Ladies and gentlemen, thank you for standing by. Welcome to today's conference call, including analysts and investors. At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Thursday, the 21st of May, 2020. I would now like to hand the conference over to your speaker today, Maurice Tulloch. Please go ahead, sir.
Thank you, Operator. Good morning, everyone, and welcome to the call. Jason and I want to take the opportunity today to give you a brief update on how Aviva is progressing. Our full-year results in March, I'm sure for many feel like an eternity ago, and I suspect for many of us, it's amazing how much things have changed. COVID-19 has clearly presented significant challenges. Working remotely, servicing our customers effectively, and for the broader global economy, Aviva was well-prepared and has performed admirably. It has required us to make some difficult choices, preserving strength until there's more visibility on the path forward, and it has required us to adapt to how we operate. I'm extremely proud of our people, both those serving customers and those in the support functions.
Their efforts mean we've been able to serve customers while also contributing to the wider community during times like these. This brings me on to today. You'll no doubt have read through the press release and the slides we published earlier this morning. It's my intention to go through all the information in detail, but I want to cover off a few of the key messages before opening it up to Q&A. There are four key points I want you to take away from today. First, based on our analysis, as of the 30th of April, our estimate of the COVID-19 claims impact on general insurance, incorporating notified and projected claims, is GBP 160 million net of reinsurance. In the statement, we have outlined some of the component parts that make up this estimate, and it assumes that lockdowns are in place till the end of June.
It should be noted that we do not cover event cancellation or trade credit. On business interruption coverage, I'd also make a couple of observations. First, as we've highlighted to you previously, the vast majority of Aviva's commercial policies do not cover business interruption claims arising from COVID-19. However, there are likely to be pockets of exposures, such as specialist schemes and some broker programs, where claims may arise. These are complex to work through, will take time to quantify, and there is still some uncertainty in terms of potential outcomes. We at Aviva will work constructively with the FCA, whose efforts to expedite claims will help provide much-needed certainty to customers and insurers. In the meantime, we assume business interruption costs up to our reinsurance event retention.
Overall, including the estimated impacts across other parts of the business, we've assumed approximately, as I noted, GBP 160 million for COVID-19 claims. The second point: our investment portfolio was well-positioned and continues to perform strongly. In our shareholder-backed corporate bond portfolio, we have circa 5% exposure to the retail, leisure, aviation, and oil and gas, the sectors most directly impacted by the crisis. So far this year, only 3% of this portfolio has been downgraded by a full letter and less than GBP 10 million downgraded below investment grade. In our loan portfolio, we have transformed the asset quality over recent years, met the crisis with low LTVs, 56% on average, and a high interest rate cover ratios at 2.9. We do, however, anticipate some pressure on covenants, but at the current time, we have not seen any meaningful impact on debt servicing.
The third point I want you to take away is that we've maintained strong capital and strong liquidity. Our Solvency II cover ratio is estimated at 182% at the end of March. This is, of course, inclusive of the suspended final dividend for 2019, which will be considered in the fourth quarter. What's important to highlight is that within the capital ratio, we've built in additional prudence. We've incorporated a range of outcomes for COVID-19 insurance losses and made preemptive adjustments for lower property values and anticipated future credit rating migration. On cash, our Holdco liquidity was GBP 2.5 billion at the end of April. Remittances are likely to be well below the prior year for the first half, though should increase meaningfully in the second half of the year. We are deliberately taking a cautious and defensive position on capital and cash, given the uncertain economic outlook.
Finally, the last point: we've made a solid start to the year on trading. In the first quarter, L&H business volumes were up 28% year-over-year, and our general insurance net written premiums increased 3%. As you might expect, given the confinement initiative of governments around the world, new business activity has been slower in April. While this has partially been offset by strong in-force retention and customer renewals, we expect half-year results to reflect this lower activity level. But our businesses, our people, and our customers have adapted well to the changing circumstances, and we are encouraged by early signs that activity has slowly begun to increase. That concludes my opening remarks. Operator, we can now invite questions from those on the call.
Thank you. Ladies and gentlemen, as a reminder, 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 your request, please press the hash key. Once again, please press star one if you wish to ask a question. Your first question comes from the line of Jon Hocking of Morgan Stanley. Please go ahead. Your line is open.
Thank you. Good morning, everybody. I've got three questions, please. First, on BI. So firstly, Maurice, you mentioned something about the assumptions you made in terms of reinsurance protection on the BI claims. I wonder if you could give a little bit more detail about that, please. And then secondly, I just wondered where we were in terms of policy limits for BI. You, I think the assumptions you say in the release are to the end of June in terms of lockdowns. If we do see an extension beyond that, or maybe further lockdowns after a second peak, you know, to what extent are we getting close to policy limits being exhausted? And then finally, on the Solvency II numbers, you seem to have outperformed the sensitivities as the markets fell.
