Published on March 6, 2014
Agenda 1. Profile and track record (Introduction – overview of main topics) 2. The market and the competition 3. Strategic initiatives 4. Conclusion FORTIS I 9/25/2009 I page 2
Profile – Fortis UK Key financial data (Non-Life) Mission/strategy GBP mio FY 08 H1 09 Gross inflow 759.6 401.6 Operating costs 146.3 68.1 51.7 21.7 100.7% 103.6% ¹ Excludes investment income To be the natural choice for insurance, in whatever way the consumer decides to purchase their insurance Delivering on its promises through its dynamic and responsive team dedicated to customer satisfaction This vision has to be achieved through the continued pursuit of the existing 3-axes for growth strategy: 1. Manufacturing a wider range of products 2. Distribution through owned and 3rd party routes to market 3. Leveraging the combined capability of Fortis UK to deliver cost effective solutions Market Position/ Key competences Business mix Net profit Underwriting Combined ratio¹ Strong foothold in Personal Lines market n⁰ 8 Personal Lines insurer n⁰ 3 in private car insurance (# cars insured) n⁰ 4 in travel insurance n⁰ 5 Personal Lines intermediary (via RIAS) A number of core strengths including Customer focused credentials High levels of efficiency, with low unit costs of production Multi-channel capabilities (to client and consumer) FORTIS I 9/25/2009 I page 3 Product Mix (GWP) (10%) Commercial Lines Distribution Mix (GWP) (25%) Affinities (18%) Owned (90%) Personal Lines (57%) Brokers
Key figures 2005 - 2009 FY 05 FY 06 FY 07 FY 08 H1 09 596.6 688.3 757.8 759.6 401.6 Operating costs 36.0 45.6 49.0 53.1 27.6 Net profit Underwriting 40.3 43.9 9.0 39.4 15.5 Underwriting Combined ratio 97.4% 97.2% 106.4% 100.7% 103.6% Solvency 254% 253% 249% 282% 278% Retail Revenue 62.8 84.0 93.7 94.2 47.9 Operating costs 52.1 68.0 73.0 69.9 34.8 Net profit Retail 7.4 11.7 14.9 17.5 (5.2) 9.3 (3.1) 23.4% 22.2% 7.0% 16.5% 12.5% GBP mio Gross inflow (GWP) Overall Return On Capital Consistent performer Underwriting profitability across the cycle Sustained growth, investments made to support development of the business Prudent approach to solvency Reflects the needs of the local regulator Support standalone rating, often beneficial to support strategic partnerships Note: Solvency is capital in regulated companies / minimum capital requirement (based on local solvency rules) FORTIS I 9/25/2009 I page 4
Fortis UK – a journey of evolution and innovation “ From a single channel, mono line insurer…… …to an insurer with a broad range of solutions 2000 2002 2004 2006 2008 Acquired Northern Star Strategic review completed of UK activities. Secured first affinity partnership with Post Office to provide Travel insurance. Acquisition of majority shares in distribution technology companies Text2Insure and InsureTECH. Voted General Insurer of the Year Extended into Life Protection market and rebranded OutRight to Fortis Insurance Solutions 2001 2003 2005 2007 Completed integration of Northern Star with Bishopsgate to create Fortis Insurance Launch RIAS brand Acquired OutRight and Affinity Solutions to strengthen capabilities in growing partnership market. Secured 10-year relationship Age Concern New operations centre opened in Gloucester. FORTIS I 9/25/2009 I page 5
Fortis UK – our business model today Needs Brokers & Intermediaries Competitively priced products, delivered electronically, in the main Larger intermediaries require underwriting aligned to their product design Clear focus on good service at point of claim Some point of sale assistance for certain products e.g. Travel, Small Business Ancillary products to help them increase their margins Affinities, Brands & Financial Institutions A range of solutions including single insurer, lead insurer, panel Multi-channel interface with their customers e.g. telesales, internet, face to face Underwriting only through to the full value chain including systems Standard and tailored products and services Opportunities to increase value and returns Direct Competitively priced products, value for money Aligned to their chosen method of purchase Solutions that can be tailored to their needs, sometimes with a choice of insurers Good levels of service across the relationship lifecycle A readily accessible and proactive claims service FORTIS I 9/25/2009 I page 6 We deliver through Fortis Insurance Limited Text2Insure Affinity Solutions Fortis Insurance Limited Fortis Insurance Solutions Text2Insure Affinity Solutions InsureTECH RIAS (> 50s) Fortis Insurance Limited Fortis Insurance Solutions Text2Insure InsureTECH Affinity Solutions
