Feb. 4 (Bloomberg) -- Aviva Plc said life and pension sales rose 9 percent in 2008, driven by the U.K. and North America, and it plans to scale back a promised 1 billion pound ($1.4 billion) payout to policyholders.

Aviva, the U.K.’s biggest insurer, rose as much as 13 percent today after it said in a statement that life insurance and pension sales on a European embedded value basis climbed to 34.6 billion pounds ($50 billion) from 31.6 billion pounds in 2007. That beat the 33.6 billion-pound median estimate of five analysts surveyed by Bloomberg.

“The sales figures were very good and followed on from good updates from the other U.K. life players,” said Peter Eliot, a London-based analyst at MF Global Securities Ltd. who has a “neutral” rating on the stock. The company has “proved good at adapting to the current environment and switching sales away from areas under pressure.”

While the insurer had 2 billion pounds of excess capital as of Dec. 31, up 5 percent from the end of September, Aviva said it’s working with its policyholder representative to revise an earlier offer to give back 1 billion pounds of surplus funds to customers. Aviva’s board is still determining this year’s shareholder dividend and won’t need to sell new stock, Chief Executive Officer Andrew Moss said in a Bloomberg Television interview.

‘No Longer Fair’

Equity and property investments fell “significantly” since the policyholder agreement last July, Aviva said. The offer “is no longer fair to both policyholders and shareholders,” it said.

Aviva will focus on staying profitable rather than increasing sales, Moss said in a telephone interview. “Top line sales growth for the sake of top line sales growth is not the major priority for 2009,” he said. “We have to be maintaining the financial strength of the company.”

The company said it has hedged its investment and a 40 percent drop in stock markets from year-end levels would still leave a capital surplus of about 1.3 billion pounds. British insurers have so far avoided the capital shortfalls that have forced three of the U.K.’s six biggest banks to accept government bailout funds.

Moss said the economy probably will struggle through the first half of this year. “Perhaps people may be being a little over pessimistic at present,” he said. “It’s hard to call.”

Aviva was up11 percent at 369 pence as of 10:30 a.m., valuing the company at 9.8 billion pounds. The shares have lost 5 percent in 2009, outperforming the 35-member Bloomberg Europe 500 Insurance Index.

Turning Point

Life insurance and pension sales in faster-growing markets in Asia and the U.S. helped boost revenue as income from investment products dropped 43 percent to 4 billion pounds, hurt by falling equity markets and slumping economies. Aviva is reducing its range of products and cutting jobs in the U.K. to improve profit growth at its general insurance unit.

“People have been cautious in 2008,” Moss said, referring to demand for investment products. “At some point we’ll see it turn. It’s too early to call that at the moment.”

Moss ruled out last year any interest in buying parts of American International Group Inc., the insurer bailed out by the U.S. government. The U.K. company is also not interested in buying Royal Bank of Scotland Group Plc’s insurance units because they are focused on motor insurance, a market in which Aviva already operates, he said.

Aviva’s results were reported on a so-called market consistent embedded value basis for the first time and on a European embedded value basis. The EEV measure is the one most closely watched by analysts.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

Last Updated: February 4, 2009 05:33 EST