Shares in insurance giant Aviva (AV.) were the best performers in the FTSE 100 on Thursday, rallying 4% to 360p after it reported a solid performance in 2019 with operating profits up 6% to a record £3.2bn and a return on equity (ROE) of 14.3%.
Chief executive Maurice Tulloch hailed the firm’s ‘good progress’ financially and strategically last year but added ‘there is much more to do, simplifying our business, reducing costs and navigating competitive markets to make Aviva a stronger, simpler, better company.’
STRONG INVESTMENT PERFORMANCE
In general insurance, sales were up just 2% to £9.3bn but according to Tulloch ‘the outlook is positive in the majority of our markets.’
In life insurance, UK annuities and equity release volumes grew by 29% to £6.2bn while new business volumes in Europe and Asia were up 9% and 15% respectively.
Where the firm really excelled was in its investment returns with 84% of funds beating their benchmark last year, leading to third-party net inflows of £2.3bn against outflows of £100m the previous year.
PUSHING DOWN ON COSTS
Part of Tulloch’s mission is to make Aviva leaner, and what the firm calls ‘controllable costs’ were lower last year but only marginally.
The target this year is to reduce outgoings by £150m, before implementation costs, which represents around 4% of 2018’s £4bn baseline.
By 2022 the aim is to reduce controllable costs by a net £300m per year, which requires gross cost savings of £500m relative to 2018’s baseline.
At the same time the firm is targeting a £1.5bn reduction in debt by 2022 in order to reduce interest costs. Last year it repaid £200m of subordinated debt so as with its cost-cutting programme there is clearly some way to go yet.
MINIMAL IMPACT FROM VIRUS
Regarding the outlook, chief finance officer Jason Windsor admitted that ‘so far 2020 has brought significant uncertainty, compounded by COVID-19, in relation to macro trends including the level of interest rates, investment market volatility and foreign exchange.’
The insurer revealed that so far it has received around 500 travel-related insurance claims related to the coronavirus and had paid out around £500,000.
