10th Aug 2022 14:45
(Alliance News) - Blue chip insurer Aviva PLC's shares got a much-needed boost on Wednesday as it outlined a series of returns for shareholders and was able to report a better than expected combined operating ratio.
Shares in London-based Aviva were 12% higher in London on Wednesday afternoon at 464.30 pence each. Despite this, the shares are still down 18% in 2022 and have given back 13% in the past 12 months.
UBS holds a 'buy' rating on the stock with a price target of 445p. Jefferies rates the stock at 'hold' with a price target of 435p.
Aviva declared an interim dividend of 10.3p per share, rising 40% from 7.35p a year earlier, in line with its full year guidance of around 31.0p per share. The interim dividend is worth a total of GBP289 million.
"Aviva has delivered broadly progressive results with plans for a future share buyback programme the core highlight," Keith Bowman, investment analyst at interactive investor said. "The measure of capital strength for the company, the Solvency II coverage ratio, increased to 213% from 186% and aids a 40% increase to the interim dividend payment."
Aviva noted it has plans for a new share buyback programme, but will decide on the size when it issued its full-year results.
Its headline Solvency II cover ratio fell to 234% from 244%, while the pro forma figures sits at 213%. Jefferies said the insurer's solvency coverage is "remarkably strong", which all but guarantees bumper additional capital returns to shareholders with its annual results.
Aviva Chief Executive Amanda Blanc, in the interim results, said: "Delivering for our shareholders is at the core of our strategy. Our liquidity and capital position is extremely healthy and we are declaring an interim dividend of 10.3p, in line with our full year 2022 dividend guidance of about 31.0p. We are increasingly confident in Aviva's prospects and anticipate commencing additional returns of capital to shareholders with our 2022 full year results."
UBS added: "We note that the board will consider drivers of surplus and will aim to return excess surplus sustainability and regularly when considering excess capital returns."
In the six months to June 30, its IFRS loss widened to GBP633 million from a GBP198 million loss a year prior. Aviva explained that this "largely" reflects adverse market movements and has no impact on capital or cash remittances. Adjusted operating profit rose 14% to GBP829 million from GBP725 million.
"The beat to operating profit consensus of GBP742 million looks to largely be driven by the result in General Insurance, which benefited from a 94% combined ratio - with consensus at 95.5%," Jefferies said.
UK & Ireland Life sales were up 4% to GBP16.84 billion, from GBP16.24 billion the year before. Notably, sales in its Annuities & Equity Release division climbed 12% to GBP2.76 billion compared to GBP2.47 billion.
New business sales in its Life unit were up 3.0% to GBP17.4 billion from GBP16.9 billion.
Aviva's General Insurance gross written premiums rose 7.3% to GBP4.69 billion from GBP4.37 billion, but the combined operating ratio worsened to 94.0% from 91.6%. A combined ratio below 100% indicates underwriting profit.
"In all, geographical diversity has been reduced over recent years following previous business sales, with profits from its insurance operations hindered by factors including rising claims inflation and less favourable weather," ii's Bowman said.
Despite a drop in General Insurance profit, Bowman believes the unit is now "more focused".
"Costs are being tackled, while shareholder returns are now buoyed by the prospect of a future share buyback programme, adding to a dividend yield of over 7%. On balance, and with group finances strengthened and greater efficiency still being achieved, analyst consensus opinion points towards a buy," he added.
Looking ahead, Aviva said it is confident of its outlook for 2022, despite a challenging market backdrop.
It also expects full year Solvency II cover ratio of 213%, for a further GBP1 billion debt reduction, pension scheme payment and the GBP385 million acquisition of Succession Wealth, which is expected to be complete in the second half of the year.
ii's Bowman added: "Accompanying management outlook comments point to anticipated higher bulk purchase annuity volumes in the second half with personal lines claims inflation being countered by appropriate policy pricing."
By Paul McGowan; [email protected]
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