Aviva plc (AV) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and thank you for joining us today for our half year results presentation. I'm going to start by sharing a few key highlights before Charlotte takes you through the results in more detail. Then we'll cover why we are so confident in Aviva's long-term potential. And as always, we will open for questions. So let me begin with the key messages. Aviva has delivered another excellent performance in our first half of 2026, once again extending our track record of strong profitable growth. We continue to accelerate towards 75% capital-light, unlocking the potential of Direct Line and building further momentum in our #1 Wealth business. All of this underpins our confidence in delivering the ambitious 3-year targets. And our diversified model is a key enabler for long-term success, which is why I am equally confident in our ability to the sustain strong earnings growth well beyond 2028. Now let's get to the results. As you can see, it's been a great first half. Operating profit is up 24%, with strong double-digit growth in operating earnings per share. And we are driving higher returns with IFRS return on equity above 20%. For shareholders, we completed the latest share buyback last month. And today, we are announcing an interim dividend of 14p per share, up 7%. We are also stepping up for our 25 million customers. We're serving more of their needs than ever and delivering a fantastic customer experience. These results reflect strong delivery right across our business and our excellent progress on Direct Line. Behind every number in these results is a colleague making a difference for customers. I've been really fortunate to work with many talented teams throughout my career. And I genuinely believe that Aviva has the best people in the industry. Because we are the leading player, we attract and retain some of the best talent. And I'd like to thank the team for their commitment, skill and hard work and for everything that they do to deliver for our customers and shareholders every single day. Turning now to our track record. Over the last 2 years, we have transformed Aviva. Year after year, we have delivered consistent growth, stronger profitability and higher returns. And we have exceeded two full sets of targets along the way. Today's results build on that track record and keep us firmly on course to deliver our 3-year targets and create value well beyond them. So before I hand over to Charlotte, let me pause on why we are so confident about Aviva's potential. The answer is simple. It's the strength of our model. We have a diversified range of businesses with leading positions in attractive markets. That gives us earnings resilience and plenty of growth opportunities, which no other U.K. insurer can match. And as we continue to shift towards capital-light, we are generating even stronger returns. We have a real customer advantage with a leading franchise in U.K. Financial Services, the #1 trusted brand and a broad range of products that meet customer needs. That means we have a real opportunity to do more for our customers who already choose Aviva. We have scale with game-changing amounts of proprietary data and strong technology and digital foundations. And this means we have a significant AI opportunity where we are already making progress. These are powerful strengths in their own right, but what really matters is how they come together. That's why we are so confident in Aviva's opportunity ahead, and I'll come back to share more on how we are thinking about that a bit later. But first, let me hand over to Charlotte to take you through the results in more detail.

Thanks, Amanda, and good morning, everyone. The first half of 2026 was strong for Aviva once again as we continue our growth momentum. Operating profit was up 24% to GBP 1.3 billion, which translates to an operating EPS growth of 10% and an IFRS return on equity of 20.3%. Cash remittances were up 47% to GBP 1.5 billion. Our solvency ratio of 176% is towards the top-end of our working range, and we expect it to be in the high 180s by the end of the year. Underlying operating capital generation increased 14% to GBP 812 million, and within the businesses, our General Insurance combined ratio improved 1.3 points to 93.3%, and Wealth net flows were up 32% to GBP 7.6 billion. I'll now unpack the results in a bit more detail business by business, starting with General Insurance. In the U.K. and Ireland, premiums grew 42% to GBP 5.9 billion. Now a large component of this was the addition of Direct Line reported as part of U.K. Personal Lines, where we saw premiums nearly double in size. And we've made great progress on the integration and performance turnaround of Direct Line. Written margins are improving, and we have returned to policy growth in Motor PCW. Commercial Lines trading in Q2 was a clear improvement on Q1. We traded well in a tough environment with strong April renewals. Premiums were down just 1% in the discrete quarter. Now let me give you a little more color. Mid-market is up 1% year-to-date, benefiting from high retention, which is close to 90% and strong new business. Digital improved on Q1, but is still a little lower than last year. And we continue to take deliberate portfolio actions on certain MGAs. Probitas, which we are rebranding to Aviva Syndicates, continues to grow, largely driven by the 9 new classes that we have launched in [ Lloyds ] since the acquisition. And in GCS more broadly, Q3 trading was significantly improved, though as expected, year-to-date premiums are lower as conditions remain competitive. In terms of profitability, the U.K. and Ireland combined ratio is a strong 93.4%. This is a 1.1 point improvement, reflecting the earn-through of pricing discipline along with some favorable weather and prior year development. Overall, operating profit for the U.K. and Ireland grew 50% to GBP 643 million. Premiums in Canada were up 3% in constant currency. Within this, Personal Lines were up 4% as we secured pricing increases across Property and Auto despite lower volumes due to the impact of portfolio actions taken in Alberta during the second half of 2025. We also continue to make good progress with the partnership that we announced last year with President's Choice Insurance. Commercial Lines grew 2% due to some scheme wins within GCS, which more than offset the softer rating environment. And the undiscounted core was almost 2 points better, reflecting better weather experience compared with the elevated CAT activity in the previous