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Aviva (NYSE:AV)

2013 Earnings Call

March 06, 2014 3:30 am ET

Executives

Mark Andrew Wilson - Group Chief Executive Officer and Executive Director

Patrick C. Regan - Group Chief Financial Officer, Executive Director, Chairman of Disclosure Committee and Chairman of Aviva Investors

David McMillan - Chair of French Board and Chief Executive Officer of Europe Operations

Maurice Tulloch - Chief Executive of UK and Ireland General Insurance Business

Analysts

Jon Hocking - Morgan Stanley, Research Division

Oliver Steel - Deutsche Bank AG, Research Division

Fahad Changazi - Nomura Securities Co. Ltd., Research Division

Farooq Hanif - Citigroup Inc, Research Division

Andrew Hughes - Exane BNP Paribas, Research Division

Ashik Musaddi - JP Morgan Chase & Co, Research Division

Blair Stewart - BofA Merrill Lynch, Research Division

Andrew Crean - Autonomous Research LLP

Gordon Aitken - RBC Capital Markets, LLC, Research Division

Barrie Cornes - Panmure Gordon & Co. plc, Research Division

William Elderkin - Goldman Sachs Group Inc., Research Division

Marcus Barnard - Oriel Securities Ltd., Research Division

Alan Devlin - Barclays Capital, Research Division

Mark Andrew Wilson

Well, good morning, everyone and welcome to this 2013 results. Now before we get started, I just wanted to give a few thoughts on, I guess, a few reflections over the last 12 months. 12 months ago, it was in this very room with my Chairman in what I think was quite a painful set of results. Of course, we just announced the GBP 3 billion loss, the dividend being cash and, of course, the scrip being eliminated. And I guess, indeed, it was a delightful way to be introduced to you.

Today, we have a different set of results. And by now, I know you've all had a chance to have a look at the numbers. And the main points of those is on this screen behind me. Now clearly, we have made some progress, and we've ticked off a few of the major balance sheet issues. The trends in the numbers are in the right direction. But I'm very aware that this is only a 12-month result, and I don't measure a business in a 12-month result. However, as you can see, the numbers are all going in the right direction, and I think the turnaround at Aviva is certainly intensifying. Aviva remains a self-help story, and we're delivering what we said we would despite a number of issues that we had to contain with in 2013. Now what these results signify is that we are back in the game. But from my perspective, we are certainly nowhere near the top of our game.

I want to give you a brief overview of the results, and I want to dig a little deep into some of the key achievements, highlight, as we always do, the key issues and certainly talk about what is next for Aviva. Now by now, I know you're all very familiar with our 5 key metrics. This is what our people live and breathe. And you can see from the slide, we're reporting improvements in all of these key metrics, except for core, where there's a very modest deterioration. Cash is up 40%. That's important.

Operating profit up 6%, expenses down 7% and the value of new business, the key measure of growth, is up 13%. Our post-tax bottom line, as you know, has reversed from a GBP 3 billion loss last year to a little over GBP 2 billion or GBP 2.1 billion after tax profit. Now in light of the progress on cash flow and earnings, as well as the improved financial position of the group, the board has recommended a 4% increase in the final dividend to take out 2013 total dividend to 15 pence per share. Now as a reminder, you will notice that the scrip was obviously eliminated at this time last year. And in my view, that makes us a much cleaner investment proposition without dilution.

Now I want Aviva to get a reputation for doing what we said or, at least, what we said we would do. So let's have a recap of the key issues I presented to you at the interims. Now these, I might add, are an exact repeat on the left-hand side of the slide, though an exact repeat from the slide at interims. So firstly, improved cash remittances. Now the key to our investment proposition is the cash flow to the group. We all know that. This gives us balance sheet and dividend flexibility, and we needed to improve the 2012 remittance ratio of 49%, which was well below peers. In 2013, we increased remittances 40% to just under GBP 1.3 billion, and that's a ratio of 72%. Now this is still someway off our medium-term aspiration of being in the 80s.

Second, we said we needed to turn around Italy, Spain, Ireland and Aviva investors, my so-called problem children. Now that process is very much ongoing. But I do note that all of these businesses paid a dividend in 2013, and I believe this is sign of some tangible progress. Italy, in particular, was ahead of expectation with its first dividend in 3 years.

Now the completion of the U.S. sale was a focus for us, and I guess it's easy to forget. It seems like a long time ago. But that was a focus for us. This was a complex and incredibly time-consuming transaction. But in October 2013, we announced the completion of the sale and the seed proceeds higher than we announced in December 2012. Now this was clearly helpful for both liquidity and helpful for our financial position, our economic capital for the group.

I said we needed to reduce the intercompany loan, and the progress in 2013 has clearly been much faster than we anticipated. And today, after, I think, an extraordinary amount of work for my team and the PRA, I believe we're taking this issue off the table, and we'll discuss this in a fair bit more detail shortly.

Now we'd like to reduce external leverage in the medium term to give us more capital flexibility, but we'll do this in a controlled fashion. And to this end, last week, we announced our intention to call GBP 240 million of very expensive hybrid debt in April. I should note without refinancing. I've had a lot of questions on that. And just to be clear, that's without refinancing.

Our sixth focus was to ensure GBP 400 million of expense savings flow through in the P&L in 2014. More on that later. But with GBP 316 million of earned expense savings, clearly, we're a little bit ahead of plan on that. Our run rate is, at least, at the GBP 400 million that we set out to do.

And finally, we needed to reduce the restructuring cost in 2014. Now although this is definitely in line with our guidance and almost GBP 100 million lower, the GBP 363 million, in my view, is unacceptable. And in 2014, you should expect significant improvement in this figure.

Now to the next slide, our investment thesis. You'll recall as described on a very similar slide our investment thesis of cash flow plus growth. And I want to look at this in parts. So let's look at, I guess, the first part first, which is cash flow. Now this slide shows progression of our operating capital generation, or OCG, and the relative cash remittances to that. You can see that OCG has grown from GBP 1.6 billion in 2011. And far more importantly, the improvement in the remittance ratio is from 45% to 72%. Over the year, we have increased cash to the group by 40%.

Now as I've said before, getting the remittance ratio into the 80s over the next few years is important to our investment thesis. This will involve reducing our restructuring expenses. It will involve better expense efficiency. There are further structural simplification in company and in countries, such as -- particularly Italy and Ireland. There'll be greater business unit. Resilience to macro and market shocks need to be a bit more there and better management of our substantial back book. We're managing the back book as a separate cell, and I think we could do far better job there. And execution of our internal leverage plans is the last point.

Now on that point, we now move to, I think, key slide, and Pat we'll take you through much more detail on this later, but on intercompany loan. And over the last 12 months, I've met exactly 289 investors. And in every one of investor meetings I've had since joining Aviva, this issue has been raised. It was clear the internal loan, the internal leverage has been an overhang on the stock, and that we needed to take it off the table. Today, we're doing just that.

We started 2013, as you know, with GBP 5.8 billion of intercompany loan. We paid down GBP 450 million of cash, and we've executed other noncash measures of GBP 1.25 billion. That gets us to our current position of GBP 4.1 billion. So just to be clear, we've reduced our loan by GBP 1.7 billion over the last 12 months. I think that's quite satisfactory progress compared to our original commitment that we spoke about 12 months ago to reduce that loan by GBP 600 million in cash over the next 3 years.

Now as we have said before, the level of this loan is too high, and I've committed previously to articulate to you what that appropriate level is and why. Now the appropriate level of the loan is such that the General Insurance subsidiary, this is AIL, does not have to rely on the internal loan for capital support following a 1:200 years stress event. Now I should point out, this is our view from all our modeling and this is entirely consistent with the view of the PRA. Now incidentally, the 1:200 years stress relates more to weather events than economic stresses as the asset portfolio of the GI business is invested primarily in low-risk assets. It's primarily gilts.

Now our modeling suggest this requires an internal loan of no greater than GBP 2.5 billion by the end of 2015. And we have agreed the plan with the PRA to get us down to GBP 2.2 billion, which gives us an appropriate buffer. Now over the next 2 years, our plans will require a further GBP 450 million of direct cash, that replaces the GBP 600 million, from -- principally, from existing liquidity and other actions of GBP 1.45 billion. Now importantly, the intercompany loan is not going to absorb future cash generation from the business.

Now Pat's going to take you through the each of those individual steps to achieve our plan. Of course, we need to execute our plans. But I would hope you'll agree that we built up a track record from our progress on internal loan in 2013. And I think that should give you some comfort.

So on to expenses, which clearly helps our cash flow. The Chairman before me put an expense target in 2012 of GBP 400 million. And today, our expense reduction puts us a little ahead of where we need to be to achieve that 2014 target. We've committed to reducing our operating expense by GBP 400 million. And in 2013, despite what I thought was a relatively slow start, we have achieved GBP 360 million in actual expense savings in 2013. Now the cuts had to be a little deeper because we faced the currency headwind and, of course, inflation. But -- so we had to cut a little deeper just to achieve that.

Now I know some of you are keen for us to put up a new target, and I've yet to make up my mind on that. There remains, I might add, plenty of opportunity to reduce expenses further. I just want to make sure that we demonstrate we're not sacrificing greater efficiency for an absolute cost target. So today, to that end, we are introducing a new metric, a group expense ratio. And the exact definition of that is in the appendix that you can have a look at. I want us to reduce our expense ratio every year, year after year, either through growing revenues or shrinking expenses or both. And one shouldn't take priority over the other.

And the final point, I guess, on this slide is restructuring costs, which, for the first time, were included, I might add, in the remuneration of our people. I'm an investor myself, as you know, and I don't care what expenses are called. You can put them under whatever line you like, put them above the line, below the line, actually, I don't care. It's all cash and it all counts. Now our integration and restructuring cost remained high this year at GBP 363 million. There was still a lot of heavy lifting to be done in the year. And our task that this was quite adequately signposted. We spent GBP 79 million on Solvency II in 2013, and I'd expect us to spend a similar amount in Solvency II in 2014, as we get closer to that transition.

