The insurer attributes profitability dip to post-pandemic claims uptick and the occurrence of more severe weather events

Insurer Aviva has reported a combined operating ratio (COR) of 95.6% within its UK and Ireland general insurance (GI) business for the first six months of the year, depicting a worsening on the 93.6% COR it recorded for H1 2021, according to its 2022 half-year financial results, published today (10 August 2022).

Operating profit for the insurer’s UKGI business has also decreased by 6% year-on-year – this has fallen from £169m in 2021 to now stand at £159m at the end of the first six months of 2022.

Operating profit in GI across the UK, Ireland and Canada – Aviva’s three territory focuses – has dropped 11%, moving from £420m in H1 2021 to £375m at the end of 2022’s first half.

The insurer attributed this profit dip to higher claims costs due to claims frequency increasing post-pandemic, as well as the effects of “less favourable weather” compared to the first half of 2021.

Gross written premium (GWP), meanwhile, improved by 5% within Aviva’s UK and Ireland GI business, growing from £2.7bn for H1 2021 to £2.8bn this year.

This uptick has been particularly influenced by growth in Aviva’s UK commercial lines book – this has improved by 12% year-on-year. UK commercial lines GWP for H1 2022 is £1,430m, compared to £1,280m for the same reporting period in 2021.

The insurer noted that this result reflects “a favourable rating environment, high retention levels and strong new business growth, benefiting from our investment in underwriting talent and strong broker relationships.”

GWP for Aviva’s UK personal lines book, however, has reduced by 1% - moving from £1,213m in H1 2021 to £1,198m for 2022’s first half. Its focus for this part of the business is to “maintain pricing discipline”.

The insurer continued: “Retail premiums were stable [in H1 2022], with growth in household business partly offsetting a reduction in motor, as we maintained pricing discipline in a soft rating environment.

“Intermediated premiums were 2% lower as we continue to reshape the portfolio towards more profitable segments.

“In general insurance, we expect the rating environment to remain favourable in commercial lines, while in personal lines we will continue to price appropriately to manage inflation.”

‘In-built resilience’

Across Aviva’s entire GI book, GWP is up by 6% - it recorded a GWP figure of £4,694m for H1 2022, compared to £4,366m for the same period in 2021.

Meanwhile, its overall GI COR is 94% for 2022’s first half – a 2.4% worsening compared to the 91.6% this part of the business recorded for H1 2021.

Operating profit across the whole business is £829m for the first half of 2022, marking a 14% increase on 2021’s half-year operating profit of £725m.

Aviva’s half-year report also boasted progress on its plans to reduce baseline controllable costs by £750m, gross of inflation, by 2024. In 2022’s first half, its baseline controllable costs fell by 2% to £1.3bn.

The insurer further announced its intention to launch a new share buyback programme in March 2023, alongside the publication of its full-year financial results – “subject to market conditions and regulatory approval”.

Speaking on the insurer’s results, Amanda Blanc, group chief executive of Aviva, said: “Sales are up, operating profit is higher, our financial position is stronger. This has been an excellent six months for Aviva.

“Our strong first half performance is a timely reminder of the benefits of Aviva’s diversified, high quality and focused business model and mix. This provides in-built resilience and opportunity for the group, allowing us to withstand difficult market conditions.

“The group is now focused on growing in those areas where it has market-leading positions and expertise and where it can generate attractive returns.”