year. So first half operating profit was up 22% to GBP 262 million. And we continue to invest in our technology and our supply chain through a combination of in-sourcing and deepening partnerships to increase performance. Now while first half weather experience was favorable, you'll have seen in the news since the end of June, there have been a lot of -- there have been a number of weather events across Canada. And although it's still early days, we now expect to be above our weather budget for the quarter. That said, Q3 is typically the more active CAT season, and so it's built into our expectations. Now looking at the group overall, we've made fantastic progress improving our headline undiscounted COR by more than 2 points over the last 2 years, and we're on track for our full year 2026 guidance. Now I want to take a moment to unpack our COR development and outlook for you. Structurally, we expect favorable PYD going forward, driven by the IFRS risk adjustments and maintaining balance sheet strength. So taking these in turn, firstly, the risk adjustment increases the reserve amount through underlying COR and subsequently unwinds through PYD. Now while these effects largely net off in the headline COR, they contribute both to a favorable PYD and a structurally higher underlying COR by around 1 point to 2 points. Secondly, in terms of balance sheet strength, we reserve the best estimate, but that is still a range. So given ongoing uncertainty from inflationary dynamics to geopolitical tensions and of course, the addition of Direct Line, we are reserving towards the upper-end of this best estimate range, and we have maintained this strength over the period. But by maintaining balance sheet strength, favorable PYD is expected to come. On top of these recycling effects in the first half of 2026, there has also been some favorable experience on prior year claims and weather, benefiting the headline COR. And the underlying COR was negatively impacted by some large losses and other one-off effects. Our strong pricing, growing operating leverage, significant direct line opportunities and robust balance sheet give us confidence in the outlook. Now moving to Insurance, Wealth and Retirement, starting with Wealth, where we are the largest player in the U.K. and have reached over GBP 260 billion of assets. Net flows increased by an excellent 32% to GBP 7.6 billion, representing 7% of opening AUM on an annual basis. This was driven by strong performance across the board. Workplace net flows up 36% with continued regular contributions of more than GBP 1 billion each month. We're also on-boarding new schemes, including GBP 1.5 billion from the first of the Mercer schemes. Our adviser platform performed strongly with net flows up 17%, including high demand for the onshore bonds that we launched last year. And in Direct Wealth, our customer base grew by almost 1/3 to nearly 120,000 customers with strong growth coming from across Aviva's existing customer base. AUM in our Direct business is up 14% to GBP 5 billion, and we continue to invest in developing this proposition to drive organic growth. Overall, Wealth operating profit was up 34%, with our operating margin improving by 0.7 basis points as the business grows. We have the benefit of a leading scale -- sorry, leading scale, lifetime offerings and customer opportunities, and we are fully on track to meet our ambition of GBP 280 million of operating profit by 2027. Now moving to our Insurance businesses, starting with Health. In-force premiums were up 5%, and we maintained a low 90s score. Operating profit was up 28% to GBP 37 million. Now the market has been affected by slowing growth, driven by the SME and consumer channels. 2 growth is down from about 6.5% back in 2023 to less than 2% in the first quarter of this year. And as a result of this, we now expect operating profit to be around GBP 90 million for 2026. So despite continued double-digit profit growth over the last 3 years, this will fall slightly short of our aim to reach GBP 100 million this year. We continue to see Health as a critical part of our customer proposition with long-term growth drivers. In Protection, sales were up 1% with stronger performance in Group Protection. Margins have also improved by 40 basis points as we focus on delivering value. Protection operating profit was 14% lower, driven by adverse experience variances and investment in the business. And lastly, we're making further investments across both these businesses. For example, we're pleased to launch -- we were pleased to launch our new well-being proposition, which is a combined Health and Protection Solution for large corporates with SME to come later this year. In Retirement, we wrote GBP 1.1 billion of BPA in a less active and more competitive market. Trading has been positive since the end of June and year-to-date volumes are now GBP 1.9 billion. The half year, we achieved an IRR of 18%, well above our low teens guidance, supported by our pricing discipline and mix of smaller schemes with higher returns. This business has also been written at relatively low capital strain, and we have provided some color on the IRR calculations in the appendix to the slides. Individual annuity sales were up 11% to GBP 865 million, supported by the launch of our new Guaranteed Fixed Income plan last year. Operating profit was up 2% as we benefited from higher CSM releases and asset optimization. We remain active in Retirement and we'll continue to be disciplined in the competitive environment. Now turning to costs and efficiency. The ratios have improved across the group due to acquisitions, growth in the business and our focus on efficiency. For example, our cost-asset ratio in IWR has improved by more than 4 basis points over the last 12 months alone, demonstrating strong operating leverage. We are seeing benefits from the modernization programs as well as greater use of digital customer service. And we continue to invest in growth and productivity initiatives that will deliver real impact across the group, including, of course, the use of AI and automation. We expect this investment to improve operating leverage and unlock significant long-term value from our existing customer base and extensive data assets. Now our consistent capital allocation framework is a critical part of what we do to optimize our diversified group. This slide, I come back to at each results as it summarizes how we think about our performance and financial strength and what that means for how we use capital. We are continuing to build sustainable