So now onto growth. Now growth, of course, is the second part of our investment thesis. We want to grow where it makes sense. Now let me be clear. This is not at the expense of cash flow. It's not at the expense of dividends. Our investment thesis is cash flow plus growth in that order. So how do we measure growth? And on Life, this means value of new business, which I think is a pretty good proxy for future cash flows. In General Insurance, it's the growth in the underwriting profit. And in asset management, it's net fund flows, which I think is a pretty good indicator of how well we're doing in that business.

Now different opportunities exists to grow in our different types of businesses. In 2013 showed signs of promise in this respect. In our growth markets, value of new business was up 49%. In the more mature cash generators, we were up 12%. However, there is much more work to be done in our turnaround businesses with the value of new business 30% lower. We would expect bigger results from those businesses in 2014.

Now our demand growth from all of our businesses, and this slide here on the screen shows how we're able to get it. In cash generated, it's about pricing and product mix. It's about predictive analytics in General Insurance. It's about maximizing our back books in Life -- in the Life businesses, and it's about getting our cost-income ratio down across all of our businesses. Being big or operating in developed markets does not preclude growth. And I think anyone who believes that is operating in the wrong business. And I think this was demonstrated quite adequately by our French business. They had good growth, improvements in cash flow, improvements across-the-board.

Now we are investing more in digital. And my hypothesis is with growth, which is yet to be proven, I might add, is that being a composite insurer is a major advantage in the digital world. In the U.K., for example, this week, for the first time, believe it or not in our history, we are able to look at a single view of our customer with all their products in one place. And this has just been rolled out to customers or, say, the initial results are encouraging. We have one customer log-in, one phone number, better service and far more cross-sell opportunity, particularly online.

Our turnaround businesses -- moving to them, our turnaround businesses, they require more structural work to streamline the business, take out the capital traps in there, take out the cash flow traps. We need to pull capital away from some of these cells. We need to allocate it to others.

And finally, there is much more work to be done in product -- pricing and product mix. We want more capital-efficient products, which started that journey. We'd certainly know when they're finishing it. We want high value unit-linked policies and more protection. This is where we want to focus. And countries like France and some others have made good strides in that in 2013.

Now Aviva Investors has a slightly longer-term growth opportunity at 3% percent of our earnings. This is inadequate. We need to embed our new strategic focus now that Euan Munro has arrived, and he's with us here today. We need to grow external fund flows through improved product offering. And also, we need to still make significant improvements in our cost-income ratio in this business.

Now simplifying the Aviva Investors business is key. And as an example of that, over the past 6 months, we have closed exactly 1,346 funds in this business, and there's more to go. Now we're not going to talk too much about the strategy of that business today. Euan will present this himself, the detail of the strategy, to you at a later date.

And finally, to our growth markets, which collectively grew at 49% VNB, value of new business, in 2013. Now as we demonstrated within Indonesia, we can grow in emerging markets. It's about finding the right strategic partnerships. I think in Indonesia, we certainly found the right one with a market-leading business, the largest conglomerate in Indonesia, being the Astra group. This has given us substantial distribution clouts in Indonesia, which is one of the highest-margin markets in the world, with a relatively modest capital impact.

Now we'll cover much more about our strategy in more detail and also showcase some of our businesses at an investor day later in July. Today, we want to just give you a brief overview, a brief teaser.

Now the other parts of having an appropriate opportunities to grow is allocating the appropriate level of capital to these businesses. We have substantially refined our capital allocation process at Aviva. Allocation can be technical during the year, that's from one cell to another, or can be strategic in terms of divestments or, in fact, investments.

For example, at a tactical level in 2013, personal motor rate softened, particularly in the U.K. in the middle of the year. So we pulled back from that market and we reallocated capital to large commercial lines, I might add, with some success. We've also made major divestments, as you know, in places like the U.S. and the Netherlands, and further investments into places, such as Indonesia and Polish bank assurance. We write fewer capital-intensive guarantee products, that's a deliberate choice, and significantly more protection in unit-linked products, again, a strategic capital allocation choice.

We look at capital by cell. We have, I think, I'm right in saying, 46 cells now. And we look at it through 3 main strategic focus. We look at it through strategic, execution, and financial focus. So strategic, where does that fit in the overall group strategy and the geographic group strategy? Execution, what's the ability of the local management team to execute? Some are stronger than others in execution ability. And financial, what are the returns on that capital and the cash flow payback, amongst other things?

And what we're striving to achieve is a high return on capital. Now you can see from this table on the bottom of the slide there, our 2013 return on equity was almost 18%. Now obviously, some of this is due to our level of leverage. But stripping leverage out, an unlevered return on capital has improved from under 9% in 2011 to 12% in 2013. That's competitive in our industry with any of our peers.

Now the sustainability of our double-digit ROCE is attributable to our diversified business mix in what I believe are very high-quality franchises. Now I know I still have some work in convincing some of you in the room about that latter point. But I guess the best way to do this is to keep delivering the numbers, and of course, we intend to do that.

And of course, the consequence, though, of a more clinical capital allocation program is that some businesses will be capital constrained bias to the group, while others will be allocated more capital to grow. In addition, some businesses that do not meet our hurdle rate or operate in geographies that aren't strategic to us, some of these less attractive businesses will still be exited. And we have exits in the hundreds of millions that we still intend to complete.

Going to my last slide. Now my first 6 months were devoted almost entirely to corporate finance, cash flow, capital structures, internal leverage, balance sheet, all the fun stuff, but these were the burning issues. Now as we have ticked off more of these balance sheet issues in the second half of the year, my team and I turned our attention to strategic people and cultural issues. What is the purpose in our value set? Where is the world going? How sustainable is our business model on a 10-year horizon? How do we want to -- our employees to act? Now believe them, this is all encapsulated on this slide, and this is a slide we use internally with our people. Now I'm not going into too much detail today. That can come later. But -- as I'm sure you will be much more focused on the results today.

But to get a lasting turnaround, we need to be clear about the values. And this is the framework on which we make our decisions. It's consistency with that value set that determines if someone can be a leader in my organization or not. It's this value set, along with the skill set, that determines who we will hire and who we will let go. What are our values? Well, they are create legacy, care more, never rest and kill complexity. These are designed to be edging -- edgy. They're designed to be thought-provoking, and they're designed to make a difference.

Create legacy as, I say, be a good ancestor. It means making decisions that benefit the long-term of the business, not just the short term. Care more for star customers and shareholders. Never rest, I want the [indiscernible] to be dissatisfied with the status quo. I want us to be edgy. I want a situation where the very best is almost good enough. And kill complexity, complexity is our enemy at Aviva. Although it's fair to say, we have simplified our investment proposition, I think, substantially, and we've simplified our structures a lot. We're a much simpler business than we were 2 or 3 or 4 years ago. We still have a long way to go to live up to this value, a long way to go. Now this is all part of the new Aviva that my team and I want.

So that's my review. But before I hand over to Pat, I want to thank him for what I think has been a significant contribution to the group. Pat has been incredibly supportive of the changes and the new direction we're taking Aviva. And, Pat, I'd like to personally thank you for your support to me. And I know people here would join me in wishing you well in Australia. So, Pat, for your last results and the numbers, Pat, I'll hand over to you.

Patrick C. Regan

Great. Thank you, Mark, and good morning, everybody. Nice to see you all today. I'm going to take you through the performance of some of our bigger businesses, dig into some of the detail behind the key metrics, talk about the balance sheet a little bit and then finish on the intercompany loan.

Starting with the -- with a very big picture today. We're reporting a 6% increase in operating profit. As you can see, that was very much driven by the GBP 228 million reduction in operating expenses in 2013 hitting the bottom line. And these had more than offset the world's weather in 2013 and the loss of earnings in the disposal of our Spanish Aseval business. On the bottom line, after GBP 3 billion loss after tax last year, the profit after tax increased to just over GBP 2 billion as a result of both a solid operating results in 2013 and the recycling of foreign currency reserves relating to the U.S. disposal in 2013 versus a write-down on Aviva U.S.A. in 2012.

Moving on to our bigger businesses, or as we like to call them, the cash generators. Starting with our largest business, the U.K. Life business, which have delivered a pretty solid set of results for 2013. Operating profit was up 5%, expenses down 16%, remittances for the group doubled and VNB was up 4%. I think the businesses adapted pretty well to the post-RDR world, with strong net flows in our platform and SME-focused corporate pension business. Protection VNB also increased despite the fact that there was a reduction in sales through banks. We very much pulled back through advice sales over the year.

And annuity VNB grew 8% despite a deliberate reduction in volumes of 27% as we focused on value over volume. Approximately 60% of our new individual annuity business comes by the open market, and we firmly believe that people should shop around before committing to annuities, a view obviously shared by the FCA. Going forward, we do expect to capitalize on our market-leading position in annuities and, hopefully, the favorable demographics in our area and benefit from a partial rebound in protection sales.

Despite that reduction in annuity volumes, which obviously very rich in year 1 IFRS profits, the operating profit increased by GBP 43 million, driven very much by that GBP 106 million reduction in expenses. Remittances to the group are what we said they would be, doubling to GBP 300 million. And this has been achieved through a combination of cost reductions, pricing actions, withdrawals in certain product lines and then some asset allocation decisions, which led to an improved economic capital position in the U.K. Life and, hence, an improved dividend from U.K. Life.

On to the U.K. General Insurance business, we show a GBP 28 million decline in operating profit, which was entirely due to GBP 78 million lower investment income related to the intercompany loan with the underwriting result increasing to GBP 117 million. Now as you're aware, the GI business earned just over 4% on the intercompany loans, down from 6% previously, which had reduced investment income by GBP 78 million in the year. Now this probably will come down a bit further in '14 and '15 as we reduce the intercompany loan further. But at a consolidated level, obviously, that reduction in GI investment income is offset by reduction in internal interest costs and so is net neutral at a group level.

