Good morning, and thank you for standing by. Welcome to Aviva's Q1 2026 Trading Update Analyst Call. If you wish to ask a question, please press star one on your telephone keypad. You will hear a tone to confirm that you are in the queue. If you wish to withdraw your question, you may do so by pressing star two to cancel. I must advise you that this conference is being recorded. I would now like to hand the conference over to Aviva's Group CEO, Amanda Blanc.
Thank you very much. Good morning, everyone, and welcome to Aviva's first quarter update. As usual, I'll give a short overview and then hand over to Charlotte to give you the details before we move to questions. Aviva has delivered another quarter of strong trading and profitable growth across the group, once again demonstrating the benefits of our diversified capital light model against the backdrop of global market volatility. Let me just share a few highlights. In general insurance, premiums are up 19%, with an improved combined operating ratio. This shows our ability to effectively manage through the cycle and get ahead of emerging inflationary impact. In U.K. general insurance, strong premium growth has been driven by the addition of Direct Line and underlying performance in U.K. personal lines. In Canada, our new management team is building momentum with growth across personal lines and commercial lines.
In wealth, where we are the number one player, we secured GBP 3.3 billion of net flows, up 49% year-on-year, and flows have continued to be strong since the end of Q1. On strategic delivery, we are making excellent progress on the Direct Line integration and remain firmly on track to meet our synergy targets. The improvements we are making to underwriting and pricing are paying off, with better profitability and Direct Line branded PCW policies nearly doubling since the full year. Looking ahead, our continued strong trading momentum, real progress on the Direct Line integration, and market leading businesses give us confidence in our 2026 outlook, including the guidance that we've given around combined operating ratio. We are equally confident in delivering our medium term group targets and continuing to deliver value for our customers and our shareholders.
I'll now hand over to Charlotte to take you through the numbers.
Thanks, Amanda, and good morning, everyone. I'll first cover the business highlights, starting with General Insurance. We achieved strong growth with GBP 3.4 billion of premiums across the U.K., Ireland, and Canada. I'm pleased with the COR development across all markets, a result of our discipline in pricing, strong rate adequacy, and cost focus. Weather was more consistent with first quarter long-term averages compared with the prior year, which had been adverse. Overall, this led to an undiscounted COR of 94.1%, which was a 2.5 points better than Q1 2025. In U.K. General Insurance, premiums grew 28% to GBP 2.4 billion. We have remained disciplined in pricing across the portfolio and rate adequacy remains strong. Personal lines premiums were up 62% to GBP 1.5 billion.
This was naturally higher with the addition of Direct Line alongside growth across the rest of the portfolio, including intermediated business and our new home partnership with Nationwide. We added two and a half points of rate across the motor portfolio in March to help manage inflationary impact. Commercial lines premiums of GBP 834 million reflect strong retention and our continued focus on deliberate underwriting discipline to manage profitability through the cycle amid softer market conditions. To unpack this a little bit more for you, mid-market, which makes up about 60% of the SME channel, was up 1%, benefiting from high retentions of close to 90%. This offset lower top line in digital and intentional profitability actions taken in scheme. Probitas was up a little, driven by the addition of new lines of business.
Although GCS volumes were lower, primarily where U.K. market conditions have softened the most and competition is the highest. This is because we have chosen price adequacy over volume. Across all segments, quote flow and broker engagement is strong. We continue to grow selectively, protecting earnings quality. This is more important to us than defending short-term volume in parts of the portfolio where prices would not clear our return thresholds. Finally, April renewals have gone well, and we expect the top line trend seen in Q1 to moderate over the rest of the year. The U.K. undiscounted COR was 94.8%, a half point improvement on Q1 2025, and we expect further improvement in the COR throughout the year, particularly as the pricing actions we have taken on the Direct Line book earn through.
In Ireland, premiums of GBP 157 million, up 8% in constant currency, with personal lines up strongly. Ireland saw its COR improve by 18.5 points, reflecting more normal weather compared to 2025, which had been significantly affected by Storm Éowyn. Looking at the U.K. and Ireland together, the Q1 COR of 95.1% is 1.8 points better than last year. As you'll remember, Q1 COR is typically higher than other quarters due to a higher weather loading. The weather experience was in line with this loading, and therefore is consistent with the expectations we had when we set the sub 94% guidance for the full year. To confirm, we remain firmly on track to meet this. In Canada, premiums of GBP 907 million grew 3% at constant currency. Personal lines premiums grew 4%, supported by continued rate actions across both auto and personal property.
In commercial lines, premium grew 1%, as lower average premiums in SME property were offset by some large wins in GCS. Canada's undiscounted COR was 91.8%, an improvement of 4.4 points. This strong performance reflects the actions we have been taking to improve profitability across all lines, and more favorable CAT experience than last year. This is a great start to the year in Canada, and we remain on track to meet our guidance to achieve a COR approaching 94% for the full year, remembering that Q3 is the peak quarter for CAT activity in Canada. Moving to IWR, wealth flows were up 49% to GBP 3.3 billion, representing 6% of opening AUM. Another excellent performance. Workplace flows of GBP 2 billion were up 71%, benefiting from strong retention and new business wins as it has done through a number of periods of volatility over recent years.
