Good morning, ladies and gentlemen, and welcome to the Aviva Q1 analyst call. I will now hand over to Aviva's Group CEO, Amanda Blanc.
Good morning, everyone, and welcome to Aviva's first quarter update. I'm joined by Charlotte, as usual. I'll give a brief overview and then hand over to her for some more details before we take your questions at the end. I think it's been another great quarter for Aviva, making really great progress. We've demonstrated once again that our strategy and the diversified business model that we have built is the right one. We've posted excellent trading results this morning, delivering attractive growth across key product lines in insurance, wealth, and retirement. Our capital position remains strong at 196%, costs continue to fall, and our GBP 300 million share buyback is nearing completion. We remain confident in our targets. We are confident that we'll beat our cash remittance and OFG targets, and we're on track to hit our cost savings target.
This will support our growing dividend, and we're anticipating supplementing this further with regular and sustainable capital returns in the future. We are fully focused on our four strategic priorities, and we've continued to make progress against each of them. Putting customers first is central to our strategy, and we're continuing to deliver for them. This includes launching a new restricted advice offering in Succession Wealth and a new digital direct product in Canada through our RBC partnership. We've been supporting customers in the U.K. through short-term financial difficulties while ensuring their coverage continues. On growth, it's been another excellent quarter for Aviva. We've delivered 11% growth in general insurance with disciplined pricing. Health and protection also grew by 11% as strong customer demand continues. Wealth net flows remain resilient at 6% of opening AUM, with a particularly good performance in workplace.
In retirement, BPA volumes were up in the quarter as we wrote the GBP 850 million Arcadia scheme. As of today, we've written GBP 2.4 billion of BPA volumes year to date. Aviva Investors delivered positive external net flows, a good result in a challenging macro condition. On efficiency, costs have come down a further 1% in the quarter as we continue to simplify the business, an impressive performance in an inflationary environment. Finally, on sustainability, we're continuing to make a real contribution to communities across the U.K. We recently announced a GBP 100 million investment in the development of affordable accommodation and university facilities. Our partnership with The Money Advice Trust is helping small businesses significantly reduce their debt. To summarize, we have continued to show very strong, consistent progress throughout the business. Our results today demonstrate once again the value in our diversified model.
We have grown across our key product lines. The outlook is positive. Thank you. With that, I'll hand over to Charlotte.
Thanks, Amanda. Good morning, everyone. It's great to be here talking about another really strong set of results. I'm pleased to say that the trading momentum across the group remains very positive. Our capital position is extremely healthy at 196%. Our asset portfolio continues to perform well in a volatile market. As Amanda mentioned, we continue to see costs come down as we maintain our focus on efficiency levers. I'll start with our business performance highlights before covering the group topics. In protection and health, sales measured on an APE basis were up 11%. We saw growth of 16% in individual protection with the highest level of monthly new applications in March, whilst group protection was down owing to a particularly strong prior year comparator. In health, sales were excellent, APE up 25%.
Demand for private medical insurance remains high, particularly from large corporates as we continue to strengthen our offering. VNB for protection and health was up 6%, driven by volume growth. Wealth net flows of GBP 2.3 billion represent a resilient 6% of opening AUM. They are 15% lower than last year as market volatility continues to impact investment activity. We won an impressive 134 new workplace schemes and saw high retention in the period, which alongside the impact of wage inflation contributed to an excellent 25% growth in net flows. We are the number one player in this space, and the business continues to go from strength to strength. In platform, as you would expect, the trends seen in the second half of 2022 continued. Net flows were 53% lower as cost of living pressures dampened investment and switching activity.
Importantly, though, we saw a surge in late March ahead of the tax year end, and we've seen an increase in the number of accounts with more than GBP 1 million in savings. We have a really attractive proposition that is admired by advisors, and we are well positioned to benefit when the market returns. In the retirement business, BPA volumes in Q1 were up 26% to GBP 1.1 billion and included an GBP 850 million deal with Arcadia. Today, our year-to-date volumes are GBP 2.4 billion, including a GBP 900 million transaction with Thomas Cook announced earlier this month. The pipeline remains positive, and we are confident in our ambitions. The higher interest rate environment increased consumer demand for individual annuities up an excellent 47%, but reduced demand for equity release. On VNB, in Q1 we have refined the methodology for the annuity business.