The underwriting result increased 40 -- from GBP 48 million to GBP 117 million, primarily due to some better weather we had in the year, but also due to lower large losses and some improvements in the underlying loss ratios. As you can see from the table, the personal motor combined ratio remained pretty healthy at 96%, despite what's been obviously a very competitive rate environment during the year. And we're very much focused on retaining profitability versus volume and are being prepared to lose volume as a result. Across the year, the rate on our motor book averaged about 3% compared to about 10% reduction for the market overall, that's 3% reduction compared to about 10% reduction for the market overall.

It's probably also worth noting, we've had a bit of a change in business mix, more business on the Quote Me Happy brand, which has a lower average premium, which is obviously then brought down our overall average premium and hence, overall premium volumes.

The home book remains extremely profitable, 87% combined. However, the results in commercial, and in particular, commercial motor, which is about 15% of our business, were a bit disappointing. And we saw the need to add to our commercial motor prior reserves. We're actively addressing the commercial motor performance via risk profile changes, price increases and some targeted withdrawals from cases with very high bodily injury propensity.

Finally, in U.K. GI mix, this is the group again more than doubles, which I'll talk about a little bit later. Onto what I think is one of our success stories for 2013, our French business. And the value of new business in France is up 39%, operating profit of 6% and remittances of GBP 235 million were up 16%.

Now although our market share in France is relatively modest in aggregate, we do have some attractive distribution offerings, where we have a large owned sales network, and we also have some existing key partnerships, including a fair, which is the largest setting [ph] association in Europe. And the team in France are very much concentrating and ensuring that distribution network focused on capital like unit-linked savings business, as well as more protection business in 2013. And this results in very good results with protection VNB at 35% and unit-linked VNB up 130%.

The business now has some scale with over EUR 80 billion of assets under management. I'm sure both positive net flows in the year and an increase in overall assets under management of EUR 5 billion.

The French GI business combined ratio deteriorated slightly to 97% after a few large losses, but overall, had pretty solid results on premium income of around EUR 1 billion.

The Canadian result in 2013 wasn't quite as good 2012 for all these weather-related reasons. Operating profit was impacted by both the Alberta and Toronto floods, both estimated to be around 1 in 100 year events. And that cost the Canadian business GBP 62 million and the group overall GBP 129 million over the year. And that made about a 2.8% difference to the Canadian combined ratio.

Premium growth is pretty good, 3% or 5% in local currency. And even more so perhaps when you consider the expenses were coming down. On the different business lines, given the weather and surprisingly the home combined ratio, stands out at 100%. But it was encouraging to see a continuation of the strong result in Personal Lines and in Ontario motor, we have continued to see some positive prior year development. Having said that, we do expect to see some reduction in rates in Ontario motor in 2014, hopefully offset by reduced claims costs.

We've also seen the early stages of the predictive analytics techniques reviews on Personal Lines being brought into Commercial Lines and starting to reduce the combined ratios there.

More of that leads us nicely onto the overall group combined ratio slide. As you can see, the underlying combined ratio fell by 50 basis points, and that trend was primarily seen in the U.K. and France. Weather, overall, with 80 basis points worse, obviously, worse in Canada with Alberta and Toronto. The U.K., overall, despite the weather in December, which costs us around GBP 60 million, the overall weather losses for the year were under 2012.

The January and February close in the U.K. results in losses of approximately GBP 60 million, which is in line with a long-term average for January and February -- with our long-term average for January and February. They might seem a little lower than you expected, but the general insurance teams done a lot of work over a number of years on flood mapping. And our market share in those high risk flood zones is about half what it is for the country overall.

As we discussed at the half year, reserve movements shouldn't be a big feature of our results. We got a relatively short-tail nature of our overall book and products, and a consistent reserving policy. And the 90 basis points reserve releases are in line with both last year and broadly in line with our overall expectations. The expense ratio is flat despite the absolute level of expenses coming down, obviously, due to the reduction in net written premiums.

An improvement in efficiency ratio is clearly something the team is focused on going forward. And overall, the combined at 97.3%, a deterioration of 30 basis points, probably has got a little room for improvement for the future.

As you know, VNB is an important measure for us, this is the measure of growth for our Life business. The overall result was up 13%, with 17% net of tax, NMI, with the mixed results by business units. U.K., I talked about, in addition to the 39% growth in France, I mentioned earlier, our growth markets in Poland, Turkey and Asia, collectively grew by 49%, and now make up 21% of group VNB, up from 16% a year ago.

And Asia's growth, again, was partly due to a changing business mix towards protection. Also 100% positive in VNB that we -- as we saw declines in Italy and Spain. The teams worked hard in Italy to address some of the structural issues there, and we we've reduced the volume of lower margin with profit savings business. And this will be further helped by the disposal we announced in November of the Euro-based business. And Spain has really been a case of 2 things: Firstly, the macroeconomic environment, reducing credit there, which is very much linked to the level of protection sales. And second, the sale of our assets of our business, which reduced VNB by about 29%.

As you can see on the right-hand slide, what I think is interesting is the change in capital efficiency. So this is measuring pound of VNB to pound of capital strain on new business. As you've seen 2010, that ratio was only 73%. And by 2013, based on all the product changes, guarantee changes, capital allocation changes that we've been working on, that's improved to 185%. In fact, 5 years ago, the amount of capital we spent on new business was GBP 1.9 billion. And in 2013, that reduced to just over GBP 300 million, despite having higher VNB in '13 than we had back in 2009.

On to our cash remittances. Well, obviously, a lot of work has been done. This has been a pretty complex and multiyear process, and you can see that the ratio has now improved from under 50% to 72% for 2013. And we've received higher dividends from U.K. Life, U.K. GI, France, Poland, Ireland and Italy.

If you'd expect, the cash generates is more improved their remittances over the year with both U.K. businesses doubling. In the U.K. GI, this is primarily due to the simplified legal entity structure and the restructure of the intercompany loan. And in the turnaround businesses, we'd now receive remittances from all 4 turnaround businesses albeit at lower levels than we'd hope for the future. And Italy's achievement -- Italy's dividend is particularly pleasing achievement, considering how complex our business is and the macroeconomic backdrop it's been working under.

As I think you'd expect, the remittance ratios in the growth countries are lower than they are for the group average, as these countries have attractive growth opportunities and delivering cash isn't their primary objective.

Moving then onto expenses. And the forecast on expenses has been pretty good. All of the numbers by business units are set in constant currency. And you can see, we've overcome a negative GBP 33 million effects movement to post GBP 360 million of expense made savings to the P&L versus the 2011 baseline. So essentially, means under 400 run rate has pretty much been done, and the GBP 360 million of expenses have been earned into the P&L.

You can see, U.K. Life led the way with GBP 100 million in savings. Ireland also made significant progress, both Life and GI. And Canada has improved its results from its GBP 3 million at the half year up to GBP 18 million for the full year.

On to our balance sheet and the financial strength of the group. On the economic capital position, our full year economic capital surplus is GBP 8.3 billion or 182% coverage, and that's up from GBP 5.3 billion last year or pro forma, as we had it last year of 7.1%. I didn't completely tell the full story though, because obviously during the year, we strengthened the calculation, we made the pension scheme onto a fully funded basis in the calculation, and that's reduced the surplus by about GBP 700 million. So otherwise, would have been, if you like, GBP 9 billion.

An increase in surplus due in the year has been driven by a number of things, obviously, the profits we've earned, positive market movements, product mix changes, asset optimization, some hedges we've taken out, changes to the pension scheme, funding basis and the disposals we've completed.

Our IGD surplus remains satisfactory at GBP 3.6 billion. And on external leverage, as we've talked about, we've announced our intention to call both the GBP 200 million and the EUR 50 million, a hybrid calls on the respective April 2014 call dates. And these will be [indiscernible] paid without refinancing.

Now obviously, the foundation of our available economic capital is our MCEV net asset value. And this grew by 5% over the year to GBP 4.45 a share. Part of this, obviously, was from VNB and profits. Obviously, also benefiting from positive investment variances as spreads tightened and equity markets improved during the year partially offset by the accounting movements in the pension scheme.

On an authorized basis, we didn't manage to grow the book value over the year for a few reasons. You remember the increasing provisions in commercial mortgages at the half year and the average movement on the pension scheme I just mentioned. We also have a below-the-line expenses of 14p and modest negative FX movements.

And these, together with the 18p of dividends and the preparations more than offset the 53p of operating earnings per share to leave our book value slightly down on the year.

And finally, then on to the intercompany loan. Now before I get into the movements, let me just kind of recap to start with. If you remember, at the start of last year, we did a structural reorganization of the group. We moved a number of businesses out of the U.K. GI legal entity, AIL, and into Aviva Group Holdings, AGH. And Aviva Group Holdings paid for those businesses by way of this loan balance, which meant AGH owed AIL GBP 5.8 billion. Since we put that in place, we've communicated that we want to bring that loan balance down. And we worked to do that by both cash means and by reducing the capital requirements of AIL, or as we call them, noncash means.

So a couple of things we're telling you today. Firstly, that is over the last 12 months, we've already reduced the balance by GBP 1.7 billion, down to GBP 4.1 billion. And that's been by way of GBP 450 million directly of cash. We've also executed GBP 1.25 billion of noncash measures. As you can see on the slides here, that GBP 600 million of the removal of the guarantees to the commercial paper program, and just under GBP 500 million benefit from changing the funding basis within the pension scheme, which gave us an almost GBP 500 million economic capital benefit. So down to GBP 4.1 billion to start with.

Second point today is that we've agreed with the PRA an appropriate methodology to determining the sustainable, long-term level of the loan. This involves strengthening the insurance liabilities of AIL for 1 in 200 year event, and then removing any reliance on the loan to pay out those insurance, stress insurance liabilities. And based on that methodology, the level of the loan comes out at approximately GBP 2.5 billion.

