Welcome to Aviva PLC's Q1 2021 trading update. Please let me hand you over to Amanda Blanc, Group Chief Executive Officer.
Good morning, everyone. I hope you're all well, and welcome to Aviva's Q1 2021 trading update. I'm gonna start with a brief overview of our first quarter performance, and then I'll hand over to Jason, and who will go through more of the detail. I'm pleased to report we've made good progress in the first quarter across each of our strategic priorities, and this is building our confidence in Aviva's ability to deliver improved performance and stronger returns to our shareholders. First, we said we would focus the portfolio, and we have. We've been decisive and moved at pace to simplify Aviva, selling eight non-core businesses, which will generate total cash proceeds of GBP 7.5 billion once they're all completed. And this will be the conclusion of the divestment part of the strategy that I announced in August last year.
More specifically, we have completed the disposals of Aviva Vita in April and Aviva SA in Turkey early, earlier this month. And in France, we have completed the necessary pre-sale consultation processes and have now signed the formal sale and purchase agreement. This paves the way for regulatory approval and completion, hopefully later this year. Second, we have significantly strengthened our balance sheet and financial position. We're delivering on our debt reduction plan, reducing it by GBP 1.9 billion in the first half of 2021, which is actually ahead of our original expectations. The key capital metrics we're disclosing today, solvency, debt ratio, and liquidity, are all robust and healthy. Third, we are building momentum in our core businesses as we focus on the crucial task of transforming performance.
In that regard, you'll have seen my announcement yesterday of new leadership for our U.K. and Ireland General Insurance business in Adam Winslow, who will help accelerate the delivery. Our first quarter numbers show our ability to grow where we have strong capabilities and leading positions. The standout this quarter was Savings and Retirement, where we have delivered record quarterly net flows, driven by strong performances across both workplace and platform. In general insurance, we've delivered our highest Q1 sales in a decade on the back of a strong commercial lines performance and resilience in personal lines. We're also continuing to exercise tight control over our costs and progressing well towards delivering our 2022 targets. From my perspective, overall, a good first quarter.
We have reshaped the portfolio, significantly strengthened our financial position, and our trading performance gives us increasing confidence that we have what it takes to capitalize on our market leadership. All this notwithstanding, I am very clear that this is just one quarter, and we have much more work to do to achieve the level of sustained, dependable performance that we're looking for, that shareholders have the right to expect, and which I know the business is capable of. Before I hand over to Jason, let me turn briefly to the topic which I know will be fresh in mind for almost all of you today: capital returns. In March, at our full year results, I said that once we complete the disposal program, our intention is to make a substantial return of capital to our shareholders. Nothing has changed, and that remains our intent.
But this is a trading update and just too early to be specific on our plans to return excess capital at this point in time, not least because we still have to complete the largest of the disposals, collect the proceeds, and obtain regulatory approval for the distribution. I promise that we will return to the topic at the appropriate time. You should be in no doubt in the meantime that a substantial return of capital is right at the top of our agenda, both as a management team and a board. Thank you for listening, and with that, I'll hand over to Jason.
Thank you, Amanda, and good morning, everybody. The first quarter showed excellent progress on strategic delivery. Our businesses are showing positive momentum, allowing us to look forward with growing confidence. So let me take just a few minutes before we get to your questions, to highlight what I see as the key numbers in this trading update. But first, let me start with our capital position and central liquidity, which remains strong at 209% and GBP 2.9 billion, respectively. As you know, we will have completed our planned GBP 1.9 billion debt reduction by the end of June. I want to quickly walk through the impact of this and the other movements on our reported solvency and liquidity, as there is a little to unpick.
In Q1, the solvency ratio increase is 7%, benefiting from capital generation and the positive impact of higher interest rates. This is partly offset by the full-year dividend and the GBP 1.1 billion reduction of subordinated debt. The debt reduction includes our successful tender, GBP 0.7 billion of which related to subordinated debt, as well as GBP 0.4 billion related to 2 bonds maturing in Q2, which lost their regulatory capital status as of March 31. Our pro forma Solvency II ratio, which allows for the completion of the divestments and a further GBP 450 million debt to be redeemed in June, is estimated at 253%, with leverage reducing to approximately 26%. Looking at central liquidity, this stood at GBP 2.9 billion at the end of April after the debt tender.
