Good morning, everyone. Thank you for joining us at such short notice, especially at this time of year. We're delighted to have released the GBP 2.7 announcement this morning, formalizing our recommended offer for the acquisition of Direct Line Group or DLG. I'd like to thank the DLG board for their engagement over the last few weeks. Today's presentation will include the key aspects of the announcement. I'll start with the highlights of the transaction. Jason and Owen will talk through the opportunity for UK Personal Lines, and Charlotte will then cover the details of our offer and financials, and there will be plenty of time for Q&A. Let me start with today's key messages. Over the last four years, we've transformed Aviva into a high-performing business with a consistent customer-centric strategy and real performance momentum.
We are excited about the opportunity that DLG presents to accelerate this momentum and deliver enhanced shareholder distributions. There's a compelling strategic case for this transaction as we create a leader in UK personal lines and accelerate our capital-light growth. The financial case is just as strong, supported by GBP 125 million in cost synergies, which we anticipate will deliver 10% run rate, EPS accretion, and material capital benefits over time. Most importantly, we have confidence in our ability to execute and unlock the full potential of a combined Aviva and DLG. Aviva is a very different business today to the one I inherited. We've achieved a huge amount and established ourselves as the UK's leading diversified insurer across insurance, wealth, and retirement. Our performance for customers and shareholders is testament to that. Quarter after quarter, we've proven that we can deliver.
We have big ambitions for Aviva's future, with no shortage of growth opportunities, and the acquisition of DLG further accelerates our trajectory. Now, moving on to the transaction itself. Our offer values DLG at GBP 3.7 billion, and I'm pleased to say that this offer has been recommended by the DLG board. For DLG shareholders, it represents a significant premium to the share price. With a balanced mix of financing, it will deliver meaningful cash consideration upfront. It will also allow them to participate in upsides through Aviva shares. The benefits are just as attractive for Aviva shareholders, creating value from the start and enabling greater capacity for distributions. This value creation is underpinned by a strong rationale.
We are creating a leader in UK Personal Lines, powering our capital-light growth and expanding both our customer base and what we can do for them in line with Aviva's strategy. Together, we can accelerate DLG's plans, delivering GBP 125 million in cost synergies. That is over and above DLG's existing commitment for GBP 100 million in cost savings. We will also unlock material capital benefits over time. The transaction is consistent with our capital management framework and disciplined M&A criteria and ensures that we maintain financial strength. I am really excited about what DLG will bring to Aviva and what we can achieve together. This is truly a win-win for both Aviva and DLG customers and shareholders. So let me elaborate on these points, starting with the strategic rationale.
As I've said, bringing together Aviva and DLG will establish a leader in UK personal lines with over 18 million policies in force. All customers will benefit from our increased scale and strength, be it competitive pricing, faster claims, and stronger supply chains, or more products and services. We will have an even more impressive portfolio of brands, including Direct Line and Churchill, and attractive new products like Rescue and Pet. We will be able to engage with more customers directly through the retail distribution channels, and with greater operational scale, we will drive further efficiency gains for our customers. Beyond this, our priority will be to deliver the best of Aviva to all customers, from our digital offering with the next generation, MyAviva app, to a broader suite of products and services across insurance, wealth, and retirement.
Moving now to the impact on our capital-light portfolio, which, as you know, is a core element of Aviva's strategy. This is important because it allows us to deliver more growth and higher returns for shareholders by investing to accelerate in these businesses. Our UK GI business had a Solvency II ROE of 22% at half year 2024, and this transaction will drive further improvement here. We're already making great progress here organically. We are majority capital light today, and we'll be approaching 70% in 2026 with our current plans. And with this transaction, we will be able to go much further in changing our earnings mix as we deliver synergies. Turning now to why we have confidence that we can successfully integrate these businesses. We have all the right ingredients.
We've built a track record on M&A, managing multiple disposals in quick succession, and enhancing our capabilities and scale through a series of strategic bolt-ons. Our performance has been consistently strong. We've been beating our targets, including delivering over GBP 750 million cost reduction 1 year early. Our personal lines team, led by Owen, has proven that they can deliver impressive performance in challenging market conditions. Importantly, the integration will be contained within this business, supported by dedicated resources. We've been improving customer experience with our Transactional Net Promoter Score at 5 points this year alone. A large part of this is down to our fantastic and highly engaged colleagues, and their relentless focus on customers. We know DLG's colleagues share this customer focus, and we're looking forward to welcoming them into the group.
I am excited by this deal and committed to delivering great outcomes for customers and shareholders. To conclude, I'd like to further reinforce our commitment to deliver superior returns to shareholders. As you've seen, our track record here is rock solid. We've always had a very high bar for M&A, and we've been disciplined with this transaction to ensure it creates value for all shareholders and maintains Aviva's financial strength. On day one, we'll operate at the upper end of our working range on cover ratio before any synergies, and we'll remain near our guidance on debt leverage. Over time, this transaction will allow us to enhance our dividend policy and unlock greater capacity for shareholder distributions. We expect to rebase the dividend per share upwards and resume capital distributions at higher levels. Charlotte will provide more detail on this later.
I'll now hand over to Jason and Owen to talk more about the opportunity. Over to you, Jason.
Thanks, and good morning, everyone. As Amanda said, we have a fantastic opportunity here. I'm very excited about the capabilities that DLG brings, from established brands to distribution strength in retail, complementary product offerings, customers, and of course, the fantastic talent in DLG's colleagues. And I'm equally excited about the performance improvement potential that we can deliver together. We will accelerate DLG's strategic plans and go further to deliver greater efficiency gains from ops and upside, from increased operational scale, combined with our technical capabilities, pricing sophistication, and underwriting discipline. With the balance sheet strength of Aviva, we'll be able to invest in the business to accelerate growth. And we're building on very solid foundations in our personal lines business. We have excellent technical bench strength, and the numbers over the last three years highlight just how strong the team is.
