Aviva plc (AV) Earnings Call Transcript
May 23, 2024
Earnings Call Speaker Segments
Welcome to Aviva's 2024 Q1 Trading Update Call. [Operator Instructions] I would now like to hand the conference over to Aviva Group CEO, Amanda Blanc.
Good morning, everyone, and welcome to Aviva's first quarter update. As usual, I'll start with a brief overview and hand over to Charlotte to give you the details before we move to your questions. It's been another excellent start to the year for Aviva. Today's numbers are clear evidence that we are continuing to deliver on our promises as we have seen strong growth across the board. As you know, our strategy is to accelerate growth in the capital-light businesses with balanced growth in retirement, and we have continued to do just that. We delivered double-digit growth in general insurance premiums and in wealth net flows. And sales in our retirement business are also up by double digits. We have also made great progress on M&A activity. We completed the acquisitions of Optiom in Canada and the AIG UK Protection business that will solidify our #1 position and deliver capital and expense synergies. We also announced the acquisition of Probitas, a high-quality, fully integrated platform in the alloys market. This will expand the market opportunity for Aviva's GCS business and is expected to complete in mid-2024. And we completed the sale of our remaining stake in Singapore for GBP 937 million, further simplifying the group's footprint. So today's update shows further excellent progress, and we remain extremely confident in the outlook. We have real growth momentum, and we are delivering reliably and consistently. All of this is possible because we have the right strategy, a disciplined approach to capital allocation, a strong grip on performance management and of course, the right team here at Aviva for that are continuously delivering for customers and shareholders. And with that, I'll hand over to Charlotte to talk you through the numbers.
Thanks, Amanda, and good morning, everyone. I'm delighted that we have another set of really strong results to talk to you about today. We've seen continued growth momentum right across the group with another quarter of consistent delivery. I'll cover the highlights from the businesses and then the group capital and liquidity positions. Starting with General Insurance. We delivered excellent top line growth. Premiums grew by 16% as we achieved double-digit growth in the U.K. and in Canada. The undiscounted COR for the group was 95.8% as we start to see the benefit of the strong rate actions taken in 2023 earn through. COR on a discounted basis was 92%. Going forward, we expect the underlying COR to show further incremental improvement as we continue to earn through more of the rating actions. In the U.K., our track record of growth continued with premiums up 19%. Personal Line premiums grew by 27%, split evenly between rate actions and volume growth. This strong volume growth reflects new business in our PCW and Aviva Zero propositions as we capitalize on current market dynamics. We are well positioned given our disciplined approach to rating in recent years. Commercial Line premiums also grew by double digits, up 10%, driven by strong retention in mid-market and new business in global corporate and specialty lines. Similar to the personal line trends, about half the growth was from rate and the other half from portfolio growth. U.K. undiscounted COR of 97.3%, improved from 98.4% last year, reflecting targeted growth in the high-margin retail business and the benefit from strong rating actions taken in the last year. We continue to show discipline in costs and claims management. In Canada, it's a similar story of growth, with premiums up 11% overall. Personal Lines premiums were up 16%, reflecting auto and property new business alongside rating actions in the inflationary environment. We have further high single-digit rate increases filed and in place in Ontario in Q2. Commercial Lines premiums were up 5%, reflecting new business in GCS and strong retention across the book. The undiscounted COR of 93.7% reflects some large loss experience in Commercial Lines. And as others have observed, auto severity has increased but has been in line with expectations, and we are managing our rate accordingly. Turning to Insurance, Wealth and Retirement. In Insurance, protection sales were up 9%, with particularly good performance in Group Protection, reflecting strong new scheme wins. Health sales were lower, as expected, given the prior year included the