We previously used actual asset mix and reinsurance for the calculation. We now apply the target asset mix and reinsurance cover. This change should reduce the volatility in quarterly results and better reflect the trading performance of the business. The prior year comparative has been restated in line with this new methodology. Across annuities and equity release, VNB was up 73% to GBP 29 million, reflecting the higher volumes and a better target asset allocation. Moving now to General Insurance, where the business has delivered disciplined and profitable growth. Premiums grew 11% at constant currency. This included double-digit growth in both commercial and personal lines as we remain vigilant and continue to price appropriately in the high inflation environment. Group COR was 95.4%, 0.3 points lower than last year.
This is presented on an undiscounted IFRS 17 basis, which is the basis on which we manage the business. It's a good result, and clearly we continue to look for improvements as we move forward towards our ambition of below 94% over time. Now including the impact of discounting, the COR was 91.8%. In the U.K., premiums were up a pleasing 13%. Commercial lines grew 15% with strong new business and retention, supported by the continued favorable rate environment. Personal line premiums were up 12%, reflecting actions to rate ahead of inflation and growth in the new Aviva Zero proposition and in high net worth. You'll recall from the recent Personal Lines in Focus session that these are targeted growth areas.
We signed a five-year distribution agreement with Nationwide Building Society to provide travel insurance from May next year, which will take us to number one in the market. During the first quarter, we increased new business rates by 12% in motor and 8% in home, and we have been putting through further rate increases in Q2, with more still to come as we maintain pricing discipline. A half point improvement in the COR to 98.4 reflects favorable weather, partly offset by some adverse PYD. This is primarily in commercial lines and relates to a small number of complex cases. In Canada, premiums were up 9% at constant currency. Top line trends were similar to those seen in the U.K., with commercial line premiums up 13% and personal lines 6%.
COR was an excellent 92.4, although higher than last year, this reflects claims continuing to return to more normal levels, which more than offset lower cat activity this year. Turning to Aviva Investors, where external net flows remain positive, a good result in a challenging market. Total net outflows of GBP 1 billion reflect expected outflows from the Heritage business and strategic actions from clients previously part of the Aviva group. Assets under management grew by 2%, primarily driven by positive market movements, which more than offset net outflows. The business continues to focus on improving efficiency through further rationalizing the product portfolio and streamlining the operating model. That covers the business unit highlights, and I'll now move on to the group metrics, starting with costs. We continue to make excellent progress despite the business growth and inflationary backdrop.
Overall, group costs are down another 1% as we make further operational savings through focus on cost initiatives and simplification. Our cash and capital positions remain strong and resilient. On capital, the group Solvency II cover ratio reduced by 16 points during the quarter to 196%. The final dividend and share buyback account for seven points and four points respectively. In February, we made the pension scheme payment as previously committed, which reduced the cover ratio by a further point. The remaining four points comprised of operating capital generated, which was more than offset by the interest, the impact of interest rate reductions and lower property prices, as well as a timing mismatch of reinsurance due to be placed for BPAs written in Q1.
The pro forma cover ratio is 193% after allowing for the redemption of the Tier 2 notes that we announced last week. Liquidity remains healthy and largely unchanged from full year at GBP 2.1 billion at the end of April. Our GBP 300 million share buyback is nearing completion.
Finally, our high quality shareholder asset portfolio remains defensively positioned and continues to perform well. We've published some supplementary slides today providing the usual update on our portfolio, I won't go into any further detail at this point. To sum up, we've had another strong quarter of delivery, The outlook for the business remains really positive. We are on track to meet or exceed our key targets, The positive outlook for cash generation supports our growing dividend, We anticipate further regular and sustainable re-returns of capital to shareholders in the future. That brings me to the end of my review. With that, I'll hand back to the operator to manage Q&A.
Thank you very much. If you'd like to ask a question this morning, please press star one on your telephone keypad now. If you wish to withdraw your question, please press star two. There will be a brief pause whilst questions are being registered. Thank you. With that, we have our first question. It's from Thomas Bateman at Berenberg. Thomas, your line is now open. Please go ahead.