But unlike the capital position, this does not include the final dividend and the debt redemptions in May and June, which together total GBP 1.4 billion. And as Amanda just said, we expect to make a substantial return of capital to shareholders following regulatory approval and the completion of divestments. And of course, we will maintain leverage below 30%. Turning now to our trading performance. We're pleased with the growth in the key areas as we capitalize on our leading market positions. Net flows and savings in retirement increased by 31% to GBP 3 billion, a record quarter. This included GBP 1.5 billion in workplace, as we benefited from a successful tax year-end campaign, and recent scheme wins.
Our Adviser Platform also had a strong start to the year, attracting net inflows of over GBP 1.4 billion, delivering the highest rate of growth amongst the large Adviser Platforms. Aviva Investors delivered improving flows, including positive, albeit small, net inflows from external clients. It was good to see investment performance improving, with 81% of assets above benchmark over 1 year. Volumes of Bulk Purchase Annuities in the quarter were subdued, in what we know can be a lumpy business. Combined with a very strong start in 2020, total sales across annuity and Equity Release were 52% lower in the quarter. While we continued to win a fair share of business in the market, we maintained our focus on returns, despite lower spreads and higher allocation to Gilts, which affected VNB.
Encouragingly, we've made a good start to the second quarter, and we've written around GBP 1.6 billion of BPA volume year to date. In terms of 2021 outlook, we expect BPA volumes to be weighted toward the second half. Our general insurance business performed strongly, both in the U.K. and in Canada, recording the highest Q1 for premiums in the last 10 years. This is driven by commercial lines, where premiums grew by 11%, a combination of hardening rates, but also new business wins, helped by our strength and reputation with our broker partners. Personal lines premiums were 1% lower. Nevertheless, this was a strong result, given the soft rate environment in motor, and the continued impact of COVID on travel and some of our distributors in the U.K..
Our retail direct business in the U.K. grew premiums by 4%, helped by the successful launch of the Aviva brand, motor and home offerings on the major price comparison websites. Our share of business on PCWs has doubled since the first quarter of last year, a clear demonstration of the strength and untapped potential of our brand. General Insurance combined ratio improved sharply to 90.6%, owing to better underwriting performance, benign weather, a reduction in COVID-related claims, and frequency benefits in motor. However, the significant decline in motor rates seen in the last 12 months is expected to offset the Q1 frequency benefit, as lockdown restrictions are lifted. As such, we expect the combined ratio for the year to increase, but to be below 95%. Controllable costs, excluding implementation and IFRS 17, are down 1% to GBP 720 million.
For the full year, we expect those costs to reduce by 1%-2%. I'll stress that improving efficiency remains a key focus, and we remain on track to meet our GBP 300 million cost saving target in 2022. So in summary, trading in the first three months highlights our ability to grow profitably, underpinning our confidence in the targets we announced only in March. But we're in no doubt that we have more to do, deliver a better proposition to our customers, and to deliver stronger returns to our shareholders. I will leave it there and hand back to the operator for Q&A.
Thank you. We will now begin the Q&A session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel that request, please press the hash key. Your first question today comes from the line of Oliver Steele of Deutsche Bank. Please go ahead.
Hi, good morning. Three questions. Look, I'm gonna sort of try one question on capital, and then I'll move on to the operational side. So on the capital front, I'm just wondering, and given that your solvency ratio has benefited from lower interest rates this year, sorry, higher interest rates this year, to what extent is the 180 threshold still the main sort of guidance for us, in terms of judging how much capital you can return, or, or is, in practice, liquidity, the constraint instead? So that's question one. Second question is on bulk annuity sales. I mean, you said the first quarter's exceptionally low. You've had a better second quarter.
Can you give us some sort of idea of the pipeline over the course of the year or an expected range of bulk annuity sales over the course of the year? And then, final question is on... Well, on the GI side, I wonder if you could give us a little bit more of an indication about what the frequency saving was in the first quarter, and the weather saving.
Okay. Thanks, Oliver, for that question. I mean, just on the capital, I'm sure, as you say, this will be a question that we'll be asked a number of times today, and as I mentioned in my introduction, you know, we're not gonna give too many details today. What we are doing is sort of confirming our commitment to the substantial return, and returning excess capital above 180%, to shareholders. That, that guidance, that's not, that has not changed. We're also, you know, saying that we're clear on the priorities for the deployment of the capital, which is the debt reduction, as Jason said in his opening, to a leverage below 30%.
some investment in the business to accelerate growth and, of course, the substantial return to shareholders. So, I think, no more to really say, although I think the point on liquidity, maybe Jason-
Yeah, Oliver, it doesn't change over the medium term. I mean, clearly from quarter to quarter, if the ratio bounces around, there's no actual cash. But the balance of the restructure actually brings capital and liquidity more into line, given, you know, the more simple group. So I don't see that those being out of line as we do our more detailed work.
