Aviva Plc (AV/) Chief Executive Officer Andrew Moss said he’s comfortable with the insurer’s holding of 1.4 billion pounds ($2.4 billion) of bonds sold by European governments affected by the sovereign debt crisis.
The U.K.’s second-biggest insurer holds 900 million pounds of Italian government bonds and a further 500 million pounds of government debt in Greece, Spain, Portugal and Ireland, Finance Director Pat Regan said today in a call with reporters. That’s 1.2 percent of its 113 billion pounds of shareholder assets.
“We’ve reduced exposures over the last couple of years as we’ve seen some of these problems coming down the track,” Moss told reporters today.
“All of our exposures are within risk appetite,” he said. “We’ve done lots of contingency planning around any potential outcome, and we feel comfortable with our ability to withstand any of that given the very strong capital position that we have.”
Aviva sought to increase sales in Europe under a program announced in October 2009, saying an aging population and slow economic growth would boost savings rates. The shares have dropped 13.5 percent in the past month, making it the second worst-performing member of the FTSE ASX Life Insurance (FALIFE) Index, amid concern the European sovereign debt crisis may hurt earnings.
The shares fell 4.6 percent to 357.5 pence in London trading today, for a market value of about 10 billion pounds.
The insurer, which has 20 million customers across 12 countries in Europe, also has 6.6 billion pounds of assets belonging to policyholders in Italy and a further 1.4 billion pounds of customer-owned assets in Greece, Spain, Portugal and Ireland, Regan said. Aviva has 352 billion pounds of assets under management in total.
“The political commitment to the eurozone remains undeniably extremely strong,” Moss said. “We’ll come through this period.”
The insurer today reported a 5.3 percent rise in first-half operating profit to 1.34 billion pounds. That beat the 1.29 billion-pound estimate of 14 analysts surveyed by Bloomberg. The firm’s earnings from Europe climbed 21 percent to 525 million pounds and returns on its new life insurance policies increased.
“Savings rates in Europe remain high and our combination of mature markets and emerging economies allows us to benefit from varied growth rates across the region,” Moss said.
Net income declined to 125 million pounds in the six-month period, compared with 1.1 billion pounds a year earlier, the London-based company said.
The fall was due to “unrealized investment variances” at its Dutch division Delta Lloyd NV, Moss said. Aviva holds a minority stake in the business after selling shares in the division earlier this year.
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