Aviva in profit as costs cut

Aviva announced a £747m profit under the new MCEV accounting standards or £1,607m using traditional methods, up from losses for the same period last year.

But the firm did wipe more than 30% - to 9p – off its dividend as expected.

Financial highlights by MCEV and IFRS (2008 in brackets)

• Life profit £940m (£958m) or £1,607m (£1,280m)
• General insurance and health £545m (£528m) or £545m (£528m)
• Fund management £35m (£75m) or -£4m (£30m)
• Operating profit before tax £1,049m (£1,223m) or £1,685m (£1,509m)
• Profit/(loss) after tax £747m (-£84m) £1,084m (-£2,361m)
• Total dividend per share 9.0p (13.09p)

General insurance and health net written premiums

• United Kingdom £2,298m (£2,832m)
• Europe £1,738m (£2,183m)
• North America £889m (£771m)
• Asia Pacific £22m (£14m)
• Total general insurance and health £4,947m (£5,800m)
• UK general insurance result of £284m (£316m)

Chief executive Andrew Moss said: “Our general insurance business continues to generate good returns, with profits up 3% to £545m. This earnings stream provides important cash and capital to invest across our global operations.

“Sales are down 15% (20% in local currency) due to market conditions, but also from deliberate action to withdraw from less profitable distribution channels in our largest general insurance business in the UK.

“I am pleased to report a group combined operating ratio (COR) of 97%, ahead of the full year 2008 COR of 98% and beating our 98% ‘meet or beat’ worldwide COR target.

“We have retained a firm focus on improving profitability, particularly as we transform our largest general insurance businesses in the UK and Canada. “We have taken action to reduce our costs and operate more efficiently, which is already delivering results.

UK General Insurance

“We are delivering on the strategy we set out two years ago to achieve competitive advantage by reshaping the book for sustainable profit, focusing on our core insurance capabilities and delivering scale benefits.

“We have made significant progress against this transformational agenda and recognise that these strategic choices will have an impact on volumes in the short term. We have exited partnerships that do not match our long-term strategy and withdrawn from managing general agents.

“The current economic environment has also had an impact due to fewer commercial business start-ups and more business failures. However, strengthening our pricing and risk selection to attract the right customers is beginning to deliver as we are seeing an improvement in underwriting margins on our business with less reliance on prior year savings (H1 2009: £88m; H1 2008: £153m).

Reducing costs

“We have made considerable progress in reducing our costs as we simplify and reshape the business with today’s customer in mind through fewer service centres and streamlined products and processes. These changes have delivered £200m annualised savings in phase one in 2008 and are ahead of plan to deliver further annualised savings of £150m by 2010 in the second phase.

“When added to lower negotiated commissions, this has improved our distribution ratio from 40% in 2007 and 37% in 2008 to 34% for the first half of 2009. Throughout this transformation customer service has remained consistent and as we complete this phase we will focus on further improving our service to customers.”