% growth in operating profit⁷ from £1,350m in 2022 remains unchanged, subject to normalised weather conditions for the remainder of the year.

•    We remain committed to delivering for shareholders. Consistent with previous guidance, we expect to pay a total dividend of c.£915m or c.33.4p for 2023, with low-to-mid single-digit growth in the cash cost of the dividend thereafter.

•    Under our capital framework, which remains unchanged, surplus capital is available for reinvestment in the business, bolt-on M&A and/or additional returns to shareholders. We continue to anticipate further regular and sustainable returns of surplus capital.

Footnotes

1.     Constant currency

2.     Sales for Protection & Health refers to Annual Premium Equivalent (APE). Sales for Retirement refers to Present Value of New Business Premiums (PVNBP). Sales or premiums for General Insurance refer to gross written premiums (GWP). APE, PVNBP and GWP are Alternative Performance Measures (APMs) and further information can be found in the 'Other information' section of the Half Year Report 2023.

3.     Net flows annualised as a percentage of opening assets under management.

4.     Comparatives have been restated for changes in COR following adoption of IFRS 17.

5.     Baseline controllable costs exclude strategic investment, cost reduction implementation, IFRS 17 and other costs not included in the 2018 baseline.

6.     Subject to customary closing conditions, including regulatory approvals.

7.     Reference to operating profit represents Group adjusted operating profit, on IFRS 17 basis, as published in the Half Year Report 2023. Operating profit is a non-GAAP APM and is not bound by the requirements of IFRS. Further details of this measure are included in the 'Other information' section of the Half Year Report 2023.

Click on, or paste the following link into your web browser, to view the full Aviva plc Q3 2023 Trading Update (document):

http://www.rns-pdf.londonstockexchange.com/rns/6207T_1-2023-11-15.pdf

The document is available to view on the Company's website at https://www.aviva.com/investors/results/.