More on Aviva
Aviva
Insurer Aviva appears to have marked the end of five years of stagnant earnings with a welcome return to growth in 2004. Boosted by a strong performance in general insurance the company has reported a 25% growth in operating profits to £2,344m. General insurance operating profits were up 47% to £1,326m while life operating profits were up 9% to £1,611m.
Growth in life profits were entirely due to better performance overseas, UK life profits (the largest single market, generating 34% of profits) was down 7.7% to £551m. The life business in the Netherlands recorded a 42% growth in operating profits (to £277m), while France (where profits rose 27.6% to £286m), Spain (where profits rose 11% to £180m) and other international business (up 38% to £83m) made noteworthy contributions.
The performance in general insurance was far more even, with all markets reporting steady gains with some smaller markets (Canada up 1166% to £152m, Ireland up 72% to £153m, the Netherlands up 108% to £71m), recording spectacular gains.
Aviva is an insurance company formed by two large mergers. In 1998, Commercial Union and General Accident merged to form CGU. In 2000, that new group was merged with Norwich Union to create CGNU which alter hanged its name to Aviva.
Aviva also sells life assurance and pensions and as well as general insurance and various financial services, including fund management and broking.
Aviva’s new business figures for the fourth quarter of 2004 are positive with life and pensions APE growing by 9% and investment sales by 44%. Growth was stronger in the overseas markets (albeit from a small base), France and the rest of Europe (mainly Germany and Turkey) grew by 30% each and the Netherlands by 19%. Growth in the UK, which made up almost 44% of sales was 5%, down from the 6% growth seen in the nine month figures partly due to a strong growth seen in the last quarter of 2003.
In the UK and across much of Europe, Aviva has benefited from a recovery in the insurance market. In France the new bancassurance joint venture partnership with Credit du Nord generated sales of £109m (£17m on an APE basis). Excluding Credit du Nord sales, growth during the year in France was 23%, ahead of the estimated market growth rate of 14%. Sales through AFER (the largest savings association in France) increased by 33% to a record £1,594m. Investment sales grew 41%, up from the 33% growth seen in the third quarter figures.
In terms of distribution channel, IFAs seem to be gaining in importance particularly for life and pension sales where IFA’s recorded a growth of 8% while the bancassurance and other partnerships recorded declines of 15% and 1% respectively.
Life premia written declined by 6% in the first half but recovered in the second half. Full year life and pensions APE sales were up 9% lead by a strong overseas performance particularly in France (where sales grew 30%) and continental Europe where sales grew 15%.
Aviva good results follow hard on the heels of Legal and General and St. James’s Place and seem to confirm that the market is recovering. The company’s full year profits were good but driven mainly be general insurance. While the long-term business has shown steady improvement over the last two quarters it will not translate immediately to improved profits. There is lag between growth of life business and growth in profitability due to heavy acquisition costs but nevertheless the figures are encouraging, the trend more so.
Aviva has also made a cash and share offer worth £1.1bn for the entire issued and to be issued share capital of RAC, a leading UK motoring services provider. The offer is 0.7154 New Aviva Shares and 462.5p in cash for every 1 RAC Share. The offer values RAC at around 940p per share. RAC’s shares soared 123p to 865p on the news yesterday.
The slowing housing market should result in investment flowing to other products including insurance. The outlook for the industry has improved since last year and Aviva is well placed to reap the benefit of the recovery.
The stock trades at 662.5p on a prospective PE of 10.2×, within the sector range. The 4% yield is reasonable.
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