Hi. Good morning. Thanks for taking my questions. Just on asset risk, I guess we've seen a little bit of a headwind on solvency ratio. Can you give us what the impact from weaker property prices and interest rates were on solvency, and potentially where you see any further risks? Second question on bulk margins, it's always a little bit difficult to see the underlying direction of margins on BPAs from the reported figures. Can you give us a feel for the pricing dynamics and margins in bulks? Finally, just on wealth flows, although a bit weak, still positives, is the acquisition of Succession Wealth having an impact yet on those wealth flows? Thank you very much.
Okay, Thomas, thank you for those questions. Maybe Charlotte can pick up one and the first and second question, and I'll pick up the question around Succession Wealth. Shall I start, Charlotte, as well?
Yeah.
to give you a chance to pull together some of the other stuff. Look, I think that we're really pleased obviously with the way that the integration with Succession Wealth is going. We've launched the restricted advice proposition, and Succession Wealth have been able to undertake a couple of M&A, adding 22 advisors with the G&E Wealth acquisition. It's GBP 800 million of assets under advice and a recent acquisition in Scotland of Spence and Spence at GBP 170 million of assets under advice. Overall, you're not seeing those numbers come through yet in the wealth business. We would expect that to be, to kind of start to come through at, you know, during next year.
I think we have actually moved sort of internally very fast to enhance the proposition for our customers. It's a better service, a better platform, better solutions which are being provided also by of Aviva Investors, and those are being rolled out to the retail customers. We're very positive about it, and we will do a deep dive in the fourth quarter, probably in October, to give some more detail around the integrated wealth proposition, so how Succession Wealth fits with the rest of the business. You know, I think, you know, very early days clearly, but making a very positive difference so far. Charlotte.
Yeah. On the solvency effect of the asset risk, I would say that in the period we took a couple of points in relation to property. And on interest rate movements, again, you know, we saw a 30-point drop in the U.K. 10-year rate and again, that's a couple of points. What we've seen in rates since then is it's largely moved back. The, you know, the outlook since Q1 on rates has come back. I mean, overall the property, you know, our exposure to the asset portfolio is incredibly high quality. And of course we, you know, we have some property risk through the commercial real estate, but it's all very strong. On BPA margins.
Look, I think here we've seen it continues to be a competitive market. We've seen some improvement in our margin year on year compared to the first quarter. Some of that relates to the target asset mix. You know, in particular, we've got more in corporates versus gilts than we had in the target profile this time last year. It does remain a competitive market for all the volume discussions. You know, people are looking to get those deals away, you know, but a positive movement.
Thanks, Thomas.
Thank you very much. Our next question is from Ashik Musaddi from Morgan Stanley. Ashik, your line is now open. Please go ahead.
Thank you, good morning, Amanda. Good morning, Charlotte. Just a couple of questions I have. One is on combined ratio. Now what we notice is your combined ratio guidance is about 94%. I guess this is not just a specific this year guidance, but this is a generic guidance, whereas your printed number for first quarter is 95.5%. How would you say this year is going to progress from 95.5? I mean, are we progressing towards 94, or you think the first quarter is a good reflection, because inflation continued to remain high and the current print on U.K. inflation is still again very high. Any color on where this 95.5% is trending for the year would be helpful.
The dynamics between Canada and U.K. Second question is on P&C. I mean, clearly premiums were very strong, double digit across personal lines, commercial lines, as well as within geography as well. P&C premiums were very strong, is it possible to get a bit of color about the rate and volume effect in U.K. and in Canada? That would be very helpful. A small one on platform. I mean, platform flows were down 50%. Not a surprise given the markets. Any color on what are you seeing right now? Thank you.
Okay, Ashik. Charlotte, you wanna pick up one and two, I'll pick up the point on platform flows.
Yeah, absolutely. As you say, 95.4% for the group core at Q1 compared to 95.7%. You know, with what we see across the piece is a continued return to frequency normality, so that's the same in the U.K., it's the same in Canada. We took, you know, we talked in March about the reinsurance renewals that came in at the beginning of the year. We're pricing for that, but takes a little bit of time to earn through. Again, that would be a positive trajectory as that does. We're continuing to rate ahead of inflation, which is also continuing to drive through. You know, as you see in this time, you know, Canada a really healthy 92.4%.
You know, ahead of that 94 long-term objective. U.K. a bit behind, but improved year on year. It's a, it's a longer term, it's an over time overall objective to get to sub-94. I think in terms of rating, your question was across the piece, wasn't it? It was, it was, it was Canada and the U.K. Yeah. If I take, you know, broadly across our portfolio, it's 50/50 PL and CL. If I take it sort of area by area in U.K., which is... six... Yeah, yeah. Okay. If I take personal lines in the U.K., you know, here we can see really good pricing that we've put through ahead of inflation.