growth in earnings and cash and maintain balance sheet strength. This is allowing us to grow the regular dividends and invest in the business for growth and efficiency. And we are returning capital to shareholders with our latest share buyback recently completed. Nothing is new here, but it's important that you can see we do this exceptionally well. Now one of the advantages of the model is we have built -- we have -- one of the advantages of the model we have built is proactive balance sheet management. At full year 2025, our shareholder cover ratio was 180%. In the first half, operating capital generation added 9 points, a little higher than normal because of the lower capital strain on BPA, some benign weather and of course, the benefits from Direct Line. It also includes about 1 point of management actions. Nonoperating items reduced solvency by around 3 points, comprising 1 point from integration and restructuring and 2 from market movements. After debt actions, the dividend and buyback, our half year cover ratio is 176%. Now looking forward, we're confident in reaching high 180s by the end of the year, subject, of course, to market movements. And this guidance includes the benefit of at least 7 additional points or GBP 350 million from the expected Direct Line capital synergies. Now Amanda will speak about AI again shortly, but I wanted to talk briefly about this in the context of investing in the business. Our business as usual change investment is GBP 450 million each year across the group for growth, customer and efficiency. And we're allocating increasing amounts of this budget towards AI, taking a disciplined approach by applying strict return thresholds, monitoring costs and focusing on the opportunities that can be scaled across the group. We aim to unlock benefits quickly in key areas and deploy these savings by either reinvesting them in new opportunities, factoring them into trading decisions or realizing them in the bottom line. There's significant potential here, which we are really well placed to unlock. So before I hand back to Amanda, let me close with the outlook. I've already shared some of the details, so let me just pick up on a few points here. The Direct Line integration is going really well, and we expect cost synergies to reach GBP 130 million this year, which will flow through fully next year. Wealth momentum continues with the next material transfer of Mercer Master Trust assets expected in Q4. Now group operating profit in the first half was strong, and the second half will continue to benefit from many of the same drivers. But of course, that needs to be balanced against some of the other effects, including the CAT impacts in Canada. So as a result, we expect full year operating EPS to be around 11%, slightly above the 2026 guidance we gave you last year and broadly in line with current market estimates. So to conclude, this is a business that is performing strongly. Our people are engaged and focused, giving me great confidence in the trajectory towards our 2028 targets. And with the opportunities that Amanda will cover now, I am equally confident in our sustained longer-term growth. And with that, back to you, Amanda.

Okay. Thanks, Charlotte. So these results are testament to everything that we have delivered over the last 6 years, executing our clear strategy, delivering year-on-year and accelerating with targeted M&A. And that is why we are on such a strong trajectory. And what I want to focus now on where we go from here. So we think about Aviva's future across two horizons. The first is our 3-year targets. We have real confidence in these as we unlock material benefits from Direct Line and drive strong organic growth across the group. The second horizon is over the longer term. Here, we see clear upside from serving even more customer needs, Aviva's AI opportunity and our material growth platforms. So let me take you through each of these horizons in turn, starting with our 3-year targets. Realizing the benefits from Direct Line is a critical part of our plans. For customers, we continue to deliver excellent service, and we are pleased with the retention levels that we are seeing. On the people front, we officially welcomed 8,000 Direct Line employees as Aviva colleagues as we completed the [indiscernible] process. And we continue to rightsize and strengthen the combined business as the integration progresses. We have transferred almost GBP 5 billion of assets to Aviva Investors, improving the investment returns and reducing external fees. And we have moved to a single claims function, realizing the benefits of shared capabilities, data and scale. So we are well on track for all of our synergy ambitions. We have already delivered GBP 100 million of run rate cost synergies and GBP 150 million of capital synergies and GBP 40 million of annual claims cost savings, and there is more to come in the second half. Turning now to Direct Line Motor performance. Beyond the integration, Owen and the team are doing a fantastic job here. We were not happy with margins on day 1. So we took immediate action on rate. We also rolled out Aviva's pricing models and combined data sets and the results are clear. Written combined ratios have improved by more than 10 points, and Direct Line is an important contributor to the strength of today's Personal Lines results. We have accelerated the rollout of Direct Line Motor brand on all 4 major comparison websites. Policies here have increased almost tenfold over the last 12 months to around GBP 0.5 million without weakening the broader book. Overall, PCW new business share is now at the highest ever level. Aviva already had first-class capabilities across pricing, underwriting, distribution and claims. This turnaround is all about embedding that experience at scale. So Direct Line is supporting our capital-light strategy, strengthening our position in a key market and delivering material shareholder value. It's a great example of how we are taking a disciplined approach to M&A. But it's not just about Direct Line. Organic growth is another driver of our current 3-year targets, and Wealth is a great example here. Doug and the team have doubled the profit since 2019. And as you heard earlier from Charlotte, momentum is stronger than ever. We delivered GBP 7.6 billion of net flows, which is up more than 30%, driven by all parts of the business. To put that into perspective, it's almost as much as our full year net flows in 2023. And over the last 12 months, we have grown by almost 300,000 customers across Workplace, Advice