We're delivering significant growth in premiums, tracking at over 20% per annum, and that's largely been driven by the attractive retail segment, which has grown by 43% year-over-year. But this growth hasn't just been driven by inflation. We've added over 1 million customers in less than 2 years, with double-digit growth in retail motor policies this year alone. Through all of this, we've been highly disciplined in underwriting, maintaining our combined ratio around the 96% mark throughout the market cycle, and continuing to improve expense ratios. And this means that we've now met or exceeded all of the 2024 ambitions that we set for ourselves at the Personal Lines Focus in January 2023. I am really proud of Owen and the team, who have driven the impressive transformation of this business over the last 4 years.
They've successfully navigated challenging market environments and delivered strong, profitable growth right through COVID and periods of high inflation, where others have struggled. We've transformed our customer claims journey and leveraged the benefits of auto repair capabilities in-house with Solus. This has resulted in a material uplift to our Net Promoter Scores. They've integrated multiple acquisitions across high net worth and home, and launched new partnerships with major banks. They've successfully put Aviva on price comparison websites, shifting our distribution to now majority retail. They've built Aviva Zero, our fastest growing PCW proposition, from the ground up in just six months, and we've now sold over 1 million policies since launch. They've established leading data, AI, and now Gen AI capabilities, and their list of achievements just goes on.
I know this is the right team to invest behind, and I'll now pass to Owen to share some details on the benefits of this deal.
Thanks, Jason, and good morning, everyone. The acquisition of DLG will expand our opportunity in what is an attractive market for Aviva, and I'd like to start there. The UK P&C market is one of the largest in Europe, and it's growing. That, in itself, already presents a clear organic growth opportunity for Aviva, and we've proven that with our underwriting discipline, pricing sophistication, and claims capabilities, it is a profitable one. And with DLG, we'll be able to respond more effectively to the structural trends and challenges of this market, whether that's strong competition across a fragmented landscape, the scale of PCWs, or the need to continue investing behind brand, technical capabilities, and regulatory compliance... and importantly, we'll be able to deliver better outcomes for our customers. As Jason said, the benefits of this transaction will come from the highly complementary nature of our businesses.
Let me bring this to life for you with just a few examples. DLG's brands will extend our reach with customers. For example, the addition of Direct Line to Aviva's brands will boost our presence across retail channels, and Churchill will strengthen our position in the lower cost segments. As well as enhancing existing lines, DLG will bring new products and accelerate our progress in SME Direct. We have already seen a material uplift in our Net Promoter Scores, and optimizing our Solus auto repair capabilities with DLG Auto Services and Green Flag Roadside Assistance will further transform claims journeys. Our combined distribution mix will shift by nearly 20 percentage points towards retail across PCWs and Direct. This is really important because it enables us to engage directly with customers, and as you can see, is a more profitable and growing segment of the market.
And finally, we'll have a much greater opportunity with our collective customer base. All customers will benefit from our increased scale and strength, be it competitive pricing, faster claims and stronger supply chains, or more products and services. They will have access to fantastic Aviva customer capabilities, like our next generation My Aviva app, which Charlotte took you through at the recent Customer In Focus session, and so much more that only Aviva can do. So hopefully you share our excitement on what we can deliver for our customers and shareholders as a combined group. I'll now hand over to Charlotte.
Thanks, Owen, and good morning, everyone. I'm very pleased to discuss today's fantastic news. This is a great deal for Aviva and for Direct Line. We are really excited about the opportunities for the combined group to accelerate our growth momentum. The transaction represents an excellent strategic fit, as you've already heard, and it offers a really compelling financial rationale, about which I'm delighted to share more details. I'll start by covering the key terms of the recommended offer. The offer is for GBP 2.70 per share, with dividends payable to DLG shareholders of up to GBP 0.05. The transaction will deliver material capital synergies and GBP 125 million of incremental run rate cost savings, which will be embedded over three years from closing.
We expect the transaction will be EPS accretive in the first full year post-completion, including the impact of restructuring costs, and deliver around 10% EPS accretion on a run rate basis. This enables us to increase shareholder distributions through an upgraded dividend policy. We anticipate the transaction will close around the middle of next year, following the completion of required shareholder and regulatory approvals. I'll now unpack the financials a little further. The recommended offer price values the group at GBP 3.7 billion, and means Direct Line shareholders will own about 12.5% of the enlarged group. We believe the transaction is highly attractive for DLG shareholders, offering a 73% premium to the undisturbed price, with consideration evenly split between cash and newly issued Aviva shares.
The equity component enables DLG shareholders to participate in the future value upside from holding Aviva shares, not otherwise available on a standalone basis. The cash component of GBP 1.75 billion will be funded entirely through internally available resources. The transaction will also deliver material upside for Aviva's shareholders, with significant cost synergies leading to around 10% run rate EPS accretion, substantial capital synergies, and growing distributions. Sorry, I'd now like to talk about the synergies to be unlocked from this transaction. As I said already, we have identified GBP 125 million worth of cost synergies. These are represented in a quantitative financial benefit statement, or QFBS. Under the Takeover Code, the plans that underpin the QFBS have been reviewed and corroborated by our reporting accountants.
