Aviva in position for the recovery

The group, which employs nearly 5,000 workers in York, Sheffield and Leeds, said a sharp drop in sales last year had probably bottomed out in the third quarter.

Aviva UK's chief executive Mark Hodges said: "The third quarter of 2009 was the bottom of the market from a savings perspective. The fourth quarter was the turning point for consumer sentiment, it was a really encouraging performance acr-oss the group. We are cautiously optimistic."

Aviva has protected its earnings during the downturn by walking away from less profitable business and by attempting to push through price rises to absorb rising claims.

Fourth quarter sales figures showed a 21 per cent rise in total life and pensions sales between the third and fourth quarter, at 7.9bn.

But the insurance giant faces a 100m claims bill following the severe weather and flooding seen 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.

Mr Hodges said the last few years had seen an increase in weather related claims and the group plans for bad weather. He added that the group had suffered a rise in the number of vehicle accident claims in January following the heavy snowfalls across the country.

But the group added that fewer numbers of cars on the road in the adverse conditions would mean that there was no material impact on the group.

Aviva, which has rebranded its Norwich Union insurance arm under the Aviva banner, said 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.

The figures showed that 2009 sales suffered during the recession despite the fourth quarter boost, with UK life and pensions new business plunging 25 per cent to 8.9bn. Long-term savings new business also fell 29 per cent in the UK, to 1bn.

There was a greater appetite for risk among investors although investment sales failed to receive the fourth quarter pick-up, falling 25 per cent between the third and fourth quarter.

Improvements in stock markets have helped its balance sheet strength more than double since the end of 2008, with its capital surplus at 4.5bn compared with 2bn.

Aviva posted a 12 per cent drop in its 2009 life insurance sales, broadly in line with forecasts, but said the decline probably hit its lowest point in the third quarter.

"All my gut instincts tell me that the third quarter of last year may be the low point in this economic cycle in terms of life sales," said Aviva's chief executive Andrew Moss. "Cautious optimism is the watchword here."

Charlie Menegatos, senior trader at Accendo Markets, said he saw further progress for Aviva shares after it reported a 21 per cent surge in fourth-quarter life and pension sales.

Move to get state and insurance sector working together

Aviva expects the economy to grow modestly, with 1.1 per cent growth in GDP.

Mark Hodges, chief executive of Aviva UK, believes interest rates and inflation are likely to remain low for some time.

"More people are paying off debt. That's a good thing because Britain needs to rediscover the savings habit," he said.

"The need to increase savings and protection against the risks of everyday life is one of the most significant challenges facing the insurance sector and society."

Aviva has spoken to politicians about a series of measures that could encourage people to save more into pensions and help them enjoy a comfortable retirement.

"We are discussing how a partnership between the state and insurance industry could tackle under-insurance and help people protect their health, wealth and property," said Mr Hodges.

The insurer's 'Paying For It' programme was launched with the Citizenship Foundation in 2007. It takes economic citizenship into schools nationwide, including York and Sheffield, with the help of Aviva volunteers.