and Direct. All of this is down to our strategic progress and targeted investment across the board. Enhancing our Master Trust proposition in workplace is why we are now the exclusive partner for Mercer. This will bring GBP 8 billion worth of assets. In Adviser platform, our onshore bond has attracted GBP 700 million of flows since its launch. In Direct Wealth, over 70% of sales are to our existing customers. And in Succession Wealth, over GBP 3 billion of advice assets are now on Aviva's platform and even more value coming through referrals. So we are well set to deliver continued strong profitable growth on track for our GBP 280 million profit ambition in 2027. And we will tell you a lot more about our organic opportunity in Wealth at our in-focus session in October. Now let's conclude the first horizon by looking at the progression of our portfolio. Four years ago, our earnings mix was evenly split. Today, we are 70% capital-light and returns have doubled over the same period. By capturing the benefits of Direct Line and continuing to grow organically, we are on track to reach 75% by the end of 2028. That means faster growth, less capital deployed and better returns. Now let me move to the second horizon, our longer-term growth beyond 2028. There is still so much more potential to unlock at Aviva. First, our customer advantage is unique, and we can serve more of our customers' lifetime financial needs than any other insurer. Second, we are transforming with AI. And with our scale and data, we have a material opportunity. And third, our capital-light focus is unchanged. We have attractive long-term growth platforms with significant headroom to go after. And with our scale and customer reach, range of growth options and disciplined capital allocation, the value of these three opportunities is amplified by our diversified model. Now let me take you through each opportunity in more detail, starting with our customer advantage. We have more than 25 million customers with a leading franchise in U.K. financial services and products to meet needs across a lifetime. That enables us to deepen relationships and create more value over the longer term. We also have strong presence across corporates and SMEs. In fact, 1 in 3 large U.K. corporates already hold a policy with Aviva. So we have the customers, the products, the brand and the experience. And together, that creates a customer opportunity that no one else can match. And we are already unlocking that opportunity. Back in '22, we had 4.7 million multiproduct customers. Today, we have over 7 million. Nearly half of all the new policies sold today are to existing customers. That is at 6 percentage points and well above the natural share that we would expect from scale alone. This is not cross-selling for the sake of it. It is about offering the right products to the right customers at the right time, and the benefits are clear. Multiproduct customers have lower acquisition costs and higher retention and engagement. So they are a powerful driver of future growth. Now let me touch on how we are serving even more customer needs. Customer expectations are rising. So we are accelerating to stay ahead. We are meeting customers wherever they want, across any channel. We already have a clear advantage as the leading PCW insurer. And we believe that AI-led distribution will be an important channel in the future. And that is why we are an early mover here. We are enhancing our ability to target and predict our customer needs. With our single view of customer data and our AI capabilities, we can do this even more effectively than ever. And we are using MyAviva as the front door to everything that we offer, leveraging AI to provide a seamless experience and more meaningful engagement with our customers. Getting this right means we can genuinely be a lifetime partner for our customers. Turning now to the second opportunity of transforming with artificial intelligence. Our opportunity here is greater than for most insurers, and the reasons are clear. As you just heard, we have millions of customers, a trusted brand and a breadth of distribution. Our scale means that we can invest, innovate and redeploy across the group. We have huge volumes of proprietary data, which is the most critical asset to actually transform with AI. This is an advantage that cannot be replicated and one that will widen over time. We have also been investing in technology. So our IT and digital estates are in a good place, and we have been using AI and machine learning to drive commercial impact for over a decade now. U.K. Personal Lines is a great example. We have used AI in our pricing models to deliver over GBP 200 million of run rate benefits here. That is on top of GBP 100 million of claims cost savings previously mentioned. And we can rapidly build on our expertise as we move into the next phase of AI now with generative and agentic. So these are all important moats and competitive advantages when it comes to transforming with AI. And we have clear plans to capture the opportunity across the full value chain. We are building on years of investment. Now it is about embedding AI within our journeys, decision-making and day-to-day activities. And this is the next step towards our vision for Aviva. As Charlotte said, we are taking a disciplined approach with 4 opportunities that cut across the whole group. And as you can see, the transformation is already well underway, aiming to drive material revenue and efficiency benefits and better customer outcomes. Every year, we have over 15 million customer inquiries, and most of them are handled by our people. So later this year, we are launching our AI Virtual Assistant to help customers with many of their queries. In Protection, we have halved the number of -- the amount of time it takes to review each case in medical underwriting with near perfect accuracy. This is improving response time for customers, but helping also our teams to handle more cases. In Claims, we are building a voice-enabled AI claims agent that will automatically route more than half of our motor calls in Personal Lines, and it will always be on serving customers 24/7. And all colleagues have AI productivity tools. We are now rolling out Claude Cowork to our most senior leaders because we know that we need to lead from the top. And in Wealth, we are using Agentic AI to automatically -- sorry, to automate quality assurance. This will save 50% of time for our back-office teams. Most importantly, it's a capability that we can reuse across IWR and beyond. And