Aviva’s UK GI strong despite 96% group profit drop

Aviva’s UK general insurance operating profits for 2011 increased 7% to £508m (2010: $476m), although unrealised investment losses slashed the group profit by 96%.

Aviva as a whole made a profit after tax of £60m in 2011, a sharp drop from the £1.9bn it made in 2010. The company attributed the fall to “adverse unrealised investment variances”.

Strong UK performance

However, Aviva said its UK general insurance performance had been “particularly strong”. Operating profit excluding roadside assistance firm RAC, which Aviva sold last year, increased 11% to £433m (2010: £391m). Combined operating ratio remained static at 96%, meaning it continued to perform well compared to UK peers.

Aviva said the result had benefited from favourable weather, an increased in investment return to £425m (2010: £406m) and a further improvement in underlying profitability.

Reserve strengthening

However Aviva added that it had had to pump an additional £37m into prior-year reserves in 2011, excluding reserve strengthening required the 2010 freeze. The company attributed the need for extra reserves to adverse experience on 2010 commercial motor business for some vans, taxis and scheme accounts, and on one historic professional indemnity account.

“We have already taken rating action and made selective exits with respect to these poor performing business lines,” the company said.

Higher commissions

The combined ratio remained static at 96%. Aviva said its expense ratio had improved to 10.3% (2010: 11%) and benign weather and underlying performance improved the claims ratio.  However these reductions were offset by an increase in the commission ratio, caused by higher profit commission payments on the favourable claims experience and the impact of changes in business mix.

Rising premiums

Net written premiums including RAC increased 8% to £4.4bn (2010: £4bn), and excluding RAC increased 11% to £4.1bn( 2010: £3.7bn).

The company has seen particularly strong growth in personal lines. Aviva’s personal motor business has attracted 413,000 new customers and net written premiums were up 32% to £1.1bn.

Aviva said this reflected rating action, strong growth in direct business and the successful roll out of direct pricing to brokers. The company added that the launch of its quotemehappy.com aggregator product and its multi-car offering have “proved successful” and will help ensure continued profitable growth into 2012.

Group-wide, Aviva’s general insurance operating profit was up 3% £935m (2010: £904m).

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