These synergies are incremental to the GBP 100 million of cost savings already identified by Direct Line, meaning total savings of at least GBP 225 million, compared with their 2023 cost base. Broadly, the incremental synergies split into three categories: firstly, head office and central functions. This is the biggest component of the synergies and includes removal of PLC and shared services and de-duplication of management roles. Secondly, insurance operations, where we will see benefit from increased efficiency and scale of bringing the groups together. And thirdly, IT and systems, where we will consolidate certain IT platforms... We expect integration costs of around GBP 250 million to achieve these savings. These will be substantially incurred in the first two years, and we anticipate the savings to be fully embedded three years after closing and delivered broadly evenly in each of the three years.
It's not just significant cost synergies. The transaction is compelling from a capital perspective as well. We have a robust capital management framework with which this transaction is consistent, and it is a testament to the financial strength of the group that at completion, the pro forma cover ratio remains at the top end of our 160%-180% working range after absorbing a transaction of this scale. This impact at completion reflects the mechanical calculation of bringing two balance sheets together. That means it doesn't include the impact of any of the capital synergies which will materialize over time. Let me explain what these are. Combining Direct Line's GBP 1.1 billion solvency capital requirement, or SCR, with Aviva's, provides diversification benefit in two ways.
Firstly, today, the diversification benefits from the mix of risks in our broad UK general insurance business are substantial in the calculation of the UK GI SCR. Therefore, bringing Direct Line's largely personal lines business into our broader UK GI business will create a significant diversification benefit to the standalone capital requirement of Direct Line. This will appear at the UK GI level. Secondly, at the Aviva group level, our complementary portfolio means there is substantial diversification benefit within the group SCR. You may recall in our disclosures at the half year, we reported GBP 2.3 billion of diversification to bring the capital requirement down to GBP 7.8 billion for the group. This arises because of the non-life risks and geographic mix diversifying well with the life risks. Therefore, the additional non-life risk coming from combining Direct Line will increase this group diversification benefit.
It represents a further material capital benefit when compared with a standalone DLG capital requirement. So bringing these two together, the capital benefit from diversification that will emerge is significant. Next, let me turn to leverage and liquidity. We expect a limited impact to leverage from the transaction, principally because we are funding the cash component from internal resources. Our current leverage ratio is 29%, and whilst we anticipate a small uptick to around 31%-32% upon completion, it will return back to below 30% over time. This is in line with our existing leverage guidance that we aim to be under 30%, but are happy to operate slightly above 30% for short periods. We also expect central liquidity to remain above GBP 1 billion post-completion, in line with our capital management framework. Now I will cover what the transaction means for shareholder distributions.
We have been growing ordinary dividends over the last few years, with the cash cost of the dividend growing annually by around 5%. As well as the dividend cash cost growth, we have had a regular cadence of returns of capital to shareholders, having done GBP 300 million of share buybacks in each of the last two years. In combination, these have given DPS growth of around 7%. Now, we remain committed to growing dividends and sustainable returns of capital. And I'm pleased to say that the strong financial benefits to be delivered from this transaction enable us to take this one step further to raise dividends and increase buybacks. Let me explain. Now, given the capital and cash generated from the acquisition, we expect to declare a mid-single digit dividend per share uplift following completion. This will be applied to the higher share count.
Our guidance of mid-single digit growth in the cash cost of the dividend then continues, but from this uplifted level. As the cash component of the transaction will be funded from internal resources, we don't expect to announce another GBP 300 million buyback when we report our full year 2024 results at the end of February. This represents a pause in our regular buyback program, but we maintain the guidance for regular and sustainable returns of capital and anticipate these will resume alongside our full year 2025 results in 2026. Going forward, the level of buybacks will allow for the increased share count arising from the transaction to maintain the DPS growth. There's a slide in the appendix that helps to illustrate this. That covers all the financials. I will briefly cover the key points on timeline before finishing.
Now that the transaction has been announced, we will proceed with the publication of the Direct Line scheme document. This contains all the information DLG shareholders need in order to vote, and will be available shortly after we publish our full year 2024 results. Aviva and Direct Line will publish their full year 2024 results in February and March, respectively, and we expect the Direct Line shareholders to vote on the transaction in March. There is no required vote from Aviva shareholders. Finally, we anticipate the transaction will close around the middle of 2025, following receipt of all the required regulatory approvals. And with that, I'll hand back to Amanda for closing remarks.
Thanks, Charlotte. So before moving on to Q&A, let me share some final reflections. Over the last four years, we've transformed the performance of Aviva and proven our ability to deliver quarter after quarter. Now is the right time to accelerate with M&A, and with DLG, we have a fantastic opportunity to do just that. As a result, Aviva's investment case will become even more attractive as we unlock the full potential of the combined group. We will improve our position as the UK's leading diversified insurer with a steeper capital light trajectory. We will bring the best of Aviva to even more customers. We will step change already strong organic growth, extending our track record of delivery. And by doing so, we will enhance our capacity to deliver shareholder distributions.
So I'm sure that you can see why Charlotte, Jason, Owen, myself, and the rest of the team are confident about this transaction and excited to welcome DLG customers and colleagues to Aviva. So we're going to move to Q&A now. For those of you on the call, you will have been sent details on how the Q&A is going to work by the IR team earlier. So please raise your hand in the meeting or send Mick an email if you've joined by phone, and we will get to you. And when I call out your names, if you can unmute your line, that would be great. So the first question is from Andy Sinclair of Bank of America. Go ahead, Andy.
Thank you, and, well done. A lovely deal, and well done, especially getting it done just before Christmas. Three from me, please. First was just on the cash. Nice to see lots of cash being upstreamed from the subsidiaries, or part of the subsidiaries to fund this deal. Just to understand, after the deal, will there be desire to rebuild that flexibility within the subsidiaries, or is that really just kind of extra fat that was sitting in there that's not going to be needed, so we can keep those subsidiaries at slightly thinner levels? That's question one. Question two was just on the reinsurance agreements within Direct Line, how that differs from Aviva.
