Underwriting profit flat despite Flood Re hit

Aviva lobby

Aviva’s UK general insurance (GI) business made an operating profit of £199m in the first half of 2016, down 10.8% on the £233m it made in the same period last year.

The dip was caused by a 23% drop in longer-term investment return to £85m (H1 2015: £11m).

Aviva UK GI H1 key figures

 H1 2016H1 2015change (%/points)
Gross written premium (£m) 2,146 2,007 6.9
Net written premium (£m) 2,001 1,851 8.1
 Underwriting profit (£m) 115 115 0.0
Investment return (£m) 85 111 -23.4
Operating profit (£m) 199 223 -10.8
COR 95.9 93.2 2.7

The underwriting result was unchanged at £115m despite a £23m hit from the Flood Re levy and higher weather claims.

These costs were offset by bigger reserve releases overall, underwriting actions and expense savings.

The UK general insurance combined operating ratio (COR), however, worsened by 2.7 percentage points to 95.9% (H1 2015: 93.2%) because of the Flood Re levy and also a one percentage point hit because of higher commissions related to its partnership deal with Homeserve.

Aviva warned at its investor day that the Homeserve deal could add 1.5 percentage points to the UK GI COR at the half year stage as it would have to pay upfront costs before the premium was earned to cover them.

Net written premium increased 8.1% to £2bn (H1 2015: £1.9bn), which Aviva said was mainly down to growth in personal specialty lines driven by the Homeserve deal.

Aviva UK general insurance chief executive Colm Holmes described the 8% net earned premium boost as “our best growth performance in 4 years.”

He added: “We also achieved significant growth across our digital businesses, with 170,000 new motor insurance customers.”

“But let me be clear: when we target growth, it is growth in underwriting profits.”

Holmes said that underlying improvements in underwriting profitability had been “masked” by the Flood Re levy and the Homeserve costs, and that the 95.9% COR was within the company’s target range.

Personal and commercial

Personal and commercial breakdown

Personal H1 2016 H1 2015 change (%/points)
Gross written premium (£m) 1,225 1,090 12.4
Underwriting profit (£m) 76 43 76.7
COR (%) 97 95.4 1.6
Commercial H1 2016 H1 2015 change (%/points)
Gross written premium (£m) 921 917 0.4
Underwriting profit (£m) 39 72 -45.8
COR (%) 94.3 89.9 4.4

Aviva’s UK general insurance personal lines business improved its underwriting profit to £76m in the first half of 2016 from £43m in the same period last year.

Aviva said the boost was mainly caused by being able to release reserves in the first half of 2016, instead of strengthening reserves as it did in last year’s first half.

The personal COR deteriorated by 1.6 points to 97% (H1 2015: 95.4%)

Commercial profit dropped to £39m from £72m, mainly because of a lack of reserve releases. The commercial COR deteriorated by 4.4 percentage points to 94.3% (H1 2015: 89.9%).