benefit from CIGNA's exit from the corporate market. That said, total in-force premiums were up double digits on the prior year with strong momentum in the consumer and SME channels. As outlined in our in-focus session last month, health is a core component of our strategy, and we have an ambition to reach GBP 100 million of operating profit by [ 2026 ], underpinned by double-digit in-force premium growth. Wealth net flows were up 15% to GBP 2.7 billion, representing a really good 6% of opening assets under management, and Wealth AUM is now over GBP 180 billion. The business is performing really well as it drives towards its ambition of GBP 280 million of operating profit by 2027. Of course, the biggest component of this target is workplace. This is an incredibly resilient and reliable business and won an impressive 136 new schemes in Q1. Combined with the ongoing impact of salary inflation, this led to growth in net flows of GBP 2 billion, up 13%. We are already the #1 player, and the business is going from strength to strength. Platform net flows grew by an excellent 24%. We achieved record gross inflows for the quarter, evidence that advisers value our attractive proposition and that investment activity is starting to show signs of reissues. However, outflows remain elevated across the market. And in Retirement, sales were up 13%. BPA volumes were up 26% to GBP 1.3 billion as we won 18 new deals and launched and announced the launch of a new streamlined service for scaling up to GBP 100 million last month. Today, volumes are at GBP 2.2 billion. VNB was an impressive 74% up, reflecting BPA growth and an increased proportion of higher-margin small schemes. I'll now move to cash and capital. The group's capital position remains very strong and robust at 206% compared to 207% at the full year. The movement in the quarter was primarily driven by the 2023 final dividend and share buyback, which together reduced solvency by 11 points. This was mostly offset by the beneficial impact from the sale of Singapore and operating capital generation in the quarter. Market movements had a minimal impact in aggregate. Looking beyond the quarter, the impacts of the Tier 2 redemption announced last week and the completion of AIG UK Protection acquisition will be a call on solvency in Q2. We will, of course, generate operating capital that will partly offset this. Liquidity remains extremely healthy at GBP 2.1 billion, up on the full year, reflecting net proceeds from M&A activity. And finally, leverage was 28.7% after allowing for the Tier 2 redemption. And so to summarize, it's been another excellent quarter of delivery with consistent strong growth momentum all across the group. We set out our new upgraded group targets at our full year results presentation, and we are confident in meeting them. And we have positive outlook for cash generation that supports our guidance of mid-single-digit growth in the cash cost of the dividend and our intentions for further regular and sustainable returns. And with that, I'll hand over to the operator to start the Q&A.
Our first question is from Farooq Hanif from JPMorgan.
I wanted to ask firstly about -- you talked about the impressive growth of the adviser platform in retail and net flows. What's kind of the gross flow out -- gross inflow picture? And what are you sort of seeing in 2Q to date? Is there more positivity? Second question is on Probitas. So can you talk a little bit more now about whether you're willing to put significant capital behind this? How quickly is that possible? And what you think the growth opportunity is in the global corporate and specialty area from Probitas itself? And I guess finally, anticipating questions from others as well. I mean, could you just talk about your latest thoughts on pricing in the U.K. and Canada versus loss cost inflation and just kind of the margin expansion that you now expect over this year?
Okay. Thanks, Farooq. Charlie, do you want to pick up one and I can pick up 2 and 3?
Yes. So I think on wealth flows, net flows, as we said, for the quarter, GBP 2.7 billion, up 15% and that's 6% of AUM. I mean, I think on a gross flow basis, we're seeing strong inflows and they're continuing. There is inevitably some outflows and that continues. But I think we're seeing the momentum continue. The workplace net flows 13% up and platforms up 24%. And again, what we've [Technical Difficulty] there is a record inflow [Technical Difficulty] as a platform through the direct well. So I think that also reflects increased investor confidence and continue.