it's not just individual customers. We are using AI in Commercial Lines to reduce the time it takes to generate quotes from days to hours, which is driving higher conversion. So whilst it's still early days, our momentum is clear. The benefits are a strong indicator of the value that we will create for our customers, our colleagues and our shareholders. Now before I talk through our long-term growth platforms, which is the third opportunity, let me explain why we are so confident in the underlying growth of the U.K. market. I haven't been in business here for over 325 years, we do know the U.K. very well. Put simply, our markets are underpinned by clear structural growth drivers that give us real confidence in the longer term. Let me give you an example. Almost 1 million people will retire every year over the next decade, yet many are not financially prepared. That creates a huge need for retirement guidance, advice and income. And we are seeing supportive regulatory developments here, too. Potential reforms to pensions and auto enrollment would be a further set of tailwinds for workplace. These are just a couple of examples in Wealth and Retirement. It's the same story on the protection gap, health care needs and under insurance. These customer needs are significant, and they are only set to grow. And when you look at the broader market, the scale of what lies ahead is compelling. We have material growth platforms in our portfolio, take Wealth. Today, the market profit pool is around GBP 3 billion, shown by the white line on the chart. That is already significant. But in 10 years' time, it will more than triple to GBP 10 billion, shown by the blue bar. That is exactly the kind of opportunity that we are going after. Across our 5 growth platforms, the profit pool will grow to more than GBP 100 billion over the next decade. This is a huge opportunity to drive profitable growth for years to come, and we are well positioned to capitalize. So let me bring this to life with a few examples across U.K. Wealth, U.K. General Insurance, GCS and Canada. Beyond 2028, Wealth remains a highly attractive, fast-growing market. There are nearly GBP 3 trillion worth of assets today, growing at double digits. We are already the #1 player with GBP 260 billion in assets, almost 6 million customers and leading positions in Workplace and Adviser platform. And our competitive advantages of scale, corporate relationships, lifetime offerings and in-house investment solutions sets us apart. Not to mention our mass affluent opportunity with over GBP 1 trillion worth of investable assets held by Aviva customers. And there is plenty of growth headroom with opportunities such as Master Trust, Targeted Support and Direct Wealth. So our organic growth opportunity is substantial, and that is exactly what we are going after. Turning to U.K. General Insurance, where we are the clear market leader. With the addition of Direct Line, we now have standout positions in Personal Lines, and we are a top Commercial Lines player. With our scale, diversified product and distribution mix and unique data advantage, we are well positioned to outperform through the cycle. Yet there are still clear opportunities across the portfolio, and we have the leadership and talent to capitalize on these. Take the new specialty businesses, Pet, Rescue and SME Direct. Collectively, they are equivalent to the size of the home market, yet our share is only mid-single digits. Now with Aviva capabilities and the capacity to invest, we can take all 3 to the next level. At the same time, we are staying ahead of emerging trends with a strong innovation track record. We are a first mover on AI distribution. And as autonomous vehicles roll out over the longer term, our in-house repair network and leading commercial proposition will be key differentiators. So our strategy here is simple: extend the leadership in our core positions while doubling down on the new growth avenues. Turning to Global Corporate & Specialty. This market covers over GBP 500 billion of premiums globally, and we are a relatively small player today, which means our headroom is significant. What excites me most is not simply the market opportunity, it's the model that we have built. We combine strong businesses in the U.K. and Canada with our growing Lloyd's platform. Together, they help us serve more clients, deepen the broker relationships and leverages Aviva's brand and shared capabilities. And this model is already in action. We are expanding in Lloyd's under our new Aviva Syndicates brand and using our dual platform to create capabilities to share those One Aviva growth opportunities. More recently, we strengthened our access to the U.S. Commercial Lines market with Onshore Presence. And we are doing this in a controlled manner, focused only on areas where we have strong underwriting expertise. For us, GCS is not just about participating in a growing market. It's about actively scaling our differentiated platform. And finally, on our opportunity in Canada. The fundamentals of the economy are attractive, and we are 1 of just 2 players with a truly national presence, which gives us significant potential. In Personal Lines, we already have partnerships with 2 top Canadian brands. And our most recent partnership with President's Choice gives us direct access to over 20 million customers. In Commercial Lines, we are still underweight in small business. So we are now deploying first-class digital trading capabilities from our U.K. business. We have also benefited from shared learnings in claims, saving almost $600 per repair across 50 auto centers. And we continue to expand our regional presence, particularly in attractive areas like Quebec. Canada is an essential part of the group, an attractive market, a fantastic business, and it has an exciting future. So I hope that has given you a sense of just how much lies ahead. Let me conclude with Aviva's compelling investment case. We are unlocking the full potential of the Direct Line acquisition. We have unrivaled customer reach with our leading franchise. Our AI opportunity is significant given our scale and game-changing amounts of data. We have capital-light growth platforms in attractive markets with strong momentum and a clear right to win. And our diverse range of businesses delivers high-quality and resilient earnings. And it's for all these reasons that we have absolute confidence in our current targets and full conviction in sustaining strong earnings growth beyond them. Thank you for listening, and let's move to your questions.

