Aviva H1 UK GI profit up as group makes £681m loss

Aviva’s UK general insurance business made an operating profit of £226m in the first half of 2012, compared with a like-for-like profit of £193m in last year’s first half.

The like-for-like combined ratio improved by one percentage point to 97% (H1 2011: 98%) despite the £40m of claims Aviva incurred from the June floods.

The first-half 2012 underwriting result was boosted by a £12m release from prior year reserves. The company had to strengthen reserves by £12m in the same period last year.

The RAC effect

The like-for-like results exclude the £49m contribution from RAC, which Aviva sold in September 2011. With RAC included the H1 2012 results were slightly worse than H1 2011.

Including RAC, Aviva’s UK GI business made an operating profit of £242m and a combined ratio of 96% in the first half of 2011.

Net written premiums dropped 6% to £2.1bn (H1 2011: £2.2bn). However, Aviva said that excluding the effects of a one-off corporate partner deal and RAC, underlying premiums were up 5%.

Aviva attributed the improved underlying performance to a continued focus on underwriting, claims and cost management.

The company said: “The action we took last year to exit poor performing business lines has also had a positive effect, particularly in commercial motor where we have seen a 12 percentage point improvement in the combined operating ratio compared to the full year of 2011.”

Motor growth

Within Aviva’s UK GI personal lines segment, personal motor premiums were up 13% and the combined ratio, excluding RAC, was 96%.  The company reported a 185,000 increase in personal lines motor customer numbers to 2.4m driven by new initiatives such as online offering Quotemehappy and Multicar.

The company also enjoyed 7% growth in personal and commercial specialty lines, excluding the one-off corporate partner deal.

Pricing changes

Aviva was not able to increase rates in personal motor over the year, which it said reflected the “slowdown in the market”, but put up home insurance rates by 3%.

In commercial lines, the company increased motor rates by 6%, property rates by 2% and liability rates by 3%.

Group slump

Despite the underlying improvement in the UK GI business, Aviva as a whole swung to a loss £681m (H1 2011:profit of £465m).

This was caused by the company’s decision to write off £876m of goodwill and other intangible assets in its up-for-sale US division.

However, the solvency position of the group improved compared with the end of 2011. Insurance Groups Directive (IGD) surplus increased to £3.1bn from £2.2bn, and the IGD coverage (the amount by which the capital exceeds requirements) rose to 1.5 times from 1.3 times.