“Flexibility” in way Aviva built reserves rewarded by City

Aviva shares shot up to 287p on the news that it had increased its capital reserves to £2.5bn.

The company said the improvement in its capital position partly reflected a 35% take up by shareholders of an option to receive the 2008 dividend in shares instead of cash.

"Suggestions that Aviva needs a capital raising are effectively dead," Oriel Securities analyst Marcus Barnard told The Telegraph.

Aviva, which has £350bn of assets on its balance sheet, said its capital surplus would drop by £200m if stock markets fell 40pc from March 31 but rise by £800m if share prices rose 40pc.

The FT flagged up Aviva’s £200m from a deal with Swiss Re to sell on an interest in some of its legacy life assurance business. The group retains an option to sell more of this and could add another £200m from a similar deal later in the year, it said

The FT quoted Bruno Paulson, analyst at Sanford C Bernstein, as saying that while the numbers that had boosted Aviva’s capital base were one-offs, the manoeuvres demonstrated the capacity for flexibility.

“There are also further options to boost capital, at a cost, before they would need to think about a rights issue, such as buying more reinsurance on the property and casualty side, or selling a non-core business.”