Chief executive insists company’s capital position is strong though volumes may fall.

Shares in Aviva soared this week as the insurer’s chief executive, Andrew Moss, insisted its capital position was strong.

But the company, which owns Norwich Union, warned that business volumes for UK general insurance were coming under pressure as the economy worsens.

Aviva’s stock rose by more than 15% on Tuesday to 283p, as the insurer revealed details of its financial position.

Its stock had fallen to its lowest point in more than 20 years amid concern that its dividend was under threat and that it could be exposed to corporate bond defaults.

Aviva said this week its capital position was healthy, with a regulatory surplus of £1.3bn at 24 October.

But £600m has been wiped off the company’s surplus since 30 September, as equities have fallen, although more protection has been put in place through hedging.

A further 20% drop in equities would reduce its surplus by £400m.

Moss said: “Our share price has been affected by the huge uncertainty in financial markets, but people around the world are still saving and buying insurance.

“We are taking an active and prudent approach to managing our capital. Greater security for our customers and shareholders has been achieved through further hedging. Investors and customers can be confident our disclosures provide a full picture of Aviva’s financial position.”

The company said its group dividend policy remained unchanged.

Standard & Poor’s has affirmed its AA– financial strength rating for the insurer.

Aviva’s general insurance business had a combined operating ratio of 98%.

The insurer said it was making progress in its programme to transform its UK general insurance business by reducing its cost base and focusing on underwriting discipline.

It remained on track to deliver £350m of cost savings by 2010 and produce an expense ratio of less than 11%, the company said.

“We are focused on reshaping our book of business to drive growth in our direct channel, continue to support independent brokers, leverage our strength in commercial lines and fix or exit poor performing business,” it said.

But it warned that this activity, coupled with the downturn, would put pressure on business volumes in the short term.

Aviva is understood to have walked away from more than £150m of business produced by consolidating brokers.

It said evidence was beginning to emerge of increased rating discipline resulting from volatile investment markets.