Jason, did you want to pick up the two questions?
Yeah. On BPA, we wrote GBP 0.65 in the first quarter. We've written about GBP 0.9 so far in Q2. So, you know, moving along nicely. We wrote 6 last year, so that's the sort of aiming point, if you like, for us to want to sort of say that the business is continuing to develop. Having said that, we wrote 4 the year before that, so that was a huge amount of growth. So that lumpiness that we'll continue to talk about, we'll see. You know, 6 was an excellent performance. So, you know, what I did say in my comments is, you know, we're working, you know, toward a strong pipeline, to answer your question. And that has actually built quite sharply in the last couple of months.
But we still expect sales to be weighted into the second half.
And on the GI frequency?
Yeah, on the GI, look, we haven't given, you know, specifics today, to unpack the, the figure. Clearly, you know, frequency benefits are starting to kind of get clouded between the rate reductions and the frequency, seeing frequency is off, and I, you know, will say that. But the, the actual calculation of a benefit certain to rates is a bit subjective, so we're, we're not gonna give, specific on that. I mean, the, the weather did contribute. You know, it's one quarter, and all that doesn't make a summer or indeed a spring but, you know, there, there, there was, there was, quite, quite a few cats in, in the quarter.
Okay. Thank you very much.
Thanks, Oliver.
Thank you. Your next question today comes from the line of John Hocking of Morgan Stanley. Please ask your question.
Morning, everybody. I've got two questions, please. Firstly, just to come back to the capital return piece. Well, if you don't want to be specific, but is it possible that you could actually do more than one capital return if certain disposals complete before the year end? And have your thoughts crystallized in terms of the form that capital return might take? And then secondly, just on the workplace business, have you seen any impact from COVID in terms of either sort of lower salary increments or unemployment in that book? Thank you.
Thanks, John. I'll let Jason pick up the workplace question. Just on the sort of, I guess, the form of the capital return, look, we're looking at all of the options for that, and we've started to seek views from our shareholders on that, and we'll give you an update in due course. On your question around whether there will be more than one as the disposals complete, you know, as I said, I'm just gonna get very boring on sort of repeating that we'll come back, you know, when the disposals have completed, and when we're in a position to say more on that. As Jason was really clear about, you know, in his opening and in mine.
So sorry, we don't have any more on that today, but, you know, we will, as we said, over the course of the year, as we make progress, come back to you on that. Jason?
Yeah, on the workplace, I think I've said this before. It's been you know, surprisingly positive. I would... I'm not even saying resilient, positive, actually. It's been growing across the period. We're seeing you know, strong growth in the you know, obviously, we've got some scheme wins in there. But we are seeing you know, significant savings going in through the workplace as the primary source of long-term savings within the U.K.. So there's you know, signs are positive. There's probably a little bit too much allocation to cash, would be the only thing I would say. You know, we're looking to try and make sure people don't stay in cash, and they move into longer term investments. That's it for now.
Okay. Thank you.
Thank you, John.
Thank you. Your next question today comes on the line of Greig Paterson of KBW. Please go ahead.
Morning, everyone. Three quick questions. One is, you disclosed gross written premiums on the GI side, where previously in the quarter, you had been disclosing net written premiums. I was wondering if there was any change in the reinsurance programs, i.e., can we assume the same year-on-year trends for gross written premiums and net written premiums in the quarter? That's question one. The second one is just in terms of fintech. I mean, there's been a proliferation of fintech launches in GI personal lines, U.K. protection. I was wondering if that, these have been material enough or, or you see them being material in the future to, to move the dial, i.e., material threat to your, to your, top line.
The third question is, in terms of the cash at the center of the group, you've now, and previously, you've made some comments about investing in the business. I was wondering what the sort of magnitude, the budget you'd have there. Is that GBP 1 billion you're gonna invest in the business, or, or are we talking, you know, just some small bolt-ons? Thank you.
Okay. Thanks, Greig. I'll pick up the last two, and Jason will pick up the GWP.
