Aviva Plc (AV.) Ordinary Shares 32 17/19 pence

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Aviva’s General Insurance premiums rose 12% to £10bn, over the first 9 months, driven by 17% growth in UK & Ireland helped by the inclusion of Direct Line. Wealth net flows were up 8% to £8.3bn, Health premiums rose 14%, and Retirement sales fell 27% to £5.3bn.

The Solvency II shareholder cover ratio, a measure of balance sheet strength, fell to 177%. That was in line with guidance, following the Direct Line acquisition. Capital synergies of over £0.5bn (a 10% increase to Solvency II) are expected by the end of 2026.

The interim dividend was increased by 10% and buybacks are expected to resume in March 2026.

Aviva is now expecting full year operating profit of around £2.2bn (previously £2.0bn by 2026). New medium-term targets include 11% annualised growth in operating earnings per share through 2025-28.

The shares fell 3.0% in early trading.

Our view

Aviva is having a good year so far. Management raised profit targets (albeit consensus was already there), gave investors a clearer path to buybacks, all while showing good progress on integrating Direct Line. Medium term profit targets look good, although growth is expected to be weighted towards 2027 and 2028, perhaps why shares fell on the day.

Aviva brings insurance, wealth, and retirement under one roof and the acquisition of Direct Line has bolstered its market-leading positions in key areas, like UK motor and home insurance. The deal required a decent chunk of cash, so Aviva has tapped into its surplus capital. It means no buybacks for 2025, but we think the deal looks a good long-term move and buybacks are on track to return next year – though this could change.

General insurance in the UK & Ireland has had a strong start to the year. New business is moving in the right direction, suggesting Aviva’s got its price point right. There has been some chatter about easing prices though, which could add some pressure to margins next year – one to watch.

Aviva's bulk annuity business (BPA), where it takes on final salary commitments from pension funds, has been in focus. Finding the right new business rather than pushing for market share has been key. These contracts feed significant quantities of new assets into the business, which Aviva Investors can manage - increasing scale and profitability. Deal volumes are down from the elevated levels of last year, but we support the focus on margins over scale.

Being a huge workplace pension provider is the logic behind increasing its presence in the wealth management market. Plans are also underway to expand the advisory offering, which will help increase exposure to capital light businesses. Performance this year has been decent, but it’s a tough market.

The retirement products sit alongside Aviva’s protection business, which includes products such as life assurance and income protection policies. And the acquisition of AIG Life UK has seen protection sales soar. It also houses the Health business, which has been a benefactor of increased demand for private health insurance – a trend we see continuing.

We think Aviva is a top-class outfit, with fingers in basically all the right pies. The balance sheet is still strong, momentum looks good, and the 5.9% yield looks attractive - though never guaranteed. However, momentum means the valuation isn’t as attractive as earlier in the year, and there are some softer market signals to think about for 2026.

A director of Hargreaves Lansdown Group Limited is a Non-Executive Director at Aviva.

Environmental, social and governance (ESG) risk

The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.

According to Sustainalytics, Aviva’s overall management of material ESG issues is strong.

Aviva values ESG management and focuses on transparency around key issues. The company actively addresses physical climate risks, data privacy, security, and sustainable finance. Aviva aims to boost sustainable investments by 2025 and integrates ESG factors into its investment strategies. The absence of customer satisfaction targets in FY2022 is a potential area for improvement.

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 LSEG. 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.

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