'We are managing our capital carefully', says insurer
Aviva beat analysts’ expectations by announcing a surplus of £2.5bn, meaning the insurer is now likely to pay out on its dividend.
Analysts had predicted the solvency surplus (capital reserved in case of an emergency) at £1.9bn or £2bn at the most.
Mark Hodges, chief executive of Norwich Union Life, said: “We’ve consistently said that we have ways of improving the Insurance Group Directive (IGD) surplus and we’ve shown that’s possible. It sends a message that we are managing our capital carefully and this is the outcome."
The latest news has allayed concerns that the insurer would not meet its dividend pledge in May this year or would need to enter into a rights issue.“The capital position was higher at £2.5bn than the £2bn we had been expecting,” said Barrie Cornes, equity analyst at Panmure Gordon & Co.
“It gives [Aviva] flexibility not to be in such a rush to raise new money; to raise capital via a rights issue. But does it relieve the pressure to raise capital in the future? The FSA may increase hurdle rates, meaning they may have to enter into a rights issue in the future.”
Hodges refused to comment on Aviva’s commitment to the dividend. “It’s too early to speculate on the dividend. When it is the right time we will consider retained earnings and what’s going on in the markets.”
Aviva’s general insurance business remained on track to deliver a combined operating ratio in line with its “meet or beat” target of 98%.
Its UK general insurance operation benefited from reduced claims, attributed to “better than expected weather”. Worldwide, Aviva’s sales were up by 5% to £10.3bn. Life and pensions sales were up 11% to £9.6bn.
Meanwhile, it emerged that the finance director of UK life operations Nic Nicandrou is to leave to work for Prudential. Nicandrou follows Tidjane Thiam, who is set to replace Mark Tucker as chief executive of Pru. Aviva immediately said that Nicandrou would be replaced by its chief actuary, John Lister.
The markets displayed a mixed reaction to the results. Aviva’s share price jumped 5% after its Q1 announcement on Tuesday but on Wednesday the insurer’s shares plunged 5.23% to 272p per share.
Norwich Union is due to be rebranded as Aviva on 1 June.