Aviva plc (AV) Earnings Call Transcript & Summary

Welcome to Aviva plc's Q3 2021 Results Call for analysts and investors. I will now hand you over to CEO, Amanda Blanc.

Good morning, everyone. I hope you're all well, and thank you for joining Jason and me for our Q3 trading update. I'll start by providing a summary update on the progress we are making towards our strategic priorities before I'll hand over to Jason, who will take you through the detail of our results. We'll then open the lines for Q&A. I'm pleased to report that we've continued to make excellent and rapid strategic progress right across Aviva. After a busy quarter, we're almost there with our portfolio refocusing, having now completed the disposals of France and Italy General Insurance. We have collected GBP 4.9 billion of proceeds from the total of GBP 7.5 billion. The last remaining disposals of Poland, Italy Life and Vietnam are expected to complete by the end of 2021, with all the regulatory approval processes and completion activities currently proceeding to plan. Our GBP 750 million share buyback is progressing well, and we have already executed over half of the total since we announced it in mid-August. As I said previously, we remain absolutely committed to returning at least GBP 4 billion of capital to shareholders by the half year 2022. So as we come to the sharp end of the disposal process, we will go through the regulatory approval process and provide an update on our plans for the remaining capital return at our full year results in March 2022. In terms of transforming performance, we're also making strong progress, and it starts with our customers. MyAviva customer registrations have reached 5.5 million, the highest level ever and up 17% from the start of the year. And customers are continuing to use MyAviva more regularly with average monthly log-ins in Q3 2021 up 22% versus the prior year. This plus customer success is translating into growth. And in the first 9 months, I'm really pleased to see that we are delivering in our target areas, including the highest general insurance premiums for a decade, driven by commercial gross written premium of GBP 2.9 billion, which is up 14% year-on-year. Savings and Retirement net fund flows of GBP 7.3 billion, up 21% year-on-year. Bulk purchase annuity volumes of GBP 4 billion, and we expect momentum to continue in Q4. And finally, Aviva invested external net fund flows of GBP 1.6 billion, up 37% year-on-year. We continue to remain highly focused on improving cost efficiency with controllable costs down 2% year-on-year despite absorbing inflation headwinds and our targeted investments in growth. We remain on track to achieve our savings target of GBP 300 million in 2022, and this is a waypoint on our path to top quartile efficiency. Importantly, our balance sheet remains extremely robust with Solvency II cover ratio of 215%, centre liquidity of GBP 4.5 billion and debt leverage of 28% below our 30% target. Turning to ESG. Aviva's target of being net zero by 2040 continues to be industry-leading, and we remain committed to being at the forefront of tackling climate change as a core part of our overall sustainability ambition. Indeed, Aviva were awarded the best climate change reporting in the FTSE 350 at the PWC Building Public Trust Awards last month. By the end of 2022, we expect to invest GBP 10 billion of policyholder funds into low-carbon strategies, and we have committed to invest an additional GBP 10 billion in core U.K. infrastructure and property by 2023. This is really important to us, to our employees, and increasingly, to our customers. So in summary, I'm pleased to report that we are making excellent and rapid strategic progress to focus and reenergize Aviva. We remain on track to meet our key financial commitments, and we are focused on generating attractive value creation for our shareholders through the return of substantial capital in the short term and through the delivery of growth and a transformed performance over time. Let me now hand over to Jason, who will take you through the Q3 trading numbers in more detail.