A proven track record in terms of growth & profitability 8% Gross Written Premium CAGR (FY 05-08) Further diversification of customer base Successful new product launches (e.g. HouseGuard Extra) Entry new product markets (e.g. Van and Protection) Product Evolution (GWP GBP mio) Private Car Household Travel Commercial Van 800 600 400 200 0 FY 05 FY 06 FY 07 FY 08 FY 07 FY 08 About 7 mio customers thanks to deployment Distribution Evolution (GWP GBP mio) of multi-channel distribution model Brokers Owned Affinities > 1 mio direct policyholders via retail activities 800 (RIAS, AutoDirect, CoverDirect) 600 Further roll-out of Donedealinsurance.co.uk 400 Growing customer numbers across all channels 200 0 Increasing portion net profit generation via retailing activities Generated through margins created through commission and ancillary revenues GWP generated via the distribution we own FY 05 FY 06 Profit Before Tax Evolution (GBP mio) Manufacturing Retailing Impact of severe weather events 80 60 40 20 0 FORTIS I 9/25/2009 I page 7 FY 05 FY 06 FY 07 FY 08 Other Protection
With a strong reputation for service and partnership A clear focus on the understanding and delivering to the needs of the client and the customer High levels of customer service are hard coded into delivery at all points of contact Increasingly recognised by its clients, customers and the market for its delivery and approach to doing business such as ‒ Six times Insurance Times Motor Insurer of the Year ‒ First ever insurer to achieve standard Gold Standard Award ‒ Institute of Insurance Brokers (IIB) ranking Fortis as the top insurer in terms of service levels compared with 10 other major UK insurers Fortis’s strong reputation for service has led it to become the ‘Intel inside’ of a number of well known insurance brands in the UK, partnerships developed on a clear understanding of ‒ Strategic alignment ‒ Open communication ‒ Cultural values ‒ Common and realistic objectives Finalist FY 08 FORTIS I 9/25/2009 I page 8
Agenda 1. Profile and track record 2. The market and the competition 3. Strategic initiatives 4. Conclusion FORTIS I 9/25/2009 I page 9
Established market positions in chosen markets Personal Lines Highly commoditised and competitive in the UK. Fortis is a strong performer Fortis is an established player in the UK’s Personal Lines market competing against many UK based insurers Fortis progressively growing its market share UK Personal Lines (GWP GBP mio) RBS AVIVA LTSB RSA Zurich AXA Fortis Allianz LV Great Lakes 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 Source: Datamonitor Car insurance Has provided Fortis with the solid platform on which to grow it’s market presence Fortis has delivered sustained growth over the past 10 years in a highly competitive market Now insuring in excess 1.7 mio cars, Fortis has grown its market share through its focus on price, underwriting discipline throughout the market cycle and ability to distribute through a broad range of channels Top Car Insurers (by # cars insured) RBS Aviva Fortis HBOS RSA AXA Zurich 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Source: FSA Returns FORTIS I 9/25/2009 I page 10
Delivering solutions aligned to customers needs Personal Lines distribution has seen some significant changes with the development of the ‘direct’ challenge in late 1990s and the emergence of affinity distribution in recent years Brokers have continued to have a role to play and many have consolidated their positions and taken the opportunity of internet comparison sites to further broaden their appeal Fortis has been part of this market development with its strong and deepening relationships in the broker channel, the creation of its own direct operations and its successful expansion in the affinity partnership market This evolution is driven by where the consumer chooses to buy their insurance and the solution that best suits their needs Personal Lines Distribution by channel Brokers/Intermediaries Direct Affinities/Partnerships Agents/Others 100% 80% 60% 40% 20% 0% FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 Source: ABI Fortis Distribution by channel Brokers/Intermediaries Direct Affinities/Partnerships 100% 80% 60% 40% 20% 0% FORTIS I 9/25/2009 I page 11 FY 04 FY 05 FY 06 FY 07 FY 08
Leveraging operational efficiency to delivery competitive solutions Personal Lines distribution has seen some Having clear, aligned and efficient routes to the customer are key to success in this highly competitive market Key to Fortis’s success in the UK has been its efficient operations which enables it to deliver products and services at a cost few other insurers are able to achieve Fortis is recognised as having the most efficient claims operations for both Motor and Household, and continues to have low unit costs of production in car insurance Private Car Unit Costs (Company/EMB analysis) 80% 60% 40% FORTIS I 9/25/2009 I page 12 CIS Zurich Aviva RSA RBS AXA Highway HBOS NFU Fortis 20% Source: Datamonitor, FY 08 data AXA RSA Highway Aviva Zurich RBS HBOS Allianz NFU Fortis 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Ratio of household claims management costs to net claims incurred 100% 0% Ratio of motor claims management costs to net claims incurred Aviva Allianz L&G MMA LV Assurant RBS Groupama NFU Fortis 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Agenda 1. Profile and track record 2. The market and the competition 3. Strategic initiatives 4. Conclusion FORTIS I 9/25/2009 I page 13