If I take PL motor rates, you know, up by about 12 points, home by about eight. You know, we were seeing in inflation a little lower than that. Essentially for the U.K., it's about 60% driven by rate and 40% driven by volume. And the NPL. And the volume there is in, as I said in the prepared remarks, it relates to the products where we're really looking for growth. The high net wealth and the new other propositions. In UK commercial lines, it's about 50/50 rate and volume. Then in Canada, it's a similar sort of picture.
Okay. On the platform flows. Here obviously what you've got is a two sides to a wealth story.
Workplace is obviously very strong with a number one player, and we've obviously got a, even though I say so myself, an amazing proposition. The progress has been strong, and what workplace is experiencing is higher increments and new business volumes, and we expect that new business pipeline to grow into 2024. Very strong in terms of performance and outlook. I think on the platform side, clearly it's been more challenges with the advice business impacted by cost of living increases and subdued new business activity. I think you've seen that from sort of across the market. I don't think our performance is vastly different there. Also it's set against a particularly strong Q1 2022.
We are seeing consumer behavior somewhat, you know, shift as they're sort of being a little bit more cautious I think and thinking about the cost of living crisis. On saying that, you know, we definitely saw good performance towards the back end of the quarter one as the tax year-end came in. We've, you know, we've seen strong performance, you know, in that end of that quarter and starting into April. We're very conscious of the external environment, and I think we'd have to see an improvement in the external environment, I think for the advisor platforms to increase significantly. You know, this is where the benefit of having a workplace business really pays off.
Great. Thank you. Thanks, Amanda. Thanks, Charlotte.
Thank you. Our next question is from Rhea Shah from Deutsche Bank. Your line is now open and you are free to ask your question.
Hi, thank you. Two questions from me. The overall VNB margin, now that you're accounting for it on your target asset mix, is that the right margin to look out for the full year as well? Is the margin for the first quarter a good guide for 2023? The second question, in the statement you talked about continuing to see opportunities for investment. Could you just outline a bit more around that? Are you looking at more bolt-ons where there are gaps or organic improvements in the business?
Okay. Thanks, Rhea. Charlotte, do you wanna pick up the first one? I'll pick up the second one.
Yeah. So we use the target approach for both the asset mix and the reinsurance. It means that there's sort of no timing consequences, you know, if we, for instance, place reinsurance after the quarter end, but we've done the transaction before, which is the example this time. Each quarter we will, you know, effectively bring the things together so that you don't get that timing mismatch. That's what we will do each quarter. I think at the end of the year, you know, again, it's a similar sort of consequence. If we've got something straddling the year, we'd need to make sure it was appropriate to include it within this year. Essentially, that's the approach that we're taking going forward so that you get the mass match.
Then if I look at it, how it's gone from year-on-year, you know, we Last year overall, we exceeded our sort of target. In terms of asset mix, we were richer in terms of the illiquids and as we progressed through the year, we moved more to the corporates and away from the gilts. The strong margin that you saw for last year was a reflection of how we achieved. We went into this year with some assets in the warehouse, so we were very quickly able to get to that. You know, the target versus actual is very close for the asset mix as we turned into the transactions we've done this quarter.
This time last year, for instance, the Q1 margin was relatively low, in terms of the target, but later we improved it in what we were actually able to do. You know, I think you're always gonna look at those dimensions, but last year was incredibly strong, which we wouldn't expect to necessarily repeat, but we are hitting the target levels that we've set, and that's what you can see in today's margin.
On your second question around opportunities for investment, I mean, clearly we're in the great position that we have a diversified business where we can allocate capital accordingly, you know, where we think we can make a great return.
There are plenty of opportunities for investment, so obviously into bulks, and we've already spoken about that. Also if we look at the wealth side, you know, there's opportunity to enhance our Master Trust proposition, which we've done. We've won workplace schemes. Clearly that is an investment that the business is putting into what we see as a key future growth engine. There's a direct wealth opportunity that we're looking at, you know, future investment into that. The health business, the growth doesn't come without investment, both in terms of, you know, whether that's marketing spend, operational spend, you know, getting the supply chain in place. Charlotte talked about the Nationwide deal. I mean, you know, that puts us as number one into travel.