[Operator Instructions] So we'll start with Andrew Baker.

It's Andrew Baker of Goldman Sachs. First one, just on U.K. Personal Lines. Are you able to give an update on the pricing versus claims inflation trends you're seeing in Motor and Home? And can I just confirm the comment on, I think it's Slide 10 on policy count growth. Is that for Direct Line only? Or is that sort of Aviva Personal Lines of total? And then secondly, on the forward-looking PYD guidance, did you -- are you able to give a sense whether the '26 combined ratio targets included a PYD assumption? And it felt like this is a bit of change in messaging versus the past. I guess, what led to this change in messaging and why now?

Okay. Thanks, Andrew. So first of all, the usual update, I guess, on Personal Lines rating. So inflation is sort of mid-single digits, which I think is sort of unchanged since where we were at the end of the first quarter. But as we did last year, we are pricing -- we have been pricing ahead. So if we take you back to the end of 2025 when you had the Pearson Ham data was showing that the market was down on new business rates by 11%, and we were up 1%. If we take it to the half year, the market is saying about 3.6% on rate up on Motor, and we are up 6%. So I think what you're seeing here is our strong rating discipline, but also we are very, very confident about the technical rating strength within the book on the basis of the [indiscernible] repair network, the rates are starting to harden, but also the benefit of all the different distribution and the brands that we have. I don't know whether you want the home numbers as well. I mean on Home, to the end of last year, Pearson Ham data was showing minus 12% for the market. Aviva was flat. At the half year, the market is flat and Aviva is up 4%. Again, same strength. One thing I would add here, and sort of Owen talks about this way more articulately than I do, is what we are really seeing is the benefit now of the huge amount of data that we have. So when you've got twice the amount of data, the insights, the sophistication that you can put into the pricing, the benefit is really there. So we are able to make really good pricing decisions and exposure decisions around the vehicles that we want to write, where we want to write -- so that I think that, that is also -- we are also starting to see -- it's sort of unquantifiable, I guess, in the numbers, but we're definitely starting to see that as an advantage. I think on Slide 10, we were talking about Direct Line, but Charlotte will clarify that. On the forward-looking PYD.

Yes. So I suppose when we set the targets or the guidance for combined ratio for 2026, we very much set it at the overall level, so with all components in it. And at that point, I suppose I think we're clear that within that, we made no fundamental assumptions on PYD. However, what's important to understand is what I explained in my remarks earlier is the interaction between the underlying and the overall caused by both the risk adjustment effect and the fact that our reserving is towards the top end of the best estimate range. So those do offset. So as we build risk adjustment, which is 1 to 2 points, let's call it, 1.5 points, something like that, that unwinds then through current. So you've got to look at the two together. It's somewhat of a wash, but it is a structural positive to PYD if you're only applying your lens to PYD. And then if you're only applying your lens to underlying, you say, well, why is it -- it's got a bit of that rebuild in it. And it's the same with the balance sheet resilience. We are constantly making sure that the best estimate is because of the uncertainty that I explained earlier around the [ world ] and with Direct Line, it's at the sort of cautious end of that best estimate. And that is being replenished. So what I don't want you to think is that the prior year development that we're seeing this time is a release of reserves. There is an element of that coming through. But at the same time, we're rebuilding the resilience. Now on top of that, you actually get claims experience can be different to what you reserve at -- and that, I can't predict what that is going to be. So there's an element of PYD that is completely -- it comes when it comes depending on the actual experience. So I suppose I would say I'm keen for you to understand that properly and keen for you to understand an element of it is recycling and therefore, a wash. And if the risk adjustment is 1 to 2 points and you sort of take that as, I don't know, 1.5 points, there's probably another bit as much as a point, but there's another bit that is that build and recycle coming through as well. On top of that, then there can always be PYD that's up or down that you don't predict. And then, of course, there's weather.

Farooq Hanif from JPMorgan. Just wanted to clarify something on the comment you made on large losses in the underlying loss ratio. Are you able to sort of quantify that? Obviously, there's a bit of deterioration in loss ratio in Ireland and Canada and in the U.K. on top of the Direct Line effect. So I just wanted to understand whether we can model that going forward? Secondly, you don't mention International in your long-term view in the slides. And I think we're all aware there's quite a lot of SCR investors in international. So I'm wondering if you're able to willing to comment on what you view as the future of that. And I know there's something going on potentially in India. So I was wondering whether you can talk about that a little bit? And then kind of very last point, asset optimization, you mentioned it in the bulk annuity line. I mean other companies are mentioning a lot more and making a big thing out of it. What do you think of that? What can you tell us about your view on that as a source of investment margin?

