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Insurance Excellence in UK GI

“Focus on Profit”

1
Disclaimer

This presentation may include oral and written “forward-looking statements” with respect to certain of
Aviva’s plans and its current goals and expectations relating to its future financial condition, performance
and results. These forward-looking statements sometimes use words such as ‘anticipate’, ‘target’, ‘expect’,
‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. By their nature, all forward-
looking statements involve risk and uncertainty because they relate to future events and circumstances
which may be beyond Aviva’s control, including, among other things, UK domestic and global economic
and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the
policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or
deflation, the timing impact and other uncertainties relating to acquisitions by the Aviva Group and relating
to other future acquisitions or combinations within relevant industries, the impact of tax and other
legislation and regulations in the jurisdictions in which Aviva and its affiliates operate, as well as the other
risks and uncertainties set forth in our 2007 Annual Report to Shareholders. As a result, Aviva’s actual
future financial condition, performance and results may differ materially from the plans, goals and
expectations set forth in Aviva’s forward-looking statements, and persons receiving this presentation
should not place undue reliance on forward-looking statements.

Aviva undertakes no obligation to update the forward-looking statements made in this presentation or any
other forward-looking statements we may make. Forward-looking statements made in this presentation are
current only as of the date on which such statements are made.
UK General Insurance – delivering transformational
change

• Aviva is the largest GI insurer in the UK with a market share


of 14.4%
Market
Leadership
• Generated 25% of Aviva’s H1 2008 IFRS operating profit
● Address legacy
• Changing the business model to maintain our market leading
● Transform position and win in a fast-changing competitive landscape
business
model
• Igal Mayer appointed CEO, UK General Insurance in July
2007
● Exploit UK
synergies
• Igal and the team are executing a transformational plan to
● Generate capital maximise the value of this major business in Aviva

3
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer

2. Personal lines John Kitson

• Transforming pricing Dan Pickens

3. Commercial lines Janice Deakin

• Transforming underwriting Larry Harrington

4. Operations David McMillan

5. Summary Igal Mayer

Questions & Answers


4
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


One Aviva, twice the value

Purpose
Prosperity &
peace of mind
Purpose
Vision

One Aviva,
twice the value
Vision
Strategic Targets
priorities

• Manage composite • 98% meet or beat COR


portfolio • Long Term Savings
• Build global Asset growth targets
Management • £500m cost savings by
• Allocate capital
rigorously
2010
• Double IFRS EPS by
Group strategy and targets
• Increase customer 2012 at the latest
reach • 1.5 – 2 x dividend cover
• Boost productivity • 12.5% ROCE

Aviva Investors
Asset Management • Increase third party business
• Globally integrated business • Transform the investment model

UK Europe N. America Asia Pacific


Market leadership Scale, growth, capital Double scale Scale, growth
● Address legacy
● Transform business
● Seize unique growth
opportunities
● Focus: top 5 in
chosen segments
● Prioritised portfolio Regional / BU strategies
● Regional operating
model ● Leverage scale ● Integrate '07 model
● Exploit UK synergies ● Generate capital ● Expand products, ● Investment required
● Generate capital distribution ’08+ 5
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


A clear role in Aviva

UK Purpose

Prosperity &
peace of mind

Market leadership Vision

One Aviva,
● Address legacy twice the value

● Transform business Strategic Targets


model priorities

• Manage composite • 98% meet or beat COR


portfolio • Long Term Savings growth
● Exploit UK synergies • Build global Asset targets
Management • £500m cost savings by
• Allocate capital 2010
● Generate capital rigorously • Double IFRS EPS by 2012
• Increase customer at the latest
reach • 1.5 – 2 x dividend cover
• Boost productivity • 12.5% ROCE

Aviva Investors
• Globally integrated business Asset
• Transform Management
the investment model • Increase third party business

UK Europe N. America Asia Pacific


Market leadership Scale, growth, capital Double scale
Scale, growth
● Address legacy ● Seize unique growth ● Focus: top 5 in
● Prioritised portfolio
● Transform business opportunities chosen segments
● Regional operating
model ● Leverage scale ● Integrate '07
model
● Exploit UK synergies ● Generate capital ● Expand products,
● Investment required
● Generate capital distribution ’08+

6
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


The UK market leader

Aviva
Rest of Market 14.4% • Consolidated market – top 6 insurers
37.6% have over 50% market share
RBSI
(including
Direct Line)
12.3%
• Aviva is the largest GI insurer in UK

RSA • Top 1 or 2 position in all our major


8.5%
classes
HBOS
2.5% AXA
6.5%
BUPA
3.4% Zurich
• Consistently delivering performance
1
5.6% - 98% or better COR since 2004
Allianz
4.0% AIG - £3.9bn operating profit over last 5 years
5.2%

(1) Excludes impact of 2007 summer floods


Source: Datamonitor 2007
7
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Unparalleled customer reach

DIRECT BROKERS PARTNERS


Banking Retail Affinity

3,000
brokers

#1 in the SME market


Powerful brands … over 100 others
Insurer of the year
2003 to 2007

8
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Unparalleled customer reach

DIRECT BROKERS PARTNERS


Banking Retail Affinity

3,000
brokers

Direct Employees Customer insights Brokers & partners


• Re-launch away • Build Aviva#1from • Combination
in the SME market of NU • Global player, not
fromPowerful
‘expensive’,
brands the inside out heritage, trust, just
… over 100parochial
others SME
‘traditional’… Insurer of the year
safety… ‘non-
• Reposition what
Happy provides 2003 totoxic’
2007 + Aviva’s
we stand for
the bridge globally global, confident
brand

Aviva brand - June 1st 2009 9


1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


NUI’s 7 strategic priorities

Win the Customer Win the Broker


• NUD relaunch • War for distribution
• RAC membership
• Partnerships moments of truth

Building Core Insurance Capability Claims Inflation Busting


• Sophisticated pricing • Sustainable benefits year on year
• Rating leadership
• Price & product optimisation

Delivering the Promise of Scale Lean Manufacturing


• Sub 11% expense ratio • Mass customisation
• Halve IT costs • Service & process centre reengineering
• Exploit UK synergies

Win our People


• No1 for employees
• Build core insurance skills
• Pride & passion for insurance
10
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Our people

Seán Egan Igal Mayer John Kitson


Chief Information Officer Chief Executive Sales & Marketing Director

Win our People

Valerie Markham Janice Deakin


HR Director Corporate Sales Director

David McMillan Dan Pickens Larry Harrington


Chief Operating Officer Personal Lines Director Commercial Lines Director 11
1. Insurance Excellence Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Summary – our business

Revenue Personal Lines


£5.4bn NWP • Marketplace
Commercial – 36% - Aggregators have grown significantly
- Panel operators becoming potential adversaries
- On-line growing

• We have a clear strategy


- Relaunch of Direct and RAC
Personal – 64%
- Partnerships where the partner has a unique moment of truth
- Independent brokers still an important route to market
- Executing pricing sophistication