Yes. So on Probitas and your questions. I mean, obviously, we're not due to complete until the mid of the year. And I guess it's not a huge amount more to add than what we said at the full year, Farooq. But we do obviously see that this gives us a real opportunity to increase our distribution footprint. And that's just been confirmed more and more as we've got closer to the team, and we're thinking about what the plans are for that. In terms of the significant capital, I think we would just be driven by market conditions and opportunity in the same way as we are with any other investment across the business. But just to be clear, we bought this because we believed it was a growth opportunity. We still believe it's a growth opportunity. This sort of global corporate specialty opportunity is significant, and we believe that we can take a real -- that this investment gives us real opportunity to capitalize on that now. And all of the conversations that we've had with our distributors, which obviously when we spoke to you last, we were just 3 days in, I think, post the announcement, have confirmed that. So everybody is very excited, whether it's the U.K. teams or the Canadian teams and the brokers that we've spoken to feel that this is a really great opportunity for us. On pricing in the U.K., Canada margin, just -- obviously, what we've seen in U.K. And I guess, let's be specific about Motor is that last year, we saw, if you like, a crescendo of pricing throughout the year, responding to the trends that they were on, whether that was vehicle repairs, a theft, the amount of time it was taking for vehicles to be repaired and therefore, higher costs. And those were all in the 30s and 40 [Technical Difficulty]. So we responded -- we were responding to that. We'd already responded to prior inflation, I think, ahead of the game. So those weighting increases by the end of the year were really significant. So you are going to see the feed-through of that for the first sort of 2/3 of this year. And then we believe that rates flatten out to inflation. And by that, we're talking 5% to 6%, and that's in motor and actually in motor and in home. And the numbers in home are not dissimilar in terms of some of those impacts of supply chain and everything last year. So we do believe that there is real opportunity. We know that the written CORs on the motor business, particularly are very strong. And so what you see is us capitalizing on that in terms of volume and rate in the first quarter of this year, and we think that, that obviously will continue. I think in Canada, the trends are not that different. You see inflation around 5% to 6% in auto and 4% to 5% in personal lines, that is in property. And we've put 10 points of rate through in Ontario Personal Motor in 2023, 12 points planned for 2024. So we will see -- continue to see strong pricing coming through there. Clearly, the auto theft is something that we are catching up on as are all the other players. And so you know you would expect to see that that rating strength come through. So not a lot more to say really about that, Charlotte, unless you've got anything else to add.
No, only in Canada that a lot of the rate filings are already approved by the [indiscernible].
Yes. That's a good point. Yes.
Our next caller is Thomas Bateman from Berenberg.
Just on the GI combined ratio guidance. I think you always say this is an ambition of 94% [indiscernible] since it doesn't quite have [indiscernible] there, it seems like the pricing is very strong in almost all of the other divisions at the moment. So I guess I'm just trying to understand what are the risks that you see, which means that this pricing wouldn't flow into better margins and will prevent achieving 94%? And then the second question is just on the platform flows again. I think you alluded to these being record flows, but I just wanted to double check if there was no seasonality effect or anything in here, but this is a genuine underlying improvement coming from more confidence from advisers and the consumers?
Yes. Sorry, do you do the ambition. I'll do the platform flows?
Yes. So certainly, let me just unpick the COR development for you and then kind of talk through the sort of extension. So in Q1, it was 95.8%, which is 0.4 points higher than this time last year. If I look at the U.K. COR 97.3%, that's down over 1 point. And that is starting to show really strong underlying performance. It is showing the rate earning through weather. And PYD pretty neutral, but weather was better a year ago. So there's a little bit more weather in it than there was this time last year, but it's pretty neutral. So again, when I look at the U.K. COR, I expect that rating to continue to earn through, through the course of the rest of the year and therefore, improve further. On the Canada COR 93.7%, that's up just over 1 point. We had seen some large claims, as I referred to before, a little bit more frequency. And again, just that severity sort of having an impact. Again, when I look at the outlook there, we continue to work on claims and tenancy and sourcing. Large losses are nonsystemic, so not necessarily likely to recur. And again, weather was relatively neutral. So again, when I think of how I'm looking at the rest of the year, obviously, always still with the caveat of we don't know what will happen to the weather, but I'm sort of thinking towards 95% kind of for the full year from a group perspective. So then the question of sub-94%, and to some degree, I'm going to repeat what I said at the year-end result. It remains our aiming point in the medium term. The current market conditions, high interest rates mean that we're very conscious of how we balance between underwriting margin, underwriting profit and operating profit maximization, which is important. So I think we're aiming for that operating profit maximization with disciplined CORs. So we still think 94% is the right aiming point, but it's really not a [ '24 or '25 ] thing.
On the platform flows, obviously, there's a bit of seasonality for tax year-end. But we are seeing this -- our performance is a bit stronger than last year. So a little bit of seasonality, but we really feel that there is a strong outlook. And if you think that -- if you combine that with the investment that we are making into that business, then I think we feel very, very confident about that. The combination of workplace and platform, I think, puts us in a really, really strong position.
Our next question is from Rhea Shah from Deutsche Bank.