In the last three years, effectively what we've done is given ourselves a number one position in both high net worth and in travel. I think, you know, that is us investing in the business and us giving ourselves, you know, a really strong market position in Canada, in digital direct, and in simplification of the business to make us as more efficient. There is plenty of opportunity for us to invest, and I think we feel that that investment is actually coming through in these results as you've seen some, you know, some strong growth in the business. You know, we see those opportunities continuing. We're very, very optimistic about the opportunities for growth in the business, and therefore we'll be able to allocate capital appropriately.
Thank you very much. Our next question is from Farooq Hanif from JP Morgan. Please go ahead. Your line is now open.
Hi, everybody. Thank you and good morning. Just going back to the combined ratio, could you set out the net impact of better weather versus additional reserving overall? You know, if you had weather in line and PYD as zero, what would that do to the combined ratio? Just so we can get a sense of the net impact of that. Secondly, you've still had some negative strategic actions in asset management from, you know, I guess disposed businesses. What more do you expect? Right. Lastly, when should we expect the next decision on level of buyback or capital return? Is that, yeah, full year 23 results decision? Thank you very much.
Okay. Charlotte, do you wanna do the first one? I'll do the second two.
Yeah. Look, on combined, we don't provide that split, at this point. It's a trading update. You'll see all of that, at the half year, which is a more sensible time to see it 'cause you've got, you know, full six months of performance. We're not providing that today.
On the strategic asset, sorry, actions in Aviva Investors, we would expect, I think, to see some continuation of the corporate activity flow through, a small amount in the second quarter of Q1 2023. You know, I think you will expect to see that. I think what's positive about the Aviva Investors performance is the external flows being positive in the first quarter, which I think, you know, set against what is clearly a challenging backdrop, we see that as a good indicator of what is the art of the possible.
I think also, you know, the strong cost out performance in the business puts them in a strong position, as we look forward. In terms of the buyback and when we'll talk next about the regular and sustainable, I'm surprised it took us till this time to get to that question, it's a good question, and thank you for it. Obviously, we only made the last announcement sort of six weeks ago. I think that we said at that point that it would be something that we would consider with full year results. I don't expe-- That hasn't really changed, Farouk.
Clearly we are sitting here with a strong capital position, and I think, you know, the investment that I just talked about in the business is also paying off. Yes, you know, regular and sustainable returns of capital, but also there will be investment into the business.
Thank you so much.
Thank you. Our next question is from Andrew Sinclair from the Bank of America. Andrew, your line is open. Please go ahead.
Thank you, good morning, everyone. Three from me, please. First was just on the 134 workplace new scheme wins. Just wondering if you could give us any color on size of those and when we'd expect them to be funding. Second was on Succession. You mentioned some M&A, but there's also been some headlines recently about attrition within Succession. I guess some of that would naturally be expected after an acquisition, but just really wondered if you can give us an update on headcount today versus when it was acquired and kind of trajectory for growth within Succession. Third was just on health. Really, really good quarter of sales. Anything one-off in the volumes there and how we should think about trajectory going forward? Thanks.
Okay. They feel like three for me. On the workplace schemes, we don't break that down in terms of, you know, the composition of that. I think you'd expect them to be pretty similar to UK PLC and, you know, I think that we have been winning schemes across all the different sort of range of sizes. I think Emma, and the team have done an absolutely brilliant job with that. We've really enhanced the proposition. I think, you know, that we see a very positive outlook for that. You know, though, as I said earlier, you know, there will be a deeper dive on wealth, which will include workplace when we, when we come back in October.
We will if those are the type of things you're interested in, then we'll make sure that we include that in that session. On Succession Wealth, and the attrition of advisors, you know, having run a distribution business for seven years myself, I'm pretty familiar with advisor attrition. As you know, it's a sort of normal factor of the market. What you've seen there is obviously the headlines of people leaving, but no headlines of people joining. So I would say that we're pretty much in line with where we expected to be. We would have expected, as you quite rightly said, attrition after acquisition. That is broadly in line with our expectations.
