Aviva keeps its profits buoyant with cuts and a capital buffer

Published on Wednesday 4 November 2009 20:20

ANDREW Moss, chief executive of life and pensions group Aviva, has distanced the company from the insurance assets being sold by Royal Bank of Scotland and Dutch firm ING.

Moss said he ruled out a bid when RBS tried to sell the division – including Direct Line and Churchill – last year.

He said it made no sense then to add more brands into an existing portfolio of big brands and that position had not changed.

In an update on nine months' trading, which saw a 25 per cent fall in life and pensions sales, he said the outlook for the group's profitability is good, despite a reduction in sales driven by continuing customer caution.

Mark Hodges, Aviva's UK head of life and pensions, said a rise in business could take until the middle of next year.

While there are signs of a rebound in equity markets and a bottoming out in sectors such as commercial property, the real economy of unemployment and people's willingness to spend make him cautious.

"We think it could be six to nine months before things start to pick up," said Hodges, who takes over as chief executive of the UK life and general insurance businesses in January.

"The reality is that there is so much uncertainty. We are awaiting a change of government and there are concerns about whether we see a double dip in the economy.

"It could well be the middle of next year before we see any steady growth in our market."

The weak domestic performance for the firm – which recently rebranded its Norwich Union insurance arm under the Aviva banner – dragged overall worldwide sales down by a worse-than-expected 11 per cent to 24.06 billion.

A drop in consumer demand for pensions and savings products amid the recession hit new business during the year so far.

But the firm, which employs 2,700 in Scotland, said the impact on profits is being offset by cost cutting and a focus on value and not volume, while the recent stock market revival is also expected to provide support.

Shares in Aviva rose 5.54 per cent to 400.3p on the upbeat guidance, while the insurer also confirmed its capital buffer had strengthened by another 500 million since the half-year stage to 3.7bn.

The firm is the latest major UK insurer to report an improved picture thanks to the equity market rebound, in spite of falling sales across the sector.

Legal & General yesterday reported a 7 per cent fall in nine-month sales, with the major players consistently revealing a tough UK market.

Aviva saw UK pension sales fall to 2.9bn in the first nine months from 3.5bn a year earlier. It also reported a 19 per cent slide in protection insurance product sales.

General insurance sales volumes also took a tumble, although Aviva said it had put faith in its strategy to prioritise profitable business.