Motor competition causes premiums to fall 6%

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Aviva’s UK general insurance unit made an operating profit of £239m in the first half of 2013, up 5% on the £227m it made in the first half of 2012.

The combined operating ratio (COR) improved by 0.9 percentage points to 96.3% (H1 2012: 97.2%), because it paid out less in weather-related claims. However, this was partly offset by a £17m reserve strengthening for prior-year business (H1 2012: £12m release).  

The improvement came despite a 6% drop in net written premiums to £1.96bn (H1 2012: £2.09bn). According to Aviva, this was mostly the result of competition in UK motor, where net earned premiums fell by £71m.

Aviva group chief financial officer Pat Regan said in a statement: “Overall, performance in UK GI was solid, with operating profit of £239m, up 5% despite a £45m reduction in investment return, following the intercompany loan reorganisation. The COR of 96.3% benefited from disciplined underwriting and relatively benign weather.”

Personal competition

In addition to increased personal lines motor competition during the first half of 2013, Aviva said it had also experienced “uncertainty caused by the implementation of regulatory reforms”.

As a result, the company’s UK personal motor COR has remained stable at 96%.

However, homeowner COR improved to 90% (H1 2012: 95%), which the company said reflected good weather and its continued focus on risk selection and pricing.

Commercial improvement

Aviva said its commercial lines business continued to show improvement, although performance by class of business is mixed.

The company did not provide a commercial COR for the UK business alone. But the combined UK and Ireland commercial COR improved by 2 percentage points to a profitable 99.4% in the first half of 2013, from a loss-making 101.4% in the same period last year.

Aviva said the ratio had benefited from favourable claims experience in commercial property, because of benign weather. This was partly offset by a “modest” strengthening of prior-year commercial motor reserves.

Group profit

Group-wide, Aviva returned to profitability. The company made a profit after tax of £776m in the first half of 2013, compared with a loss of £624m in the first half of 2012.

The group COR worsened by 0.7 points to 96.2% (H1 2012: 95.5%). The ratio includes a £70m hit from the floods in Alberta, Canada, offset by the better-than-expected weather in the UK.

Group chief executive Mark Wilson said: “These results show satisfactory progress in Aviva’s turnaround. Although these results continue the positive trends of the first quarter, tackling our legacy issues will take time.”

Aviva UK GI H1 2013 results in £m (compared with H1 2012)

  • Net written premium: 1,963 (2,087)
  • Operating profit: 239 (226)
  • Claims ratio (%): 61.3 (61.4)
  • Commission and expense ratio (%): 35 (35.8)
  • Combined operating ratio (%): 96.3 (97.2)