8th Aug 2019 07:53
(Alliance News) - Aviva PLC on Thursday reported a rise in operating profit despite its core Life Business unit struggling as sales volumes slipped.
In addition, Aviva said it is "evaluating a range of options" to enhance its Asian businesses.
In the six months to June 30, the insurer's operating profit, a key financial measure for the firm, edged slightly higher to GBP1.45 billion from GBP1.44 billion the year before. Pretax profit jumped to GBP2.05 billion from GBP432 million the year before.
The large swing in pretax profit was attributed to Aviva recorded a net investment income gain of GBP28.01 billion in the half compared to a GBP801 million loss the year before.
Aviva's core business, Life Business, saw its operating profit decline 7.9% to GBP1.28 billion from GBP1.39 billion. Aviva said the unit continued to see "solid levels of customer activity" despite the "uncertain investment market environment".
"Our UK annuity and equity release transaction pipeline point to another strong year in 2019, however, sales volumes in the first half were slightly below the prior period, which included our largest ever bulk purchase annuities transaction," the insurer added.
Gross written premiums totalled GBP15.21 billion in the first half, marginally higher than the GBP15.18 billion reported last year. Net earned premiums slipped 2.1% to GBP13.50 billion.
The insurer upped its interim dividend by 2.7% to 9.50 pence from 9.25p the year before.
"Aviva has strong foundations to build upon but there is much to do to improve our performance," said Chief Executive Maurice Tulloch.
Tulloch continued: "Our performance is mixed, with operating earnings per share up 2%. We have delivered strong general insurance results with a combined ratio of 95.9%. In life insurance and asset management, operating profits declined due to challenging market conditions and the absence of a longevity reserve release."
Aviva added: "There were challenges during the first half. We were adversely affected by market headwinds in savings and asset management. We also encountered intense competition in individual protection and personal lines general insurance where we chose to maintain pricing discipline rather than chase volume growth at unattractive margins."
Aviva's general insurance combined operating ratio improved to 95.9% from 97.4% the year before. A ratio below 100% indicates that the company is making underwriting profit, while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums.
The insurer's Canadian business saw its combined ratio improve to 97.5% from 104.6%, helping to better the group's ratio. In the UK, the ratio worsened to 95.7% from 94.3%, with Aviva's European business seeing its ratio improve to 92.9% from 93.5%.
In Asia, Aviva's combined ratio was still over 100% - sitting at 111.2% - but improved from 125.0% the year before.
Aviva said it is "evaluating a range of options" to enhance its Asian business. "Our Asian operations are strategically and financially attractive," Aviva continued, but it is "examining its strategic options" in the region.
Aviva's group Solvency II cover ratio dropped to 194% from 204% the year before. The insurer's capital surplus decreased to GBP11.8 billion from GBP12.0 billion the year before.
Tuklloch said he is focused on improving Aviva's "insurance fundamentals" and "commercial rigour".
He added: "I am confident that our combination of excellent insurance skills, a strong balance sheet and world class distribution and partners provide a strong foundation for Aviva's future success."
Aviva is targeting a GBP300 million per annum net reduction in operating expenses by 2022. The insurer said it is moving forward with this programme "at pace".
In the first half, Aviva's expenses jumped to GBP40.52 billion from GBP13.65 billion. This was largely due to a sharp increase in a change in investment contract provisions to GBP15.93 billion from GBP1.70 billion.
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