Thank you, Amanda, and good morning, everybody. Let me start by reiterating that we're on track to meet or exceed our cash remittance and cost savings targets, and also that we have positive momentum in our key lines of business. So let me take a few minutes to walk through some of the key numbers in today's update. I won't be covering everything in the release, but there's a few areas that I'd like to highlight, beginning with our trading performance. First, we saw strong continued net flows in the Savings and Retirement business, which increased by 21% to over GBP 7 billion, with record inflows in the first 9 months of the year. Our Adviser and Direct Savings platform continues to perform very strongly, with net flows up more than 60% to GBP 4.2 billion, representing 12% of opening assets. We delivered our 2 highest quarterly inflows ever in Q1 and Q3 this year. In Workplace, net flows also remained strong at GBP 3.6 billion, representing 4% of opening assets. And while this is slightly lower than last year, this largely reflects a return to a more normal level of outflows compared to 2020, when we saw particularly strong persistency owing to fewer people moving between jobs. Aviva Investors continues to show positive progress with year-to-date external net flows of GBP 1.6 billion, up by 37%. It's pleasing to see the progress the business is making as it focuses on its core strengths in real assets, infrastructure, private debt and of course, ESG, which runs across the business. Following a subdued first half of the year, bulk purchase annuity volumes improved in the third quarter with GBP 2.4 billion of new schemes written. This takes the total amount of BPAs written in 2021 to GBP 4 billion, with a healthy pipeline in place. And we expect to write GBP 5 billion to GBP 6 billion for the full year. As seen in previous years, VNB margins are lower at this point in the year, pending achievement of our target asset allocation and finalizing our reinsurance. While we expect margins to improve by the year-end, the current low spread environment means that margins will be lower than in 2020. Of course, we remain very focused on returns, and we're confident that the quality of the business we've written has very attractive IRRs, which will deliver long-term value for shareholders. So while the credit spread backdrop does provide a near-term headwind, our outlook for BPH remains positive into 2022 and the medium term. Our General Insurance business continues to perform strongly, as evidenced by a combined operating ratio of 92.4%. This is a 5.7% improvement on the prior year despite the weather events seen in July. Of course, with claims frequency beginning to normalize and with softer rates in personal lines now earning through, we do expect the core to tick upwards in the fourth quarter. However, the guidance I gave you at the half year, the better than 94% combined ratio for the full year, remains unchanged. Premiums in General Insurance grew by 5% over the period to GBP 6.5 billion year-to-date. This is the highest level written in at least the last 10 years and included 7% growth in the U.K. and 4% in Canada. Personal Line premiums were down 1% in the period, a good performance considering the rating drop down. Of particular note is our U.K. retail business, which grew 4%, with strong performance on price comparison websites. Commercial lines were up 14%, benefiting from a combination of strong retention, well-priced new business and continued rate momentum. In the U.K., we saw excellent growth in SME digital as well as across mid-market and global specialty, while in Canada, we saw strong growth in mid-market, a key target area for us. Turning to costs. As we've said before, efficiency is a key focus for us at Aviva. Controllable costs of GBP 2 billion are 2% lower year-on-year. This excludes the cost reduction implementation and IFRS 17 costs. We remain on track to meet our GBP 300 million cost saving target in 2022. And as a reminder, this is above absorbing inflationary headwinds. On to capital now. As you may recall, we provided a pro forma Solvency II position at the half year. This made allowances for returning the entire GBP 7.5 billion of cash divestment proceeds, including GBP 4 billion directly to shareholders. Using exactly the same assumptions, the Q3 update for this pro forma ratio, also aligned with the impact of interest rate reduction since the end of September, is estimated at 197% compared to the 195% we reported at the half year, the increase being favorable market movements and net operating capital generation. Under our capital framework, we continue to consider capital above Solvency II ratio of 180% over time as excess. As such, any excess is available for 2 key uses. First, for investment in the business, organic and inorganic; and also for further returns to shareholders. As we said at the half year, we'll update the market on our capital return plans with our results in March, following the completion of our divestments. So in summary, trading in the first 9 months supports our confidence in Aviva's growth potential. Strategic delivery has been swift, but we're not resting on our laurels. There is much to be done. So now let's turn back to the operator for Q&A.

[Operator Instructions]

Okay. So I think we are ready to take some Q&A.

Our first question today comes from the line of Louise Miles of Morgan Stanley.

Just 3 from me, please. So the first one is on the FCA pricing practices, which is obviously being implemented from the 1st of January. Can you just give us a bit of color about how you're adapting the pricing ahead of this? That's in the U.K. obviously. And then my second question is on the BPAs. You had very strong volumes in the third quarter. I'm just trying to get a bit of a feel for the market competitiveness more generally, really. Obviously, there are a couple of annuity writers. You also had lower volumes in the first half. So I'm just trying to understand, was there a lot of activity in the market? Were you quoting on a lot of deals? Or was it just that you kind of priced a few deals the best of everyone? So if we could just get some color on that. And then finally, a question on capital. So you're clearly very committed to the capital return, the GBP 4 billion. And you're clearly very committed to the delevering. That's clear from what you said today and earlier as well. I'm just wondering, obviously, you've given the pro forma solvency as 197% once you've allowed for all of that. I mean that means there's only about 17 points left above 180 million and that's roughly GBP 1.5 billion. I mean what would you do in a scenario that there was a very attractive target set in front of you or there's a very compelling investment opportunity put in front of you, that you're not able to fund from those 17 points, perhaps if this opportunity offered very strong growth or something. What would you do in that scenario?

