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This has creating a new business opportunities for the UK pensions Industry. Furthermore, pension providers are already In the process of developing, enhancing and launching new propositions – many of them plan taking advantage of new platform and integrated solutions technology. However, over-regulation by the FSP low consumer financial capability, ineffective government policies as well as poor agent relationship are currently distorts pension market performance. In near term, downturn economic situation as the number one challenge faced by pension intermediaries.
Aviva Pl is the sixth-largest insurer worldwide and also the one of leading insurance brand and customer franchise in the I-J after replacing I-J brand Norwich Union in 2009. Aviva has deal with 53 million customers by offering them with insurance, saving and investment, and pension products in United Kingdom, Europe and United States. According to the group annual report (201 1), the revenues had declines up to 28. 7% of EYE,003 million (approximately $55,646. 2 million) during the PAYOFF over FYI 2010. The operating profit had declines up to 67. 3% of IEEE million (approximately $981. Million) in PAYOFF over PAYOFF. The net profit was declines up to 84. 6% fee million (approximately $347. 8 million) in PAYOFF over PAYOFF. According to Fanlike (2012), AVIVA has expanding life and pensions market and sales increased 10% to El 1,315 million. AVIVA have a 25% individual annuities market share and have number two rank in the life insurance protection market. . 1 Current AVIVA situation According to annual report 2011, AVIVA has built a successful seven year distribution partnership with Royal Bank of Scotland Group for sales life, protection and pensions products from 1 January 2011.
In addition, AVIVA are currently expanding rapidly in the newer Eastern European countries of the Europe Union to gain more competitive advantages. AVIVA are prefer to concentrate their efforts on utilize their core competence (refer to Appendices 2) and raising their profile among employers and pensions trustees, as well as intermediaries and consultants. Thus, according to 2012 annual report, AVIVA Life and Pensions launched a new web arrangement in November 2012 for its brokers and agents, which will allow them to handle their client portfolios in a more efficient and personalized manner.
Besides that, AVIVA entered into five-year contract for life protection product with Tests Bank in June 2012. 3. 2 Future prospect of AVIVA Since AVIVA has widen product range are well prepared to develop new business opportunity of changes such as the auto-enrolment pension system launched by government in 2012. According to IF online (March 2012), Aviva UK life and pension sales have Jumped up o to El 1. 3 billion PAYOFF from Ell. 3 billion in PAYOFF, has led to AVIVA will continue offer more pension saving plan for the purpose to boost its operating profit and 25% market share in individual annuities. . 0 Industry Analysis 4. 1 SOOT analysts of AVIVA AVIVA has strong competitive advantages in terms of economic of scale, distribution and brand recognition in Europe and I-J. However, slow economy recovery in UK is likely to affect the company’s profitability and performance. (Refer to Appendices 1). AVIVA are focuses on building four core capabilities to simplify and streamline its genuineness and create competitive advantages. (Refer Appendices 2) Weaknesses * Failure to sustain investment returns affects revenue growth.
Strength * Strong and diversified network distribution help to sustain and lead market position. * Strong brand recognition in Europe and UK will help itself to * Healthy business mix providing significant benefits * Focus on core capabilities optimizing capital allocation and enhancing profitability Threat * Uncertainty in global economic (especially in I-J and Europe) are likely to affect business prospects * Increasing competition likely to affect margin expansion * Impact on pension MIS-selling affect the public confidence on service provider.
Opportunity * Rely on global asset management could accelerate business growth * UK life and pension market growth * Take advantages on new reform 2012 launched by UK government 4. 2 AVIS’S PEST analysts External environment analysis include political, economic, social and technological factor. It can be new market opportunity to gain market share while it also can be a threat to AVIVA if they not handle it carefully. Political Factor * New pension reform 2012 – auto-enrolment schemes with purpose of encourage I-J citizen saving for retirement, thus create opportunities for pensions intermediary. Rising on retirement age – the government increase retirement age from 55 to 60 for all personal pension schemes holder would help to improve the Auk’s index score and also positive effect on retirement savings. * Deduction in tax relief – According to HUMOR (201 1), reduce annual tax allowance for pension saving from IEEE,OHO in 2010 to EYE,OHO in April 2011 and cutting the lifetime allowance from El . 8 million in 2011 tote. 5 million in April 2012. Economic factor * High inflation (3% – 4. 5% in PAYOFF- PAYOFF) – slower earnings growth are squeeze should budgets affect pension schemes.