Profit Commercial Lines


£855m Operating Profit*
Commercial – 49%
• Marketplace
- Consolidators have grown but lost momentum
- After lengthy period of soft conditions, positive signs of hardening

• We have a clear strategy


- Independent brokers are our distribution, leveraging UK u/w footprint
Personal – 51%
- War for distribution
- Executing underwriting and pricing excellence
* 2007operating profit excl weather
12
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson

• Transforming pricing Dan Pickens

3. Commercial lines Janice Deakin

• Transforming underwriting Larry Harrington

4. Operations David McMillan

5. Summary Igal Mayer

Questions & Answers


13
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Personal lines

• Sales & marketing context


• Market snapshot
• Crystal clear strategy
• Direct
• Partners
• Brokers
• RAC – insurance
• Summary

14
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


One portfolio

Bringing all the distribution channels together into one


front facing sales and marketing team has put a different lens on how we truly
optimise the multi distribution nature of our business

Broker
Broker
Partners Direct
Direct RAC
Partners
Marketing
Personal

RAC
Broker

Working across all classes Commercial 15


2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Share of business

• The personal market is 64% of NUI’s turnover and c 51% of operating profit
• Partners dominate turnover and in particular household, but for 2008 Direct is
the majority of the personal profits
Personal GWP by channel Personal operating profit* by channel

RAC,
RAC,12%
12%
Direct,
NUD, 16%16% RAC,
RAC,14%
14%

IB, 21% Direct,


NUD, 45%45%
Brokers, 21%
Brokers,
IB,18%
18%

Partnerships,
Partners, 51%51%
Partners, 23%
Partnerships, 23%

16
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Personal market trends

• Aggregator grip on private car market has


tightened from 8% of total ‘direct’ market in
2004 to 30% by 2007 Money Supermarket

• Influx of new aggregators

• Customers using aggregators to create


shopping list

• “Which” criticisms
Confused.com

• Panels - giving away commission / net


Google Trends = numbers of people searching on these two terms
pricing / claims farming

• Spend isn’t sustainable

17
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Crystal clear strategy

Direct is direct Partners:


Moments of truth

Large
aggressive
panels

Leverage
Small brokers Membership Panels 18
/ Aggregators
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct

50%

45%
MOTOR
40%

35% Percentage of
30%
shoppers
25%
getting a quote
from each
20%
company
15%

10%

5%

0% C
Direct has not been on the shopping list…
l

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ha

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ni
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Th
dm

ff
rc

Es

ud

m
ra

O
ep
sc
U

as
hu

• price perception and position average


ct

ia
su

B
e
A

st
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Te

El
ire

or

D
C

ic
In

Po
M
D

w
A

or
A

Q1 07 Q2 07 Q3 07 Q3 Ave Q2 Ave Q1 Ave

• increasing cost to acquire


Personal Motor Competitiveness Index - Motor - Comp cover - 779 risks

70.0%
• aggregator growth continues
Competitiveness - cheapest or within 10%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%
M ar 05

M ar 06

M ar 07
April 05
M ay 05

Jun 05
Jul 05
Aug 05
Sep 05

Oct 05

D ec 05

Jan 06
F eb 06

Apr 06

M ay 06
Jun 06
Jul 06

Aug 06
Sep 06
Oct 06

D ec 06
Jan 07
F eb 07

Apr 07
M ay 07

Jun 07
Jul 07
Aug 07
Sep 07

Oct 07

D ec 07
N ov 05

N ov 06

N ov 07

Budget Direct Line NUD Privilege RAC

19
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct – strategic principles

Position in the portfolio


• Direct is our core offering into the personal market - underpins our
pricing and systems approach
Competitiveness
• highly competitive and no other channel will have a better core
price
Direct
• is a direct offering which means it is not on aggregators

“We’re so confident about our price we’ll show you


our competitors, even if they are cheaper”

20
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct – price check

Ticker ‘Someone like you’ Full ‘like for like’


• Web home page • During quote stage • Option after NUD price
delivered
• Price comparison examples • Price comparison based on
• Web and phone
• Web car landing page similar customer profile
• In call centre • New concept
• Web – price, inbound - facts

Increasing confidence in NU’s price


21
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct – advertising

22
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct - Aviva brand

Seamless migration Aviva brand TV


Clear plans in place
already started starting 26 Dec
23
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct – aiming points & progress

Inbound Motor Motor


Inbound Quotes & Sales
Quotes & Sales

50000 14000
Shopping List 12000
40000
10000

Quotes
30000 8000 Quotes

Sales
Pre Happy: 7th or 8th 20000 6000 Sales
4000
10000
Aim: Top 3 2000
0 0
Jul Aug Sepe cas t)
Se p (For

Competitive Position
OnlineOnline
MotorMotor
NonNon
AggAgg
Quotes & Sales
Quotes & Sales

160000 12000
Aim: Within 10% of 140000 10000
the cheapest 120000
8000
Quotes

100000
Quotes

Sales
22% of the time 80000 6000
Sales
60000 4000
40000
20000 2000
0 0
Jul Aug Sep

New business sales volumes up 18% year on year 24


2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Direct – aiming points & progress

Inbound Motor Motor


Inbound Quotes & Sales
Quotes & Sales

50000 14000
Shopping List 12000
40000
10000

Quotes
30000 8000 Quotes

Sales
Pre Happy: 7th or 8th 20000 6000 Sales
4000
10000
Aim: Top 3 2000
0 0
Jul Aug Sepe cas t)
Se p (For

Competitive Position
OnlineOnline
MotorMotor
NonNon
AggAgg
Quotes & Sales
Quotes & Sales

160000 12000
Aim: Within 10% of 140000 10000
the cheapest 120000
8000
Quotes

100000
Quotes

Sales
22% of the time 80000 6000
Sales
60000 4000
40000
20000 2000
0 0
Jul Aug Sep

New business sales volumes up 18% year on year 25


2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Partnerships – current position

A significant part of the portfolio

• Provided significant scale in the personal portfolio; 100 partners


• Dominated distribution in this channel
History shows profit performance with room for improvement

• Distribution ratio is the largest


• Some accounts have not been profitable over their life of contract
• Motor very hard
Sustainable financials
• Clarity on what are acceptable terms
• Account managed to deliver them
• Retain, renegotiate or exit

Challenge is to make portfolio more profitable 26


2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Partnerships – strategic principles

We will focus on Partners who offer a clear “moment of truth”:


“Customers we can’t win on our own”

Home Motor SME Creditor Travel Rescue

Banks / BS’s
Barclays
HSBC Yes No No Yes No No

Abbey

Retailers
Post Office Yes? Yes No No Yes No
ASDA No No No No No No

Motor Mans / Dealers No Yes No No No No

27
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Partnerships – actions to date

