Aviva 2006 Annual Report Download - page 44

Aviva plc
Annual Report and Accounts 2006 40
Europe continued
Netherlands
Delta Lloyd is a top-five general and health insurance provider
in the Netherlands selling a range of products including personal
motor, household and small commercial policies as well as
healthcare policies. Distribution is through intermediaries under the
Delta Lloyd brand, directly under the OHRA brand and through our
bancassurance joint venture with ABN AMRO Bank.
Developments in our general insurance business in 2006 have
included the introduction of the “ Xclusive” range of prestige
personal insurance products through the intermediary channel, and
white label insurance product sales through a pharmacy chain.
In 2006, health provision has been reformed with the
amalgamation of public healthcare provision into the private sector.
These changes have resulted in lower profitability within the
industry and Delta Lloyd has been active in exploring strategic
options. One such option was the proposed merger with Agis
Health Insurance and Menzis Health and Income that was
rejected by Menzis’ member council at a late stage in November.
Nevertheless, Delta Lloyd remains confident in the futureof its
healthcarebusinesses, underlined by its success in writing 45,000
new policies in 2006.
On 8 February 2007, Delta Lloyd announced its acquisition of
the Erasmus Group in the Netherlands, which remains subject to
regulatory approval. This transaction has a good strategic fit and
it is expected to add 12-15% to our existing general insurance
business volumes.
Our general insurance and health operating profit was £139 million
(2005: £137 million).Our general insurance COR improved to 89%
(2005: 93%),reflecting a strong premium rating environment and
favourable claims experience, including a low incidence of large
claims. Conditions in the health market were less favourable as
noted earlier, resulting in an operating profit of £11 million
(2005: £40 million).
Profitability in general insurance has been strong, although we
have witnessed some weakening of general insurance premium
rates towards the end of 2006, a trend we expect will continue
into 2007. However,with our focus on cost control through more
efficient back-office processes and high quality customer service,
we regard 2007 prospects as good.
Other Europe
Our other European general insurance operations are based in
Italy,Poland and Turkey. They sell predominantly personal and
small commercial insurance through networks of agents and
brokers. Our aim for these businesses is to achieve profitable
growth and to contribute cash generation in support of our
life businesses.
The operating profit from our other European general insurance
businesses was £43 million (2005: £47 million),reflecting broadly
stable market conditions.
Business review continued
Europe – General insurance and
health premium and operating profit
2004 2005 2006
Net written premium (£m)
Operating profit (£m)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
450
400
350
300
250
200
150
100
50
0
Net written premium
Operating profit
Wecontinue to focus on a multi distribution strategy with organic
growth delivered through the enhanced flow of new offerings
and creative solutions and the expansion of market segments
where we operate.
We won in all general insurance categories and retained the best
overall general insurer at the 2006 Irish Broker Association service
excellence awards. We also won the most effective use of software
at the Information Age Effective IT awards. Our motor, van and
home insurance policy documents have won the crystal mark for
plain English.
During 2006 we have launched a number of new product
initiatives providing innovative, customer-focused products. We are
developing our internet sales capability to enable us to capitalise on
the expected growth of this channel. Building on Hibernian Life &
Pension’s strategic partnership with Allied Irish Banks (AIB), we will
commence selling motor insurance through AIB’s website, and will
seek to develop further opportunities with AIB in the future.
Our partnership with Tesco, through which we sell motor insurance,
has been successful, while we also continue to invest in flood
mapping technology to improve underwriting and pricing.
Operating profit was stable at £172 million (2005: £171 million)
while the COR improved marginally to 77% (2005: 78%). Despite
the Irish general insurance market remaining highly competitive, net
written premiums increased to £519 million (2005: £499 million).
Lower claims costs resulted in an improvement to our underwriting
result to £121 million (2005: £116 million).
The market has remained profitable in 2006; however, with
premium rates being reduced in key classes of business at present,
we expect to see a decline in market profitability from 2007
onwards. There also remains continued uncertainty regarding the
impact on the cost of settling claims on the establishment of the
Personal Injuries Assessment Board. However, the opportunities
provided by the Ark Life acquisition give us the platform from
which to grow our business in this developing market.