Aviva plc (AV) Earnings Call Transcript & Summary

Welcome to Aviva plc's Half Year 2021 Results Call for Analysts and Investors. I will now hand you over to CEO, Amanda Blanc. Please go ahead.

Thanks, Nicole, and good morning, everyone. I hope you're all well, and thank you for joining Jason and me for our 2021 interim results presentation. We'll start this morning by providing an update on the progress we are making towards our strategic priorities. And then as usual, Jason will take you through the detail of the results of the first half before we open the lines for Q&A. So let's get started by turning to Slide 5. Since I was appointed CEO just over 1 year ago, I am solely focused on creating value for our shareholders, our customers and our people. At the heart of our strategy is the strong belief that Aviva has the potential to win in our chosen markets. We have leading positions, the #1 brand in insurance, genuine ESG credentials and the financial strength and capabilities to serve all of our customers' needs. This is unique. Our strategy required us to focus Aviva's portfolio, transform the performance of our core business and to improve our financial strength. We are convinced that delivering our strategy will create value, and we are highly committed to its success. I'm therefore pleased to report that we have been working at pace with conviction and are making good progress on all fronts. In terms of focusing the portfolio, that work is now largely complete. In less than 12 months, we have realized significant value for our shareholders, announcing the sales of 8 businesses for total proceeds of GBP 7.5 billion. We have completed the sales of Aviva Vita in Italy and AvivaSA in Turkey, and we expect to complete the remaining disposals by the end of 2021 with all regulatory approval processes currently proceeding to plan. Our success in focusing the portfolio is enabling us to improve our financial strength. Again, you will have observed we have accomplished a great deal in the past year. And our balance sheet today is extremely robust: Capital surplus of GBP 12 billion; Solvency II capital ratio of 203%; center liquidity of GBP 2.8 billion; and debt leverage of 26%, well below our target of operating at sub-30% following the GBP 1.9 billion of debt reduction in the first half. Today, we are announcing an interim dividend of 7.35p per share, an increase of 5%, reflecting our confidence in the strength of the business and the underlying cash flow. From the moment we embarked on our refocusing strategy, I've been very clear that it is our intention to deliver a substantial return of capital to shareholders following the completion of the disposals. And I meant it. Today, we are kicking off that return of capital with the immediate commencement of up to GBP 750 million share buyback and announcing we intend to return a total of at least GBP 4 billion by the half year 2022. This is subject, of course, to completion of the disposals, regulatory approvals for the capital distribution and market conditions. We are moving on this ahead of expectations based on our assessment of the strength of our liquidity and capital position and because we don't believe it's right for us to sit on excess cash and capital unnecessarily. Turning to Slide 6. Our go-forward strategy is now solely focused on transforming the performance of Aviva and realizing the full potential of our core businesses. In this respect, I'm pleased to report we have delivered an encouraging first half performance with cash remittances up significantly to GBP 1.1 billion, controllable costs down 2%, operating profit up 17% to GBP 725 million and I now have the senior team in place with everyone sharply focused on execution. We are making good progress in the areas we are targeting to grow, notably in general insurance and savings and retirement. Turning to Slide 7. Let me provide some more color on this. In March, I outlined the areas we are targeting for growth, and we've seen some encouraging signs of progress in the first half. Individual savings net flows of GBP 2.8 billion, including record inflows for Aviva. We remain #1 in workplace savings with assets under management up 10% to GBP 89 billion and net flows up 8%. Protection and health profits have returned to growth, up 32% year-on-year. In general insurance, we have delivered our highest top line in a decade, largely driven by U.K. commercial lines, which is up 16% year-on-year. And in bulk purchase annuities, we have traded with discipline in a subdued market during the first half. The outlook for the second half is good. We have written GBP 3.7 billion of new business July year-to-date and are happy with the strength of our pipeline. I'm pleased to see the benefits of our diversified group coming to the fore yet again. Last year, a strong BPA performance negated the COVID impacts on general insurance. And in the first half of this year, general insurance, protection and health have rebounded, helping negate a subdued BPA market. As we look forward, our strong BPA pipeline will serve us well as we face into the personal line soft market, further seeing the benefit of a composite in action. Turning to Slide 8. Alongside delivering top line growth, we continue to