We are confident in our ambition to deliver £280 million of operating profit by 2027. Health in-force premiums increased by 9%, supported by large corporate, which more than offsets some reduced demand across SME and consumer channels. We remain focused on achieving our ambition of £100 million of operating profit for Health this year. Moving to Retirement, sales were £1.1 billion in the quarter. Within this, individual annuities increased by 10%, and equity release sales were up 8%. In BPA, we wrote volumes of £619 million across 20 schemes within the quarter. As of today, this has extended to £1.1 billion. We have maintained our discipline in a highly competitive market, and continue to exceed our hurdles and achieve at least low teens IRR.
Finally, in Aviva Investors, AUM was stable as we saw improved flows across both external and internal channels, supported by wealth and the additional transfer of Direct Line assets. We'll now move on to the balance sheet metric. Solvency was 171% at the end of Q1, in line with our expectations. This was after using 13 points of capital for the final 2025 dividend of £800 million and the share buyback of GBP 350 million. Cash generation in the quarter added six points. This included around two and a half points from beneficial market movements, mainly from higher interest rates in the U.K. and Canada. It was partially offset by the expected two-point reduction following the end of Solvency II grandfathering rules for £200 million of Tier 2 debt. Our previously published Solvency II sensitivities demonstrate we have relatively low exposure to market volatility.
Therefore, recent market turbulence hasn't had a material impact on our solvency position. We remain absolutely on track to deliver at least GBP 350 million of further capital synergies from the Direct Line transaction by the end of this year. As you'll recall, this is equivalent to 7 points of solvency and is in addition to the 3 points we delivered at the end of 2025. As always, we maintain a high-quality asset portfolio. Our credit portfolio continued to perform well in Q1 and to date. We experienced no downgrades below investment grade. Almost all the assets outside of public debt on our balance sheet are sourced in-house by Aviva Investors using a robust risk management framework. They are predominantly real estate and high-quality U.K. productive assets, including infrastructure. We have no exposure to the types of investments you have seen in the headlines.
We've provided more color on our portfolio in this morning's announcement. The assets are high quality, almost all investment grade, and provide predictable matching adjustment eligible cash flows under the Solvency II framework. To summarize, we've had another good quarter. Aviva continues to have a firm grip on performance management, and we are on track to deliver our ambitious plans. The Direct Line integration is making excellent progress with improving profitability and strong PCW volume momentum. We are absolutely on track to meet all our integration milestones and to deliver the expense and capital synergies previously announced. We are well-positioned for the period ahead, and despite the ongoing geopolitical uncertainty, we have observed limited changes in customer behavior. The insurance sector generally, and Aviva more specifically, have consistently proven to be resilient, and we have successfully navigated periods of uncertainty in the past.
While we are not complacent, we remain confident in the outlook for our group.
With that, I'll hand over to the operator, so we can start question and answers.
Thank you. As a reminder, to ask a question, please press star one on your telephone keypad. You will hear a tone to confirm that you are in the queue. If you wish to withdraw your question, you may do so by pressing star two to cancel. Thank you. Our first caller is Farooq Hanif from JP Morgan. Your line is now unmuted. Please go ahead.
Hi, everybody. Thanks very much. Could you possibly give us your traditional summary of pricing in U.K. personal and commercial, and also between home and motor, just for clarity? Can you also confirm that what you're saying is that at your ex Direct Line there was underlying growth in personal lines? Second question is, can you talk a little bit more about your long-term ambitions in the commercial lines market? Obviously, Probitas is growing a bit. I believe you've entered or thinking about entering the U.S. market in a very small way. You know, what are the attractive pockets for you, and where do you think, you know, pricing is still attractive or there are opportunities for you?
Final question very quickly is, you talk about, you know, growth in the wealth profit beyond GBP 280. Is that a stable margin, or do you think operating leverage is going to play a, you know, a very important part in the profit expansion there? Thank you.
Okay. Thanks for those questions, Farooq. Okay. It's good to know that it's our usual summary of pricing. Have we become that boring that we always do the same thing? Yeah, should we start with motor and home? I think that's probably the best place to start. I would say that in motor we would say that the market is hardening and what we have done in the first quarter is that in across the motor and at the Aviva and Direct Line, we have put in 3 points of rate in Q1 versus the Pearson Ham data which is showing motor up 1. I think that all that shows the discipline once again that we are displaying there.
In home, the Pearson Ham data I think is showing rates as -1. For Aviva, our rates are up +2. In commercial lines, I think you asked a number of questions about ambitions, so I'll come to that in a second. Maybe I could just give you an idea of rating strength in commercial lines, rate adequacy. It might be the sort of easiest way for us to play it. On what we call our SME business, which is the sort of digital scheme and mid-market, rate adequacy is, you know, well over 100%. And it's more than that in our global corporate specialty business. What you obviously are seeing is that, and by the way, there's strong retention in both of those areas.
