Aviva plc (AV) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to Aviva plc's Q3 2020 Investor Update. [Operator Instructions] I must also advise you the conference is being recorded. So I would now like to hand to your speakers today, company CEO, Amanda Blanc; and company CFO, Jason Windsor. Please go ahead.

Thank you, operator, and good morning, everyone, and thank you for joining us for our Q3 trading update. I really hope everyone has been staying safe and well in these difficult times. I'm here with Jason, our CFO, who will take you through the Q3 trading performance shortly. But before I hand over to Jason to take you through the 9 months trading update, I'd like to update you on 2 key areas: First, the progress we are making on the strategic options and priorities I set out in August; second, as I promised we would, I will take you through the decisions we have made around our dividend. So in August, I outlined 3 strategic priorities: focus the portfolio; transform performance; and financial strength. The first priority is to focus the portfolio on our strongest and most strategically advantaged businesses in the U.K., Ireland and Canada. These are our core markets where we have market-leading positions, can generate attractive returns and have the right to win. For our international markets, in Continental Europe and Asia, I said we would manage these for long-term shareholder value, and I was clear that ultimately, there may be better owners for these businesses than Aviva. Since August, I'm pleased to report that we have made good progress and have already announced GBP 2 billion worth of disposals, all of which will be accretive to capital. We are continuing to work with a clear purpose and are exploring the options available to us elsewhere. I will touch upon this more in detail at the moment -- in a moment. Our second priority is to transform performance, and we have started to make progress on this during Q3. I am pleased to report that we are delivering robust growth in our core businesses, especially in the key segments where we can achieve attractive margins and have long-term growth prospects. We have seen strong life insurance sales of GBP 32 billion, including GBP 5 billion of bulk purchase annuities in the year-to-date, which is more than double that of last year. There has been a 20% uplift in net fund flows in U.K. savings and retirement, achieving GBP 6 billion. And Aviva investors delivered GBP 1.2 billion of third-party net fund flows. Our commercial lines net written premium is up 9%, building on the double-digit growth we achieved in 2019, and we are being recognized for our success, claiming a clean sweep at the British Insurance Awards last week winning general, personal and commercial lines insurer of the year. This is the first time any company has won all 3 awards together, and we're very proud that our strong product offering and high service standards have been recognized in this way during a very challenging year for many of our customers. On costs, we are on track to exceed GBP 150 million of savings for the full year 2020. Furthermore, I can confirm that we will deliver the GBP 300 million cost savings target by full year 2022 from our core markets of U.K., Ireland and Canada. And we will not rely on any of the disposals to achieve these savings. What is abundantly clear to me, however, is that Aviva needs to deliver meaningful change in order to truly transform our performance. We are already taking actions across a number of fronts. For example, rationalizing the number of projects and legacy platforms; simplifying, automating and digitizing more of our customer journeys; removing the layers of bureaucracy; accelerating the reduction in our property costs and investing in our underwriting claims and sales capabilities. But we need to continue identifying the changes that are necessary, and we need to execute them efficiently and effectively. My colleagues will tell you that they are clear on what is required, and the change is underway. However, despite some initial success, transforming the performance of Aviva will take time, and there is a great deal to do, but we're focused on delivery, and I will update you as we make substantive progress. Our third priority is financial strength. Our Q3 results demonstrate that Aviva's balance sheet is in robust health; Solvency II capital surplus of GBP 11.8 billion; Solvency II cover ratio of 195%, up 1 percentage point from the half year; centre liquidity of GBP 2.8 billion, which will be further strengthened by the disposal proceeds. I am reiterating my commitment to reducing Aviva's debt leverage ratio. We are intending to use the aggregate cash disposal proceeds of GBP 1.5 billion from Singapore and Aviva Vita Italy to reduce debt. And as we continue to work on the portfolio, there