• Moment of truth • No moments of truth


• Renegotiate until 2010 with required • Unacceptable returns
return
• Exit to broking partner
• A&L and B&B present opportunities

• Some Moments of truth


• No Moment of truth
• But driven by Aggregators
• Broking solution only?
• JV with broking partner
• Exit
• Keep only what we want

• Long term relationship All about execution


• Exit all lines during 2009 – one by one –
return by return

Major deals renegotiations completed 28


2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Brokers

• £700m personal lines revenue

• Take core NUD & offer to brokers through different technology routes

• Pull out of aggressive panels

• Commercially connected / HNW attractive

• Now in execution

29
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Brokers

• £700m personal lines revenue

• Take core NUD & offer to brokers through different technology routes

• Pull out of aggressive panels

• Commercially connected / HNW attractive

• Now in execution

30
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


RAC

Trusted and admired by the motorist


• Achieved so far
– Great integrated Rescue business
with 2.3m members 9
– Synergies 9
– Partnerships grown by 2m
customers & £40m revenue 9
– JD Power no1 Rescue company 9
How do we leverage RAC into consumer insurance brand?...
31
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


RAC insurance

• 3 years on
• 260,000 insurance customers
• Honed distribution strategy
… RAC relaunched as membership &
retail panel player
• Signed 5 year deal with Budget
• Sales & service all RAC staff
• Signing up insurers... Launch Q1
• Scale via cross sell / aggregators
• NU take 30% / 40% of panel premium
• All parties not to claim farm
32
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


RAC insurance

• 3 years on
• 260,000 insurance customers
• Honed distribution strategy
… RAC relaunched as membership &
retail panel player
• Signed 5 year deal with Budget
• Sales & service all RAC staff
• Signing up insurers... Launch Q1
• Scale via cross sell / aggregators
• NU take 30% / 40% of panel premium
• All parties not to claim farm
33
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Reshaping the book

By 2011 our personal lines book will have changed…

• Direct grows
• Brokers grow
• Partnerships fall
• RAC steady in Rescue but doubles in size for insurance

• Motor grows
• Home grows
• Creditor falls

34
2. Personal Lines John Kitson

Insurance Excellence in UK GI: 'Focus on Profit'


Summary of reshaping

• Crystal clear clarity on strategy


– Direct
– Partnerships
– Brokers
– RAC

• Value choices made

• Well into execution …

35
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson 9
• Transforming pricing Dan Pickens

3. Commercial lines Janice Deakin

• Transforming underwriting Larry Harrington

4. Operations David McMillan

5. Summary Igal Mayer

Questions & Answers


36
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Transforming personal lines pricing

• Product complexity and mass customisation


• Risk segmentation – a pricing function!
• Use of credit
• Mass customised pricing
• Flight path of initiatives

37
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Reduce complexity

• Current Product Portfolio


– 70 Motor Products Bespoke
– 17 Home Products products with
differing cover
– 74 Travel Products
and rating
– 158 Creditor Products

• Does NOT provide meaningful differentiation in the market


• Creates internal complexity, inefficiencies and external confusion

IT Architecture to “mass customise” product delivered in September


for Direct channel

38
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Mass customised product – future state

Buildings & Contents


Platinum Cover Gold Cover Value Cover

Sums Insured
Single Product
3
Blanket
Platform3 3
Blanket Blanket

Specified Inner Limits Single Process


3 3 3
Higher Inner Limit Higher Inner Limit Low Inner Limit
One Price List
Frozen Food 3 3 3
Unlimited £400 Limit £200 Limit

Loss of rent and alternative 3 3


accommodation £12,000 Limit £6,000 Limit 2

Visitors Personal Effect 3 3


Unlimited £1,000 2

Sport Equipment 3
£1,000 2 2
39
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit‘


Risk segmentation

Risk segmentation has been a marketing function!


40
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Risk segmentation

Defined as ability to quantify and price risk:


• Number of pricing cells
• Rate dispersion

Risk segmentation is a pricing function!


41
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Risk segmentation

Defined as ability to quantify and price risk:


• Number of pricing cells

Risk segmentation is a pricing function!


42
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Risk segmentation – a pricing function!

Defined as ability to quantify and price risk:

• Rate dispersion

Risk segmentation is a pricing function!


43
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Risk segmentation

Approaches
• Statistical techniques

∫∫ f(x,y,z) dxyz

Risk segmentation is a pricing function!


44
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Risk segmentation

Approaches
• Statistical techniques
• Multi-peril pricing model

Yi1 = B(1+xi1)(1+yi1)(1+zi1)…

Yi = B(1+xi)(1+yi)(1+zi)… Yi2 = B(1+xi2)(1+yi2)(1+zi2)…


Yi3 = B(1+xi3)(1+yi3)(1+zi3)…

∑ Yik

Risk segmentation is a pricing function!


45
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Risk segmentation

Approaches
• Statistical techniques
• Multi-peril pricing model
• Use of third-party data

- CUE

CREDIT!

Risk segmentation is a pricing function!


46
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Make / model adjustments

Old Rating
Make
Segment (i.e. SUV)
Number of Doors
Engine (Size and Fuel)
Transmission
Age
ABI Group

Vehicle Old Factor New Factor


Vogue 1.00 1.00
Vogue SE 1.00 1.05
HST 1.00 1.10
HSE 1.00 1.12
HST SC 1.00 1.15
HSE SC 1.00 1.18

47
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Impact of credit – new rating variable

Personal Motor Results


120%

Worse
110% Implemented in June for Motor
and September for Household
100%
Claim Ratio

90%

80%

70%

Better
60%
1
1-575 2
576-605 606-626 627-642 643-656 657-669 670-681 682-693 9
694-707 10
708+

Worse Better
Credit Score
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Impact of credit – new rating variable

0.12

0.1

0.08
Percentage of Policies

0.06
Overall Price Neutral Change
Individual policy changes range
0.04 from -50% to +55%

0.02

0
-50% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
Applied Rate Change
49
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Motor credit – early results

Combined Inbound and Web Results


First Two Weeks Most Recent Two Weeks
Quoted Quoted
Quote Avg % Quote Avg %
Segment Distn % Sold CR Prem Monthly Distn % Sold CR Prem Monthly

WORST 1 1-575 13.3% 14.6% 19.9% £851 75.7% 12.3% 11.8% 17.5% £880 83.2%

2 576-605 15.9% 15.6% 17.9% £885 63.5% 13.9% 11.4% 15.0% £942 65.2%

3 606-626 14.5% 14.0% 17.6% £727 54.7% 12.1% 10.5% 16.0% £721 57.4%

4 627-642 12.4% 12.2% 17.9% £619 46.0% 10.3% 9.9% 17.6% £640 52.6%

5 643-656 9.4% 9.1% 17.7% £554 38.8% 8.5% 8.7% 18.7% £582 47.6%

6 657-669 8.1% 8.0% 18.0% £566 39.0% 9.1% 9.3% 18.7% £494 40.2%

7 670-681 7.1% 7.5% 19.2% £583 34.5% 8.2% 9.2% 20.6% £420 35.3%

8 682-693 6.6% 6.2% 17.4% £566 34.3% 8.6% 9.4% 20.0% £389 28.3%

9 694-707 6.5% 6.5% 18.2% £453 25.4% 8.6% 10.0% 21.1% £330 27.3%
BEST 10 708+ 6.1% 6.2% 18.8% £359 17.8% 8.4% 9.8% 21.2% £284 21.7%