So yeah, we moved to GWP as we are now in line with everybody else. It doesn't change our reinsurance buying per se. The NWP growth is a bit lower. We've been growing the business that's reinsured a bit more. So, and we'll give it at the half year, we'll give both, so you can see what's been going on. But there's nothing... There's no change to the nature or the structure of our reinsurance program, just to the volume. So we've obviously reinsured a bit more on the corporate and the GCS lines.
On the question around fintech, yeah, I mean, obviously, the London market and U.K. is especially buoyant in this area, and we watch, you know, with great interest around what those fintechs are doing, and we've seen some really exciting stuff I think come out of that market. I mean, you know, I worked in that before I took on this job for quite a little while with some of those businesses. Look, you know, I mean, we have 16 million customers and a massive brand. I think the opportunity for Aviva is actually working with those fintechs in terms of deploying some of the exciting technology and ideas that they have, so that we can work in partnership. And, you know, that is exactly what we're doing.
We've got a Chief Innovation Officer, Ben Luckett, who's been working with us. In fact, we've just run an innovation challenge internally with the business around how we can actually get those fintechs working with us better in partnership, because we recognize as a big organization, and, you know, this is similar to most big organizations, we're probably not that easy to work with. So we're definitely working on that. We've got some of our own, of course, with Wealthify, you know, which is a really brilliant business, which is giving, you know, robo-advice, and, you know, we really see good growth in that business as well, and a really exciting opportunity. So first, we see it as a really brilliant opportunity.
We definitely don't see it as a threat, and we believe the combination of the brand and you know some of that innovation could actually be really exciting for Aviva. On the point around investment in the core business, you know, to just go back to, I think, what we said in March and what we've said before, we're talking about more just amounts of investment in the business. We already have GBP 400 million you know per annum baked into the plan. We've talked about that before, for investment in the business. But what we don't want to do is starve the business of investment opportunity where we believe there are growth opportunities or opportunities to focus on simplification or automation or digitization of the business.
What we wanna do is make sure that we allow the business to do that. But really the focus on the excess capital, you know, to just reassure everybody, substantial excess capital will be around reducing the leverage ratio and returning to shareholders. But we also recognize this is a business where there may be some capability gaps that we need to fill, and that, you know, we don't want to stop ourselves from doing that.
Thank you.
Thanks, Greig.
Thank you. Your next question today comes from the line of Ming Zhu of Panmure Gordon. Please ask your question.
Hi, good morning, everyone. Thank you for taking my questions. Three questions, please. First, on your annuities and equity release, how come you got no value of new business, given you've written GBP 1 billion volume? And my second question is on the assets in your Aviva Investors. So have you reached that turning point, that you will be seeing positive net flows going forward? And my third question is on the GI side, the U.K. personal lines. You know, what sort of claims inflation are you having, and sort of pricing you've seen and the outlook? Thank you.
Okay, Jason, you want to pick up the first and second question?
Sure. So, you're absolutely right. There was no VNB in the Equity Release. There was, you know, very limited investment into our desired asset classes of illiquids. And the way Equity Release comes through is more only in the second half. So, we maintain returns. We sort of have a strict return hurdle when we write new business. But the value and the margin will come through as we move to our desired asset mix in due course, and that will take through the course of 2021. We would expect that to, you know, be reinvested primarily into illiquid assets, given how tight corporate bond spreads are today.
And on the-
Aviva Investors?
No, no, on the claims point, Jason, I'll pick up Aviva Investors.
Okay. On the, I didn't quite catch the question, but the trends in Personal Lines, we'll talk more about at the half year. We've seen, obviously, a reduction in Q1 relative to long-term averages for frequency. And as you would imagine, as I said a moment ago, we have seen rates reduce, so the actual impact of that between is positive, but it's much smaller than it was in 2020 across that. In terms of pricing, we've seen new business for motor in the first quarter is down 6%. Renewal has been more resilient than that. Clearly, we have got our eyes on the forthcoming FCA enhancements, but we've seen that on the home side, it's been more constructive.
We've seen rate rises going through pretty much across the book, through all channels.
And on Aviva Investors, look, Mark was appointed in January. I think that, you know, he's made a really good start. The flows are positive. We know that that can, though, be a bit lumpy, to use Jason's technical term, on BPA. But just in terms of, you know, the areas of focus, clearly, ESG underpins everything. We've made some bold statements on that, and Mark and the team are working really hard on that. There's a focus on real assets, on infrastructure, obviously, helping the BPA business source illiquid assets. And we have seen the fund performance improving, as Jason mentioned in his opening. So, you know, I would say, you know, a good start from Mark and the team, but clearly more work to do.