What we are doing is when we are looking at our rating adequacy for a new piece of business, we are being incredibly disciplined about that rate adequacy for new business. Where we have quoted on one new business, the rate adequacy is about 10 points higher than if we had than where business that we lost to the market. You know, I think that gives you an explanation of the difference between our approach to pricing and what we are seeing in the market. You'll have seen the Marsh data about rates down. I mean, that is sort of what we are observing and, you know, the, the more difficult lines of business, you know, financial lines, commercial property in that global corporate space.
You know, I look, I've been perhaps around too long, 35 years in this industry, and starting as an underwriter, you know, my guidance to the team, rightly or wrongly, is you do not grow into a soft market aggressively. We have been and we will be disciplined about our approach to that. Albeit, I think that in that 1st quarter we had a few sort of, you know, a 1 or 2 big lapses where we just weren't prepared to match the market, and we believe that we will moderate on commercial lines in terms of that premium towards in the 3 quarters. The 2 big quarters for commercial lines are Q2 and Q4.
Now if we think about what are the pockets in commercial lines? First of all, you know, let's be very clear. Aviva is an incredibly strong player in the commercial lines, SME digital mid-market in the U.K. We would be number one with the vast majority of brokers here and, you know, and we've got very strong propositions, our Fast Trade proposition wins all the awards for being the best proposition. We've got a very strong performance in mid-market, as Charlotte articulated there, up 1% with a strong, you know, close to 90% retention rate. And we've got very strong propositions, whether that's in terms of, you know, our Broker Academy, the deal proposition, our partnerships proposition. I think And our schemes proposition.
What we will not do, you know, however strong the relationship with the broker is if there are profitable segments of business, and we've seen that in this quarter, we had some schemes that were underperforming, when we will, we will obviously not keep hold of those schemes. I would say in Canada and in U.K. and in Ireland, very, very strong propositions in that SME mid-market digital proposition and that learning is being shared between the Canadian, Irish, and U.K. businesses. You know, Ireland have launched new Fast Trade propositions in the last number of years very, very successfully and launched lots of new product lines. GCS is much more, there's less loyalty in the GCS space.
You know, I always look at Charlotte and say, "It's people like you making the decision on GCS business." It's not relationship traded, it's sort of hard-nosed traded, and so it's much more driven by price. If you think about commercial motor, which is where our retention has been lower in GCS this quarter, and property, those are areas where, you know, they are marketed almost every year, and so you'll have the opportunity to write that business at more profitable rates. You know, we will not write that business unprofitably. In terms of that GCS market, we will maintain discipline through this market and we do consider that the sort of that market will be soft for the balance of this year.
There are opportunities for us to grow in other segments. You touched on U.S. GCS, obviously this is not a new market for Aviva. We've already got a profitable book of U.S. business which is underwritten from London. What our planned onshore business builds on this, and enables us to get closer to the customers there, and significantly expanding our addressable market whilst leveraging our existing capability. The important point here is around the broker relationships. If we think about the brokers now that are in U.K. and U.S., our accounts with those brokers will be huge in the U.K.
If you think about the likes of Gallagher, Aon, Marsh, Willis, Howden, they've all got big U.K. relationships. We're harnessing the opportunity from those U.K. relationships, and we've put a small team in the U.S. Our initial focus will be on property casualty and particularly specialty lines business, and that's where we'll start. We'll start small, and we'll be very careful, clearly, about how we do that. We're looking this, at that investment over the long run. We think it's an exciting opportunity. We'll do it in a measured and sensible way. Hopefully that's answered all of those questions. Charlotte, did you wanna pick up the wealth margin?
Would you I mean, I suppose the point around the unstoppable momentum in our wealth business coming from workplace, combined with all the investment we've been doing in the direct proposition, guided support coming along, there's a lot of tailwinds. I think we've said all the way back to the in-focus session on wealth that we, you know, we continue it to expect revenue margin and that, you know, we talked about at the year end, and we expect that to continue in line with those expectations. It does make it really important that we use our scale and, you know, efficiency within the cost base to deliver the improving operating margin all the time.
I think, you know, we talked at the year end that despite the headwinds on revenue margin, we were, you know, just over a point improved on operating margin. We will continue the initiatives to keep driving that forward.
Just one point on the Mercer scheme, which obviously we talked about at the full year. That is not in the Q1 because the first of those tranches of the schemes have started to transfer in April and, you know, the majority of those flows and the larger schemes will be backended over the next 15 months. As well as this, you know, this GBP 1 billion of regular contributions, the 112 new schemes that we've won, we've also got this Mercer business which will be flowing in. You know, very, very excited about the opportunities in wealth.
Thank you very much.
Thank you. Our next caller is Andrew Baker from Goldman Sachs. Your line is now unmuted. Please go ahead.
Hi, thank you for taking my questions. I guess both from BPA side, if that's okay. Firstly, how should we think about the VNB margin development for the rest of the year? Do you expect the PRA's funded re- proposed changes to have any material impact on pricing? Secondly, I can see you're still delivering low-teen IRRs, but I guess if competition increases here further, will you simply just pull back on volumes or could you explore other options like sidecar structures or anything like that? Thank you.
Okay.
Do you wanna take this one?
