Insurer Aviva sets new targets

Car insurer and pensions giant Aviva said 2011 profits were up 6% to £2.1bn today after it boosted its share of the UK market.

Shares were up 2% after the results, although Investec Securities analyst Kevin Ryan expressed disappointment at the size of the 26p a share dividend, which at 2% grew by less than the City's 5% forecast.

He said: “Aviva’s fortunes are inextricably linked with the eurozone, given its European focus. The catalyst for the stock, in our view, will be the discovery of a lasting solution to the eurozone debt problems.

The group achieved record operating profits of £931m in its UK life insurance division, with gains in its core markets of workplace savings, annuities and equity release products and protection.

In its general insurance business, where it is the UK market leader, Aviva’s profits were up 7% to £520m after the roll-out of direct pricing to motor insurance brokers and the launch of its quotemehappy website.

The group, which is the UK’s largest insurer with 14 million customers, also grew profits in Europe despite the economic climate in countries where it has a major presence, such as Spain and Italy.

On the back of today’s results, chief executive Andrew Moss increased the company’s targets for this year in both general and life insurance.

He added: “Although the economic environment is likely to remain tough for the foreseeable future, we have built a strong, sustainable and diverse business well positioned for further profitable growth.”

Shares have climbed 30% from December lows as sentiment about the eurozone debt crisis has improved, a trend reflected in Aviva’s balance sheet after its solvency cushion improved to £3.3 billion at the end of February from £2.2 billion at the end of 2011.

Helped by a successful advertising campaign featuring comedian Paul Whitehouse, industry figures recently showed Aviva overtook Churchill and Direct Line owner RBS Insurance as the biggest general insurer in the UK.

The improvement follows upward pressure on car premium rates across the industry and a surge in the firm’s own customer numbers, with its motor premiums up by 13%.

Rising costs have been blamed on a “compensation culture” encouraged by ambulance chasers and as fraud has risen.

However, Aviva said its combined operating ratio – measuring operating costs as a percentage of revenues – was flat in general insurance at 96%. It comes after a period of major job losses at the firm.

In the UK life and pension business, Aviva has changed its product mix to focus on more profitable business.

Regulatory changes such as the FSA’s Retail Distribution Review, involving reform of retail investment advice, are expected to benefit firms such as Aviva with a strong brand and wide range of products.