Earnings Document

News Release

18 May 2022

Aviva plc Q1 2022 Trading Update

Continued progress and trading momentum across Life and General Insurance

Strong and resilient capital position, with capital retuto be completed by end of May

On track to meet upgraded targets outlined at FY 2021

Amanda Blanc, Group Chief Executive Officer, said:

"First quarter trading was positive, and our performance shows the clear benefit of Aviva's business mix across insurance, wealth and retirement. We delivered healthy sales numbers across all our major business lines, with UK customer numbers up by over 100,000 in the last year to 15.4m, increasing our confidence that we can transform Aviva's performance and grow.

"UK & Ireland Life sales are up 2%, and net flows into our Wealth business remained strong at £2.7 billion, despite market volatility. Our Advisor platform is now the number one in the market for net flows, and in Annuities and Equity Release we saw increased bulk purchase annuities volumes, written with good returns.

"We have also continued our momentum in General Insurance where we had our best first quarter sales in a decade, as more people were attracted to the strength of the Aviva brand and the quality of our products. Total General Insurance sales were up 5% to over £2 billion, driven by strong sales in commercial lines in both the UK and Canada.

"We remain very well positioned to benefit from the long term growth trends in our markets, and to meet our upgraded financial targets. This is underpinned by our strong capital position which benefits from rising interest rates. Our financial strength and market leadership give us confidence that we can successfully navigate the current uncertain economic conditions."

Continued growth in Life sales2 and record Q1 General Insurance premiums

• UK&I Life sales of £8.4bn, up 2% (Q121: £8.3bn) with growth in Annuities & Equity Release and Protection & Health partly offset by Wealth.
• Total BPA sales in Q1 were £843m, up 29%, with a healthy pipeline weighted towards the second half of the year.
• UK&I Life value of new business (VNB) £144m, up 31%, and VNB margin of 1.7% (Q121: 1.3%), driven by Annuities & Equity
  Release VNB of £31m (Q121: £nil).
• General Insurance gross written premiums (GWP) up 5% in Q1 to £2.1bn, another record. UK&I GI GWP up 3% to £1,347m and Canadian GI GWP up 10% to £753m.
• GI combined ratio (COR) of 96.4% (Q121: 90.6%) reflecting £70m cost for the February storms in UK GI and more normal motor claims frequency.

1 Q1 net flows annualised as a percentage of opening assets under management

• References to sales represent present value of new business premiums (PVNBP) which is an Alternative Performance Measure (APM). Further information can be found in the 'Other information' section of the Full Year 2021 Results announcement.
  3 Pro forma for further debt reduction of £500m over time and pension scheme payment, and after the impact of the acquisition of Succession Wealth. Actual Q1 Solvency II cover ratio is 205% (FY21: 244%). * The financial information for comparative periods in this trading update refer to continuing operations only.

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Continued focus on cost efficiency

• Controllable costs down 3% (excluding cost reduction implementation, strategic investment and IFRS 17 costs) to £683m at Q1 (Q121: £705m).
• On track to achieve savings target of £750m gross savings (£400m net of inflation) by 2024 relative to our 2018 baseline.

Capital retuprocess nearing completion

• Shareholder approval received for £3.75bn retuof capital via B Share Scheme. Total capital retuto shareholders of £4.75bn will therefore be complete by end May 2022.
• 76 for 100 share consolidation now completed with new share count of 2,802m as at 16 May.

Solvency and liquidity remain strong and resilient

• Solvency II shareholder cover ratio of 205% (FY21: 244 %) was 39pp lower driven by £3.75bn capital return, £500m redemption of subordinated debt, 2021 final dividend, partly offset by operating capital generation in the period and the beneficial impact of higher interest rates.
• Solvency II cover ratio of 198% (FY21: 191%), pro forma for further debt reduction of £500m over time and £75m pension scheme payment. The acquisition of Succession Wealth will further reduce this pro forma ratio to 192% (FY21:186%).
• Solvency II Operating Capital Generation (OCG) for our UK Life Heritage business was £175m in 2021, representing c.9% of business unit OCG. We expect Heritage OCG to run-off by c.£10-£15m per annum.
• Centre liquidity (Apr 22) of £5.8bn (Feb 22: £6.6bn). Centre liquidity of £1.5bn pro forma for the £3.75bn capital return, further £500m debt reduction over time and £75m pension scheme payment.
• £500m Tier 2 Notes matured in April, completing half of our targeted further £1bn debt reduction.