Summary 1-5 65.6% 65.5% 18.2% £745 57.6% 57.0% 52.3% 16.7% £774 62.4%

Summary 6-10 34.4% 34.5% 18.3% £512 30.8% 43.0% 47.7% 20.3% £385 30.4%
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Motor credit – early results

Combined Inbound and Web Results


First Two Weeks Most Recent Two Weeks

Quoted Quoted
CR Avg CR Avg
Prem Prem

Summary 1-5
65.6% 65.5% 18.2% £745 57.6% 57.0% 52.3% 16.7% £774 62.4%
‘Worse’

Summary 6-10
34.4% 34.5% 18.3% £512 30.8% 43.0% 47.7% 20.3% £385 30.4%
‘Better’
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Mass customised pricing

Individual
Customer
Price Individual Profitability
Optimisation
Customer
Individual Profitability
Customer
Profitability

Distribution Direct Brokers Partners


Expenses

Common Common Loss Cost Models


Platform
(age, sex, marital status, credit, type of car, post code, etc)

52
2. PL – Transforming Pricing Dan Pickens

Insurance Excellence in UK GI: 'Focus on Profit'


Progress
Q2 2008 Q3 2008 Q1 2009 Q2 2009 Q4 2009

Credit - Motor 9
ABI, Make/Model, NCD
Validation, and Post Code 9
Mass Customised
Product Architecture 9
Credit - Home 9
DVLA / CUE
Mass Customised Pricing
Price Optimisation

53
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson 9
• Transforming pricing Dan Pickens 9
3. Commercial lines Janice Deakin

• Transforming underwriting Larry Harrington

4. Operations David McMillan

5. Summary Igal Mayer

Questions & Answers


54
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


The jewel in the crown

• The market
• Distribution strategy
• Consolidation
• Commission
• Winning the crowd

55
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


The jewel in the crown

Aviva
13.4%

• No 1 commercial insurer in the


UK Rest of Market
32.0% Zurich
10.5%
• 36% of NU premium, 49% of
operating profit RSA
QBE
3.0% 9.8%
• SME our heartland – 18% share
RBSI AIG
(including
Direct Line)
7.7%
3.0%
AXA
Even after years of consolidation, ACE
7.2%
3.1%
distribution dominated by brokers
NFU Allianz
providing local advice 3.4% 6.9%

Source: 2007 FSA returns with overseas business removed


Estimated market size based on 2006 data
Includes Healthcare, excludes Marine, Aviation & Transport
56
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


The jewel in the crown

Aviva v. Market - Commercial lines COR 05-07*

105
• No1 through successful
focus on SME via brokers
95
• Commercial lines are
profitable

85 • This is a priority for Aviva


in the UK

75
Aviva Market Aviva Market Aviva Market
2005 2006 2007
*2007 includes the impact of the summer floods
Data taken from FSA returns may differ from result announcements
Data is for commercial Motor, Property and Liability

57
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


What we believe

• Local independent advice is key for commercial customers


• Support the independent broker and win the crowd
• ‘No’ to commercial direct
• Brokers will continue to dominate – with sustainable distribution ratios
• Consolidations have peaked – 85% of brokers expect to stay
independent
• Historically our actions have fuelled consolidation – actions today are
reversing this trend
• ‘No’ to buying brokers

58
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Local underwriting strength

We recently announced…
2010 Operations End State Vision
2010 End State Vision

Personal
Mixed
Commercial

Perth Noida
Bishopbriggs

But the UK wide trading locations remain…


our local underwriting strength Manchester
Pune
Manchester
Cheadle Stretford
Leicester
Norwich

Southend Bangalore

Offshore locations to be confirmed following ongoing


commercial negotiations with offshore partners

59
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Local underwriting strength

• Aberdeen • Exeter • Northampton


• Birmingham • Glasgow • Norwich
• Basildon • Ipswich • Nottingham
• Belfast • Leeds • Oxford
• Brighton • Leicester • Perth
• Bristol • Liverpool • Plymouth
• Cardiff • London • Preston
• Chelmsford • Luton • Reading
• Cheltenham • Maidstone • Southampton
• Croydon • Manchester • Swansea
• Edinburgh • Newcastle

1,200 strong underwriting & trading team 60


3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


War for distribution

• Growth through independent and smaller brokers


• Less reliance on consolidators = lower commissions
Our strategies to reshape our book…
Consolidators
Reduce premium
Sustainable commission
Strong relationships
Limited delegated underwriting

Independent Organic Growth Independent Brokers


Differentiated offer to 3000 small brokers Protect Differentiate through 110 broker club
and
Grow share of business Grow Succession planning
Self serve for SME Long term support

Brokers Join Networks


Strong relationships with selected networks
– but best deal from NU directly

Ensuring brokers survive and thrive 61


3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Significant action to bring commission down

• Changing the shape of our book


NUI Intermediary Business – Commercial
Lines Commission 2004-2010
• Reduce consolidator premium with
higher commissions 40.0%

35.0%

• Grow significantly through smaller 30.0%

independents 25.0%

20.0%

• Stop increases for new consolidations 15.0%

10.0%

• Underwrite ourselves through 1200 5.0%


underwriters – no work transfer 0.0%
2004
1 2005
2 2006
3 2007
4 2008
5 2009
6 2010
7

• More commission contingent on profit


= CL commission = CL consolidator
commission
• Fix or exit poor performing business

62
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Significant action to bring commission down

• Changing the shape of our book


NUI Intermediary Business – Commercial
Lines Commission 2004-2010
• Reduce consolidator premium with
higher commissions 40.0%

35.0%

• Grow significantly through smaller 30.0%

independents 25.0%

20.0%

• Stop increases for new consolidations 15.0%

10.0%

• Underwrite ourselves through 1200 5.0%


underwriters – no work transfer 0.0%
2004
1 2005
2 2006
3 2007
4 2008
5 2009
6 2010
7

• More commission contingent on profit


= CL commission = CL consolidator
commission
• Fix or exit poor performing business
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Significant action to bring commission down

• Changing the shape of our book


NUI Intermediary Business – Commercial
Lines Commission 2004-2010
• Reduce consolidator premium with
higher commissions 40.0%

35.0%

• Grow significantly through smaller 30.0%

independents 25.0%

20.0%

• Stop increases for new consolidations 15.0%

10.0%

• Underwrite ourselves through 1200 5.0%


underwriters – no work transfer 0.0%
2004
1 2005
2 2006
3 2007
4 2008
5 2009
6 2010
7