will be other opportunities over the next 2 years to do more of this. Let me now touch upon our portfolio actions in more detail. We have made good progress since August in our efforts to refocus the portfolio and have announced GBP 2 billion of disposals. In September, we sold the majority of our Singapore business to a consortium led by Singlife for a total of GBP 1.6 billion. By retaining a 25% shareholding, we hope to benefit from the attractive future potential of that market, and this is consistent with our approach to managing our portfolio for long-term shareholder value. I'm pleased to confirm that we are on track to complete the deal next week, 2 months ahead of our original expectation. Earlier this week, we announced the sale of Aviva Vita Italy for approximately GBP 400 million with completion expected in Q2 2021. We have also completed the disposal of our Indonesian business, and we expect to complete the sale of our Hong Kong interest by the end of this year. We are being decisive, we are focused on delivery. And as you can see, 1 by 1, we are ticking them off. Now I think it is worth saying that you shouldn't believe everything you read in the papers, but I can confirm that we are exploring our options for France, Poland, the remainder of our Italian businesses and our joint ventures. These are complex businesses with multiple stakeholders. And I want to be very direct in saying that it will take time for us to reach a conclusion. We will be disciplined in doing the right thing for our shareholders and our people. We will continue to manage these businesses for long-term shareholder value and will update you as we make progress. Turning now to dividends. I said in August, we would review our longer-term dividend policy in light of our strategic priorities, the future shape of the group, and our ongoing commitment to debt reduction. We are today announcing our new dividend policy, which we believe will deliver a sustainable and resilient ordinary dividend, covered by the capital generation, cash remittances and growth from our core businesses in the U.K., Ireland and Canada. We expect to grow our ordinary dividends per share in the low to mid single digits. Aligned to this new dividend policy, we are announcing an interim dividend for 2020 of 7p per share, which will be paid on the 21st of January 2021. And subject, of course, to the Board's final determination at the time, our current expectation is that the final 2020 dividend would be 14p per share, which would bring the total 2020 dividend to 21p per share. We will not be distributing a final 2019 dividend. This has been a challenging year with significant market volatility, and we have taken the prudent decision to conserve our capital and enhance our financial strength to ensure that we are well positioned through this period of COVID and Brexit uncertainty. We absolutely understand the importance of dividends to our shareholders but we believe that now is the appropriate moment to align our dividend with our new strategy of focusing on the core markets. We have stress tested our capacity and believe that our go-forward dividend will be sustainable and resilient. Future growth in the dividend will be driven by the transformed performance of our market-leading businesses by lower levels of debt and from the benefits of focusing the portfolio. An important component of aligning our new dividend policy to the core markets is to clearly set out our new capital framework. We have been clear that financial strength remains a key priority. And this is at the heart of our capital framework. Our Solvency II cover ratio working range will remain at 160% to 180%, although we intend that our cover will remain above this range as we go through the process of reshaping the group and reducing our debt. We are committed to reducing our Solvency II debt leverage ratio to below 30%. And as we reshape the group, this will likely result in us exceeding our GBP 1.5 billion debt reduction target. Once we have reached a sub 30 Solvency II leverage ratio, we expect to return excess capital to shareholders when the cover ratio is above 180%. This approach is consistent with maintaining our strong credit rating metrics. In terms of how we think about deployment of excess capital, we are absolutely committed to generating strong and sustainable shareholder value. We will look to reduce debt, return capital to shareholders and continue to invest in our core businesses where we see attractive opportunities to do so. We will carefully balance those priorities, and I will remind you that we already have a substantial amount of capital deployed within our core businesses to support growth. Now let me hand over to Jason, who's going to take you through the Q3 financial performance, and will provide some more color on the dividend.