Okay. Thanks, Louise. I'll pick up 1 and 3, and Jason can pick up on question 2. So on the FCA pricing practices review, obviously, we've been working very hard on this since the FCA made the announcement. And actually, we support the announcement around bringing greater clarity and consistency to consumers. So we've been working with the FCA and with the industry to make sure that we're implementing the new rules. I think it's really important that the changes that are being made are fair to everybody. And I think the industry does remain vigilant that there are no sort of unintended consequences to some groups of customers, and that's the process that we will be going through as we launch our new rating and making sure that we're in good shape. But we're all prepared for it. We'll be ready to do that in January. As you know, Aviva has already taken some actions previously about reducing the difference between new and renewing customers. And we are -- so we're in reasonably good shape, but we are currently testing all of our new products, all of the new racing engines. And -- but as I've said many times on these calls, this is an unprecedented change. There has never been a time before where everybody, every insurer in the market will have launched a new rating model that -- at exactly the same time. And therefore, I think there could be some tricky periods over the coming months as everybody settles into this new way of working on rating. And on your point on -- I think your question was if there was a compelling investment opportunity, what would we do. I mean, I think, look, to just go back to this because I imagine it will come up a couple of times, actually the focus here is about transforming the performance of Aviva. And we've talked today, I think, and given some good proof points about growth and efficiency. And it is largely going to be an organic strategy. But we are very thoughtful about where M&A could enhance our capabilities or accelerate our development. But there would always be a very high bar for M&A investments. And everything that we do has to be and fit very well with our strategy and enhance value for our shareholders. And I think the other point I would make is we've been very clear that the capital return is at least GBP 4 billion. And I think we also said last year that our priorities would be around debt reduction, which I think we've done what we said we would. But also investment in the business to accelerate the organic growth and also the simplicity and digitization of the business. So hopefully, that sort of answers that question. Jason, do you want to pick up the BPA market?

Of course. So BPA market does remain pretty well supplied actually, both from people coming to the market and in terms of capital seeking to write new business in the market. And one of the stats that we look at to sort of sense -- check whether we are about right on pricing is our sort of win rate in terms of new business. And we're around 1/3, which is sort of roughly where we'd like to be. We obviously know exactly which ones we want to win and not, but it's around that sort of level. And that feels about right across -- and our market share sort of is in the 15% to 20% space. So I feel that whilst it's competitive, we're winning where we want to play. I think others, obviously, have got their own strategies in trading through the year. But we continue to see value there, and we continue to see really good growth in that market. And that is sufficient to keep the industry all pretty busy actually.

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

I've got 2 or 3 questions. Firstly, just on the annuity margin outlook. I think you've been clear in guiding that -- 2 things, that it's very volatile on a quarterly basis, and will get trued up in Q4. I just wonder if you could talk a little bit about some of the risks to the asset allocation side perhaps. And just also on the guidance for margins, annuity margins of being in the kind of low 4s, mid-4s, high 4s over the last 2 or 3 years. So could you maybe help us a little bit in terms of where you expect that to land rather than just a kind of a lower comment? I wonder a little bit -- second question. I wondered a little bit about the pro forma liquidity number that you've given. These are very helpful, by the way. Just wonder what are the moving parts there? You've obviously got more ends and a few more routes, of course, but what assumptions have you taken, Jason, on the kind of normal cash remittances and the outgoing as well in terms of dividends? I just wonder what you're thinking in there is, if you've made any assumptions? And finally, just looking at the combined ratio, the guidance for this year below 94. What would be the reasons for that to deteriorate or change, let's say, going into '22? You talked about softer pricing being earned through a return to kind of more normal activity levels. And of course, we've got the price reforms as well. So I just wonder what your thought process is with regards to the combined ratio, given the below 94 starting point going into next year.