• More commission contingent on profit


= CL commission = CL consolidator
commission
• Fix or exit poor performing business
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


War for distribution

65
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Winning the crowd

"After speaking with a number of delegates, we all believe there is the


commitment - the "can do" will result in the "will do" - and we very
"From a broker
much wish to be part of this.“
perspective it is
brilliant to see that
We can only do this by winning the crowd… Aviva have
recognised the
need to focus
"I think if you can • Voted Insurer of the year 5 years running resource on the
deliver on what independents and I
was outlined on • Strongest underwriting footprint in UK, 1200 truly look forward
Friday and re- underwriters, 400 sitting in our brokers offices to going forward
enforced over the with you guys over
weekend you will the coming years.“
certainly steal a • Consistently “provides brokers best service”.
march on the Improving year on year
competition.“

"It was the first time in many years that I have left a conference
believing that the directors of an insurer were actually going to do
what they said and that they would also be acting in our best
interests.“

66
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


Winning the crowd

"After speaking with a number of delegates, we all believe there is the


commitment - the "can do" will result in the "will do" - and we very
"From a broker
much wish to be part of this.“
perspective it is
brilliant to see that
We can only do this by winning the crowd… Aviva have
recognised the
need to focus
"I think if you can • Voted Insurer of the year 5 years running resource on the
deliver on what independents and I
was outlined on • Strongest underwriting footprint in UK, 1200 truly look forward
Friday and re- underwriters, 400 sitting in our brokers offices to going forward
enforced over the with you guys over
weekend you will the coming years.“
certainly steal a • Consistently “provides brokers best service”.
march on the Improving year on year
competition.“

"It was the first time in many years that I have left a conference
believing that the directors of an insurer were actually going to do
what they said and that they would also be acting in our best
interests.“
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


How far we’ve come

2007 Now
• Unprecedented pace of broker • 85% of brokers say they are
consolidations staying independent
• Ever increasing trend on commission • Actions in place to reduce
commission significantly
• Rate increases of 3% across the
• Rates going backwards for 4 years book, plans in place for Q4 and
2009
• NU-consolidator business growing • Consolidators business has
rapidly fuelling increased commission shrunk by 4% in 2008
• NU premium through independent • NU premium through independent
broker shrinking brokers up 5% year on year

NUI No1 for brokers 4 NUI No1 for brokers 5


years running years running
68
3. Commercial Lines Janice Deakin

Insurance Excellence in UK GI: 'Focus on Profit'


How far we’ve come

2007 Now
• Unprecedented pace of broker • 85% of brokers say they are
consolidations staying independent
• Ever increasing trend on commission • Actions in place to reduce
commission significantly
• Rate increases of 3% across the
• Rates going backwards for 4 years book, plans in place for Q4 and
2009
• NU-consolidator business growing • Consolidators business has
rapidly fuelling increased commission shrunk by 4% in 2008
• NU premium through independent • NU premium through independent
broker shrinking brokers up 5% year on year

NUI No1 for brokers 4 NUI No1 for brokers 5


years running years running
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson 9
• Transforming pricing Dan Pickens 9
3. Commercial lines Janice Deakin 9
• Transforming underwriting Larry Harrington

4. Operations David McMillan

5. Summary Igal Mayer

Questions & Answers


70
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Commercial lines underwriting

• Historical context
• Rating – phase 1
• Rating – phase 2
• Underwriting for profit
• Sustainable profit through the cycle

71
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Rating for profit – phase 1

Commercial Overall (excl. Other) Rate Growth & Volume Retention

4% 84%

3%
82%
2%
80%
1%

• We have been driving up rates over 0%

-1%
78%

76%

the last 12 months -2%

-3%
74%

-4% 72%

• Rate versus retention impacts

Jan-07

Feb-07

Mar-07

May-07

Jun-0 7

Jul-07

Jan-08

Feb-08

Mar-08

May-08

Jun-08

Jul-08
Sep-07

Oct-07

Nov-07

Dec-07
Apr-07

Aug-07

Apr-08

Aug-08
monitored to assess elasticity & push Rate Grow th Volume Retention Rate

the market Commercial Motor Rate Growth & Volume Retention

6% 78%

• Taken us from negative territory into 5%


4%
76%

74%

positive; delivering a 6% point 3%


2%
72%

70%

improvement 1%
0%
68%

66%
-1%
-2% 64%

-3% 62%

-4% 60%
Jan-07

Feb-07

Mar-07

May-07

Jun-07

Jul-07

Jan-08

Feb-08

Mar-08

May-08

Jun-08

Jul-08
Sep-07

Oct-07

Nov-07

Dec-07
Apr-07

Aug-07

Apr-08

Aug-08
Rate Growth Volume Retention Rate

72
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Rating for profit – phase 2
CHC CHC CCI CTC CPO CMT AGR CME OSP/PRP etc

General Commercial
Large Property Construction Commercial Property
TOTAL IB Complex Schemes General Combined Motor Trade Agriculture Combined (legacy Package Products
Owners Combined Owners
Bonus)