I realize no numbers on that today, but just qualitatively, how do you think about those opportunities going forward? And third, just about the enlarged group's bargaining power for acquisition costs, just how, when you're engaging with PCWs, with other distributors that you use, you'll have a pretty sizable market share. Anything allowed for in terms of negotiating power going forward, or anything you consider in the future? Thanks very much.
Okay, thank you. Charlotte, do you want to pick up the first two?
Yes.
Maybe Jason and Owen, the second?
Mm-hmm.
The third?
Third. Yeah, so thanks, Andy. I mean, I think on the, on the cash, you know, the management of cash across the group is, is something that we spend a lot of time on and I'll have some flexibility. So we will be upstreaming the cash into the center, and then the objective will be to maintain about GBP 1 billion of cash centrally, and that's all consistent with the capital management framework. If you remember, at Q3, we said that we had about GBP 1.7 billion at the center at that time. And it's always a little bit dynamic, reflecting the timing of remittances from the business, the timing of external dividends, and when we're paying debt. And that is the flexibility we have.
So we will be pulling that up, and it will, you know, we've got a plan to do that. I think the important thing to remember is that this transaction itself is very cash and capital generative, so that in itself will do quite a lot of the rebuilding, over time. On reinsurance, I'm not really gonna talk specifically on that today. We would, of course, be, you know, running the two companies, independently through this reinsurance renewal round in January. I think once we get through, and to completion, we will look at the, you know, the two together. Obviously, through the due diligence process, we've had line of sight of their reinsurance and, you know, we're comfortable with that.
Jason?
Great. So, I mean, just on bargaining power, I think what you're getting at is the broader scale synergies and data that we're gonna have to be able to benefit from going forward. So, I mean, a few obvious examples, I'll let Owen talk about PCWs, but, you know, the obvious space to talk about is claims. Between our Solus network and DLG's repair network, the additional scale and capability that's going to give us, I think we really look forward to that. Similarly, there's a lot of overlap between...
... DLG's claims providers and our claims providers, and again, just expanding our relationship with those key claims providers and looking at what that means going forward, we think there's lots of upside. But Owen, just on PCWs or anything else?
Yeah, look, we've an excellent relationship with PCWs, and we work really well with them and have done for a good number of years, and look, we look forward to working with them in that enlarged context. I think just expanding that point more generally, I think, look, we—this is a great opportunity for us to be more efficient for customers, and I think that's what I'd come back to. I think this deal gives us a great opportunity to do that.
Thank you. Thanks, Andy. So the next question is from Dom, from BNP. Dom, if you'd just unmute your line.
Thank you, Amanda. And, yes, congratulations from me, also to you and all your colleagues. Three questions as well, if that's okay. Firstly, just on the baseline for the financials. You've given us this 10% EPS accretion figure, which is very helpful. I think, on my sort of back of the envelope, this implies a baseline for the standalone Direct Line, roughly in line with the 13% margin ambition, and obviously your incremental synergies on top of that. Is that a fair assessment of how you're projecting the financials forward? Second question is just coming back to the synergies. Clearly, at this stage, you've not yet quantified revenue or capital synergies.
Charlotte, your explanation of the SCR synergy is super helpful. I wonder if you could qualitatively give a view of some of the things on both the operating revenue side, and on the capital, perhaps the own funds things that you can do. And if I can just ask an adjacent question to that, it looks from your slide that you're expecting capital synergies to improve leverage. So does that imply that you've got own funds synergies in there? And then the third question was really just on the reserving. My guess is that that was one of the areas of focus for your due diligence. Given inflation impacts over the last, you know, year or so, you know, reserve additions have been an important topic in the sector.
Did you observe any areas of weakness? Conversely, but completely the other way around, Aviva reserves, I think, at a relatively strict best estimate level. So is there any implicit prudence in the Direct Line balance sheet that can be released? Thank you.
Okay, thank you. Those feel like three questions for the CFO. Excellent. Thanks, Dom. Look, I think, you know, in terms of the baselines for the, the around 10% EPS accretion, I mean, I think, you know, you, you, you won't expect me to give any new profit forecasts on this call. But, you know, obviously, anything that's sort of factoring in Direct Line's projections is consistent with consensus, 'cause if it wasn't, then we would have to explain. So I think you can, you can assume that that's the way we've constructed, and the EPS accretion of 10% is following the GBP 125 million of expenses being realized, so that's kind of over that three years.
So it's sort of 2028 beyond, when that 10% accretion comes through. But there would be accretion we see even in the first year following the transaction close. In terms of synergies not yet quantified, you know, as you say, I've tried to give as much guidance as I can on how we see the capital synergies coming through. The other areas would be in reinsurance. They would be some revenue areas, and you know, other things like that, that we can't factor in. You know, things to do with claims costs.
All of those are not quantified, but they're certainly in mind, and they're the sort of things that, as we step into the integration, we'll be able to talk more about. In terms of leverage, I think your question was around, you know, we move above the 30% in the first instance and then expected to be able to come down. Because we are funding this entirely from internal resources, this step up in leverage is really coming from the GBP 610 million of debt that DLG has, that doesn't count for solvency, but of course, it does contribute to leverage. We will ...
You know, we have flexibility in our debt plans over the next few years, and of course, this transaction is capital and cash generative, so the combination of those twos give us, you know, clear line of sight to getting below 30. And then on reserving, was your last question. I mean, you know, really, there's very little I can say. This was a deal done in, you know, in the public markets under the, you know, regulations of the Takeover Code. Obviously, we operate in some of the same markets as DLG, as a PL peer, and so we have good idea of how they operate outside in.
