Aviva Profits Rise Slightly

The statement followed one from British insurer Aviva in which it said it planned to move some of the funds now run by AXA in-house, following a review of its operations after buying Friends Life earlier this year.

But Aviva said this was driven by the transfer of funds directly managed by Friends Life Investments, following the acquisition of Friends Life in April.

The value of new business written in the UK was up 43 per cent year-on-year, from £177m to £253m.

The 31% decrease in operating profit for Aviva Investors to £32m ($50m) referred to by Wilson mainly resulted from higher expenses, together with the adverse impact of the disposal of the River Road US equity business in June 2014.

This was partially offset by a £10m increased contribution from the UK retail fund management business, which transferred from UK Life in May 2014, and a £2m contribution from Friends Life Investments, which was acquired in April 2015. Operational cash generation was a beat on last year at £990 million, and the interim dividend goes up 15% to 6.75p per share. The combined ratio was 93.1%, the best in eight years, and underwriting profits increased 45%.

Moreover, Aviva’s dividend represents a far lower proportion of profit than Esure’s, with the former having a payout ratio of 39% versus 75% for the latter.

It said the UK footprint would be reduced by 33% by the end of 2016 thanks to the property rationalisation strategy which has been announced.

He said: “After three years of turnaround we are now moving to a different phase of delivery”. “Our asset management business will take time to contribute material growth in group operating profit, although positive signs, particularly related to the flagship AIMS [Aviva Investors multi-strategy] range of funds, are emerging”. “The progress is evident in these results”, he added. And life insurance profit rose by 5% to £1.02 billion, with Friends chipping in a crucial £174 million. Not only does it create a more efficient overall business, Aviva also has the potential to dominate the life insurance market, which should provide it with improved margins and growth over the medium to long term.

“Whilst we do understand the misgivings surrounding the acquisition of Friends Life being a UK life company where executing previous M&A have proved “difficult”, we think that over the next 12-18 months the acquisition will prove successful”, says Cornes. “Importantly the valuation is highly attractive when set against the other large UK insurers and it is within this context that we view Aviva as a “special situation”. “The shares are trading on 2015/16 IFRS per multiples of 10.4x and 9.9x respectively with a 2015F dividend yield of 4.0%”, he said.