Recent trends in General Insurance Distribution Market Development…… Brokers Consolidation subdued during recession Larger Personal Lines brokers become more active in the internet channel, challenging dominance direct writers Strong hold over Commercial Lines distribution Increased focus on alternative income streams, e.g. claims management, upsell and cross-sell Direct Channel maintained leadership position within Personal Lines but little growth since the emergence aggregators and decision by RBS and Aviva not to transact own large direct businesses via aggregator channel Zurich, AXA and RSA investing further to grow their own direct businesses primarily through the internet Remains limited growth of direct channel within Commercial Lines FORTIS I 9/25/2009 I page 14 Fortis response…… Aggregators Work with consolidators to protect revenues but also build closer strategic partnerships leading to new opportunities e.g. Towergate Align pricing to purchase channel. Fortis has long standing approach to secure returns in first year, enabling brokers to aligning their returns in more competitive channels Successfully expanding Commercial Lines product range and broker partnerships e.g. Giles Introduced new products and propositions to support alternative income streams e.g. Fortis LegalGuard RIAS established as 2nd largest > 50s specialist, with telesales and internet presence. Soon to be testing in aggregator channel Recognising dominance of aggregator channel for Car and Household, internet only brands (AutoDirect and CoverDirect) well established present on all leading aggregators. Aggregator only proposition DoneDealinsurance being rolled out across product range Infrastructure in place for Commercial Lines will support direct channel if consumers demand warrant investment
Recent trends in General Insurance Distribution Market Development…… Aggregators Highly competitive channel Increasing levels of transparency enabling consumers to fully understand what drives risk price Rationalisation of the market expected; Brand awareness essential to success Fortis response…… Aggregators Developed capabilities to sell successfully through the aggregator channel using both owned and affinity brands Invested in products and infrastructure to support higher levels of traffic and consumer demands for products to meet their demands and needs Good working partnerships established with leading aggregators Leading aggregators now becoming more well known than the insurance brands/companies who use them Partnerships (affinities) Through InsureTECH, have build the capability to build aggregator platforms e.g. MoneyExtra Turbulence around financials services brands (e.g. banks) positively impacting trust in quality non-financial brands e.g. M&S, Post Office, Tesco Broad range of partnerships across a number of market sectors. Chosen partner for a number of trusted brands including Post Office, M&S, Tesco and John Lewis Market share in c.15% of Motor and Household markets. Large affinity deals continue to offer opportunities as they come up for renewal e.g. Ford, GM and Toyota recently changed their respective insurance solutions providers FORTIS I 9/25/2009 I page 15 Strong growth in the affinity market as Fortis has become one of the leading solutions providers. Represents c. 25% of GWP income Increasingly successful in establishing good relationships with prospective partners and entering new sectors e.g. motor manufacturers with new Toyota deal
Fortis UK Strategy focuses on 3-axes growth strategy … Continued development of our multi-channel platform, based on flexibility and easy adaptability to new market dynamics A focus on major distribution channels driven by the needs of the consumer MA NU F G Customers Capitalise on existing capabilities with a focus on support systems allowing greater speed and control over manufacturing and operational delivery COMBINED FORTIS I 9/25/2009 I page 16 LI N In-depth adaptation of pricing policy and product lines in order to widen appeal both to business partners and end customers. Channels I TA RE Combination of own distribution and third party providers AC TU RI NG Products CAPABILITY
… To be realised by actions aligned to our axes of growth…. Manufacturing Continued development of a high quality and profitable range of Personal & Commercial lines products to support multi-channel strategy Improving existing products to widen appeal and introduction of new products Ongoing investment in underwriting excellence and rating techniques Continued focus on low unit cost of production and high levels of customer service Retailing Design and delivery of a broad range of tailored insurance solutions for the >50s market through our RIAS brand Continued development and growth of internet based propositions Research & development of propositions to continue to reflect the insurance and purchase preferences of consumers Continue to invest in retail margins through service efficiency and value adding products Combined Capability FORTIS I 9/25/2009 I page 17 Continued building of broad range of capabilities to satisfy the existing and emerging needs of our multi-channel approach Further improve operational effectiveness through partnership with key suppliers of products & services Focus on ensuring the ‘whole is greater than the sum of the parts’
