Aviva’s recently-signed deal to underwrite Homeserve’s home assistance products will hit the insurer’s UK general insurance underwriting profitability in the first half of 2016.
Aviva global general insurance chairman Maurice Tulloch (pictured) told analysts at Aviva’s capital markets day on Wednesday that “new business strain” from the Homeserve deal would add 1.5 percentage points to the company’s UK general insurance combined operating ratio (COR) in the first half.
New business strain refers to the fact that premiums do not cover expenses and claims in the early stages of writing a new line of business because of the time it takes for the premiums to be earned.
But Tulloch stressed that the hit from the Homeserve deal would only be short term.
He said: “This [effect] will be offset as the deal matures and the premiums earn through.”
Aviva will release its first-half results on 4 August.
Although it will have a detrimental effect on underwriting profit in the short term, the Homeserve contract, which Aviva won from rival AXA last October, is considered a coup for the company.
Elsewhere in his presentation, Tulloch cited the deal and the contract Aviva won last August to underwrite high-street bank TSB’s general insurance products as contributors to Aviva’s revenue growth.
He told analysts: “Last year we returned to top line growth, and we are continuing to build on this momentum in 2016 with Homeserve and TSB both coming on line.”
Tulloch emphasised, however, that the company would put continue to put profit before revenue growth. He said: “I will always choose profit over growth.”
The Homeserve comments came in an upbeat presentation about Aviva’s prospects in the UK general insurance markets. The unit produced a 95% COR in 2015 and Tulloch said that the COR should remain in the 94% to 96% range across the insurance pricing cycle.
He said: “I believe our business in the UK is uniquely well positioned in the market.”