Aviva plc (AV) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to today's conference call including analysts and investors. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 21st of May 2020. I would now like to hand the conference over to your speaker today, Maurice Tulloch. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to the call. Jason and I want to take the opportunity today to give you a brief update on how Aviva is progressing. Our full year results in March, I'm sure, for many, it feel like an eternity ago, and I suspect for many of us, it's amazing how much things have changed. COVID-19 has clearly presented significant challenges. Working remotely, servicing our customers effectively and for the broader global economy, Aviva was well prepared and has performed admirably. It has required us to make some difficult choices, preserving strength until there's more visibility on the path forward, and it has required us to adapt to how we operate. I'm extremely proud of our people, both those serving customers and those in the support functions. Their efforts mean we've been able to serve customers while also contributing to the wider community during times like these. This brings me on to today. You no doubt have read through the press release and the slides we published earlier this morning. It's [ not ] my intention to go through all the information in detail, but I want to cover off a few of the key messages before opening it up to Q&A. There are 4 key points I want you to take away from today. First, based on an analysis, as at the 30th of April, our estimate of the COVID-19 claims impact on general insurance, incorporating notified and projected claims, is GBP 160 million net of reinsurance. In the statements, we have outlined some of the component parts that make up this estimate and it assumes that lockdowns are in place until the end of June. It should be noted that we do not cover event cancellation or trade credit. On business interruption coverage, I'd also make a couple of observations. First, as we've highlighted to you previously, the vast majority of Aviva's commercial policies do not cover business interruption claims arising from COVID-19. However, there are likely to be pockets of exposures, such as specialist schemes and some broker programs where claims may arise. These are complex to work through. We'll take time to quantify. And there is still some uncertainty in terms of potential outcomes. We at Aviva will work constructively with the FDA whose efforts to expedite claims will help provide much-needed certainty to customers and insurers. In the meantime, we assume business interruption costs up to our reinsurance event retention. And overall, including the estimated impacts across other costs of business, we've assumed approximately, as I noted, GBP 160 million for COVID-19 claims. The second point. Our investment portfolio was well positioned and continues to perform strongly. In our shareholder-backed corporate bond portfolio, we have circa 5% exposure to the retail, leisure, aviation and oil and gas, the sectors most directly impacted by the crisis. So far this year, only 3% of this portfolio has been downgraded by a full letter and less than GBP 10 million downgraded below investment-grade. In our loan portfolio, we have transformed the asset quality over recent years and entered the crisis with low LTVs, 56% on average, and a high interest rate cover ratios at 2.9. We do, however, anticipate some pressure on covenants, but at the current time, we have not seen any meaningful impact on debt servicing. The third point I want you to take away is that we've maintained strong capital and strong liquidity. Our Solvency II cover ratio is estimated at 182% at the end of March. This is, of course, inclusive of the suspended final dividend for 2019, which will be considered in the fourth quarter. What's important to highlight is that within the capital ratio, we've built in additional prudence. We've incorporated a range of outcomes for COVID-19 insurance losses and made preemptive adjustments for lower property values and anticipated future credit rating migration. On cash. Our holdco liquidity was GBP 2.5 billion at the end of April. Remittances are likely to be well below the prior year for the first half, though should increase meaningfully in the second half of the year. We are deliberately taking a cautious and defensive position on capital and cash given the uncertain economic outlook. And finally, the last point, we've made a solid start to the year-end trading. In the first quarter, life new business volumes were up 28% year-over-year, and our general insurance net written premiums increased 3%. As you might expect, given the confinement initiative of governments around the world, new business activity has been slower in April. While this has partially been offset by strong in-force retention and customer renewals, we expect half year results to reflect this lower activity level. But our businesses, our people and our customers have adapted well to the changing circumstances, and we are encouraged by early signs that activity has slowly begun to increase. That concludes my opening remarks. Operator, we now invite questions from those on the call.

[Operator Instructions] Your first question comes from the line of Jon Hocking, Morgan Stanley.

