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Edited Transcript of AV.L earnings conference call or presentation 6-Aug-20 7:30am GMT

·63 min read

Half Year 2020 Aviva PLC Earnings Call London Sep 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Aviva PLC earnings conference call or presentation Thursday, August 6, 2020 at 7:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Amanda Jayne Blanc Aviva plc - CEO & Director * Jason Michael Windsor Aviva plc - CFO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Abid Hussain Crédit Suisse AG, Research Division - Research Analyst * Andrew John Crean Autonomous Research LLP - Managing Partner, Insurance * Ashik Musaddi JPMorgan Chase & Co, Research Division - Executive Director and Co-Head of European Insurance Equity Research * Blair Thomson Stewart BofA Merrill Lynch, Research Division - Head of the UK and European Insurance * Colm Kelly UBS Investment Bank, Research Division - Director, Co-Head of European Insurance & Equity Research Insurance Analyst * Dominic Alexander O'Mahony Exane BNP Paribas, Research Division - Research Analyst * Fahad Usman Changazi Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst * Gordon Aitken RBC Capital Markets, Research Division - Analyst * Greig N. Paterson Keefe, Bruyette & Woods Limited, Research Division - MD, SVP and U.K. Analyst * James Austin Shuck Citigroup Inc., Research Division - Director & Head of the EMEA Insurance Sector * Jonathan Michael Hocking Morgan Stanley, Research Division - MD * Oliver George Nigel Steel Deutsche Bank AG, Research Division - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning and welcome to Aviva plc's Half Year 2020 Financial Results Briefing. I would now hand you over to your call host, Amanda Blanc, CEO of Aviva plc. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [2] -------------------------------------------------------------------------------- Thanks, Mikaela, and good morning, everyone. Thank you for joining us and welcome to our conference call to take you through our interim results. This is obviously the first occasion that I have had the opportunity to speak to you, so I will make some introductory remarks and then I'll ask Jason to take you through the results. The slides are available on our website, and our intention is not to go through each slide. Let me start by saying that I become Chief Executive of Aviva at an extraordinary time. The COVID crisis has been a tragedy for so many, and Aviva's response has been spot on. Whether that be the smooth running of our business, the GBP 43 million we have donated to support charities and communities or how our people have looked after our customers. I couldn't have asked for more and I'm incredibly proud of the hard work of all our people. I think it is important to recognize this, first and foremost. Now, if I may, I would like to turn to strategy. When I was appointed Chief Executive just 4 weeks ago, I said I was going to pace to assess our strategic opportunities and the actions that we should take across our portfolio. That is exactly what I have been doing, and today, I would like to give you a clear statement of my priority and our future direction of travel. Let me start by saying that Aviva has enormous potential. We have fantastic franchises, market-leading capabilities, trusted long-term relationships with both customers and distributors and above all, we have great people. However, it is already abundantly clear to me to unlock this potential, meaningful change is required. That is the challenge and that is exactly what I intend to deliver. To achieve this, I have 3 priorities. First, we will focus the portfolio. We will concentrate Aviva around our strongest businesses in the U.K., Ireland and Canada, with the aim of being the U.K.'s leading insurer. We are a top 3 player in each of these markets with attractive earnings growth and return potential. We have a strong powerful brand. We deliver incredible customer service. And in my view, have a clear path to win. Across these markets, we will invest for growth. In our international businesses, in Europe and Asia, our approach will be to manage for long term shareholder value. We will be selective about where we participate, and we will allocate capital with discipline. If we see attractive opportunities to be market leaders, generate strong returns, deliver robust cash flows to the center and ultimately win, we will invest. But let me be clear, if we can't reach our strategic objective, we will take decisive action and we will withdraw capital. Ultimately, there may be better owners for these businesses than Aviva in the longer term. My second priority will be to transform performance. As I said, Aviva has fantastic businesses and I really mean that. I've been a competitor of Aviva for a large part of my career, and I can tell you that Aviva has a formidable market position. In terms of our brand, customers, distribution and capabilities in digital and data science. We benchmark extremely well in these areas. For example, in our life and GI businesses, tNPS is running in the 40s and 50s across a number of categories. These are outstanding scores in anyone's book. What's more, they have been increasing during the COVID lockdown, thanks to the great work of our people under exceptional circumstances, of which I am immensely proud. Helping our customers during difficult times is the reason Aviva exists. And it is what we do best. These scores should tell you that we have a strong foundation in terms of our customer relationship, and that's a great base on which we can build. If we consider digital, obviously you may think that Aviva has spoken a little less about digital over the last couple of years, I get that. But the reality is that digital is a critical part of our future. Whether it is insurance or any other sector, customer expectations are changing. And those firms that can offer convenience online, offer true value and have trust for their customers, those companies will win a disproportionate market share. That has been true for some time, but it's even more true post COVID. What's interesting is when that you strip back the layers, Aviva has a really great story here. We've been quietly building up registrations and digital interaction. As a results, log-ins are nearly at threefold over 2 years. Over half of our direct motor and home claims are submitted online, and digital is embedded in our distributor relationships. We are succeeding at helping customers to access information and transact faster. That gives us a positive base line for customer experience and, of course, efficiency. Make no mistake though, we are not the finished article and there is a lot that must be done to bring it all together. But again, the foundations are there and we have a real point of differentiation in the breadth of product, distribution and the customer bases. So if we have these in current events, and I really think we do, why haven't we converted them into performance and investor support? The truth is, and let's be honest, we haven't been as good as we needed to be at execution. And that I want what we'll change. So how are we going to do this, because well know talking is the easy bit. We will bring a new intensity to how we approach performance management and competitiveness. It is virtually impossible to compete and win if you are the top quartile of efficiency, customer experience, pricing and risk management. And that is where we need to be. Getting there will require some fundamental changes in how we operate. I'm really focused on this and there will be more detail on this in our future presentation. Turning to my third priority, financial strength. Not only financial strength but also our financial resilience and sustainability. In recent years we've maintained solid capital ratios and strong center liquidity, despite the external volatility. We are reporting a solid set of half year results today, with capital surplus of GBP 12 billion and operating profit of GBP 1.2 billion. The impact of COVID on January and June's claims, net of insurance, was GBP 165 million, in line with the number we gave as our Q1 update in May. Our balance sheet risks has significantly reduced, a priority given the changing macro environment. And we've made progress in reducing debt leverage, and I'm committed to taking this further. The actions we intend to take to focus the portfolio will give us greater financial flexibility. It will allow us to further enhance our financial resilience and capital sustainability and will give us optionality, invest in our businesses or to return capital to our shareholders. Financial strength and active capital management are a key priority for Jason and I, and they will be at the heart of our strategy going forward. And that brings me to the topic of dividends. We understand the importance of dividends to our shareholders. With that in mind, the Board has declared a second interim dividend in respect of the 2019 fiscal year of 6p per share. This is consistent with our solid financial position and our resilient results. But also the Board's cautious stance towards the macro risks as the economy slowly emerges from the current crisis. More fundamentally, the Board has decided to take the opportunity to review our longer-term dividend policy in light of our strategic priority, the future shape of the group and our ongoing commitment to