A little bit of a headroom, our plans take us down to GBP 2.2 billion. We've also agreed a plan to get to the GBP 2.2 billion with the PRA, and I've outlined the summary of that plan on the slide here. From the starting point of GBP 4.1 billion, we're paying another GBP 450 million directly of cash, and this will be paid from our existing central cash pool. And the other actions we'll take are pension contributions of GBP 400 million. And this is primarily money payback our inch [ph] from the U.K. General Insurance business. This is in line with our existing funding arrangements and is already factored into our remittance forecast, it's not new money. And this then, obviously, reduces the pension liabilities.

Secondly, because of all the work we've done on the pension scheme over, not just this year, but going back the last 2 to 3 years, the scheme itself is now close to being fully funded. And that allows us to take some further asset, de-risking actions, more closely matching assets and liabilities. And that helps both the stress liability on the funding basis, but also by the way, helps remove some of the volatility on the accounting basis as well.

And imagine, we also announced today that we're inching into a longevity swap in the pension scheme, covering about GBP 5 billion of pensions in payment within the scheme. So that collectively, those actions are the pension scheme de-risking actions.

Thirdly, more internal reinsurance. We're using an internal reinsurance mixer. Ultimately, we'll use that for both Life and General Insurance risk going forward. But in this instance, it just relates the transfer risks, general insurance risks, out of AIL, into the reinsurance mixer and more broadly than just kind of cat risk that we've used previously. And all of this gets us down to our target level of GBP 2.2 billion intercompany loan by the end of 2015. All these actions are specific and planned out in some detail and our actions we have a high degree of confidence around executing.

Having said that, they ask for projections and the exact amount by the different type of action could change in the future.

To give you a bit of comfort though, we do believe we bode a bit of a track record in this area of executing this type of action, and we have built in a little bit of headroom to get to the level of GBP 2.2 billion. And as I say, the overall plan has been agreed with the PRA.

So as I hand back to Mark, with reports of my last now results presentation, my fifth one, I think it is now. I just wanted to say, very best of luck, very best wishes to both Mark, the whole Aviva team and to all of you for the future. And hopefully, our paths will cross again some point in the future.

Mark Andrew Wilson

Well, thank you, Pat. So those are the numbers. And I guess, you could argue that we've made some good progress in 2013, most want to be, so what. I don't want to dwell on '13 too much and we certainly don't want to measure our results just over 12 months. That's not -- our value said about clear legacy.

So what's next? Now I've outlined earlier on in the presentation some of our strategy. I want to now just highlight some of our key focus areas and some of our key issues that we need to address over this next period.

On this slide, you have the 3 areas of focus. Now this is entirely consistent with our investment thesis. Our cash flow, growth and financial strength. Of course, we need financial strength to ensure that the cash flows are robust and predictable and to give us some good financial flexibility. For cash flows, remittances are not yet into the 80s. We have structural work to do and we need to improve our capital allocation more.

There's still much to be done in the turnaround businesses. And we have, across all the businesses, opportunities for great cost efficiencies with this cost income ratio. We -- cost efficiency opportunities, I would say, abound.

On growth, I'm very conscious that as we tick off these balance sheet issues, the question will inevitably shift more to growth. And I see growth, not just in strong emerging growth markets, I also demand it from the turnarounds, I demand it from the cash generators, that's imperative in the business. And particular, in VNB, I would hope you would see some valued new business growth this year.

We also want to grow underwriting profit. We need -- we can do that through better of predictive analytics. We can do that through better of underwriting. We can do that also from cost efficiencies. We want to improve the net flows and asset management. That's an important part of the business, and one that is undelivered over the last few years. And we want to grow VNB again through product mix and pricing, up from earlier of the main actions there.

And finally, on financial strength, which will always be a priority. Some of the heavy lifting has certainly been done, but we still have to execute on our plans in order to achieve our desired financial position and the flexibility that brings churn. And that surely be made progress. I'm sure we'll made some. As it passed to that anticipated, it probably, I think it is, but I don't think we're even close to unlocking the potential where we need to be with this group.

So on that note, ladies and gentlemen, I think we'll open to questions. I have a number of my colleagues, who got the heads of the major businesses. Most of them you met before. Some of you would have met Euan. And we also actually, for the first time, she hasn't started work yet but we've Monique, our new IT head is also in the room with us. Jon?

Question-and-Answer Session

Mark Andrew Wilson

There's Mike Seymour [ph]. [indiscernible]

Jon Hocking - Morgan Stanley, Research Division

No, this is Jon Hocking from Morgan Stanley. I've got 3 questions, please. On the new expense ratio targets, I wonder if you could comment whether you've done any benchmarking on that target, relative to pairs realizes [ph] a new metric. And also, the shape of that cost income ratio by business unit, are there some of the cash generations, which evolve opportunities over the cost income ratios, as well as the turnaround businesses? That's question one. Second question. On Slide 12, where you give the shape of the returns by capital allocation. Can you give us some idea about the proportion of the capital base issues not yet at hurdle rate, and what the earnings implications could be if you got the hurdle rate and how quickly we're going to expect that tail to be fixed? Second question. And the third question, on the external leverage. I noticed shift of the S&P metric on the slide, as well as the tangible metric you used before. You were talking of having about 40% or so on the tangible metric. How's that translate into an S&P view and what should we think about the shape of the external deleveraging?

Mark Andrew Wilson

Okay. That's -- quite a bit of a ground. Okay. Relative to our peers, it is mixed per business. So for example, in IT costs, we are well above our peers and we have a lot of work to do, and Monique has a lot of work in front of her on that. But it is mix for business, some of the businesses were highly efficient and some aren't. What we're doing is looking at, I think GI more on a global basis and sharing the systems in. So for example, our most efficient GI business is Canada, and we need to bring in some of the things we're using there and some of the systems in. This will be a journey. You asked about the shape of this business and where the opportunities are. Again, we look at it business by business. I actually don't care whether businesses is a mature business or a growth business, they all should -- and it's one of the reasons I'm moving to a cost income ratio because you should be improving every business every year. So if you're a small business, you should be growing. Therefore, you're cost income ratio improves. But if you're a very large business, you must be getting more efficient. And frankly, we could quite easily get a, just cut a couple of hundred million out of our cost and put it straight to bottom line. As I've said before, we are reallocating quite a bit of cost in this next 12 months, particularly the things like automation. Why? Because that allows us to get cost income ratios down every single year, and that is our objective. We will give more color on this at a later date, particularly at the analyst day. We'll give you a bit more information on that. Just suffice to say at this stage, I think we got enough new information on the table today, and I've taken that, this as the key focus. Your second question is on the hurdle rates and the capital, which I think is on Page 12. Now, by the way, this chart is deliberately illustrated. Just so it didn't allow a [indiscernible] line out which business is where. I can tell you we have no made posters [ph] to the number of ones below where we want them to be. I think that the number of businesses we're still selling because we don't think they'll get to the hurdle rate we want them to be. And so some -- you will see some improvement from early because we're going to cut out some businesses that are nonperforming or that we think the market has a systemic issue and that we won't perform, at least for a farm player in some of those situations. We have quite -- how do I describe it, robust discussions with the sales on this point. We highlighted the sale. We have quarterly sale meetings. We highlight to these sales where they are on our list, and what's acceptable and what isn't. And each of them has to have a plan to either get there or we exit. And that's what we intend to do. Now your last point is a good one, and I didn't focus on that in my presentation. As you know, we do intend to reduce our external leverage ratio of the medium term. We're going to do that in an orderly manner. And that GBP 240 million, which is cold, is obviously helpful. I had a lot of feedback during the year from a lot of you, frankly saying, well, why do you use that measure? That's a much tougher measure than the market on the other measure. And I can't accept that. So what we're doing is to balance it out, and I think add more consistency in the measure. You can, I guess, test across other peers as well. We are going to use the S&P measure as well. I should point out that to get to a AA rating, S&P requires that it's below 30% to a AA rating. We are currently about 32%. Just to give some area of magnitude, and that sort of gives you a guideline. They're not exactly comparable, those 2 measures, obviously, and they don't move exactly the same but that will give you a sort of indication that we've said for a long time that with -- like our capital and our external leverage, to be in the AA range. So that may give you a bit of help on that.

Oliver Steel - Deutsche Bank AG, Research Division

Oliver Steel at Deutsche. Three questions: One, to follow-up John's question on costs. Most of the heavy lifting on the cost reduction seems to happen in U.K. Life. And I'm just wondering in particularly, you hid non-Life for instance, it didn't -- and there are various other places, which seem to be doing less of the work. So I'm just wondering if you can sort of give us some view on where the cost savings should be coming from next? And secondly, are you changing your target for centrally held cash? You used to say 1 to 1.5. At the end of the year, it's 1.6. I was saying, if you can cover the GBP 450 million and internal debt reduction out of that. But you've also got GBP 300 million a final dividend, GBP 240 million of debt pay down. So that seems to take you down below your GBP 1 billion. And then the final question is, getting back to this S&P leverage ratio figure, what does that chart good for interest cover? Because you also look quite low on that.

Mark Andrew Wilson

Yes, okay on cost. Your point is well made and entirely accurate. Some businesses did better than others, but they're in different shape. U.K. Life was, obviously, a star performer. Well, certainly, in the general insurance business there is more to go. I mean, U.K. Life has got higher expense ratios than, say, Canada, for example. And Maurice is, I'll say, well on top of that. I need to be very clear, though. I see every business must improve its cost ratio every year. There's no exceptions. The only exception might be saying a start-up first year of startup business or something like that. But every business must increase its cost ratio every year. That is our internal target and benchmark with our -- I'm not going to quote figures just yet. So there is still more work to do. Some of that could be volume-related as well that has to improve frankly. And there's always an optimum level where you strike that balance. The other key performers in the year were Ireland. But frankly, Ireland needed to and still has more work to do. Now the Ireland cost base was extraordinarily high and quite unacceptable for the group. And we're doing a lot in terms of branching Ireland and using some of the resources here to reduce those costs. And that, again, at GBP 50 million-odd made, I'll say, adequate progress. The second point of liquidity. I mean, our cost sides haven't changed. And I'll hand over to Pat, to pass more comment on that. But the -- there's also a number of disposals. I'm not going to give too much color on that. We'll announce some of those when we're good and ready, and there's other aspects in there as well. We're giving you a high-level overview. I can tell you this, that our planning on liquidity is exceptionally detailed. We have contingencies now liquidity planning. And I'm comfortable that the plans are very robust. Do you want to add some color to that? And maybe just some peak [indiscernible].