Okay, all right. So on the annuity outlook -- I'll just take them in the order that they came. We did pretty well in terms of asset origination, but it does tend to be Q4-weighted, it has been every year. And we also for our reinsurance in, sort of normally shortly after we transact, some of the reinsurance has already gone in that wasn't there at Q3, there's another little bit to do. I mean one of the uncertainties is also the volume. We've given a relatively wide range of GBP 5 billion to GBP 6 billion, so that will also -- if we have better success on the asset side, we'll probably write a bit more. If we have some more challenges or things spill into Q1, we'll write a bit less. So we're reasonably confident around the margin growth across the board. I mean my comment is mainly around VNB. And the IRRs remain good. We manage the capital to the level of assets that we've got, and that will step up. I'm not going to give you more specific guidance as there's quite a range on this going into the full year numbers. But the IRRs remain in the teens, and it's quite an important thing as we allocate capital across the board.

Sorry, just, have you already originated assets to back the business that you've written? Or is there a little bit of kind of shortfall there or kind of warehousing in some way?

We are -- so the excess liabilities, if you like, which is why the margins are lower at this stage. So we're backing with cash and gilts, and then we'll sell that as we switch into assets over the period. As you might imagine, we're never precisely on, and we've got good strategies around managing that gap. The pro forma liquidity is very much just for the divestments and the capital return assumptions. So as of Q3, I'm not saying anything about future investments or future dividends. It's purely if we were to do the capital return and all the divestments completed, that's what you'd have for capital, 1-9-7; liquidity, 2.3. Obviously, capital return is likely to be Q2 next year, by the time we got everything in place. So there'll be dividends paid out. There'll be remittances received in, and that will move further forward. On the combined ratio, the news statements to the obvious, some paper providing here about weather and large losses, I think. But broadly our assumptions are quite conservative. I think we're at 92.4 as we go into Q4. We've had 6 months -- 6 weeks, sorry, of Q4 already, and we're pretty confident of the target.

It was more a question on -- obviously, you can't predict weather, but it was more a question on whether your pricing is at least in line with claims inflation or expected claims inflation, for example.

Absolutely. We've been through -- on the commercial side, the technical rate is actually strong. It's very strong, and we're working that through. So that's something, as you might imagine, that we keep a close eye on across the board. On Personal Lines, Amanda was talking earlier about some of the uncertainties into motor, particularly in Q1. But our rating is keeping up with inflation. We're comfortable that there is -- the technical price is going through. Notwithstanding, there will be some volatility between new business and renewals.

Your next question today comes from the line of Dom O'Mahony of Exane BNP Paribas.

Three for me, if that's okay. Just one to start with the savings, I mean, really great volumes. I was wondering if you could give us some sense of what sort of revenue margin you achieve on your new contracts there? I mean, I can see on the website you have a 40 basis point charge, but there's obviously adjustments for large balances. And I suspect that workplace platform may be lower than that, but I'd really appreciate some sense of what your revenue margins are on a sort of a blended basis for new contracts. Second question, equity release. Clearly, the main moving parts in annuities and activities is the BPA stuff. Curious to hear what's going on in the equity release market, whether that's rebounded properly and how you're participating in that? And then really quick simple one. Forgive me, I'm not sure I've seen what the proceeds from Vietnam were expected to be. Is that something you've disclosed or that you can disclose?

Okay. Thanks, Dom. I think those are questions for Jason.

I'll start with the easier one. Vietnam is around GBP 150 million. I can't remember the precise number, but it's in that ballpark, and we expect that to come in by the end of the year. Equity release, I think, had a very strong first half bouncing back actually. As of Q3 year-to-date, we are up 27%. So it's a nice pickup. We've got to do more, though. I mean 2020 was depressed. So whilst the percentages are very healthy indeed, there's more that we can do to support that market into '22 and beyond. I haven't -- on the savings side, at this point, I can just point you to the growth in the VNB, which is the stat in the actual release. You can see it's a very healthy uptick on savings and retirement, 78% pickup to GBP 141 million of VNB. It does remain competitive, obviously, on the revenue side. We touched on that a little bit at the half year, but we are driving further efficiency there, and growth, particularly on the adviser platform for us where we were a bit smaller than we'd like to be, is coming through now in terms of operational leverage quite positively. We're starting to see whilst the revenues and their margins, as you say, have got some competitive pressures, we are getting to scale. The platform is now sort of GBP 40-ish billion, we'd like it to be bigger than that, but that's starting to make a big difference. On the workplace side, we're #1 in the market. We are a scale player, and that is profitable growth.