Look, I think on the VNB margin, I mean, it is important to remember a couple of things. The scale of the BPA market that transactions that came in Q is sort of more in the GBP 4 billion space, whereas back in from a market perspective, whereas in Q4 2025, it was sort of more in the GBP 12 billion-GBP 14 billion. It was a very different size and scale of market, combined with increased numbers of players looking to compete. You got those two of those dynamics.
If we look at the trades that we did, actually what we saw towards the end of the back end of Q4 was they were smaller schemes and, you know, through the Clarity, they gave us a slightly higher margin. What we've seen this time is a couple of bigger ones and some smaller ones, so it's been a bit more of a mixture. You are seeing that competitive driver. And as we said, you know, for us it's less about the margin, it's more about the capital strain and therefore, you know, the value creation over a period of time, which is why we focus on the IRR.
With, you know, a WACC of sort of 9% or 10%, 9-ish%, you know, having low teens IRR is a good margin over that. That's our focus. You know, I think as we outlook this year, you know, already having now got to 1.1 by now with a pipeline that is reasonable, you know, not this year but over the course of next year we would expect some of the remaining internal schemes to come to market as well. There, you know, there is a decent pipeline. We will always be disciplined.
You know, we compete hard and there are some transactions that we don't win because we're not willing to go to the prices that they transact at. That is the discipline that you know and should expect from us. With funded re, we don't use it very much. We use it sparingly, where we use it is because it makes sense to do so, not to take advantage of perhaps historic differences in the capital framework. It's not altering our plans. You know, again, we'll continue to use it where it makes sense to do so, but it's pretty sparing. It has very little impact on our strategy or execution, which is probably different from some of the others in the market.
I suppose, you know, if we can't hit our hurdles, just to repeat, the discipline will mean that we've got other options. That's the beauty of the diversified model, and we will look to deploy it in other areas. You know, I think we have a great team, and we are continuing to compete. Where we're losing out here and there is because, you know, people are doing so at, you know, prices that we don't see are economical.
Great. Thank you.
Thank you. Our next caller is Thomas Bateman from Mediobanca. Your line is now unmuted. Please go ahead.
Hi. Good morning. Thanks for taking my questions. I just want to come back to the BPA margins. I'm a little surprised you've written business at these margins at all, 'cause I would've thought that the strategic asset allocation was quite similar to last year. Is the market really that competitive, or is there a I know you alluded to the mix shift here. Is that playing an even bigger effect than I might think? A second question is just on your comments around health, and the slightly slower demand. Could you just bridge us to how we get to the GBP 100 million 2026 target? I say this because you're you seem very confident in the target, but there's still a big gap, I guess, there.
The final question is just on the integration with Direct Line. Could you let us know how you're going on in terms of cost cutting and the benefit from expense synergies that are likely to impact the GI combined ratio this year? I say this considering that I assume there's relatively little impact in the combined ratio so far. Thank you.
Okay. Charlotte, do you want to do 1, I'll do 2, and a bit of 3, and we share 3?
Share 3. Look, I mean, I don't know there's a huge amount more to say on the BPA margin. We are disciplined. We're writing BPA business. It's relatively low strain from a capital perspective, and therefore it's driving those IRRs that totally make sense. The IRRs themselves are a long-term metric as opposed to sale metric, so they kind of drive the value and kind of, like, include, you know, sensible assumptions on Solvency II and capture more of the lifetime value. And that's our focus. And as I say, we are able to transact at levels that meet those hurdles. It's a small component, obviously, but it is, has been a smaller market too.
Yeah, I mean, I'm in danger of just repeating what I said to Andrew, but, yeah, that is the That's it.
And on health, so what we're seeing in health is there's different dynamics going on depending on what part of what part of the business you're talking about. We're seeing good demand from the large corporates, and you've seen our in-force premiums increase by 9%, and that is primarily driven by those large corporates. Where we're seeing, you know, less demand is in that SME space where there's a real affordability point following the National Insurance contributions changes. You know, SMEs have got choices to make, and I guess it's pretty important that they pay the National Insurance contributions.
On consumer demand, you know, you're seeing less written about waiting lists, et cetera. I think the way that we look at this and why we feel very confident about it is that what we're seeing much more is that the corporate customers are looking at health and protection together and looking at how can you get people back to work more quickly, and therefore that is there's some real good demand drive there. We'll launch in a couple of weeks actually our new wellbeing proposition, our protection wellbeing proposition, which brings together the protection and health proposition so it's much easier for our customers to be able to navigate their way around that and utilize both products in line.
Obviously quite often we have corporates that have got their health and their protection product with us. You know, we have been very disciplined on health. We use the word disciplined a lot this morning, I'm not going to apologize for that. We're an insurance company. That's what we should be doing. The health Combined Operating Ratio remains strong in the low 90s. You know, it has been consistently like that as we've navigated through various periods over the last number of years, that's in line with how we manage the business. When we set the GBP 100 million target operating ambition, obviously, you know, there was an ambitious target, we were operating in a different market.