Thank you.
Thank you.
Thank you. Your next question today comes from the line of Dominic O'Mahony of Exane BNP Paribas. Please ask your question.
Hi, folks. Thank you for taking our questions. Three from me, if that's all right. So, first one is just on general insurance. I mean, clearly a fabulous combined ratio in Q1, and below 95 is very good for the full year. I'm just thinking about the run rate, and, you know, I think, you know, if you had 96 in the next three quarters, that would get you to around below 95. And then if 96 were the exit rate, you could imagine, actually, it could drift higher, you know, bearing in mind what's going on with the earn through of motor pricing in the U.K. and Canada, you know, the elimination of frequency benefits, and, you know, Jason, as you mentioned, the FCA dual pricing review. Is that...
I'm wondering whether you'd push back on that, and whether there are offsetting positives that you'd see impacting the sort of run rate combined ratio in GI? The second question is just on the cost saves. Very pleasing just to hear continued progress against the targets. The target, I think, was set with a bigger group, and I wonder whether you'd consider further shrinkage of the center, you know, to rightsize it for a group that is smaller. Any comments on that would be helpful. And then just a final one on, I wanted to ask a full question on capital returns, but I'm just curious about your approach to leverage. 30% target, very clear.
Is that 30% of sort of a target or, you know, I think in the past you said below 30%, you know, would it be inefficient to stay at around 26%? Which I think, Jason, you said was the pro forma. Thank you.
Yeah. Okay, Jason, do you wanna pick up one and three, and I, I'll pick up the point around cost?
Okay. Look, you're right on GI, and we've been hesitant to be too precise in terms of our forecast. We did wanna indicate that 90.6 isn't going to be the full year core, and you know, there are material benefits from weather and frequency in that number. But the commercial lines is actually performing really well. There's less going on there. So there is, you know, continued strong growth and strong profitability improvements in commercial lines. And as you rightly point out, one of the reasons for our hesitancy is, you know, the forthcoming pricing review, which will, you know, it could be out very soon, and would have some impact in 2021, as everyone positions ahead of the implementation next year.
So we are being a little bit, sort of generous in the below 95, but that's the sort of direction that we are moving toward. But there's nothing we're seeing that is concerning us, other than the points I just mentioned. On the leverage ratio, though, I think you're right, far below 30 would be inefficient and is sort of below our tolerance. We might drift down, you know, in good times when we are building capital. But we wouldn't want to structurally be a long way below that, it wouldn't be the right thing to do. Equally, I've said I have no hesitancy if we needed to go above 30 for the right reason. We wanted to raise some debt capital for any form.
Clearly, that's not the topic or the likelihood in the, in the coming periods, but that's ... It's not a cap, but in terms of a, in terms of a range, just being below that 30% is a, is a comfortable place to be.
On the cost savings, the GBP 300 million obviously was the target that we set, and that was on the bigger group. And what we said in March was that actually, we would now deliver that GBP 300 million from the smaller perimeter. So I think we have already challenged that. But clearly, this is a continuing focus for us, and we are looking at all areas. You know, we recognize the need to simplify the business, to digitize the business. We've accelerated our property reduction plan, and, you know, we talked about that again in March, and we will look at the center costs. You know, we have to do that.
I think the important point, Dominic, here, is that, you know, it's the sentiment, it's not a static ambition, and we said we wanted to be at the quartile, across all of our business lines. And so, you know, we would expect that target to continue moving as every other business moves, and we need to move with that to make sure we don't pass on any inefficiency to our customers. So it's a real, real key area of focus for us constantly.
Thank you very much.
Your next question today comes from the line of Blair Stewart of Bank of America.
Thank you. Good morning. I've got a couple of questions left. Just a word on when you think you'll be in a position to talk more definitively on your capital management plans. Is that just simply a case of waiting for the deals to complete or near completion? Obviously, you've got the first half results in August as the next data point. And just related to that, when you talk about the various components, you've got plenty of liquidity. We can see today that you're GBP 6.6 billion above the top end of your capital range. So when you think about what to do with that, is leverage the constraint?