Your next question today comes from the line of Larissa Van Deventer of Barclays.

Two main questions from my side. The first one on BPAs. You've spoken about the pipeline being robust and companies coming in. Are you seeing competitive margin compression as everybody is gunning for the space? Or do you believe that current margins are sustainable? Then the other one just on Personal Lines pricing. You mentioned on weakness coming through the earnings at the moment, and you've spoken about the challenges around the first quarter of next year. Do you have a sense of whether pricing pressure is likely to be a longer-term challenge? Or do you expect it to revert to historical levels as the markets normalize after the first quarter of next year?

I'll pick up the second point and Jason can pick up the point on BPA. On Personal Lines pricing, I think to assume that they will move to normalized levels after the first quarter is probably a little bit ambitious. I mean, as I said earlier, this is a significant change that we will see. And what the likely consequence of the pricing practices review is, is that when your prices will come down, the new business prices will go up. I think we've always been very clear that there isn't a significant level of excess margin in -- particularly in motor that the market can just absorb that and everybody's prices will come down. If you look at the recent ABI stat, I think the motor pricing is already 7% down sort of this year versus last year. So we've already seen some changes this year because of frequency benefits as a consequence of COVID. You've got the whiplash effect of the new portal coming in place, then you overlay that with the FCA pricing practices review. I think 2022 is going to be an interesting year as we see those players with perhaps without back book coming into the market and making statements and those with back books having to correct. So I think I would say 2022 could be interesting for the whole year. All I can say from an Aviva perspective is that we've been in pretty good shape on it. Their brand is really strong. Our growth on the price comparison websites is really strong. We have taken a lot of reduction around the sort of the new and renewal premium already. So we were in very good shape. But of course, we operate in a market with competitors, and we will have to respond to that competitive landscape as it develops. Jason, on BPA?

I think I mentioned this a moment ago, BPAs is competitive. So the question is what your competitive advantage is? And I think we've got a number. Particularly on the asset origination side, Aviva Investors does a great job for us originating good quality long-term assets. We've got scale. We've got good buying of reinsurance and great relationships with reinsurance partners. We can deliver to clients swiftly. Chetan Singh is now running that business, he's doing a great job of actually winning new business. And we've got an efficient balance sheet. We're a diversified player. So across the board, our capital does give us an advantage. So whilst there will be competition like with any market, I think we're well set up for success.

Just 1 question to clarify, Amanda, on the personal pricing line, does that mean that you maintain the 94% combined ratio, you need to rely on cost efficiency and claim management. Is that a fair assumption?

Yes. Yes. I mean I think to maintain, I spoke that, you have to do all of those things. You have to have very good pricing sophistication. You have to be efficient and you have to be managing your claims indemnity. I mean the great position that we are in is that obviously being a scale player, we are -- we do have -- that is a significant benefit. We also have our Solus motor car repair network, which is the second largest car network in the country. So these are all benefits that play to our scale.

Your next question today comes from the line of Andrew Crean of Autonomous.

It was a question really around central liquidity because obviously, if you're going to exceed the GBP 4 billion capital return, you need the headroom over the 180 solvency, but you also need the cash. Historically, you said that your central cash target is GBP 1.5 billion to GBP 2 billion, but that's when you had a much bigger perimeter of businesses. So I was wondering really 2 things. What is -- for the current perimeter of businesses, what is the central cash that you'd like to keep? And secondly, against that GBP 2.3 billion of cash at center. What are the remittances, which are coming through in the fourth quarter? Is there a sort of a big amount of dividends to come through in the fourth and first quarter of next year as different businesses sort of complete their year and pay up to the group?