Thanks, Amanda, and good morning, everybody. As Amanda just commented, we're making good progress delivering our priorities. We have strong and resilient businesses in the U.K., Ireland and Canada, and we're confident in our ability to grow in these markets sustainably. And our Q3 results demonstrate just that. Let's look at our core markets first. In U.K. and Ireland Life, we grew PVNBP 40% in the first 9 months of the year. BPA volumes were GBP 5 billion, an increase of 2.3x relative to the first 9 months of 2019 and 25% higher than our volumes for the whole of 2019. This includes a second deal with Marks & Spencer for GBP 400 million. Bulk annuities is an important franchise for Aviva. Our brand, strong corporate relationships and risk management capabilities, all play an important role in supporting disciplined growth with clear hurdles on IRR and capital usage. Health and Protection saw a 6% increase in sales, primarily driven by price increases in group protection and health, while individual protection trading remains competitive, impacted by COVID-19 disruption. Individual annuities and equity release was down 29% in the period as the low yield environment continued to impact demand for individual annuities. Trading and equity release was disrupted by confinement measures. But I would like to highlight that we won the Personal Finance Award, the best equity release lender, for the seventh year in a row, which is a testament to our team and their response during the pandemic. In Savings and Retirement, net flows grew to GBP 6 billion, a 20% increase from the prior year. Our workplace platform continued its strong momentum with flows up 23% to GBP 3.8 billion. Net flows were also positive on the retail platform, up 5% to GBP 2.6 billion. We now have platform assets of GBP 31 billion. Our advisor platform has continued to perform well, ranking third with a 10% share of net flows in the first 9 months of the year. Aviva investors made solid gains, with third-party net flows of GBP 1.2 billion and internal net flows of GBP 3 billion, excluding Heritage. In addition, our liquidity range generated GBP 5.5 billion of external net flows over the first 9 months compared to less than GBP 1 billion in the prior period. Moving on to general insurance. Net written premiums were flat at GBP 5.8 billion. Commercial lines continued to perform strongly with growth of 10% and 8% in the U.K. and Canada, respectively. This is primarily driven by property and liability rate increases, which saw above inflation rate increases and targeted growth. Personal lines saw a 5% reduction in premiums as we continue to prioritize margins over volumes, together with reduced activity levels from COVID disruption. Turning to the next slide, and looking at the quarterly trends for our core businesses. Of course, it's been an unusual year, as the trends show, particularly for individual annuities, equity release and protection. In Savings and Retirement, discrete Q3 flows were resilient but remained muted compared to Q1, reflecting a cautious sentiment from ongoing macro and COVID uncertainty. Q3 volumes for BPA were up 43% on Q2, and this has led to a temporarily lower new business margin due to a timing mismatch with reinsurance and our target asset mix on those Q3 deals. You might remember, we had a similar mismatch in the first half of 2018. And like you did in 2018, we expect our margins to have caught up by the end of the year. General insurance saw lower discrete premiums in Q3 compared to the prior quarter, this was mainly as a result of seasonality. Margins in GI were good in Q3, with strong underlying performance in the U.K. and Canada, partly offset by less benign weather. Our estimate for the impact at Q3 of COVID-19 net claims and general insurance has reduced to approximately GBP 100 million compared to GBP 165 million at the half year. This mainly reflects further frequency benefits in the third quarter. I would also note that we haven't had to change our net BI claims estimate on the back of the FCA test case. As mentioned by Amanda, our international businesses in Continental Europe and Asia are being managed for long-term shareholder value. This means that we will selectively participate in these markets, and we will withdraw capital where appropriate, as seen with our recent announcements for both Singapore and Aviva Vita in Italy. Life new business sales in Continental Europe and Asia decreased by 21% overall as a result of COVID-19 disruption, and our continued actions to reduce the volume of with-profits business in France and Italy as part of our management value strategy. As you can see from the chart, there was a marked reduction in Life premiums in the second quarter of 2020, which has recovered somewhat in Q3, but remains below 2019. In general insurance, trading has been resilient with net written premiums increasing by 4% in the first 9 months of the year. The higher volume in France in Q1 is a factor of