So we did a lot of outside-in analysis, and then we did a focused level of due diligence, consistent with the Takeover Code requirements, and into the areas that you would expect an insurance company due diligence process would do, and we were granted good access to management to supplement that analysis. But that's all I can really say. Clearly, the pricing and the deal structure today is very similar to what it was before we entered into that due diligence phase, so I think you can read that it was comfortable.
Thanks, Charlotte. Thanks, Tom. Rhea from Deutsche Bank. Please unmute your line, Rhea.
Morning.
Morning.
Thanks, Amanda and team, and congratulations as well on this deal. So, three questions from me as well. The first one, if you could just talk a bit about customers. I mean, your TNPS score has increased over the years, but what are you expecting, especially in the first year of integration, for this to progress like? And do you have any expectations of attrition to your policies on both books, again, in the first year? The second question is around technology. So are you planning on putting the DLG brands onto the MyAviva app over time? And then third, around capital, when do you expect to complete the Part VII merger? Will it be in the first 12 months after completion? Thank you.
Okay, thanks. So I'll pick up the first two, Charlotte, and you can pick up.
Mm-hmm.
the second, and if I miss anything, Owen and-
No problem.
Christopher, let me know. So on customers, yeah, our TNPS. We have seen our TNPS number increase significantly this year, and that has been the, you know, the investment that we've made into the customer proposition. So, you know, putting more people on the phones, building more digital propositions, looking at the claims process to make sure that they're operating well for customers. Utilizing the Solus repair network to make sure that we get the customers basically in an Aviva network, so that they are actually getting the best possible experience. Obviously, they're also benefiting from the supply chain and the size and scale of Aviva, so you know, and we're able to pass some of that on through pricing.
If you look at our efficiency ratio, you know, we've managed to continue to improve the efficiency ratio. So, we actually see that this is really, really good news for both sets of customers. Because we'll be able to continue to invest in the business and continue to deliver on all of those great claims process, great digital processes, and people in contact centers. But we'll also, through scale, be able to pass on some of that benefit through, you know, whether it's through the pricing, and through the indemnity spend.
So, you know, we are really, really excited about that benefit to our customers, and that's before we even get into offering customers all the other opportunities that Aviva has, you know, whether that's the wealth products, you know, the travel products, home products, whatever it is. So we feel really good about that. On technology integration into the MyAviva app, and it's a good job we don't have the Chief Technology Officer in the room. It's relatively straightforward because it's through an API integration, and obviously, the app has been rebuilt this year. And, you know, the app is performing incredibly well. If we look at our online experience scores in the app, they're significantly higher than they were in the old MyAviva app.
When we rebuilt the app into this new technology platform, it is much easier to integrate APIs from other areas. So that we believe that is a, you know, reasonably quick win opportunity for us to be able to do that. And of course, it also means that any investment that Direct Line might have had to build an app wouldn't now need to be made because they can take advantage of the MyAviva app. On capital, Charlotte?
Yeah. So on capital, as you as I said, and as you've repeated, we you know. The capital synergies are not gonna accrue on day one. Following completion, that is just the mechanical bringing together of the two of the two balance sheets. And the timeline, you know, from then is it. I can't be incredibly specific, but we have a successful track record of doing things like this. We need reg approvals on certain aspects, and as you say, there'll be a Part VII to do as well. So, you know, the mechanisms are a Part VII, as you rightly say, which is, you know, the legal transfer of policies. We would expect that to be, you know, 18 months or some sort of timeframe around that, but it's it, again, difficult to tell.
Naturally, as the policies come up, for renewal, they're, they're likely to be renewed within Aviva rather than DLG, so you'll sort of start to see more of the policies coming onto our balance sheet. And then we can undertake, reinsurance arrangements, where DLG transfers some of the obligation risk from its policies to Aviva, but again, some, some regulatory hurdles to get through, there. So, you know, it will be over time, but we have a decent line of sight. We know what the, the work package looks to do, and we're confident that it, that it will deliver.
Thank you. Thanks, Rhea. Andrew Crean from Autonomous. Please unmute your line, Andrew. Cool. Andrew, are you there?
Okay, we'll come back to Andrew. So you can tell that we're live, you see. This is how it works. So William Hawkins from KBW. William, if you'd unmute your line.
Morning, all. Can you hear me?
Yes.
Yeah, we can.
Hey, an exciting transaction. Congratulations.
Thank you.
On slide 22, please, what are the addressable costs from which you're reducing the incremental 1 25 please? And where might you go further? I mean, it just seems to me that the GBP 40 million and the GBP 25 million in particular seem very small, given that there's massive overlap. And I think it's implying that there's still GBP 400 million of costs from DLG that you won't be addressing. So, I'm just trying to understand, you know, what's sticky in the cost base that leads to actually quite what seem to be limited synergies against the massive overlap you're talking about? And then the second question, again, this has already been touched on briefly, please, but is there any risk of revenue dis-synergies from this? Again, I'm really not sure in the personal lines market.
I can imagine that each individual customer, you know, doesn't sort of focus on moving when two portfolios come together. You know, on the other hand, presumably, this transaction could lead to an awful lot of market competition. And as you step up, you could suffer from that. So what thoughts have you given to revenue dis-synergies from the combination? And I'm so sorry, I'm going to add a third. Are there any regulatory issues that we need to be aware of that are substantial in this transaction? Again, I haven't seen any reference, but I don't know, you know, any large portfolios you need to address or whatever, to satisfy the interests of other stakeholders. Thank you.
Okay. Thank you. It wouldn't be a question set if there weren't three questions. So, Charlotte, if you do one, Owen, do you mind doing two, and I'll pick up three.