Significant progress on ESG rating

• Sustainalytics ESG risk rating improves to 11.3, now ranking Aviva 6th1 out of 296 global insurers (up from 25th) and ahead of all UK Financial Services peers.

Outlook

• We remain confident and on track to meet the cash remittance, own funds generation, and cost reduction targets outlined at our FY 2021 results presentation.
• Our dividend guidance2 of c.£870m for 2022 and c.£915m for 2023 remains unchanged. Following the capital retuand share consolidation this would be equivalent to per share amounts of c.31.0p and c.32.5p respectively.
• The acquisition of Succession Wealth, announced in March, remains on track to complete in the second half of 2022.
• Our strong leadership positions, together with the actions we have taken over the past two years to strengthen our financial position, leave us well placed to navigate the prevailing economic environment.

Pages 3 to 5 of this release cover Q122 trading performance and capital in further detail

1 As at 17 May 2022

2 Estimated dividends are for guidance only. The Board has not approved or made any decision to pay any dividend in respect of any future period.

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Life sales1 and Value of New Business (VNB)

Total Life sales of £8.7bn, up 1%. VNB up 7% to £163m.

Annuities & Equity Release

• Sales were 22% higher, driven primarily by improvement in BPA volumes compared with the low volumes of transactions seen in the market in Q1 2021, as well as strong growth in Equity Release, partially offset by lower levels of Individual Annuity business. There is a healthy BPA pipeline weighted towards the second half of the year.
• VNB up strongly to £31m (Q121: £nil). This reflects higher availability and allocation of illiquid assets backing annuities in the quarter compared with the prior period. As usual, the majority of illiquid allocation will occur towards the end of the year, and so VNB margins are likely to be lower at half year 2022 before improving in the second half.
• Our VNB represents the impact on Solvency II Own Funds in year 1. It therefore excludes margins earned in future years, which emerge in our numbers over time. We also use the actual assets and reinsurance achieved within the reporting period, rather than an approach based on longer term target asset and/or reinsurance mix.

Protection & Health

• Overall sales were up 10% driven by strong performances in Group Protection and Health.
• Health was up 21% as our Expert Select proposition for consumers continues to perform strongly, while we also saw good performance in the SME line.
• Protection was up 7% in total, driven by strong growth in Group Protection which included the benefit of one significant scheme win.
• VNB grew 12% driven by higher volumes in Group Protection and Health, partially offset by increases in the yield curve which negatively impacts VNB in Protection.

Wealth & Other

• Overall sales were 3% lower reflecting market volatility which dampened investment activity, as well as strong prior period comparator in workplace where Q1 2021 had benefited from significant scheme wins that were delayed during 2020.
• VNB was 9% lower at £49m (Q121: £54m) in part due to lower volumes in the period.

Ireland Life

• Sales grew 5% driven by continued strong sales in unit-linked business.
• Continued focus on financial discipline and improved margins from delivery of our new rationalised product offerings has supported VNB growth of 40%.

International Investments

• Sales 24% lower reflecting strong prior period comparators which benefited from new product launches in Singapore and China, together with the impact of lockdowns in Q1 this year.

• References to sales represent present value of new business premiums (PVNBP) which is an Alternative Performance Measure (APM) and further information can be found in the 'Other information' section of the Full Year 2021 Results announcement.

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Wealth and Aviva Investors net flows1 and assets under management (AUM)

Wealth

• Net flows of £2.7bn remained strong at 7% (annualised) of opening AuM, though were 6% lower than Q121 (£2.9bn). This reflected lower inflows due to market volatility, and an improved lapse rate of 6% that was nearly 1pp lower than Q1 2021.
• Platform net flows were 5% lower at £1.45bn (Q121: £1.53bn), as market volatility resulted in lower investment activity and switching in the period. Performance remains strong, and our Advisor Platform reached the significant milestone of taking #1 ranking in net flows for the whole of 2021 for the first time.
• Workplace net flows remained strong at £1.4bn (Q121: £1.5bn), with the reduction in flows primarily a result of a strong Q1 in 2021 which benefited from a number of scheme wins whose transition had been delayed in 2020.

