Aviva sees profits jump after Friends Life tie-up

Shares in Aviva (LON:AV) have advanced this morning with the blue-chip insurance unveiling upbeat value of new business (VNB) numbers and lifting its interim dividend.

Chief executive Mark Wilson said Aviva was moving to a new phase under its turnaround programme as the group posted slightly better-than-expected half-year earnings of £1.17billion – up 9 per cent from the £1.07billion recorded a year earlier.

Aviva enlarged its customer base to 16 million following the £5.6bn buyout of rival firm Friends Life in April.

“The Friends Life integration is ahead of schedule and we have delivered £63m of run-rate synergies after three months”.

Eamonn Flanagan, analyst at Shore Capital, said he remained concerned that Aviva may focus too heavily on integrating Friends Life at the expense of being left “well behind” as rivals compete to adjust to regulatory changes and competitive pressures.

Insurance giant Aviva said yesterday it was ahead of plan with moves to combine Friends Life after its £6.5 billion tie-up, but stressed the integration was “nowhere near complete”.

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. “It’s very encouraging – but it’s nowhere near complete”.

“The 15% increase in the dividend is a further step towards achieving our target payout ratio and underlines our confidence in our cash flow and the business”.

“From the outset, Aviva made it clear that the acquisition offers the opportunity to increase Aviva Investors’ AUM (assets under management) by recapturing previously outsourced asset management contracts”, AXA said in a statement.

Overall operating profit for the group increased marginally to £1.17bn from £1.07bn. “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”.

“It was driven primarily by a strong performance in UK life (ex FLG) a low COR in general insurance at 93.1% (H1 2014: 95.5%) having benefitted from benign weather”. UK Life was up 43%, or 31% excluding Friends, to £260 million, while Italy leapt by two-thirds and Asia by 18%. “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”.