Should we carry on using those sensitivities, or do we need to sort of look at some different downsides and shocks? Thank you.
Great. Thanks, John. Let me take the first two, and I'll let Jason take the third one. So with reinsurance, we simply applied our property cat reinsurance program, as per its standard operation. This does provide for non-damage business interruption cover. The net retention across the UK, France, and Ireland combined is GBP 150 million, and the net retention in Canada is $50 million. The assumption we've made in our preliminary estimate is that there remain some restrictions in place till the end of the second quarter. And up to the current point in time, that's the situation we're in. But clearly, if we came out, you know, of confinement period and then a few months later we had subsequent lockdowns, we then expect to see further impacts. We have notified our reinsurers on the events, two events, one in the UK, and one in Canada.
Jason, do you want to take the,
Sure.
Solvency question?
So thanks, Jon. On the solvency figure, it's performed broadly as we would have expected in Q1 based on the sensitivities that we published at FY19. I think, as I said at the results, we have been taking actions both last year and this year to reduce sensitivity, particularly to interest rates. And that's probably the most obvious point: slight outperformance in markets such as France and Singapore and the UK. We've reduced interest rate sensitivity. You've also got some capital generation, which will have come through into that number. Just to be clear, that number is after taking a significant reduction for credit rating migration. And as you've probably read, we've repurposed the Brexit property allowance into the core assumptions.
That doesn't have a big net effect, but that's actually now it sets us up for an expectation of property price reductions.
Thank you.
Thank you. And your next question comes from the line of Johnny Vo from Goldman Sachs. Please go ahead. Your line is open.
Yeah, good morning, guys. Just three questions, if I may. Just on a growth basis, you know, all the sort of COVID-19 impacts you're putting through in solvency for additional stress, sort of what sort of percentage point impact is that? So net of the, or, or, gross of the, of the Brexit provisions. And also, have you applied these buffers to the group solvency number, or have you applied it to the entity level? And the third question is just in relation to the BPA volumes. You know, the volumes have been strong, but has your appetite for this business moderated given the, given the outlook and conditions that you've seen? Thank you.
Yeah, thanks, Johnny. I'll take the third question and, you know, let Jason take the first two. In terms of, you know, BPA volume, certainly I wouldn't say our appetite's changed. You know, we still look at ensuring that we can get, you know, an adequate return on capital. We've had a good start to the year, in terms of volumes. You've seen that obviously in our UK numbers. We also announced, you know, post Q1, another tranche from the Co-op transaction. And there's still a healthy pipeline, but, you know, we're maintaining our discipline, and looking at each on a case-by-case basis. So no change in either appetite or strategy as it relates to that part of the market. Jason, do you want to take the first two?
Sure. We'll go through the various areas that we have put into, so there are sort of three broad areas. One is the COVID-19 losses in general insurance, where we've taken the numbers that we've foreseen and we've published today, plus a stress position of that. I won't give you the exact number of that, but that's, you know, a significantly higher figure. In the property, as I just mentioned, you know, we've taken the so-called Brexit allowance for property and repurposed that into core assumptions. That was approximately GBP 400 million at year-end. So you can sort of see that, how that comes through.
And then for the credit rating migration, the 5% and the 10% assumptions that we've made, that's approximately two points on solvency, which is about half the sensitivity as you might expect that we've published at the full year. That's the sort of total amount that we've taken. And that's in the legal entities. It's not done at groups. That's actually being cascaded through into, obviously, UK life for the annuities, and for UK and Canada, primarily for the COVID losses.
Brilliant. Thank you.
Thank you. And your next question comes from the line of Ashik Musaddi from J.P. Morgan. Please go ahead. Your line is open.
Yeah, hi. Good morning. Maurice, and Jason. Just a couple of questions I have is. First of all, if I look at your commercial mortgage portfolio, I mean, you mentioned that the LTV is like sub-60%, and the interest cover is about 2.9 times. So why do you think that there will be some issues with the covenants? So if you can give us some clarity on that and on what part of the book out of the total GBP 8 billion, GBP 7.6 billion you have, how much part of the book you think could be under risk? The second one would be about the French capital position. Could you update us what's the situation in that, including the PPE buffers? I mean, is it still okay, or I mean, you think you will not be able to upstream cash?