focus on reducing controllable expenses, which are down 2% year-on-year. We remain on track to deliver our intended GBP 300 million of savings in 2022, which is after absorbing growth and approximately GBP 200 million of inflation. Furthermore, we're focused on delivering top quartile efficiency across all of our businesses. As the right-hand side of this slide demonstrates, our cost reductions are structural, driving digitization in our operations, which has the double impact of achieving cost reduction and improving customer outcomes. For example, in U.K. motor, 65% of claims are now processed digitally. This has enabled us to reduce headcount and deliver indemnity savings with the average digitally processed claim being closed out for GBP 106 less than one handled off-line. Furthermore, 91% of vehicles are now directed into our own repair network, the second-largest in the U.K. And all of this is resulting in better customer service and satisfaction. We've also achieved a material reduction of 30% in our office space since the beginning of the year. This has reduced our cost by GBP 20 million as we seek to work more efficiently and flexibly in the new operating models post-COVID. We see opportunities to go further here, and we believe we can both reduce our costs and improve employee engagement without any detriment to productivity. Turning to Slide 9. We continue to power up our brand, extending our #1 position by 5 percentage points to 16% ahead of our nearest competitor. Both consumer awareness and consideration are up considerably following the launch of our new campaign in April. It is gratifying that 87% of retail GI customers allow marketing commissions for Aviva via the price comparison websites, reflecting high levels of trust in the brand. Customer numbers are also rising in key areas, up 3% in workplace to 3.9 million and up 9% in retail general insurance to 3.5 million today. And customers continue to increasingly interact with us digitally. MyAviva mobile log-ins are up 50% year-on-year, and MyPension app usage is up 58% over the same period. Overall, we are making good progress, but we're going step by step, and it will take time to realize the performance that we believe the business is capable of. Turning to Slide 10. Aviva is the clear leader in U.K. financial services on ESG. We are the major -- first major insurer globally to commit to being net zero by 2040. We have launched a climate-focused partnership with the World Wildlife Fund. ShareAction rated Aviva Investors #2 overall for voting practice. We are a key member of [ G Funds ]. And we've also been rated in the top 5% of insurers globally by Sustainalytics. This focus is resonating very positively with customers. It is early days, but the flows into Aviva Investors' ESG funds in the first half of 2021 are double those for the whole of 2020 at GBP 324 million. Our market-leading real assets team play a critical role for society with GBP 43 billion of assets under management invested across infrastructure and real estate. And we are going further, having committed to investing GBP 10 billion in U.K. infrastructure and real estate by 2023. As we seek to support the broader economy and U.K. government initiatives, in the first half of 2021, we invested GBP 1.4 billion across a number of key projects. Turning to Slide 11. In November, I outlined the priorities for deployment of excess capital: first, debt reduction; second, shareholder returns; and third, targeted investment to accelerate growth. Today, we're providing further detail around how we are deploying the GBP 7.5 billion of proceeds generated from disposals. First, debt reduction. We have delivered GBP 1.9 billion of debt reduction during the first half of 2021, and we'll utilize an additional GBP 1 billion to maintain our leverage ratio below 30%. A further GBP 700 million will be used to reduce the internal loan following the sales of France and Poland. Second, as promised, delivering a substantial return of capital to shareholders. We intend to return at least GBP 4 billion to shareholders by the half year 2022, subject to the deals completing and obtaining regulatory approval for the capital distribution. As part of this, I am today announcing that the Board has authorized a GBP 750 million share buyback, which will commence immediately. And thirdly, we will invest in our business to accelerate growth. This will be both organically and potentially through strategic bolt-on acquisitions where we identify opportunities to accelerate our progress and that will be accretive to our financial performance. Turning to Slide 12. We are making good progress towards our strategic priorities. We remain on track to fulfill our key financial commitments, and we will deliver attractive value creation for our shareholders through the return of capital in the short term and delivery of a transformed performance over time. I'm very encouraged by the direction of travel, but we've still got lots to do. We are all keen to execute our plan as fast as possible so that we can deliver the results that we believe Aviva is capable of. Our shareholders deserve nothing less. Let me now hand over to Jason, who will take you through the interim financial results in more detail.

