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Aviva - increases share holder returns

Aviva reported underlying operating profits of £1.6bn, down 10% on last year.

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Aviva reported underlying operating profits of £1.6bn, down 10% on last year. That reflects strong growth in General Insurance, offset by the UK & Ireland Life business.

The group announced a £3.75bn share scheme, on top of the existing £1bn programme. A final dividend of 14.7p was also announced, up from 14.0p. That takes the full year dividend payment to 22.05p.

In line with plans to simplify the business, Aviva sold 8 non-core business in the year, and generated proceeds of £7.5bn.

Aviva shares were broadly flat in early trading.

View the latest Aviva share price and how to deal

Our view

Having spent the last few years suffering a bit of an identity crisis Aviva seems to have finally settled down to life as a fairly boring, but highly cash generative, insurance business. Investors are enjoying the fruits of the transition, with bumper shareholder returns.

The group is now firmly focused on its core markets of the UK and Canada. Debt is well below target with a comfortable capital surplus. With plans to increase the dividend slowly going forward, the group has outdone its own target of returning ''at least £4bn'' to shareholders.

The level of shareholder return has surprised us. And while a welcome boost for investors, we'd like to see surplus capital prioritised being funnelled to the business on perhaps a wider scale. In particular Aviva's bulk annuity business, where Aviva takes on final salary commitments from pensions funds, has grown rapidly. These contracts feed significant quantities of new assets into the business which can be managed by Aviva Investors - increasing scale and profitability. However, each new insurance contract requires underwriting with some of Aviva's own capital, making expansion expensive.

The group is showing some real signs of progress outside annuities too.

Underwriting has improved in the General Insurance business, with premiums and customer numbers holding up well through the pandemic. Meanwhile the defined contribution Workplace pension platform has shown steady growth in assets, supported by the introduction of auto-enrolment.

Being a huge workplace pensions provider is behind the logic to increase its presence in the wealth management market, through the £385m acquisition of Succession Wealth.

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 of course 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.

Half Year Results

The UK & Ireland Life business saw operating profit fall 25% to £1.4bn. That reflects the effect of a slight fall in the value of new business (VNB) - an important measure of profitability of new business, to £668m. The annuity and equity release business also saw a profit fall of 21% to £645m, largely because of bulk annuities facing adverse credit spreads, following last year's ''exceptionally strong'' corporate bond yields.

This offset higher profit caused by growth in Assets Under Management (AUM) in the Savings & Retirement business.

General Insurance reported operating profit of £762m, up 52% on last year. That reflects an 6% increase in gross written premiums to £8.8bn. The division reported a combined operating ratio, which compares claims, costs and expenses to premiums, of 92.9%, which was an improvement on last year's 96.8%.

Asset management business Aviva Investors reported net inflows of £1.5bn, compared to a £1.1bn outflow last year. AUM rose 3% to £267.8bn. This fed into a 64% increase in operating profit to £41m.

Underlying cash remittances rose 22% to £1.7bn.

Aviva reported an underlying Solvency II ratio, a key measure of insurers capitalisation of 244%.

The group's also announced the acquisition of Succession Wealth. The group said ''the transaction significantly enhances Aviva's presence in the fast-growing UK wealth market as more people seek advice for their retirement and savings options.'' Succession Wealth currently has 4m workplace pension customers. As the UK's largest provider, Aviva said: ''the addition of an advice offering will allow Aviva to better support its customers as they go through critical life decisions, helping to retain more of the c.£6 billion of pension and heritage assets that leave to be invested with competitors each year.''

One of HL's Non-Executive Directors is also a Non-Executive Director of 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
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 2nd March 2022