Just 2 questions from me. So on CGI business again, what was the investment income development in the first quarter? Because I think your peers, especially in Europe, they've been reporting pretty good investment income. So what has been the development in your reinvestment yield? And then second, just going back again to GI. In terms of Commercial Lines, have you started to see any softening in the pricing so far, both in Canada and in the U.K., any color there that you could provide?
Okay. So I pick up the second one and then Charlotte shall pick up the first one. Is that right, Charlotte?
Yes. I mean in terms of investment income, it remains strong. The rate environment continues to be strong. We don't give that specifics in the trading update. But again, you'd see the continuation of strong investment income when we report the half year results.
I think in terms of the commercial lines, obviously, you have to segment that across the GCS, the SME and then look at on a total basis. I think SME rate growth is still in line with where we were last year. It's strong, 8% versus the volume growth of about 4%. So we think that's good. On GCS, rate is 3%, volume is 5% -- sorry 8% growth overall. So these are U.K. numbers, not massively dissimilar in Canada. So I think in terms of softening, what we would say is that in some lines of business, particularly some of the, maybe Specialty Lines, but nothing significant as we look at it today, but it's still early on in the year. So I think we just have to look to respond to that. We have a very strong portfolio here, both in Canada and in the U.K. I think the Commercial Lines performance is very strong, a strong franchise. And obviously, when you're going into -- if you go into a slightly softening market, it's all about your distribution relationships and your -- the relationship that you have with the brokers, which I think Aviva is second to none in that space.
Next question is from Larissa Van Deventer from Barclays.
Two quick questions from me, please. The first one, just to build on Farooq's question on pricing trends. Do you have a sense of when you would see the end of the benefits of the rate increases coming through? Or can we assume that they will continue throughout 2024? And then the second question is on your automated bulk annuity platform, which you recently implemented. Could you please give us a sense of the volumes that you're seeing coming through and how those margins may compare to the bigger deals that you've written in the past?
Okay. Charlotte, are you okay with both of those.
Yes. So I think when we think of the rating, ultimately, if I look in Motor in the U.K. for the first quarter, new business pricing has been roughly flat. But we are still facing inflationary trends. So I think we'll be nimble and careful and responsible, and we will definitely see the rating that we put through last year really continue to improve COR. I think in home, it's been a less profitable market for a while. There's still some good rate going through there. But obviously, a lot of rate went through last year. So I think you'll still see pricing increases kind of ahead of inflationary impacts there, and that rating continued to impact the COR. And it really is the same in Canada where rating is still needed. It's still going through. As I said, we've got the regulatory approvals to push that through in motor, and that is going to continue to positively affect COR. The second question on the streamlined BPA offering. We called it Aviva -- it is called Aviva Clarity. It gives small schemes a route to market effectively with us as a big name. It's typically for schemes with assets under GBP 100 million. And basically, they can go -- the scheme gets a guaranteed price in a matter of weeks. So they send the template in to the ECB and they fill out the data, and we can give them the pricing very quickly and locks underneath our longevity reinsurance flow treaty. So the reinsurance is locked in. So that's kind of how it works. In terms of volumes, I mean, we've really just started. But as I said, 18 new schemes this year and we're pleased with that and the take up on this offering is positive so far. So all good.
Our next question is from William Hawkins from KBW.
Amanda and Charlotte, thanks for this helpful check into the quarter. Two questions, please. On the solvency outlook. I know we haven't talked about this for a long time, but Allianz surprised us last week by disclosing that BaFin will be consulting on a possible recalculation of German solvency transitional measures for technical provisions this year. Is there any kind of discussion that you're hearing about whether the U.K. could be reassessing transitionals in solvency? Or is that completely off the agenda as far as you're aware, please? And then secondly, in IWR, since you last updated us, are there any experience variances or assumption reviews that we need to be aware of when we think about the outlook? Or is it all business as usual for those volatile items?
