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Aviva – upgraded guidance, new buyback

Aviva delivered a better-than-expected set of results and upgraded its medium-term guidance.
Aviva - increases share holder returns

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Aviva's full-year General Insurance gross written premiums (GWP) rose 13%, ignoring the effect of exchange rates, to £10.9bn. Operating profit rose 9% to £1.5bn.

Growth was driven by both the UK & Ireland and Canada, with "strong" rates, new business and customer retention. Protection and Health sales rose 16%, reflecting strong growth in Health. Retirement sales rose 14%, driven by £5.5bn of Bulk Purchase Annuity transactions.

The solvency II ratio, which measures capital levels compared to requirements, dipped to 207% from 212%.

The board announced a new £300mn share buyback, as well as a final dividend of 22.3p.

The group has a new operating profit target, looking for £2bn a year by 2026. The dividend policy has also been upgraded, now expected to grow by mid-single digits (previously low to mid).

The shares rose 5.5% in early trading.

Our view

Results were met with a positive market reaction and it’s easy to see why. Operating profit was better than expected, new guidance suggests an upgrade to current consensus and the dividend outlook has improved.

Aviva brings insurance, wealth, and retirement under one roof. The general insurance arm centres around the UK and Canada. The latter now claims the number two spot in its market. General insurance in the UK & Ireland saw more challenging conditions for parts of last year but things are improving. Premiums across the portfolio are up 24% and slowly starting to yield results.

The recently announced Probitas acquisition gives Aviva a foothold into the Lloyd’s of London insurance market. Not to be confused with the bank, it’s a unique insurance marketplace focused on taking on specialist risk. At a cost of £242mn, we think this is a unique deal that adds an asset with attractive margins and gives access to a new market.

Aviva's bulk annuity business, where it takes on final salary commitments from pension funds, has grown rapidly. The market's hot and £5.5bn of protection was sold last year. 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.

We wouldn’t be too surprised to see Aviva tap its formidable capital surplus to take on even more BPA business. The groups targeting £15-20bn of bulk annuity business over 2022-24, we’d expect it to top that range by the end of the period.

Being a huge workplace pension provider is behind the logic to increase its presence in the wealth management market. There are also plans to expand the advisory offering to help achieve the goal of at least 10% growth in net flows to wealth (6% in 2023). 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.

Aviva is a diversified player with fingers in basically all the pies. Bulk annuities are becoming a more important part of the story, and we see scope here for growth. The big general insurance business is also attractive given the market looks to be turning more favourable. We like the mix and see the 7.7% forward yield as relatively attractive, though there are no guarantees.

Aviva key facts

All ratios are sourced from Refinitiv, based on previous day’s closing values. 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
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: 7th March 2024