Aviva 2009 Annual Report Download - page 31

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Performance review
Aviva plc Information on the company continued
Corporate responsibility
Annual Report and Accounts 2009
Governance
Shareholder information
Financial statements IFRS
Financial statements MCEV
Other information
Performance review
Market
The US is the world’s largest national economy, according to
the World Bank, based on 2008 GDP, as well as the largest
insurance market according to the Swiss Re Sigma Report,
No.3/2009. This is especially true for retirement savings products
as 78 million members of the baby boom generation move into
retirement in the US.
At the same time, the US economy, and its financial sector
in particular, suffered a severe contraction as a result of the
financial crisis. 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. Retirement savings represent 34% of
household assets in the US, according to a report by Investment
Company Institute, and, despite the uncertainty affecting the
financial markets, we believe that people are still saving and
buying insurance from brands they trust. In Aviva USA, we
believe we are well positioned to respond to this customer
need for safety, having savings and investment products with
downside guarantees as a major component of our product
portfolio. The indexed annuity and indexed life markets in which
Aviva USA operates are dominated by a small number of large
insurers. According to the fourth quarter 2008 Advantage
Indexed Sales and Market Report by AnnuitySpecs, the top five
providers hold 62% of the indexed annuities market, while for
indexed life, the top five account for 64% of the market.
Products
Aviva USA has a strategic focus on protection, annuity and
savings products. Our life products include our universal life,
indexed life, no lapse guaranteed and term assurance products.
Our savings products are primarily funding agreements. Our
annuity products include indexed annuities, fixed index
annuities, deferred fixed annuities, immediate annuities,
guaranteed lifetime withdrawal benefits, and structured
settlements. During 2008 we announced our withdrawal
from the structured settlement business.
In addition, we now offer wellness products and services
through our relationship with Mayo Clinic Health Solutions. We
have also launched enhancements to our guaranteed income
withdrawal benefits and a new bonus index deferred annuity.
Distribution
We use Independent Marketing Organisations (“IMOs”) to
promote and sell our fixed indexed annuities and protection
products. Our network covers all 50 states and includes 11,500
annuity producers and 27,000 life insurance producers. The
large majority of annuity sales are made through fewer than
3,000 producers, of who approximately one third are SEC
registered. We believe that SEC registration provides a number
of significant opportunities for the business, including the ability
to cross-sell life products through the registered distribution
force and product penetration of distribution organisations that
already operate within the registered market. We also distribute
through career marketing organisations, personal producing
general agents and brokerage general agents.
Canada
Business overview and strategy
Aviva Canada has an 8% share of the Canadian general
insurance market, with a top five position in all major provinces
according to a report by MSA Research Inc.
We believe that we are well placed in Canada for steady
organic growth and that our success is underpinned by stable
broker relationships, underwriting excellence and a balanced
portfolio of commercial and personal lines. Looking ahead, we
aim to create value by repositioning our personal lines book in
Ontario through greater pricing sophistication and customer
segmentation. We will also continue to address increasing
customer demand for choice and simplicity through our broker-
distribution model and brand investment in key territories. In
commercial lines, we aim to retain our current market position
through our expertise in distribution and product innovation.
Market
As the seventh largest in the world, according to the Axco
Insurance Market Report, Canada’s general insurance market is
established and stable. The four largest provinces generate around
90% of total premiums with Ontario, the largest, representing
47% on its own, according to a report by MSA Research Inc in
2008. The biggest growth market is western Canada, where
economic development has resulted in significant population
increases and a changing demographic profile.
The Canadian general insurance industry is highly
fragmented with many small players and no dominant
consumer brand. Steady consolidation has resulted in the top
five companies sharing 36% of the market with the top two
companies, Intact Insurance (formerly ING Canada) and Aviva,
controlling 19%. The rest of the industry consists of smaller,
provincially based or niche companies. Further consolidation
is anticipated.
Distribution is primarily through the traditional broker
channel, estimated by market commentators, including Axco,
to account for over 70% of distribution, with the direct and
affinity channels gradually increasing their share of the market.
Competition for growth has moved to investment in brokers,
direct to consumer marketing, and technology.
Products
We provide a number of general insurance products through
our Canadian companies including:
— Property, home and automobile insurance, including
recreational vehicles and mobile homes insurance
— Niche personal insurance products including holiday and
park model trailers, horses, hobby farms, sailboats, power
boats and antique classic and custom cars
— Small and medium-size enterprise commercial insurance,
including motor, property, liability, boiler and machinery,
and surety
Distribution
We operate in Canada through a distribution network primarily
focused on approximately 1,700 independent retail brokers,
who distribute our core personal and commercial lines. In
addition, we work closely with both independent and wholly
owned speciality brokers to distribute group insurance and
speciality personal lines, such as insurance for antique cars.