Aviva 2013 Annual Report Download - page 9

Aviva plc
Annual report and accounts 2013
7
Strategic report Governance IFRS Financial statements Other information
Group Chief Executive Ofcer’s statement continued
While satisfactory at a Group level, there remain
a number of opportunities to improve our
operating prot. Declines in our Italian and
Spanish life businesses need to be reversed and
our growth markets need over time to contribute
more to operating prot. Aviva Investors grew its
fund management contribution 74%, but at
around 3% of Group operating prot and with
assets under management of £241 billion, this
remains inadequate. Plans are in place to address
these issues over the coming years and Euan
Munro brings much needed leadership and
impetus to Aviva Investors.
Expenses
Our 2013 operating expense base is now 11%
below the 2011 baseline with £360 million of
expense reductions coming through operating
prot. We are well on track to deliver our
£400 million expense reduction target by the
end of 2014.
There remains signicant opportunity to reduce
expenses further but some of these additional
savings will be reallocated in the near term
towards initiatives to manage our existing books
of business more efciently and serve customers
more effectively through deploying the latest
digital and automation technology. I am
condent that whatever reallocation is made will
produce attractive returns and a short payback
period, without signicant disruption to our
workforce.
Going forward, we will measure our expense
efciency using a ratio of operating expenses to
revenue. The Group expense ratio for 2013 is
54% (2012: 57%). Lower expense ratios are
essential for us to offer competitive products to
our customers and to produce the necessary
returns for our shareholders. It is my intention to
show improvement in this ratio year after year.
Value of new business
We measure our growth in life insurance by
growth in Value of New Business (VNB), which is
a good proxy for future cash ows. In 2013, VNB4
increased 13% to £835 million (2012: £738
million) with stand-out performances in France
and our growth markets.
Our life cash generators in the UK and France
grew VNB 4% and 39% respectively. We have
achieved this through better product and
business mix and we have initiatives underway to
increase productivity in both countries. France in
particular, has demonstrated that signicant
growth is possible in mature markets.
We have made a number of structural changes
to our turnaround businesses – such as reducing
the capital intensity of our Italian business – that
should ensure more focus and better VNB
growth.
Our future cash generators of Poland, Turkey,
China and Asia contributed 21% of Group VNB
(2012: 16%) and collectively grew 49%. Our new
joint venture in Indonesia is an example of how
we can expand our presence in emerging
markets, without impacting the cash ow part of
our investment thesis.
Combined operating ratio
In general insurance, the Combined Operating
Ratio (COR) deteriorated slightly to 97.3% (2012:
97.0%), entirely due to adverse weather in the
year. Floods in Alberta and Toronto Canada
cost the Group £129 million and the December
storms in the UK had a £60 million operating
prot impact, although the impact of the UK
storms was offset by better than expected
weather earlier in the year. Bad weather in
the UK has persisted in January and February
2014 with claims of approximately £60 million
recorded. However, this is broadly in line with our
weather expectations for January and February.
Our overriding focus is to help our customers
affected by the bad weather and our teams of
loss adjustors, surveyors and claims experts – the
largest in the UK – have been on hand seven days
a week, offering advice and support.
Financial strength
Strengthening our nancial position has been
a focus in 2013. Our economic capital surplus
has increased to £8.3 billion, which represents a
182% coverage ratio and includes our dened
benet pension on a more conservative fully-
funded basis. We welcome the progress made by
our regulators on Solvency II and the level playing
eld that this is likely to create.
I believe Aviva is
now more focused and
better managed.
Mark Wilson
Group Chief Executive Ofcer
Cash remittances
(£m)
2012 2013
£904m
£1,269m3
40%
Adjusted operating profit –
continuing (£m)
2012 2013
£1,926m
£2,049m
6%
Operating expenses
(£m)
2011 2013
£3,366m
£3,006m
11%
Value of new business – excl
Malaysia and Sri Lanka (£m)
2012 2013
£738m
£835m
13%
Combined operating ratio
(%)
2012 2013
97.0%
97.3%
0.3pp
In 2013, we set out ve key
metrics to measure our
performance:
To read more about the performance
of our markets, turn to page 30
3 This includes £347 million remitted by UK General Insurance in January 2014 relating to activity in 2013.
4 Excluding Malaysia and Sri Lanka.