I've got 3 questions, please. First on BI. So firstly, Maurice, you mentioned something about the assumptions you made in terms of reinsurance protection on the BI claims. I wonder if you could give a little bit more detail about that, please. And then secondly, I just wondered where we were in terms of policy limits for BI. I think the assumptions you said in the release are to the end of June in terms of lockdown. If we do see an extension beyond that or maybe further lockdowns after a second peak, to what extent are we getting close to policy limits being exhausted? And then finally, on the Solvency II numbers, you seem to have outperformed the sensitivities as the markets fell. Should we tally using those sensitivities or do we need to sort of look at some [ NAVs ] and some different downside shocks?

Thanks, Jon. Let me take the first 2, and I'll let Jason take the third one. With reinsurance, we simply applied our property cat reinsurance program as per its standard operation. This does provide for non-damage business interruption cover. The net retention across the U.K., France and Ireland combined is GBP 150 million and the net retention in Canada is $50 million. The assumption we've made in our preliminary estimate is that there remain some restrictions in place till the end of the second quarter. And up to the current point in time, that's the situation we're in. But clearly, if we came out of confinement period and then in a few months later we had subsequent lockdowns, we then expect to see further impacts. We have notified our reinsurers on the events, 2 events, 1 in the U.K. and 1 in Canada. Jason, do you want to take the solvency question?

Sure. Thanks, Jon. On the solvency figure, it performed broadly as we would have expected in Q1 based on the sensitivities that we published at FY '19. I think as I said at the results, we have been taking actions, both last year and this year to reduce sensitivity, particularly to interest rates. That probably -- the most obvious point is slight outperformance in markets such as France and Singapore and the U.K., we've reduced interest rate sensitivity. We've also got some capital generation, which will have come through into that number. Just to be clear, that number is after taking significant reduction for credit rating migration. And as you've probably read, we've repurposed the Brexit property allowance into the core assumptions. That doesn't have a big net effect, but that's actually -- now sets us up for an expectation of property price reductions.

And your next question comes from the line of Johnny Vo from Goldman Sachs.

Just 3 questions, if I may. Just on a gross basis, all the sort of COVID-19 impacts you're pulling through in solvency for additional strength. Sort of what sort of percentage point impact is that so net of the -- or gross of the Brexit provision? And also, have you applied the buffers to the group solvency number or have you applied it to the entity level? And the third question is just in relation to the BPA volumes. The volumes have been strong, but has your appetite for this business moderated given the outlook and conditions that you're seeing?

Yes. Thanks, Johnny. I'll take the third question, and I'll let Jason take the first two. In terms of BPA volume, certainly, I wouldn't say our appetite has changed. We still look at ensuring that we can get an adequate return on capital. We've had a good start to the year in terms of volumes. You've seen that obviously in our U.K. numbers. We also announced post Q1 another tranche from the co-op transaction. And there's still a healthy pipeline. But we're maintaining our discipline and looking at each on a case-by-case basis. So no change in either appetite or strategy as it relates to that part of the market. Jason, do you want to take the first two?

Sure. We'll go through the various areas that we have put into the sort of 3 broad areas. One is the COVID-19 losses in general insurance, where we've taken the numbers that we've foreseen and we've published today, plus a stress position of that. I won't give you the exact number of that, but that's a significantly higher figure. In the property, as I just mentioned, we've taken the so-called Brexit allowance for property and repurposed that into core assumptions. That was approximately GBP 400 million at year-end. So you can sort of see how that comes through. And then for the credit rating migration, the 5% and the 10% assumptions that we've made, that's approximately 2 points on solvency, which is about half the sensitivity as you might expect that we published that for full year. So that's the sort of total amount that we've taken. In the -- and that's in the legal entities. It's not done at group. That's actually been cascaded through into, obviously, UK Life with the annuities and for U.K. and Canada, primarily for the COVID losses.

And your next question comes from the line of Ashik Musaddi from JPMorgan.

Maurice and Jason, just a couple of questions I have here. First of all, if I look at your commercial mortgage portfolio, I mean, you mentioned that the LTV is like sub-60% and the interest cover is about 2.9x. So why do you think that there will be some issues with the covenants, so if you can give us some clarity on that? And on what part of the book out of the total GBP 8 billion, GBP 7.6 billion you have, how much part of the book you think could be under risk? The second one would be about the French capital position. Could you update us what's the situation in that, including the PPE buffers? I mean is it still okay or, I mean, you think you will not be able to upstream cash? And just from that cash point, if I look at the liquidity at the holding company, it has barely moved between February and April. So what is driving that? I mean have you got any upstreaming in past 2 months or you're waiting for second half to start upstreaming cash?

