15th May 2014 09:33
LONDON (Alliance News) - Aviva PLC Thursday reported an increase in its main measure of sales profitability, as growing European and Asian operations offset a 22% decline in the UK, where the government has initiated a shake-up of the pensions industry.
Aviva said value of new business increased to GBP224.0 million in the three months ended March 31, compared with GBP209.0 million in the corresponding quarter a year earlier. In the UK, where Aviva is a big player in the life insurance industry, value of new business fell to GBP89.0 million from GBP114.0 million.
That drop was more than offset by performance in France, Poland, Italy and Spain.
Aviva said the decline in the UK was largely due to value of new annuity business falling by 43% to GBP40.0 million. Providers of annuities - products delivering a guaranteed income in retirement - faced have endured considerably lower sales since Chancellor of the Exchequer George Osborne's 2014 budget statement, in which he promised to give individuals more control over how they manage their pension funds, removing the effective requirement to buy annuities.
Aviva said it expects to increase its focus on bulk purchase annuity transactions to partially offset the decline in individual annuity sales resulting from the government proposals.
In its general insurance business, Aviva reported a deterioration in its combined operating ratio - a measure of underwriting profitability - which rose to 97.7%, from 95.5%. While still under the breakeven point of 100%, the higher ratio was a result of a harsh winter in North America, which resulted in an additional GBP40.0 million in weather-related claims.
Overall, Aviva's net written premiums in general and health insurance fell to GBP2.08 billion, from GBP2.22 billion, as the insurer faces up to softening insurance rates, particular in personal motor insurance, by being more disciplined in its underwriting.
"Aviva still faces challenges both in the external environment and in the business as we progress our turnaround. The regulatory environment is constantly changing and soft conditions persist in certain general insurance lines. As a business we remain focused on cash flow, expense efficiency, and the clinical allocation of capital to areas where we can maximise returns. There is still much to do," Chief Executive Mark Wilson said in a statement.
Aviva has been implementing a strategy targeting a simpler balance sheet with a series of recent deals to sell businesses that don't fit with its aims. Since its full-year results in March, Aviva has announced disposals of its Turkish general insurance business, US asset management boutique River Road, and a South Korean joint venture, as well as a restructuring of its Italian business.
Wilson, who has intensified Aviva's turnaround and presided over a cost-cutting plan, said integration and restructuring costs, which he said have historically been high, fell to GBP18.0 million from GBP54.0 million. The spend was largely related to new European regulations on insurers, known as Solvency II.
The CEO said more progress has been made on cutting expenses since the end of the recent full year, when Aviva said it had made GBP360.0 million of the GBP400.0 million 2014 cost reduction target.
Aviva shares were down 2.5% at 518.00 pence Thursday morning, making them the third biggest faller in the FTSE 100.
By Samuel Agini; [email protected]; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
Aviva