Just on that cash point, if I look at the liquidity of the holding company, it has barely moved between February and April. What is driving that? I mean, have you got any upstreaming in the past few months, or, I mean, you're waiting for second half to start upstreaming cash? Thank you.
Sure. Good morning, Ashik. Jason, do you want to?
Sure. So, on the commercial mortgages, I mean, what we've done is take a forward-looking view of prices, which we have to do to work out the valuation of the loans and the credit rating. That's the way they work through the model. So that's sort of part of our normal process. The LTVs, as you say, overall are strong. We have no particular loans that are not paying interest, but we do have those that have got much higher LTVs. You know, clearly, that's an average across the piece. And we would expect as property prices fall, you know, we have LTV covenants and interest covenants that protect us, and we'll be constructive with borrowers to make sure that we can work through those together. But we're not flagging anything particularly new here.
I mean, you know, obviously, the retail sector is the one we talked about before, and, you know, we do have an exposure as we, as we've laid out, to that. On the French side, actually, capital in Q1 in France is strong. We published the SFCR, so you can have a look at the local numbers at the end of Q1. It's not that dissimilar to the year-end. In fact, if anything, slightly higher. As I said a moment ago, we've taken a number of steps in France to reduce credit risk, to reduce equity risk, and to reduce interest rate risk. And we've got slightly tighter matching, which all helps the capital position. The group solvency number does not include PPE.
If we did include it, and it is included in the local number, that would be 3 points extra on the group number. That's consistent with the presentation that we made at the year-end. Just on hold-co liquidity, I mean, obviously, inflows and outflows have been about the same. The position hasn't changed. We haven't had any particularly large outflows or inflows. We've had some smaller remittances and some, you know, usual operating costs and interest payments, but there's nothing really to report at that level.
Okay. That's very clear. Thank you.
Thank you. Your next question comes from the line of Colm Kelly, UBS. Please go ahead. Your line is open.
Thank you very much, and good morning. Just questions related to the liquid asset portfolio, if that's okay. So, you mentioned you've taken allowance for future credit rating downgrade, the potential downgrades. Does that apply to both the corporate bond portfolio and the illiquid asset portfolio, i.e., has there been an explicit downgrade applied to the illiquid asset portfolio firstly? And then following up on the commercial real estate loan question, you know, based on the likelihood that there will need to be some financial restructuring of some of those assets with higher LTV and lower interest coverage, when do you expect that that will occur? Is that a two-view event or later? And related to that, I mean, how often are those assets re-rated, for the purposes of calculating the matching adjustments? If you could give some details on that. And then just lastly, on the remittances.
So you've mentioned the expectation of lower remittances. Presumably, for this year, that's, that's a common, you know, primarily lower cash flow. But is there any allowance there for, enhanced regulatory scrutiny on local entity ratios going forward, or, you know, is that outlook based on a mix of both cash flow and regulatory scrutiny, or just based on the cash flow impacts that you're expecting at this point? Thank you.
You're gonna test me if I can remember all those columns. I will try. If I don't hit every point, then please come back to me. On credit rating downgrades, the corporate that is relating to corporate bonds, the migration, the 5% and the 10%. The illiquid assets are based on a modeled outcome, and therefore we use internal ratings. But the adjustments that we've made to property prices go into our model. That then gives us a rating that we then apply. So that, in effect, that's embedded in our process. And that's really part of your second question, on the matching adjustment, that's done at every balance sheet date. You know, we run that through an assumed property price and credit rating migration assumption.
As you say, just to be, just to be super clear, you know, we, we are expecting those downgrades to come. If they don't come, then this can come back into the, into the capital base. But we're just trying to get ahead of, you know, what we see as a part of a downturn in, in the market for credit. I think it's far too early on the restructuring side to think of any, any loans that we're gonna have to actively, start to restructure. You know, we're, we're, we're not in that place at all at this stage. And, you know, obviously, we're, we're looking forward to, you know, people getting back to work and businesses getting back, and operating normally. On the remittances side, I mean, I really what we've been doing is trying to manage capital in each legal entity.
We've been listening to regulators across the entire group. You know, the PRA's made a statement. EIOPA's made a statement. Most of our major regulators in Europe made a statement following EIOPA, which have had slightly different implications. So we are, you know, consciously being in listening mode with our regulators and making sure that, you know, we protect the solvency of all the legal entities across the group. As Maurice said in his opening remarks, you know, we will expect remittances in the second half, but not so much in the first half.
Okay. Thanks . You remember them all, so thank you.
Oh, that's lucky. Thanks, Colm
Thank you. And your next question comes from the line of Trevor Moss Agency Partners. Please go ahead. Your line is open.