Great, Ashik. Jason, do you want to comment?

Sure. So on the commercial mortgages, I mean, what we've done is take a forward-looking view of prices, which we have to do to work out the valuation of the loans and the credit rating. That's the way they work through the model. So that's sort of part of our normal process. The LTVs, as you say, overall, are strong. We have no particular loans that are not paying interest, but we do have those that have got much higher LTVs. Clearly, that's an average across the piece. And we would expect, as property prices fall, we have LTV covenants and interest covenants that protect us, and we'll be constructive with borrowers to make sure that we can work through those together, but we're not flagging anything particularly new here. Obviously, the retail sector, the one we talked about before, and we do have an exposure as we've made out to that. On the French side, actually, capital in Q1 in France is strong. We published the SCR. So you can have a look at the local numbers at the end of Q1. It's not that dissimilar to the year-end. If anything, slightly higher. As I said a moment ago, we've taken a number of steps in France to reduce credit risk, to reduce equity risk and to reduce interest rate risk, and we've got slightly tighter matching, which all helps the capital position. The group solvency number does not include PPE. If we did include it, and is included in the local number, that would be 3 points extra on the group number. And that's consistent with the presentation that we made at the year-end. And just on holdco liquidity. Obviously, inflows and outflows have been about the same as the position hasn't changed. We haven't had any particularly large outflows or inflows. We've had some smaller remittances and some usual operating costs and interest payments, but there's nothing really to report at that level.

And your next question comes from the line of Colm Kelly of UBS.

Just questions related to the liquid asset portfolio, if that's okay. So you mentioned you've taken allowance for future credit rating downgrade, the potential downgrades. Does that apply to both the corporate bond portfolio and the illicit -- illiquid asset portfolio, i.e., has there been an explicit downgrade applied to the illiquid asset portfolio, firstly? And then following up on the commercial real estate loan question. Based on the likelihood that there will need to be some financial restructuring of some of those assets of higher LTV and lower interest coverage, when do you expect that, that will occur? Is that a 2Q event or later? And related to that, I mean, how often are those assets re-rated for the purposes of calculating the matching adjustments? If you could give some details on that. And then just lastly, on the remittances. So you've mentioned the expectation of lower remittances presumably for this year, that's a common -- primarily lower cash flow. But is there any allowance there for enhanced regulatory scrutiny on local entity ratios going forward? Or is that outlook based on a mix of both cash flow and regulatory scrutiny or just based on the cash flow impacts that you're expecting at this point?

You're going to test me, if I can remember all those, Colm, I will try. If I don't hit every point, then please come back to me. On credit rating downgrades, the corporate -- that is relating to corporate bonds, the migration, the 5% and the 10%. The illiquid assets are based on a modeled outcome. And therefore, we used internal ratings. The adjustments that we've made to property prices go into our model that then gives us a rating that we then apply. So in effect, that's embedded in our process. And that's really part of your second question on the matching adjustment, but that's done at every balance sheet date. We run that through an assumed property price and credit rating migration assumption. As you say, just to be super clear, we are expecting those downgrades to come. If they don't come, then this can come back into the capital base. But we're just trying to get ahead of what we see as a part of a down turn in the market for credit. I think it's far too early on the restructuring side to think of any loans that we're going to have to actively start to restructure. We're not in that place at all at this stage. And obviously, we're looking forward to people getting back to work and businesses getting back and operating normally. On the remittances side, I think -- really what we've been doing is trying to manage capital in each legal entity. We've been listening to regulators across the entire group. The PRA have made a statement, EIOPA have made a statement. Most of our major regulators in Europe made a statement following EIOPA, which have had slightly different implications. So we are consciously being in listening mode with our regulators and making sure that we protect the solvency of all the legal entities across the group. As Maurice said in his opening remarks, we will expect our remittances in the second half, but not so much in the first half.

And your next question comes from the line of Trevor Moss, Agency Partners.

