More on Aviva
Aviva: FY05 new business
The UK’s largest life assurer Aviva said sales for the year to December 2005 rose 10% to £24.6bn (on the Present value of new business premiums (PVNBP) basis). PVNBP is a new method of calculating sales and is based on the net present value of regular premia sold and 100% of the value of single premia sold). On the old UK industry standard of Annual Premium Equivalent (APE) Aviva’s total sales rose 7%.
Since Aviva’s results have been released primarily on the PVNBP basis, our commentary will be based on this-although, as we have remarked before, this has a tendency to flatter the figures.
Sales have been driven largely by overseas business (which grew 16%) and now accounts for almost 59% of new business. UK sales were flat at £10.2bn (2004: £10bn) – which Aviva says is “robust”. The company’s tie-up with the Royal Bank of Scotland to distribute insurance through bancassurance channels seems to be working – with sales from this channel growing by 22%. Investment sales have growing strongly (up 45% to £2.4bn).
The revival in the UK long-term insurance industry now seems to be well underway, boosted by rising share prices (which prompt investors to reinvest their gains-some of it in insurance or investments promoted by insurers) rising house prices (which deter investors and make available a larger pool for insurers to tap, and a gradual return of public confidence.
The problem with Aviva is that its growth has lagged that of its smaller peers (Friend’s Provident reported a 57% increase in new business, Legal & General a 29% increase, and even the usually sedate St James’s Place posted a 25% increase last year). In part, this is due to the fact that it is so large – it takes a great deal more in absolute terms for Aviva to record similar % gains but there is a suspicion that it may be losing market share. The company claims that its UK market share has increased to 11.6% in Q3 – but provides no comparative figures.
Interestingly, the company is looking to outsource large parts of its administrative work, which will help keep costs under control, but the slow top line growth is the concern.
On the whole, prospects for the sector are improving, but Aviva’s performance might be expected to lag the sector. The share trades at 745.5p, on a prospective PE (2006 earnings) of 11.4x, in line with the sector with a yield of 3.7%.
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