I just wonder, Jason, perhaps you can comment, have you done work on whether further debt reduction is needed to fulfill your capital management plans? And then finally, just on the bulk and the annuity side, could you just remind me of your appetite for bulks? And maybe a word on what needs to fall into place to get the asset side lined up. I think you've said before GBP 4-6 billion of capacity, but I think that's the total annuities and equity release. But maybe just clarify that, please. Thank you.
Thanks. I'll pick up the first one, Jason can pick up the second two. On timing, we'll keep you updated, I think we've said very clearly. I'm pretty sure that this will be a constant question, and we are very conscious of that. You know, I think just to go through the process, what we need to do is obviously complete the deals. We need to collect the proceeds, and then we do need to obtain the regulatory approval for distribution. So, you know, we will make sure that we go through all of that as quickly as we can do.
And, you know, therefore, we can't really be specific on the timing at the moment, but, you know, to just reiterate, we're committed to it, we're focused on it, and, the substantial return to shareholders is top of our priority list. Jason, on liquidity and bulk?
Sure. So look, our capital framework, I'll point you back to, is the constraints that we're using. I don't need to unpick anything that I would say to give you further guidance, but clearly, when we did the debt tender, we were thinking ahead, and we'd make sure that we don't need to do two debt tenders. We've got some redemptions next year, so we can manage debt in the normal course, you know, under quite a wide range of scenarios. So there's no nothing else really to say on that, and I gave Don the answer on, you know, how I think about leverage ratio, just a moment ago.
In terms of bulks, I mean, again, I said this five minutes ago, we, you know, we wrote six last year, so that's, we'd be very comfortable writing six again this year. That's the bulks, you know, on top of that, and clearly, we want to grow that business. So there is, there's ample appetite within the organization to grow the BPA business at the right margin and at the, obviously, the right level of return. The asset side has been slower. I think there has been an impact on our ability to do, you know, our primary illiquid assets come from infrastructure, non-PFI, U.K. infrastructure projects, which have been a bit slower to complete.
We have got a nice pipeline, and that's building up pretty well into the second half, as is the equity release market, which has also been a bit slower during the lockdown. So we'd expect that to continue to be supportive to our investment side.
So is the GBP 4 billion-GBP 6 billion guidance you'd given before, is that somewhat redundant, now you're saying that you've got ambition to kinda go above the GBP 6 billion? Is that right?
I mean, we would in the right circumstances. I mean, we clearly want to moderate our capital usage and our credit intensity of the balance sheet. But the, you know, last year is not a high watermark, put it like that.
Great. That's great. Thank you.
Thank you. Your next question today comes from the line of Larissa van Deventer of Barclays. Please go ahead.
Thank you. Good morning. Just a quick question on the retail consumer, please. Protection health sales were down 7%, and individual protection sales down 15. What are your views about the pace of recovery of the retail consumer, and how do you expect that to translate into margin over the next two to three years, please?
Yeah. I mean, we do expect the individual protection market has got some particular issues, and we, you know, trade this, you know, through it. We've been underrepresented. It's our business rather than the consumer. We've been very underrepresented in the direct market, and there's been a bit of a shift to that. So we've addressed that. I think we do expect a materially better volume in IP through the rest of the year. And we've seen some impact, particularly, you know, through distribution, which is, you know, we have a higher proportion of real estate agents that we sell through, and that's been more challenging to do during the lockdowns. But we are expecting that to recover. We have seen...
Having said all of that, the bright spot through protection has been group protection, and we've seen, you know, real tailwinds in companies buying more group life and income protection for their workforce, and that plays directly to some of our strengths. So we are expecting a recovery. I've got no particular insights on it versus the Bank of England or anyone else, but we do expect a recovery in the second half, and we are anticipating continued activity and inflows into our business.
Thank you.
Thank you. Your next question today comes from the line of Steven Haywood of HSBC. Please go ahead. Your line is now open.
Thank you, and good morning. Three questions, if you don't mind. You've mentioned, obviously, that, about capital returns, and how you're putting off any remarks on that, obviously. But I just wanted to look at the 160%-180% Solvency II ratio target, and whether you feel that is appropriate, really, for the ongoing future? You've not been actually below the top of the target for the last five years, since the Brexit vote in 2016. So, is this still an appropriate target to have for the group? Second question on your personal U.K. motor lines. Can you talk about what growth in policyholders you've seen in the first quarter of 2021? And you know, what market share of the price comparison websites do you have now?
You said it doubled, but I don't know what it doubled from in the past. Where would you like your market share of price comparison websites to go to? Finally, just a quick question, you know, is a large bolt on M&A or even transformational M&A off the agenda for the group? Thank you.