Thanks, Amanda, and good morning, everybody. I'm going to spend a few minutes to take you through what has been another extremely busy 6 months. Trading has been very good, setting us up well as we move into the second half of 2021 and beyond. Whilst there's plenty of work to do to transform our performance, we're making good progress in the key areas. Cash remittances of GBP 1.1 billion from continuing operations is very strong. And operating profit is up 17% to GBP 725 million, benefiting from the breadth of our business and our diverse earnings mix. As you know, we made decisive progress focusing the portfolio, and the remaining transactions are progressing well. We now expect all to complete by the end of the year, paving the way for the substantial return of capital in 2022. After reducing debt by GBP 1.9 billion and the leverage ratio by 5 points to 26%, our Solvency II position and center liquidity remained strong, providing significant flexibility. I'll come back to the capital return later after I first cover our financial results, beginning with cash remittances and our interim dividend. Increasing and sustaining cash flow to support our growing dividend is fundamental to our strategy. In the first half, we had very strong remittances of GBP 1.1 billion, up from GBP 0.1 billion in the first half last year. 2021, in total, we expect annual cash remittances to grow strongly compared to the GBP 1.4 billion in 2020, with continued growth in '22 toward our '23 ambition of GBP 1.8 billion. We remain very much on track to achieve our 3-year target of over GBP 5 billion of cash remittances in '21 to '23. This confidence has allowed us to increase the interim dividend by 5%, in line with the policy we announced last November. As you know, we aim to grow the dividend per share sustainably by low to mid-single digits per annum. Now just a quick word on the group metrics with very strong cash remittances of GBP 1.3 billion; own funds generation of GBP 710 million; and group operating profit of GBP 1.1 billion, 8% lower, which mainly reflects the absence of profit from FPI and Singapore. The sales of which we sold last year. The IFRS loss of GBP 198 million was driven by negative investment variances, largely from higher interest rates as well as the anticipated loss on the disposal of France, which we expect to be more than offset by the profit on disposal of Poland in the second half. I'll now focus the presentation on the continuing operations. First, the headline metrics. I've already covered the big increase in cash and own funds generation was up by 49%, mainly from the GI businesses. Operating profit increased by 17% with very strong performance in general insurance as well as growth from Aviva Investors. Costs were 2% lower in the half, and we're looking for cumulative savings of over GBP 225 million in 2021 compared to 2018. Implementation costs to deliver the savings in the second half are expected to be significantly higher compared to the first half as we remain on track to achieve our GBP 300 million cost saving target in 2022. Let's now look at the performance of each of the businesses, starting with U.K. and Ireland Life. Headline operating profit was 34% lower at GBP 545 million. At a trading level, we're pleased with the growth in protection and health and in savings and retirement. We've made good progress in the lumpy BPA market, and I will go through those segments in a moment. First, a word on management actions and other and on Heritage. The reduction in management actions and other from GBP 69 million in the first half of '20 to negative GBP 38 million is largely driven by an increase in the provision for legacy customer remediation. And as a reminder, we review our longevity and other major assumption changes in the second half. We expect the full year profit from management actions and other to be in the GBP 0 to GBP 200 million range. The half year reduction in Heritage reflects an unusually high comparative in the first half last year, where profit over the year was heavily weighted towards the first half. In 2021, we expect a similar level of profit from Heritage in the second half as in the first, which would mean profit for the full year in line with our around 10% expected runoff profile. As a reminder, Heritage had profit of GBP 321 million in 2020. I'll now cover in more detail the segments of U.K. Life where we are confident we can drive quality, long-term growth, segments we already have leading positions and capabilities. Starting with annuity and equity release, which was a relatively quiet 6 months for the BPA market. Pleasingly, sales of equity release were up 43%, reflecting easing of lockdown restrictions and the introduction of virtual valuations. Our sales of individual annuities remain steady. Volumes of bulks were GBP 1.6 billion compared to GBP 3.1 billion last year. I'm pleased to [Audio Gap] Kingfisher deal we announced in July, and we're on track to have a good 2021. VNB and IFRS margins were impacted by a higher proportion of assets being temporarily invested in gilts, as low spreads made investments in corporate bonds unattractive while investments in illiquid assets are typically weighted toward the second half of the year. Adding these assets will improve full year margins, similar to the pattern we saw last year. BPA and equity release remain attractive and growing markets where we can capitalize on our strong position to deliver long-term growth. Growth in savings and retirement benefited from higher average assets, which rose 19%, driven by market movements and net inflows of GBP 5.2 billion in the half. AUM for this fast-growing segment reached GBP 141 billion at the end of June. We had record net inflows in workplace of GBP 2.7 billion in the first half, and the platform had some of the largest net inflows of any adviser platform in the market. Reported operating profit in savings and retirement was flat, GBP 73 million, which is largely a result of revenue recognition, which in 2021 is on an actual fee basis aligning our basis of revenue recognition with wider industry practice and eliminating below-the-line items. On a comparable basis, revenue for S&R would have risen by 13% with operating profit up 30%, demonstrating the positive operational leverage, which will become more evident in future years. Moving on to another of our leading franchises, protection and health, where we're #2 in the group and individual protection market and #3 in health. Sales were largely in line with the first half of last year, but we saw an improvement in mix driving up VNB by 12%. Group protection volumes were down, reflecting a strong first half last year while individual protection sales increased 1%, which, while small, was a pleasing return to growth. Margins in VNB were higher as the gradual opening of the economy eased and the impact of lockdown restrictions on this line of business. Our renewed 5-year partnership with Connells provides us with the opportunity to build further on this growth. We also saw a shift in health to higher-margin consumer and SME propositions, which performed well following the launch of our expert select products in Q1. Operating profit increased 32% to GBP 107 million, helped by the business mix shift as well as improved claims experience. Let's now turn to general insurance business. Of course, GI was most directly impacted by COVID-19 last year and has benefited from lower claims frequency and more benign weather in the first half of 2021. So it is perhaps unsurprising that we've seen such a strong improvement in performance, with operating profit increasing sharply to GBP 420 million. However, our GI business has also performed strongly in its own right with an improvement in the underlying operating performance, which more than offset lower investment return as a result of lower rates and derisking undertaken last year. GI performance benefited from strong growth in premiums of 6%, a 5% reduction in controllable costs with a combined ratio of 91.6%. We continue to see excellent opportunities for growth in commercial lines. In personal lines, there are some headwinds with softer rate environment motor combined with increased claims frequency. Also, while weather conditions were benign in the first half of the year, we've experienced some adverse weather in July, including floods in the U.K. and wildfires in Canada. Nevertheless, we still expect the group combined ratio to be below 94% for the full year. So