seasonality. Now moving on to financial strength, which is obviously one of our priorities. Our Q3 Solvency ratio is 195%, well above our target working range. The 1 percentage point increase in the quarter reflects operating capital generation offset by the payment of our 6p interim dividend in relation to 2019. We also had to correct the application of a rule in our French Life model, which together with model enhancements to better reflect negative interest rates, had a 2-point impact on the group solvency ratio. And this had an estimated GBP 250 million impact on group OCG. It's worth highlighting that our Solvency II position at the end of September does not reflect the approximately 8-point benefit expected from the announced disposals of Singapore and Aviva Vita. And to be clear, nor does it reflect the Tier 2 Canadian debt issued in October to refinance the Canadian dollar Tier 3 note, which matures in May 2021. Our shareholder corporate bond portfolio has continued to perform well with no defaults and less than GBP 15 million of bonds downgraded below investment grade. This compares very favorably with the broader market experience. Our commercial mortgage portfolio was positioned fairly defensively following previous restructurings with solid collateral and low LTV lend -- on new lending. As such, it has remained resilient to date, but we continue to monitor positions very closely given the uncertain and difficult environment. Performance metrics in commercial mortgages have remained broadly stable since the half year. The LTV of the portfolio has not changed significantly, while only 2% of the loans are in arrears at Q3 compared to 1% at the half year. Moving on to centre liquidity, which remained very strong at GBP 2.8 billion at the end of October. We will maintain liquidity of at least GBP 1 billion at centre. So in normal times, this means that ahead of dividend payments, you should expect group liquidity to be in the range of GBP 1.5 billion to GBP 2 billion, in line with what we've said previously. It's important to recognize that as we restructure the group, group liquidity is likely to stay elevated not least, as it forms part of our plan to reduce debt in 2021 and 2022. What I want to do with this slide is explain why we have set the 2020 dividend at 21p per share. To do that, we've set out the expected cash generation from our core business units, simply using the same targets from last year's Investor Day. You can see that the sustainable cash flow from our core businesses is expected to be in the region of GBP 1.6 billion per year. Once we allow for debt incentive costs, we have GBP 1 billion of excess cash flow. And please remember, this is after growth and investment in the business. This allows for a 21p dividend with a comfortable GBP 200 million of headroom. There are additional levers to drive up headroom, including better performance of the core businesses, lower expenses, the reduction in interest costs from redemptions in '21 and '22 and possible options to reduce our share count. Looking forward, we expect to grow dividend per share at low to mid single digits. Crucial to those remittances is the healthy solvency position of our core subsidiaries, on which I will give you some detail on the next slide. On this slide, we set out the Q3 solvency ratios of our 3 core cash remitting subsidiaries and our reinsurance mixer. As you can see, all of the solvency positions are strong. They are all above risk appetites, despite COVID-19 effects and capital markets volatility. I've also shown the key sensitivities for each of these subs. This shows the resilience to rates and spreads, providing further confidence in the cash outlook and the new dividend policy. With the backdrop of COVID-19 and wider macro uncertainty, we've delivered strong growth in premiums and flows in our core markets, while maintaining our financial strength. In the context of the disruption we've seen, these are solid trends. I wanted to highlight some points as we move toward the end of 2020. We expect the second half performance trends to be broadly consistent with the first half. And management actions and other to be ahead of previous guidance of GBP 0.2 billion, mainly owing to U.K. Life longevity, albeit on its own, the longevity assumption change will be lower than in 2019. The impact of the Q4 lockdowns across the group is uncertain, but we are not expecting any significant increase in BI claims. Savings and Retirement is having a strong year, but growth rates are expected to moderate due to strong Q4 comparatives. On cash and OCG, we expect the second half OCG to be broadly in line with the first half after absorbing the France Life modeling change. While cash remittances in 2020, as I mentioned at the half year meeting, will be below 2019, but the second half 2020 will be in excess of the second half in 2019, which is good progress this year. Thank you. I'll now hand back to Amanda to close the presentation.

