Norwich-based Aviva hails progress in turnaround despite floods and pension reforms
PUBLISHED: 09:25 07 August 2014 | UPDATED: 10:20 07 August 2014
Aviva hailed further progress in its turnaround today despite the dual impact of flooding and the surprise reform of annuity rules on its UK operations.
The group, which has 31 million customers in 16 countries, reported a 4% rise in half-year operating profits to £1.05 billion as it benefits from a continued drive to improve efficiency.
The cost savings have been offset by winter storms in Canada and the UK, where it faced more than £60 million of claims from flooding and storm damage at the start of the year.
It has also been impacted by a strong pound and the lower sale of annuities for pensions following the Chancellor’s surprise Budget announcement that pensioners no longer have to buy an annuity to draw their pensions.
In Aviva’s UK life and pensions division, the value of new business was down 21% in the half year to £177 million, reflecting a 41% reduction in annuity sales following the reforms. Aviva also reported a general market decline as customers choose to defer taking their pension.
Chief executive Mark Wilson admitted the overhaul by the Chancellor was a surprise but that the group was working to take advantage of the changes.
He said: “I think giving consumers flexibility is a good thing, not a bad thing and we need to adapt. It provides opportunity for new products and we’ve developed those, new ways of distribution and we are developing those as well.”
In the UK general insurance business, weather claims were worse than the previous year but “marginally favourable” against the long term average.
It meant the company’s combined operating ratio - a measure of underwriting profitability, with anything below 100% representing a profit and anything above representing a loss - fell to seven year low of 94.3% in the UK.
Mr Wilson took charge in January last year after the departure of predecessor Andrew Moss in the wake of a humiliating shareholder revolt over his pay and the faltering pace of the business.
Since then he has cut hundreds of jobs and has disposed of several businesses as part of his turnaround strategy.
Across the group, he expects to have cut £568 million a year from expenses by the end of this year, ahead of the £400 million target set in 2012.
Mr Wilson added: “It’s true that all the key metrics are going in the right direction. It’s true that the businesses are gaining traction, that the turnaround momentum continues. But it’s also true that we still have quite a few issues, so we remain a turnaround.”