Okay. So I'll jump in on that one. So in terms of the fourth quarter, we've not given a specific guidance, but we've said we've done GBP 1.1 billion thus far, and businesses will be up strongly on the 1.4 that we did last year as we grow towards 1.8, I talked about this at the half year. So a number that we're expecting, better than 1.4, strongly better than 1.4, less the 1.1 that we've already received, sort of the guidance in Q4 that I will give you. In relation to central liquidity, we've not reestablished yet our formal liquidity appetite. But I'd expect it to land around GBP 1.5 billion. It will be slightly lower than the guidance I've given you in the past. It might be slightly higher than that before dividend and slightly lower than that after dividend as we look at cash profiles across the board, but we'd expect to have a clear path to build back to that. So I think for guidance purposes, I think around GBP 1.5 billion would be a sensible assumption.

Okay. Just sort of following on to that. It sounds to me as though the cash remittances coming in the fourth quarter will basically pay for the final dividend, which would leave you with central liquidity, which is about GBP 800 million above that GBP 1.5 billion. Is that sort of the right logic?

It's not crazy, Andrew. Of course, the final dividend is paid in May. So we do tend to get quite a lot of remittances in, in the first half of next year. I mean, this year, we got GBP 1 billion, just over GBP 1 billion in, in the first half. So it's a moving target as we manage cash through the period. So then you have to think -- you have to look forward. Nobody can manage cash, as you'd imagine, as we do. We are looking for 12 months forward.

Your next question today comes from the line of Ming Zhu of Panmure Gordon.

Two questions, please. First is on the BPA asset allocation. What is stopping you to execute your assets on day 1 or within a very short period of time once you got the liability in, rather than wait in Q4, because some of your competitors are able to do that to execute on the corporate bond on day 1. And my second question is on the GI. You've had very strong growth in commercial. Could you just give some color on how much of that is due to rate and how much is the underlying organic growth you will be expecting going forward?

Okay. Thanks, Ming. I'll take a bit at your second question, and then Jason can talk about the asset allocation. On GI, the growth in commercial lines is about 50-50, rates and new business, which is obviously very pleasing. And I think Jason rests on setting in his script, we basically are seeing good technical pricing and good discipline in commercial lines which obviously is very encouraging. And our strong position with distributors means that we're able to really capitalize on that. On the asset allocation, Jason?

BPAs, I mean we could back it immediately with corporate bonds, but that's not our asset allocation strategy. Our asset allocation strategy is to balance between corporate bonds, equity release and illiquid assets. Equity release comes through on the DRIP, and as we write around GBP 70-odd million a month on that. And then the illiquid assets tend to be projects. They do tend to complete in Q4. And we've seen that -- I've been involved in this now for 5 or 6 years, and we do see that coming through pretty consistently. And that's no different this year. So ahead of that, we don't want to not trade on the BPA side, so we just aim up a little bit. Of course, the day we book it, we don't have those assets, so the margins are a bit lower.

Your next question today comes from the line of Greig Paterson of KBW.

Yes, 3 questions. One is, you mentioned new entrants into the bulk annuity space. I wonder if you could just call out who they are and how many have entered recently? The second question is the private debt origination to me is a bit of an arms race. And you've got to constantly look at new initiatives to get new types of collateral. I wonder if you could give us some of your thinking around your pipeline for new collateral categories. And then the third question is, having spoken to competitors of yours, Aviva has been cited as one of the players aggressively going for share in the second half of this year in home, hoping it will stick post the FCA review. I wondered if you could just comment on whether you recognize that characterization.

Okay. Thanks, Greig. I'm not sure we did mention new entrants in bulk purchase annuities, but if we did, I'm not sure that we meant to. I think we see the usual players in that market, the private equity-backed players and also the strategics like us. So I'm not sure whether -- perhaps -- we definitely didn't say that.

I think it was a question, not an answer.

So the second point around the private debt origination and new collateral. I mean I think we're obviously constantly looking at that, and we have -- we benefit from having Aviva Investors and a fantastic real asset team, we're probably one of the biggest real asset teams in the market helping us to do lots of creative things in that space. So I think we are always looking at that point. And in terms of aggressively going for share on home, no, I don't think it's crazy. The numbers that I'm looking at shows that we've increased our customer count by about 5%. So I would say that, that is not aggressive in anybody's stage. And that's in our direct portfolio.