Yes. So I'll take those if okay. Look, I think in solvency reform in the U.K., obviously, we have been incredibly engaged with the regulator as the industry has been. We saw the changes to the risk margin came through at the year-end. And we're seeing the changes to the matching adjustment that we expect that had the compensation process come through. We expect that to finalize in early July and be effective actually from the end of June. So we're incredibly engaged. They've looked at transitional measures as part of all of that. So I don't think there's any surprises coming through. As I say, it's been an incredibly close working relationship with the PRA on that. So again, no surprises. And I think everything is as anticipated. Obviously, we still need to see the final words on the matching adjustment, but they put a statement out there in May -- or was it -- were April, but earlier to really give clear line of sight of the intentions and the direction they are something. So I don't think we're going to see [Technical Difficulty] there. And then the second question was IWR experience. I mean we don't -- we track experience, and that's something that we'll go through and unpack for you in detail at the half year. In general, assumption changes are more in the second half rather than the first half. We had a couple of assumption changes that we made in the first half last year. But ultimately, it's more of a half year update [Technical Difficulty].
Our next question is from Andrew Crean from Autonomous.
I had a couple of questions. Firstly, I think what you're implying is there's about 13% underlying growth in the U.K. motor portfolio. If you say that premium is up 27% of each half was from growth. Can you talk a little bit about that as to who you're winning the business from? And what you're hoping to do in order to win that business? Why are you winning that business? And then secondly, I wanted to look at your cash position, which I think you said at the end of April was GBP 2.1 billion. I'm just looking at it. If you took in debt redemptions for Probitas, I'm assuming about half the buyback was yet to be completed, then the dividend, which you just paid out. Your liquidity would be down to about GBP 0.5 billion at the end of that. Is that roughly where you are or now post Probitas? And are there any dividends coming up from the subsidiaries in the next quarter?
Okay. So I'll pick up the first one and Charlotte maybe can pick up the second one, yes. So on the underlying growth, yes, I think your numbers are broadly right, Andrew. And what -- it's really a continuation of the trend that we have seen up until now, which is a growth in some of the newer propositions or particularly Aviva Zero, which has been incredibly successful, which is a more digital, low-cost offering via the PCW route and/or the pricing comparison website, where clearly, there is a higher margin than if you go via an intermediary. So what you're seeing us is rebalancing distribution over the last couple of years. And I think that's proved to be very successful for us. In terms of who we're winning business from, I think it's a bit too -- you know that you don't necessarily know that, obviously. We can see where we have taken a little bit of share. But I do think that our underlying, which in causes I stressed in my earlier answer, are very strong. And you saw Owen and the team present at the InFocus session last year. The pricing models are sophisticated. There's confidence. We got to inflation somewhat before others, and we are, therefore, able to take advantage of that in a sensible way, and I think that's basically what you're seeing here today.
So then just on liquidity. So the center liquidity of GBP 2.1 billion is the end of April. So by the end of April, we had done about 2/3 of the buyback. Maybe just to sum it up, we've done 2/3 by now. So that's a little bit more of the buyback behind us. We generally in first half, if you look at last year's half year numbers, we had remitted about GBP 800 million from the business units by the half year. So the businesses -- so if you look -- if I think about the outlook that I'd be planning for this half year, it'll be a bit more because the businesses are generating a bit more and we've got other optionality for pulling cash up from the businesses. So we will take a sizable set of remittances up by the half year. And then yes, we've got the redemption of the Tier 2 notes. As you say, we've got the purchase of Probitas to come and the full year dividends obviously going out today. But I think you're forgetting that we have those remittances and we're further ahead on the buyback in your calculations.
Our next question is from Mandeep Jagpal from RBC.
My first question is just on the retirement margin again. Like the Q1 VNB margin improved year-on-year to 2.9%, but it was down from 4% over the whole of FY '23. So could you just help us understand the factors that supported that year-on-year improvement, but decline versus the full year. I think you mentioned more small schemes was a positive factor. And then also on retirement, could you provide any detail on the actual and target BPA asset mix for the quarter? And then finally, on Aviva Investors, the release called out that there was expected -- or an anticipated client redemptions in 1Q. And you also mentioned that you expect an improvement in external net flows over the remainder of the year. So firstly, what were the redemptions in Q1 in relation to? And what gives you confidence of an improvement over the remainder of the year?