Good morning, gents. A couple of little questions, if I may. Do you have a NAV estimate at this stage? I noticed that was, that was missing. And secondly, could you give an indication of the new business volumes by major country in Europe? So Italy, France, Poland, please.
Morning, Trevor. Yeah, go ahead, Jason.
Yeah, do you want me to take that? So, look, on the, we don't, we're not providing IFRS financial statements. We've given you an NAV on a Solvency II basis, which you can see in the statement. And broadly, I wouldn't expect that to be a significantly different move to IFRS. Again, we don't have that number, and I'm not disclosing it, but the broad movements wouldn't be that dissimilar, in the IFRS balance sheet. I think on the new business side, we've given some further color in the statement around, you know, where we saw France and Italy playing out. Clearly, in Italy, it was down, as we said, and it was down also in France. Poland was roughly flat. Okay.
Well, I don't really know why you didn't give those numbers because disclosing unit-linked volumes and hybrid volumes and with profit volumes and the portfolio is not really very helpful. But anyway, thanks very much.
Okay.
Thanks. Thank you. And your next question comes from the line of Blair Stewart, Bank of America. Please go ahead. Your line is open.
Yeah, thank you. Good morning, gentlemen. Three questions, I think, and maybe one clarification. Just, on the first question, just, with regards to reinsurance, is it possible to say where your gross estimate of losses is? And related to that, what, what would be the impact in terms of reinstatement or reinsurance if we do get a second lockdown, or are you, are you, are you fully open to claims if we get a second lockdown? Secondly, maybe just a clarification, it might be useful to get an idea of the scale of the LTVs. I know the average is 56%, but you mentioned that some of them are higher, some of them are lower, clearly.
Maybe not for now, but in the future, it'd be good to get an estimate or an idea of how much of the book is exposed to higher LTVs. I don't know if you can comment on that. Thirdly, just on deleveraging, what are your intentions with respect to deleveraging near term? Should we take that your conservatism around cash and capital would mean that, you know, deleveraging might be pushed out towards the end of the planning period? And finally, if I may, just on the comment on the dividend, I think you made, Maurice, and it'll be reviewed in Q4. What does that mean for thinking around the interim dividend? Thank you.
Great. Thanks. Thanks, Blair. And morning as well. Let me start with your, the dividend question first. I'll kind of reiterate what I said on reinsurance and give Jason the other question. On the dividend, you know, as previously announced, you know, the board took the decision to suspend the dividend, and we've committed to revisit that in the fourth quarter. While we had and continue to have strong capital and liquidity, our view is COVID-19 presents uncertainty that we think is unprecedented in recent history. We firmly believe that this merits a more cautious and prudent approach to capital management, which together with the guidance we provided by our lead regulator, the PRA, led to the decision to suspend the dividend. I expect our capital and liquidity to remain strong, but note there remains significant uncertainty around COVID-19.
You know, and as previously indicated, the board will come back to that decision on dividend in Q4. And we'll assess the facts and circumstances, you know, at that, at that time. On the reinsurance, I think your specific question, I'll and I'll reiterate the net retention, the UK, France, and Ireland is combined. That's GBP 150 million, and the net retention in Canada is GBP 50 million. We have assumed that the current restrictions, with respect to lockdowns will remain in place till the end of the second quarter. But if we came out of, you know, that confinement period, and then hypothetically went into another, subsequent lockdown, then we would expect to see further impacts. You know, that estimate that we've put out based on reported and modeled claims is under one event. Jason, do you want to take the other question?
So on the LTVs for the commercial mortgage book, Blair, are disclosed in the annual report in the APAC. I think we've got, of the GBP 7.6 billion, GBP 6.2 billion is less than 70%. You can see the bands. We give all the bands up to the amounts in note C5 of the APAC if you want to have a look at that, after the call. I think on deleveraging, we're mindful of the target. We do have significant debt, due for call and redemption in 2022, so that does give us some flexibility, as we look forward into that. We haven't made any firm decisions on that, but we are, as we say, in the re-release, taking a cautious approach to capital management.
Sorry, guys. Can I thank you for that. Can I come back just on the first question, Maurice? Are you prepared to give the gross and net COVID claims under that one event scenario? And if it was two events with a second lockdown, do you have reinsurance reinstatements in place, or would that need to be renegotiated separately? And should we take from your dividend comment that there would, during a period of time where we're under suspension, be no interim dividend at this stage?
Yeah. So on, on the reinsurance, we do have adequate reinsurance in place. I'm not gonna give the specifics on, on reinstatement premiums. And on the loss estimates, we're giving the net today, which is based on when we incorporate notified and projected claims, and that's GBP 160 million.
