Aviva Rises in London as Value of New Business Climbs 18%

Aviva Plc, the U.K.’s second-biggest insurer, rose in London trading after the value of new business increased 18 percent in the first quarter and the firm reduced costs and internal debt.

New business rose to 191 million pounds ($290 million) from 162 million pounds a year earlier, London-based Aviva said in a statement today. Operating expenses fell 10 percent to 769 million pounds and its debt dropped by 300 million pounds. The stock climbed as much as 4.3 percent, its biggest gain in eight months.

“Aviva reported good progress towards reducing its expense,” Ashik Musaddi, a London-based analyst at JPMorgan Chase & Co. with a buy rating on the stock. The statement “reflects an important step forward into the restructuring process.”

Chief Executive Officer Mark Wilson last week fended off a repeat of last year’s shareholder rebellion over pay saying he understands investors’ “frustration” that the firm’s share price has lagged rivals over the past decade. The New Zealander is cutting debt and selling assets to make the insurer’s balance sheet less susceptible to crises in the euro region and plans to boost returns by generating more cash from developed markets, while growing in emerging economies such as Turkey and Poland.

“These results demonstrate the first steps towards the delivery of our investment thesis, which is all about cash flow and growth,” Wilson said on a call with reporters. “We have a great deal more to do.”

Pricing Action

The value of new business in the U.K. rose 33 percent after it took “actions on pricing and expenses,” Aviva said. While the measure rose 11 percent in France and 67 percent in Turkey, it more than halved in Spain and Italy on as low bond yields reduced investment returns, Wilson said. The two euro-zone countries are a “work in progress,” he said.

The increase in the value of new business will “moderate” in the second half of the year and restructuring costs may increase as the firm cuts jobs, Wilson said. The insurer announced plans to eliminate 2,000 positions last month.

The stock climbed 13.8 pence to 337 pence a share at 9:44 a.m. in London trading, valuing the firm at about 9.9 billion pounds.

Underwriting Profit

Sales of life and pension products rose 2.5 percent to 6.59 billion pounds in the first quarter.

The insurer’s property and casualty business had a combined ratio of 96 percent in the first quarter, unchanged from a year earlier. A combined ratio is claims and expenses expressed as a proportion of premiums, with a ratio below 100 percent indicating an underwriting profit.

Wilson said he’s incentivizing executives across the firm to focus on cash generation by cutting costs and reducing the amount of capital in reserve to increase dividends to shareholders.

“One of the clear differences is an absolute focus on cash,” he said referring to his strategy in comparison with his predecessor Andrew Moss. “Our businesses as a whole are profit-making machines. The issue is not that our businesses don’t generate profit; they do. The issue is turning that profit into operational cash generation.

Aviva cut its dividend by 44 percent in March as the insurer posted a full-year loss following a 3.3 billion-pound writedown on the U.S. business it agreed to sell to Apollo Global Management LLC in December. Reducing the payout was necessary because it wasn’t covered by the insurer’s cash flow, Wilson said last week.