Thanks, Jason. So to finish, let me summarize the key points: Firstly, we have made a good start to simplifying the group, selling Singapore and now a major business in Italy; secondly, we have a new dividend policy which is sustainable, resilient, and which we intend to grow by low to mid single digits based on our core markets of the U.K., Ireland and Canada; thirdly, we have solid foundations on which we can transform performance and grow our business. We have market-leading positions in our core markets and have identified profitable areas that we can grow. Our robust performance in 2020 demonstrates just that. There is a great deal to do, but let me reassure you that meaningful change is underway at Aviva, and we are focused on execution and delivery as we seek to unlock value for our shareholders. So thank you for that for listening. And now let me hand back to the operator, and we'll open the lines for Q&A.

[Operator Instructions] Your first question comes from Jon Hocking from Morgan Stanley.

I've got 3 questions, please. Starting with the capital return, the debt deleveraging target. You talked about potentially returning capital once the debt deleveraging target is reached in 2022. Is that the end of 2022? Also you've got a couple of big bond calls during 2022. So is it possible we start seeing capital flow during '22? Is it likely to be in '23? That's the first question. Second question, in terms of the proceeds, is the interpretation here that the proceeds minus the debt deleveraging, subject to 180%? So obviously threshold that everything else will come back to shareholders. So is it an implicit message here, there's going to be no material amount of M&A? That's the second question. And then just finally, a little bit more detail on Slide 7, when you're talking about the dividend growth, there's a comment that the dividend growth might benefit from management value portfolio actions. Just a little bit confused about that as all the dividend is being set on this on 3 core businesses. So is the -- won't everything that correctly, is there any chance that you're going to see a step-up in the ordinary dividend through the management value?

Okay. Thanks, Jon. So firstly, I think on the capital returns and the debt deleveraging and the time line for that. I mean, clearly, we're not going to be committed to any time line today. But I think what we've said is that we are exploring all the options in terms of how we manage the value portfolio and that we're also being clear that we do intend to operate within the 160% to 180% solvency ratio. That we will return the excess capital once we have done our debt reduction, which is a key priority for us. That debt leverage ratio needs to be below 30%. And as Jason outlined in his speech, there are opportunities that we will have to do that over 2021 and 2022. But I think in terms of giving specifics on the time line, I think it's going to be quite difficult for us to do that. And I think that goes to the heart also of your second question, which is around the proceeds once we have delevered. So -- I mean we've said the priority is -- it feels like a broken record, I know the priority is debt reduction. So that is what we will do first. We've said the excess capital will be returned to shareholders. But we've also been clear about investing in the business. I think that we've already got significant investment within the business. You talk about M&A. Clearly, at this point in time, we have much on our plate. We have the priorities as we've set out here. But we will never say never on that. Jason, did you want to pick up the third question on dividend growth?

Sure. I think what we've done, Jon, is anchor the core -- the dividend to the core business and the remittances from those businesses. So there is nothing baked in for value or remittances from the management for value markets. So any remittances or divestment proceeds or capital withdraw would be additive to the group's financial strength so we could use that to reduce debt or possibly, in due course, reduce share count, both of which would be additive to the headroom in terms of cash flow per share.

Your next question comes from James Shuck from Citigroup.

So a few things from me. Firstly, in terms of the debt gearing itself based on a Solvency II basis. So actually, what you end up selling anything forward or above only funds will have an impact on that leverage ratio. So I'm just confident -- I'm interested to know your confidence in actually be able to sell things at or above the own funds level. If you're able to give an update on the golden ticket situation in France, please, that would be very helpful. Secondly, in terms of the investment mix, so your solvency level is well above the target range. It's more tricky to actually deploy that capital, and it depends on cash flow and all the requirements around debt. It's easier to reduce that solvency level by increasing your investment mix or the risk profile within that investment risk. So I just want to get an understanding for how you might deploy that solvency through increased capital requirements on the investment side, please?

