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Aviva Plc Summary

Core Content

This document is a research report titled First View: What We Learnt From the Call by Jefferies, analyzing Aviva Plc's recent performance and providing an investment recommendation. The report highlights Aviva's strong underlying performance in its non-life business, despite industry-wide pricing pressures, and outlines key financial and operational details, as well as associated risks and disclosures.

Main Points

General Insurance Performance

• Tariff Exposure: Indirect via Canadian auto, with only 1/3 of claims being damage-related, of which 50% is spare parts.
• Claims Inflation:
  • Canadian claims inflation is +5% to +6%.
  • UK claims inflation is mid-single digits across the board.
• Pricing Strategy:
  • Motor prices in the UK fell in line with the market (-4%), but the pace has decelerated.
  • Home prices were held flat, while peers cut theirs.
• Retention Rates:
  • Canadian retention is 86%, depressed by exit from an unprofitable scheme.
  • UK commercial retention is 90%.
• Storm Impact: The Irish storm cost the industry €300m, with Aviva's market share at 10%, implying €30m of claims.

Life & Wealth Segment

• Workplace Pensions:
  • Aviva has a 76% win rate for new workplace pension schemes.
  • Retention rate is 95%.
  • Platform fees are higher than any additional fund management fees.

Group Performance

• Liquidity: Central liquidity rose £100m to £1.8bn, with £1.3bn ring-fenced for Direct Line.
• Finance Facility: The finance facility set for the deal has been cancelled.

Investment Recommendation

• Rating: Buy
• Price Target: 560.00p (-2% from prior day's close)
• Market Cap: £15.7B (GBP) / $20.9B (USD)
• Ticker: AV/ LN

Valuation Methodology

• The price target is derived from a discounted cash flow and sum-of-the-parts model, factoring in surplus capital generation under Solvency II.
• Valuation considers excess surplus over a Solvency II ratio of 190% in 2024F, 185% in 2025-26F, and above 180% from 2027F onwards.

Key Risks

• Downside Risks: Credit defaults, equity market volatility, and declining real estate values.
• Integration Risks: Associated with the acquisition of Direct Line, including execution and integration challenges.
• Currency Risk: For investors in non-US currencies, exchange rate fluctuations may affect returns.
• Market Risk: The price, value, and income of financial instruments may fluctuate due to economic, financial, and political factors.

Company Overview

• Aviva Plc: The UK's leading composite insurer with a top three market share in UK non-life markets and one of the largest back books of UK life insurance.
• International Presence: Includes Canadian non-life (top 3 market share), European life & non-life operations (France, Ireland, Italy, Poland), and niche positions in Asia. Only the Canadian business is considered core.

Other Disclosures

• Conflict of Interest: Jefferies may have a conflict of interest due to business relationships with companies covered in the research.
• Regulatory Compliance: The report is subject to various regulatory requirements depending on the jurisdiction, and is not tailored to individual investors.
• Disclaimer: This report is not investment advice, and no guarantee is made regarding the financial success of any investment.
• Forward-Looking Statements: The report contains forward-looking statements that are subject to risks and uncertainties.

Investment Recommendation Record

• Recommendation Published: May 15, 2025, 04:58 ET
• Recommendation Distributed: May 15, 2025, 04:58 ET

Analyst Certification

• Philip Kett: Certifies that the views expressed in the report accurately reflect his personal views and that his compensation is not directly or indirectly related to the recommendations.

Legal and Distribution Notes

• The report is intended for professional or institutional investors in Canada, professional clients in Dubai, and accredited investors in Singapore.
• It is not suitable for retail investors in Dubai or Taiwan.
• Jefferies assumes no liability for any use of the report and does not provide personalized advice.

Final Note

• This report is not an offer to sell or a solicitation to buy any securities. Investors are advised to seek independent financial advice before making any investment decisions.