asian financial services analyst presentation - aviva plc · asian financial services analyst...

© Aviva plc

Asian Financial ServicesAnalyst Presentation

Charles Anderson - Managing Director -Financial Services - Asia

© Aviva plcSlide 37

Aviva Asia FS kicks off…

China Start Date: January 2003

IndiaStart Date: June 2002

Singapore Purchase Date: July 2001

Hong KongPurchase Date: July 2002

Our Winning Proposition for Asia Financial Services:Aggressive development in our chosen markets of multi-distribution

focusing on effective bancassurance relationships and the disciplinedgrowth of agency salesforce.


Source: Swiss Re, sigma No. 8/2003

Asia Life Insurance market essentialsIndicators based on Year 2002 Singapore Hong Kong India China

Population size (in millions) 4.1 6.8 1,051.5 1,284.5

GDP (in billions of US$) 87 162 475 1,237

GDP growth rate (in %) 2.2% 2.3% 5.5% 8.0%

Life insurance premium volume (in mio of US$) 3,026 8,400 12,274 25,054

World market share - life premium (in %) 0.20% 0.55% 0.80% 1.63%

Life insurance premium per capita (in US$) 730.1 1,237.9 11.7 19.5

Life insurance premiums as % of GDP 3.48% 5.20% 2.59% 2.03%


Singapore

• Solid start

• Focus on profitability, ROCE

• Valuable infrastructure created

• Positioned for future growth

• Asia Springboard established


Singapore: Progress on all fronts

• Purchased 100% of ICS from DBS Group in July 2001• Concluded 10 year bancassurance deal with DBS at the same time• Total amount invested in life business of S$290m• Sold Direct Sales Force in 2002• Launched profitable bancassurance product offerings in April 2002• Achieved market leader position in the Financial Advisors (IFA)

channel in 2003• Signed NKF distribution agreement in Q1 2004• Improved service significantly

DBS DBS/Aviva Aviva AvivaAPE basis 2000 2001 2002 2003- Individual & Group

Market Share 4.0% 5.2% 6.1% 9.0%

APE (in mil GBP) 16.2 26.8 23.5 29.8


Singapore: Financial Performance

• Ratio of Goodwill to NBC: Decreased from 14.5 in 2002 to 7.8 in 2003

• 2004 performance to date– New Business up 15% compared to 2003 on an APE basis – Strong margins maintained

Key Performance Indicators 2002 2003(in million of GBP) Actual Actual Variance

APE 23.5 29.8 27.0%

Expenses 9.9 8.8 -10.6%

LAOP (gross) 12.3 14.2 15.2%

ROCE in % 10.5% 12.4% 1.9%


Singapore: New Business Mix

• Profit Margins– Second highest within Aviva Group (40.2% in 2003*) – Unit linked products more profitable than with profits – Tight expense control contributes positively

APE basis 2001 2002 2003Actual Actual Actual

% Regular Premium (RP) 21.7% 47.6% 81.5%% Unit Linked 4.3% 25.7% 43.9%RP Average Case Size (in S$) 1,068 1,104 1,877

* Margin on pre tax, pre cost of solvency basis


Singapore – Where are we heading?

• Realise full potential of DBS relationship– Out-of-branch sales – using full financial needs analysis – Increasing focus on risk products

• Further development of IFA/Broker market– Pro-actively support growth of this segment (Less than 5% in

2003)– Maintain number 1 position and improve profitability further

• International Financial Solutions– Targeting HNW and Expatriates – Business now launched

• Affinity Deals– National Kidney Foundation (1 million supporters) deal signed– Others in the pipeline


Hong Kong

• Volumes starting to flow• Efficient operating model• Differentiated market position• Further opportunities for growth


Hong Kong: Space for us to grow• HK is 6th largest life insurance market in Asia and 21st worldwide• Our approach is substantially different to other players• Our foundation is a 10 year agreement with DBS

Distribution Channels Market Now Aviva Now Aviva in 2006

Direct Salesforce 70% 0% 0%Bancassurance 20% 100% 70%IFA/Others 10% 0% 30%

Product Category by APETraditional 75% 70% 50%Unit-Linked 25% 30% 50%

* Aviva estimates


Singapore Hong Kong

Hong Kong: Operating Model • Formed in July 2002 following the acquisition of Dao Heng

Assurance and Kwong On Insurance from DBS Group for £31 million

BackofficeSupport• Finance• Products• Admin• IT

Aviva Life HK• Sales Support• Call Centre• 21 Employees

DBS Bank• Top 5 in HK• 60 branches• 300

Relationship Managers

• 1 million customers


Hong Kong: Financial Performance

• 2004 ahead of plan year to date for new business and NBC– APE significantly increased from Q1 2003

• Margins expected to be comparable to those in Singapore in 2004

Key Performance Indicators 2002 2003(in million of GBP) Actual Actual

APE 0.3 3.1

Expenses 1.3 2.4

LAOP (gross) (0.6) 1.0

ROCE in % -1.9% 3.2%


Hong Kong: Where we are heading

• Build on brand positioning as a quality long-term savings provider– Use of the bank’s brand helps to manage channel conflict

• Achieve the full potential from the DBS franchise– Extend scope of activity to other customer segments e.g.

