Aviva Jumps on Profit Gain as Insurer Discloses Capital Buffer

  • Insurer reports Solvency II capital strength for first time
  • CEO Mark Wilson says company is no longer a `couch potato'

Aviva Plc gained the most in more than five months in London trading after the insurer reported higher 2015 earnings and disclosed its capital buffer for the first time.

Aviva climbed as much as 5.6 percent, the most since Sept. 30. Operating profit rose 20 percent to 2.7 billion pounds ($3.8 billion), boosted by Aviva’s life insurance and fund-management units, the London-based company said in a statement on Thursday. Analysts had expected earnings of about 2.5 billion pounds, according to a research note by Sanford C. Bernstein.

“Expectations were high going into these numbers,” analysts at Sanford C. Bernstein in London led by Edward Houghton said in the note. “Aviva needed to deliver and it has, more or less.”

Aviva Chief Executive Officer Mark Wilson, who joined in 2013 to turn around the insurer, has been reshaping the company through deals. These included the 2015 purchase of Friends Life Group Ltd. for more than $8 billion, which was the biggest acquisition the U.K. insurance industry had seen in 15 years.

‘Marathon Run’

“After three years of fixing the business, debt is down, capital is up significantly, dividends are higher, profits are growing,” Wilson said on a call with reporters. The insurer’s gone from “being a couch potato to being able to run a 10k race in some quite quick time, but we’re still some distance off completing our marathon.”

The integration of Friends Life is expected to provide 1.2 billion pounds of capital benefits, leading to 1 billion pounds of additional remittances over the next few years, according to the statement.

Aviva was up 4.5 percent at 480.3 pence at 10:40 a.m. The shares fell 11 percent this year through Wednesday.

Aviva reported a Solvency II ratio of 180 percent, disclosing its capital strength under new European Union rules for the first time. That’s at the top end of the company’s target of 150 percent to 180 percent and means Aviva can keep on investing in its businesses, make acquisitions and consider returning capital to shareholders, Wilson told reporters on a conference call.

A ratio of 100 means a firm has sufficient capital to withstand the kind of shock that happens once in 200 years.

Higher Dividend

Aviva plans to increase its dividend for 2015 by 15 percent to 20.8 pence a share, the insurer said.

In January, Aviva agreed to buy a home and auto insurer from Royal Bank of Canada for C$582 million ($439 million). The company has also sold units from Spain to Russia as the CEO reorganized the business.

In the U.K. and Ireland, Aviva’s life insurance business reported a 37 percent gain in operating profit to 1.43 billion pounds, with Friends U.K. contributing most of the increase, according to the statement. Overall life business contributed 2.42 billion pounds to operating profit on an IFRS basis.

Operating profit from fund management climbed 23 percent to 106 million pounds, with the margin on inflows “significantly” higher than that of money flowing out of the business, the CEO said. Aviva’s general insurance and health unit reported a 5 percent decline in operating profit.

Aviva was among 19 firms to get its new solvency II capital model approved by the Bank of England in December under the new EU laws that cost U.K. insurers at least 3 billion pounds. Prudential Plc disclosed in January its capital ratio was 190 percent and Standard Life Plc said in February its ratio was 162 percent.

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