A couple of little questions, if I may. Do you have a NAV estimates at this stage? I noticed that was missing. And secondly, could you give an indication of the new business volumes by major country in Europe, so Italy, France, Poland, please?

Trevor -- yes, go ahead, Jason.

I just want to take that. So on the -- we don't -- we're not providing IFRS financial statements. We've given you an NAV on a Solvency II basis, which you can see in the statement. And broadly, I wouldn't expect that to be a significantly different move to IFRS. But again, we don't have that number, I'm not disclosing it, but the broad movements wouldn't be that dissimilar in the IFRS balance sheet. I think on the new business side, we've given some further color in the statement around where we saw France and Italy playing out. Clearly, in Italy, it was down, as we said, and it was down also in France. Poland was roughly flat.

Okay. I don't really know why you didn't give those numbers because housing, unit-linked volumes and hybrid volumes and with profit volumes, and the portfolio is not really very helpful, but anyway.

And your next question comes from the line of Blair Stewart, Bank of America.

Three questions, I think, and maybe one clarification. Just on the -- first question, just with regards to reinsurance, is it possible to say where your gross estimate of losses is? And related to that, what would be the impact in terms of reinstatement of reinsurance if we do get a second lockdown? Or are you fully open to claims if we get a second lockdown? Secondly, maybe just a clarification. It might be useful to get an idea of the scale of the LTVs. I know the average is 56%, but you mentioned that some of them are higher, some of them are lower clearly. Maybe not for now, but in the future, it would be good to get an estimate or an idea of where -- of how much of the book is exposed to higher LTVs? If you could comment on that. Thirdly, just on deleveraging, what are your intentions with respect to deleveraging near term? Should we take that your conservatism around cash and capital would mean that deleveraging might be pushed out towards the end of the planning period? And finally, if I may. Just on the comment on the dividend, I think you made, Maurice, that it will be reviewed in Q4. What does that mean for thinking around the interim dividend?

Great. Thanks, Blair. Let me start with your -- the dividend question first. I'll kind of reiterate what I said on reinsurance and give Jason the other question. So on the dividend, as previously announced, the Board took the decision to suspend the dividend, and we're committed to revisit that in the fourth quarter. And while we had and continue to have strong capital and liquidity, our view is COVID-19 presents uncertainty that we think is unprecedented in recent history. We firmly believe that this merits a more cautious and prudent approach to capital management, which together with the guidance we provided invariably regulated period led to the decision to suspend the dividend. I expect our capital and liquidity remain strong. But note, there remains significant uncertainty around COVID-19. And as previously indicated, the Board will come back to that decision on dividend in Q4. It will assess the facts and circumstances at that time. On the reinsurance, I think your specific question, and I'll reiterate the net retention, the U.K., France and Ireland is combined, that's GBP 150 million. And the net retention in Canada is [ $50 million ]. We have assumed that the current restrictions with respect to lockdowns remain in place till the end of the second quarter. But if we came out of that confinement period and then hypothetically went into another subsequent lockdown, then we would expect to see further impacts. That estimate that we've put out based on reported and modeled claims is under one event. Jason, do you want to take the other question?

Yes. The LTVs for the commercial mortgage book are disclosed in the annual report in the APAC. I think we've got -- of the GBP 7.6 billion, GBP 6.2 billion is less than 70%, you can see the bands. So we give all the bands up to the amounts in note C5 of the APAC, if want to have a look at that after the call. I think on deleveraging, we're mindful of the target. We do have significant debt due for call and redemption in 2022, but that does give us some flexibility as we look forward into that. We haven't made any firm decisions on that. But we are, as we say, and then are really taking a cautious approach to capital management.

Can I come back just on the first question, Maurice? Are you prepared to give the gross and net COVID claims under that one-event scenario? And if it was 2 events with a second lockdown, do you have reinsurance, reinstatements in place or would that need to be renegotiated separately? And should we take from your dividend comment that during a period of time where we're under suspension that there will be no interim dividend at this stage?

Yes. So on the reinsurance, we do have adequate reinsurance in place. I'm not going to give the specifics on reinstatement premiums. And on the loss estimates, we're giving the net today, which is based on when we incorporate notified and rejected claims, and that's GBP 160 million.