Households to give focus on debt repayment and short-term financial commitments rather than long-term saving. * Growth in GAP- a good sign for pension schemes as it instills a greater degree of consumer confidence, perhaps encouraging invested funds tied up in equities, as a growing economy often goes hand in hand with growth in the stock market. * Low interest rate – Low interest base rate will lead to low cash savings rates, but potentially impact negatively on retirement plan. * Lack of understanding on pension fund- According to Hewitt Associates, 31% of hose yet to retire do not have a clear expectation of annual retirement income. Living standard of I-J citizen- due to rise of retirement ages lead to long working life has affected their lifestyle and saving pattern. * Increasing life expectancy – The longer the people lives, the greater financial burden on both the government, in terms of providing the state pension, and on employers running occupational schemes. Technological Factor * Internet advance -The expansion of the speedy internet create threat for AVIVA as people can make own decision through doing online survey. This empowers people o bypass traditional sources of advice. Limited Utility of Technology- Most of Avis’s personal products is sold directly to customers over the phone or its websites <www. Aviva. Co. UK> and <www. Psychotherapy. Com> via brokers. In fact, technology has not revolutionized the marketing of pensions but it has streamlined administration due to complexity in pension nature, Technology has revolutionized and lowered the cost of marketing many goods and services, but not pensions. 5. 0 Product Analysis 5. 1 Types of Pension Schemes offer by Aviva Company Personal pension schemes are the one of financial product offered (known as detriment savings plan) by Avis’s company.
In this report, all personal pension schemes are defined contribution arrangement pension which pension schemes value on retirement depends on self-contributions invested, charges deducted by the intermediaries, and investment returns achieved by the fund. There are several personal pension schemes offered by Aviva Company such as: 1. Personal Pension Plan (POP) -allow client build up own pension “pot”, accumulated through client investment contribution ( minimum E,400 payment per year) 2.
Self-invested personal pensions (SHIP) – allow client more flexibility in hold and control over investments such as commercial property, land and stocks and shares. 3. Stakeholder Pensions – similar to POP but it subject for some term of condition. It also alternative for company pension schemes. 5. 2 Key issue faced by AVIVA for Personal Pension Schemes * Eliminate it through efficient portfolio diversification, investing in ‘safe’ assets or by shifting the risk to third party (e. G. Intermediary ) by pay annuity. * Increase awareness by promotion, set up campaign, advertisement or anticipate in new launched government schemes. Impel communication tool. * Deal carefully with customer complaint and respond it quickly. Give financial advice and teach client automated pension decision tools can further add to individuals’ ability to make the right decisions. * Eliminate by regular checking include the authorization process, prudential framework, training requirements and fit and-proper tests to ensure competency of key personnel, asset segregation requirements, disclosure rules, and other conduct- of-business standards. * All forms of pension carry risks (e. G. Investment risk) depend on contributions level, asset accumulation in the individual account depends on financial market returns and the chosen investment approach. Lack of public awareness on retirement plan. * Complexity of pension nature * Pension MIS-selling * Make wrong individual decision making when select investment portfolio * Inability or entailed of asset manager make wrong investment decision create huge loss in investment. Way to solve it Problem faces when offer DC Pension 5. 3 Competitor of AVIVA AVIVA faces intense competition from ORBS, LB=, Zurich, Prudential Group, Lillian, and Friends Life in I-J.