There's now lower demand but, you know, the way that we look at these things is we push hard to meet the ambitions that we've set. You know, we believe that we're on track for that GBP 100 million operating profit in-house this year. In terms of the Direct Line, I'll maybe I can talk a little bit about the progress on the integration, and Charlotte can come back on your points around the expense synergies. I think obviously the integration is going really well, and, you know, we've taken a swift amount of action right across the business. Whether that is, you know, getting the pricing models in place, getting the fraud models in place, putting Direct Line on all the 4 major price comparison websites.
By bringing together, by doing that and bringing together all of the dataset, we've been able to enhance the pricing across the book. We've also been able to broaden the underwriting footprint, and that change of marketing from less direct marketing to more PCW, obviously, that does change the expense as well as anything else. We've harmonized the supply chain, so 60% of the supply chain spend is already shared, so we've focused on harmonizing the rates that we pay. We've also streamlined the non-claims suppliers, so, it's 70 of those already and more under review.
We've made really good progress on the what we call the TUPE-ing, the movement of colleagues from one entity to another. That will complete later this year. We've also made good progress on the new lines of business, the micro SME, the pet, and the rescue, where we see that there's loads more potential.
I think all of that combined I mean, I was speaking to the team last week, and what's really interesting is that, yes, we've got all of the benefit from these models, and that is phenomenal, but you also have the added benefit of scale, and by having these two books of business that come together, we can not only apply, obviously, the models across a wider book, but we're just able to make better pricing decisions because we've got more data. You know, that is the bit that we are really seeing starting to benefit the underlying performance, which will obviously come through over time. Charlotte, did you just wanna talk about synergies?
Yes, just on the actual synergies themselves. If you remember back in November, we said we set the synergy target of GBP 225 million delivered by the end of 2028. Then we said that at the end of 2025, we had achieved GBP 50 million of those run cost savings, of which GBP 10 million were recognized in-year in 2025. For 2026, GBP 50 million kind of is starting at the beginning of the year and running through. Obviously, we're continuing to work away, some of the cost savings that link to the initiatives that Amanda mentioned will be realized in year. Some will kind of, you know, come towards the end of this year. The capital synergies are linked to two things, the major model change and the Part VII.
At the point that we achieve the Part VII, which is the end of this year, then quite a lot of the legal entity structure sort of collapses, and you get an additional moment when there's quite a lot of cost savings to come through. I think originally we guided to the sort of the GBP 225 being relatively spread, with fully run rated through by 2029. We'll give you more updates at the half year, but we remain completely on track.
Thank you.
Thank you. Our next caller is Nasib Ahmed from UBS. Please go ahead.
Hi. Morning. Thanks for taking my questions. Just 3 from me. Firstly, on Canada combined ratio, it's around 92%. I know Q2 and Q3 is high on weather. Is there anything else in the 92%, like PYD, that makes you comfortable about approaching the 94%? Because the run rate's actually better at the moment. Secondly, on the health business, you've got GBP 30 million of earnings to come in 2026, a growth in earnings to reach the GBP 100 million. I think you were at GBP 72 million last year. Your top line's reduced, so how do you what are the moving parts to get there to the GBP 100 million target for this year? Finally, on the Solvency bridge, I think you get to around 180 already if you add Direct Line, so 171 plus 7 points.
Can you kind of phrase the moving parts? What is the OCG contribution net of the dividend? I think the buyback's already excluded.
Yeah. Shall I start with Canada combined? Like, I think it's as I said in my opening remarks. The Canadian combined ratio is a function of the profitability actions that we've been taking. It was a more benign weather quarter relative to last year, but it was consistent with the weather loadings that we have for Canada in Q1, but they're not the heaviest weather quarter. We'll unpack all of the components of COR at the half year. At this stage, I'll just give you a bit of that color. It is the improved profitability actions that we took.
There was a modest amount of PYD kind of across the group this time. As I say, I'll give you more detail on that at the half year. You know, assuming that the loadings for weather operate as we would expect, which they have in Q1, we would expect a heavier one in Q3. You know, we absolutely see the pathway to approaching 94% for Canada.
I'm not sure I've got a lot more to add on health rate. There's not that many moving parts in a Combined Operating Ratio, is there? You've got your premiums, you've got rate flowing through, there's been good rate going through the portfolio. Medical inflation is high, we're carrying that rate. Then you've got your expenses, as I say, it's the combination of us looking at all of that which gives us the confidence of getting to the GBP 100 million. I don't think there's much more I can actually add.
No.
On the Solvency bridge, Charlotte?
The Solvency bridge, yeah. It's, I mean, it's obviously early in the year to kind of bridge to the full year. I think, as you say, there's the 7 points that we guided to coming from Direct Line. There's probably, if you think about the sort of regular capital build each quarter, then, you know, if that's 3 a quarter plus a little bit for management actions, then I would say that's a 12-point build for the remainder of the year. That's 12 up, 7 up, then there's probably about 5 to pay for the interim dividend. You know, that would take you to mid-180s. That's sort of excluding market impacts, either positive or negative, which I think makes sense because as you can see from activities, you know, we're relatively insensitive to movements.
Even if I look what's happened since Q1 with, you know, swap spreads being around 20 points up, you know, the sensitivity means that kind of, you know, that's relatively small. Those are the main obvious blocks, and then there's the kind of market moves.
Thank you.
Okay, thank you.