Okay. I think those [indiscernible]. In terms of the BPAs. So look, it was a good quarter in terms of volumes, as I say, GBP 1.3 billion, which is up 26% in BPAs, GBP 2.2 billion by now. It really was -- it was written a strong margin. A part of that is the nature of them. When I compare them with last year where we had -- at the beginning of last year, we had a number of bigger ones that were lower margin. This time, a couple of deals have contributed about GBP 0.9 billion of that, but actually, it's 16 smaller ones. And again, that's part of -- it attaches to that flow agreement. It's a very effective reinsurance mechanism. So we've just seen better margin. We've also traded well -- and that kind of comes to your asset question in a second. But I think it's been a very good quarter in terms of the capital strain. So when I think about the margin compared to last year, it's a strong improvement. When I think about the outlook for it, I expect it to remain robust and sort of tracking about 3% throughout 2024. It benefited from the way we've been trading those smaller schemes, that Aviva clarity that we went through a little bit before. And there's a little bit of benefit as we saw last year with the solvency U.K. reforms to the risk margin, but whether that will get traded away over the course of this year. So again, when we look at this margin versus this time [Technical Difficulty], strong outlook consistent, I think. And if you remember my comments at the full year where we were really -- it was quite a strong margin for '23, I think we're anticipating being a little bit under that. So I think take the 3% and consider that to be a decent progress. In terms of the target mix, we are under the [ 55 ] sort of normal kind of target mix. Partly that is the nature of the funds we've written. It's also partly a function of looking at the rate environment and actually having a lower proportion of illiquids because actually, when you look at the higher spreads on public credit, actually, we've kind of been looking at that. We've got a higher mix of gilts. I think that gives us further opportunity to risk optimization as we go forward, is also very good from a capital strain perspective on the volumes that we've written. In terms of the AI flows, it was a couple of anticipated client redemptions that we knew about at the end of last year, essentially in real estate funds. So that's kind of what you're seeing going through in a big lump in Q1. We're not anticipating that repeating for sure. And we have had a very good GBP 700 million or so inflow in April coming from an insurance player. So I think we're seeing some interesting momentum and not anticipating a repeat of those lumpy outflows. So that gives us confidence in the outlook.
Our next question is from James Shuck from Citi.
Just on the bulks to begin with. Can I just clarify. So the margin that you're talking about kind of coming down from 4-point something down to around 3%. You've explained the mix was smaller yield and you alluded to kind of more gilts in that mix. How is the return on capital in that line, essentially I think you allocated less capital to the margins we look at on the present value kind of new business basis, but fully taking into account the capital allocated. So just keen to know whether like-for-like and the margins are kind of holding up given that asset mix? That's the first question. Secondly, just to clarify, Charlotte said, I think you mentioned that the combined ratio undiscounted is trending towards the 95% level for '24. Can I just make sure that, that is -- are you thinking that the full year number will get to 94%? Or is it more about it's an exit level as we approach 2024 and therefore, on a kind of monthly run rate, you'll be at that level, but the full year number might be slightly above that. And then finally, just keen to get some insights into the Direct Wealth business, which you kind of re-platformed and relaunched in this period. What's the level of investment that you're looking at in this business? And if you are able to think about the kind of payback on the investment and the level of investment that's there and whether you're definitely committed to organic routes when it comes to Direct Wealth?
Okay. I'll pick up Direct Wealth while Charlotte then pick up the bulks and share [indiscernible].
Yes. So on bulks, I mean sort of IRR that we look at is mid-teens sort of IRR, and that's kind of what we plan as we look at it at this point. And as I look at the sort of pipeline through to the first half, kind of in the same place. So low mid-teen percentage IRR is kind of how I would look at it. That was all you asked on that, right? Does that answer your first question, James?
Yes.
Yes. Okay. And then on COR, I talked about 95%, not 94% for this year. So as I look through sort of progression half year, full year, I'm sort of trending towards kind of that 92%, but the full year view will be a 95%. I know we had this conversation about discrete versus full year kind of or cumulative. I'm thinking that by the full year kind of that the way it will progress will take me towards 95% for the full year.
