Aviva: UK general insurance profits up 15% to £326m

Online analysis: Could Norwich Union's influence be about to push up rates?

Aviva, the owner of Norwich Union, has seen growth in its general insurance and health business in the UK, taking its operating profit up 15% to £326m for the six months to 30 June 2008, with a combined operating ratio of 98%.

The group, which released its half year results to the Stock Exchange today (Wednesday), saw its total operating profit rise 7% to £1,233m, with a 10% rise in dividend to 13.09p.

Group chief executive Andrew Moss said: “'In the face of economic headwinds Aviva has made real progress in the last six months. Operating profit and dividend are well ahead of last year and we maintain a strong balance sheet despite significant unrealised investment losses affecting our bottom line earnings. We are accelerating our transformational change programme to deliver a unified and more profitable company in line with our 'One Aviva, twice the value' vision. Short term economic uncertainties persist but we remain positive about our prospects.”

The results report added that the general insurance business in the UK had improved as a result of more normal weather patterns in the first half of this year, compared to last year’s flooding. In its full year 2007 results, released in February, Aviva’s UK general insurance and health business posted £433m profit, little over a third of its 2006 £1.12bn profit, and saw its combined ratio deteriorate to 100%.

In its results statement, the company laid out its plans for the UK business, currently known as Norwich Union but set to be rebranded Aviva. The plans include up to 1800 job losses.

The statement said: “We are transforming our UK general insurance business. It is a competitive market and tough decisions have been necessary to improve performance. Core to this transformation is simplifying our operating model, which is the result of a series of mergers and acquisitions over a number of years. We will focus our core insurance skills to improve customer service and drive profitable growth. We have completed the first phase and are on track to deliver cost savings of £200 million in 2008 as a result.

“Phase two of the transformation, announced in June, is the creation of nine modern customer-facing centres of insurance expertise to deliver consistent first-class service. This and associated initiatives will deliver an extra £150 million in savings a year by 2010 and we are aiming for a market-leading expense ratio of less than 11%. As previously announced, there will be some impact on our staff from these changes. Any job loss is regrettable and we will manage this process with sensitivity and ensure compulsory redundancies are minimised.

“We believe that market conditions will remain challenging into 2009. We are focused on managing for long-term profitable growth but expect this to place some pressure on business volumes in the short term.”

Aviva also announced plans to offer a cash payment averaging £1,000 to 1m policyholders in two of Norwich Union Life’s with-profits funds, in a process known as reattribution. Aviva shares were trading at 496.75p, up 30p, at 8.30am on Wednesday.