Aviva 2009 Annual Report Download - page 18

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Aviva plc North America
Annual Report and Accounts 2009
Poised to benefit from recovery in
the world’s wealthiest market
The North American marketplace provides us with
access to a strategically attractive population with
a growing demand for products that offer
prosperity and peace of mind in both the general
insurance and life and annuities marketplaces.
Strategy
We will continue to grow our existing businesses and raise
our profile in North America on the back of the strength of
the global brand, communicating with financial analysts, key
financial and business media, consumers and distributors.
Our strategic priorities for the region are:
— to enhance capital efficiency and optimise margins
— to selectively expand and grow our core life insurance
and annuity distribution and product capabilities
— to operate as a great underwriting company
— to make best use of the synergies created within the regional
operating model
— to enhance strong and valuable relationships with our
customers and distributors.
Market environment
The US economy, and its financial sector in particular, suffered
a severe contraction as a result of the financial crisis. The
recession also had a major impact on Canada, the US’ largest
trading partner. There are now increasing signs of economic
recovery and, despite the recession, North America’s economies
remain among the world’s largest and its population among
the world’s wealthiest.
Performance
Total sales were £6,345 million in 2009, down 13% on 2008.
IFRS operating profit for the year improved 43% to £213 million
reflecting the improved long-term and savings result. Our
financial results are discussed in more detail on page 47 of
this report.
In our US business we have deliberately moderated annuity
sales in comparison to the prior year and centred on capital
management. We have grown our life insurance portfolio,
outperforming in a market that contracted by 19% in the
first nine months of the year.
In the Canadian business we have focused on initiatives
that improve our operational and underwriting effectiveness.
Examples include the implementation of our three-company
model, enabling us to price the auto business in the heavily
regulated Ontario market more accurately, and enhanced
underwriting through the use of more standardised and
automated processes. Elsewhere the Canadian business has
seen an unusually high frequency of large losses through
a combination of commercial fires and Ontario personal
auto claims.
As part of the ‘One Aviva, Twice the Value’ strategy, we
are consolidating each of our non-market-facing functions
into single North American business areas giving us improved
capability at lower cost.
Outlook
A number of economic indicators are starting to point to a
steady recovery in 2010. We will continue to grow our life
insurance portfolio in the US and our contribution to total Aviva
profits, building on 2009 successes. We await the outcome of
the SEC151A debate concerning the future regulation of
annuity products and will respond appropriately. In Canada we
will further enhance our underwriting processes to improve risk
selection, profitability and capital efficiency.
Innovative pricing
In the Canadian business we have successfully implemented
an innovative approach to the pricing of personal property
business known as ‘Rate by Peril’. We have used a detailed
and sophisticated mapping approach combined with proprietary
and public information to deconstruct the blended approach
to pricing used for multi-peril household policies. Using this
approach we are able to determine a unique rate for each
individual property reflecting its unique exposure to the perils
covered by the policy including fire, water damage, wind-storm,
sewer back-up, theft and liability. The increased pricing
precision that we are able to apply enables us to ‘right-price‘
each property.
Total sales £m
General insurance Long-term savings
09 6,345
08 7,316
07 5,058
06 2,284
05 1,851
Operating profit £m
MCEV* IFRS
09 394
213
08 334
149
07 274
229
06 180
161
05 172
158
* On an MCEV basis from 2007. Prior years presented on an EEV basis.