Patrick C. Regan

Yes, thank you. With the -- our steady-state number is probably around GBP 1 billion. So we've been operating obviously in excess of that over the last little while, as we obviously completed the disposal program. We've always said, we'll use some of that to do the deleveraging. And that's what we'll go ahead and do. But Mark said, we got some more [indiscernible] announcement at the U.K. Life dividend that comes in, in the early part of the year. We got a few on, bits and pieces of disposals, but our steady-state is around GBP 1 billion. On the -- I think your fixed question is on the fixed charge cover for S&P. The -- in their note, their target equivalent kind of number is around 6x fixed charge covering. We're, I think, about 5.6 today.

Fahad Changazi - Nomura Securities Co. Ltd., Research Division

Fahad Changazi, Nomura. In terms of the use for the cash proceeds, could you remind us again how much of the cash will be used to decrease the external leverage going forward? Also, could you remind us again of your dividend policy? And a peer of yours has adopted a cash cover target for the dividend, do you think that's sensible? And do you envisage adopting something like that going forward?

Mark Andrew Wilson

Okay. A few questions. Yes, the use of the cash and the external loan, we haven't -- we're not changing our view on that. We gave you a view last year. We said we have a target to get it down in the 40s or in the -- below 30 in S&P. And we said we'd reduce it by approximately GBP 500 million over the medium term. I'm not going to give any more guidance by that. We're going to do this in a prudent and disciplined way. I'm also not going to comment on whether peers get it right. Our dividend policy hasn't changed. All you have seen today in the dividend is a signal we've made some progress. We're in a better shape than we were, we ticked off some of the big issues, some of the very big issues, like internal loan. And the dividend will be consistent with reference to, as our dividend policy, cash flow and earnings. Frankly, it will depend on the performance of the business. And I know one would want us to give -- we clearly are not going to do that. Anything to add?

Patrick C. Regan

No.

Mark Andrew Wilson

Okay. So I'll come back on the side of him next here.

Unknown Analyst

[indiscernible] KBW. Three questions. One is Indonesia. Just give some more detail there. I mean, a number of your peers, when they enter into distribution deals, literally spend billions upfront. And there seems to be an absence of payment here. I was just wondering if you can explain how the cost mechanics work there and also touch on the benefits that you see in terms of top line for that. Second point is on GC. Allianz is making some comments that it sees layers and layers and layers of required capital. I wonder if you can comment in terms of what Aviva's thoughts are on that. And the third thing is your cost-cutting benefits, in terms of when they will be capitalized in your operating profit generation. I noted that there was a positive variance in the U.K. Life on the EV basis. I was wondering if on a step basis, something had come through? If not, maybe you can quantify and give us some timings on that?

Mark Andrew Wilson

Okay. I'm going to do the last one. Indonesia, yes, somehow spending billions. We've taken a different approach. And it just shows that with the right partner, that once you create long-term value, you can do things like that in a different way. We haven't actually released the cost but I can tell you it was modest. It was in tens of millions. And the good thing about Indonesia, it doesn't require substantial upfront capital for a business. It's very capital-efficient, assuming you sell the right products. And with my history, as you know, I understand that market pretty well. What does that do for us? The Astra group is an extraordinary group. They have extraordinary distribution. They are in fact the largest general insurer in Indonesia, just to put it in perspective. So they have extraordinary distribution. It's a conglomerate, they do everything from mining, to own a bank, they've got a very large finance company. They make and sell over 5 million motorbikes a year. Good target market for life insurance, just wanted to say. Now the way -- Have you ridden a motorbike in Indonesia? I mean, seriously. Well, they already do GI, but certainly both. But the thing to consider there, the way I would measure their business and what I'd focus on is with all our growth markets is value of new business. That's what we're targeting. The reason I do that is it's a good proxy for future cash flows. And Indonesia can have faster cash flow paybacks than any market I've ever seen in the world. That's first Indonesia. I won't comment on the competitor again, but on the capital layers, and I think there was quite a few comments around Solvency II as well. So maybe I'll give that to you with -- I'll preface it with a comment on the Solvency II that they came out with. We've been operating on an economic capital basis for quite some time. I think, it probably did us a bit of harm at the start. I think, it also positioned us probably better than most. We understand the dynamics of economic capital. I would say, I think, the government and the regulators here have been appropriately prudent, but they've also negotiated the right outcome for the U.K. and the right outcome for companies like us. We have sold some of our problematic businesses like the U.S., which is also helpful. And Solvency II isn't definitive in a lot of areas yet. We still need to see the Level II text and we would expect it to be consistent with the views. But the Level II's text will come out over coming months, then we can give more informed comment on it. Do you want to pass...

Patrick C. Regan

I think, it's a similar story for the [indiscernible] but none of us know what the short -- at this stage, really, is the short answer growth. IAIS is going through an exercise at the moment where they're collecting data, they're doing this field testing exercise that will be done by kind of May, June time. And then, after that, their job is to recommend to the FSB a basic capital requirement. It's not a backstop, it's a basic, which is a simplified version, broadly based off a MCEV style balance sheet. It's causing a bit of consternation for the U.S. [indiscernible] as you can imagine. So that, to be honest with you, that's really what our focus on is just putting together some data and trying to get their heads around it. Where they'll cut that basic is it out of the money? Is it in the money? Capital requirement is too early to tell, to be honest with you.

Mark Andrew Wilson

And we've got a little bit of time on our head, too. We will see.

Patrick C. Regan

On the cost-cutting stuff, I mean, factually, considering where the cost cuts come through, there's GBP 100 million out of the GBP 228 million for the group. There are GBP 100 million in U.K. Life, a little bit in Ireland Life, and a bit in Europe. Have our actuaries capitalized ASEAN OCG, and I think you can see that from the numbers that they haven't fully capitalized that, and no doubt we'll be encouraging them to do more of that going forward. So we're quite conservative now. There's a little bit in the OCG, but not as much as you might imagine at this stage.

Mark Andrew Wilson

Move the mic along.

Farooq Hanif - Citigroup Inc, Research Division

This is Farooq Hanif from Citi. First question is going back to economic capital. So in this GBP 2.2 billion scenario for the internal debt, I just want to understand what you mean by the buffer? Is the buffer going to be GBP 300 million? Is the GBP 2.5 billion basically get you to 0? Second question related to that is how much of the kind of GBP 1.4 billion to GBP 1.5 billion of noncash initiatives are going to fall into your economic capital ratio going forward? And the last one is turning to Italy and Spain, it seems that your strategy has been very much capital withdrawal, cost-cutting, are those ever going to be earnings growth generators for your business?

Mark Andrew Wilson

Okay, I'll take the first and third, and you take middle. The GBP 2.2 billion buffer, just to be clear, so our modeling suggests that the amount you need is GBP 2.5 billion. So the way it works is you look at all of your long-term liabilities, you model it out. And you don't want that business to rely on that capital in the 100 and 200 stress. So in some ways, you can look at all of it as actually a buffer. I mean, that's exactly how it works is all of it is a buffer. The amount where it would rely on it is anything above GBP 2.5 billion. So we just want to give ourselves a bit of headroom. I mean, it's nothing more complex than that. But to be clear, our plan's tied at GBP 2.2 billion, and we believe they're very clear and they're very detailed, and we will get to the GBP 2.2 billion over that time period. I mean, frankly, we achieved almost the same amount in the last 12 months and we're giving ourselves a bit of room over 2 years to get there. So I'm fairly comfortable. You pick up the second one and I'll come back to Italy and Spain.

Patrick C. Regan

In terms of the future actions, the ones who really benefit economic capital overall are obviously the pension scheme de-risking. So they're the ones that impact both the internal loan and benefit economic capital. The internal reinsurance does not directly benefit, and what is helpful is it's obviously a proof of fungibility which you need to have a higher threshold for that under Solvency II, that's the ancillary reason for doing it is proof of fungibility.

Mark Andrew Wilson

And in terms of Italy and Spain, I mean, what you saw this year was for the reasons that Pat outlined, you saw a decline in value in new business. There was still a lot of products there because of some of the arrangements that we had to restructure and get out of, there were some products that we don't like selling, frankly. It's still... they're still quite good-sized businesses. In fact, on the Spanish case as well, they sell a very nice mix of protection business. So they can be quite good [indiscernible] writers. I would argue that if you're looking for some growth over the next couple of years, I'd certainly be looking at those businesses that should be giving more cash back to the group. I think, in the midyear, last year, trying to -- a couple of your questions, I said, I think, it was pretty unlikely we'll get a dividend out of Spain -- sort of out of Italy last year. Clearly, the fact that they did is helpful. There's a lot more structural work done and we've got Patrick at the back of the room and David at the front who heads up Europe. And I think the progress has been very satisfactory, which, for me, is probably a pretty good phrase for those businesses. You haven't seen them come through the numbers yet, but the structural movements in those businesses have been quite substantial. So yes, I would expect them to see some good growth. Also as I've said before, our plans don't rely on improving markets. We're assuming no improving markets. If those markets improve, it obviously helps us to execute faster and helps us get some results quickly.