Okay. So look, I think on large losses, as you rightly picked up, I referred to it. So if we unpack that a little bit. In Canada, we saw large losses in SME, mostly property, and we saw some in GCS that were property, as well. I would say that they are specific idiosyncratic. When we see large losses, we always go back and look at the underwriting quality, but we are here for our customers and when large losses come, they come. So they were quite a lot higher year-on-year in Canada, the large loss amount. In the U.K., there are a couple of things going on. So there are large losses again that were a little higher than long-term averages. They were a little bit higher than long-term averages last year though. So the turnaround is less marked. I think it's maybe just a fraction of points. Again, though, they are idiosyncratic in nature, and they were both Commercial Lines and Personal Lines. So there's quite a publicized fire steel factory, for example. So again, they are -- idiosyncratic in nature and no particular concerns. I also referred to a one-off. So there is an intangible asset that we've written off from the balance sheet following a project that we discontinued, and that's about 0.6 points. So those are kind of like the drivers of what's happening in the underlying that is large loss or specific balance sheet write-off items. Other movement in underlying is trading and managing margin obviously. That was the first question. The second question on international. Look, we classify outside of the core markets because that is how we see it. We manage them for value, certainly not for growth. You're right that in India, we now own 100%, and that was triggered by -- there was a regulatory change over there that enabled foreign participation at 100%. We took advantage of that. That gives us clearly more strategic optionality, but there's no other update to say on that or on China at this point. And then on asset optimization, we did have -- we see very much our job to get the right assets in place at the beginning. And we see it as being an underlying activity to continue to work on the back book and look at asset opportunities as they come up. So yes, there was a relatively modest, but important piece of asset optimization that came through this time. But we don't classify that as management action. It is what we do, and it's about getting the right mix at the beginning and then managing it on an ongoing basis. So we don't have the same sort of headlines that some present. But that doesn't say we're not all over the asset optimization. It's just a different treatment.

Andrew Crean from Autonomous. Could you do a couple of things? Firstly, fill us in on what's happening in rates in U.K. Commercial and then Canada, Personal and Commercial. And then secondly, you seem very bullish on Wealth, both near term and long term. Can you give us a sense of well on track? Is that a euphemism for likely to be GBP 280 million? And longer term, if you are that -- if you do feel there's that much of an opportunity, can you catch up in direct D2C platforms? Or does that take M&A?

Okay. Thanks, Andrew. So rates in Commercial Lines. So what we're seeing here is that -- let me just try to find the right page here. So it obviously depends by line of business. So what we have seen in the mid-market, which is around sort of 60% of the SME segment was that's up by about 1%. That's benefited by higher retention. So I guess what you're seeing here is the inflationary provisions within the Commercial Lines portfolio basically -- flattening -- offsetting the flat rate. So it's sort of flat rate. There is some decrease in SME, where we have traded better than -- sorry, not traded as well. So I'm all over the place. I'm just trying to find the right page, so I give you the actual right numbers. But actually, the inflation is mid-single digits. Inflation provisions are covering that for the vast majority of the products. In terms of the rating strength, the rating strengths are strong across virtually all of the product lines. So we're seeing price effect in mid-market is about minus 3%, but the rate strength is over [ 100 ]. We're seeing pricing in motor and digital down by sort of mid-single digits. Again, we are covering that -- covering inflation in the rating on that. And then on the GCS, the I mean there's about 20 different product lines, so hard to give it all. But in essence, every product line apart from Property and Professional Indemnity, the rate strength is over 100%. I've made a right pig's ear of that. But hopefully, you've managed to get the broad sense of that because there's so many different numbers. And I'm not looking at Jason to make sure I haven't misrepresented anything there. But that's pretty much the case. In terms of Canada, so on Canada, we are -- personal lines is -- we're still carrying good rate in Canada on personal lines. So that is sort of about 10% in the first half and -- yes, 10% in the first half on Motor and not -- can you just help me here, which page is this? Yes. Okay. Got it. Right. So on Personal Lines, it's that 10% in motor. I'll come back to Home in a second. In SME in Canada, the rate is about 5% down on SME, 3% on GCS and in total, down about 4%. But again, most of those product lines are covered by the inflation-linked provisions. So on Home, the rate outlook is 7% is what we are carrying on rate for 7%, and that includes indexation. Does that make sense? 6% in Auto, sorry, and 7% in Property. If you've got any of that, you'll have done really well because that is so complicated. But if you are -- if you want any clarification, I can clarify. I've now got it in front of me. There's another question? Yes, IWR. So on -- yes, we are very bullish on wealth. And why is so is because in Workplace, if we think about -- there's GBP 1 billion of regular contributions coming through on Workplace, which is just the sort of standard. The retention levels on the scheme is about 95% -- existing schemes is 95%. And we're continuing to win business on a regular basis, and we've got the mercer stuff coming through. So when we say we're likely to be, I'm looking at the team and saying, we are -- we can see the line to the GBP 280 million. And we've put a lot of investment obviously into this business over the last number of years. And that investment does have peaked. And now we're looking to see how we take that forward from there post 2028. more to follow in the session that we do in October. On the catch-up on Direct Wealth, -- so look, I think here, the way that we're looking at this is that the information that's come from targeted support, the early days that we've sought the approval of the FCA to do pension in the early stages of targeted support. So people who are in old pension products, putting them into new pension products and then people who are under saving in their pension and how do we target them. The early days, and it is very, very early days because we only started that in sort of in May are really, really encouraging with more people responding to that than they would do through the normal marketing campaign. So we feel very confident in our ability to be able to connect our existing businesses, our workplace customers through to our Direct Wealth proposition. And we talked about the direct wealth sales coming primarily from Aviva customers. That's not just from IWR customers. It's coming from Motor customers. It's coming from Home customers, and it's also obviously coming from other Wealth customers. So we believe that through using targeted support, using MyAviva, using the technology and using AI and the opportunities that we have there, we believe that we can continue to organically grow that business without the need to do M&A.

