Aviva to reward investors as profits surpass forecasts

Aviva has increased its payout to shareholders
Aviva has increased its payout to shareholders
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Insurance giant Aviva has increased its payout to shareholders after annual profits outstripped expectations.

Operating profits for the full year climbed by a fifth to £2.7bn, beating forecasts of £2.49bn, as the company’s integration with Friends Life following its £6bn takeover moved “faster and better than expected”.

It was also bolstered by a 24 per cent surge in the value of new business – its twelfth consecutive quarter of growth – while life insurance operating profits rose 20 per cent to £2.4bn.

Shares surged as the company also announced it would increase the final dividend per share by 15 per cent to 14.05p. Chief executive Mark Wilson said Aviva had shown “stability and growth” amid a backdrop of “market volatility and uncertainty”.

He added: “Aviva is now a stronger and more focused business. We have completed the fix phase of our transformation. Our focus remains on transforming our business and delivering on our commitments.”

Mr Wilson said the company’s strong capital position meant it could grow businesses organically, and he reiterated it could also make “bolt-on” acquisitions in markets such as Poland.

“Capital returns to shareholders are also on our radar,” he said.

Aviva bought rival Friends Life last year in a deal which created a market leader in life insurance. The life and general insurer said it would achieve its target of £225m in integration synergies in 2016, a year ahead of schedule, and that it expected to achieve £1.2bn in capital synergies.

“The key question now is what will Aviva do with the additional cash – we think it will in part be used to hike future dividends,” said Barrie Cornes, analyst at Panmure Gordon, in a note.

Aviva said the floods which devastated parts of Yorkshire and the North of England in December had cost it £132m.

The firm employs around 5,000 staff altogether at its operations in York and Sheffield. A spokesman said that the company’s life operations, which are based in York, had achieved a “very strong” set of numbers.

Charles Huggins, an investment analyst at Hargreaves Lansdown, said: “Under Mark Wilson, Aviva is being transformed into a leaner, more coherent business, with a focus on cash generation and financial strength. Shareholders are being compensated for the pain suffered in the past by a rapid rebuilding of the dividend.

“For too long Aviva was the insurer that never really got its mojo going, having a structure that derived more from a series of acquisitions than any sort of organic growth history.

“Mark Wilson’s background might suggest an imminent Asian expansion drive, given his time at AIG’s Asian unit, but the evidence so far is that he is first determined to fix the businesses closer to home. That makes sense; a strongly performing European composite insurer with good cash generation can one day fund a lot of growth further afield, if that is where the board decide to go.

“For now, shareholders can feel the benefit of having a simpler group, with fewer, but larger operating units and product strategies that meld with consumers’ increasing desire to transact financial services digitally.”

Aviva’s combined operating ratio, a key measure of performance in its general insurance business, strengthened to 94.6 per cent, against a forecast of 96 per cent.