2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core


Region 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR
South £71.9 28.7% £8.8 52.7% £64.6 28.3% £24.5 46.1% £29.2 28.2% £39.7 56.2% £0.8 39.7% £10.6 29.5% £41.0 51.0%
West & South Wales £8.7 30.0% £9.9 60.6% £62.9 39.5% £29.8 59.8% £27.9 33.9% £41.2 58.3% £4.3 55.3% £8.7 32.8% £38.8 41.5%
London City £72.5 30.1% £41.9 40.0% £41.0 28.0% £10.2 46.3% £32.7 24.2% £14.9 69.9% £9.4 68.8% £3.0 44.4% £19.0 46.2%
London NB £112.3 23.3% £8.5 66.7% £61.2 33.8% £5.5 28.1% £43.1 19.6% £5.8 84.4% £1.7 55.4% £12.3 31.0% £8.5 34.7%
Midlands £11.0 29.3% £6.5 50.6% £50.7 42.3% £24.0 51.5% £26.7 27.7% £33.6 63.1% £1.4 39.7% £6.4 37.4% £20.2 46.3%
Scotland & NI £11.6 40.1% £16.4 35.3% £50.1 38.0% £23.0 60.0% £37.2 32.5% £28.0 51.0% £11.7 49.8% £11.3 41.7% £36.6 47.4%
North East £25.8 44.1% £12.3 51.1% £55.6 42.2% £16.3 57.9% £16.8 27.0% £29.0 60.2% £1.7 43.3% £11.7 30.7% £21.4 44.2%
North West £35.1 36.1% £3.6 19.6% £47.7 36.4% £20.4 57.9% £15.4 18.9% £32.6 54.6% £3.3 46.4% £4.1 30.4% £16.0 48.9%
East £20.0 65.3% £24.1 46.0% £42.1 28.5% £19.3 33.1% £31.3 55.7% £22.0 49.2% £7.4 76.5% £1.3 50.1% £15.9 45.4%
National Accounts £2.0 38.5% £115.1 33.1% £9.9 43.2% £3.0 51.6% £8.9 13.0% £6.5 75.3% £12.7 67.4% £2.1 36.3% £5.0 45.7%
Leicester NB £4.5 37.9% £0.0 0.0% £23.8 47.1% £7.0 106.6% £10.8 48.0% £13.5 67.1% £0.6 96.4% £12.0 30.2% £10.2 30.5%
Birmingham NB £5.6 37.4% £5.8 24.3% £24.7 42.9% £1.8 52.9% £4.4 32.4% £5.2 72.0% £0.1 12.5% £4.2 32.5% £2.0 27.1%
ManchesterNB £1.0 32.7% £0.1 1.2% £19.6 39.0% £1.8 26.3% £1.1 23.7% £2.7 64.2% £0.0 0.0% £3.3 17.2% £2.5 20.7%
Glasgow NB £0.0 5.3% £0.0 0.0% £14.9 47.2% £1.2 26.6% £10.3 31.4% £2.8 52.0% £1.3 18.6% £5.2 22.7% £0.9 16.0%
Unallocated £3.4 8.3% £0.0 0.0% £3.7 22.3% £1.5 20.9% £1.5 4.3% £2.7 59.3% £0.8 65.7% £0.0 0.0% £0.1 408.3%
Belfast NB £0.2 40.8% £0.0 0.0% £5.1 31.0% £2.9 110.9% £3.1 15.4% £1.4 48.3% £0.1 98.8% £1.5 24.0% £2.1 33.9%
Total £386.4 31.9% £252.9 39.8% £577.8 36.4% £192.2 53.4% £300.5 30.0% £281.8 59.2% £57.5 59.7% £97.9 32.7% £240.2 44.8%

2009 Plan Core NECR 32.0% 37.8% 38.0% 42.5% 32.2% 46.0% 47.3% 37.9% 38.7%

Key :
NECR worse than Target by 5% points
NECR within +/- 5% points of Target
NECR better than Target by 5% points

Red Rate Target £69.6 10.1% £70.1 6.6% £48.7 10.3% £128.1 10.2% £42.0 12.6% £230.4 7.7% £37.1 6.1% £4.3 6.3% £175.3 4.8%
Amber Rate Target £200.1 6.9% £173.3 6.4% £372.5 6.2% £34.8 9.2% £135.8 6.9% £51.4 7.7% £16.7 6.0% £19.8 6.3% £49.4 4.8%
Green Rate Target £115.7 5.0% £9.5 5.0% £156.6 5.0% £29.3 5.0% £122.7 5.0% £0.0 7.7% £3.7 5.0% £73.7 6.3% £15.6 4.8%

Overall Rate Target £385.4 6.9% £252.9 6.4% £577.8 6.2% £192.2 9.2% £300.5 6.9% £281.8 7.7% £57.5 6.0% £97.8 6.3% £240.2 4.8%

• Massive database
• Use it to segment activity to lose accounts or get needed rate
– New vs renewal
– Office level and product class
• 12 months ago we got the market moving… now getting more
sophisticated in segmenting the book 73
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Underwriting for profit

£0 £100

-£20 £90

Profit Benefit (written)


• 3000 poor performing -£40 £80

accounts/schemes identified -£60 £70

GWP Loss
-£80 £60
• Cases where 2 out of last 3 years -£100 £50
underlying loss ratios >80% -£120 £40

• Target is exit or major (+25% min) price -£140 £30

rise -£160 £20

-£180 £10
• Branches working through case by case -£200 £0
<<<Jun
Jan Feb Mar Apr May TIME
Jul>>>
Aug Sept Oct Nov Dec

Cumulative Lapsed Premium Cumulative Operating Profit £m’s

Support profitable CORs through the cycles'


74
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Sustainable profit through the cycle

• Philosophy of excellence in execution at transaction level


– Delivered through 1,200 UK-wide underwriters
– More than segmented rating action
– Exposure recognition
– Influence behaviours of underwriters
• Monitoring, mentoring, measuring

This is where our future results are made

75
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Sustainable profit through the cycle

SME market has been price driven... We need to differentiate ourselves

• Segmented products tailored to customer needs


• E-broking – making it easy:
– cuts the cost for broker and NU
– self binding approach with 15 minute turnaround on referrals
• Capitalise on NU Risk Services:
– 130 risk specialists; our face to the customer
– value and reputation enhancing
– plans in place to further exploit this capability

Norwich Union is a great company to do business with


76
3. CL – Transforming underwriting Larry Harrington

Insurance Excellence in UK GI: 'Focus on Profit'


Progress

Rating 9
Cleanse the book 9
Sustainable profit through the cycle 9
Differentiating ourselves in the SME market 9

77
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson 9
• Transforming pricing Dan Pickens 9
3. Commercial lines Janice Deakin 9
• Transforming underwriting Larry Harrington 9
4. Operations David McMillan

5. Summary Igal Mayer

Questions & Answers


78
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Delivering the promise of scale

• The vision for Operations


• Footprint consolidation
• Lean manufacturing
• Right-shoring
• Self service
• Mass customisation
• IT architecture

Delivering the promise of scale 79


4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Delivering the promise of scale

NUI UK Best of Best of


2
Expenses Breed Breed Co.
Personal Lines

Motor 16.1% 12.3% Direct Line, Fortis


Property 11.0% 9.7% Direct Line, NU

2006 Creditor 1.3% 1.3% NU

UK 1best of breed expense RAC Rescue 27.5% 27.5% NU


ratio applied to NUI channel
Commercial Lines
/ product mix:
Motor 13.8% 8.2% Brit
Property 16.3% 15.2% Axa Source: FSA Returns (2006)
(1) Expense ratios exclude CHE and
Liability 11.6% 11.6% NU commission
(2) Based on leading cost performance
in channel, weighted to reflect NUI
NUI Total 13.9% 12.0% mix

2007 NUI Total 13.9% 12.0%

2008 NUI Total – ½ Year 12.8%


Ph1 achieves benchmark..
NUI Total – Full Year 12.1%

80
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Delivering the promise of scale

Phase 1 Target : £200m


• Sales & Marketing
One- C&E
offs £38m • IT
• Support Services
Inflation • Change
Phase 1
Cost
Reduction Phase 2 Target : £150m
• Operations
• IT
One-
offs
Phase 1
Cost Phase 2
Reduction 09 & 10 Phase 2
Cost
Inflation Cost
Reduction

£150m
Expense £150m
Ratio

2007 2008 HY 2008 FY 2010


13.9% 12.8% 12.1% <11%

81
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


The vision for Operations

Cost Drivers Key Strategies

• Footprint
consolidation
Product
Complexity
• Lean
manufacturing
Systems Process • Right-shoring
Complexity Complexity
• Self service
• Mass
Organisation customisation
Complexity
• IT architecture