Yeah, that's fine. So, look, I think what I was trying to say, or was articulating when I sort of set out the GBP 125 of cost synergies is that has been through the review and corroboration process by the reporting accountants. That requires, therefore, evidence and track record. So, you know, read into that what you will, but that is the basis on which the number is compiled and, you know, relatively short period of time of due diligence that was able in order to support that.
So I think that's the first thing to mention. I think in terms of the addressable cost base, at the capital markets day in the summer, DLG disclosed an addressable cost base of around GBP 650 million. But there have been various moving parts since then, you know, given the inflationary environment and their own cost program of GBP 100 million. But I think if you think of it, it's sort of in the 20% range. And then I think, you know, I would just say that there are other potential value levers within and beyond the cost base that we haven't quantified at the moment.
Yeah. So in terms of dis-synergies, I tend to think about them actually as synergies. So if we think about trading each of the brands, which we certainly intend to, to trade very hard, Direct Line and Churchill and Aviva and all of those, the brand suite. You think about that, and then you think about, well, if we add in some of those extra capabilities around pricing and claims that we can get from the sort of shared data and shared capabilities. And then on top of that, think about the shared sort of 18-20 million customers that we can then market more products to. I think actually there's a real prospect of some improved synergies. But look, we need to work that through as we get into it.
Yeah, I'm more thinking synergies rather than dis-synergies, if you think about it in that context.
Thanks, Owen. And on the regulatory side, so as you'd expect, we've notified the relevant regulators, which includes the PRA, the FCA, ahead of the approach, and we continue to have an open and constructive dialogue with them. And we'll keep you updated as we go along on that. We expect the Competition and Markets Authority will review the transaction. You would expect that from a deal of this size, but we remain confident that we can get this deal done. Oh! We're going to try Andrew Crean again. Andrew, can you hear me? No, no. I'm confident it's going to be third time lucky for Andrew. So in the absence of Andrew, we're going to go to Farooq. Farooq, if you open your line.
Hi, everybody, and happy holidays and Merry Christmas to everybody.
Thank you.
As you'd expect, three questions. Hopefully, not too long. One of the things that you said in your customer session, Amanda, was that it's easier to cross-sell to a non-life customer than to a life customer. Can you talk about your thoughts around the DLG customer base and what you can do to get the kind of average holdings up to the sort of level that you see in, you know, to the rest of the platform and just kind of the timeline around how you're going to do that?
Mm-hmm.
Second question is, to go back to the two point three billion of diversification benefit, just to help us all out, what percentage is that of the undiversified group SCR, roughly? So we can sort of have a go at maybe applying that. And then the third question is really around pricing. When you looked at your technical capabilities, and then you said you're aware of how DLG's approaching it in the market, is the implication here that basically everything's going to go onto your pricing platform as soon as possible, or do you think there are kind of advantages that you can gain from DLG's technology and pricing that will sort of make 2 + 2 equal five when you put them together? Thank you.
Yeah. Okay, thanks. So I'll pick up the first one, Charlotte, the second one, and Owen, do you want to pick up the pricing one? So obviously, if you go back to our Customer in Focus session, which we did in October, we talked there about the mechanisms that we've set up. Well, first of all, the 40% of our existing new business sales come from existing customers, so our current new business sales from existing customers. So we start from a very, very strong position there, and we would seek to replicate, clearly, any techniques that we've used in our own book to be able to do that. But I think we also said in October that we were at the very start of that, and there's plenty more opportunity for us to go there.
So, you know, I do think that there will be an opportunity for us to be able to look at, you know, even giving the DLG customer base access to the MyAviva app means that they get to see the breadth of what Aviva has to offer, but also the opportunity for us to talk to customers about prevention, to be able to handle claims. Those sort of things increasing customer loyalty that you don't have if you're just a monoline, you sort of only have really a sort of monoline proposition. So nothing is obviously built into these numbers for the any opportunity that comes from that, Farooq, but we do genuinely see that as being, you know, very compelling as we look to the future.
The other thing, obviously, since we spoke in October, we talked about having a single view of customer, and we've been able to implement that in Aviva, and we would be looking to bring all of that benefit to this new customer book. So we genuinely feel that this is actually really, really good news for customers, both in terms of the efficiency of the operation that's delivering for customers, the pricing sophistication, we know and we'll talk about in a second, but also the breadth of proposition the customers will have from Aviva. So we're super excited about that. Charlotte, on the diversi-
Diversification. Yeah. So, just remember, Farooq, the two stages to the diversification that I was explaining, the piece at the GI level, which is the sort of which is the commercial and GCS combined with the personal lines. That's not visible in the level of that amount of diversification is not visible in the disclosure. The disclosure shows the 2.3, which is the piece at the group level, which is the non-life into the life and the geographic of Canada. That 2.3 is included if you the net effect of including that 2.3 at the half year was GBP 7.8 billion, so the gross is GBP 10.1 billion. So it's around 25%, but that is just the group piece, not the bit that's within GI.
So when you think about the Direct Line or personal lines, firstly, and that's it—so it's 1.1 is pure personal lines. So as it comes into GI, it's now mixing with commercial and GCS, so that's likely to go down from that diversification perspective. And then the fact that our SCR is largely driven by our life risk. So whenever you add more non-life risk, you get a diversification benefit. So even though it will have come down in that first stage from 1.1, what's left is then still a further diversification when you get up to the group level.
Owen.