let's look at these dynamics in more detail, starting first with the U.K. Overall, the U.K. business performed strongly, delivering its highest half year premiums for a decade with growth of 8%. Commercial lines is continuing to move ahead of pace with double-digit top line growth. The business has benefited from both rate hardening and high retention levels, consolidating our #1 position in the market. The combined ratio and underwriting result improved significantly, reflecting improved underlying performance and a significant adverse impact of COVID-19 in H1 '20. In personal lines, sales were stable while our market share increased, a good result in a difficult market with weaker rates. We delivered 5% growth in direct and aggregator business with the successful launch of the Aviva brand on the major price comparison websites. New partnership deals entered into recently have also supported growth in home. However, we continue to be impacted by disruption to some of our distribution partners and by very low demand for travel insurance. Personal lines combined ratio improved to 94.2%, up by better underlying performance as well as frequency benefits in motor and benign weather. Let's now turn to Canada. Hopefully, we're able to see from our first in-focus session in July that Canada is a high-quality business with strong group synergies, diversifying risk and capital. Canada is performing strongly. Overall premiums grew by 5%, including 2% growth in personal lines, which benefited from modest growth in policy care. Combined operating ratio remained strong with an underlying improvement to 88.7%, a bit lower yet still positive contribution from prior year and weather. As I mentioned earlier, we've seen some adverse weather since the start of July, and we expect claims frequency to increase in Canada as it reopens after the lockdowns. So we expect COR to rise in the second half of the year. Commercial lines continue to see excellent top line growth with rate hardening and new business wins. Improvement in COR was partly driven by the straight hardening as well as COVID-related business interruption claims and cat events impacting the prior period. Moving now to Aviva Investors, which we're presenting on a continuing basis as it's excluding its French and Polish operations. Overall, the business had a much better start to the year compared to a tougher 2020, and operating profit more than doubling to GBP 19 million, driven by revenue growth, helped by origination fees and higher asset levels and cost control. Costs fell by 2%, contributing to an 8-point reduction in the cost-to-income ratio. And while this is pleasing to see, we know we have much more to do to improve efficiency. It is also good to see improved investment performance with 74% of AUM now a benchmark over 1 year. Net inflows were positive by improved flows from across the group, with a pipeline of business that is strong and diverse. This includes our expanding climate transition fund range aimed at the DC market, demonstrating the strategically important role that Aviva Investors plays as the asset manager for the group, supporting growth in savings and retirement and annuities, and enhancing Aviva's already strong ESG credentials. In summary, Aviva Investors made a good start to refocus the business, and we have clear plans to drive efficiency and capitalize on opportunities for profitable growth. As promised, I'll now come back to capital and shareholder returns. As you know, we've agreed to sell 8 businesses for a total of GBP 7.5 billion with just under GBP 2 billion of cash received so far, mainly from Singapore and the proceeds used to reduce debt. Putting together what we've done so far and what we've announced today, we will utilize all of the divestment proceeds by deploying in excess of GBP 7.5 billion of cash, to return at least GBP 4 billion of capital to shareholders, to reduce debt by GBP 3 billion and to repay GBP 0.7 billion of the internal loan. To reiterate, that's the deployment of all of the divestment proceeds. We've achieved very good outcomes from the divestments and by returning capital to shareholders as soon as possible for creating significant value. On Slide 26, you can see that our capital position remains strong with the Solvency II cover ratio increasing by 1% to 203% despite the payment of GBP 550 million final dividend and a GBP 1.5 billion reduction in debt capital. Our capital position increased from operating capital generation in the period and rising interest rates with some offsetting items, including the estimated impacts of the transition from LIBOR to SONIA and the unwind of equity hedges. Our sense of liquidity is also strong with the movement since December reflecting the final dividend payment, the full cash impact of the reduction of debt of GBP 2 billion as well as strong cash remittances. On a pro forma basis, the remaining disposals would increase the cover ratio by 46% and center liquidity by GBP 5.6 billion, generating significant excess capital. If we simply pro forma an illustrative GBP 5 billion equity plus debt capital return, we'll remain financially very strong with leverage in our target range of below 30%. Looking forward, we will continue to have significant financial flexibility, low leverage, strong ratings, and our new capital position shows the benefit of the group strategy of around GBP 2 billion of diversification benefits. Our intention to return at least GBP 4 billion to shareholders is starting straight away with a share buyback program of up to GBP 750 million, which will likely run for 6 months or so. At the full year results in March, we expect to provide you with the details of the remaining capital return. Of course, this will be contingent on the completion of the remaining divestments, the receipt of regulatory and shareholder approvals and market conditions. At this stage, I can say that our preference is for a method of capital return that would result in a reduction in the share count, for example, a special dividend and concurrent share consolidation. We will take further soundings from shareholders on this. On the debt side, our decisive actions to reduce leverage have taken -- have created some headroom for the return of capital to shareholders. We expect to use a portion of the proceeds to reduce debt by a further GBP 1 billion over time to ensure that leverage ratio remains below 30%. In total, debt reduction will lead to annualized cash interest savings of around GBP 170 million. The approach to further debt reduction is yet to be determined. But given our financial strength, we would be comfortable if our leverage temporarily exceeded 30% before we took additional action on debt. Furthermore, as previously indicated, we will reduce the size of the internal loan by GBP 0.7 billion following completion of the disposals of France and Poland expected later this year. Finally, before I hand back to Amanda, I'll make a few wrap-up comments on the outlook. First, on our principal financial target, we are well on track to grow cash remittances and meet our greater than GBP 5 billion 3-year target. We're also on track to achieve our GBP 300 million cost-reduction target in 2022 against the 2018 baseline. As a reminder, we will deliver these savings solely from continuing operations while, at the same time, absorbing the impact of growth in the business and from inflation, which alone we estimate to be around GBP 200 million over the period 2018 to 2022. Beyond that absolute target, we remain focused on achieving top quartile efficiency. In general insurance, we expect continued premium growth and despite adverse weather in July and some rating headwinds in motor and improved combined ratio of below 94% in 2021. Savings and retirement continues to attract very strong flows into workplace and adviser platform, while Aviva Investors has a good and diverse pipeline of new business and is taking action to improve efficiency. There is also a good progress in BPAs and equity release with GBP 3.7 billion of BPA secured year-to-date and a good future pipeline. We also expect an improvement in margins, although not to 2020 levels, given the lower asset spreads today. In summary, we're confident that the trading performance in the first half sets us up to make further progress in the second half. The business is focused as clear targets and the new CEOs are all in place. We are focused on transforming the performance of Aviva. Now back to Amanda.