….with continued exploration into the Protection market Based on Non-Life model, research undertaken as to whether New Annual Premiums (GBP 000's) there is a natural extension into the UK Protection market IFA Direct Sales Bancassurers Applying the same principles Introduce a range of products aligned to client and consumer needs Multi-channel distribution Establish strong service credentials Low cost efficient operations 1,200 From a greenfield start, we entered UK market in August FY 08 0 Non-intermediated Achievements so far include: Launched innovative products, securing 5* ratings Created a point of sale system which has market leading straight through processing rates linked to an automated underwriting system Have had early successes with our multi-channel approach Built a business receiving > 500 applications per day Written >GBP 9 mio new annual premiums since launch, selling >30,000 policies Our research will continue Linked to multi-channel distribution How we align further with the needs of the client and consumer (products and services) Further improve operational efficiency and effectiveness FORTIS I 9/25/2009 I page 18 1,000 800 600 400 200 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 New Annual Premiums sold via IFAs (%) Fortis Legal & General AVIVA Scottish Equitable Friends Provident Royal London AXA Sun Life BUPA LV= Zurich Other 100 80 60 40 20 0 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109
Fortis and Tesco – one of the largest partnerships in the UK Tesco is the UK’s largest general retailer generating sales of GBP >59 bn (08), net profit before tax of GBP 2.9 bn* Growth of Tesco Personal Finance (mio customers) 6 Tesco Personal Finance (TPF) launched in 1997 and by end 08 reported underlying profit of GBP 244mio (insurance representing over 65%). End 08, TPF had in the region of 6 mio customers, c. 2.5 mio relating to insurance generating GBP 500 mio GWP including 1.1 mio car and over 440k household customers Fortis & Tesco will create Tesco Insurance, leveraging Fortis’s existing skills, capabilities and operations in the core areas of underwriting, product development and claims ‒ GBP 100 mio capital investment ‒ An initial period of 5-years ‒ Management team and Board consist of Fortis and Tesco senior executives This partnership and the planned organic growth of Fortis UK, will potentially position Fortis as: ‒ A top 6 General Insurer ‒ 3rd or 4th largest Personal Lines insurer ‒ 2nd largest car insurer (by volume of cars) ‒ A leading affinity insurer in the UK insuring in excess of 12 mio customers Tesco insurance is expected to be operational by the end of 2010 * Reported sales and profit for 53 weeks ending 28 February 2009 FORTIS I 9/25/2009 I page 19 5 4 3 2 1 0 2001 2008
Agenda 1. Profile and track record 2. The market and the competition 3. Strategic initiatives 4. Conclusion FORTIS I 9/25/2009 I page 20
Fortis UK - rising to a number of market challenges Customer Service Continued demand for higher standards of service and efficiency The annual renewal cycle is a natural opportunity to switch to other insurance providers. Pricing capabilities should lead to competitive propositions throughout their relationship, reflecting their demands, needs and their chosen channel of purchase In parallel, work more closely with clients and customers to deepen knowledge of the needs and the relationship with Fortis Efficiency Fortis’ service up, cost down ethos will continue to deliver service above market norms at a very competitive cost Propositions should benefit from a service experience that adds value to the customer’ relationship and that creates more margin Progressively establish strategic partnerships to provide cost and service leverage across our operations Our focus on efficiency and effectiveness will continue to avoid significant cost reductions our competitors find necessary People Continued investment in employees to support ongoing growth including working with industry and educational bodies, nationally and locally Focus on developing our Fortis family, in order to identify how we can further improve our role as an employer & develop them as employees Ambition is to be recognised as a quality employer within the UK FORTIS I 9/25/2009 I page 21
Key messages • Large market with potential for growth of market share • Successful development & implementation of a multichannel distribution model • Proven track record of consistent profitable underwriting results • Recognised low cost market leader with award winning high quality service • Strategy of a broader range of products via multichannel distribution should result in delivering excess CAGR compared to market norms • Growth will be delivered profitably, with a continued focus of managing underwriting excellence and margins to deliver market competitive CORs FORTIS I 9/25/2009
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