82
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Footprint consolidation

2008 End State - 2010

Personal Personal

Mixed Mixed

Commercial Commercial

Dundee
Noida
Glasgow
Perth Perth
Bishopbriggs Bishopbriggs

Leeds
Bradford
Belfast
Sheffield Pune Pune
Liverpool Manchester Manchester
Stretford Stretford
Cheadle Cheadle
Leicester Leicester
Birmingham
Birmingham Norwich Norwich

Ipswich
Bristol Southend
Basildon
Basildon Bangalore Chennai Bangalore
Southend

Southampton
Colombo
Worthing
Exeter

Centres of Excellence:
UK – 7
India – 2 83
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Lean manufacturing

Q2 Q3’08 Q4’08 Q1’09

Aims
Policy Sales & Direct, Broker - Personal &
Service Commercial

• Best in class processes


Process Transformation

Household & Personal Motor


• Improved customer experience
Claims

Commercial Property & Motor


• Increased efficiency
Creditor
• YOY continuous improvement
Collections
Resolve Payment & Collection
capability
Issues – Direct & Broker

84
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Offshore

“Right-shoring” key
customer moments of truth

Policy Sales
First Claim Call

Back office
Collections / Recoveries /
Analytics

85
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Self service

• Self service has matured in the direct channels


(50% of quotes online)

• Created best in class self service


– Leading quote and buy capability
– Renewals online and self service of 72
mid-term adjustments
– 115,000 registrations per month
– Insurance documents online

Primary Customer Access Channels (Current / Target)


• Cutting edge natural language call automation

Contact Channel Sales Servicing Claims Reporting Claims Tracking


• Significant increase in online capability for
Direct Web Self service 50%  60% 0% 39%
intermediated business
Self Service EDI 80%  85%
Broker 0%  5% 0%  30%
Web Self Service 4%  40%
• Introducing online claims notification and
tracking
CP Web Self service 5%  24% 0%  18%

Self service propositions already built 86


4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Mass customisation

Simpler products enable simpler processes enable simpler IT….

Fewer core products 161* to 3

Fewer pricing algorithms 45 to 3

Fewer operational processes 3600 to 720

Fewer IT applications c900 to <300

Fewer documents 2450 to 60 (core templates)

Faster to market 6 mths to 1mth

… which means lower costs, better pricing and faster to market


* excludes Creditor

Modular core product allows “mass customisation” 87


4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


IT architecture

2007 2010

Reduction in IT costs from 5.5% of


GWP to industry benchmark of sub
c900 Applications <300 Applications 3%, enabled by :

• Simplified product set


Flight path to 2010
• Reduction in headcount
2007 2008 2009 2010 2011
• Tighter supply chain management
Delivered Benefit
IT2010 benefits
• Targeted outsourcing
IT2010 benefits
‘End•-game’ • Process improvement
benefits

£355m £258m £210m £180m £<180m

IT spend <3% of GWP 88


4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Operational excellence – key metrics

2007 Target
Operations Headcount c10,000 c7,000

IT & Operational Services c2,900 c1,700


Headcount

Sites 27 9

Desk Utilisation 73% 107%

Sales Online 35% 60%

Service Online 1% 39%

Core IT Platforms 900 300

IT spend as % of GWP 5.5% <3%

Core Products 161* 3

Expense Ratio 13.9% <11%


Notes: Headcount, sites & Desk Utilisation excludes RAC
* Excludes creditor 89
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Progress

Sale of offshore operations


9
New operating model announced 9
Mass Customised products and self service
proposition developed 9
End to end core process re-engineering Dec 2008

Footprint rationalisation commences Q1 2009

Right-shoring of core processes H2 2009

IT Data Centres hand over Q3 2009

90
4. Operations David McMillan

Insurance Excellence in UK GI: 'Focus on Profit'


Progress

Sale of offshore operations


9
New operating model announced 9
Mass Customised products and self service
proposition developed 9
End to end core process re-engineering Dec 2008

Footprint rationalisation commences Q1 2009

Right-shoring of core processes H2 2009

IT Data Centres hand over Q3 2009


Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson 9
• Transforming pricing Dan Pickens 9
3. Commercial lines Janice Deakin 9
• Transforming underwriting Larry Harrington 9
4. Operations David McMillan 9
5. Summary Igal Mayer

Questions & Answers


92
5. Summary Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Reshaping the book

We are leveraging our unparalleled access to


customers and reshaping the front end of our business

Panel Proposition
Direct Relaunch Leverage Membership
Reshaping
the book.. Consolidators

Reduce premium

Sustainable commission

Strong relationships

Limited delegated underwriting

Independent Organic Growth Independent Brokers

Differentiated offer to 3000 small brokers Protect Differentiate through 110 broker club
and
Grow
Grow share of business Succession planning

Self serve for SME Long term support

Brokers Join Networks

Strong relationships with selected networks – but best deal


from NU directly

Winning route for commercial via


Moments of truth independent brokers

Sustainable growth and sustainable distribution cost 93


5. Summary Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Building core insurance capability

Personal Lines - Transforming Pricing


0.12

0.1 Old Rating


Gold Cover Silver Cover Bronze Cover
Make
Buildings & Contents

3 3 3
0.08 Segment (i.e. SUV)
Sums Insured

Percentage of Policies
Blanket
3
Blanket
3
Blanket
Number of Doors
Specified Inner Limits 3
Higher
Inner
Higher
Inner
Low Inner
0.06
Overall Price Neutral Change Engine (Size and
Limit Limit Limit
3 3 3
Individual policy changes
range from -50% to +55%
Fuel)
Frozen Food 0.04
Unlimited £400 Limit £200 Limit
Transmission
3 3
Loss of rent and
£12,000 Limit £6,000 Limit 2 Age
alternative 0.02
accommodation 3 3
Visitors Personal Effect
Unlimited £1,000 2 ABI Group
3
Sport Equipment
£1,000 2 2 0
-50% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60%
Applied Rate Change

Commercial Lines – Transforming Underwriting


CHC CHC CCI CTC CPO CMT AGR CME OSP/PRP etc
Commercial Overall (excl. Other) Rate Growth & Volume Retention
General Commercial
TOTAL IB
Large Property
Owners
Complex Schemes General Combined
Construction
Combined
Commercial Property
Owners
Motor Trade Agriculture Combined (legacy
Bonus)
Package Products £0 £100
4% 84% 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core 2 Yr Core
Region
South
2 Yr GWP
£71.9
NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR 2 Yr GWP NECR
28.7% £8.8 52.7% £64.6 28.3% £24.5 46.1% £29.2 28.2% £39.7 56.2% £0.8 39.7% £10.6 29.5% £41.0 51.0%
-£20 £90
3% West & South Wales £8.7 30.0% £9.9 £62.9 39.5% £29.8 £27.9 33.9% £41.2 £4.3 £8.7 £38.8 41.5%