But I'm just on the reinstatements. We have a significant number of reinstatements, which we've not used, and I think it's pretty unlikely that we would, even with multiple lockdowns, use all of the reinstatements that we have. So we are comfortable with our reinsurance cover, both within the what we're currently anticipating and if things got materially different.
Okay. Dividend?
So on the interim, well, I think we've said, you know, we're coming back to this in Q4, so that says, you know, that we won't be expecting an interim dividend. I mean, that was the clear statement that we made. We're not communicating anything further on that. So the exact language I said, well, I haven't got it in front of me, but something like the board will come back to dividend distributions in Q4.
Yeah. That, that makes sense. Just wanted to clarify. Thank you.
Thank you. Your next question comes from the line of Abid Hussain from Credit Suisse. Please go ahead. Your line is open.
Hi, morning all. Thanks for taking my questions. I think I've got three questions. Firstly, I just want to follow up on Blair's question on the net or the gross losses from COVID. So your estimate is based on the assumption of a lockdown until the end of June. Can you just give us an indication of how do we extrapolate those losses if the lockdowns remain in place till the end of summer, say, for example? You know, do we double it, or, you know, what sort of multiple do we need to increase that 160? Because there's no way of guesstimating that from the outside. So any additional color would be helpful, please. Then the second question is on the motorbook.
I'm just curious, what are you seeing for claims frequency or, or claims inflation overall for, for the motorbook, given that there is a material implied benefit from the 160 versus the gross level of COVID-related claims? And then actually, I, I do have a final question, another one on, on your longevity versus mortality exposure. I think you said that the net exposure is, is expected to be neutral. I, I would have thought you would have been net positive because your annuity book with the life and term assurance book. Can you just explain what, why, why it's not positive? Is it because you've been reinsuring longevity out in the recent years? Thank you.
Great. Morning, Abid. Thanks for your questions. Let me give, you know, a little bit more color on business interruption. So let me start off. I believe the standard terms and conditions for business interruption do not cover claims relating to the current pandemic or notified diseases. Specified diseases that are covered are clearly listed and do not include COVID-19. You know, for us, this has been a clear position since we reworded the policies following the SARS outbreak. Now, there are a small number of Aviva customers that may have purchased cover through a broker or a scheme that's not on our Aviva standard terms in which we may provide cover. You know, we've been working closely with those schemes and customers and brokers to ensure all valid claims are paid as quickly as possible, and where coverage is clear, we've already started actually making payments.
So, you know, as I've reiterated previously, based on the analysis of the 30th of April, our estimate of the COVID-19 claims impact on general insurance incorporating notified and projected claims is the GBP 160 million, you know, net of reinsurance. I think your second question, on frequency, you know, like others, we have seen, you know, frequency down in some product lines, and that's ranged between 20%-50% down depending on, you know, various jurisdictions. That has provided an offset. I'd also add, though, that we have seen, you know, increased severity and some higher claims in other lines. And also, we saw pre-COVID in motor and home in the UK, certainly the, you know, the February storm.
So our working estimate in terms of lockdown, as we think about, you know, frequency benefits, is, you know, at the end of June, we think the world starts to slowly return. But, you know, there's lots of variability. It's been one of the things that many governments are encouraging people not to use public transport. So we could very quickly see the number of cars on the roads increase pretty significantly. Jason, do you want to take the other question from that?
Yeah. So on the longevity and mortality, I mean, we've got a broadly balanced book. The claims on individual protection, I've said this on a few occasions, are largely reinsured. Not entirely, but in, you know, across the term books, largely reinsured. Some of the older stuff, the whole of life, and the like, we do have an exposure there. The primary exposure we have is on UK group protection, which is clearly a working-age level, and that's the typical terms of that are four times salary. So you can, you know, imagine sort of GBP 100-150 thousand being sort of average claim.
On the annuity side, which is a much bigger book, you know, the experience that we're seeing today is clearly, and sadly, of course, you know, mortality in elderly, you know, which is materially smaller annuity pot in that population. So, you know, it's still very early days, but, you know, broadly, our numbers would suggest that that will be balanced, you know, in terms of the experience that we've seen. We haven't started to think about assumption changes.
Okay. Thanks for that.
Thank you. Your next question comes from the line of Oliver Steele, Deutsche Bank. Please go ahead. Your line is open.
Morning, Maurice. Morning, Jason. Three questions. The first is, are you prepared to give us any indication as to what claims are in dispute, relative to what you've put aside so far? Second question is, I didn't quite get the answer you gave to Johnny Vo. Did you say that the property price changes you'd assumed had only come through in the legal entities but not at the group level? And if it is coming through at the group level, can you just explain the impact of that in a bit more detail because the saving you've made on the Brexit provision doesn't look to be big enough relative to the sensitivity you show to property prices in your group sensitivity?
