Aviva SWOT 2015

COMPANY PROFILE

Aviva plc

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TABLE OF CONTENTS

Company Overview..............................................................................................3

Key Facts...............................................................................................................3

SWOT Analysis.....................................................................................................4

Aviva plc Page 2© MarketLine

Aviva plcTABLE OF CONTENTS

COMPANY OVERVIEW

Aviva plc (Aviva or 'the group') is one of the leading insurance groups engaged in providing lifeinsurance, general and health insurance and fund management services. The company primarilyoperates in the UK, Europe, Canada and Asia. It is headquartered in London, the UK and employedabout 27,718 people as of December 31, 2013.

The group recorded revenues of £39,503 million ($61,743.2 million) during the financial year endedDecember 2013 (FY2013), a decrease of 15.7% compare to FY2012. The operating profit of thegroup was £2,339 million ($3,655.9 million) in FY2013, an increase of 2.7% over FY2012. The netprofit was £2,151 million ($3,362 million) in FY2013, an increase of 173.3% compare to FY2012.

KEY FACTS

Aviva plcHead OfficeSt Helen's1 UndershaftLondon EC3P 3DQGBR

44 20 7283 2000Phone

Fax

http://www.aviva.com/Web Address

39,503.0Revenue / turnover(GBP Mn)

DecemberFinancial Year End

27,718Employees

AVLondon Ticker


Aviva plcCompany Overview

SWOT ANALYSIS

Aviva plc (Aviva or 'the group') is one of the leading insurance groups serving 31.4 million customers.The group provides customers with long-term insurance and savings, general and health insurance,and fund management products and services.The group's strong operations in the UK and continentalEurope provide it with competitive advantages in terms of scale, distribution and reach. However,global economic uncertainties are likely to affect the group’s business prospects.

WeaknessesStrengths

Significant exposure to troubled Europeancountries

Strong and diversified distribution networksustains leading market position

Relatively higher growth in claims paymentimpacting underwriting profitability

Improved focus towards profitable segmentsthrough business restructuring

ThreatsOpportunities

Low interest rates could lead to potentiallosses in future

Presence in high growth Asian marketslikely to drive revenue growth

Increase in fraud claims might affectgenuine claims and overall claimsmanagement

UK long-term insurance market growthpotential

Global economic uncertainties likely toaffect business prospects

Strengths

Strong and diversified distribution network sustains leading market position

Aviva has strong presence with its diversified distribution networks operating in both developed andemerging economies. The group has presence in 17 countries around the globe where it offersproducts and services like life insurance, general and health insurance and fund management. Avivasells its products through independent financial advisors, direct and online through its websitewww.aviva.co.uk and www.quotemehappy.com and through banks and other corporate partners. Infact, the group has created one of the largest and most successful bancassurance franchises in theinsurance sector with 100 partners. Diversity of the group’s distribution system is evident from itsmulti-distribution strategy. The group’s strategy is different in different markets. For instance in Asia,the group focuses on increasing business value by offering high margin products in growing economieslike China and South East Asia. Likewise in the UK and Ireland the focus is on personal andcommercial insurance. Aviva holds 10.5% and 15.3% of market share in both the UK and Irelandrespectively and stood among top 3 positions in all major classes of business.


Aviva plcSWOT Analysis

Improved focus towards profitable segments through business restructuring

The grouped has become more focused towards concentrating only on geographies which are lessexposed from credit and interest rate risks. For instance, during FY2013 Aviva group sold off its USlife and annuities business as a step to strengthen the capital position and focusing more on cashflows and growth. Further the group restricted any further investments in troubled European nations.This has reduced the group’s exposure to credit and interest rate risk, and also reduced the sensitivityof the Group’s economic capital results to credit spread movements. Restrictions on non-domesticinvestment in sovereign and corporate debt from Greece, Italy, Portugal and Spain remain in placeand balance sheet volatility was further reduced through the sale of the Group’s remaining stake inDelta Lloyd during FY2013. Further Aviva is focusing on investing in Asian economies like China,Indonesia and South East Asian countries potential of earnings could be more.

Weaknesses

Significant exposure to troubled European countries

The group has significant exposure towards troubled economies like Greece, Ireland, Italy, Spain,and Portugal.This exposure is from third party that owes money, securities or other assets who maynot perform under their payment obligations. These parties include private sector and governmentissuers whose debts securities Aviva holds in its investment portfolio. Losses due to defaults bycounterparties, including potential sovereign debt defaults or restructurings, could adversely affectthe value of the group’s investments and reduce overall profitability and shareholders’ wealth. Atthe end of FY2013, Aviva’s direct sovereign exposures to Greece, Ireland, Portugal, Italy and Spain(net of non-controlling interests, excluding policyholder assets) was £6.9 billion ($10.8 billion). As aresult, Aviva booked potential losses in FY2013. Significant exposure to troubled European countrieshas affected the group’s financial performance.

