Aviva 2016 results hit by Ogden rate but general insurance performs well

Profits at UK insurer Aviva where hit hard by a £380 million after-tax charge due to the reduction in the Ogden discount rate, the mechanism insurers use to calculate future losses in personal injury and accident cases. But the company stressed that its overall performance was very positive.

The company’s profits based on international financial reporting standards (IFRS) fell by 22 percent to £859 million in 2016, because of this charge, which it accounted for as an exceptional item. Its operating profit, in contrast, which does not include this, was up 12 percent to hit £3 billion.

Within this, its general insurance unit made a strong contribution of £833 million, a 16 percent improvement on 2015. Its net written premiums also increased by 15 percent thanks to new distribution partnerships with Homeserve and TSB in the UK, a six month contribution from RBCI in Canada and foreign exchange benefits.

Aviva’s life insurance operating profit increased by 8 percent to £2.6 billion benefitting from an additional quarter of Friends Life, delivery of integration synergies and growth in protection, pensions and individual annuities.

Its fund management unit’s operating profit increased by 30 percent to £138 million (2015: £106 million) reflecting higher assets under management, an increase in revenue margin and improved cost to income ratio.

The company noted that a number of milestones were reached in 2016. It integrated Friends Life, delivering £270 million of run-rate synergies, its UK Digital business completed development of a single customer database and increased customer registrations to 5 million. And it acquired RBC General Insurance (RBCI), increasing its scale and strengthening distribution in the attractive Canadian general insurance market.

Mark Wilson, the group chief executive of Aviva, said: “Aviva's results are simple and clear cut: more operating profit, more capital, more cash, more dividend. And there is more to come.

"Aviva's financial position has been transformed and a distinctly stronger balance sheet and excess capital give Aviva more options. We are now actively planning a capital return to our shareholders and debt reduction in 2017 and will invest further to grow our businesses.

"The numbers speak for themselves. Fund management delivered a breakout year with strong positive net flows and operating profit up 30 percent. General insurance is growing, with operating profit up 17 percent, and in UK Digital we have doubled online registrations to five million. We are becoming a digital disruptor for the benefit of our customers.

In 2016 we made strong progress on our commitments of cash flow and growth. Reflecting these results, we are increasing the total dividend per share by 12 percent to 23.3p."

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