Your next question today comes from the line of Steven Haywood of HSBC.

I think, Jason, you might have mentioned about the BPA outlook for 2022 remains positive. Can you elaborate on that? Are you going to be seeing GBP 5 billion to GBP 6 billion BPA per annum? Or do you think you could see more than that going forward? Secondly, within your Solvency II ratio over the quarter and also year-to-date, can you tell me if there's been any inflation impacts, how much they have had an impact on your solvency ratio progression over the year? And then finally, on Canada in the non-life rates. Can you discuss your expected rate changes in this market, when the review process is happening, and what are the implementations of any potential new rates coming in here?

I'll take them in order so it -- then on the BPA side that we would expect to grow the BPA business sort of steadily over the period. I've said many times that GBP 6 billion last year was an excellent performance. I think GBP 5 billion to GBP 6 billion this year will be another excellent performance. But we will expect to continue to grow from that baseline as we look forward. We're not going to leap into multiple billions above that, but we want a good quality business, making good returns, utilizing the asset production that we have in-house. So -- and that's my expectation for -- certainly for the foreseeable future. On the inflation side, I mean, there's no direct sort of specific impact I would point you to, we have made assumptions, as you would imagine, across both the Life and the Non-Life business for inflation as we think about that impacts claims. It impacts equity release. It impacts commercial property, all of which is baked into our Q3 estimate. We'll obviously update those at Q4. So -- but we look through it, right? I mean one short spike of inflation in the next 6 to 12 months really won't make a big difference on the capital.

On Canada, the rating, I didn't quite catch all of the questions. But in commercial lines, the rating is pretty much, as we said earlier, sort of 50-50 between rates and new business for growth. In the Personal Line space, of course, the rate is lower because we've seen frequency benefits flowing through and we have made changes, as we've submitted to the various provincial regulators.

Yes, things have stabilized. There were some rate reductions that I've talked about, particularly in Ontario motor, which is our biggest segment. With the full reopening of the economy, or certainly, the full reopening of all the roads, they've been driving. Canada is slightly more working from home, but they're slightly more on the road. So we're seeing actually regulators are open minded now to rate rises. I think that is likely to be in the next few months. So starting to be earned the first time in 2022.

Your next question today comes from the line of Abid Hussain of Shore Capital.

I think I've got 2, possibly 3 questions. The first one is on operational efficiency. Once you reach your cost save target of GBP 100 million reduction, where do you think you'll be in terms of operational efficiency against your peers or your benchmarks? Is it fair to sort of think that you are certainly targeting or you will be top quartile across the segments? Or will there still be some segments where you're not quite at scale and you need to do further work? That's the first question. The second question is on capital. You talked about the GBP 1.5 billion excess capital above the 180%. I just wanted to get a sense of how much of that GBP 1.5 billion would you typically utilize for investment, organic investment in the business over the next 2 to 3 years? And then just finally, just a quick clarification on the commercial lines. You said, Amanda, that the business was growing 50-50 between rates and general new business coming onto the books. So just curious if there -- if you can give a little bit more color on the new business coming on, is that sort of new product lines you've entered? Or is it taking market share in existing lines and sort of what do you -- how do you see the outlook of that new business element coming through in the next couple of years?