Thanks, Jason. So turning to Slide 30. Let me recap. One year in as CEO of Aviva, I am delighted with the amount that we have achieved in the midst of a pandemic that is still ongoing. But I am restless to deliver more and realize Aviva's full potential for our customers and our shareholders. The breadth of our group is providing substantial financial, operating and capital diversification benefits for our shareholders, evidenced by these encouraging half year results. This is a business that is in increasingly good shape, but there is a lot more to do, and we are focused on accelerating delivery. Thank you very much for listening. I'll now pass back to the operator, and we'll open the lines to take your questions.

[Operator Instructions] Your first question comes from the line of Louise Miles at Morgan Stanley.

Amanda and Jason, just 3 for me, please. So on Slide 26, you talked about a pro forma solvency ratio of 195%. I'm just wondering -- and I know the 30% leverage ratio here will probably become the binding constraint, but are you still aiming to pay down to that 180% level? Are you happy to have a bit of a buffer just in case of any market or operational uncertainties? And then also on the leverage ratio, it's 28% on that slide as well pro forma. I mean do you want to maintain that going forward? I know that there are a few dates that could be redeemed in 2023. I'm just wondering if you're going to refinance that or not. And then finally, and if there was some cash remittance from the discontinued operations in the first half, should we be expecting anything else from those divisions in the second half as well?

Okay. Thanks, Louise. I'll pick up the first question, and maybe Jason can pick up the second 2 of those. So in terms of the pro forma solvency ratio, I guess the upper limit from what you're seeing there -- and I sort of understand where you're coming from on that question. So as I've said before, we're making good progress with the disposals. We're all on track to complete them before the year-end, but we have to complete the deals. We have to collect the liquidity. We have to obtain the regulatory and shareholder approval for the distribution. And so the capital return is a future event. What we wanted to do today was to set the floor by saying at least GBP 4 billion, but we're very conscious, of course, that we need to go through the next few months. So I'm really pleased that we have been able to communicate early what substantial means. Our working range on the solvency is between 160% and 180%, so we are not changing that working range. But I think what we've tried to show you today is that we're going to be actively managing the capital, but we want to just keep the communication going with you as much as possible over this period. And I think the GBP 750 million buyback starting today shows that when we have excess capital, we're ready to start and to make progress. And we're committing to a time line of half year at 2022 to be able to deliver the rest of the return. So I'm not going to really say any more than that on that limit today. Jason, on the other 2 points?

Sure. On leverage, we have got a target below 30%. We've driven it down to 26% in the first half. That gives us some opportunity to do the share buyback. So as leverage goes back up, we're not under pressure on the debt side at all. As we look forward, we've got capacity to return significant capital. We do need to take that down by GBP 1 billion or so as I've indicated, and we'll find ways to do that in -- you mentioned '23. We've obviously got some redemptions, of course, in '22 as well. So if you take the 2 years in the round, we've got some time. And as I said in my remarks, we don't need to be below 30% every moment. If you've got the cash at hand and we're able to manage leverage, then we will do so dynamically across the period. I think on the discontinued operations, no, we're not expecting a lot of cash from them in the second half. I think we are expecting those divestments to complete.

Your next question comes from the line of Blair Stewart at Bank of America.

A couple of questions from me. Given your preference to return to that level of capital and reduce the share count, probably talking about 25% reduction, will the Board review the dividend policy? I think in round numbers, your dividend cost is GBP 800-odd million. That's going to go down to about GBP 600-odd million against your net cash of GBP 1.3 billion. So the dividend policy doesn't seem to make a great deal of sense given all of that. I realize we want to get -- we don't want to get ahead of ourselves, but is that something the Board will consider over time? And secondly, you've made some reasonably cautious comments around P&C pricing in U.K. retail. What are you doing about that? It seems to be suggesting that you do expect softer profits going forward. But are you starting to raise your prices or attempted to raise your prices to try and combat that?

