Aviva remains upbeat despite 25% drop in UK sales

Aviva remains upbeat despite 25% drop in UK sales

A loss of confidence in the economy among older customers helped knock UK sales at life assurer Aviva by 25%, according to the company's third quarter management statement.

Customers close to retirement delayed purchasing of annuity, while pension savers either reduced their monthly payments or stopped altogether to conserve funds, hitting the company's core pensions and annuity businesses over the first three months of the year.

Despite the dip in sales, chief executive Andrew Moss said 2009 had proved a strong year for the company with a series of measures put in place to increase profits towards targets set for 2012.

Analysts cheered a jump in capital surplus at Aviva, which was formerly Norwich Union, from around £3bn to more than £4bn and a rise in margins on pensions and life products.

Advertisement starts

---

---

Advertisement ends

Greig Paterson at stockbroker Keefe, Bruyette & Woods, described the figures as "a very big beat" of the targets. The surplus was £4.1bn at the end of the end of September compared to the broker's estimate of £3bn.

Paterson said the combination of cost cutting measures, an increase in capital and the achievement of a significant portion of the company's targets for 2012 "all suggest an outlook for very strong dividend growth of 20-30% per annum over the next few years. This is off an already high dividend yield for 2009E of 6.5%".

Most of the boost in capital came from the £400m sale of Aviva's Australian arm and the £1bn listing of a minority stake in Dutch insurer Delta Lloyd, which Aviva completed earlier this week.

The country's second largest insurer said life and pensions sales fell 11% to £24.1bn – just below an average forecast of £24.8bn – hit by a weaker than expected performance at home, where sales dropped 25%, and at its previously fast-growing US business.

Moss said an understandable reluctance among customers to buy annuities, which provide a retirement income for life, at a low point in the stock market cycle had hurt sales of that product segment.

He said increases in unemployment and wage freezes had also dented pension sales.

A focus on profitable business over sales volume pushed up sales margins, with a rise to 2.5% over the last nine months compared to 2.1% in the first six months.

However, analyst Peter Eliot at MF Global said recent improvements failed to mask that margins compared with the previous year remained largely static. "It's very weak. The problem is they are focusing on value over volume, but the margins are not improving either. Operationally there was nothing there that got us excited."

In Europe sales remained flat, while growth in the US slowed.

Aviva stock has dropped over 15% since the end of September, a slight underperformance compared to its European rivals, even as the entire sector was battered by news of the EU-enforced breakup of bancassurer ING.

Aviva's Dutch unit, Delta Lloyd, was sold this week in western Europe's largest initial public offering this year, raising almost £1bn for the UK parent.

Moss said that options included restructuring the balance sheet, writing more new business and bolt-on deals. He gave no details on potential acquisitions, though he said the group would, as a matter of course, look at assets put on the block by rival ING.

Analysts said the use of Delta Lloyd capital would be critical to the share performance, with a deleveraging of the balance sheet likely to boost the shares.

guardian.co.uk © Guardian News and Media 2009