“emerging affluent”– Conduct direct marketing activity on credit card database – over

1 million customers

• Enter the IFA market in 2004– Few global brands active in this channel– Replicate our business model to achieve significant economies

and offer local service capability– IFA represents around 10% of total HK market


India

• Huge potential

• Substantial capabilities developed

• Leadership in bancassurance

• Supportive local partner in Dabur

• Looking to increase stake from 26% to 49%


Market Share by Premium Market Share by Policies

PopulationNow:

1.05 billion

Insurable Population: 300 million

Currently Insured: 84 million

Large Untapped Potential: 216 million

Apr – Dec 2003 (9 months)

India: Potential Star of the Future• Rapidly growing middle-class of 150 million• Life market is expected to continue to grow at over 20% pa• Dominance of LIC still leaves plenty of room for growth

Private Players

6%

LIC 94%

Private Players

12%

LIC 88%

Source: Market estimates


•

•

Amex LVB

ABN

Canara

Ludhiana

2003 (17 Sales Centers)

Lucknow

Coimbatore

AhmedabadVadodra Kanpur Patna

Indore

Vizag


Cochin

Pune

Lucknow

Jaipur


Mumbai

Chennai

Kolkata

Hyderabad

Bangalore

Guwahati

Asansol

DelhiGurgaon

BBK

India: Going places…• Aviva was the last of 12 entrants - now ranked 9th • Our share of Private (non-LIC) market is over 3%• DSF headcount at 1,900• 21 branches in 18 cities • Bancassurance partners: ABN

Amro, Amex, Canara Bank, Lakshmi Vilas Bank, BBK

• As of Feb 2004, Bancassurance contributed 66% of new business whereas DSF contributed 34% (on APE basis)


250,000 customers 9 branches

400,000 customers 5 branches

27 million customers2,450 branches

2 million customers220 branches

HNI focus – 25,000 customers + 2 branches

Access to almost 30 million customersOver 2500 bank branches

India: Bancassurance partners


India: Bancassurance

• Financial terms reflect our leadership position– No upfront payments or capital payments– No creation of goodwill in our accounts

• Exclusivity secured– ABN-Amro deal for a period of 10 years– Amex deal for a period of 5 years– Canara & Lakshmi Vilas deal for a period of 6 years

• Our role in sales process is paramount– Our people embedded in bank sales network– Product mix moving in favourable directions– Product margins appear good


India: Going places…

• Current plans built around– APE in excess of GBP 70m within 5 years– Elimination of expense overruns within 7 years– Investment in the business total GBP 50m– Return of capital of 18% on IRR basis

• Currently considering how we can expand faster organically


China

• Huge potential

• COFCO a strong partner

• Solid start in Guangzhou

• Beijing and Chengdu next


Huge potential marketwith 20% to 30%

growth rate

Market getting crowdedTotal Life players: 2911 Local; 18 Foreign

Slow & Opaque Regulationof Insurance Markets

Local players dominate With overwhelming

Share of market

WTO accession Helps to open up market

earlier

Existing bancassurance models unprofitable

for insurers

Reforms still have a long way to go

European bancassurance

models yet to be deployed successfully

We have a strong &influential JV partner

Existing players Struggling tomodernize

China: Huge Potential but a Balancing Act


China: Where we are now?

• 50:50 Joint Venture• Profile of our JV partner - COFCO

– Listed in Fortune Global 500 enterprises for 9 consecutive years– 5th largest state-owned enterprise– China’s largest grains and oil import & export enterprise – Has good relationships with government– Has GI insurance broking JV with AON

• Started operation in Guangzhou in January 2003– Capitalized as a National Business (approx. GBP 40m)– Guangzhou:

– Population 7.2 million– Life premium volume at US$991 million – No. of life players: 6 locals & 7 foreign branch/JVs

– Current staff headcount at 120 and DSF headcount at 1,000– Centralised National Processing Center for country-wide underwriting,

claims and policy admin will be located in Guangzhou


Guangzhou

Chengdu

China: Where next?

• Beijing– Population 14.6 million– Life premium volume at

US$2,782 million– No. of life players: 8 locals

& 5 foreign branch/JVs– Our future China HQ– Expect to launch in 2004

• Chengdu– Population 10.4 million; Life premium volume at US$522 million– No. of life players: 6 locals only; We want to be first foreign JV player– Preparation in final stage. Hope to launch in 2004

• Future Expansion targeted to reach 10 cities by 2010– Based on economics and demographics– Seek to obtain first-mover advantage wherever we can– Aim to achieve 10% market share in each – 10 By 10 By 10

Beijing


China: What next?

• Current plans built around– APE in excess of GBP 100m within 5 years– Elimination of expense overrun within 7 years– Investment in the business total GBP 130m– Return of capital of more than 20% on IRR basis

• Currently considering further strategic options for development– Particularly in bancassurance and broker distribution


Asia Region: Further Development Opportunities• Our first priority is to realise the full potential of

our existing businesses• However, we are also alert to the additional

opportunities which will emerge in Asia:– We will only enter new geographic markets with

meaningful potential – Potential to leverage our robust regional operating

platform (Life and Navigator) for further business with banks, IFAs etc

– Sustained emphasis on competitive differentiation, based on Aviva’s proven strengths


Our Winning Proposition for Asia Financial Services:Our Winning Proposition for Asia Financial Services:Aggressive development in our Aggressive development in our chosenchosen markets of markets of multi-distribution

focusing on focusing on effective bancassuranceeffective bancassurance relationships and the relationships and the disciplineddisciplinedgrowth growth of agency of agency salesforcesalesforce

Conclusion

• Controlled but fast expansion from a low (in fact, nil) base• We are bringing our expertise and a quality approach to Asian

markets• Focus on profitability• Corporate governance in place• Differentiated position

– Not a just “me-too” approach– Bancassurance leadership in key markets

• Achieving good financial and operational results from acquisitions

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