Thank you. Our next caller is Andrew Crean from Autonomous. Your line is now unmuted. Please go ahead.
Thank you. Good morning. Sorry, I'm gonna come back to the BPA thing. It, low teens IRRs, given how little capital now is being used now in sort of gilt-heavy strategies, doesn't argues for a substantial decrease in the profitability. Could you just talk a little bit about when you say low teens, are you loading it at 100% solvency or a higher rate of sort of 175%? Secondly, I wonder whether you could give us the new business profits for the wealth division, which you used to give. Thirdly, could you talk about the growth in your direct wealth business now, how big is it in assets is your direct wealth business now?
Thanks, Andrew. Charlotte, do you wanna pick up the first two, I'll pick up the third one.
Look, on the IRR, we do allow for a solvency buffer in that. It is kind of more like the 145, 150-ish, kind of that sort of level. It's not just a pure, a pure 100. I think we are factoring in fully, you know, what it, what, the capital strain that's on there in a real way and achieving more than the weighted average cost of capital.
On the metrics that we've given for wealth, we think that the business is best modeled using flows, revenues, and expenses. Kind of at the back, we've given you the gross flows, so page 6, which we historically have only given at the full year and half. You know, in our view, you know, that is the most relevant way to business and rather you focused on it like that. I know that, you know, in the past people have liked to add up the components for an IWR, then it's been dominated by the wealth piece which, you know, for which this metric is the least relevant.
We are moving away from that metric going forward.
On direct wealth. You know, we've made really good progress in direct wealth. Customer numbers are up 30%, and they've now passed the 100,000 mark, and the net fund flows are up 56% as we continue to see strong demand, particularly in the weeks prior to the tax year end. We expect that to continue to grow, obviously using brand, enhancing the proposition, and the way that we optimize our marketing. I think the other area, obviously, a focus here is the introduction of the targeted support rules. I think they've definitely got the potential to transform how we support our consumers with their pensions and their investments, and we're developing that targeted support service, and we're now in the process of seeking the formal regulatory approval, and we're aiming to launch that in the summer.
Our first two use cases are gonna be in the pension space, which are slightly more complex, but that's where we believe the bigger opportunity. Obviously that plays into stimulating U.K. growth by enhancing customers' access to the financial products. It's innovative, we're reducing the, you know, there's some reduction in regulatory barriers. We, we honestly believe there's a really huge opportunity for us here given the size of our customer base across that sort of wealth and the heritage book, and possibly, you know, utilizing artificial intelligence with the, with our position in workplace. That, that sort of all flows together in terms of supporting that continued growth in direct wealth, Andrew. We're quite keen on that, obviously.
What were the assets in direct wealth, AUM?
What was that, guys? We got that here.
I don't have that in front of me.
It's about GBP 4 billion, I think, Andrew.
Okay. Thank you.
Thank you. Our next caller is Larissa van Deventer from Barclays. Your line is now unmuted. Please go ahead.
Thank you very much, and good morning. On my side, focus on 2, please. The first one, on commercial pricing, you mentioned a soft pricing environment. Could you give us a sense of your outlook for when it may harden and to what extent, along with your expectations for retention if you do harden, if you keep your.
your pricing elevated. The other one is on workplace. Very strong flows now, up 71%. Should we take this as the new normal or are they one-offs that we should take into account when we consider how this may grow going forward? Thank you.
Okay, thanks. Larissa van Deventer, I obviously spoke quite a lot about commercial lines earlier on, maybe I'll just focus more on your, the outlook point, because I think we've told you where we sort of are.
Yeah
where we are today. I think the outlook suggests that pressure on rates will remain with elevated competition throughout the year. You know, just to be clear, I'm gonna use the same word, underwriting discipline is firm. I've talked to you about our rate adequacy and, you know, the rate dynamics do vary line by line. Some lines are still positive, others are not. You know, I won't go through the whole 20, I think, you know, if you looked at the Marsh index, we wouldn't be dissimilar. We would be seeing the same sort of things that they're seeing. In terms of opportunities though, they do still exist.
You know, we've talked about the dual stamp platform, the new, the seven new products we've been able to launch through Probitas that the specialty lines and we will continue to prioritize margin over volume. I don't have, you know, an indication of when the market will harden. I just, I can't tell you that. I think for the, you know, we would say that certainly for the course of this year, we would see it being similar to what it is today. Clearly, you know, tactics and everything else will change by different insurers according, and responding to that.
You know, I think that with an insurance business and, you know, like I say, done it, been in this for such a long time, the absolute key thing is to keep your discipline in a soft market, to keep your relationship with your brokers strong, to look after your customers, to be there when they need them, so that when the market hardens, you've got all of those relationships and you've got everything that you can really work on. That's the way that we will be playing it. We're not in this market, out of this market. We are long-term players, as we always have been, and that's the way that we'll be continuing to focus on it, whether that's in the U.K., in Ireland, or in Canada.
