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Aviva - broad growth over Q1, guidance unchanged

Aviva has delivered growth across the portfolio over the first quarter.

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Aviva has delivered growth across the portfolio over the first quarter.

In life, the value of new business rose 21% to £181m. Performance was driven by Insurance and Retirement. Sales were up 11% and 17% respectively, with private healthcare and an active bulk annuity market contributing to growth. A challenging market meant net flows for Wealth were down 15% to £2.3bn - Workplace was the standout, with flows up 25%.

In general insurance, total gross written premiums rose 11%, ignoring the effect of exchange rates, to £2.4bn. There was double-digit growth in both personal and commercial lines, and prices remain in focus given the inflationary environment.

The Solvency II ratio, a key measure of insurers' capitalisation, fell from 212% to 193%. That reflected payment of the final dividend and the £300m buyback that's nearing completion.

The Group is on track to deliver cost savings of £750m by 2024 and dividend guidance of £915m for 2023 remains unchanged.

The shares fell 3.4% in early trading.

View the latest Aviva share price and how to deal

Our view

First-quarter performance was encouraging and builds on the solid performance seen last year. Costs have ticked lower which is no easy feat in today's inflationary environment and the £750m cost-saving program remains on track.

Investors have been well rewarded from the ongoing transformation at Aviva, with over £5bn in capital returns since 2021. 2023 has already continued that trend with, the £300m buyback announced alongside full-year results nearing completion. It was good news as well, to hear management reiterate the full-year dividend plans, backed by a strong capital position. Although no returns are guaranteed.

Aviva brings insurance, wealth, and retirement under one roof. The insurance arm centres around the UK and Canada. The latter has been a standout and now claims the number 2 spot in its market. General insurance in the UK & Ireland is seeing more challenging conditions. New premiums are coming in, which is positive, but higher claims and costs continue to put pressure on underwriting profit.

Aviva's bulk annuity business, where Aviva takes on final salary commitments from pension funds, has grown rapidly. Though volumes were down last year, we're seeing an expected reversal of that trend in 2023. £2.4bn has been brought in over the year to date, as it snapped up £900m from Thomas Cook after the quarter ended - the focus continues to be on finding the right new business rather than pushing for market share.

These contracts feed significant quantities of new assets into the business, which Aviva Investors can manage - increasing scale and profitability. However, each new insurance contract requires underwriting with some of Aviva's own capital, making expansion expensive.

Being a huge workplace pension provider is behind the logic to increase its presence in the wealth management market through the £385m acquisition of Succession Wealth in August 2022. There are also plans to expand the advisory offering to help achieve the goal of at least 10% growth in net flows to wealth. With a longer-term eye, things are moving in a good direction. But it's a challenging and crowded market, not helped by continued market volatility.

However, Aviva's ace in the hole strategically is that it's ahead of the game in digitisation. Controllable costs are falling, and long-term digitisation could help improve cross-selling. CEO Amanda Blanc seems to be making headway where her predecessors struggled. In its current format, Aviva seems to have a complementary business model, products that resonate with clients, and a sense of focus it's lacked in some previous guises. That should serve it well, although there are no guarantees.

Aviva key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

One of HL's Independent Non-Executive Directors is also a Non-Executive Director at Aviva plc.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 24th May 2023