Okay, thank you. I'll pick up the third question, and Jason can pick up the first two on M&A appetite. You know, we really focused, Steven, on delivering our new strategy, and you can see that we've been sort of busy doing this. And we've also, so we've said we'd invest in our core markets to accelerate growth. And we think a lot of that can be done organically, which is our focus, particularly with the sort of strength in the market positions that we have. But I think it's also fair to say that while sort of inorganic activity is not a priority for us, we are gonna be thoughtful about M&A. So particularly, where could we enhance our capabilities or accelerate our strategic development?
You know, we did this when we spoke about the high net worth acquisition that we did in Q1. So, you know, I would say we are looking at this, but any opportunities for investments are gonna... That we consider, whether they're organic or inorganic, actually, would need to meet a really high bar and enhance, definitely enhance value for shareholders. So, you know, we're very conscious of that. So Jason, on the capital return?
Sure. So the range was established a while ago. It was sort of... We are at the bottom of the range, I think, the only tweak that we made from 150 to 160. We have had too much debt historically, so, when I've thought about this, you know, part of the reason that we have been above the top is because the debt component has been too high. So that's, that would brought-- That would... If you take that off, that would've brought us sort of around the top of the range. And, you know, it is a good range for us to operate in. I think we wanted to communicate, you know, where we'd be comfortable running the company.
And we've said excess capital is above the top of the range. You know, just to be, just to be clear on that. I don't really have much more to say. Clearly, the nature of the capital of the business is changing, you know, as we go through that, and we'll, we'll continue to refine it. But we feel that that, that is a, that is about the, the right place. In terms of policyholder count in 2021, we've got 1% increase in number of policies in the quarter. So, it's about 2% overall for rating. Up to order about 6% on new business, but renewal being better than that. On the PCW market share, I would say it's gone from very low to low. I mean, there's plenty of upside for us. We still...
I don't have the numbers, sorry for that, but, you know, we, we've got loads of headroom for us. You know, we only came onto them. This is on the Aviva brand, by the way. QMH is a different conversation. But the, there's plenty of upside, both on motor and home, for us to keep pushing, pushing forward for on that.
Thank you. But are all your brands on the price comparison website, is it below double-digit market share?
Oh, yeah.
Yes.
Oh, comfortably.
Yes.
You know, we're comfortable.
Okay. Thank you.
Thank you. Your next question today comes from the line of Andrew Crean of Autonomous. Please ask your question.
Good morning, everyone. Could I ask three questions, please? Firstly, you talk about the group diversification benefit being going down to GBP 2 billion. Where was it at the end of last year? Secondly, you talk about total capital generation in the first quarter of GBP 1.1 billion. Could you split that between operating and market, and tell me what the market effect has been in the second quarter? And then thirdly, there's been quite a lot of change in your top management in terms of head of U.K. Life, head of U.K. General, and Aviva Investors. Could you say whether these were instigated by yourselves, or whether you're reacting to circumstances of your managers?
Okay. I'll pick up the last point, and Jason can pick up the first two, Andrew.
So on diversification, Andrew, I think I, I said this in the presentation at the year-end, that we had just above GBP 2 billion in the core markets, at the end of December. SCR has fallen because of higher rates, and that diversification has dropped a little bit as a consequence. It's, I think it's about GBP 1.95 billion precisely today. So it's just dropped a little. It was a little bit above, it's now a little bit below, and that's, that's explained, you know, by the, the lower SCR that we are seeing today. But we're not giving the OCG or other profit figures. The movement of rates is clearly, you know, very significant in that GBP 1.1 billion, you know, pretty much in line with our sensitivities that we've seen.
Slight contribution from FX, that you might not have picked up, but through that. But that's, that's probably why we're slightly better than some of the forecasts, that you would have used, using the, the published sensitivities.
The second quarter?
The second quarter, it's been reasonably flat. I don't think there's material changes to economics in the second quarter that I can point to.
Okay. On your third question about the changes in top management, I mean, just let me be very clear on this, you know, I am extremely pleased with the new team that we've got in place. We needed new expertise within the team that were aligned with the strategy, and that were gonna drive the business forward. If I look at the team, I think we've increased the capability significantly, and the experience of leadership, as well as delivery. And I think that's really important, that we have to have people who have had, you know, other playbooks that they can bring into play here, so that we can get to delivery more quickly.
