- Shares jump on consensus beating first-half results
- Management intend to make additional capital distribution at full-year results
- General insurance performance ahead of expectations
Shares in insurance company Aviva (AV) jumped over 7.5% to 446p following the announcement of better than expected first-half results.
The market has been particularly encouraged that the group intends to return more money to shareholders at its full-year 2022 results.
‘Sales are up, operating profit is higher, and our financial position is stronger. This has been an excellent six months for Aviva,’ said CEO Amanda Blanc.
First-half operating profit of £829 million was ahead of a consensus figure of £742 million. This was predominantly driven by a strong result in general insurance.
In the six months to 30 June, Aviva posted a 6% rise in general insurance gross written premium to £4.7 billion.
General insurance benefited from an improved 94% combined ratio, an improvement on the consensus figure of 95.5%.
The combined ratio is calculated as expense claims and costs divided by the earned premium, and is a simplified way of measuring an insurance company’s profitability and financial health.
If the combined ratio is below 100% then the insurer is earning in premiums more than it is paying out in claims and costs, and so is making an operating profit.
Dividend per share of 10.3p is in line with consensus. Solvency II cover ratio of 234% is nine percentage points ahead of consensus (225%).
FURTHER CAPITAL DISTRIBUTION
It is the strength of this solvency ratio that has enabled management to announce its intention to make further capital distributions to shareholders.
The increased return of capital is also due in part to lobbying by Swedish activist investor Cevian Capital, who disclosed a 4.9% holding in the UK insurer last June. It has subsequently increased its holding to 6%.
Cevian has been vocal in pushing for a greater return of capital from the proceeds generated by the sale of Aviva's non-core businesses.
SUCCESSION WEALTH ACQUISITION
The takeover of Succession Wealth will be completed later this year. Aviva believes the deal will enable it to offer high-quality advice to over 4 million workplace pension customers.
The UK wealth market is estimated to be worth £1.6 trillion and is forecast to grow by approximately 7% per year to £2.1 trillion by 2024.
EXPERT VIEW
Commenting on today’s results Jefferies analyst James Pearse said: ‘Aviva has reported a remarkably strong Solvency II capital ratio, allowing the company to confirm that it will commence additional capital returns to shareholders with its full year 2022 results’
‘This is in-line with out expectations, where we are forecasting a recurring £250 million buyback from the full year 2022 results onwards’.
