Aviva 2013 Annual Report Download - page 39

Aviva plc
Annual report and accounts 2013
37
Market focus continued
Strategic report Governance IFRS Financial statements Other information
Spain and Italy: turnaround businesses
Our strategy and full year performance
Our strategic focus for Spain and Italy is to
deliver sustainable cash remittances to Group.
In 2013 we made progress in addressing market
challenges and turning the businesses around,
but there is still more to do.
In Spain we have increased our focus on
standalone protection sales and the protability
of products with guarantees, while improving
the efciency of our operations. In Italy we
are exiting non-core, unprotable distribution,
improving protability of products with
guarantees and focusing on protection
and general insurance.
Spain
In Spain we are a strong bancassurance player,
operating through ve partnerships. We also
have a retail network selling life, pensions and
protection products through more than 1,000
brokers and Seguros Pelayo.
Our retail business has been recognised by
ADECOSE (the broker and IFA association) as
the best insurance company in Spain to work
with in the protection and accidents category.
We are the fourth largest protection player
with 7% market share1.
In April 2013, we concluded our settlement
with Bankia regarding our Spanish business,
Aseval. This agreement realised €608 million
cash for the Group.
We continue to improve cost efciency through
standardising processes and leveraging shared
services between our bancassurance and retail
businesses.
In Spain, operating prot was £151 million
(2012: £217 million), with most of the reduction
from last year driven by the disposal of Aseval
in April 2013. VNB was also impacted by this
disposal and the continuing tough economic
conditions, reducing to £33 million for the year
(2012: £56 million). Cash remittances reduced
to £51 million (2012: £68 million, including a
one-off dividend payment).
Italy
In Italy we have a strong life presence and a
protable general insurance business. We have
a successful bancassurance network including
relationships with three of the country’s top
ve banks.
Our Italian business made good strategic
progress in 2013, exiting underperforming and
non-core distribution agreements.
In November 2013, we reached an agreement to
sell our entire 39% stake in Italian insurer Eurovita
to JC Flowers. This is a signicant step towards
realising our strategy to focus on more capital
efcient, protable products.
Our product mix is well-balanced with
unit-linked accounting for 37% of our total sales.
We have re-priced our unit-linked and protection
products to increase protability. We have also
led the market with the introduction of zero
percent guarantee products.
In general insurance, signicant progress has
been made implementing pricing actions, exiting
underperforming agencies and reducing cost.
This has resulted in a signicantly improved COR
of 95.2% (2012: 99.8%).
During 2013, we further developed our
partnership with Banco Popolare SC by launching
a telematics-based motor insurance product sold
through their branches.
In 2013, Italy repaid a loan to Group of €6
million and paid a dividend of €14 million. This
represents a key turning point for the business
which did not pay a dividend in the preceding
two years.
Operating prot was stable at £169 million.
For our life business VNB reduced to £15 million,
particularly as lower risk-free rates impacted
margins in Eurovita (which is held for sale).
However, excluding Eurovita, VNB increased
by £4 million in the year.
The market in 2014
Although still challenging, the Spanish economy
has stabilised and started to show signs of
improvement, with a return to positive GDP
growth, falling unemployment and improving
investment sentiment. Our focus remains on
further improving the mix towards protection and
capital efcient saving products and improving
operating efciency.
The Italian market is also expected to show
early signs of recovery; economic forecasts
are improving, although subject to political
uncertainty.
The recent trend of general insurers adopting a
more technical approach to pricing and focusing
on operational efciencies in Italy is expected to
continue. We have taken pricing action in general
insurance and made product changes to improve
protability. In life, customer demand for
with-prot products will continue but the market
is now becoming accustomed to lower/zero
percent guarantee products. The protection
market is expected to grow as the economy
starts to recover.
Business
in brief:
Spain and
Italy
In Spain, we
distribute through:
ve bancassurance
partnerships, Pelayo
Vida, 1,000 brokers
In Italy, we
distribute through:
partnerships with
three major banks and
other smaller networks
(4,400 branches),
4,000 nancial
advisors, 600 agents
and brokers
4.1m
Customers
1,100
Employees
1 ICEA, Insurance Association in Spain.
For more information on nancial
performance see ‘Other Information –
Financial and Operating
Performance’ in our annual report
and accounts