Aviva shares resilient despite storm-related claims

Aviva says it is on target to achieve growth in operating profit this year of 5% to 7%, despite more weather-related claims from storms Babet and Ciarán. What’s more, the company says it is on track to “exceed medium-term targets.”

“Aviva has delivered nine months of strong growth,” said chief executive Amanda Blanc. “We have clear trading momentum, driven by our uniquely diversified business, as well as our leading positions in growing markets. “We have continued to expand our capital-light businesses, which now make up over half of our portfolio. We see significant opportunities to generate further higher return, capital-light growth in the future as we prioritise these segments.”

The insurer recently bought AIG’s UK protection business and is thought to be considering a bid for the UK consumer operations of rival RSA.

General insurance premiums came in at £8 billion (£7.2 billion in Q3 2022), with gross written premiums (GWP) up 13%, thanks, the insurer says, to strong sales in the UK, Canada and Ireland. Meanwhile, health and protection sales increased by 23% to £330 million (£268 million in 2022).

The workplace pensions division also increased net flows by 26% to £5.1 billion, with 350 new corporate customers and higher auto enrolment contributions due to wage increases. Retirement revenues rose by 2% to £4.4 billion (from £4.2 billion in the same period in 2022) due to higher bulk purchase annuity (BPA) and individual annuity volumes. BPA volumes came in at around £5.5 billion.

Insurer hit by storm-related claims

The combined ratio, which measures the profitability of insurance companies (and should remain below 100%) increased slightly to 96.3% due to the number of weather-related claims from the recent storms (94.2% in the third quarter 2022).

At £6.4 billion, wealth net flows came in at 6% of opening assets under management, but this was 9% down on the same period last year due to stock market volatility. The solvency II shareholder cover ratio, which measures the insurer’s financial resilience, remained a healthy 200% compared to 202% at the half-year.

Aviva: expect more capital returns

Blanc also told investors that she was confident Aviva would “continue to deliver more for shareholders” including “further regular and sustainable returns of surplus capital.” Earlier this year, the company returned £300 million to shareholders, having returned £4.75 billion in 2022.

Aviva says it expects to beat its own funds generation target of £1.5 billion per year by 2024 and cash remittances of more than £5.4 billion on a cumulative basis between the years of 2022 to 2024. As such, the company also anticipates delivering £750 million of cost savings this year – a year earlier than previously expected. Controllable costs this year also fell by 1% in the third quarter to £2 billion.

Analysts at broker Barclays, who have an equal weight rating on the stock, think the shares could reach 472p.
The shares are down 6% this year to 422p and are worth watching, given they are trading some way below their three-year highs of 606p, last seen in January 2022.

Past performance is not a guide to future performance.