Just on the reinstatements, we have a significant number of reinstatements, which we have not used, and I think it's pretty unlikely that we would, even with multiple lockdowns, use all of the reinstatements that we have. So we are comfortable with our reinsurance cover, both within the -- what we're currently anticipating and if things got materially different.

Okay. Dividend?

So on the interim. Well, I think we've said we're coming back to this in Q4. So that should -- we won't be expecting an interim dividend. I mean that's the -- that was the clear statement that we made. We're not communicating anything further on that. So the exact line, which I said, I haven't got it in front of me, but something like the Board will come back to dividend distributions in Q4.

And your next question comes from the line of Abid Hussain, Crédit Suisse.

I think I've got 3 questions. Firstly, I just want to follow up on Blair's question on the net or the gross losses from COVID. So your estimate is based on the assumption of a lockdown until the end of June. Can you just give us an indication of how do you extrapolate those losses if the lockdowns remain in place till the end of summer say for example? Do we double it? Or what sort of multiple do we need to increase that GBP 160 million? Because the way our guestimate from the outside, so any additional color would be helpful, please. And then the second question is on the motor book. I'm just curious, what are you seeing for claims? We can see your claims inflation overall for the motor book given that there is a material implied benefit from the GBP 160 million versus the gross level of COVID-related claims. And I actually had -- I do have a final question, another one on your longevity versus mortality exposure. I think you said that the net exposure is expected to be neutral. I would have thought you'd be net positive because your motor book outweighs the life and term front book. Can you just explain why it's not positive? Is it because you've been reinsuring longevity out in the recent years?

Abid, thanks for your questions. Let me give a little bit more color on business interruption. So let me start off. These are standard terms and conditions for business interruption do not cover claims relating to the current pandemic or notified diseases. Specified diseases that are covered are clearly listed and do not include COVID-19. For us, this has been a clear position since we reworded the policies following the SARS outbreak. Now there are a small number of Aviva customers that may have purchased cover through a broker or a scheme. That's not on our Aviva standard terms in which we may provide cover. We're working closely with those schemes and customers and brokers to ensure all valid claims are paid as quickly as possible. And where coverage is clear, we've already started actually making payments. So as I've reiterated previously, based on the analysis at the 30th of April, our estimate of the COVID-19 claims impact on general insurance, incorporating notified and projected claims, is the GBP 160 million net of reinsurance. I think your second question on frequency, like others, we have seen frequency down in some product lines, and that's ranged between 20% down to 50% down depending on various jurisdictions. That has provided an offset. I'd also add, though, that we have seen increased severity and some higher claims in other lines. And also, we saw pre-COVID in motor and home in the U.K., certainly, the February storm. So our working estimate in terms of lockdown as we think about frequency benefits is at the end of June. We think the world starts to slowly return. But there's lots of variability. It's been one of the things that many governments are encouraging people not to use public transport. So we could very quickly see the number of cars on the roads increase pretty significantly. Jason, do you want to take the other question?

Yes. So on the longevity and mortality, I mean, we've got a broadly balanced book. The claims on individual protection, I've said this on a few occasions, are largely reinsured, not entirely, but across the term books largely reinsured, some of the older stuff, the whole of life and the like, we do have an exposure there. The primary exposure we have is on UK group protection, which is clearly a working-age level, and that's -- the typical terms of that are 4x the salary. So you can imagine sort of GBP 100,000 to GBP 150,000 being sort of average frame. On the annuity side, which is a much bigger book, the experience that we're seeing today is clearly, and sadly, of course, mortality in elderly, which is materially smaller annuity costs in that population. So it's still very early days, but broadly, our numbers would suggest that, that will be balanced in terms of the experience that we've seen. We haven't started to think about assumption changes.

And your next question comes from the line of Oliver Steel, Deutsche Bank.

Maurice, Jason, three questions. The first is, are you prepared to give us any indication as to what claims are in dispute relative to what you've put aside so far? Second question is, I didn't quite get the answer you gave to Johnny Vo. Did you say that the property price changes you'd assumed had only come through in the legal entities but not at the group level? And if it is coming through at the group level, can you just explain the impact of that in a bit more detail because the saving you've made on the Brexit provision doesn't look to be big enough relative to the sensitivities you show to property prices in your group sensitivity? And then the third question, slightly different is, what impact would you expect if U.K. bond yields turn negative?

