U.K. insurer Aviva PLC Tuesday said it is positioned to deliver strong, profitable growth and “outstanding capital generation” for 2010 after it posted a better-than-expected 6% rebound in new business sales in the first nine months, helped by strong results in the U.K. and Asia.
Aviva, whose general insurance business was recently a target of RSA Insurance Group PLC, said that total life and pensions new business sales for the three quarters ended Sept. 30 was GBP25.55 billion, up from GBP24.06 billion in the same period last year.
The sales were slightly higher than the GBP25.2 billion average forecast from 14 analysts polled by the company. They also represent a recovery from the same period last year, when the effects of the financial crisis led to an 11% fall in nine-month sales.
Aviva also said its capital position remains strong, with surplus capital of GBP3.6 billion, down from GBP3.8 billion at end-June.
It said it is on target to generate GBP1.5 billion of operational capital by the end of the year and expects to deliver at least as much in 2011 “as we continue to benefit from our combination of life and general insurance.”
Chief Executive Andrew Moss said: “As we look to the next phase of our growth, Aviva will sharpen its geographic focus and deepen its position in its key markets through its strengths in both life and general insurance.”
“Our U.K. business is an excellent example of how this strategy is delivering value for our shareholders and customers,” Moss said.
He said that the company is exiting Taiwan, where it has a small insurance business but which won’t meet the company’s financial targets.
Aviva said it will focus on markets that have the potential to generate both $100 million of operating profit and a 12% return on capital employed.
Moss didn’t comment specifically on reports that Aviva may be looking at buying Turkish insurer Aksigorta, but said that Aviva wants to grow its operations in Turkey.
He said Aviva’s cost savings program, which included job cuts and other operational changes, will save it some GBP750 million by end-2011, from a annual cost base of around GBP5.75 billion back in 2007.
At 0852 GMT, Aviva shares were up 1.7% at 404 pence, while the FTSE 100 index was up 0.3%.
Oriel Securities analyst Marcus Barnard said Aviva released “a solid set of figures” and that he expects “most analysts will have to upgrade their numbers” on the insurer. Barnard kept his buy rating on the stock.
Panmure Gordon analyst Barrie Cornes said that Aviva’s guidance on cash generation “reinforces the overall prospects and dividend-paying capabilities” of the company. Cornes kept his buy rating and 535 pence target price for the stock.
In late July, RSA proposed to buy Aviva’s general insurance businesses in the U.K., Ireland and Canada for GBP5 billion, with the hope of leapfrogging into a much bigger general insurer.
However, that proposal was rejected by Aviva’s board in early August, calling the proposal “unacceptable and not in the best interests of Aviva shareholders.”
In a briefing, Moss reiterated that Aviva’s “composite” business model of running life and general insurance works very well for the company.
In its approach for Aviva’s general insurance business, RSA questioned whether the composite model is the best model for Aviva, suggesting that Aviva may be broken up.
Still, Moss said that any of the company’s businesses can be sold at the right price.
“Of course there’s a price at which we on the board of Aviva would entertain an offer for any of our businesses, just to be clear,” Moss told reporters.
But he said that the price would have to “provide the right value for Aviva shareholders.”
Source : The Wall Street Journal