Abid Hussain from Panmure Liberum. I've got three questions, I think. The first one is on GI margins. If I normalize the margins for the reserve releases and the weather impacts for this year and last year, I think there's almost a 2 percentage points deterioration in the margin. And outside of large losses, I think that might be the mix effect, the impact of Direct Line, which I think was on a lower-margin business. So I just want to sort of check that is the case? Or are you doing something else in terms of optimizing for the bottom line and perhaps relaxing your criteria on the margin side. So just any color on that? And then second one, just coming back to the BPA IRRs. Thanks for the new disclosure. It's helpful to see the 18% IRR. But just on the lifetime IRR, I suspect it's higher than that and peers are now quantifying management actions of sort of GBP 400 million to GBP 500 million. I think that used to put in around sort of GBP 100 million to GBP 200 million for yourselves. So there is a big delta opening up between yourselves and peers. So just wondering if you have plans to address that over the medium to long term? And then just finally on AI, it looks like it's now more deeply embedded in the business. I'm just wondering what sort of guardrails do you have in place? I've heard of teams burning through tokens over a weekend relative to the annual budget -- burning the annual budget in a weekend. Just wondering how do you ensure that this is a net positive to the bottom line and what sort of guardrails do you have?

Okay. Let me start with those two, yes. So look, on GI margin, I mean, if I take U.K., which I think is where your focus is, underlying COR changed by about 1.6 points. If I don't repeat all the stuff I've talked about in terms of the assets and the large losses, then there's probably a residual of that 1.6 points there's probably a little under 1 point of movement. I would say that is manageable margin compression, as you would expect as we trade sensibly in softer markets and because we've got good rate adequacy, we can afford to do that. I think the Direct Line business improvement, I mean, this time last year, we had no Direct Line in the half year. We -- it came on to the books. We were clear that we weren't totally happy with it, and we've been taking action. So some of that is earning through. But compared to 1 year ago when we had no direct line with the business that we're still working on, you can imagine that, that's had a little effect on the margin as well. So all of that is actively managed, underwriting discipline that you've got to trade in the market and where we are in the cycle, you're going to see a little bit of margin compression, but we can afford that. So that's that one. On the BPA metric and the rationale we've given here, we just wanted to be completely clear on how we do it. It is 18% that we've given for the half year number, it's a lifetime IRR. It has no management actions assumed. So if we do have management actions, that will give us some potential upside. And I suppose given this year, we took, I think, in the walk on the solvency, I talked about that probably being about 3 points still to come from management actions, and we've got about GBP 100 million already in the first half. So management actions are expected to come, but they're not reflected within the methodology. I'd also say that -- and I think I said it in the opening remarks, but just for emphasis, the first half was characterized by small deals, which have higher margin. The strain was lower as well. As we look at what's moved us to the 1.9 points where we are now, there's some bigger deals in there. So you'd expect that IRR to come back down as we head towards the year because that's the nature of the trading we're doing, but still above the low sorry, the low teens. So 18% coming down a bit, but still above the hurdle. And we just wanted to be really transparent on how we do it and give you an illustration because it came up quite a lot before, and there's a lot of different types of numbers out there in the market. So now armed with our transparency. Maybe you can ask others about it. And on the AIB and BT and Investors, yes, I mean, yes, obviously, it is and has been for a very, very long time. And I think you were specifically talking about token usage and apart, obviously, from having to restrict Charlotte's usage of Claude, which she's become slightly obsessed with. We are monitoring the costs in exactly the same way as we are monitoring all of the other costs within the business. And we don't -- we definitely see this. You're absolutely right. There is a definite benefit from AI in terms of revenue and also efficiency. But there's also a cost to AI. And everybody talks about the first two and not about the third one. We are very, very actively looking at all of those three levers. And hopefully, with what we've shown you, you've seen that all the projects of everything that we're doing, we're looking at the ROI. We're looking at the returns. And then we're seeing, okay, well, what will be the future cost for us to be able to run these models. And we've already got that in many respects with the machine learning models that the teams are using for pricing. Sorry, did you actually ask for guidance on the management actions as well?

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