I think the M&A activity is really positive and the trajectory for growth is positive. You know, we see with the enhancements to the platform, the enhancements to the proposition that the new restricted advice proposition that's going pretty well. There was a conference which took place in Gleneagles a few weeks ago, really the sentiment that came out from that conference was really strong. On health, there's nothing one-off in the nature of health. I think we are seeing, as Charlotte said, you know, good growth from corporates but also from individuals as people are just, and employers are just more conscious of providing cover at a time when, you know, there are pressures on the NHS. Again, we don't see that changing anytime soon.
We do see a positive outlook, and we're recruiting into that business and obviously looking at our digital propositions to make sure that the digital GP proposition as well as the sort of wellbeing, mental health and all the other supply chains are in good place to be able to cope with that activity. Thanks, Andrew.
Thank you.
Our next question is from William Hawkins from KBW. William, your line is open. Please go ahead.
Hello, Amanda and Charlotte. Thank you very much for taking my questions. On page five, when you show the table of the roll forward of solvency, you've got the GBP 0.2 billion total capital generation both for own funds and SCR. Could you help me by breaking that number down into what's operating and what's non-operating, please? Secondly, again, you know, perhaps as expected, but you're getting great momentum in bulk purchase annuities, running very comfortably against that GBP 15 billion-GBP 20 billion target. Is there going to be any ambition to get more aggressive in that market? Again, I think your target was set before the big changes in market circumstances last year. Thirdly, please, could you help me understand the timeline for further deleveraging actions, please?
You know, it's a kind of structural drag on your solvency for the right reasons. I'm not too sure, is there more to come this year? You know, what would be the pipeline beyond this year, please? Thank you.
Yeah. Okay. I'll pick up the bulks question, and Charlotte can pick up the operating and non-operating and the deleveraging.
Yeah.
I'll start with bulks. Just on the bulks, you're right. You know, we're making good progress on the GBP 15 billion-GBP 20 billion over the three-year period. We would, as we've always said, you know, this very technical term, we expect that to be lumpy. I think we've done well so far this year. As Charlotte quite rightly pointed out, in everybody's rush to gain volume, you know, the market is very competitive. So we will be measured in terms of our response to that. The deals that we've done, we've been very happy with the margins on those deals. We're not going to write volume for the sake of it. It will have to be disciplined. I think we've shown that discipline.
Also because we've got other places that we can allocate capital. We're not, you know, we're not a one-trick pony. We don't just need to write bulks business to be successful. Now, on saying that, if there is an opportunity, if we can write that business at good margin, then we will think about the capital allocation. For now, we're targeting the GBP 15 billion-GBP 20 billion. That's, you know, that's pretty much where we see our appetite as being. If there should be other opportunities, we will of course consider them. I mean, Charlotte on operating and non-operating.
Look, on Solvency II, I mean, we'll obviously provide more detail at the half year. At this point, I mean, I guess I'm gonna largely repeat what I've said that, you know, of the four points that were not the dividend and not the share buyback, nor the pension piece, you know, we did have the usual operating capital generated for the three months there. That was then more than offset by the impact of the interest rate reductions, which, you know, again, I've sort of talked about that being a couple of points and the fact that that has returned.
With rate movements since the end of the quarter and a little bit on the property prices. We had this timing mismatch on the reinsurance on the books that we did in Q1, which was another, you know, just over a point. Those are kind of the main drivers, and you'll see the full disclosure at the end of the half year. In terms of your question on leverage, you know, look, we are 33% now, 31% if you take it on a pro forma basis, which is factoring in the GBP 500 million that we anticipate doing over the course of this year.
Obviously, we announced last week the EUR 300 million Tier 2 redemption, so, you know, that's sort of halfway there. You know, ultimately, we continue to say that we're comfortable above 30%, but expect to return to that level over time. We don't really see leverage as a constraint, and it is affected somewhat by market volatility, which again, in this quarter we've experienced. That's the points there.
Thank you.
The next question is from Andrew Crean from Autonomous. Andrew, your line is open. Please go ahead.
All right. Good morning, all. Could I ask a few questions? Firstly, severity and frequency in U.K. motor in the first quarter, how that's trending. Secondly, not for yourselves, but for the market, I mean, the BPA market, I think people have postulated up to GBP 60 billion of sales this year versus GBP 30 billion last year. Do you think that the market is trending towards that this year, or do you think that that is an overoptimistic forecast? Thirdly, coming back on William's question about the capital generation. If it was minus four points and market movements were minus four and the BPA thing minus one, slightly suggests very weak operating capital generation, only one point. I can't believe that's true, something else is going on.