Yeah. Look, on, on pricing, it's something, you know, we take incredibly seriously and work really hard on, and I, I think that's both at the sort of technical machine learning, optimization type level. It's across press release classes with things like traffic density modeling, windstorm modeling, and then it goes up to sort of portfolio level tracking and, and, and making sure that we're getting our rating at the right strength. And finally, I guess the last bit that we, we've done pretty well over the years is just have that senior view that says: What actually is happening a little bit further out? Things like inflation and just making sure that we, we steer the ship well. And I think when you put those things together, and then you look at what DLG are good at, which is, which is a lot of things.
They've got a very good data set, some very competent people in some of their teams. Look, when we bring that together, do I think we can get two plus two equals five? Yeah, for sure.
Thanks, Owen. Nasib from UBS? Can you unmute, Nasib?
Hi, guys. Can you hear me?
Yes, we can.
Yes, we can. Woof!
Oh, perfect. Thank you. I'll stick with two questions. It's the benefit of being one of the last ones. Firstly, on kind of a follow-up from Farooq's question, UK GI, I think you did an In Focus day, a couple years back.
Mm-hmm.
You had a number in more than 50%.
Mm-hmm.
Is that the number that we can kind of benchmark against for Direct Line? Appreciate margin diversification for every non-life risk added will be less, but is that the right kind of number to look at? Second question on IRR. There's no IRR number in the release today. You've given one for AIG and Probitas in the past. Is this deal more like Probitas or AIG from an IRR perspective?
Okay, Charlotte, would you like to take those?
Yeah. So, look, you, you're right that that was disclosed back in, I think it was the Commercial Lines In Focus session, and we talked around the 50%. I mean, it's ... You know, things have developed and moved on, but it's a reasonable thing to start with. On IRR, we haven't. We've given a lot of other metrics. Look, I would say it's, this is a great deal. It's covered by the Takeover Code, which restricts, you know, a number of the things that we're able to talk about and quantify. You know, hopefully you've got some clear understanding of how it affects EPS accretion.
You know, the costs that we can see real line of sight on have been subject to that review by the reporting accountants, and the capital benefits. But, you know, it is harder for us to be able to give, because of the nature of the takeover code and what we're permitted to do. But I think everything that we've said shows you just how financially compelling this is.
Thank you. Larissa, good morning, from Barclays.
Good morning, and congratulations from my side as well. It's a very nice present to get this close to the end of the year. Three. I was gonna go for two, but let's go three. Farooq just... the question that I was going to ask, that made it three. On follow-up of Farooq's question, on the Combined Ratio, wouldn't expect you to give new targets today, but in the last two years under IFRS 17, your personal lines have been more profitable than the commercial lines. Is that a... Is it reasonable to expect that to continue and improve?
... The second one is on debt covenants. Are there any debt covenants in DLG that will be triggered as a result of the change in control? And the third one, on the order of benefits. You've been very clear, thank you, on what would drive those. Are you able to speak to the order of benefit as to which ones are likely to happen in year one, and then which ones are likely to happen later? If you are able to add color, that would be very much appreciated. Thank you.
Okay. Thanks, Larissa. Charlotte, are you okay with this?
Yeah, yeah, that's fine. So look, I think on combined ratio, you know, we've got the group ambition to be sub 94 in the medium term, and, you know, we talk about that on every call. And we're confident that we've got, you know, the standalone Aviva business would be, you know, achieving that ambition over time. As you rightly say, we aren't setting any new ambitions today, but our priority is, as we combine the two businesses, to continue to improve the core over both businesses.
I suppose things that would be helpful from that, with personal lines predominant business, and in particular, you know, DLG's is bringing the focus even more towards the retail business, which typically has a better margin, and therefore would be supportive of an improvement in the core. You know, but ultimately, you know, what is our ambition? It is to be consistently outperforming our peers over the cycle. It's to look at it, you know, the core is always there as a guidance, but ultimately, it's about driving operating profit and on all the cash and capital that a business like this brings. But I think, you know, the direction of travel on the core will be helped by this.
And in terms of change of control, I mean, all I would say is refer back to the due diligence statements. You know, we've done the due diligence that we've that you would expect us to do. It's limited in the on being under the takeover code, but we're comfortable with what we've seen. And then in terms of benefits, and the timing and the categorization of those, I suppose, you know, if you think about the three categories, we've said that, you know, the first category, the head office and central functions, that's probably going to be around 50% of the savings, and it mainly comprises of the de-duplication of PLC and head office functions, as well as consolidation across a number of central functions.
So some of that will come relatively quickly after closing. Some of it will take a little bit longer. You know, we will just be very thoughtful on our integration planning and working that through. When I think about the insurance operations, which is around 30% of the savings, you know, that's claims handling, it's operation and trading. You know, we will need to again be careful on ensuring continuity through beyond the closing of the transaction, but some of that will start to materialize relatively quickly. And then on technology and systems, which is around 20%, the focus there is on the consolidation of the IT systems across back office and support functions, as well as consolidating some of the support teams.
You know, whereas broader, you know, questions are on technology and front end IT and how we're bringing that together on a best of both approach will take longer. So I think it's... You know, we've done the work on timing, it's sort of evenly spread across the three. Some of it will be, you know, more quick to emerge, some of it will take longer. And I, you know, I think, for instance, the levers on cost that can be actioned fairly quickly might be, you know, some of those things in the head office area, whereas it will take more time to implement changes to IT platforms and do any migrations.
Right. We're gonna try Andrew Crean again. Andrew?
You can hear me?
Yay!
Yay.
Hooray! Well done. Well done, well done. Listen, I've got a couple of questions. Firstly, what is your estimate of the market share that you have in motor, home, and travel, combined? And secondly, I just wanted to get a bit more of a handle on the cost savings. If I take out the headquarters costs of GBP 50 million, the rest of the cost savings are, what? GBP 65 million? I just want to get a sense of what the combined, sort of, personal lines cost base is, because from what I remember, you're at about GBP 350 million in UK personal lines, ex commissions. I don't know how much the GBP 650 million is in that area, but, I just wanted to get a sense of what is the combined personal lines cost base, which you're targeting the GBP 65 million cost savings from.