Thanks. I can pick up both of those points. So firstly, on the dividend policy, I think even as you said yourself, it is premature for any discussion on amending our policy at this point. This is actually the first plan that we've increased the dividend since we announced the new dividend policy in November, and 5% is in line with that policy of growing dividends per share at low to mid-single digits. But as we said, we're sort of encouraged by the progress we're making on transforming the performance, and we're confident about the underlying cash generation of the business. So I'm sure it's a topic that we'll come back to. But for now, we think that, that is premature. On the pricing, then yes, of course, we are responding from on pricing according to the market conditions. I mean overlaid on that, of course, we've also got the FCA pricing practices, which we view, which will be -- which needs to be implemented by January. So there's a lot of work going on looking at the current conditions that are ongoing. I mean the return of more vehicles to the road, but maybe slightly different driving patterns. Alongside, we're doing all of our models to make sure that we're in good shape for January.

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

Could you comment on what is your outlook for the market premiums for bulk annuities for this year? And could you comment on how pricing has developed? You mentioned that corporate spreads are a bit more sensible now than they were at H1. And also in terms of GI, very strong performance in underwriting. Can you give some color on investment income and yield equipment from H1? And finally, if I could ask a quickie question. Do you still have those conservative house price inflation assumptions in Solvency II?

Thank you, Fahad. That sounds like 3 brilliant questions for Jason.

So I think on the market for bulks, I mean, we'd probably see this year at the low end of our range of GBP 30 billion to GBP 50 billion we normally think about. We obviously don't know. We see the pipeline building in the quieter first half. But from what we're seeing, we probably would see that low end of the range. And we think we're tracking similar to the level of market share that we had last year. On the -- was your question on investment income on...

GI.

GI, not on bulks. Okay. So on GI, we did derisk sharply last year. We were too invested in cash, bluntly, in the GI business. We are going to do something about that as we go through this year. We've started to work through that, so our investment return is lower. This year, we are in the process of reinvesting that thoughtfully, particularly in the U.K., I'm talking about during the next -- during the coming months. In the HP assumptions, well, we brought them up with events. So I guess we perhaps were more conservative this time last year when we first announced in Q1 last year. We still have quite prudent forecasts in there, but recently not quite as -- we've undone the sort of the Brexit and the COVID-related uncertainty. So we're still forecasting probably prices on a short-term basis to be lower than the long-term trend.

Okay. And sorry, just on the pricing in bulk annuities now.

On the pricing, we are seeing -- it's a competitive market. With thinner volumes, we have seen reasonable amount of competition. We've also lost a lot of business that we bid on. So we can see the discipline that we insist on through our business. We've not wavered from as we've been trading. The returns are lower than last year just as asset spreads have come in. But on the liability side, we continue to be very disciplined.

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

Three questions, if I can. The strategic investments made GBP 55 million seems a lot. Is that a normal run rate? And can you just tell us your plans for -- particularly for the Singapore holding going forward? Secondly, is there any -- I should know this probably. But is there any further internal loan around or any plans to repay more of the internal loans if it's around? And then finally, on the savings and retirement business, could you give us some sense of the profitability of the different elements between the platform, the workplace and the IPP, please?

Okay. Thanks, Andrew. So just on the strategic investments, I'll let Jason answer the question on the run rate. On Singapore, obviously, we have a share of the business, which was only announced last September. And we see that those businesses are performing. That give us a good opportunity in interesting market. And so nothing more to say really on that at this point on time line for that. Jason, on the run rate?

Sure. Singapore had a very strong first half. They've launched some new products. They've done really well. We brought them into strategic investments for the first time. It's split roughly 50-50 between China and Singapore segment, indeed doesn't make much. So that's -- I guess China is sort of on trend, and I think Singapore has had a very strong first half. I actually don't know what the outlook is for the second half, but I would expect them to continue to do -- to trade very well. On the internal loan, we'd be down if we reduce it to GBP 0.5 billion. So it's GBP 1.2 billion today, GBP 0.7 million off, down to GBP 0.5 billion. We've got no plans to reduce it further. There's no need to. It's obviously becomes a very small amount relative to the size of AIL and relative to the group. On the S&R side, the workplace is significantly profitable. The adviser platform is still just finding -- is profitable, but is the lower end of -- and is on a sharp increase of profitability across the piece. And IPP, as you point out, is a small -- a very small contribution, but it still got positive contribution to the actual profits overall of the segment.

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

So yes, first question is it really goes back to Louise's question about -- actually not so much of that. The first question is really about the timing of the next tranche of the GBP 4 billion beyond the GBP 750 million. You say that it relates to receiving the cash, getting regulatory approval and all of the rest of it. But is it possible that all of those things could actually come through before the full year results? And if so, would you consider actually sort of enacting something, some extra capital return before the full year results? Second question is on the U.K. other assumption changes and exceptionals. That was a negative figure in the first half. And I know you've guided to full year return to positive numbers. But can you just take us through what actually generated a negative number in the first half and how one-off that should be? And then the final question is on your targeted top quartile efficiency. Where do you think you are on a sort of 1- to 2-year view on that? Should we be expecting further operational improvements to be announced in order to reach that target?