Relatively higher growth in claims payment impacting underwriting profitability

Aviva’s operations indicate weakness in underwriting. For instance, the gap between the premiumincome collected by the group and policy holder claims has been increasing significantly over thepast few years. In FY2013, net premiums earned by the company was £20,623 million ($32,233.8million), while the policy holder benefits amounted to £22,093 million ($34,531.4 million) comparedto a net premium income of £34,339 million ($54,431.7 million) and policy holder benefits of £29,152million ($46,209.7 million) in FY2010. Relatively higher growth in claims payment compared to growthin premiums is impacting the group’s underwriting profitability.

Opportunities

Presence in high growth Asian markets likely to drive revenue growth



The group has presence in growing Asian markets such as India, China, Indonesia and Singapore.Aviva has presence in Singapore with its strong relationship with the Development Bank of Singapore(DBS). The group operates in India through its partnership with the Dabur Group through a 26%interest in Aviva Life Insurance Company India Ltd. and in China, through its 50% joint venture withCOFCO Ltd. In Asia, Aviva is focused on creating franchise value through organic growth. Increasingthe value of its new business remains the group’s first priority.The GDP growth for emerging marketsin Asia was 5% in 2013. Despite inflationary pressures, it is expected that Asia’s strong domesticdemand and intra-regional trade is likely to sustain this growth momentum, with China and Indiadriving the overall trend. Asia is expected to be the fastest growing region for life insurance globally,with the potential for 15-20% average market growth per annum over the next decade. The group’spresence in high growth Asian markets is likely to drive revenue growth.

UK long-term insurance market growth potential

UK long-term insurance market growth potential is attractive. According to research undertaken byAviva, in conjunction with Deloitte, there is a potential annual pensions gap of some £317 billion($502.4 billion), the difference between what an individual saves today, and what they need to savein order to pay for a comfortable standard of living in retirement. Research by Swiss Re also identifiesa potential protection gap of £2.4 trillion ($3.8 trillion), which is the difference between the lifeinsurance, and financial protection cover an individual has and the amount they need to meet theirneeds. These shortfalls offer significant opportunities for long-term insurance companies within thismarket.

Threats

Low interest rates could lead to potential losses in future

Low interest rate environment in markets where the group operates could lead to potential lossesin future.The group generates most of their revenues from the UK and Europe, and these economiesare currently having low interest rates. This is resulting into lower investment returns and widensthe gap between insurance claims and investment returns. During July 2014, the interest rate in theUK was at 0.5% according to Bank of England. Low interest rates weaken Britain’s currency bymaking it less preferred destination and this has increased the trade deficit. Likewise in Europeancountries like France and Italy, where the group has more exposure facing the similar challenge oflow interest rate. During July 2014, European Central Bank (ECB) had introduced negative interestrates, this means instead of earning interest on money left with the ECB, banks are charged by thecentral bank to park their cash with it. Investing activity will continue to decrease the portfolio yieldas long as market yields remain below the current portfolio level. This is expected to decline theportfolio yield and could result in lower net investment income in future periods.

Increase in fraud claims might affect genuine claims and overall claims management



There has been an increase in fraud insurance claims during the FY2013. The group has detected£110 million of fraud insurance claims during FY2013 which was an increase of 19% compared toFY2012. Among these claims, the most common type is motor injury fraud, which accounted for54% of Aviva's total detected claims fraud costs. These are generally carried out by people who arenot insured by Aviva but who makes claims against an Aviva customer. According to Association ofBritish Insurers (ABI) the value of fraudulent insurance claims uncovered by insurers was £1.3 billionin FY2013, an increase of 18% from FY2012. The UK insurance industry is the third largest in theworld and the largest in Europe. It is a vital part of the UK economy, managing investments amountingto 26% of the UK s net worth and contributing the fourth highest corporation tax of any sector.Employing over 290,000 people in the UK alone, the insurance industry is one of the major exporters,with 28% of its net premium income coming from overseas business. Insurance secures life, afinancially secure business and helps in preventing from every day risk, but the increasing numberof frauds in insurance poses a serious threat to the group and the industry as well. The group mightface challenges in managing its overall claims management in future if they will not enhance theircapability in detecting and preventing from these fraud claims.

Global economic uncertainties likely to affect business prospects

Global economic prospects remain uncertain.The Greek debt crisis is escalating, with fresh concernsover the nation's political commitment to bailout terms and an impasse among European officialsover how to finance Greece's growing financing gap.The risk of the country's default and its problemsaffecting the rest of Europe is rapidly rising. The International Monetary Fund (IMF), revised downits global growth estimate for 2013 to 3.5%, from the earlier 3.6%. Especially, economic prospectsfor Europe look fragile as sovereign debt crisis has been spreading to Portugal, Italy, Spain andother European economies as well. Global economic uncertainties are likely to affect businessprospects of the group.



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Aviva SWOT 2015