Great, Oliver, and thanks for the question. About 95% of our commercial policies follow the Aviva standard terms and conditions. Those standard terms and conditions are pretty clear, and as I alluded to earlier, have been in-force for a number of years. We do have a small set of policies that come from brokers or various schemes. We actually welcomed the FCA review. We think that decision will hopefully bring greater clarity and certainty for customers on business interruption policies. We hope that approach will accelerate the determination, in some instance, on complex technical matters. Where we have clear coverage, we've already started making payments on business interruption claims, and that will continue.

Yes. And I -- adding further to what Maurice said, we're not in disputes with anybody, and we've read more about this in the press than we have in our actual owned claims processes. So there's -- you can infer from that what you wish. On the property side, sorry, Oliver, if I wasn't clear. The provisions are in the legal entities and then the group is just a consolidated -- diversified consolidated position of the legal entities. So I think what Johnny was referring to is, will that reduce capital in the subsidiaries and hence have an implication for cash remittances, and it potentially could. So there's nothing much else to say on that. I wasn't quite sure you said around that.

Yes. Can I just come back to you on that because the -- in your sensitivities, you show a 20% decrease in the value of commercial property as being 9 points and on residential 6 points and a GBP 400 million saving on the Brexit provision would be about 2 points. So I'm trying to work out the math as to why your solvency ratio doesn't seem to have moved a lot further on these assumptions.

Yes. So the assumption -- these are -- depends on what the period is over those -- that one-off movement. I think these are effectively 5-year numbers that we've given you today. Well, for residential, it's 12% immediate, followed by growth RPI plus 0.75%, which is our long-standing price assumption. But really, it's the long-term impact that does affect the resi side. On commercial, it's a one-off impact of 15%, and that -- we don't assume any growth in commercial over the 5-year period. So in total, I think we've applied that, that was around GBP 400 million on surplus at the full year. And that number hasn't changed materially, just some small changes in that. And it is quite levered. I mean that's slight -- so the sensitivities in the -- that you're referring to are slightly stronger than the numbers that we've put into the balance sheet to date. On negative yields, I mean, no -- I mean, we've been dealing with negative yields in France for about 9 months now. I mean there's no sort of cliff edge effect of that and sort of getting used to it. But we are -- we set up to reduce interest rate sensitivity all the way down. So clearly, it's not great for favors or for the investment income in the business. But from a balance sheet perspective, we set ourselves up, and our current stress position would already anticipate potential for negative yields. So we sort of hold capital assuming that is a [ plausible scenario ]. So there's nothing to point to.

And your next question comes from the line of Dom O'Mahony from Exane BNP Paribas.

Three, if that's all right. Just coming back to the COVID claims. I wonder if you could help us bridge from the GBP 200 million to the GBP 160 million. So clearly, there's an offset between the frequency benefits and sort of non-BI extra claims. Are those too sort of big numbers or too small numbers? And what's in them, so for instance, our charity contributions, goodwill payments and so on, are they in the -- in that mix? Secondly, thinking beyond business interruption, one of the open questions is potential future liability claims. Do you accommodate an assumption for future liability claims in those numbers? So for instance, do you have any care home exposure, for instance, which is one of the topics that is coming up now? And then finally, on the deleveraging, I guess, very specifically, you have GBP 500 million DCI instruments coming up to call in July. Judging by your approach to capital and the dividend, you've taken the judgment that you should be retaining capital right now rather than using it up. Would it be fair to infer that, that means you won't be calling that instrument?

Yes. Thanks, Dom. We haven't given a specific breakdown. Now what I have outlined is the GBP 160 million. You're right to note in RNS, we talk about the GBP 200 million. There's a number of moving parts that go both ways in the bridge. So it's not just pure frequency. And obviously, as I said, the frequency benefits that we have seen, and not just on the motor line, which is the 20% to 50%, but we've also seen some favorable experience on the property line. We also include in there estimates for things like security losses that may or may not arise. We include estimates for construction. We do include estimates for liability. We do provide cover to some care homes in the U.K. And I've taken that into account. I think the other part of your question is, do we include our contributions in there? And the answer is no, we do not.