Since Personal Pension Schemes (UPS) are flexibility in individual investment contribution, there are no pricing comparisons. The only differentiation teen competitor and Aviva is the pension annuity payment, and advance technology communication tool offer to customer (e. G. CAR code, mobile APS to check their pension schemes amount). Some of the insurance company are linked the pension schemes into their life insurance plan for the purpose of attract customer for buying their life and pension product. I Annual fee (%) I Minimum investment (monthly basis) AVIVA | 0. 5% 1 1001 ORBS 10. 9% 11001 10. 55% 12501 prudential 1 100 | Friends Life | 0. 7% | 100 | Source from money. Co. UK at website <http://www. Money. Co. UK/pensions. HTML> 5. 4 Target Market There are three categories of customer segmentation are included baby boomer, generation X, and generation Y. Thus, Generation X are targeted because they has steady working income and have strong purchasing power. Baby Boomer (aged 47-65). Older people are risk adverse, so they will need to rely on multiple strategies to generate sufficient retirement income, or work longer.
Since they are close to retirement ages and health issues, they will more rely on state pension fund instead of private pension fund. Middle income earners have stable income stream and stable work. They are aware of their future financial situation. Most of them are risk taker (exclude household) who use money invests in non-pension asset or equity investment to earn high return rather than invest in retirement plan. Generation X (aged early-ass to mid-ass. ) TARGETED Younger people Just enter to working environment.
They are less demand for pension’s savings. Unfortunately, they are in financial shortage. Generation Y (aged ass above) Since AVIVA is world’s sixth insurance company, AVIVA long-term objectives must be clear and achievable by all employees. In this report, SMART Objective is conducted as the goal achievement for AVIVA. SMART Objective setting Specific I AVIVA must expand and penetrate even more market share through strategic partnership with local bank or banc assurance strategies to increase public confident toward pension schemes plan.
I Measurable I AVIVA must expand individual annuities market share to ten percent on estimated market share (25%) | Attainable I AVIVA is able to achieve the specific goal by tailoring new products (Company Defined Contribution Pension Schemes) for new target market (example, generation Y who Just enter to working place instead of Generation X) I Realistic I AVIVA can achieve the goal with the public Pension Scheme Campaign, media advertisement, Pension Schemes Promotion, collaborative with pension association, CARS activities to increase public awareness importance of pension Schemes.
I Time Frame I AVIVA must achieve the set goal of ten percent market share or above within two year time period in UK pension market. I Since there are new pension reform plan, rising in pension age set by government development by expand its product range. In short, AVIVA should position itself as life and pension market leader in worldwide. AVIVA should has own objectives to boost long-term savings business performance, top one ranking of asset management easiness and maximize shareholder wealth with superior return. 7. 0 Reference 1 .
Aviva annual report 1), Aviva Annual Report and Accounts 2011, viewed on 15 July 2013, <http://www. Google. Com. My/URL? As=t&RCA=]&q=annual offavAviva;source=web&cd=5CDmp;cad=rJa&raja;ved=VedawCodename;url URLtp://wwAAA IFiFWIWomAvivaa/ComofamedauploadnAvivaeport. pdf&ei=J5zlUPDFD46HhiizJ5zlUfDqD46HhQezh4DwDARgvucUSGSQAvouching2ditzy ToutfitsiFan Advisory Service. [Online]. Last accessed 16 July 2013 at : http://www. pensionsadvisorypensionsadvisoryserviceduOrgonUKo-pension-schemes/what-is-a-pension-scheme 3. Carol, Finch (2013).
I-JK Faces PersonaJPension Shortfall With a El . 2 Trillion Gap. [Online]. Last accessed 16 July 2013 at : http://suitel 01 . com/suitese/uk-fComs-personaUKpension-shortfall-with- a-12-trillion-gap-a239292 4. HM Rea239292nd CHEMtom, (2013). Understanding Pension Schemes, viewed on 1 5 July 2013, <http://www. hmrc. gov. uk/ pHumoronGobemUK/uphoniness’shtm;. 5. The HTMLsion advisory service, (2013). New campaign targets pension fraud, viewed on 16 July 2013, ;http:// www. pensionsadvisorypensionsadvisoryservice01OrgebUKary/new-camFebruaryrgets- pension-fraud;. 6. Actuarial post for the modern actuary, (2013).