And then the third question, slightly different, is, what impact would you expect if UK bond yields turn negative?
Good morning as well, Oliver, and thanks for the, thanks for the question about 95% of our commercial policies follow the Aviva standard terms and conditions. Those standard terms and conditions are pretty clear, and as I alluded to earlier, have been in force for a number of years. We do have a small set of policies that, you know, come from brokers or various schemes. We actually welcomed the FCA review. We think that decision will hopefully bring greater clarity and certainty for customers on business interruption policies. We hope that approach will accelerate the determination, in some instances on complex technical matters. You know, where we have clear coverage, we've already started, you know, making payments on business interruption claims, and, you know, that will continue.
Yeah. So I, I go even further than Maurice to say we're not in disputes with anybody, and we've read more about this in the press than we have in our actual own claims processes. So there's, you can infer from that, what you wish. On the, property side, sorry, Oliver, I wasn't clear. The, provisions are in the legal entities, and then the group is just a consolidated, diversified, consolidated position of the legal entities. So, I, I think what Johnny was referring to is, you know, will that reduce capital, in the subsidiaries and hence have an implication for cash remittances and, you know, it, it potentially could. So there's, there's nothing much else to say on that. I wasn't quite sure you said about the scale, but.
Yeah. Can I just, can I just come back to you on that, though, because the, in your sensitivities, you show a 20% decrease in the value of commercial property as being 9 points, and residential 6 points. And a GBP 400 million saving on the Brexit provision would be about 2 points. So I'm, you know, I'm, I'm trying to work out the math as to why your solvency ratio doesn't seem to have moved a lot further on these assumptions.
Yeah. So the assumption, these depend on what the period is, over those. They're one-off movements. I think we, these are effectively five-year numbers that we've given you today. It's, well, for residential, it's 12% immediate, followed by growth RPI plus 0.75%, which is our longstanding house price assumption. So really, it's the long-term impact that does affect the resi side. On commercial, it's a one-off impact for 15%, and that we don't assume any growth in commercial over the five-year period. But in total, I think we, we've flagged that that was around GBP 400 million on surplus at the full year, and that number hasn't changed materially. There's some small changes in that, and it is quite levered.
I mean, that's like, so the sensitivities in the that you're referring to are slightly stronger than the numbers that we've put into the balance sheet to date. On negative yields, I mean, no, I mean, we've been dealing with negative yields in France for about nine months now. I mean, there's no sort of cliff edge effect of that, you know, there's sort of getting used to it, but we're set up to reduce interest rate sensitivity, you know, all the way down. So, you know, but clearly, it's not great for savers or for the investment income in the business. But from a balance sheet perspective, you know, we set ourselves up, and our current stress position would already anticipate potential for negative yields. So we sort of hold capital, assuming that is a plausible scenario.
So there's nothing to point to.
Okay. Thank you very much.
Thank you. And your next question comes from the line of Dominic O'Mahony from Exane BNP Paribas. Please go ahead. Your line is open.
Thanks, folks. Hope you and yours are keeping well, and thanks for taking the questions. Three, if that's all right, just coming back to the COVID claims. One of you could help us bridge from the 200 to the 160. So clearly, there's an offset between, you know, the frequency benefits and sort of non-BI extra claims. Are those two sort of big numbers or two small numbers? And what's in them? So, for instance, are charity contributions, goodwill payments, and so on, in that mix? Secondly, thinking beyond business interruption, you know, one of the open questions is, you know, potential future liability claims. Do you accommodate an assumption for future liability claims in those numbers?
So, for instance, do you have any, you know, care home exposure, for instance, which is one of the topics that is coming up now? And then, finally, on the deleveraging, I guess, very specifically, you have a GBP 500 million DCI instrument coming up to call in July. Judging by your approach to capital and the dividend, you've taken the judgment that you should be retaining capital right now rather than using it up. Would it be fair to infer that that means you won't be calling that instrument? Thank you.
Yeah. Morning, thanks, Dom, and all the best to you and your family as well. We haven't given a specific breakdown. You know, what I have outlined is the 160. You're right to note, in RNS, we talk about the 200. There's a number of moving parts that go both ways in the bridge, so it's not just, you know, pure frequency. And obviously, as I said, the frequency benefits that we have seen, and not just on the motor line, which is the 20%-50%, but we've also seen, you know, some favorable experience on the property line. We also include in there estimates for things like surety losses that may or may not arise. We include estimates for, you know, construction. We do include estimates for, you know, liability.