That's just -- just to be clear, that's claims, those figures, the GBP 200 million and the GBP 160 million, both relate purely to general insurance claims. On the DCI, yes, there is a call date coming up. I mean we would typically call things. That's a sort of expectation in the market. I'm not communicating anything on that today, however, and we are working through that. But I'll just only repeat what I said earlier that we are in capital preservation mode more broadly, and we are thoughtful around the strength of the balance sheet and the deleveraging, as I said earlier, we've got plenty of scope to revisit that in 2022 when we've got very significant debt due for call in that year.

Dom, I'll just add on -- yes, I'll just add one other comment, Dom, on the care homes, we're currently not writing new business, and we are supporting our existing customers. But on those renewals, we're being very clear on the language and making adjustments to the renewal terms.

And your next question comes from the line of Andrew Crean, Autonomous.

Three questions. Can I actually follow-up on two of the questions. But firstly, Oliver's question around about the hit to solvency from the property downgrade. I mean just using the sensitivity, it looks as though the 2 property assumptions are about minus 11 points. Net of the release of the Brexit is plus 4, which would give you a net minus 7 points. Is that mathematics right? Secondly, following up on Dom's question. I mean in Europe, it's quite clear that business interruption issues are being solved by voluntary contributions. And therefore, could you actually give us the figures for your voluntary contributions in places like France and Italy, which are part of the [ COVID cost ] and the way they dealt with it? And then thirdly, you've talked about being committed to the 2022 targets, but saying that COVID-19 is going to make that more difficult. Could you talk a bit more candidly about what are the longer-term challenges as opposed to just assessing the short-term year 1 hit for 2020?

Let me take -- I'll kick up on the first one. I'll try that again. But on the -- so the sensitivities are the day 1 impact with no further growth. What the numbers in the press release, so the 15% for commercial property, is an assumed 15% reduction and that's by year 5. For residential property, it's a 12% reduction followed by growth. So that will take you to whatever it will be by year 5 or year 10 across the board. So the sensitivities in the annual report are stronger because they are the impact day 1 of that single stress, so across the board. The Brexit provision is pretty similar in -- to what we have done. So you can see that, that was largely a repurposing of Brexit into the core assumptions, and that's about GBP 400 million in terms of solvency.

So net-net, what is that in terms of solvency points?

Net-net. On the -- that was about flat. Yes. The other thing, the sensitivity is -- just to be clear, I'm talking about the U.K. annuities here, Andrew. So the -- as I think about it, there's clearly non-U.K. commercial property and other non-annuity commercial property, which probably is contributing to the higher figure as well in the annual report. On the long-term targets, I would go, I don't know if Maurice want to comment. We're still very focused on achieving our return on capital target of 12%. That's a multiyear build towards that on an underlying basis, as we've said, around cost reduction, product optimization and smarter use of capital across the group. There's no change there. Clearly, business activity, particularly in some of the savings side, they will be challenged, but we will adapt accordingly. We still got significant strength from the in-force fair view of the business. So there's a lot for us to go at across that. But we -- there's no change to the prioritization of good quality new business and return on capital across the piece, and coupled with absolute discipline on expense efficiency. And that's really what we are, as we've said since November, absolutely committed to.

Yes. I would -- I mean Andrew, I would echo Jason's comments. We still remain committed to achieving our 2022 targets across the board. I mean obviously, COVID-19 certainly provides additional challenges, but we're remaining focused on enhancing customer operational fundamentals, too, and drive improved returns. Obviously, we're off to a good start with our trading results in Q1. I mean as I alluded to, and would be expected, they have slowed down in April, but encouragingly, in the last 10 days, we've started to see some early signs of them coming back. I think you also had a comment on our portion of the voluntary contributions in France. It's EUR 100 million. Jason, if I've got the wrong number here in my scribbles, please correct me, but that's our share.