In terms of workplace, remember Charlotte actually said in, you know, we lost a large scheme in the first quarter of last year, so there is an element of that in the first quarter of this year. I think that's how you should think about it. Also, I would say the momentum is incredibly strong. You know, you're looking at this GBP 1 billion of regular contribution monthly coming from the existing schemes, a high retention rate, a high win rate, 112 new schemes in the first quarter, and the Mercer scheme still to flow through over the next 12-15 months. That isn't in these numbers yet at all. We started that in April and that builds over the period. You know, I think.
Yeah
You know, there's more to capture. Charlotte?
All I would say is don't build your model on 71%.
No.
increasing each time. You know, the GBP 2 billion of workflows plus kind of like thinking all of those factors, you know, that is, that is par for the course.
Thank you.
Thank you.
Thank you. Our next caller is Fahad Changazi from Kepler Cheuvreux. Your line is now muted. Please go ahead.
Thank you for taking my question. Could I just ask a bit more about the U.K. commercial? You mentioned 60% was mid-market. Presumably that's Q1. Could you just tell us sort of how much is GCS for the whole year? Could I just confirm you said Q3 and Q4, sorry, Q2 and Q3 were important quarters for GCS. Could you just confirm that? The other thing I just wanted to ask about was on Canada. You were rolling out your, looking to replicate your garage network, I believe, or in Canada, which you were doing in the U.K. I was wondering how that was progressing. Thank you.
Thank you. On the way to think about commercial lines, and I think Charlotte said, looking at the whole portfolio of the what we call SME, which I, you know, admit is very confusing, is what we call internal U.K. commercial. Mid-market is around 60% of that, with the balance being digital and schemes business. Then obviously we've got the GCS business and the Probitas business that sits on top of that. In terms of the way that in the GCS business, the sort of larger business, the way that it works is that, I'm, and these are not exact numbers. Q1 is about 20%, Q2 is about 30%, Q3 is about 30% and Q, sorry, 20% and Q4 is about 30%.
It's about 20/20, 30/30, I think. That does add up to 100, I think. I think that's pretty much how to think about it. April has got off to a good start on that. As far as the garage network in Canada, yeah, we continue to invest in that garage network. The ambition is to in-source the claims value chain, 'cause obviously we see the real benefit of that in the U.K. where we've got an average cost per claim saving of around GBP 500. I think we talked about that at the full year. As we sit here today, the Aviva AutoCare centers in Canada accounts for around 10% of claims.
We'd like to bring that over 30% over time, coupled with the deeper relationships with our dedicated suppliers, that'll improve the overall indemnity spend, you know, we believe considerably. In Canada, the severity savings from what we call our captive shops are currently averaging around GBP 580 per claim, with year to date savings at, you know, relatively modest we've only just started it. We continue to strengthen the network. We'll, I guess we'll have more to say on that. The brilliant thing here is that the Solus team in the U.K. have been spending time over in Canada. They've helped the team set up the garages. You know, we feel very positive about that.
Great. Thank you very much for that.
Thank you. Our next caller is William Hawkins from KBW. Your line is now unmuted. Please go ahead.
Hello, Amanda and Charlotte. Thank you. I do, would like to come back to expenses, please. I'm picking up on what you said to Thomas. On the non-life side of the business, I've been doing a lot of work, and it still stands out that Aviva's expense ratios in non-life are a lot higher than the other big five composites. There may be big problems of definition in this, which I accept, but I guess I'm just kind of wondering when you're doing your own assessment about where you've got best practice and where you can improve, you know, what are you looking beyond Direct Line? You know, is it just all about the Direct Line synergies, or is there a lot more stuff that you can do?
I'm not suggesting cost cutting is the only thing in life, but the difference in the ratios is quite an outlier. Secondly, please, also, just back to how you're thinking about how the synergies play through. If we take 2028 non-life expenses relative to 2026, are they going to be lower because of the synergies? Ultimately, you know, could they still be flat or higher because you've got all the other drivers like business growth and passive inflation, and obviously you're still going to be investing in the business? Thank you.
Okay. Thanks for the questions, William. Obviously I don't know the data that you're looking at, but if I, if I think about the non-life expense ratios for Aviva, you know, this is, you have to here look at the, what the business mix actually is. It's a, it's a, it's purely a symptom of business mix. With Aviva, we have got, yes, a big direct business, but we've also got a very big intermediated business, and we've also got a very successful partnerships business. In that, in that partnerships business, obviously, you know, we are, we are taking the expense and the but we're, and we're, and we're managing those very profitably within a range of combined operating ratio where we're protected on, on the downside.
In the intermediated business, you've got the commission which is payable. You've got to look at all of those things together. I think honestly, having tried to do this for many years, it's almost impossible to put every business side by side unless you know exactly what the business is. The other point is some of the bigger insurers will write a lot of business net and not with full commission, whereas a lot of our business is SME mid-market and therefore we will write that with commission. Difficult to see through. The other thing I think which always adds a little bit of a specialty in the mix here is the way that you look at insourcing and outsourcing and things like adjuster costs on claims.
People deal with those differently. Your point around definition is very well made. There will be major definitional points depending on the way that you're looking at it. You know, I mean, look, you know, very happy to sort of take it to take it away. We will have, obviously at the full year and half year, we always have more exposures, but what we see is our expense ratios improving, and continuing to improve over time, but we're, you're never gonna be able to remove that element of commission of the intermediated costs when you've got such a big intermediated book of business. I don't know, Charlotte, whether you've got any more to add on that.