Okay. Thanks, Andrew. I'll pick up the first one. Charlotte, if you pick up the second one. So on estimate around market share. So Andrew, you'll remember that I think the last time that we disclosed our market share was at the In Focus session, which was in 2023, and obviously, it may have moved a little bit since then. So at that point, our motor market share was 8% and 12% for home. I actually don't have the travel one here, so but we can come back to you on that. So that that's where we were at that point.
Yeah, and, and look on, on the synergies. So yeah, 50% of the GBP 125 is coming from, from the, from the sort of head office, and the rest is, is, is in the other two categories. I haven't got a combined PL cost base. In fact, I don't know that we've recently given that, because it's, it's sort of combined with the GI. So I haven't got those, those numbers to hand, Andrew. I'm sorry.
And so now we're going to Steven Haywood from HSBC. Hi, Steven.
Good morning. Thank you very much. Just two questions. I see on the Solvency II ratio, the 160%-180% is going back to your, kind of, previous target from the sort of around 180%. Obviously, does this give you a bit more flexibility in the deal acquisition, and, does it give you sort of more flexibility with, interest rates probably coming down, next year as well? The other question is just on, Direct Line's, management. I wonder if you can say anything about what you're planning to do with Direct Line's management team going forward.
Okay, thanks. I'll pick up the second one. Charlotte, do you want to pick up the first?
Yeah. So look, our range has always been 160-180, but we've, you know, over recent times, you know, operated above the 180. But, you know, I think the capital management framework, which supports that 160-180, goes through extensive stress and scenario testing for different environments. And that is the working range, and it always has been. So for this transaction, on day one, which is just the mechanical bringing together of the balance sheets and none of that diversification benefit showing, plus, you know, the effect of the Direct Line's debt, which doesn't count as solvency at the group level.
You know, to remain at the sort of top end of that 160-180 range, you know, is a testament to the financial strength and resilience of the group. Then I think, you know, really important to remember that this transaction will be cash and capital generative, and then those capital synergies that we've spent some time discussing, will come through. So, you know, I think overall, you know, we're very comfortable with what this does to the balance sheet. And as I say, the 160-180 range is supported by extensive stress and scenario testing, so we're very comfortable with it.
And on your question around the management team. So first of all, I just you know want to say that we've been very pleased with the engagement that we've had with the team over the last few weeks, and I just want to thank them for the effort that they've made to get us to the today's point. So just what can we say that's not been said in the 2.7 statement? I mean, first of all, we massively recognize the talented workforce of DLG, and we know that that's going to be critical to the success of this acquisition. So bringing together the you know the two teams with very strong aligned cultural values, DLG employees will clearly benefit from being part of a larger, more diversified, combined group.
We see that as, you know, as really positive for both sets of colleagues, and I've not really got anything more to add on specifics, other than that, at this point.
Last question.
The last question is from Michael Huttner, from Berenberg. Michael?
Thanks, Amanda, and congratulations. It's more than a stocking filler. It's fantastic. Amazing deal. Two questions, completely outside the box, I'm afraid. One is, Ogden. Can you-
Yeah.
Maybe give us a feel for the numbers and in particular, sorry, Ogden, not Owen. Sorry. The Ogden benefit.
Yes.
Does that play a role in funding some of the restructuring costs? Maybe just some feel for how you see that. And then the next one also way out, both Amanda, you've done a, you've got an amazing track record now. I mean, doubly amazing. When's the next deal?
Right. While Charlotte thinks about Ogden, I'll deal with that. I mean, like, you know, it's the twenty-third of December. We've just announced the biggest deal that we've done. I mean, look, I genuinely feel that we've got quite a lot on our plate to make sure that this is a success. We are utterly, utterly determined that we are going to make this deal a success. We can see a really clear line of sight around the benefits to customers, the benefits to shareholders, you know, and there's a lot of different work streams that we have to deliver on, and I think we've really proven in the last four years that we're able to do that.
You know, the deals that we've done on AIG and Probitas and Succession have all progressed really well and really been additive to Aviva. Obviously, this is the next level of being additive, and we're just really excited about it. So it is an out-of-the-box question, and look, we are really focused on this. Well, that... This, and obviously, our turkey dinner, which is only now, like, 48 hours away.
We've got a turkey.
We're definitely. If we've got a turkey, which is doubtful at this point in time. On Ogden, Charlotte?
On Ogden, look, I mean, I think obviously the change has come through, and I think on our Q3 earnings call, we talked about the if Ogden ended up being where we anticipate it will be, which was in line with the other parts of the UK, which it did, then the number for us, you know, in terms of of reserve change was GBP 30 or 40 million. So that's factored into our. No, that will be part of our full year 2024 numbers. DLG will do the same assessment on theirs, and that will be reflected within their 2024 numbers. So it's kind of behind us and done, and, you know, compared to the to the materiality of the numbers that we're really talking about here, it doesn't play a big part.
Okay. So look, I think that, that is all of the questions. Thank you. I just want to just thank you so much for obviously jumping on a call this morning. I, I imagine that many of you had your Christmas jumpers on, and you were sort of raring, raring to go off somewhere exciting. But we do really, really appreciate your time. We appreciate the questions. Obviously, follow up with the IR team if you have anything more that you would like to ask. And I guess it just leaves me to say, have a fantastic Christmas. Have a very, very successful 2025, and we very much look forward to speaking to you in the new year. Thank you very much.