Aviva 2002 Annual Report Download - page 30

Operating review: General insurance
16 Aviva plc
Annual report + accounts 2002
UK
Norwich Union Insurance is the largest general insurer in the UK
and produces 61% of the group’s general insurance business.
Our overall UK market share is around 16%, although higher in
our chosen sectors, such as private motor and targeted business
cover. We are committed to delivering consistent and sustainable
performance, and high-quality products and service, while building
on our market leadership.
Competition in the personal lines market is intense, with new
entrants, high street retailers and other major brands increasing the
pressure on insurers to provide low prices. In contrast, the
commercial market has seen increasing opportunities as insurers
reassess their risk strategies and tighten underwriting standards
following the demise of Independent Insurance Group and the
World Trade Center disaster.
We produce sustainable returns through disciplined underwriting,
efficient claims handling and rigorous management of costs.
We believe that the skills of our insurance professionals are
fundamental to running an efficient and effective business.
Following the launch of our Underwriting Academy in 2001 to
develop our skills and improve our risk selection, we created a
Claims Academy in 2002 to provide our staff with the training
support they need to deliver excellent customer service.
Our expense ratio in 2002 – broadly a measure of costs excluding
commission as a percentage of premiums – was 10.4% (2001:
10.5%), one of the lowest among major UK insurers. The key to
our expense management is balancing low costs with high levels
of service, while allowing us to invest in new technology to
maintain our leading position in the market. For example, we
announced in early 2003 our plans to develop a call and claims
processing operation in India. This investment will help us maintain
a leadership position in our markets and high levels of customer
service 24 hours a day.
Customers increasingly look for individually tailored products and
services. We are developing a number of initiatives to meet this
growing demand to give customers an even fairer price based on
their particular circumstances. We continue to lobby the
Government for improved flood defences in the UK, and our
unique digital map covering most of mainland Britain will help us
to calculate flood risks more accurately for individual policies.
Other examples of market-leading initiatives include our pioneering
Pay As You Drive™ motor insurance project and the launch of
Norwich Union Rescue as a branded vehicle breakdown service.
We have also launched a series of business products that are more
straightforward and relevant to the needs of our customers.
The success of our approach is reflected in an improved operating
profit of £611 million (2001: £590 million), on net premiums
written of £4.7 billion (2001: £4.8 billion). Behind this result is a
change in mix between personal lines premiums of £2.8 billion
(2001: £3.1 billion) and commercial lines premiums of £1.9 billion
(2001: £1.7 billion). This reflects how we manage our business as a
balanced portfolio in response to changing market conditions.
Overview
Our general insurance strategy is to create strong market positions
focused on personal lines and selected commercial insurance.
By targeting these sectors, we have a lower-risk business capable
of producing a steadier stream of profits which we can use to
support growth in our long-term savings operations.
The success of our strategy is reflected in an excellent
operating profit†of £959 million (2001: £924 million). Operating
profit from continuing operations was £881 million (2001:
£876 million). Worldwide net premiums written from continuing
operations were maintained at £7.8 billion (2001: £7.9 billion).
One of our key performance measures is the group’s combined
operating ratio (COR), which broadly expresses the total of claims
costs, commission and expenses as a percentage of premiums.
We have one of the best CORs among our European peer group.
We produced a better-than-target COR of 101.4%†as a result
of our disciplined underwriting and efficient claims handling.
Our COR from continuing operations was 101.7%, and this
excellent result gives us confidence that we are capable of
sustaining our target COR of 102% over the underwriting cycle.
Market conditions across our businesses are becoming more
difficult. This is particularly true in personal lines, as rating
competition intensifies. However, we will not chase sales volume at
the expense of profit. Our clear strategy, combined with scale and
presence in our chosen markets, positions us to continue to
produce excellent returns for our shareholders.
£959m
Operating profit before tax†
†From continuing and discontinued operations.