Yes. Well, EUR 100 million in France is actually from the investment portfolio. So what we've done is commit to invest EUR 100 million in things like Medtech and other health care and other sectors that are relevant to the COVID-19 response, something that we did in the industry. There's a contribution to a solidarity fund in France. If I'm not mistaken, it's about EUR 5 million, give or take, Andrew.

Okay. So not great?

Italy -- and elsewhere, there's 1s and 2s elsewhere. The significant contribution and part of the [ 43 ], the number that we've given you is in the U.K. Red Cross, it's the ABI fund and it's the NHS charities.

And your next question comes from the line of Fahad Changazi, Mediobanca.

Sorry, I know you've answered this question many, many times, but just to be absolutely sure on the sensitivities. The sensitivities that you disclosed is a drop in property and commercial prices, and that's sustained for 5 years, whereas what you've done is a 12% reduction in house prices and then 75 bps 4 years after and no increase in commercial, right?

Right.

And could I just ask you then, in terms of the 12% drop and the 15% drop, how have you come to those assumptions because they seem harsher than what the [ UK and France ] are incorporating at this time?

That's interesting. I mean we looked at a number of inputs from external consultants. We work on the commercial side very much with our asset management Aviva investors and get views. Clearly, there's very few transactions. So it's highly subjective, right? We're not -- we have no crystal ball over here. But we're just taking inputs that we can see. We're trying to be reasonable. Within that 15%, of course, there's a range of effects in different sectors. So that's an average overall as you might imagine. And then on the property side, there is an external consultancy that we -- on the residential side, there's an external consultancy that we use. We look for other data points. Again, we're just trying to bring together best information that we have in our own judgment to put something into the balance sheet. Again, it is, of course, subjective.

And your next question comes from the line of Gordon Aitken, RBC.

My questions have all been answered.

And your next question comes from the line of Steven Haywood, HSBC.

A couple of questions, please. On the favorable impacts that you've included in your GBP 160 million net claims, can you give an amount that you've included the favorable impacts here? And tell me how much -- sorry, whether it is year-to-date favorable impacts or if it is year-to-date and expected future favorable impacts? And then second question is on the Hospitality Insurance Group Action naming Aviva and QBE targeting your business interruption material damages policies. Is this included within your net claims figure or is it in addition? And if you have any other remarks that you would like to make on this, I'd be happy to hear them.

Yes. Thanks for that question. Let me start with your second one, and I'll ask Jason to deal with the first one. I'm not going to comment on any specific action. But what I have said, if you look at Aviva standard terms and conditions, which is circa 95%, 96% of our policies, there isn't cover for claims leading to current pandemic-notified losses. We work on specified disease spaces, and those are clearly listed, which does not list COVID-19. Those policies have been in place. The change was made around the time of SARS, so about 17 years ago, and they've been very clear. We do have a small number, as I alluded to earlier, that where cover may exist. They've been purchased through a broker or scheme. They're not on our standard wordings. And we're working closely with those customers and brokers and paying valid claims as quickly as possible where coverage is clear. We've already started making payments. The estimate that we did provide was based on an analysis as of the 30th of April, and that includes both notified and projected claims up to our retention limits, and that's where we get the GBP 160 million net of reinsurance, and I articulated earlier, the limits both in Europe and in Canada. So actually, I'll take your first one as well. It's -- it would be too simple to take the GBP 200 million into GBP 160 million and assume that was all simple frequency benefits. There are a number of moving parts. So we've also made provisions for potential liability claims, claims which may or may not arise out of our surety business and construction business. And we have seen favorable trends in terms of the use of a car. And we've also seen some favorable trends on motor. Those have been offset by increased severity. And all of our estimates assume that people start slowly returning to work and using their vehicles for transport as we move into the second quarter.

I'd now like to hand the call back for closing remarks.

Yes. Thank you, operator. So I appreciate everyone's time this morning. I think as you can see from the results, Aviva has had a strong first quarter. We've seen increased new business sales, with life sales up 28% and the general insurance sales up 3%. We've outlined our capital and liquidity position that has held up well, 182%. We've also moved early to recognize additional COVID-19 impacts in our capital position. And we remain robust and confident in ensuring that we're continuing to manage our business appropriately and serve our customers well. I'd like to just thank everyone for their time this morning.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.