Pension reform strengthening UK’s retirement Auk’sem, viewed at 10 July 2013, ;http:// www. actuarialpost. cStructuralism/pCosiUK-reform-strengthening-uk??????s- retiremeUK-Estemass45. htm;. 7. MarketLineHTML2012). GlMarketing Management ; Custody Banks, viewed on 11 July 2013, ;http:// www. researchandmarkets. coRecommendations gComal_asset_management_and_custody_bank;. 8. Trusted Sources, (2011). Insurance Companies and Pension Funds as Institutional Investors: Global Investment Patterns. Last accessed at 14 July 2013 at : http:// www. cityoflondon. gov. k/bCotyledonorGobroKotion-and-advice/promoting-the- ity-internationally/chitty/Documents/lnsurance companies anlaunches accompaniesrandfpensiononfunds reportanPDFnvestment, (2013). Last accessed at 14 July 2013 at : http://www. ons. gov. uk/ons/rel/pensions/peOnesonGobenUK/Onesareelr-9–pension-scheme-funding-and-investment–2013-edition/art-pt- chapter-9-2013. html#tab-Sumpetry 10. This is MonHTMLeporter, (2013). New State Pension Age: When Will You Retire? , 27 June. Last accessed 14 July 2013 at: http:// www. thisismoney. co. uk/money/pensioTestimony16Co78UKNew-state-pension-age- retire. tml. 11. IFAonline (2012). AvivaHTMLJK ProFanlikeas Life and PensiJ Sales Climb 0%. [Online]. Last accessed at 14 July 2013 at : http://www. ifaonline. co. uk/ifaonline/ newFanlike0/CoivUKuFanlike-rise-life-pensiAvivalUK-climb 12. Pensions [Online]. Last accessed at 14 July 2013 at : http://www. aviva-for-advisers. co. uk/advisAvivate/ public/prodCotsUKensions 13. The Royal Bank of Scotland. [Online]. Last accessed at retirement-plans. ashx#tab-section2. 14. Jun, MerrSash(2012sectionsodel AJunkseMerestine]. Aviva Reports 10% Jump in Life and Pensions Sales, 8 March.
Last accessed at 14 July 2013 at : http://citywire. co. uk/new-model-adviscitywide-rCoorUK-lo-]ump-in- life-aAvivansions-sales/a572866 Appendices 1 : SWOT Anala572866r AVIVA StrengthSOOTStrong and diversified distribution network sustaining/building leading market positions The merger of CGU plc and Norwich Union plc onGU Pl 2000, AVIVA has buPl strong and diversified distribution network in the most attractive insurance markets in the world. The strength of its distribution network is evident from the number of employees, agents, and partners in the 12 markets it focuses.
In fact, the group has created one of the largest and most successful banc assurance franchises in the insurance sector with 130 partners such as HSBC and Barclay. Due to strong HASHork distribution of company, it is not hard to expand company market share in saving and pension fund product instead of life insurance in I-JK. * Healthy business mix proviJng significant benefits Aviva’s business mix is healthy Avis’sbalance between insurance and non-insurance and within insurance as well. The group has significant presence in both life and general insurance operations across the world.
During FY2011, the group’s gross premiuPAYOFFme had a healthy mix of 67. 5% contribution from life and 37. 5% from general and health insurance products and services. The mix of its business- combining life, general insurance and asset management has generate better balances earnings by diversify risk and cash flows though different operating environments than for a single-line insurer. Furthermore, the launch of multi-asset funds and good performance from its global property and managed fund investment offerings helped collective investment sales rise 9% to El . billion, up from El . 5 billion Billion. * Focus on core capabilities optimizing capital allocation and enhancing profitability (Refer to appendices 2) The group focuses on four core capabilities: marketing & istribution expertise, financialstriation, technical excellence, and operational effectiveness. Focus on these four aspects has helped the group to simplify and smooth its businesses. In 2011, the group completed the sale of RAC for El billion, reflecting iRACEfocus on insurance and savings businesses in priority markets.