Aviva Investors

• External net flows of £(0.2)bn (Q121: £0.2bn), excluding cash and liquidity funds, reflected volatile market conditions.
• Internal asset net flows of £(1.2)bn (Q121: £(0.2)bn) reflected expected outflows from internal assets, mainly Heritage. Strategic actions net flows of £(2.9)bn largely relate to exit decisions taken by clients previously part of the Group, mainly Aviva Investors France.
• Fund performance remains strong, with 76% of funds above benchmark over 1 year (FY21: 69%) and 66% over 3 years
  (FY21: 65%).
• We continue to focus on our strengths of ESG, real assets, infrastructure and credit, while improving the efficiency of the business.

General Insurance GWP and COR

Overall

• GWP up 5% to £2.1bn (Q121: £2.0bn), another record first quarter. The UK delivered growth of 4% and Canada 10%.
• COR was 5.8pp higher at 96.4% (Q121: 90.6%) following a retuto more normal claims frequency together with higher UK weather costs versus long-term average.
• In line with the market, we are observing increasing claims inflation across our GI businesses as a result of macro- economic uncertainties and volatility. In response we have taken swift pricing, underwriting and claims management actions to mitigate this, and we expect these actions to continue.

UK & Ireland

• UK commercial lines growth of 11% was driven by continued rate momentum (7pp) and strong new business growth and retention (4pp) , including growth of 12% in SME and 9% in Global Corporate and Specialty (GCS) lines.
• Personal lines down 2%, with Retail premiums down 1% driven by pricing discipline in a soft rating environment, and Intermediated premiums also down as we continue to reshape the portfolio towards higher margin lines.

1 Aviva Investors net flows excludes liquidity funds and cash

2 Q121 re-presented to remove Wealthify which is now shown as a Group investment

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• Following the FCA pricing practices review, policy retention in Q1 has increased across both Home and Motor.
• UK GI COR of 99.4%, was 7.3pp higher than prior year, of which 5.2pp relates to higher weather costs (the February storms cost £70m). A retuto more normal claims frequency also adversely impacted the COR.
• In Ireland, growth of 4% (at constant currency) was driven by Commercial Lines, whilst the COR of 100.9% reflected more normal claims frequency and adverse large losses.

Canada

• Commercial lines premiums were 17% higher (13% higher at constant currency), with the business benefiting from new business activity, and the favourable rate environment.
• Personal lines premiums were 6% higher (3% higher at constant currency), reflecting strong rate increases against the inflationary backdrop.
• COR of 91.8%, was 3.7pp higher than prior year mainly due to more normal levels of claims frequency.

Capital & centre liquidity

Solvency II shareholder cover ratio

• The cover ratio reduced by 39pp during the quarter to 205% (FY21: 244%).
• This was driven by the £3.75bn capital retuwhich is now fully recognised in our Solvency II position, the redemption of £500m of subordinated debt, and the 2021 final dividend, partly offset by Solvency II Operating Capital Generation (OCG) in the period and the beneficial impact of higher interest rates.
• Estimated pro forma cover ratio of 198%, allowing for a further £500m debt reduction over time and £75m pension scheme payment. The acquisition of Succession Wealth will further reduce this pro forma ratio to 192%.

Solvency II debt leverage ratio

• Solvency II debt leverage of 29% at Q122 after allowing for the £500m subordinated debt redemption on 21 April (FY21: 27%).
• Estimated pro forma debt leverage of 28%, allowing for a further £500m debt reduction over time and £75m pension scheme payment.

Centre liquidity

• Centre liquidity of £5.8bn as at the end of April 2022 (Feb 2022: £6.6bn), primarily reflecting the redemption of £500m of subordinated debt.
• Estimated pro forma centre liquidity of £1.5bn, allowing for the £3.75bn capital return, a further £500m debt reduction over time and £75m pension scheme payment.

1 Rounding differences apply

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