Not really, other than to get, to give you the assurance that we, you know, we're very focused on costs and, you know, internally we're always doing what benchmarking we can do and focusing on what good costs are. If there's volume driven cost and it's supporting top line and, you know, customer growth, then obviously that's really important cost, whether that's marketing or making sure that we've got the personnel to be able to deal with it. Always looking at how we supplement people costs with, you know, automated abilities to make them more efficient. There's ongoing inflationary pressure, you know, that we have to look at for our workforce.
You know, we have good contracts with outsourcers, you know, to kind of manage and keep on top of that. You know, there is constantly, you know, the battle against inflationary pressure. You know, we're always looking at how do we drive productivity and savings, how do we kind of do things best both for the customer and from an efficiency perspective, and all of that kind of, you know, continues. I think as we continue with the efficiencies out of Direct Line, that will drive, you know, and that's kind of 2 points of the COR development. We've got, you know, 2 points of business improvement coming across the piece, which some of which will come from efficiency savings. Sorry, 7.
Kind of like it's all together, but you can be rest assured that we're very focused on it.
Okay. Thank you.
Sorry to be cheeky, but can I come back?
Go ahead. Yeah, go ahead, William. That's fine. Please come back.
Thank you. I'm sorry to be Very sorry. Just to push you, I'm still just trying to get clear. Does that mean that 2028 expenses are highly likely to be lower than 2026 expenses? Because of all the other moving parts, is that just too simplistic a way of looking at it?
I think that's too simplistic. you know, we haven't made all the decisions that will drive us to 2028 yet anyway. Opportunities come, like if partnerships come and we have to, you know, add cost in order to do that. I mean, there's so many different, you know, then there's the inflationary drivers. There's, it's too simplistic. you know, we'll be very focused on the ratios and keeping it as efficient as possible.
Look, you know, we sit here today thinking about artificial intelligence and what benefit that can provide to the business. I mean, we're just at the sort of beginning.
Beginning
of that. I think it's, it would just be impossible for us to say. You know, to just reinforce what Charlotte said, our focus is always on delivering the lowest cost because, you know, if we're inefficient, we pass that on to our customers, and they can make choices about where they wanna place their business.
You know, it's a competitive market. We need to be able to price well. If we're pricing well, we have to have an efficient backend in order to be able to do that.
It's all about the efficient backend.
Yeah
Charlotte. That's what I say. Right. Next question. I think this is our last question.
Thank you. Thank you.
Abid.
Thank you. Our last caller today is Abid Hussain from Panmure Liberum. Your line is now muted. Please go ahead.
Hello. Morning, all. Thank you for squeezing me in. I've got a couple of questions. The first one, I'm sorry to say, is coming back on the BPAs. I'm just trying to understand what are your minimum IRR hurdles. It looks like your margins are now compressing and you're sort of at the low teens. That sort of low teens number is difficult for me to reconcile with those quoting a greater than 20% lifetime IRR. Just wondering if you can help us reconcile the two. Is it, you know, something on the asset side, the capital side? Just wondering what, you know, what's your equivalent lifetime IRR, if possible? Just an aside on that, would you ever consider switching to a capital-light fee-based model on BPAs? That's the first question.
Slightly long, sorry. The second one is on motor. What's the claims inflation outlook that you're pricing for across the rest of the year? Do you think that that is broadly being priced in, fully being priced in now across the market? Thank you.
Okay. Charlotte, do you wanna do the first one? I'll do the second.
look, I think on IRR we've had a and I think the Let's, let's provide a little bit more detail when we do so at the half year. Although I don't see that there's a huge amount of good disclosure on the methods that peers are providing either. you know, ours is, ours is, you know, bears in mind the WACC, which is you know, around 9 or so %. It's definitely applying the solvency kind of buffer, if that's the right word. kind of it's not just a required level. It's with the expected return or the return that we need on it.
You know, low teens is therefore the hurdle and is a good use of capital and drives a good return on that use of capital. I think probably you know, that's as far as I'll go today but, you know, we take, I think, on board the feedback of people wanting to understand this a bit more, and we'll do it at the half year.
Thank you. On, on the, on the final point, inflation, motor inflation is around mid-single digits. I would just say, you know, from our perspective, therefore, you know, obviously we're pricing for that. We are price adequate in the motor portfolio. You have to layer on top of that the benefit I talked earlier about the supply chain, the models, the, you know, the scale of the portfolio, which will allow us to drive, I would say, better prices out of our supply chain than perhaps others can, which will sort of mitigate some of that inflationary impact. We feel very confident about that. I think that might be the end of the questions.
I mean, that's been a whole hour for a trading update, which is fabulous. Thank you all so much. You know, I'm sure there'll be questions you wanna follow up with the team. Please do. We take on board the feedback about the IRRs, and we will have a look at that. You know, it is only a trading statement, as we always say. It's been very good to answer your questions to get a feeling of what, you know, what you're, you know, what you're thinking about. Thank you very much indeed, and we look forward to seeing you soon. Thank you.