Andrew Hughes - Exane BNP Paribas, Research Division

Andy Hughes, Exane BNP Paribas. Three questions. The first one, on Farooq's question of economic capital improvement, doesn't this mean the 175% target is no longer 175%, it should be increased? Second question, on the pension scheme de-risking. Presumably, this is going to depend on market conditions when you do the de-risking. So if the market were to move between now and then, this could cost a lot more in terms of shareholder cash. Could you just outline the timescales maybe and how risky it is? And the third question was about France. Obviously, great French results. But obviously, there's a lot of stories about credit denial, so could you break out the credit denial numbers from the French results, please?

Mark Andrew Wilson

Okay. You first. Actually, take the second one first, and we'll take the pension scheme. I'll rephrase it. The economic capital, no, we're not going to put out a new target at the moment. I've said one of the key issues for the group is we want to be financially robust and have a goal of financial flexibility. We're not changing the target. We're not putting anything new out today. On the pension scheme de-risking, do you want me to cover that?

Patrick C. Regan

Yes. I mean, we're -- elements of that we've already done, as I said, on the liability de-risking, we'll probably look to do a little bit more of that. On the asset de-risking side, we haven't done that yet. That will be something we'll look to do. I mean, there's no rush on it, Andy. We'll take our time and we've got about, in total, GBP 2 billion of assets in property and equities. So what we'd like to do is move more of that. Obviously, as you get close to fully funded, you move more of that into fixed income. That makes sense. Exactly when we'll do that, we'll try and pick our spots. But there's no rush to do that. We've got a bit of time. And obviously, we'll try and do that in an intelligent moment.

Mark Andrew Wilson

In terms of France, Credit du Nord is a key part of that business, and I'll hand it over to David for some comments. What I would say is the big turnaround in the business wasn't actually from Credit du Nord last year, it was from change in product mix in the other businesses, which is quite helpful. Do you want to add some color?

David McMillan

Yes, indeed. Specific on Credit du Nord, the NCR is about 7% of the French total, and the VNB is about 15%. I think, just to echo what Mark said, the big story in France is the fact we've got 70%-plus of a distribution that is controlled and we've used that controlled distribution to really drive the product mix and I see that continuing over the next couple of years.

Mark Andrew Wilson

In the back.

Ashik Musaddi - JP Morgan Chase & Co, Research Division

Ashik Musaddi from JPMorgan. A couple of questions on your cash remittances, can you give us some color like what is it mainly dependent on? Is it economic capital or is it IGD based on Solvency I? So what is the relevant metrics that you're looking because we are in a transition phase from Solvency I to Solvency II? Secondly, and basically related to that, your dividends, is it mainly related on the economic surplus basis or IGD, again? So any thoughts on that?

Mark Andrew Wilson

So you mean dividends to group or dividends to...

Ashik Musaddi - JP Morgan Chase & Co, Research Division

Dividends to shareholders, sorry.

Patrick C. Regan

To shareholders, okay. Cash remittances, it actually depends on different things in different businesses, which I know is a funny answer. You still need the capital IGD. It certainly becomes less relevant the closer you get, but you're still going to be above it. We run the business primarily -- well, on an economic capital, I'll say, slash Solvency II basis because our bases aren't too far apart. And so it's -- but the cash remittances still depend on a whole lot of things. So if I can give some examples. In Italy, some of it's still structural. So we have got an incredibly complex web of businesses in Italy that we're untangling. And as you do that, you can get the capital out to some of those companies and that's when you can get higher remittances because some of the companies in that group haven't got enough capital, and some of the ones further down that chain got too much. So I mean, if you collapse structures, you can do things like that. So some businesses like [indiscernible] partly structural, some is where we hold the capital and do want to hold it in the business or hold it at the group. So it would be wrong to suggest it's just 1 answer because there isn't. We have many dozens of projects in each country depending where they are. The internal loan is important, getting financial resilience across all the businesses is important. And it's all those things we're working on. Some of them are regulatory issues, although I'd suggest a lot fewer than there were 12 months ago. So it's quite complex. Sorry, what was your second question?

Ashik Musaddi - JP Morgan Chase & Co, Research Division

Just basically related to that is the dividend to the shareholders, is it mainly driver of IGD or economic capital? Because economic capital do move a bit based on markets. So that's all.

Mark Andrew Wilson

Our dividend policy is with reference to cash flow. So that's cash flow up to the group. So what the dividend is up to the group and earnings by how well the business does. But I'm not giving any more guidance on that today. Next?

Blair Stewart - BofA Merrill Lynch, Research Division

Blair Stewart from BofA Merrill. A couple of questions. It's maybe too early to say, but you have talked in the past about your IT spend being maybe 30% too high. I just wondered if you have an update on the thinking on that? Secondly, I think, you talked to Q3 about there being an additional GBP 200 million of cost saves that you'd identified that you were going to invest back into the business. Maybe a little bit more detail on that, if possible, and what sort of paybacks do you look at when you embark on these projects? And thirdly and finally, the general insurance on the expense side, the U.K. versus Canada equation. I think, you're looking at 35% versus 28.5%. Are there any structural reasons why that difference exists? And should we be thinking about the U.K. coming down to Canadian level over time?

Mark Andrew Wilson

Okay. IT costs, you're right. I mean, by our benchmarking, it wasn't across all business but a lot, our IT spend was about 37% higher than the peers, as I said last year. That is way too high. Frankly, we've done a fair bit of work and got that out. You haven't seen that flowing through to the results for the simple reason that we're reinvesting a lot of it. We're reinvesting a lot of it in terms of things like automation and digital. So I'll call it reallocation of expense. It's important to get our expense ratios down year after year. I'm not going to be unfair and give Monique the question this morning as she hasn't even officially started yet. But it's one of the key issues about how we make it more effective. We have had a history of having a massive IT systems, and through the year, we've been quite ruthless in how we cut those down. Having base of things like protocols over what system we use and in GI, we're getting that much closer. Now the payback period is something that can mean and our transformation here has been very focused on. We don't accept long payback periods anymore. And you should be expecting on these cost things sort of maximum of 2 years and we've been doing some of that this year. It's one thing we model a lot and it's one thing we track. And we approve business cases, particularly for expense reduction, but on any of these things on payback periods, it just doesn't [indiscernible] we also do that by products, and the payback period in our products, I don't think we've released it, so I won't this morning, but I can tell I paid...

Patrick C. Regan

About 6 years.

Mark Andrew Wilson

Yes. And it was a whole lot higher than that. And so payback period for capital use in products was up to 11, was it?

Patrick C. Regan

It was 11, 3 or 4 years ago.

Mark Andrew Wilson

So you can see payback periods are critical. And this is how we allocate capital themselves. Again, Maurice was holding the mic. Do you want to talk about Canada versus the U.K. on cost [indiscernible]?

Maurice Tulloch

You're right, the U.K. business is about 35%. The Canada business is actually about 30%, unless they've made some incredible strides in the 3 months since I haven't been there. I think, if you break it down, it's really going to look -- you've got to look at the...

Patrick C. Regan

They had.

Maurice Tulloch

I noted your point earlier, Pat. But if you break it down with an acquisition cost in OpEx, and you look at the 2 businesses, Canada is about 7.9% or 8% and the U.K. is about 10%. So certainly, there's room to improve in the U.K. One of the things that I did in Canada, we used an external firm called Ward [ph], we benchmarked across every single category across the industry. I've encouraged that firm to come to the U.K., they have. And actually, I have a meeting tomorrow to actually see the benchmarking in our business versus our peer group. The other component obviously is acquisition costs. That's commissions. There's a little bit more upward pressure in this market, but certainly, as a market leader, I would expect that we'd have more moral sways than others. And I just think, without giving you guidance, you should expect to see the 35% come down in the short-term.

Mark Andrew Wilson

Andrew?

Andrew Crean - Autonomous Research LLP

It's Andrew Crean with Autonomous. Three questions. Do you still expect to be designated at G-SII now that you've sold some of your businesses? Secondly, in broad scope, do you think that Solvency II will materially change your economic capital coverage ratio? Obviously, it's too early for detail on that. And then, thirdly, a technical question. I noticed in your embedded value that the experience variances assumption changes are broadly neutral but there's a fall of about GBP 0.6 billion in the VIF, and a consequent rise in required capital and frees up about GBP 300 million each. Is there a sense that you're accelerating some of your cash flow forward and sort of doing sort of, I don't know, reinsurance -- financial reinsurance arrangements to bring cash flow forward into free surplus?

Mark Andrew Wilson

Thanks, Andrew. The first question on the G-SII, I think, the reality is we are a G-SII. Do we do any systemic activities? No we don't, which is always interesting. But I wouldn't assume that being a G-SII is entirely formulaic without scale, and I guess, with Part E [ph], an English champion, I guess, we will probably always going to be designated a G-SII. What that means for each business is undoubtedly going to be different depending on their level of I'll call them systemic activities. Obviously, we don't do verbal annuities and some of the other key classified things as systemic. So we'll see what that means. But I mean, that's what we know so far. So I would expect that we are where we are. But it will impact different businesses differently is certainly what we've been told. Solvency II, frankly, I think, we're going to fare better than most because we've been operating on an economic capital basis for a long time now. We know the high level of what it's going to look like. We were intimately involved in the negotiation of that. And I was comfortable with the position that came out of that. Just to be clear though, we still haven't got the Level II text. So although we've got a pretty good idea, we don't know exactly. So I'm not going to give any more guidance of that. And as Level II comes out and we can have a look and just refine the models if they need to be refined, we can become clear on that. The last question?

Patrick C. Regan

Andrew, as you know, when we put up our slide at half year and we talked about how our components of OCG worked, we put in about GBP 100 million a year for variances and acceleration of cash flows. We've done less of that this year. We've done a little bit of it but a lot less than we did in '13 -- sorry, in '12. And partly because we had written business going back a few years, which was more long-dated cash flows that the one that you bring forward a little bit. So I think, going forward, you might see a bit of that. But really, the free surplus merger's numbers are higher. The strain is lower and the VNB is higher, and those are the things that are really going to be driving VNB -- the OCG for the future.