We do provide cover to some care homes in the UK, and I've taken that into account. I think the other part of your question is, do we include our contributions in there? And the answer is no, we do not.
Yeah. That's just, just to be clear, that that's claims, those figures, the 200 and the 160, both relate purely to general insurance claims. On the, on the, on the DCI, yep, there's a call date coming up. I mean, we would typically call things. You know, that's the sort of expectation, in the market. I'm not communicating anything on that today, however, and we are sort of, working through that. But I'll just, just only repeat what I said earlier, that, you know, we are in capital preservation mode, more broadly, and we are, thoughtful around, you know, the strength of balance sheet and the, the leveraging, as I said earlier. We got plenty of scope, to revisit that in 2022, and we've got very significant, debts, due, due for calling that year.
Dom, I should have added on, yeah, I'll just add one other comment, Dom. On the care homes, we're currently not writing new business, and we are supporting our existing customers, but on those renewals, we're being very clear on the language and making adjustments to the renewal terms.
Very clear. Thanks, folks.
Thank you. And your next question comes from the line of Andrew Crean, Autonomous. Please go ahead. Your line is open.
Good morning, all. Three questions. Can I actually follow up on two of the questions? First, firstly, Oliver's question around about the hit solvency from the property downgrade. I mean, just using the sensitivities, it looks as though the two property assumptions are about -11 points. Net of the release of the Brexit is +4, which would give you a net -7 points. Is that mathematics right? Secondly, following up on Dom's question, I mean, in Europe, it's quite clear that business interruption issues have been solved by voluntary contributions. And therefore, could you actually give us the figures for your voluntary contributions in places like France and Italy, which are part of the COVID cost, and the way they're dealt with then?
And then thirdly, you've talked about being committed to the 2022 targets but saying that COVID-19 is going to make that more difficult. Could you talk a bit more candidly about what are the longer-term challenges as opposed to just assessing the short-term, year one hits for 2020? Thanks.
Do you want me to? I'll kick off on the first one. I'll try that again, but on the sensitivities and it is the day one impact with no further growth. The numbers in the press release, so the 15% for commercial property is an assumed 15% reduction, and that's by year five. For residential property, it's a 12% reduction followed by growth. So that will take you to whatever it will be, you know, by year five or year 10 across the board. So the sensitivities in the annual report are stronger because they are the impact day one of that single stress, yeah, so across the board. The Brexit provision is pretty similar to what we have done.
So, you can see that that was largely a repurposing of Brexit into the core assumptions, and that's about GBP 400 million in terms of solvency.
So net, net, what is that in terms of solvency points?
Net, net. On the, that was about flat. Yeah. The other thing, the sensitivities, just to be clear, I'm talking about UK annuities here, Andrew. So as I think about it, there's clearly non-UK commercial property and other non-annuity commercial property, which is probably contributing to the higher figure as well in the annual report.
On the long-term target, and I'll have a go at that more on the comments. But we're still very focused on achieving our return on capital target of 12%. That's a multi-year build towards that on an underlying basis, as we've said, around, you know, cost reduction, product optimization, and smarter use of capital across the group. There's no change there. Clearly, business activity, particularly in some of the savings side, you know, will be challenged. But we'll adapt accordingly. You know, we've still got significant strength from the enforced value of the business. So there's a lot for us to go at, across that, but there's no change to the prioritization of, you know, good quality new business and return on capital across the piece, you know, coupled with absolute discipline on expense efficiency.
That's, that's really what we are, as we've said, since November, absolutely committed to.
Yeah. I mean, Andrew, I would echo Jason's comments. We still remain committed to achieving, you know, our 2022 targets, you know, across the board. I mean, obviously, COVID-19 certainly provides, you know, additional challenges, but, you know, we're remaining, you know, focused on enhancing customer operational fundamentals to and drive, you know, improved returns. You know, obviously, we're off to a good start with our trading results in Q1, you know, as I alluded to, and as would be expected, they have slowed down in April, but encouragingly, in the last 10 days, we've started to see some early signs of them coming back. I think you also had a comment on our portion of the voluntary contributions in France. It's EUR 100 million.
I, Jason, if I've got the wrong number here in my scribbles, please correct me, but that's our, that's our share.
Yeah. Well, EUR 100 million in France is actually from the investment portfolio. So what we've done is commit to invest EUR 100 million in things like med tech and other healthcare and other sectors that are relevant to the COVID-19 response, something that, you know, we did within the industry. There's a contribution to a solidarity fund in France. If I'm not mistaken, it's about EUR 5 million, give or take, Andrew.