On Direct Wealth. So we launched our first TV advert last week. We're very excited about the opportunity to grow that. So the way that we look at this is the Aviva brand in the U.K. is one of the strongest brands. Even if you compare to some of the retail brands, we -- all our research tells us that the Aviva brand really resonates. And therefore, we will be able to capitalize on that. Combining that Direct Wealth proposition, we've built a very nice customer journey. It will be integrated into the MyAviva app. We believe that there's a real opportunity not just to sell to new customers, but also to our existing customers. So we've got 5 million pension customers in the U.K., a lot of those in Workplace. And so the opportunity to sell the Direct Wealth proposition when those customers are to either enhance their current savings or when they come to decumulation, we think, is really significant. And then you also overlay that on the other innovative propositions that we have, like our Find and Combine pension pot consolidation on pensions, we think all of that combined means that we do have a very strong opportunity to grow this business organically. So that's our plan. I'm not going to break down the actual investment. But I mean, you know that we have put set-aside investment in the Wealth opportunity. Wealth itself, obviously, is just a significant market opportunity, GBP 2.3 trillion by 2030. And we just believe that investing in that will pay medium- to long-term dividends for Aviva.
Our next question is from Nasib Ahmed from UBS.
First one, Charlotte, just to clarify. I think did you mention 55% illiquid proportion on the new business. Just to clarify whether that's correct. And whether on the back book, you're kind of what the proportion is and whether you're trending towards the 55%. And if you do so, would that be -- would that result in any upside to the GBP 200 million management actions? Or is that already embedded within that? So that's the first question. Second question on Andrew's point on the 13% motor volume growth. Can you talk a little bit about how much of that was done last year because that's year-on-year? And how much of the volume growth came through in 1Q, '24 discrete? And then finally, on capital management, any update on what the uses of your capital would be? Are you still focused on bolt-on M&A and returning any excess to shareholders. Any update on that would be helpful.
Okay. Charlotte, do you want to start and I'll do the second 2.
Yes. So on the -- the broad target on the new business is around 55%. So that's kind of what we generally target for illiquids. And as I say, this quarter, it's been below that. And so there's an opportunity for rerisking later, but it depends on the right moment to do that and taking advantage of the spreads this quarter, and therefore, we've done a little less. On the back book, I mean, it's sort of a range, 50% to 65% kind of range, and that's kind of how we look at it overall. Okay. On your second question, it will be across the last one, but probably slightly weighted towards Q1 this year and more of an acceleration in Q1. But just to stress on that, we are very mindful of the environment, and we do continue to price appropriate for inflation, and we are ensuring that growth is profitable. And therefore, we are constantly looking at the written CORs and flexing according to that. So -- and that's what you'll continue to see. And I think that's what you definitely see the more sophisticated players doing. And so there could be some movement in that as the year progresses, depending on profitability. On your third question on capital management and whether we are focused more on bolt-on M&A. So I think we've always said there are 3 uses of the capital investment in the business. And I think what you've seen is the investment in the business is actually paying off. The M&A, we'll be disciplined about that, and I think we have been very disciplined about that. If you look and I was counting up earlier this week in terms of the deals that we've done and what they've delivered for Aviva, we've delivered a #1 position in High Net Worth, a #1 position now in Protection. We've entered into the Lloyd's market where we see the opportunity. We've exited those areas where that are not COR to the business and Succession Wealth can fill the strategic gap. That's how -- that is how we will continue to look at M&A, and we will continue to be disciplined, always having a high bar for M&A.
Perfect. Sorry, can I just follow up one quick question on China and India. Any update on that? Are they still giving you optionality or any intention of disposing those assets?
Really nothing to add on those businesses [Technical Difficulty] at this point.
Our next question is from Steven Haywood from HSBC.
Three questions, please. The acquisition of the AIG UK Protection business, can you give us an indication of how much CSM this really adds? And any indications about the yearly earnings contribution going forward? Secondly, on Ireland, the sales were extremely strong, again, I think following on from the fourth quarter into the first quarter. But why is the value of new business declining here quarter-on-quarter? And then third question on the Heritage book. Do you feel like there's any adjustments that will be required in the heritage book for the upcoming consumer duty? Are you investigating and looking into this book further for the rest of this quarter?
Okay. I'll answer the third one and Charlotte, do you want to pick up 1 and 2?
