Exchange rates hit H1 profits at Aviva but underlying business remains bullish

After tax profits at Aviva were badly hit by what it called non-cash market variances and exchange rates in the first half of 2016 but the underlying performance of the business remained bullish, the company posting solid operating profits and encouraging growth.

Its IFRS profit after tax declined to £201 million in the first half of the year compared with £545 million in the same period a year earlier. The company said it had been “adversely impacted by non-cash market variances...including the revaluation of our Euro-denominated and other debt obligations at a lower exchange rate.”

In contrast, its operating profits were up 13 percent in the period, reaching £1.32 billion. Mark Wilson, the company’s group chief executive, said this was driven by growth in UK Life, fund management and digital together with an additional three months contribution from Friends Life.

He added: “This was partially offset by higher natural catastrophe and weather claims in Canada and Europe, new government levies and investment for future growth across a number of our businesses.”

It also enjoyed strong growth in most areas of its business including general insurance where its net written premiums increased by 7 percent to reach £3.9 billion. It said the growth reflected its new partnership agreement with Homeserve in the UK and improved competitiveness across the group as it benefits from operating expense reductions.

Its combined ratio on this part of the business did increase slightly to 96.2 percent compared with 93.1 percent a year earlier, the change largely because of natural catastrophe & weather claims (1.5 percent), Flood Re (0.6 percent) and what it called a commission strain from new distribution partnership (1 percent)

Commenting on the results as a whole, Wilson said: "Operating profits are up 13 percent and the dividend is up 10 percent. We are delivering consistent, stable and predictable growth despite challenging market conditions.

"Our UK businesses delivered encouraging results. We are growing in the UK, we are investing in the UK. We like the UK. And we are also benefitting from Aviva's diversity, with 42 percent of our earnings1 coming from outside of the UK.

"The 10 percent increase in the dividend, up 32 percent since 2013, is another step towards our target pay-out ratio of 50 percent and underpins our confidence in delivering sustainable and growing returns.

"We remain confident in our ability to deliver on our key commitments to grow earnings, cash and dividends."