Confidence at Aviva as profits above forecasts

The group, which employs around 5,000 people at operations in York,

Leeds and Sheffield, saw its shares rise by 26.4p to 394.3p.

This followed a better-than- expected 21 per cent rise in operating profits to 1.3bn in the first six months of 2010.

Aviva's UK chief executive Mark Hodges was upbeat about the group's prospects.

"We are confident about the future," he said. "We have a very diversified business in terms of global diversification, between life and general insurance and also product diversification."

He added that the group has been very pro-active in managing costs, which fell by four per cent over the half year, to reshape the business.

"We are processing more business for less, making the business more efficient and more effective," he said.

Asked when the UK would see a recovery he said it was very hard to predict, but whatever happened the group was confident it could thrive.

"We think the economy will probably continue to recover slowly but surely," he said.

Analysts at Shore Capital described the results as a "good profit performance from Aviva, with figures ahead of our estimates and upgrades to the capital generation in the year."

Aviva is seeing a savings revival as the economy begins to recover and confidence returns to the market.

Mr Hodges said people were starting to think about long-term savings needs and the group is optimistic about growth.

Britain and Europe, despite falls in Poland and Spain, account for the vast majority of the group's long-term savings new business.

Aviva's overall chief executive Andrew Moss said savings rates are now "going upwards very substantially" in the group's main markets.

Aviva, the UK's largest insurer, has focused on selling more profitable products and its fund management arm Aviva Investors has also produced strong results.

Asked about acquisitions, Mr Hodges said the group was entirely focused on organic growth.

"We hold a unique position in the UK," he said. "We are the only insurer that operates across all life and general products. These are good results but there is more we can do to keep growing the business, we're confident but not complacent."

Aviva raised its interim dividend by six per cent to 9.5p, causing disappointment in some quarters.

Analysts at Shore Capital said they viewed the six per cent growth in the dividend as disappointing given the performance, adding that it diluted the income attractions of the stock.

But Mr Hodges argued that it was far from disappointing.

"It's a growing dividend and it's sustainable," he said.

Mr Moss said sales had grown for the third consecutive quarter.

"At a time when predictability of cashflows and capital strength are crucial, Aviva's capital generation stands out, and allows us to invest in the profitable growth of the business and increase the dividend," he said.

"While we remain alert to the macroeconomic environment and risks in financial markets, Aviva has excellent franchises in proven growth markets and we are confident about the future."

Aviva has 53 million customers across the world, providing them with insurance, savings and investment products.

In the UK, it is the market leader in each major product category it operates in and was voted the UK's top insurer this year by insurance intermediaries.

The group said it had delivered good profit growth in the UK and Europe, which together make up the world's largest life and pensions markets.

The UK and Europe are predicted to provide the greatest growth in life and pensions sales over the next five years and Aviva said it was ideally placed to benefit from this growth.

The group said that consumers in Europe continued to show a desire to save and it had responded to their preference for products which offered lower risk and an element of guarantee.

Travel chaos cost less than 1m

Aviva has estimated that the cost of the travel chaos caused by the Iceland volcanic ash cloud earlier this year was below 1m.

While Aviva did not strictly have to pay out on many of these claims, it stepped in when travellers were unable to meet the cost of accommodation or extra travel through their tour operators or airlines.

The impact is nowhere near the 35m cost of snow and floods in the UK last year.

Aviva said that if flights were cancelled, the passenger's airline should provide either a refund of the ticket cost or alternative

flights.

The airspace shutdown left British carriers facing multi-million pound losses.