Yes. Okay. Thanks, Abid. So on the operational efficiency, we've been very clear to say that the GBP 300 million does not -- will not get us to the upper quartile. It will get us a long way to the upper quartile, but it doesn't get us there across all of the segments. And so we will still have some work to do once we reach that GBP 300 million, which I think we are in good shape to do. Of course, as we get closer to achieving that number, then we have much more clarity around the types of projects, the type of things that we need to do to take cost out and to make us more efficient. So we've had headcount reduction simplification in terms of our spans and layers within the business. We've got property reduction costs, technology reduction costs and then automation to help us with some of the processing. So I think -- but there will always been more work to do because the competition will always move, and therefore, we'll have to move along with them. In terms of the -- I think you asked, will there be some segments where there is more work to do than in other areas. I think I'd call out a couple of areas. It's obvious, I think, that the cost-to-income ratio on Aviva Investors needs to improve, and Mark's putting in place a lot of work in that area to take decisive action to address that. And I think that we saw good progress in the first half of the year. And obviously, we'll report it at the full year about the further progress that has been made there. Also touching on retail general insurance, which we've obviously done a fair bit this morning. It's obvious that we will need to do more to ensure that we get to the top quartile in that space because it is such a competitive space. And so there will always be more work to do there. But I think every line of business, what we're doing is we'll measure the top quartile against the competitors within those product segments to make sure that we are competitive or we won't blend this across the business, because then I think you do lose some of the necessary action that you need to take. I think on the capital in the GBP 1.5 billion, how much would we typically utilize for investment. I mean I think we've spoken in the past about the amount that we invest in the business and the fact that we want to accelerate the growth. And we -- on a typical year, we invest about GBP 400 million in the business, which is to do regulatory changes, to do the changes that we have to do on things like the investment in cyber, and then any growth or acceleration projects above that. We have, though, said that we will want to put a little bit more investment into the business because we do believe there's an opportunity to accelerate our growth and do things like improve pricing sophistication across the Life and GI business, but also to simplify processes for the benefit of our customers. And also, obviously, for the cost of the business. So we're not going to give specific numbers on that today. I'm sure a lot more to come on that in the future. On the commercial lines rates versus new business, what is it. Yes, I think we are taking market share. We're growing in the mid-market. We're growing in the SME, we're growing in some of the specialty lines. We have launched some new products, so for example, the AXA XL team that joined us in the high net worth space. We'll obviously see some growth coming from that area. We've launched some cyber SME products. So I think we'll continue to look at where the gaps are in the market and we'll continue to fill those. But I think we've got plenty of headroom in our market share, whether it's in general insurance or in commercial lines. So there's plenty of opportunity for us to continue to grow and to maximize on I think the market-leading position we have with our intermediaries, which, of course, this is, as you know, largely an intermediated market. And therefore, having that strong position with intermediaries is absolutely key for our growth agenda.

Your next question today comes from the line of Alan Devlin of Goldman Sachs.

A couple of questions from me. I just wanted to follow up on the platform. I think you said yes that, that was reaching scale. Is the advisor platform actually profitable today? And if not, what level does it need to get to before it reaches the scale? And then the second question is on the FCA reforms coming in. Your predecessor announced or launched the Aviva Plus product, the multi-subscription service a few years ago. I just wondering how that's kind of doing in the market? And does -- in the post FCA world, you'd expect this product to actually gain a lot more traction?

Okay, thanks Alan. Do you want to pick up the platform one, Jason?

Sure. So the platform is profitable. It's very profitable for VNB, obviously, where we're looking through current trading. And you can see that in the numbers, in the release where the pickup in VNB. Obviously, we're taking different persistency type assumptions. So -- but on a cash basis, yes, it's profitable. It has been not hugely so, but it's continuing to produce our IFRS profits, which I talked about a little bit at the half year. But we'd expect that to grow materially through the next 3 years as we've gone from 0 to sort of GBP 40-ish billion. And as we go up beyond GBP 50 billion, and ideally further and further, that will continue to be significantly accretive to profit.

Yes. On the Aviva Plus we learned a huge amount from Aviva Plus. And I think that what we've done in the last year is launched the Aviva online product on the PCWs, which is at live as we've noted this morning doing very well, a 4% growth year-to-date there and about 0.25 million new customers. So I think we are very, very pleased with what we learned from Aviva Plus and what we've learned from our digital experience that I think stands us in good stead there. The key thing, though, I think we learned from Aviva Plus is around the pricing and the investment in that pricing sophistication and the requirement to ensure that our analytics is really good, that we are constantly keeping on top of all the pricing sophistication with tools within the market. And that investment definitely pays off when it comes to looking at the FCA pricing practices we do next year.

There are no further questions at this time. Back to you, Amanda.

Okay. Thank you, everyone. And thanks for dialing in. And I think a really good range of questions there. Just a quick summary, I guess, to repeat myself, but I think we're making some real excellent and rapid strategic progress right across Aviva. We're on track to meet our key financial commitments. And hopefully, what you can see is that we're really focused on generating attractive value creation for our shareholders. And we are very much looking forward to speaking to you in March at the full year 2021 results. Thank you very much. Have a good day.

That does conclude our conference call for today. Thank you all for participating.