Okay. So not great.
No, I think Italy and elsewhere, there's ones and twos elsewhere. The big, the significant contribution part of the 43, the number that we've given you is in the UK, Red Cross, there's the ABI fund, and it's the NHS charities.
Thank you.
Thank you. And your next question comes from the line of Fahad Changazi, Mediobanca. Please go ahead. Your line is open.
Hello, hi there. Sorry, I know you've answered this question many, many times, but just to be absolutely sure on the sensitivities, the sensitivity disclosed is a drop in property and commercial prices, and that's sustained for 5 years, whereas what you've done is 15-12% reduction in house prices and then 75 bps four years after and no increase in commercial, right?
Correct.
Can I just ask you then, in terms of the 12% drop and the 15% drop, how have you come to those assumptions? Because they seem harsher than what the UK banks are incorporating at this time.
That's interesting. I mean, we looked at a number of inputs from external consultants. We work on the commercial side very much with our asset management, Aviva Investors, and get views. Clearly, there's very few transactions, so it's highly subjective, right? We're not, we have no crystal ball over here, but we're just taking inputs that we can see. We're trying to be reasonable. Within that 15%, of course, there's a range of effects in different sectors, so that's an average, overall, as you might imagine. And then on the property side, there is an external consultancy that we use on the residential side, there's an external consultancy that we use, and we look for other data points. Again, we're just trying to bring together best information that we have in our own judgment to put something into the balance sheet.
Again, it is, of course, subjective.
That's great. Thank you very much.
Thank you. Your next question comes from the line of Gordon Aitken, RBC. Please go ahead. Your line is open.
Hi, sorry. Hope you're all well, guys. My questions all been answered. Thank you.
Thanks, Gordon.
Thanks, Gordon.
Thank you. And your next question comes from the line of Steven Haywood, HSBC. Please go ahead. Your line is open.
Good morning. Thanks. Couple of questions, please. On the favorable impacts that you've included in your GBP 160 million net claims, can you give an amount that you've included for favorable impacts here and tell me how much, sorry, whether it is year-to-date favorable impacts or if it is year-to-date and expected future favorable impacts? And then the second question is on the hospitality insurance group action, naming of Aviva and QBE, targeting your business interruption material damages policies. Is this included within your net claims figure, or is it in addition? And if you have any other remarks that you would like to make on this, I'd be happy to hear them. Thank you.
Yeah. Thanks for that question. Let me start with your second one, and I'll ask Jason to deal with the first one. I'm not going to comment on any specific action, but what I have said, if you look at Aviva's standard terms and conditions, which is circa 95%-96% of our policies, there isn't cover for claims relating to the current pandemic and notified losses. We work on a specified diseases basis, and those are clearly listed, which does not list COVID-19. Those policies have been in place. The change was made around the time of SARS, so about 17 years ago, and they've been very clear. We do have a small number, you know, as I alluded to earlier, that where cover may exist. They've been purchased through a broker or a scheme. They're not on our standard wordings.
We're working closely with those customers and brokers and paying valid claims as quickly as possible where coverage is clear. We've already started making payments. The estimate that we did provide was based on analysis as of the 30th of April, and that includes both notified and projected claims, up to, you know, our retention limits. And that's where we get the GBP 160 million net of reinsurance. And I articulated earlier the limits both in Europe and in Canada. So, actually, I'll take your first one as well. You know, it would be too simple to take the GBP 200 million into the GBP 160 million and assume that was all simple frequency benefits.
There are a number of moving parts, so we've also made provisions for potential liability claims, claims which may or may not arise out of our surety business and construction business. You know, we have seen, you know, favorable trends in terms of the use of a car, and we've also seen some favorable trends on motor. Those have been offset by, you know, increased severity. You know, all of our estimates assume that people start, you know, slowly returning to work and using their vehicles for transport, you know, as we move into the second quarter.
Okay. Thank you.
You're welcome.
Thank you. I'd now like to hand the call back for closing remarks.
Yes. Thank you, Operator. So I appreciate everyone's time this morning. I think, as you can see, you know, from the results, Aviva's had a strong first quarter. We've seen, you know, increased new business sales, you know, with life sales up 28% and the general insurance, you know, sales up 3%. We've outlined, you know, our capital and liquidity position, that has held up well, you know, at 182%. We've also moved early to recognize, you know, additional COVID-19 impacts in our capital position. And we remain robust and confident in ensuring that we're continuing to manage our business appropriately, and serve our customers well. I'd like to just thank everyone for their time this morning.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers please stand by.