Okay. Thanks, Andrew. Charlotte, do you wanna pick up one and three, and I'll pick up two on the BPA market. Maybe I'll start with the BPA market. Andrew, I think that target of or what when people are talking about that GBP 60 billion of sales, I think that is slightly dependent on some of these, what are being called bumper or mega deals actually happening. Of course, you know, those sort of deals will take a long time to come to fruition. You know, I don't know whether that would be this year or next year, but I do think that GBP 60 billion would be dependent on some of those really bumper deals actually happening.
On saying that, I think we have to say that the pipeline is very strong on BPA. There's a lot of activity out there. In many, in many cases, obviously our teams are trying to just balance the amount of work that goes into the quotation activity of those BPA deals and, you know, actually the likelihood of winning those deals at the right margin. There's a lot of activity. Whether that activity actually turns into actual volume, I think still is perhaps a little bit too early in the year to say. We all know that there is a huge, huge amount of activity which goes into winning even a reasonable size deal. The, you know, the bumper deals or the mega deals, I think it could be quite complex.
Charlotte, do you want to do the severity and frequency.
Look, I think we're seeing more normalized frequency both in the U.K. and now in Canada. That's, you know, that's a feature. I mean, in terms of severity, nothing sticking out. You know, again, in the U.K. with the Solus network where we drive 80% of the motor claims through, you know, we've got a good grip on supply chain and because we've been pricing ahead of inflation, you know, that's in a reasonable place. We have seen higher motor theft, both in the U.K. and in Canada actually. You know, all the time we're taking actions. We're sort of pushing through the rate as we discussed. I think, you know, nothing more to say on that.
In capital generation, I mean, our general operating capital guidance is about, you know, one point per month. That's the typical guidance. I mean, it was a little lower in Q1, but that's largely to be expected because of the sort of seasonal drive towards the second half, for instance, things around longevity, et cetera. One to two points is about the right way to think about it in Q1, and frankly, that's normal.
Thank you.
Thanks, Andrew.
Our next question is from Nasib Ahmed from UBS. Nasib, please go ahead. Your line is now open.
Hi. Thanks for taking my questions. First one, Charlotte, you mentioned minus two points impact from property over 1Q. I remember Aviva has in the past taken provisions for Brexit and COVID on its property and corporate bond portfolios. I just wanted to check if you've done similar analysis this time around, for example, running a high interest rate scenario. If you have, what were the conclusions or outcomes from this analysis? Second question, I believe you probably don't have to put in more into the pension scheme given where interest rates are. Just wanted to check how far the schemes are from buyout funding levels. Thanks.
Okay. Thanks. Charlotte, are you happy to pick up both of those?
I mean, I think on the pension schemes, you know, they're in good shape. The payment I referenced to the schemes from this quarter relates
Really to the return of capital from last year and that commitment that we made to the pension schemes there. They're in good place. You know, the rates environment is helping the funding position. You know, we continue to do a series of buy-ins to the BPA business from those internal pension schemes, and we did a small one post the end of the quarter, but it's included in the outlook number that we gave for BPA's done to date. You know, all in a good position. I think in terms of specific scenarios, I wouldn't be in a position to disclose that. All I would reiterate is that the asset portfolio is in a very strong position.
You can see that from the additional slides that we've given today. Very strong LTV ratios, very strong coverage of interest payments from the rental income and really clear covenants in place how we can take corrective action. Really nothing more to say on that.
Our next question is from Andrew Baker from Citi. Andrew, your line is open. Please go ahead.
Great. Thanks for taking my questions. Just two please. First one, just on the workplace. 134 plans, that feels an exceptional quarter. How are you winning these plans? Is it purely price driven or are there any other factors at play? Secondly, can you just remind me the strategic intent for the international investments? I think there's about GBP 1 billion of SCR, which still feels quite a big number in a group context. Is there a bias to exit here or do you see yourself as long-term holders in these markets? I guess how much diversification benefit do these businesses provide at the group level? Thank you.