Yes. So look, on AIG, really will kind of unpack that for you more at the half year because ultimately, that's the first time we're bringing AIG into our numbers. So we'll cover CSM at that time. I mean, I think to give you an idea on our profit, once we get to kind of a full annual run rate. And obviously, this year, it will be a partial year, I think we're sort of in the sort of GBP 20 million per annum type ballpark. But look, more on that to come, I think. Then on Ireland, yes, we saw VNB was very much in line with prior year. I think you just saw a little bit of lower margin reflecting a competitive environment, particularly in individual protection, but there was outperformance in wealth. So it was a steady quarter, just a slightly different mix and a bit more competition around. On the Heritage business and new consumer duty, we've got nothing specific to call out. We've obviously got a strong framework in place to assess value for money, and that's not new to us. I think I said that at the full year. We've been doing these assessments as a matter, of course, for some time. There are many products in that -- in the Heritage business, as you can imagine. So as part of the reviews, we're considering if a product offers fair value as elements that are not valued. But just to be clear about this Heritage portfolio, it has many, many products and some small cohorts of those products. So there's nothing -- there are not significant numbers in many of the product lines. The time frames are very challenging, but we are confident that we've got the plans in place and obviously, as we're heading towards that regulatory deadline. But no issues to call out at this stage. A lot of the work has already been done.
Can I just follow up on the last point there. As -- you said there's a lot of obviously smallish cohorts of products. Have you made any changes within these -- any of these cohorts of products? Anything notable to call out?
Nothing notable to call out, nothing that's over and above the run of the mill changes that we would have been making as we've done the product reviews over a number of years. So we may have looked at communications or we may have looked at that framework. There is just nothing significant to call out.
Our final question is from Abid Hussain from Panmure.
I've got one question remaining. It's on U.K. GI margins versus the regulatory backdrop. So just wondering if you could just talk to the regulatory environment across the U.K. GI business, given that we've seen 30-plus percent year-on-year price increases across the industry in Motor [indiscernible] specifically. Is there a risk that the FCA sort of moves on from the premium finance that's been [indiscernible] and then sort of start looking at ancillary income or something else. I guess I'm wondering if you think there's a perception issue for the industry with such price hikes coming through. And I'm trying to put this into the context of we've got a potential government change coming in as well?
Yes. Okay. So I mean just to give a bit of context here, if we were to go back to 2017 -- in the final quarter of 2017, average motor premiums today are only GBP 8 in real terms more than they were in that final quarter of 2017. So what you have seen on pricing over the last period is COVID rates coming down because of frequency reduction. And then obviously, the dramatic response to inflation, supply chain and the other issues that I've already referred to on the call, seeing pricing hikes. So you've got to look at this, you you've got to be -- I think you got to just get a little bit of context around the increases in the last 12 months. And obviously, that -- we believe that's a pretty strong argument. On premium finance and the other areas, I mean, I think Aviva responded very strongly on this. Our average Premium Finance rate is [Technical Difficulty] so just again to put that into context. That's on average GBP 3.50 per month per policy, way less than the insurance premium tax charge on a motor policy. So you've just got to -- I think you have to look at these things in the round. We believe we're always looking at this with customer interest at heart. 60% of our customers pay annually. 40% will use Premium Finance. We do think that, that is a very, very useful mechanism for customers that cannot afford the upfront premium to pay. We would expect the regulator to see that in the same way. And I don't know if there are other areas that you're typically referring to. But from our perspective, the importance is making underwriting profit, delivering good customer outcomes and making sure that we look after our customers. For us, you have to remember that we don't just have motor customers, we also have to look after our customers in retirement, in health, in home. And so the reputation that we have with our customers is very much grounded. We always are thinking about from that perspective. So if we -- there's no -- we would not be looking to capitalize or take advantage of our customers in this situation. What we're just trying to do is to make a good margin on each of our product lines. So that -- and that's the way that we look at it. And so...
No, that was clear. I was just going to say that I can see you're not making supernormal margins, I can see that in the industries, but there just seems to be this sort of perennial perception and focus on ancillary income and other sort of areas that sit outside of the COR business?
Yes, of course. But I mean, I think if you look at our profile, that is not -- we are not making huge amounts from those ancillary lines. And I think the regulator needs to be proportionate in terms of the way that it's dealing with individual firms on those areas, which, by the way, I think it has done. If you look at the way that it has responded on things like total loss and premium finance. So I think that, that's the way to look at that. So thank you very much for all of the questions this morning. Hopefully, that's been really helpful for everyone. Really appreciate your time. And obviously, the IR team are around if you want to follow up on any specific questions. But have a good day. Thank you very much.
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