Mark Andrew Wilson

Come over here [indiscernible]

Gordon Aitken - RBC Capital Markets, LLC, Research Division

Gordon Aitken from RBC. Just looking at the first line of your Appendix, Slide 31. I see the improvement in life operating profit, and can be explained by the improvement in DAC and EVIF amortization. Can you just explain what's going on there? And secondly, you've had significant growth in U.K. pension sales in the fourth quarter. Can you just talk about what you attribute that to? Is it a lack of supply in certain areas of the market? Is it your superior proposition is it auto enrollment, DB to DC. And just can you give us the net flows for that U.K. pensions in the fourth quarter as well?

Patrick C. Regan

Thank you very much for the question on the appendices. It's purely the absence of a one-off positive we had -- sorry, one-off we had last year versus this year. So it's the absence of a one-off in 2012 flowing through to 2013, that's all.

Mark Andrew Wilson

And you want to cover the pensions?

Unknown Executive

Yes. In terms of pensions. I mean, you had the kind of activity coming in still through from pre-RDR. And so some of that is still coming through. And some mix of auto enrollment. We don't actually get the biggest tick up for auto enrollment until this year, actually, later this year. The total U.K. pension investment flows were actually up in total. I don't have it for the fourth quarter. But for the year, it was up 11% to something like GBP 51 billion. So pretty strong flows overall. I mean, I think that will probably modify [indiscernible] past the post-RDR kind of period and it will settle down but we'll still get the benefit of auto enrollment, as I said, this year.

Mark Andrew Wilson

You can past the mic to Barrie next, and then, Gordon after.

Barrie Cornes - Panmure Gordon & Co. plc, Research Division

Barrie Cornes from Panmure Gordon. Just a couple of questions from general insurance. First of all, in the U.K., at Mosa [ph], the commercial Mosa [ph] fleet seems to be going from bad to worse. Can you tell me why -- what's going on there? And also, is it a matter of cross-subsidizing perhaps package business, large package business? The other question I had was in terms of reinsurance. Would it be an idea to buy and have you bought more reinsurance? Bear in mind, reinsurance rates are lower. And you've also been hit as a group with the Canadian losses?

Mark Andrew Wilson

Yes, okay. I'll cover those and then I'll -- Maurice may want to comment. On the motor, that was clearly one of the low lights on that fleet in the commercial motor. And you're probably getting sick of us saying that we'll improve it and it was a somewhat irritating result. We have put it through a lot of wait and I would hope you'd see some improvement in the last -- Maurice will comment in a minute on that. On the reinsurance, we have taken the opportunity to take some more reinsurance. So given some of the reinsurance was so low, and we got -- had a bit more than perhaps we should have from the Canadian pledge, because we are holding it in Aviva RE. We have lowered debt quite substantially for, I would say, a very modest amount of money. So that's quite helpful, and that just improves. what we're trying to get is more predictability of our cash flows. And if we've got a cash flow post growth thesis, we are looking at all these opportunities where it makes sense from a cost basis to just -- it gets more serious maintaining those cash flows, and I think that's been helpful. Do you want to just comment on -- any more on the commercial motor?

Maurice Tulloch

Yes. Thanks, Mark, and thanks, Barrie. I think on the commercial motor, first time the results are entirely unsatisfactory at GBP 112 million COR. You have to note that, that's about 15% of what we do in the U.K. So let me tell you the things that we are doing. So Mark referenced rates. We started putting through double-digit rate increases in June of last year, ended up at about 6% on the book as a whole. But I think, more importantly, there were subsegments. So taking that circa GBP 600 million and then breaking it down and actually looking at various subsegments and understanding their results. We had a couple of subsegments than in taxis and many fleets that we're effectively exiting. And the persistency on those 2 is about 30%. We also had, in the first half of last year, an accident year of 2011 and 2012, about GBP 50 million of development, which contributed about 10 points, and obviously are not related to those underperforming subsegments. So my expectation, certainly as we look forward and certainly for some significant improvement in commercial motor.

Mark Andrew Wilson

We are gaining numbers here.

Andrew Hughes - Exane BNP Paribas, Research Division

All right. Andy Hughes, Exane BNP Paribas. A quick follow-up question, if I could. The first one is on restructuring costs. I've got the number for Solvency II, but I didn't quite get a message on what you're thinking about restructuring costs this year. It sounds like it will be some, but I don't know roughly how much it's going to be. And the second question was -- sorry, I forgot what it was. But you want to go with the first one, while I try and remember?

Maurice Tulloch

I'll take the second question.

Mark Andrew Wilson

There's a good reason for that, that's because I didn't give any guidance on it as the reason except on Solvency II. The reason is you will get some hangover. Some of it is accounting reasons, as we did quite a few redundancies in 2012. Some of that's a hangover in 2013. I'm just going to say today, it's going to be much more modest. We're still working through what those numbers are going to be. We will have some that's going to be much more modest. I know that doesn't help the models. And I'll get a bit clearer as we go through the year.

Andrew Hughes - Exane BNP Paribas, Research Division

Well, the aim is to get to 0 next year, if not this year.

Mark Andrew Wilson

Yes. And whether you can never get them to 0, I'm not sure. But what I can say is we manage the group with it now in totality. So the problem, historically -- I mean, in Canada, is that I think the restructuring cost didn't count in people's bonuses. And so the behavior that it gives is what I'd call throwing the rubbish over your neighbor's fence. That's a restructuring cost. Now that it's all under the same banner, I mean, you can put it under whatever line we like. Frankly, and it makes no difference to the business units. It's all cost. And I see it as all cost. And if we're getting more cash flow to the group and improving our NAV and doing those things, we need to wipe it out. Now I won't say there won't be none from, say, 2015. And I'll not saying that because you might have bets. It just needs to be very, very modest, and it's all in as far as I'm concerned.

Andrew Hughes - Exane BNP Paribas, Research Division

And the second question was actually about leverage. I forgot what it is now, actually. And the sort of change in message on deleveraging. So I thought, last time, it was about reducing towards the peer group level on a tangible math basis. And now it seems to be reducing to a peer group level on an S&P basis. Is that the way to think about it? Because the problem with S&P, it obviously includes a lot of soft capital, whereas the problem that you guys have had historically is the hard capital or tangible part of the S&P capital model hasn't been very high. So is that the way we should think about it so far? You're more relaxed about the amount of tangible capital the group needs, and you're quite happy to have it in VIF to make up the difference?

Mark Andrew Wilson

No, our guidance hasn't actually changed at all. We are still targeting about advantages to another one, primarily because it's easier to get a bit of consistency on it. So I'm going to use another 1 for these 2. The other key reason is the point on the AA rating. We've said we want to manage the group from a capital and leverage basis to get to a AA. And doing that on an S&P basis just, I think, makes the most sense. So we still aim to get to both. We gave guidance last year that we aim to reduce it by GBP 500 million in actual cash over the medium term. I'm not going to give any more clarity on that. We have made some progress, particularly with the price of that hybrid debt. It was GBP 10.6 billion, which is extraordinarily expensive debt. So paying that down was, I think, quite adequate progress where we were meant to be. I haven't put a target on it because we'll manage it as we see opportunities to do it in the market. Of more importance, far more importance, was sorting out the internal loan. It was bigger numbers, it was a more important issue from the group with the internal leverage, and that's what we focused on. Yes, over at the back?

William Elderkin - Goldman Sachs Group Inc., Research Division

It's Will Elderkin from Goldman. Three questions. First of all, with all this cash you're dividend-ing up to group, other than paying dividends, paying down debt, can you just give a sense of what you're thinking about doing with it? Secondly, can you remind us what the sort of trajectory is for improving remittances out of the U.K. Life business?

And thirdly, just a numbers question, can you remind me what the asset duration on the GI business is and what your new money investment yield is on that business?

Mark Andrew Wilson

Okay. You want to start with the last question first or would they?

Patrick C. Regan

Sure. It's -- we're just over 3 years. The average current on the noninternal loan portfolio is about 2.9%, and new money is about 2.5%. In terms of the trajectory upwards, I think, is the correct answer there. Few gents in the first are nodding along with that. So yes, I mean, the key on that really has been all the product changes were done. It's taken a little bit of time. We're now positive strain in U.K. Life, I don't know if you've noticed that in the numbers today. And to get that, together with a lot of other changes, which improved both the economic capital in absolute terms and the resilience of economic capital, have all been aimed at growing the dividend flow, which grew obviously in '13 and very much hopefully will continue to grow in the future.

Mark Andrew Wilson

I mean, if you ever look at U.K. Life, obviously, still is 2-line remittance ratios. It's a key focus. The team is also remunerated on that as much as they are on operating earnings, just to be clear. There's still a lot of work we need to do on product. We've started that process, but it's still an unacceptably low level. And that is the key focus. So I'd be extremely disappointed if you didn't see a consistent upward trend from that. And I have my U.K. Life CEO and CFO sitting there who are nodding vigorously. What are we going to do with the cash? We still have a lot of work to do. We still have to -- we've got part of it's on the internal loan. Part of it over time will be in the external loan. Part of it is investments and businesses where we see there's opportunities like Indonesia and Polish bancassurance. But the key thing is getting that cash up to the group, first of all, and that's the key part of the equation we're focused on and we're remunerating people on, getting that cash remittance to the group. Last year was, I think, probably surprised a bit on the upside in terms of that 40% growth. We need to continue that trajectory. I've said before to invest in this business, you need to believe that we can get each cash flows up to the group. Cash solves everything. I like you can argue any assumption in our business or any actuarial model you like. And I'm sure we can have a delightful debate over 3 or 4 hours on any of the topics or assumptions. The thing you can't debate is cash. And if we keep that cash coming up, that will allow us to do a whole lot more things. Yes?