I'll pick up the first part of your question, and Jason can pick up the second part. So on the timing, we've said obviously that the timing will be by the half year 2022. So there is obviously a sequencing here, which needs to take place. Firstly, completing the deals, which we've said we're on track to do by the end of this year then collecting the liquidity. And then very importantly, obtaining the regulatory and the shareholder approval for the distribution of capital. So that will take some time. I mean, hopefully, you don't feel that, in any way, we're sort of sitting on our hands and doing nothing here. We have actually accelerated the timing of the GBP 750 million buyback sort of commencing today to show that we're sort of keen to get on with the job in hand. But I think no more to say really on the timing there because we will be reliant on regulatory and shareholder approval. Jason, on the...

On the latter very quickly. Does shareholder approval mean an AGM?

Yes. Yes.

Yes. given the size of what we're -- without knowing exactly what we'll do, but given the size we think we'll trip into, AGM-approved [indiscernible].

Yes.

Jason, on the...

Okay. On other, like as I said in my comments, it's almost entirely due to increased product governance provisions. They -- we do have product governance costs every year. Actually last year, we released some of that provision, so there was a swing which actually came through. That was it. We always have small -- product ones is slightly bigger, the one in the first half. So I wouldn't expect this level to recur. And as you say, the guidance, taking into account all of the things that we put through the other line, we do expect that to be positive for the full year in the GBP 0 to GBP 200 million range, recognizing it's not always easy to forecast that one.

Okay. Could you repeat the question on top quartile? I missed that, sorry.

So yes, you've still got a top quartile target for efficiency. And I'm just wondering what the sort of glide path is to achieving top quartile and whether they need to be further restructuring or further savings due to deliver that?

Yes. Okay. Thank you for repeating that. Sorry, I missed that. So yes, the route to pass through the GBP 300 million to be achieved by the end of 2022 does take us quite a way towards that route towards upper quartile. And the focus is absolutely on the team at the moment in each individual business line around benchmarking themselves against their competitors and the key competitors in their market to ensure that we achieve that glide path. So there will be more work to do after we've achieved the GBP 300 million. We're not announcing all that, what financially that would mean today. But that target in many respects will be dynamic. It will continue to move as the market moves. And we would expect the business -- I think restructuring is a big word. But to be constantly looking at its efficiency and constantly looking at what it needs to do to keep ahead of the game and to make sure that we are -- we're doing all that we can to deliver for our customers because that is what they expect and our inefficiency obviously passes on to them. So there's no -- we're not sitting back on our hands. If we get to this GBP 300 million, I can reassure you, we won't be putting our feet up and saying, our job here is done. It will be something that will be constant. But the GBP 300 million does get us a long way there.

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

Just one on -- you've discussed around accelerating growth and returns, earnings, capital generation sustainably and with predictability, but -- and you're making really good progress around costs in a number of other areas, which we can see. But when I tried to put it all together and see what its meaning for the aggregate numbers, it's not so easy. One way that you put forward in the past to do so is the Solvency II return on equity. But when I look at the picture on that, it's a little different to what we've seen in the past. So the Solvency II return on equity of 8%. Although better year-on-year, it's still well below what it would target to be for the past -- for the business. And also the mix of capital and how it's allocated doesn't seem to have changed much versus the past, which makes it less clear to me how to generate structural growth and earnings returns and capital generation. So when we're looking at that framework, that 8% return on solvency return on equity, where is that expected to get to by the end of the plan period? And secondly, is the mix of capital allocated to the business is going to shift to the higher returning segments? Or is it going to remain the same? And that's the first question. Second one, just on cash remittances. The targets there are obviously very strong. When we think about, say, the GBP 1.8 billion of cash remittance in 2023, it's always been said in the path for the business that capital generation will be the driver of cash flow and dividend. Is the capital generation for the core businesses targeted to be at a similar level by 2023? Or is there going to be a disconnect between those 2 metrics going forward? And then just lastly, maybe there's just some wording around strategic bolt-on M&A as one of the angles for investing for growth in the pack. I'm just wondering if you can maybe provide a little bit more color on that, please.

Yes. Okay. So I'll ask Jason to pick up the ROE question in a second. I'll pick up the points on cash remittances, which I think is a straightforward yes. We are confident about that. And on the strategic bolt-on, on M&A, I think our focus is absolutely on transforming the performance of the business. We've spoken about where we believe the growth opportunities are and where the efficiency will come through. And we've given you some proof points on that today, and we'll continue to do that as we go over the coming periods. And it's largely going to be an organic strategy, but we will be thoughtful about where the M&A could enhance our capabilities or accelerate our development. And there are definitely some areas where that could be the case. But to just give reassurance to everybody, there will be a very high bar for that for any M&A investment. And anything we do has to fit within the strategy and enhanced value for our shareholders. On the accelerating growth, before I hand over to Jason, just on the ROE metric. I think we should have confidence in what we've seen in the operating performance today. We've given -- there were record sales in savings and retirement, and we know that there's been a huge investment in that platform, which now should allow us to put volume into that and grow the profit. We've seen general insurance really good positive movements there in the commercial lines business and also in the retail business where we're growing the retail customers. That's a really important part of our customer proposition. There's good momentum on BPA. I mean we definitely shouldn't get spooked by the first quarter. This is a long-term business, and we've got very good capability here and the good opportunity to make long-term, good returns. And so I think we're very confident about that. And we're seeing our customer numbers improving workplace as well. So I think that there is opportunity to accelerate the growth. And sometimes the ROE metric is not always the right metric by which to measure that, and it's something that we need to be very thoughtful of. But Jason, do you want to add specifically about that?