Okay. So I'll let Jason pick up your second question. On your first question around the Solvency II and own funds having an impact, of course, that's the case. And I think what you'll have seen our disciplined approach to the way that we have handled the first 2 deals, both in Singapore and in Aviva Vita Italy, which have been accretive. And I think that has been something which we have been very conscious that we are managing for value. And I think that disciplined approach will continue. I think as far as France is concerned, as I said, for France, for Poland, for the rest of the Italian businesses and the joint ventures, we are at the stage of exploring our options. Jason, did you want to pick up the second point?

Yes. The -- on the golden ticket, I mean there's nothing to say on that. That's actually -- there's no new news on it. It's behaving very much in line with what we've seen for many, many years now. So there's no new news on that. The -- in terms of capital deployment, we don't have big plans to rerisk the balance sheet. I think we've set out that we've taken our interest rate exposure wherever we can. We don't think that's rewarded. We've reduced exposure at the margin to equities. We've got property exposures and bond exposures, as you would imagine, which is core and integral to the growth of any insurance company, but there is a reasonable level of risk within the balance sheet. We're certainly -- we're not aggressively positioned as we go into 2021 and deliberately so. And I don't see that changing in the near term.

Your next question comes from Oliver Steel from Deutsche Bank.

First question, I guess, is really about timing. I mean it's really hard to understand why you're planning to wait maybe until 2022 before you actually return some of the excess cash you've got. I mean just -- if you're going to use Singapore and Aviva Vita to pay down the maturity debt over the next 2 years, then implicitly, you've already got GBP 1 billion above your immediate target for cash flow -- for cash. And then I look forward, and I can see that you're covering your new dividend cost out of the U.K. and Canadian operations by themselves, which means all of the excess cash flow coming from France, Poland and the rest of Italy, as the next however long until you sell them is going to be in excess of that. So can you explain why you're being so slow in actually returning any cash rather more quickly? I don't think it is there are any other questions, perhaps asking if I lost that.

Jason, do you want to take that one?

Right. In terms of timing, I mean, with the first phase, Amanda has been in role for 4 months. We've managed to announce, not complete, 2 divestments, one, we expect to complete next week. So it's -- it is early days. We are pleased with the progress that we've made so far. As we go into 2021, that is a very big year in terms of the development of the company. We don't want to be drawn today on net specifics around capital return. We've got 2 redemptions coming out in Q2. We've got 1 we've already prefinanced on the debt side, the Canadian one, as I mentioned in the script, we've got 2 more redemptions in Q2, that GBP 600 million that will -- net reduction in Q2. That's sort of step 1. As Amanda mentioned, we've got really big redemptions in 2022. We'll look at all options to reduce debt, but that is the priority. And then depending on how we progress, we'll think through. But what we wanted to do today is give you a very clear framework for leverage for cash and for capital so you can take that and make your own assumptions.

So if I can just sort of follow-up quickly. I mean are you specifically saying there will be no cash return over and above the normal dividend until 2022? Or are you saying that actually, it depends on how things progress?

I think what we're saying is that we're at the early stages of exploring the options for the other markets, in particular, the France, Poland, Italy, et cetera. And that whilst we do that, we said that we will keep more capital above the working range. And we will focus on the debt reduction. So we're just not being specific about the actual time lines today. We're just giving you the framework but clearly, we will not hold on to excess capital. It is our plan to return that when we feel that we have completed the work that we need to do.

Your next question comes from Blair Stewart from Bank of America.

I just wanted to ask the same question, but I won't try and ask in a different way. I'll leave it at that. But a couple more. As you sell down businesses, what's your expectation in terms of what happens to the SCR on a Solvency II basis? Should we just assume that, that reduces in line with the footprint of the businesses that you're being sold? Or are there any that are particularly heavy or liked from an SCR perspective? Just to try and get a better handle on the modeling there. Second question is you said low to mid-single-digit growth on the dividend. I think 1 of your competitors said the same, and that translated to between 3% and 6%. I wonder if you'll be drawn on something a bit more specific? And finally, the U.K. Life solvency dropped a bit during the year. Clearly, lots of moving parts, but just wondering if the increase in bulks had a bearing on that.