We've brought in new roles, so the brand and communications director, Stephen Doherty, as well as Cheryl Toner, coming in to lead the customer and marketing role. She comes in with a strong experience of having done this before. And, you know, the combination of internal and external appointments with Mark leading the Aviva Investors team, Rob Barker coming in to lead the savings and retirement team, you know, and I feel, you know, very, very pleased with the leadership team that I have around me now. They're all committed to the new strategy, and we can move forward. So, you know, to be clear, this is Aviva driving the strategy forward, and we're very happy.
Thank you.
Thank you. Your next question today comes from the line of Gordon Aitken of RBC. Please ask your question.
Yeah, thanks very much. 3 questions, please. First, if you look at the back book life deals in the U.K. in the last 20 years, you'll see that they've all ended up either at Phoenix or with you. Are your days of acquiring life back books gone? I mean, there's obviously, and maybe you want to comment on the sort of extensive capital and cost synergies, and would that be appealing to you? Second sort of related question is, in previous management, when, when sort of asked about this, they've all- they indicated a preference for non-life over life, and do you share this view? And finally, on bulk volumes, obviously being light in Q1, I mean, Q1 was always a seasonally very light quarter. That sort of seasonality has dropped away from the market in recent years. Do you think it's going to return?
Maybe just comment on credit spreads being pretty tight, and it's kind of an irony, isn't it? That when credit spreads are tight, you can't get the uplift in yield, but obviously it's a situation that when credit spreads push out the market, the investor market stresses. Thanks.
Yeah. Okay, thanks. Thanks, Gordon, for those questions. On the first question around back book life deals, you know, I think it's important to stress that our strategy is formulated on building the growth in the areas that we outlined back in March, which is around the savings and retirement business, health and protection, the commercial lines, and the personal lines business and, you know, therefore, I think that answers that question. That is really where we want to focus our attention going forward. We've been pretty clear on that. That hasn't changed at all. On your second question, preference of non-life over life, I think the way that we look at this is looking at the needs of our customers. You know, where are the trends?
Where, where, where do we see the development going forward? And, you know, we see big growth opportunities in bulks, in savings and retirement, in the retail and commercial business, and that's where we'll be focusing our attention, and we'll be looking at where we've got capability gaps and looking to fill those capability gaps, as I mentioned in the answer to my previous question. Jason, on the bulk volumes?
I think Q1 actually sometimes is you know there's a bit of spillover from Q4 so certainly in 2018 and 2020 we had very strong Q1s. But the comparative for us this year is a very challenging one. This year was softer. You know we don't know the market. You might have more insight as to what has happened across the whole market. We do feel the market is slower overall and we think we've got roughly our share in the first quarter. We'll find out in due course but we've had a you know decent decent April and May and that's setting us up pretty well for a good year.
Thank you.
Thanks.
Your last question today comes from the line of Ashik Musaddi of JP Morgan. Please go ahead. Your line is now open.
Yeah. Hi, good morning. I think my question was just answered. I think what I was trying to understand is, your bulk volumes was a bit lower. Was it just because markets were lower? I mean, the entire market, or would you say that the spread, as Gordon was saying, because of the tighter spreads and all, that is why it was a bit lower? So yeah, I think that is more of what-
I think it's a combination of that. I mean, I've just answered the question, but, you know-
Yeah
. we think the market was lower. It takes the market a little bit of time to adjust to a lower spread environment, and the sort of people looking at last month's prices, not this month. So there is a sort of period of readjustment. We are seeing, you know, the pipeline building very healthily across the board, and it's over GBP 20 billion we're expecting to come to market between now and the end of the year, across the entire market. So, you know, quite a significant pickup. So I think our read is a quieter, but not dead, in the first quarter, with a pickup, as we've just reported in Q2.
Perfect. Thank you.
Thank you very much.
There are no further questions at this time. Amanda, Jason, back to you.
Look, okay, just, I guess just reiterating where we started, and thank you all for all of your questions. It's really good to hear from you. Hopefully, you know, when we're together next, we'll actually be physically together. We, we sort of keep our fingers crossed for that. Just saying, overall, a good first quarter, you know, reshape the portfolio, strengthen the financial position. The trading performance gives us increasing confidence, and, you know, we, we will continue to build on that, and keep coming back to you on the, the question around capital returns. So thank you very much for listening. Have a good day.
That concludes our conference call today. Thank you all for participating.