Profit Benefit (written)


60.6% 59.8% 58.3% 55.3% 32.8%
82% London City £72.5 30.1% £41.9 40.0% £41.0 28.0% £10.2 46.3% £32.7 24.2% £14.9 69.9% £9.4 68.8% £3.0 44.4% £19.0 46.2%
London NB £112.3 23.3% £8.5 66.7% £61.2 33.8% £5.5 28.1% £43.1 19.6% £5.8 84.4% £1.7 55.4% £12.3 31.0% £8.5 34.7%
-£40 £80
2% Midlands
Scotland & NI
£11.0
£11.6
29.3%
40.1%
£6.5
£16.4
50.6%
35.3%
£50.7
£50.1
42.3%
38.0%
£24.0
£23.0
51.5%
60.0%
£26.7
£37.2
27.7%
32.5%
£33.6
£28.0
63.1%
51.0%
£1.4
£11.7
39.7%
49.8%
£6.4
£11.3
37.4%
41.7%
£20.2
£36.6
46.3%
47.4%
80% North East £25.8 44.1% £12.3 51.1% £55.6 42.2% £16.3 57.9% £16.8 27.0% £29.0 60.2% £1.7 43.3% £11.7 30.7% £21.4 44.2%
1% North West
East
£35.1
£20.0
36.1%
65.3%
£3.6
£24.1
19.6%
46.0%
£47.7
£42.1
36.4%
28.5%
£20.4
£19.3
57.9%
33.1%
£15.4
£31.3
18.9%
55.7%
£32.6
£22.0
54.6%
49.2%
£3.3
£7.4
46.4%
76.5%
£4.1
£1.3
30.4%
50.1%
£16.0
£15.9
48.9%
45.4%
-£60 £70
National Accounts £2.0 38.5% £115.1 33.1% £9.9 43.2% £3.0 51.6% £8.9 13.0% £6.5 75.3% £12.7 67.4% £2.1 36.3% £5.0 45.7%

0% 78% Leicester NB £4.5 37.9% £0.0 0.0% £23.8 47.1% £7.0 106.6% £10.8 48.0% £13.5 67.1% £0.6 96.4% £12.0 30.2% £10.2 30.5%

GWP Loss
Birmingham NB
ManchesterNB
£5.6
£1.0
37.4%
32.7%
£5.8
£0.1
24.3%
1.2%
£24.7
£19.6
42.9%
39.0%
£1.8
£1.8
52.9%
26.3%
£4.4
£1.1
32.4%
23.7%
£5.2
£2.7
72.0%
64.2%
£0.1
£0.0
12.5%
0.0%
£4.2
£3.3
32.5%
17.2%
£2.0
£2.5
27.1%
20.7% -£80 £60
Glasgow NB £0.0 5.3% £0.0 0.0% £14.9 47.2% £1.2 26.6% £10.3 31.4% £2.8 52.0% £1.3 18.6% £5.2 22.7% £0.9 16.0%
-1% Unallocated £3.4 £0.0 £3.7 £1.5 £1.5 £2.7 £0.8 £0.0 £0.1
76%
8.3% 0.0% 22.3% 20.9% 4.3% 59.3% 65.7% 0.0% 408.3%
Belfast NB
Total
£0.2
£386.4
40.8%
31.9%
£0.0
£252.9
0.0%
39.8%
£5.1
£577.8
31.0%
36.4%
£2.9
£192.2
110.9%
53.4%
£3.1
£300.5
15.4%
30.0%
£1.4
£281.8
48.3%
59.2%
£0.1
£57.5
98.8%
59.7%
£1.5
£97.9
24.0%
32.7%
£2.1
£240.2
33.9%
44.8% -£100 £50
-2%
74%
2009 Plan Core NECR 32.0% 37.8% 38.0% 42.5% 32.2% 46.0% 47.3% 37.9% 38.7%

-3% Key : -£120 £40


NECR worse than Target by 5% points
NECR within +/- 5% points of Target
-4% 72% NECR better than Target by 5% points
-£140 £30
J a n -0 7
F eb-07
M ar-07

M ay -07
J u n -0 7
J u l- 0 7

J a n -0 8
F eb-08
M ar-08

M ay -08
J u n -0 8
J u l- 0 8
S e p -0 7
O ct- 0 7
N o v -0 7
D e c -0 7
Apr-07

A u g -0 7

Apr-08

A u g -0 8

Red Rate Target £69.6 10.1% £70.1 6.6% £48.7 10.3% £128.1 10.2% £42.0 12.6% £230.4 7.7% £37.1 6.1% £4.3 6.3% £175.3 4.8%
Amber Rate Target
Green Rate Target
£200.1
£115.7
6.9%
5.0%
£173.3
£9.5
6.4%
5.0%
£372.5
£156.6
6.2%
5.0%
£34.8
£29.3
9.2%
5.0%
£135.8
£122.7
6.9%
5.0%
£51.4
£0.0
7.7%
7.7%
£16.7
£3.7
6.0%
5.0%
£19.8
£73.7
6.3%
6.3%
£49.4
£15.6
4.8%
4.8% -£160 £20
Overall Rate Target £385.4 6.9% £252.9 6.4% £577.8 6.2% £192.2 9.2% £300.5 6.9% £281.8 7.7% £57.5 6.0% £97.8 6.3% £240.2 4.8%

Rate Grow th Volume Retention Rate -£180 £10

-£200 £0
<<<Jun
Jan Feb Mar Apr May TIME
Jul>>>
Aug Sept Oct Nov Dec

Cumulative Lapsed Premium Cumulative Operating Profit £m’s


5. Summary Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Delivering the promise of scale

Self Service Centres of


Operational & IT Excellence
excellence to deliver
sub 11% expense
ratio 2007 2010

c900 Applications <300 Applications


Mass Customisation
& Lean Manufacturing IT Roadmap

Sustainable service excellence & benefit of scale 95


5. Summary Igal Mayer

Insurance Excellence in UK GI: 'Focus on Profit'


Financial impacts

Reshaping the book


• Sacrifice volume for profit
• Sustainable distribution ratio
Building core insurance capability
• Rating at or above inflation & cleanse the book
• Sophisticated pricing
• Inflation busting
Delivering the promise of scale
• £200m cost savings delivered
• Expense ratio reduced to 12.1% in 2008
• Plans well advanced for further £150m, giving sub 11%
expense ratio

96
Insurance Excellence in UK GI: 'Focus on Profit'
Our agenda today

1. Insurance excellence Igal Mayer 9


2. Personal lines John Kitson 9
• Transforming pricing Dan Pickens 9
3. Commercial lines Janice Deakin 9
• Transforming underwriting Larry Harrington 9
4. Operations David McMillan 9
5. Summary Igal Mayer 9
Questions & Answers
97
98