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Cost-cut drive sees Aviva hit better profits
A MAJOR cost-cutting programme helped Aviva to report a better than expected 3 per cent increase in 2009 profits, but the insurance giant warned of uncertainty ahead in the wider economy.
Aviva said operating profits rose to 3.48bn as a restructuring plan to save 500m reached its target a year early. The group axed 10,700 jobs in the last two years, including 1,700 in York.
The UK remained a tough market for the group, with operating profits down 11 per cent for the life business to 672m and 18 per cent lower for general insurance and health to 535m.
However, Aviva said it was encouraged by the first signs of an improved appetite to save among customers in the final quarter of last year.
In an interview with the Yorkshire Post, Mark Hodges, the chief executive of Aviva UK, said: "On the global level there has been a very strong rebound in our bottom line profits. We are in a very strong capital position.
"All of the action we have taken over the last two years has resulted in a resilient operating profit performance.
"In the UK, both businesses have been through enormous change programmes. Both businesses have been successful in driving out cost and becoming more efficient and that's what our customers expect."
The group's One Aviva strategy saw the axing of some operational centres for the general insurance division, the outsourcing of swathes of IT systems and the bringing together of the UK's life and general insurance divisions under one chief executive, Mr Hodges.
The group ditched the Norwich Union name last summer after more than 200 years amid a multi-million pound advertising campaign featuring stars including Bruce Willis and Ringo Starr.
On the economic outlook, Mr Hodges said: "There is a lot of
uncertainty. The general election looming may or may not trigger a double dip. It is very hard to predict. But we have made our business resilient to that."
Asked if he planned more job losses, he said: "There's no jobs story today. My main focus now is on growing the business, not shrinking it any more."
The cost reductions helped offset a 100m claims bill for the general insurance arm following the severe weather and flooding at the end of last year.
Flood and storm damage in Cumbria in the final three months of 2009 cost Aviva up to 20m, while claims relating to flooding in Ireland generated around 80m.
Aviva warned at the time the claims would impact its 2009 combined operating ratio, which measures how much is paid out in claims and costs as a proportion of money earned in premiums.
Earlier this week Prudential said it planned to buy AIG's Asian business for 23.5bn, effectively staking its future on the region's booming financial services markets as it enjoys bumper economic growth.
Aviva said yesterday it felt no pressure to respond to rival Prudential's mammoth Asian takeover with deals of its own.
It said its key European market is set to grow more in absolute terms than Asia, adding that Asian insurers face a future threat from increasingly consumer-focused regulation.
The European market – including the UK – has the potential to be worth some 1.2 trillion within the next five years, said group chief executive Andrew Moss.
Shares closed down three per cent at 380p amid worries over Aviva's pension deficit, which reduced the company's net asset per share figures by a bigger than expected 62 pence.
The group employs nearly 5,000 people in York, Sheffield and Leeds.
What the analysts say
City analysts were generally upbeat about Aviva's annual results.
Shore Capital Stockbrokers analyst Eamonn Flanagan said it was "encouraging" to receive further confirmation from Aviva of an increased appetite among customers to save.
Prime CFDs said the consensus-beating 2009 performance from Aviva was "highly creditable, especially as the period in question covers the depths of the recession and consumer downturn".
Aviva, which cut its half-year payout to shareholders by a third as falling sales and weak financial markets put profits under pressure, set a total dividend for the year of 24 pence, down from 33 pence in 2008.
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