AVIVA has shrugged off the radical overhaul of the pension annuities market, rising claims due to flooding in Britain and a harsh Canadian winter to drive forward its turnaround programme.
At yesterday’s first-half results Mark Wilson, the chief executive who took over in January 2013 after former boss Andrew Moss was ousted in the “shareholder spring” revolt against excessive pay, said: “I don’t believe in excuses. We have taken these challenges very much in our stride. It remains a turnaround business, but a turnaround business with momentum.”
His comments came as Aviva, which employs more than 2,000 across it two main Scottish sites in Perth and Bishopbriggs, posted a 4 per cent rise in operating profits to £1.05 billion.
Wilson said the group continued to benefit from its cost-cutting drive, and that a 23 per cent fall in individual annuities after Chancellor George Osborne’s pension industry changes in the spring had been offset by a rise in bulk annuities.
He said the company’s diversity, including a general insurance arm that is largely Scottish-based, made it less exposed than some of its rivals to Osborne’s move to give pensioners freedom to do what they want with their pension pots.
“I think giving consumers flexibility is a good thing, not a bad thing, and we need to adapt,” Wilson said. He added that he also believed the flight from individual annuity products would slow when interest rates – at historic lows since 2009 – started to rise again.
“When interest rates increase annuities will come back into favour. They will be more competitive,” he said. In the UK general insurance business profits were down 6 per cent at £403 million, as weather claims were worse than the previous year due to the winter flooding.
Life business profits rose 5 per cent to £954m, while Aviva’s asset management business saw profits up 14 per cent at £48m.
Analysts also noted that the insurer’s UK combined operating ratio – a measure of underwriting profitability, with anything below 100 per cent representing a profit and anything above a loss – fell to a seven-year low of 94.3 per cent.
Meanwhile, there were strong trading performances in Asia and the Polish market.
The chief executive said while there were some encouraging macro-economic trends “we are not waiting for the markets to spur improvement in results”.
He has cut hundreds of jobs and disposed of several businesses as part of the reshaping of the business. Aviva said yesterday that it expects to have cut £568m a year from the cost base by the end of 2014, ahead of a £400m target set by previous management in 2012.
In the reporting period, operating expenses came down £129m to £1.4bn. The interim dividend rises 4.5 per cent to 5.85p from 5.60p last time.
Aviva’s shares lifted 2.6 per cent, or 12.8p, to 502.5p. The stock has risen nearly a third over the past 12 months.
“Investors are beginning to believe in Aviva’s recovery story, with the market consensus having recently strengthened slightly to a buy,” Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said.
l More Than insurer RSA reported a 72 per cent fall in interim profits as chief executive, and former boss of the Royal Bank of Scotland Stephen Hester, admitted the cost of his “clean-up” of the group was higher than had been expected.