Okay. Thanks, Andrew. On workplace, on the sort of 134 schemes, I actually don't think it's an exceptional quarter. I think the team have delivered brilliantly on those schemes. I think there's a number of reasons why we're successful. I mean, one of them is that our ESG credentials. When we looked at this in 2019, basically only 7% of schemes were interested in ESG, and, you know, and the proposition there. When we've looked at that in 2022, it was up at something like 80%, but in excess of 80%. I think that is something which clearly Aviva has a strong heritage in, and therefore that is helping to win.
I think the platform itself, the functionality on the platform is incredibly strong. I think, look, dare I say, you can't really ignore the Aviva brand and the reputation. You know, when we look at why people make these decisions, quite often, the workplace pension, they also have other products with Aviva, and they feel that the brand is really strong. I think on international investments, I don't think we break down the diversification benefit of those. We have three, as you're aware, India, China and Singapore. I mean, the investment in Singapore is an investment alongside others. You know, and some of those are private equity, and we know that there's always a time horizon on those deals.
We would expect for that. You know, our intention is to hold in India and China. It gives us future optionality, clearly. Both of those businesses are, you know, are delivering for us at the moment and, you know, we have no immediate plans.
Great. Thank you.
Thank you. Our next question is from Alan Devlin from Goldman Sachs. Alan, your line is open. Please go ahead.
Cool. Thank you very much for taking my questions. This is my first question. One of your competitors in Europe said the one place in the U.K. that pricing was well below claims inflation, in their view, was the SME market. I'm just wondering if you're seeing anything similar and 'cause it obviously quite a big market for you guys. If so, what's driving that? Then secondly, on the credit slide, thanks for giving them. I know the LTVs are holding up overall, but is any of the segments, particularly in the office segments, that you are seeing LTVs increase?
In that credit portfolio, you know, what are you worried on or focused on or at least watching? Then the final question, given the large increase in the motor and home premiums, I know you alluded to this at the start, do you think insurers are doing enough to help in the cost of living crisis? Are there any concerns that actually people will be forced to be uninsured or underinsured? 'Cause obviously, that would be bad for the industry if that was the case. Thanks.
Okay. Thanks, Alan. I'll pick up the one and three, Charlotte can pick up two. On SME, the market pricing, I think you said one of the competitors that the line was a bit went off a bit, that they're seeing it well below what it needs to be. I think from our perspective, obviously we're a big player in SME, and the growth that we've seen in SME has been balanced between rate and new business. I think that, you know, that has been consistent over the period. We have a very strong position with intermediaries. We have a very strong market share with intermediaries. The actual book is of a very high quality.
It's also, you know, and a lot about dealing with SME is actually as much rate as it is about the efficiency of the way that you trade. We have, you know, the Fast Trade system, which is incredibly popular with brokers. You know, wins all sort of awards and also makes us very efficient in the way that we manage that. I think it is the combination of how we manage the distribution costs. We've seen good indexation come through. We've seen good rate come through. I think we feel, you know, fairly comfortable about SME, and we see opportunities to continue to grow in that market. Your point around uninsured and are we worried about that? We're not seeing those trends happen at the moment.
I mean, clearly in this environment we are always watching out for fraud, and all of our fraud indicators are, you know, are in place in terms of the way that we handle claims. Also we're looking out for scams in terms of the wealth business to make sure that our wealth customers are protected and, you know, and so that's the sort of areas that we are really focused on, but we haven't really changed, seen a change of people canceling policies.
What we have done in the GI business is seen a move towards the more value-based products. 30% of our sales in the Quote Me Happy range have gone to our Quote Me Happy Essentials range, which I think, you know, is something where people are considering the covers that they want to that they want to take out. On the office portfolio, Charlotte?
On the commercial mortgages, you know, we've seen a little bit of movement on LTVs around the edges, but nothing in particular. I, you know, again, I would come back to the high quality nature of it. The fact that we have positive covenants, protective covenants in place, you know, one of which a trigger would be if LTVs move outside of a range then that gives us an ability to take action.
Again, I think if I look at the split, you know, across the types of property and regions of the U.K. and the quality of the lets and the landlords that we have, obviously we're all over it all the time, but there's nothing to call out.
Okay. Look, thank you for all of those questions. I mean, I think for a trading update, I think we did the full run there. I think we've covered most of the topics now in the Q&A. I'm also conscious of all of your time. I think we're gonna cut it there. I'll hand back to the operator. Of course, you know where to find the team. If you've got any other questions then please let us know. Thank you very much for joining us again this morning. See you soon.
Thank you very much. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.