Exclusive: Aviva ready for Brexit, claims CEO

Aviva’s limited reliance on EU passporting of services and a robust balance sheet has prepared it well for the consequences of the United Kingdom’s exit from the European Union (EU), chief executive officer Mark Wilson said during the insurer’s capital markets day.

“The vast majority of our businesses are locally incorporated and regulated and we have limited reliance on passporting of services across jurisdictions,” Wilson explained.

Passporting rights are of great importance to financial services companies in Europe. The mechanism provides a company authorised in one member state the ability to conduct cross-border business without being required to apply for any additional authorisation or hold assets locally. However, the UK might be stripped of this right when it exits the EU.

But for Aviva, little would change if UK companies lost their EU passporting rights. “We may have to think about how to structure Ireland as just last year we made that a branch,” Wilson said.

In addition Wilson pointed out that the insurance markets differ between countries within the EU, suggesting that these should anyway be addressed individually. “The EU is not really one insurance market,” he said.

Each country has its own regulator and regulation is quite different country by country, and so is the application of Solvency II rules, Wilson noted. “It’s just as easy for us to do business in Singapore or Canada as it is in France and Italy. Our position in or out of the EU should not have a major impact in our ability to operate our businesses quite normally,” Wilson said.

However, rating agency AM Best has warned that the financial market volatility following UK’s vote to leave the EU could have a material impact on insurers’ half-year results and balance sheets. In addition, slow economic growth is likely to also have negative implications for the revenue and profitability prospects of UK insurers.

“There is economic uncertainty and that could impact trading,” Wilson admitted. However, “we do benefit from a weaker sterling […] and also the diversity of our earnings,” he noted.

In 2015, UK Life contributed 44 percent to Aviva’s full-year pre-tax operating profit; 14 percent came from France and 12 percent came from UK general insurance, according to the Aviva presentation.

“We’re no longer capital constrained, and we’ll find running our franchises the way they should be run a long time coming. Our results have been consistent for some time, we’ve reduced expenses, we’ve improved profitability in underwriting,” Wilson said as he stressed the insurer’s ability to absorb shocks.

Aviva grew its operating profit by 20 percent year over year in 2015 to £2.7 billion. The combined operating ratio improved 1.1 percentage point year over year to 94.6 percent over the period. The Solvency II ratio was calculated at 180 percent including a surplus of £9.7 billion.

Wilson said that despite market volatility after the EU referendum the company had proven its resilience, adding: "Our capital ratio has remained at the top end of our 150 and 180 percent working range.”