Focus on core capabilities has yielded significant benefits. According to annual report (201 1), Aviva delivered an internal rate of return (IRR) of 14. 4% in 2011. MoreoverAIRt also remains on track to meet its E400 million cost and efficiencyIEEEget by the end of 2012. Thus focus on core capabilities is helping the group in optimizing capital allocation and in enhancing profitability. Weaknesses * High double leverage within group situation where a holding company raises debt and provides it as equity capital, or subordinated debt, to a subsidiary, i. . it is the use of debt by boIh thItparent company and the subsidiary, in combination with the company’s equity capital, to finance the assets of the subsidiary. Continued increase in double leverage could increase capital requirements for the group. * Inability to sustain investment returns affecting revenue growth The group’s eturns on investments have been turnsle with a downward bias. For instance, its investment income declined from approximately E25. 2 billion ($40. 3 billion) EYE2009 to approximately E6 billion ($9. 6 billion) in 20E.
To an extent, the decline in investment returns is attributable to decline in total investments, and unfavourable interest rate envirunfavorableeakness in its investment policy. Inability to sustain investment returns has affected the group’s revenue which declined from E51 ,458 million (approximately EYE,332. 8 million) in 2009 to ??36,003 million (approximately $55,646. million) in 2011. Opportunity * Millioning focus on global asset management could accelerate business growth The outlook for the global asset management and custody banks sector is expected to be positive.
Marketline (May 2012) estimates Marketing asset management and custody banks sector is estimated to be worth $82, 599. 1 billion in 2011 while the compound annual growth rate of the industry during the period 2011-2016 is expected to remain at 4. 11%. The main factors driving this growth would include the need for private individuals to make provision for their pension requirements. Building global asset management capabilities is one of Aviva’s key strategic prioritiesAvis’sxample, Aviva Investors together with its collective investment business with the Royal Bank of Scotland Group in the I-JK. I-JK long-term insurance maJet grJth potential UK long-term insurance market growth potential is attractive. According to research undertaken by Aviva, in conjunction with Deloitte, there is a potential aDolomitensions gap of some E317 billion, the difference betIEEE what an individual saves today, and what they need to save in order to pay for a comfortable standard of living in retirement. New auto-enrolment in 2012 New pension reform may add greater cost pressures to firms, particularly smaller businesses, but it also creates significant opportunities for pension providers, advisers and consultants. Global economic uncertainties likely to affect business prospects Global economic prospects are uncertain. Though risk to global economic growth from Greek debt crisis has been addressed to an extent, several other risks still persist. For instance, economic prospects for Europe look fragile as sovereign debt crisis faced by Portugal, Italy, Spain and other European economies has not been addressed had affected Increasing competition likely to affect margin expansion Aviva faces intense competition in insurance, pension and asset management markets across its geographies.
For instance, in the I-JK, Aviva faces intense competitJn from RBS, RSA, AXA, Zurich, Lloyds BaORBSngRASAouAXAllianz, aLloydiral Group. * ImLillian pension mis-selling Past performance penMISn mis-selling of intermediary are MISvily affected individual confidence on expert advice. This has led to individual invest more in non- pension fund (example, property) rather than retirement plan Appendices 2 : AVIVA’s core ompetences TechnicaAvis’slence impotence’s to increase its existing strengths in pricing, product development and asset manager capabilities, as well as its ability to understand and take measured risks.
Marketing and distribution expertise Aviva has multi-channel distribution capabilities, which include banc assurance leadership or partnership, and can build on its scale, brand and strong relationships with distributors/partners in order to deliver a broad range of products and services. (E. g. Aviva has strategic partnershGp with RBS for pension plan sales) FinaORBSal discipline Aviva’s self-styled ‘rigorous anAvis’s frameworks for capital allocation and asset liability matching ensures that it reinvests in products and markets offering the optimal potential return.
In addition, it is focusing on managing its investment risk and gearing, and on making selective portfolio changes going forward. Operational effectiveness Aviva will concentrate on customer value management (e. g. improving retention, advocacyGanImprovingelling) and driving improved quality and efficiency by creating a simplified, more modern way of doing business across the AVIVA and further building on its claims management expertise