debt reduction. We will provide an update to shareholders on all dividend matters, including the 2019 final dividend in the fourth quarter. Before I hand you over to Jason, who will take you through the highlights of the half year results, I would like to reiterate my 3 priorities. Firstly, we will focus the portfolio, investing for growth across the U.K., Ireland and Canada, with the aim of being the U.K.'s leading insurer. Across international, we will manage for long-term shareholder value and ultimately, there may be better owners for these businesses than Aviva in the longer term. Secondly, we will transform performance. And finally, financial strength will be the key underpin. Jason, over to you. -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [3] -------------------------------------------------------------------------------- Thanks, Amanda, and good morning, everybody. As Amanda said, we've provided you with a slide pack on the website, and I won't walk through each slide on the call, but I will make some page number references. For the backdrop of COVID-19 in the first half, our results demonstrate the strength and resilience of our business and financial position. As Amanda just commented, financial resilience is a priority for us going forward. You will also see that COVID has impacted our performance in terms of increased insurance claims, reduced customer activity levels, capital market volatility and a meaningful contribution to support the community. But as a company, we've responded very well and delivered improved underlying returns. Our customer teams didn't miss a beat. We took decisive action to maintain service levels, continuing to support our customers when they need it as most. We've not had to furlough any Aviva employees, and we've been able to support colleagues needing to balance work and childcare. Turning on Page 10 of the slide pack, the result's highlights include: return on equity of 7.1%, with underlying return improving to 8.3% before the GI impact of COVID; operating capital generation increased 14% to GBP 890 million, benefiting from significant derisking actions; operating profit of GBP 1.2 billion is down 12%; and Solvency II now is 416p per share, up 7p relative to year-end. Excluding the general insurance COVID-19 impact, our headline results are solid. Group operating profit would have been broadly consistent with the half year '19 with positive trends in BPA, savings and retirement and Canada, offset by higher weather costs and lower profitability in Europe and Aviva investors. Given their significance, my commentary will first focus on general insurance claims effects. In IFRS, we estimate net general insurance claims of GBP 165 million from COVID-19, which is in line with the number we gave you on May 21. The estimate for business interruption and other COVID-19 claims is primarily in IBNR. It's still early days. The net figure of GBP 165 million includes just over GBP 200 million of favorable claims experience in the first half owing to the reduction in economic activity, but includes no allowance for similar effects in the second half. It also has a GBP 34 million allowance for prior year inflation owned to expected supply chain disruption. On Slide 11 of the pack, for OCG, the impact from GI claims is GBP 258 million. This is higher than IFRS as it includes an SCR allowance for uncertainty. As a result, underlying OCG, pre-COVID from GI, was just shy of GBP 800 million, which is up 17% on the prior year. What this shows is that we've increased capital generation and underlying returns despite the disruption. But there is much work still to be done to create a sustainable and resilient business. Turning to the balance sheet. Our solvency cover ratio increased in the second quarter and was 194% at 30 June. Solvency II surplus is GBP 12 billion, which is GBP 0.6 billion lower compared with the year-end figure. Positive operating capital generation was offset by GBP 1.56 billion of market impacts, primarily related to lower interest rates and credit spread widening. In February and March, we took significant actions to reduce our risk in investment portfolios by hedging equities, credit and interest rates. As a result of these actions, we significantly increased resilience to market risks, which you can see in this morning's disclosure. We've enhanced that disclosure by providing you with the movement on surplus as well as the ratio. Centre liquidity at the end of July was GBP 2.5 billion. This benefited from the completion of the FPIL sale in July, which added GBP 0.2 billion. Remittances from subsidiaries were sharply down in the first half at GBP 150 million. We did not seek to remit significant cash from the BUs in the first half, given our desire to maintain strength in the subsidiaries in light of the economic, market and pandemic uncertainty and also regulatory guidance. We expect remittances to increase significantly in the second half. But given the first half volatility and prevailing uncertainty, we expect full year 2020 to be well below the underlying level in 2019, plus approximately GBP 100 million more in proceeds from announced divestments. Focusing now on the investment portfolio on Slide 15, which I know is topical. Overall, our portfolio is performing well and has remained resilient in the first phase of the credit downturn. In terms of corporate credit, we've had no defaults and our observed rating migration remains low, only 0.2% of the shareholder portfolio has been downgraded below investment grade. 4% of our corporate bonds rated A or above have been downgraded to a lower rating letter. This is up only slightly on the 3% we reported to you in our May update. Our commercial mortgage portfolio has also remained resilient backed by solid collateral, although we expect the peak economic stress for borrowers to come. The LTV of the portfolio has increased slightly to 59%. Loan interest cover remains good at 2.8x, and the portfolio continued to perform with just 1% of loans in arrears. LTV is above 100% but just under 5% of the portfolio. And our long-term commercial property price assumption was 15% floor over 5 years. This assumption is an average, which has not been implied informally across the portfolio. As you might expect, in certain areas like retail, where the pressure is more intense, we've allowed for much larger declines. And it's worth reminding you, we have a GBP 3.8 billion IFRS default reserve across the U.K. annuities book. Switching gears and looking at performance and trading on Slide 16. At a group-wide level, our first half sales volumes across life and insurance overall were broadly flat. In the context of the disruption we've seen, that's a solid result. We've been very deliberate in how we've approached new business strategy across the group. As outlined last year, actively allocating capital is an important part of our strategy. We've announced today that we'll take this further at a strategic level. But from a trading perspective, we're making choices about where we are prioritizing. And you can see the areas where we are investing for growth and also managing for long-term value. Looking at some of the individual highlights. In UK Life, EPA volumes were GBP 3.1 billion, an increase of 2.5x relative to the first half of 2019 and approximately 80% of our volumes in the whole of 2019. This helps us to achieve a near doubling of VNB in UK Life. In the first half, we had good market conditions to BPA pricing, and we wrote the higher volume at an attractive margin. BPA demand remains strong. COVID-19 is not preventing deals from being completed. We expect BPA volumes to continue to grow in the second half, but more slowly than in the first half. In savings and retirement, our workplace and retail platforms continue to show good momentum. Net fund flows increased 28% to positive GBP 4.2 billion, with good growth in net flows across workplace and retail savings. Looking at the sequential trends, we saw a slight reduction in net flows in the second quarter, which was mainly driven by lower volumes onto the retail platform. However, activity levels improved over the course of Q2, and we've seen continued strong support from our IFA partners. Aviva investors profitability was pressured by lower revenues from low asset values and reduced origination fees. Encouragingly, the third-party franchise made good gains with positive net flows of GBP 1.3 billion in the first half, building on the strong finish to 2019. In Europe and Asia, new business sales reduced 23%, owing to a combination of COVID-19 disruption and our actions to reduce sales with profit products in the face of ultra-low interest rates. The continued focus on mix helped to increase our new business margin to 4.2%, up from 3.9% in the prior year. Our own sales networks were able to adapt well to support customers and write new business, for example, by using digital tools and video calls. However, our bank distribution partners were constrained by much lower footfall given the lockdown measures. As Amanda mentioned, we'll continue to be selective in allocating capital to business in Europe. In general insurance, net written premiums were broadly flat. We saw continued momentum in commercial lines with growth of 8% and 11% in the U.K. and Canada, respectively. Personal lines premium saw a bigger impact from COVID-19, particularly in the U.K., where volumes in the intermediary