Okay. Thank you. I'll pick up the second question if Jason picks up the first and the third question. So as far as the low to mid-single-digit growth, no, we're not going to be drawn on an exact number, it's low to mid-single digits. I think that what we will say is that we are confident about the ability to be able to do that because if you look at the U.K., Ireland and Canada businesses, we have seen already from the Q3 performance that there is -- there is a really strong and robust performance there. So we will continue, obviously, to do that. You saw the growth in BPAs, the growth in workplace savings. We see that the commercial lines market is hardening. So we see the opportunity to really capitalize upon that. We also see the potential to improve the efficiency of the organization. So we've already, again, made progress there in terms of the simplifying, but we also see more opportunity to do that. Jason outlined that, obviously, the debt reduction will reduce the interest cost. So that gives us more opportunity to grow it there. And then the real benefit of focus in the portfolio. So we have to -- you have to note that we have not assumed any dividends from the managed providing market. So we're confident in that, but not to be drawn on a specific number, Blair. But thanks for asking. Jason, do you want to take 1 and 3?

Yes, sure. SCR and intensity, the business is a very, very different. So I think I'll use the example -- there is 2 helpful examples, Singapore and Aviva Vita. We sold 3 quarters of Singapore for just over GBP 1 billion, 1.5x own funds and got 4 points of capital benefit. We sold Aviva Vita for GBP 350 million approximately and got 4 points of capital benefit. So you can see -- at own funds, you can see the difference as it comes through in the group at the level of SCR intensity, particularly the Continental European businesses where the SCR intensity is much, much higher. In terms of U.K. Life, yes, solvency has formed a little bit. I mean partly that's payment of dividends. We have got cash in the group from U.K. Life. There is a little bit of impact from bulks. The temporary point that I mentioned has impacted that by give or take GBP 100 million of capital that will unwind relatively quickly in Q4. And the residual is, as you might imagine, there's been a bit of macro uncertainty this year. So market levels are still little bit lower than at the start of the year.

Your next question comes from Andrew Crean from Autonomous.

It's Andrew Crean. Just 3 questions, if I might. When you do decide to return capital, can you give us some idea as to whether you have a preference for buybacks or specials? Secondly, could you remind me how you define your 30% leverage. Is that done on IFRS or own funds? And if it's IFRS, is it including goodwill and the surplus in the pension fund? And then thirdly, this question, I'm sure you have every capacity to doubt, but it would be helpful if you could give us some indication. What we're looking -- what I'm looking at when you talk about France and Poland and the remainder of the Italy and JVs, it's very difficult from the outside for us to assess how much diversification credit will be lost from the disposal proceeds as you shrink the breadth of the business. If you could give us some sort of percentage impact of that, would be really useful.

Okay. Thanks. I'll pick up the first question and Jason will -- can pick up the second two. In terms of have we decided about whether or not it's buyback or specials, I think we're not committing to that, or how we will return the capital. But one thing I think we will reassure, obviously, we won't sit on that excess capital. The priority is the debt reduction. And once we feel the group is in the right place, then we will balance the return to the shareholders with some investments in our future growth. Jason, did you want to pick up?

Sure. I mean the leverage ratio is on an own funds basis. So that does not include any big surpluses or any goodwill, just to be clear. And then diversification, I mean the proceeds, you said the proceeds would clearly be cash and they wouldn't be affected by diversification. In terms of the capital benefits, I mean it depends. I think I've said in the past that on the non-life side, that is about a 35% reduction in SCR because of the diversification with the Life. I think of the Life businesses, the international Life businesses relative to the U.K. in terms of total SCR reduction, it's sort of -- it used to be 10%, it's probably slightly higher because of interest rates have moved around a bit. So it's somewhere between 10% and 15% of undiversified SCR is a benefit from diversification from the international Life companies.