Marcus Barnard - Oriel Securities Ltd., Research Division

Marcus Barnard from Oriel. I'm just trying to understand these noncash items that have sorted out the intercompany loan a bit better. I mean, I suppose the question is, really -- I mean, are these things you found in the balance sheet that you didn't publicly know you had? Or are there some consequences to them like if you've just moved them somewhere else in the group or have they got consequences going forward like de-risking the pension scheme might give you a lower investment or return going forward and a higher funding cost? And I suppose falling off from that, if there are no consequences, I mean, could you do more of these? Why did you leave it at the GBP 2.2 billion level, why didn't you take it down to 0? And also, why didn't you do these things earlier? I mean, none of them looked up. Secretly, you couldn't have told us about them last year.

Mark Andrew Wilson

Well, if it was that easy and obvious, I'm sure it would have been done. And I wouldn't want to give the impression today, that was easy to do. If you'd seen them earlier, I would be delighted to have you as one of my team, actually, if they were that obvious. Frankly, how we came about this is, as we realized the internal loan was a key issue, we started looking how we addressed it. And it was pretty obvious, as I came in, that I recognized it was a key overhang in the stock. It was -- the internal leverage was too high. Remember, this issue built up over 30 or 40 years. So we're sort of fixed in a couple of years what took 30 or 40 years to build up. So it's like boiling a frog. I guess it got a bit worse each year and no one recognized it, is probably how I would characterize it. The issues, I wouldn't want to give the impression it was easy. I mean, the work, in particular, that John Lister as well as with Pat and the team did, took an extraordinary amount of work. And it was complex and time-consuming. So basically we started one day, sometime after the first quarter, I think it was, and we came in and we had what I'd call a BFO, a blinding flash of the obvious, that, "Hey, this isn't about cash, necessarily, it's about noncash. It's about reducing the capital requirements or the liabilities in that business to reduce the capital NIM to give the loan." I think I said it this time last year. It's like borrowing money off your parents or, in this case, off your children. You may never have to pay it back. And once we realized that, we put a project team together and came up with a whole number of issues. Now -- a whole number of fixes. Now a lot of them needed regulatory approval. They were complex. So I don't want to give the impression they were easy or obvious, because they weren't. Now they did have -- some have consequences and some have cost. But the ones we've come up with have pretty modest costs associated with them. It's not about putting the -- it's not about putting another part of the group. So by fixing the pension scheme and doing what we've done with the pension scheme allowed us to reduce the capital. As we said, the pension scheme's moved to a more conservative basis. It's very close to being fully funded. That's given us flexibility that we can do there. The guarantees on the CP. We didn't require guarantees in the CP. You could refinance that at very small basis points difference. So was in -- that might have been a no-brainer, but it's only when you focus on things. And that's the art of a turnaround, it's about getting relentless and ruthless focused on the key issues affecting the business and then fixing them. I think you've seen them in today's results. You understand?

Patrick C. Regan

I was just going to say, in terms of the why-not-earlier point, it's 2 things, really. One, until we've done the formal split and the formalization of the loan, you couldn't. And secondly, the key to it was agreeing in the methodology. So around the stress liabilities. Once you got that, then you can work through reducing the stress liabilities. So it was really once we agreed to the methodology, will allow us to work through all what are the big things we can get at. Obviously, the lead is you can pull up pensions. It's one of the ones we always look at. And obviously, the normal insurance liabilities we've mixed in that, that's why we've gone through the program, this stuff. So far, actually, I mean, it's not been incremental cost to us. It's been things that have been net-neutral and the go-forward ones, broadly similarly as well, I mean, that the pension de-risking. Because we're close to being fully funded, it doesn't really impact any of the kind of COR funding. It will help economic capital, doesn't really impact IFRS.

William Elderkin - Goldman Sachs Group Inc., Research Division

[indiscernible]

Patrick C. Regan

Why not move too soon. Well, we've taken it down by GBP 4 billion. So I guess we won't stop looking for similar ideas is the short answer. If we can do something that's kind of -- we don't need to. We've got a serious long-term sustainable level. But if there's smart things we can do, we'll look to do it.

Mark Andrew Wilson

I mean, it can be a cheap source of capital as well, of course, for the group is the answer what might not be. But I'd say, it's constantly under review. We'll see. I think the focus over the next to the end of 2015 is executing what we've said we're going to execute. And I think that's adequate progress. Yes?

William Elderkin - Goldman Sachs Group Inc., Research Division

I guess I forgot to get my 2 quick questions. One on annuities. Could you just comment upon pricing and competitive behavior in Q1, and if you have an outlook for the growth in market potentially this year? And secondly, an outlook for U.K. motor rates, please.

Mark Andrew Wilson

Okay. I'll take part of that and I'll get David to comment. Annuities is interesting, isn't it? So -- and you've got a lot of annuity providers springing up. I take the strategic view. Annuities is the second-largest purchase decision most people make in their life after their house. That's a fact. So if you're buying car insurance, you won't just shop around for the cheapest price in all situations pretty much, unless it's easy, unless you can get simplicity. If you're buying an annuity, it's quite different. So would you come to a large brand like Aviva or would you come to a smaller brand? Now the only way you'd really get a small brand is if they have a major -- not a small, but a major cost advantage. So we have a natural advantage in annuities. We clearly have a natural advantage. Because with our name in annuities, we're the largest in the market. We've got the brand that clearly gives us an advantage. I want to comment on the where the rates have gone. I mean, they went throughout year. Sometimes we pull back from the market, and other times, we went to them. And basically, we can turn the tap on as we require it in annuities. You want to comment on where the markets go?

Patrick C. Regan

Yes. I mean, if you look to it last year, it was quite strongly affected early on because of the run-up to the Gender pricing. So that obviously caused a spike, the early start of last year and just before the end of the previous year. Since then, it's settled down really. Second half of it, say, last year. And I think once companies tend to kind of get the quarters and then it kind of changes a bit, and I think we had a very strong fourth quarter, we expect it to be reasonably benign this year. As Mark says, our focus is on maximizing that or optimizing the return on capital. And hence, why we still managed to grow our business last year by 8% even though volumes were down. I think looking long-term, the fundamentals of this market are very attractive in terms of the economics and the demographic changes. So we're looking to the long term and we'll play it as we can get those returns, including appropriate mix between individual and BPA.

Mark Andrew Wilson

I think, Alan, has his hand up over there as well.

Alan Devlin - Barclays Capital, Research Division

Alan Devlin of Barclays. A couple of questions. First on the U.K. GI, your underwriting profit tripled while your companions improved by 100 basis points. Wondered if you could just reconcile what's going on there. And also, you mentioned you had better weather in 2013 and less large losses. Is '13 a normal year for U.K. GI? Or is throughout the normal year in terms of those metrics? And then secondly on dividend remittances. You said in the past it's been a multiyear complex to the get remittances higher. But you got 2/3 the rate your target was in the first 12 months. Is there remittances this year? Are there any one-offs in that, or is that a clean number, the 72%?

Mark Andrew Wilson

Okay. This is a clean number, 72%. I mean, yes, it's a clean number. Now, frankly, we're not where we need to be yet, except that we made faster progress on that than most expected. But we're still not up to where we need to be in this. We're still looking for direct trajectory. I would expect that to go up year after year. On your question on weather, and Maurice also wanted to pass a comment on motor rates, as well. But on the question on weather, what's a normal year? Who knows? If you ever look at the U.K., in the first 3/4 of the year, it was actually better than our price in a long-term average. December was clearly worse. And also now, we have obviously done a little bit better than the market in terms of the first 2 months of this year, as well as we've shown you today. That's primarily due to our underwriting that our share of the losses is clearly a fair bit larger than our market share. Was up [indiscernible] better than anyone else's, frankly. But why -- nevertheless, it was still higher on floods than what we would normally expect. Why it's reached our long-term averages in the U.K., you didn't have the snow events and the frost events and pipes bursting because we've had a delightfully warm but wet winter. And so, I mean, there's a bit of a tradeoff there. So weather's up and down. The key thing I'd say about where we've come out to on these weather results in the group, insurances -- I've got a strong view here that insurance is about diversity. I don't like single-country or single-product insurance companies, because I think there's too much volatility in results. And I know it's been very much in fashion, particularly in the U.K., we like the focus. But insurance is about diversity, and I think some of our diversity on our product range in geography has helped us over this last 12 months, particularly with weather. You don't want to be so large and so diverse, you're complex. But what we're saying, we've got much purer businesses, we've got 3 product lines. And that diversity and the fact we were composite, I believe, is a competitive advantage. Now to prove that, we need to keep getting results and proving that to, and I accept that. But that's -- you wanted to pass a comment to on that, wouldn't you?

Maurice Tulloch

Sure, yes. Thanks. The question, I think, on the improvement in underwriting results, I think, Pat brought up the numbers earlier. I know that they were rounded. The actual U.K. discrete business improved about 1.5 points. As Mark has just alluded, largely because of the weather improvement, albeit December was above the expectations. So that GBP 1.5 points on circa, GBP 4 billion is the GBP 60 million. And I think it went up GBP 66 million, if I remember Pat's slide correctly. On the U.K. motor rates, last year, the rates overall for the year were down between 12% and 14%. AA had them down 12%. I think compared to the market, had them down 14%. We did see a slight positive trend in so much in December, they were actually up 0.2%. Our market can't harden until the rate of -- falls, actually decelerates, which it did. As we look into early trading in this year, it's still very much a pretty benign market. It will be a function of what we continue to get in reforms. And certainly, the competition commission, other things are there. So I'm not expecting rates to rock it up the U.K., but they have leveled off, which is a good thing.

Mark Andrew Wilson

Maybe last.

Patrick C. Regan

I mean if just [indiscernible] And one of Colin's many telling contributions since you joined, which is essentially we need to make it easier to recalculate our combined ratios. On Page 20 of the pack, we put in some new disclosures on GI. The short answer is, it's a combination of the earned loss ratio the written expense ratio. But hopefully the on Page 20 is -- going to let you recalculate it.

Mark Andrew Wilson

Okay. Colin tells me I'm over time. We have got our IR guys and several people around if you want to ask more questions outside. But I think we'll close the major session. So thank you for your attendance and thank you for your questions.

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