channels were disrupted by lockdowns. The combined ratio in GI increased 3 percentage points to 99.8%. Excluding the 3.6% impact from COVID, COR likely compared to the prior year, despite meaningfully higher weather costs. Turning to expenses on Slide 18. We've made further progress reducing controllable costs by GBP 54 million. We remain on track to meet our target of GBP 300 million reduction by 2022. In the first half, staff costs were lower from actions taken in 2019, and we reduced our contractor headcount by more than 50%. While this provided incremental savings, we had to increase spending in IT to support remote working and we also contributed GBP 43 million to various community support schemes. At our full year results, we outlined our expectation that 2020 P&L savings will be GBP 150 million, which is, as a reminder, is on top of absorbing inflation. Based on the first half trend, we are on track to beat that estimate. We are looking for opportunities to further accelerate our delivery. In conclusion, despite the challenges and disruption of COVID-19, we delivered solid trends in trading profitability and resilient capital. The outlook remains uncertain. We take some encouragement from the lower number of reported cases. But as recent reports made clear, we are likely to be living with COVID-related restrictions for some time to come. Together with the withdrawal of government support, this will present continuing challenges and delay any return to normal levels of movement and economic activity. This makes it inherently difficult to make definitive outlook statements. Broadly, we expect volume levels for the remainder of 2020 to be around [the level] in Q2. Aviva has been deliberately cautious in forward-looking over recent years. We're continuing to take a disciplined approach to managing our market and trading risks. This puts us in a good position to continue to protect and grow value for shareholders and to embark on our strategic transformation under Amanda's leadership. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [4] -------------------------------------------------------------------------------- Thanks, Jason. So in summary, Aviva is embarking on decisive change that I'm confident will unlock significant value in the business. Focusing on where we have strategic advantages and scale will give us a clear direction. This focus, combined with transforming our performance and a strong and resilient financial position will put us in the right position to win and to win for the long term. I do not intend to distract the organization with another lengthy strategic review or a Capital Markets Day. That is not what is required here. I've only been in the seat for a month, but I'm already confident that we have many of the ingredients to make Aviva a winner. It is my intention to update the market as we make tangible progress in delivering on the priorities that I have signaled today. I do, of course, look forward to meeting with many of you virtually or in person in the coming weeks and months and sharing our progress with you. But in the meantime, thank you for listening. And with that, I'll pass back to the operator, and we will open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Jon Hocking at Morgan Stanley. -------------------------------------------------------------------------------- Jonathan Michael Hocking, Morgan Stanley, Research Division - MD [2] -------------------------------------------------------------------------------- I've got 3 questions, please. Firstly, Amanda, you spoke about things you'd like to improve operationally in the U.K. business, in particular. Can you give us some color in terms of where you see the capability gaps? And how those might vary by line of business? Secondly, on the U.K. business, do you have any thoughts at this stage in terms of where you'd like to take the business mix? And then finally, on the dividends, given the guidance from the various regulatory bodies in Europe, do you think it's possible to get a dividend from France and Italy in the second half of the year? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [3] -------------------------------------------------------------------------------- Okay. Thanks, Jon. I'll pick up the first 2 of those questions and hand to Jason on the third. In terms of improving operationally in the U.K. business and the capability gap. So I think as far as the U.K. business is concerned, we already have a sort of market-leading position. And the dilemma, I guess, is why doesn't that turn into a market-leading performance. And so what we absolutely need to focus on in terms of the performance of that business is how the investment that we have committed to making -- I think, Jason, in the Capital Markets Day last November, said that it was going to be GBP 1.3 billion over the period. How is that investment going to transform into performance? And so what we need to be, I guess, laser-like is the various areas of performance improvement that are required. So how do we get a better return on capital in some of the business areas that are currently underperforming? How do we look at what we need to do on expense efficiency? So are we at the quartile in terms of all of our markets at the moment in all of our segments? We've already started some of that work, and we believe that there is room to take that further. In terms of our customer experience, we've got great tNPS scores, but there will be more that we can do to make the customer experience smoother, pricing, risk management. The list is long. But I think these are all these are topics -- I have 32 years in insurance, and we all have a lot of experience around the room. I think we know where to look. What this is about execution, right? It's about making sure of that we actually deliver what we say we're going to do. And that GBP 1.3 billion, the benefits flow from that and that's about rigor and execution. And I believe that, that is where we should focus. As far as the U.K. business mix is concerned, look, if I look at the U.K., we're #1 in life. We're #1 in GI. And we sort of got 25% share of the workplace market. We're #2 in protection. I think that we're in good shape. We have a good market position. We have a diversified business, and there are a huge benefit in that diversification of that business, as I'm sure you know. So I think the business mix looks good. Will we be looking for more growth in terms of the GI business. We know that. But we also know that there's opportunities in the savings and retirement business to see that business grow. And we've already demonstrated in BPA, I think, the solid growth in the last 6 months. So maybe, Jason, can I hand over to you? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [4] -------------------------------------------------------------------------------- Sure. Look, the regulatory guidance is evolving. We've seen various statements from multinational agencies and local supervisory agencies. We didn't have -- you mentioned France and Italy, I think. We didn't have anything penciled in for 2020. I think, as I've said for France Life, we've been seeking to rebuild capital and reset the plans there, and it's not a significant dividend payer for us in any event. Having said that, they're not strict prohibitions. We continue to get payments back on internal loans and the like. So we've got an expectation, as I said in the prepared remarks, of significantly higher remittances in the second half, but less so from some of the international sales. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Your next question comes from the line of James Shuck at Citi. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [6] -------------------------------------------------------------------------------- James, you might be on mute? -------------------------------------------------------------------------------- James Austin Shuck, Citigroup Inc., Research Division - Director & Head of the EMEA Insurance Sector [7] -------------------------------------------------------------------------------- I am indeed on mute. Apologies for that. I have 2 questions. So the reduction in market risk on the Solvency II ratio, I saw some big changes there. I guess, I'm keen to understand to what extent that is temporary, a tactical decision or permanent and other implications on the earnings front because, obviously, you're increasing hedging costs and the asset allocation is changing. Secondly, on the international operations, you're not explicitly saying disposals, but you are saying that there might be better owners in the longer term. Are there any impediments to sale? I know a bunch of the operations sell-through Bancassurance agreements or through IFA networks, we might have a change of control situation that might cause a problem. And perhaps you could just update whether there's been any expressions of interest up to this point? There's been very strategic reviews going on for some time. So it'd be just good to gauge the interest if there is any. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [8] -------------------------------------------------------------------------------- Okay. Thank you, James. I'll pick up your second question, and then I'll pass over to Jason on the first. On the international operations and impediments to sale. Look, I think we are -- we're not saying today that these businesses are disposals, right? So what we're saying is that they're great businesses. They are excellent people. They serve their customers really well. And if we see opportunities to expand on that to generate better returns or sustainable cash flows, we're willing to invest. But if we can't, we do need to be decisive and withdraw capital. There may be better owners for the businesses in the longer term to just repeat, I guess, what I've already said. You wouldn't expect me to comment on expressions of interest, and I'm not going to do that. And as I said, I'm not saying that these businesses are disposals. In terms of impediments for sale, then clearly, we do have strong JV relationships in some of these markets, and we will work through all of that. Jason? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [9] -------------------------------------------------------------------------------- Sure. I mean it varies likely in what we've done. But I would say we have a very clear economic value framework for asset allocation, where I talked about this at Capital Markets Day, where we used the return on economic capital to really drive and define all of our decisions. And that's embedded in the way that we've been thinking about the balance sheet in the first half. So we're not thinking about risk per se. Capital is not short in and of itself, but we want to make sure that our exposure to market risks is aligned with the level of return that we can get. So on an economic basis, the return is slightly enhanced, in fact. There is a small impact from IFRS. As I've talked about before, France is sort of double-digit figure for buying interest rate options. And the interest rates is a risk that isn't really rewarded. So we're trying to make sure that if we take that off the table. I don't think there's any significant change to the level of reward on the equity and credit side. We've been quite thoughtful about how to bring that through, make sure we've got a well-diversified portfolio, that the margin, we've been reducing risk, but with wider spreads. The actual return, on an economic basis, has been maintained. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Your next question comes from the line of Greig Paterson at KBW. -------------------------------------------------------------------------------- Greig N. Paterson, Keefe, Bruyette & Woods Limited, Research Division - MD, SVP and U.K. Analyst [11] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [12] -------------------------------------------------------------------------------- Yes, we can hear you. -------------------------------------------------------------------------------- Greig N. Paterson, Keefe, Bruyette & Woods Limited, Research Division - MD, SVP and U.K. Analyst [13] -------------------------------------------------------------------------------- Great. Three questions, please. Just in terms of your internal mix as reinsurance mixes. So I wonder if you could give us an idea that if those were removed, how much that would impact the Solvency II ratio. The second question is, you mentioned investing in your focus markets. I was wondering if you would consider -- [when I said] large or material deals, acquisitions in the U.K., Ireland and Canada. And the third sort of question/observation. I note that in the verbiage on the UK Life, there was very little reference to assumption changes/management actions/asset optimization and annuity. Was that because it's now embedded in the underlyings and you're not calling out separately? Or it was low this time? And if so, what was the reason? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [14] -------------------------------------------------------------------------------- Okay. Thank you. I will pick up the second question, and Jason will pick up the first and the third. On the investment in the focus markets. So obviously, today is not a day to talk about acquisition activity. Today, we're talking about how we want to invest in those businesses to become market-leading performers in the areas that they're in, but we already have actually strong market share positions in all of those markets. So I feel very, very comfortable about that. But also, I'm comfortable that we have some headroom to continue to grow in those markets. Jason? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [15] -------------------------------------------------------------------------------- Yes. On the mix of the first order question, the first order answer to your question is 0. The mix does not enhance through solvency and then it's -- but by we get the diversification. It's about where we see the capital, whether we get it in the group or in the subs, and that's the fundamental question. There's a second order subtle point around risk margin that I probably won't get into, but that's a small -- very small figure. On terms of UK Life, the -- they've been on the OCG basis. They were slightly more than on an IFRS basis that came through where we've had in it some annuity optimization and activity. The sort of answer I gave to James a moment ago. We thought hard about how to manage credit risk, in particular, as we back to the new annuities. But there's no significant one-offs that I would say. And we certainly haven't changed assumptions, and that will be something that we'll come to in the second half. -------------------------------------------------------------------------------- Greig N. Paterson, Keefe, Bruyette & Woods Limited, Research Division - MD, SVP and U.K. Analyst [16] -------------------------------------------------------------------------------- Sorry, Jason, are you saying that if you remove the mixer, your diversification credit on the SCR won't change at all? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [17] -------------------------------------------------------------------------------- Correct. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Your next question comes from the line of Ashik Musaddi at JPMorgan. -------------------------------------------------------------------------------- Ashik Musaddi, JPMorgan Chase & Co, Research Division - Executive Director and Co-Head of European Insurance Equity Research [19] -------------------------------------------------------------------------------- Just a couple of questions I have is, first of all, I mean, I think you did mention about this Europe and Asia that it's not bad businesses. It's just that you are looking for opportunities. But I mean what sort of metrics shall we look at to decide whether you're delivering on these businesses or not, whether you want to keep these businesses or not? What sort of metrics will you focus on? Would it be cash? Operating profit? OCG? What will make you decide that these are the businesses you need to keep and these are the businesses that you don't need to keep? So that could be the first one. Second thing is, can we get some sense on local solvency ratios to understand how the remittances are going to look like for second half this year? And how comfortable you are on the full year remittance for next year? Because clearly, I mean remittance is very important. And given that you're planning that you haven't taken out any remittance in first half, it would be good to get some color on how we should think about like second half and next year. And just last one is -- sorry, going back to the dividend topic. I mean, you mentioned that there will be -- there has been a first interim, second interim and there will be a final dividend. But any color on what should it be based on? Should it be based on IFRS earnings? Should it be based on Solvency II capital generation? What metrics do we need to focus on? Or should it be based on limited basis? So any thoughts on that would be very helpful. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [20] -------------------------------------------------------------------------------- Okay. Thank you. I'll take the second to -- sorry, the first and the third question, and Jason will take the second. So on Europe and Asia and the metrics that we will use. So look, obviously, we will look at this across a range of metrics. I think probably all of the above in terms of the ones that you mentioned there, Ashik, in your point, we will look at the returns of those businesses. We will look at the sustainability of the cash flows to the center. We will look at the return on capital. But also, we will look at our right to win and our position within those markets to see whether or not we actually have the capability to be able to win there, recognizing quite rightly, as you said, that they are good businesses and there are good people in them, and they deliver well for their customers. But it might be that, as we said very clearly, there might be better owners in the longer term. But this is part of a sort of a thorough look that we will take at each of these businesses. Your point around the dividend, and I think we were clear that what we said on the dividend is that we would come back to all dividend questions in Q4. We felt it was important to be sort of transparent at this point. But what we will base that dividend policy on will be the strategic priorities, the portfolio, the ongoing commitment to debt reduction and the desire for a resilient and a sustainable dividend. And we felt that as we were making a meaningful change to the strategy, that it was important that we should also review the dividend. Jason? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [21] -------------------------------------------------------------------------------- Sure. I mean I'll just add on that one. We've talked about capital generation. And obviously, it's the long-term and that we're after the return on capital as we think about in the long term. Clearly, we need to turn those returns into cash. So we're trying to manage those 2 as the primary metrics. Certainly, we fed into our thinking as -- [agree with] I think, some time. On the sub solvency ratio, actually all in pretty good shape, having had pretty bumpy first half to be clear. But I talked at the year-end results about the significantly improved solvency position in France. I mean, I said that results, it was up 50 points or so in the second half. So there's no real change from that, probably backed up a little bit in July with the falling rates. U.K. -- the big U.K. subsidiary is down to very small single digits from the position at year-end. We've worked hard to build solvency. There is an impact in the GI businesses, as you might imagine, pretty much. If you took the COVID-19 loss on an OCG basis, spread that across the GI subsidiaries, you're probably looking about 10 points in those 2 subs. That's probably the biggest impact that I could guide you to. -------------------------------------------------------------------------------- Ashik Musaddi, JPMorgan Chase & Co, Research Division - Executive Director and Co-Head of European Insurance Equity Research [22] -------------------------------------------------------------------------------- That's very good. I mean, I just have 1 follow-up. Would you be able to comment on the time frame that you need to look for Europe and Asia? Like you're going to give them 1 year, 2 year? Or I mean, any thoughts on that? Or is it still too early to give clarity on that? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [23] -------------------------------------------------------------------------------- No. I mean, I think, bearing in mind, 4 weeks in the seat. What we've outlined today is our framework for how I'm doing the portfolio, and we won't discuss the time frame today. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Your next question comes from the line of Blair Stewart at Bank of America. -------------------------------------------------------------------------------- Blair Thomson Stewart, BofA Merrill Lynch, Research Division - Head of the UK and European Insurance [25] -------------------------------------------------------------------------------- A couple of questions. Firstly, on the dividend. I wonder what's the significance of the 6p that you've declared today as a second interim. That takes us to 15.5p dividend payment for full year '19. Is there any significance at all in that number? Then just related to the dividend. Amanda, you talked about being in a position in Q4 to set a dividend strategy with a view to -- or having a view on the strategic footprint of the group. But you also mentioned that these strategic decisions will be taken over time. I think you mentioned long-term a few times in your comments. So I'm just trying to marry that up. How can you be in a decision -- how can you be in a position to make a decision in Q4 given that your dividend choices will depend on your strategic footprint of the group? And my final question, just really thinking about possible dis-synergies from shrinking the footprint of the group. Jason, perhaps you can remind us of the internal debt that remains and where that sits, that may be one issue, and there might be others as well that you might care to mention at this stage. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [26] -------------------------------------------------------------------------------- Okay. Thank you, Blair. And so in terms of why only 6p, what we said in May, obviously, was that we would come back in Q4 on all dividend matters. But as we discussed this as a Board, we felt that it was important that we would pay something at this point to recognize the importance of dividend to our shareholders, and it's particularly in this difficult economic environment. So obviously, we have to balance that with prudence. We felt -- so we felt it was right to pay something, but we will come back on all other matters in Q4. As you said, about the strategic footprint, I think, again, to go back to something I said earlier on the dividend policy. The strategic footprint will be one part of the dividend policy, as will our strategic priorities the ongoing commitment to debt reduction, the desire for a resilient and a sustainable dividend. And I think all of these things will be taken in the round when we consider that policy. Jason, on the dis-synergies? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [27] -------------------------------------------------------------------------------- Sure. I didn't quite -- I'll answer the specific question, but on the internal debt, there's only one upstream loan, that's from the GI business to the group, that is just over GBP 1 billion, dramatically reduced as part of the restructuring that we embarked on. And I remember it well, in 2013, when it was at GBP 6 billion. So that has been fundamentally restructured over the past 7 years. I mean, otherwise, I don't see anything specific on other dis-synergies that you had in mind? -------------------------------------------------------------------------------- Blair Thomson Stewart, BofA Merrill Lynch, Research Division - Head of the UK and European Insurance [28] -------------------------------------------------------------------------------- So there's no other internal debt from group into the European subsidiaries, et cetera? That's what I was thinking about. -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [29] -------------------------------------------------------------------------------- I mean there's downstream loans, but you'd expect that in for -- that's just normal corporate finance. There's nothing else that you need to be aware of. -------------------------------------------------------------------------------- Blair Thomson Stewart, BofA Merrill Lynch, Research Division - Head of the UK and European Insurance [30] -------------------------------------------------------------------------------- Okay. Great. Sorry, Amanda, I forgot to just ask 1 question. Just on the deleveraging. You've mentioned a few times, the group's clearly got some deleveraging targets out there. I just wondered if you -- if it was still stand. Or if you want to do more than that? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [31] -------------------------------------------------------------------------------- As I said, yes, we are committed to further debt reduction. The financial targets that we have in place still stand. We have GBP 2.2 billion of maturities over the next 2 years. So we believe there will be ample opportunity to reduce our debt. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Your next question comes from the line of Fahad Changazi at Mediobanca. -------------------------------------------------------------------------------- Fahad Usman Changazi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Equity Analyst [33] -------------------------------------------------------------------------------- Just 2 questions operationally, please, if I may. So as you said, there's been a strong performance in the bulk annuities in H1 given attractive pricing and the growth rate will moderate in H2. But has pricing come off now? Or can we expect similar volumes in H2 versus H1? Or will they be lower? And I suppose, given your comments on being a leader in the U.K., are or will BPAs be a strategic focus, where we can see Aviva increasing its market share? And one more on Canada, a strong combined ratio, a little help from reserve leases. But in large part, the turnaround was to be driven by rate. And given COVID considerations, can you still put through more rates? Or will you get to your target core when the full impact the ratio already put through comes through? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [34] -------------------------------------------------------------------------------- Okay. Thanks, Fahad. I'll pick up the question on the -- on BPAs and the leader in the U.K., and then Jason will pick up the other 2 points. So I think we do see the BPA market as attractive for Aviva. We are #3 in that market. It's a large, it's a compelling market. And clearly, there is a structural growth opportunity there as companies seek to derisk their pension liabilities. And I'm thinking of combining that with the skills and capabilities that we have in that area. We do see that as a continued growth area. Jason, in terms of the other 2 points? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [35] -------------------------------------------------------------------------------- Sure. So the BPA growth in the first half was strong. I think last year, we wrote just over GBP 4 billion. The first half last year, we wrote GBP 1 billion. So you won't see that level of growth for 2.5x, as I said, in the second half because we wrote GBP 3 billion in the second half of last year. But the GBP 4 billion gives you a sense of -- and we'll clearly be higher than that. We've got a GBP 1 billion scheme where we are preferred provider on in July. So we're already at last year's volume. So in the second half, we can be a bit more active. I think we will continue to allocate capital very carefully in BPA. And we've got -- as I said a moment ago, we got really clear economic metrics for driving all new business pricing, but particularly in BPA, given its scale. We're very clear, the level of return that we can make, and we are -- we'll continue to be very watchful of that as we look forward, both in terms of the price and the amount of capital that we allocate to. And that you'll see in the numbers, the strain in the first half was actually really, really very attractive. And that's obviously a direct corollary of the pricing. In terms of Canada, I think it's unlikely that personal lines rate rises will be going through any further. I think we did have significant filings across that. There was very large claim inflation in '17 and '18. I think we're sort of up with events, if you like. There will be some pressure from politicians. There are always is in Canada to back out some of that rate increase. But the underlying performance in Canada is really strong across the board. The work that the guys have done in the last couple of years to turn that business around is excellent. It's a good platform in which to continue to grow. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Next is from the line of Colm Kelly at UBS. -------------------------------------------------------------------------------- Colm Kelly, UBS Investment Bank, Research Division - Director, Co-Head of European Insurance & Equity Research Insurance Analyst [37] -------------------------------------------------------------------------------- Just a question on the review of the dividend policy. So I know previous management were quite quick to reassure regarding the dividend policy and the sustainability, driven by the strong financials as well as those strong financials remain on show at half year despite volatility and derisking has been enhanced. So has anything specifically changed on these financials or your view of them to require the review of the dividend policy? That's the first question. Secondly, on the strategy, and thanks a lot for providing the update on that today. Is there anything you can say regarding your expectations for the mix -- the business mix between life, P&C and asset management that you would like to achieve over the medium term? And then thirdly, a question on the return on capital. So the group, as you know, currently benefits a lot from diversification in its capital base, which is a core part of the return on capital that the group generates. With the update in the strategy for the international business, are you confident that if those businesses are not part of the group over the medium term that it wouldn't adversely impact on that diversification benefit to the extent that, that -- it would then create a drag on the return on capital, which is a core metric for the group? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [38] -------------------------------------------------------------------------------- Thanks, Colm. So in terms of your first question around the dividend policy and the strong set of results, obviously, I think you just take a guess, a step back. What we've said today, I think, strategically, is that there is a meaningful change to the focus of the group. And therefore, with meaningful change, we believe it's also important that we should review the dividend. So in the danger of repeating myself, but I will, if that's okay, that will be set around the strategic priorities, the future shape of the group's portfolio, the commitment to debt reduction and the desire for the dividend to be resilient and sustainable. So that's the context upon which we will review the dividend policy. So for strategy and the expectations around the balance between life, P&C and asset management, I mean, we have more work to do clearly in that area. And we -- and today, I'm not going to be talking to you about specific numbers. All I would say is that I think if I look at the way that customers look at insurers, they do not look at us as individual business lines. And therefore, I think it's really important that we have a good diversification of products across those lines. And so we can really enhance the strength of the Aviva brand out to our customer base. And that's really what we will be looking to do. We already have very strong positions in many of our life product lines, geo product lines. Again, I feel really boring. So I know I'm -- I was sort of repeating the same point, but I think it's really important to stress. What we're saying is we need to turn that -- those leading market positions into leading market performance. Jason, on the return on capital diversification benefit? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [39] -------------------------------------------------------------------------------- Sure. Diversification comes in many forms within the group. Within the big legal entities, we have strong diversification by design. We have multiple products to the U.K., both obviously between annuities and protection, but between different types of savings and annuities. So that actual level -- there's real value in having a mixed product within both the life and the core non-life subsidiaries. As you think about diversification between entities, the predominant diversification benefit comes between the UK Life business, which is our biggest business by quite a margin, and the general insurance businesses in the U.K. and Canada. That's where we see the majority of it. There is clearly some internationally, but that tends to be slightly less because that does correlate more with the market risks that we have in the U.K. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Next comes from the line of Andrew Crean at Autonomous. -------------------------------------------------------------------------------- Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [41] -------------------------------------------------------------------------------- A couple of 3 questions. Firstly, if you focus on U.K., Ireland and Canada, UK Life is 80% of that. And in November last year, a slide was presented saying that the cash generation from UK Life would be flat over the next decade. Does that not set the scene for the potential growth rate of the overall business in the long term, unless you can accelerate UK life? The second question was it's a little bit of a mean question. But we have had a number of chief executives here at Aviva who've talked about being better and more efficient and trying harder with greater focus and more operational efficiency. Could you give us a little bit more detail below the line as to how you will be delivering these things different from what was going on before? And whether you will be doing so with a different number of lieutenants driving your businesses or with the same people? And then finally, on the debt reduction. Are we to assume that you will leave it all now until the last year in 2022? Or will you look in 2021? You've got some debt redemptions, I think, in next year. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [42] -------------------------------------------------------------------------------- Okay. Thank you, Andrew. So maybe I should start with your mean question first, which was the second one. So look, I think, as I think I said, and I think as you said earlier this week, talking is the easy bit, right? So we know that. We know that we have to improve the performance. And -- but you also appreciate that we've always -- we also have to lay out our plans to you guys. And what will be different? Well, firstly, I think what will be different is the context in which we set the strategy. We set the strategy that we will be clearly focused on the markets where we believe we can win. And where we believe we can't win, we will manage for the long-term shareholder value. So that in itself creates an extra element of discipline and focus within the organization, which means that when we have GBP 1.3 billion to invest, we're very, very clear about where that investment goes. Now the investment is one thing, but how we actually then deliver that is another. And that will be around the rigor around. These things may sound sort of obvious, but execution is better than strategy. I've always, always said that. And the rigor and discipline with which we follow through on where we've invested something have to achieve the benefits that we said it would, whether it's an efficiency benefit or whether it's around the financial -- the balance sheet. These are all areas where we will be monitoring closely and making sure that we deliver on that. I have 32 years' experience in working in insurance and the last sort of 15 as a CEO, I sort of know I think what good looks like. I'm very focused on performance management. And you have to judge me by my actions. I don't expect that to happen today. Progress needs to be made, and we'll come back to you when we make progress. And we'll talk less and ask more. But all I can say today is I am confident with what I have seen so far here, that we have the capability to be able to deliver what we say we're going to do. But as I say, you have to judge us by our actions, not by our words. In terms of the UK Life being a significant part of that business, of course, it is. But also the cash generation that comes from the back book. The cash flow is a very, very important part of how we invest and how we can grow the other areas of the business. We are seeing good growth in areas -- in this area around workplace. We've seen funds closing (inaudible) area over the last period. And we've seen good growth in [common area] around commercial lines. The BPA growth is good. So what we have to look at is what is the insurance company of the future going to look like. Where is the growth of the insurance company of the future going to look like, and we have to align ourselves to that. We're recognizing, I guess, we're in a good position in that we have a strong back book and cash flow coming through from that to help us to do that. Jason, on the debt reduction? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [43] -------------------------------------------------------------------------------- Sure. I mean just on the cash flow, just expand a little bit, if I may. The UK Life, as we presented it back in November, was excluding the savings and retirement and Aviva investors business. So what we were trying to say is, look, this -- we know there are certain parts of it, about 20% of that book is what we call heritage is in runoff. But within that, we think can grow and sustain that cash flow. And that is the bedrock of the dividend-paying capability of the organization. And it's a very, very stable cash flow -- stock of cash flows within UK Life. On top of that is the growth potential in the investment and savings business. And you can see today, we've made good headway and continuing to grow that. We're doing really well in workplace and retail savings. And that's starting to hit the bottom line. We've got real operational leverage within those 2 segments starting to really take hold. So I'm pretty confident about the outlook that we can have in terms of dividends and profit growth within S&R. In terms of debt reduction, look, we made some headway, but not as much yet on the GBP 1.5 billion reduction. The leverage ratio is 32%, right? So our core metric that we manage to is to get below 30. That was the 1.5 that we scaled previously, but values held up well. We do have some reductions in 2021, as you mentioned, I think maybe a reasonably significant -- and significant again in 2022. So we've got some flexibility. I think at this stage, we remain committed to that lower leverage. As we've mentioned, I think, twice on the front page of the press release. So we are we're committed to that, the timing of which, I think we will be reviewing, again, when we think about the strategy and dividends, but we were certainly hoping to make progress in 2021. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Next comes from the line of Gordon Aitken, RBC. -------------------------------------------------------------------------------- Gordon Aitken, RBC Capital Markets, Research Division - Analyst [45] -------------------------------------------------------------------------------- First question is on disposals. It's very difficult to dispose of businesses when you can't meet people face-to-face, not unless, of course, you already have relationships with potential buyers. So are there regions or countries where these relationships already exists so that COVID won't be too much of a barrier? And second question is on the proceeds you might get. You've talked about the options of investing in businesses or returning capital to shareholders. Just on a former, are you talking about acquisitions? Or are you talking about, say, writing new -- more new business? And then finally, on bulk annuities. Did you share the view of your predecessors have had that the large end of the market is not as attractive as the small end? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [46] -------------------------------------------------------------------------------- Okay. Thank you, Gordon. So again, just to restate, what -- we haven't spoken about disposals today. What we've said is this is the way that I'm viewing the portfolio. And we need to look at the businesses in the international area and ensure that they are delivering the right returns for us, whether that be around cash around the return on capital. Those are all the areas that we will look at. And the fact that we can't meet people face to face, I don't think there's not that sense of urgency. I've said longer-term shareholder value. But in many respects, the world has adapted brilliantly, hasn't it, to this new way of working. And I think if we'd have said 6 months ago that we would be working in the way that we are working today, remotely. I think we've been pretty successful at that. On the proceeds, again, just to be clear, today is not the day to talk about acquisitions. Investment in the business, investing for growth, that will be centered around the businesses that we've said are in the U.K., Ireland and Canada. And those businesses already have a significant amount of investment set aside for them. What we need to do, and I'm very boring, I know I'm going to say it again, is make sure that the money that we're investing is delivering the benefit that we expect, and that is where we will be focused. In terms of the footprint on BPA... -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [47] -------------------------------------------------------------------------------- BPA, I think we've been spreading our wings slowly over the last 3 or 4 years. We continue to (inaudible). As I said earlier, a big scheme already in July, which is GBP 1 billion just around. We did a big scheme earlier in the year. There was another approximately GBP 1 billion. We wrote a big scheme last year. I think we still prefer to be around that level or smaller. It's just easier from a balance sheet management perspective rounding up the assets and the reinsurance and the like. But we have, as I said, started to spread our wings, and we're starting to get more comfortable with the way that we can risk-manage those particular transactions. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Next question comes from the line of Dom O'Mahony at Exane BNP Paribas. -------------------------------------------------------------------------------- Dominic Alexander O'Mahony, Exane BNP Paribas, Research Division - Research Analyst [49] -------------------------------------------------------------------------------- And firstly, Amanda, congratulations on the new job. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [50] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Dominic Alexander O'Mahony, Exane BNP Paribas, Research Division - Research Analyst [51] -------------------------------------------------------------------------------- So 2 questions. I guess the first is on the perimeter, you've been very, very clear about the focus being on U.K., Ireland, Canada and the other businesses you managed for sort of manage the value. There was some discussion in the investment community about whether Aviva is the right holder of the heritage book in the U.K.? Whether there might be benefits from exposing that? Should we be reading the focus on the geography as a sort of a statement that, that's not a priority or that's really not a likely outcome? And then second question, and sort of hop around the dividend and looking forward to the Q4 update. But everything you've said in terms of financials suggests that the financials of the business with the current perimeter are not preventing you from maintaining the dividend at the level it was, say, last year. I just wanted to confirm, in particular, relatively recently, you gave us some targets for cash and capital generation. Assuming that the perimeter doesn't change, is there any reason for those cash and capital target to be lower than you previously thought? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [52] -------------------------------------------------------------------------------- Okay. Thank you. So on the perimeter and your question around heritage and what we do with that. So I think, firstly, let's make the statement. We're committed to being the U.K. leading insurer. And therefore, we're committed to be in composite. And the U.K. back book generates, as Jason I think just alluded to, a significant amount of cash flow. And we believe that it is important to our financial strength and our balance sheet resilience. So that hopefully clarifies that point, but just to reinforce our commitment to the composite. As far as the targets are concerned, I think we say -- we're saying today quite clearly that we're not announcing any changes to the targets today. But as Jason outlined, COVID-19 has made achieving some of those targets a little more difficult. But the dividend policy review will be set in the context of the meaningful change that we have spoken about today on the way we look at the portfolio, the strategic priorities of the group, our commitment to debt reduction. I know I'm repeating myself, but it's probably important to do so. -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [53] -------------------------------------------------------------------------------- On the target, no one's changed my targets or any of the other management teams. We're after them, right? And we've got no room for [money directly]. We're going to -- as I said at the Q1 call, that is going to be harder to achieve. That's just life, but we're going to take that and try down this to make sure that we get there. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Next question comes from the line of Abid Hussain at Crédit Suisse. -------------------------------------------------------------------------------- Abid Hussain, Crédit Suisse AG, Research Division - Research Analyst [55] -------------------------------------------------------------------------------- I've got 2 questions remaining, I think. Firstly, just coming back to the remittances. I just wanted to check if there were any minimum capital hurdles that you came up against within the local entities that prevented you from taking out the cash? It sounds like there wasn't. And if that was the case, was it just -- was it just a case of a soft request from the regulators? So just any more color on that would be helpful. And then the second question, I'm afraid can I just come back to the difficult question that Andrew asked on portfolio exits? I guess the question is really, if you can remind us what options have already been looked at on the portfolio exits and on the international businesses in the past? And what is different in the way that you're approaching these businesses? I saw there was a slight concern like we've been here before. I think that's what some of us are concerned about, especially if you're saying sort of you want to manage these international businesses for long-term value. So it's difficult to kind of decide what side you're landing on this. Are you just landing on the side that you want to dispose of these businesses? Or 5 years down the line, you still have the same perimeter? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [56] -------------------------------------------------------------------------------- Okay. Thank you. I'll pick at that and then hand to Jason on the remittances. So we what we said, I'm not going to comment on the previous reviews on portfolio with an exit and what we've considered and what we haven't considered. And I don't genuinely think that you would expect me to do that anyway. And your concern about having been here before, again, I'm in danger of repeating myself. I get that. But what we've done here, and I think and I don't think this has been done before, is we've been very clear and we're very transparent and honest about how we view the portfolio going forward. And we very much view the portfolio in terms of the businesses where we will invest for growth, the U.K., Ireland and Canada, and the businesses where we will manage for long-term shareholder value. And that does -- that is different, I think, from the past because that does put a different lens on how you invest and how you see those businesses and the actions that you take on a day-to-day basis. And I think that you will -- we will come back to you as we have more to say when we make more tangible progress. Jason, on the remittances? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [57] -------------------------------------------------------------------------------- Sure. We chose somewhat out of discretion not to take dividends in the first half. Clearly, there were challenges around the amplitude of the market moves in the early part of the crisis. And that's just not the right time to be thinking about dividends. We're thinking about many other things around supporting customers and stabilizing the balance sheet. The group has got very strong liquidity in treasury as we continue to announce. So there was no shortage of cash around the place. So that's our -- the overriding concern, clearly, it has been specific, as I said a minute ago, the multilateral and national supervisory comments on dividends, particularly out of Europe, we're cognizant of those. And as I've said on a couple of these calls, we listen intently to the views of our regulators, and we continue to build relationships with them. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- Next question comes from the line of Oliver Steel at Deutsche Bank. -------------------------------------------------------------------------------- Oliver George Nigel Steel, Deutsche Bank AG, Research Division - MD [59] -------------------------------------------------------------------------------- Three questions. We're all very much looking forward to the fourth quarter update, by the way, because most of today's questions haven't really been answered. But the first is 9 months ago, the Board of Aviva came up with a lot of different strategy. And I know that was before your time, but you must be very well aware of the -- of how the decision-making process has changed during that period. So I'm wondering what is it in the Board's mind that has actually shifted you from the strategy under your predecessor to the new one. And secondly, at a rather operating level, any plans for management actions in the second half or guidance that you want to give on that? And then thirdly, does the -- does possible disposals or certainly a sort of lower emphasis on the international operations changed the local capital levels that are required in those local operations, either for better or worse? -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [60] -------------------------------------------------------------------------------- Okay. Thank you, Oliver. And apologies if you think we've not been answering the questions. So in terms of the way that the Board has [saw] the strategy 9 months ago, you quite rightly said, I wasn't on the Board 9 months ago, so I really can't comment on that. But obviously, I've been on the Board since the start of this year. And I have been part of the very fulsome and good debates that we've had on strategy. And this is the strategy that the Board is fully committed to. We have a new Chair. We have a number of new Board members. And we've had good debates about this strategy. And we know we are all fully behind and committed to delivering on this strategy. And I think we've been clear. We've been very, very clear about what we will focus on and how we will take that and how we will update you as we go forward. Jason, would you like to pick up the 2 points on management actions and the lower emphasis on capital? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [61] -------------------------------------------------------------------------------- Yes. On management actions, I think from an IFRS perspective, we hit, I think, GBP 69 million in the first half. I've given guidance in the past, it's [about GBP 200 million]. I don't think that I'll go backwards, but it might be up slightly. We're not expecting anything like the level of release that we had in 2019 or 2018, just to be clear. I think I was clear on that back in November. I just reiterate that guidance somewhere in that 0 to 200 range is our long-term expectation for IFRS. And as we said, slightly higher for OCG somewhere around GBP 200 million more of a run rate there in the contribution on the SCR side. On local capital levels, I honestly don't know. We thought about that a little bit as to the way the regulators are reacting to COVID-19 and then more broadly. We actually think the Solvency II framework has actually behaved pretty well. Obviously, some refinements that -- has talked about. But we buy into that framework. We believe in economic capital. We manage to it, and we think it's well for us. And I don't see any consequences of the capital management [is constant] with what Amanda said today. -------------------------------------------------------------------------------- Oliver George Nigel Steel, Deutsche Bank AG, Research Division - MD [62] -------------------------------------------------------------------------------- So sorry, just to follow-up quickly on that. What I'm asking is that as a result of your strategic announcements today, does that change the local regulatory? Does that change the need for cash in local subsidiaries? -------------------------------------------------------------------------------- Jason Michael Windsor, Aviva plc - CFO & Executive Director [63] -------------------------------------------------------------------------------- Well, as you said, Oliver, I don't see any direct consequence on capital in those subs. We're just giving a strategic update today. There's no -- there's nothing beyond that. There's nothing beyond that for regulators to react to. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- And that does conclude the Q&A session. I will hand the call back over to Amanda. -------------------------------------------------------------------------------- Amanda Jayne Blanc, Aviva plc - CEO & Director [65] -------------------------------------------------------------------------------- Okay. Thanks, Nicole, and thanks, everyone, for joining the call. As we outlined today, I think we're reporting a solid set of half year results. I'm really proud of how people are going above and beyond to support customers during the crisis, and I'm going to thank them all for their hard work. I do -- I will say, again, look forward to meeting many of you virtually or hopefully in person in the coming weeks and months and sharing our progress with you. Thank you so much for listening, and I hope you all managed to get break even if it's a staycation over the summer holidays. Thank you very much. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- That does conclude the conference for today. Thank you for participating. You may all disconnect.