Sure. Okay. We still need to continue to drive up that return. It's a combination of things, including a different balance sheet, a different business mix, moving capital from a low returning to high returning cost reduction and other business improvement initiatives. I would say the previous target was with a very different strategy, a different balance sheet pre-COVID and a different CEO. So we've moved a long way forward. Having said all of that, we do want to drive up those returns and certainly get it back into double-digit territory as soon as possible and then take it on from there. That will take us a bit of time to work through it as we do seek to grow the value of the organization, which is very much growth in the owned funds per share, which obviously that metric does measure. On your question around capital and generation and remittances, I mean, absolutely sustainable capital generation is crucial to sustaining those remittances. That's what the plans are built on. So across the board, the things I've just touched on will help drive up capital generation, and that will lead to remittances each of the subs. And the group is pretty healthy capitalized. So we've got good visibility on those remittances, and the capital generation is keeping up with that. And we are going to seek to improve it over the coming years.

Okay. No. That's good. And so with that GBP 1.8 billion remittance for 2023, we should see the capital generation either at that or in excess of that level, is that correct?

Yes. Just remember, the GBP 1.8 billion is -- when we talk about group OCG, just as a reminder, we lock off debt costs and central costs. So we saw a GBP 500 million cash cost of that. So GBP 1.8 billion of remittances will be covered by, give or take, GBP 1.3 billion of group OCG.

And your next question comes from the line of Ming Zhu at Panmure Gordon.

Just 3 questions, please. First is, I'm trying to get the number right. You got just over GBP 7.5 billion in sales proceeds. And if I did back off this GBP 3.7 billion and repay debt and trying to pay debt, that gives me GBP 3.8 billion. How does that tie back to your over at least GBP 4 billion capital return? Does that mean some of that would come from your center liquidity? And that leads to my second question, which is in Slide 26. If I'm looking at your center liquidity figure, the GBP 2.7 billion pro forma and your Solvency II percentage of 195%, which is above your -- the top end of your target range, does you easily return under the GBP 1 billion once everything is completed? And my third question is your Aviva Investor business. You've made improvement on your cost income ratio. And is there a target on the cost income ratio as well as Aviva Investor as a whole?

Okay. So I'll pick up the Aviva Investors question. We struggled to hear the very start of your first question, but I think I think Jason has got it. But if we may need to ask you to repeat your first question, and we got the second question. So on Aviva Investors, the -- on the cost-to-income ratio, I think what we've seen is that Mark has made really, really good progress in the first 6 months of the year. We've seen a positive trajectory. We've also seen good fund performances, as Jason was outlining, and an improvement in the operating profit. But Mark has exactly the same target as every other one of the business lines, which is to get to the upper quartile. So we're not going to give you a list of what all of those at the quartile, our aspirations are. But Mark's job will be done when he achieves the upper quartile, and he's very, very focused on that. And Aviva Investors plays a very, very important part in the group in terms of its propositions for savings and retirement, its ESG fundamentals. So I think that we are very encouraged by the progress that has been made so far on that. I think your second question was about returning the headroom above the 180. And I think there'll be many times that we'll be asked this question today and people looking at Jason's slide, Slide 26. And I think I'm just going to bring you back to -- we said that there would be 3 priorities for the excess capital back in November. The first was the debt reduction, which we've achieved, the GBP 1.9 billion. And we've also been clear that we'll reduce it by another GBP 1.7 billion, including the internal loan. Secondly, that we will deliver a substantial return to the shareholders. And the intention is that at least GBP 4 billion will be returned by the half year 2022. And third is around investment to accelerate growth. And we are formulating our plans, and the business is looking on what we need to do to accelerate the opportunity to do that. But at any one point in time, the pro forma obviously will show that there's headroom. And when it comes to capital insolvency, there's also many moving parts and other factors, which need to be taken into account. And our commitment is always to manage the capital actively for the benefit of the shareholders, but we need to take it one step at a time. Jason, did you get a first question?

Sure. So thanks. Sorry, I was trying to work out the GBP 3.8 billion figure that you mentioned. I think that's the -- if you're adding the external and the internal debt, which I think we get GBP 3.7 billion. The key point on this is that we've got proceeds from 8 disposals. We did sell a couple of smaller things as well. So it's slightly over that, of GBP 7.5 billion. And we are deploying all of that cash into equity, debt and internal debt return. I think that's just the key message I wanted to give everybody, that everything that we've got in, we're disbursing back out to the various holders of the debt and equity securities. That obviously -- the core balance sheet underneath that, as you point out, is still strong relative to our risk appetite, and we'll -- that positions us well for any number of things as we look further forward.