Insurer Aviva's profits rise as market recovers

INSURANCE giant Aviva today reported a "significant year of progress" after weathering the recession by slashing costs and trimming nearly 11,000 roles across its workforce.

The group, which employs nearly 5,000 workers in York, Sheffield and Leeds, reported a three per cent rise in operating profits to 3.48 billion for 2009 and confirmed the first signs of an improving market as customers look to start saving again.

It said plans to cut costs by 500 million were a year ahead of target, having axed 10,700 jobs over the past two years - including a 30 per cent reduction in its UK employee base.

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Aviva will keep a "rigorous" control on costs in the UK, where figures revealed a tough market in 2009, with operating profits down 11 per cent for the life business to 672 million and 18 per cent lower for general insurance and health.

However, new business figures last month showed a marked rebound in the fourth quarter and raised hopes that the worst was behind it.

Aviva put its faith in the European life and pensions market for growth, just days after its rival Prudential unveiled a mammoth 23.5 billion takeover to capture more of the Asian market.

Andrew Moss, group chief executive, said: "We consider that Europe as a whole represents the largest and most attractive life and pensions market in the world."

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The European market - including the UK - has the potential to be worth some 1.7 trillion dollars (1.2 trillion) within the next five years - "outstripping" the majority of Asia and North America, he added.

Aviva's 2009 results come after the group stepped up its "One Aviva" strategy to simplify its structure and branding.

As part of this, the Norwich Union name disappeared last summer after more than 200 years and was replaced by Aviva amid a multi-million pound advertising campaign featuring stars including Bruce Willis and Ringo Starr.

Aviva also overhauled its UK business, axing 18 of its 27 operational centres for the general insurance division, outsourcing swathes of IT systems and bringing the life and insurance business under a single chief executive.

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The group said it had used natural turnover and redeployment where possible to reduce roles.

The insurance industry has battled against difficult conditions since the financial crisis struck, which hit balance sheet strength and decimated the market for pension and savings contributions.

However, news last month of a 21 per cent hike in total life and pensions sales to 7.9 billion between the third and fourth quarter has given the group optimism for the year ahead.

Mr Moss said: "We expect the external environment to remain unpredictable for some time, but are encouraged that we saw the first signs of an improved appetite to save among our customers in the final quarter of last year."

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It said a key priority for 2010 would be to deliver a return to profitable growth in the UK and especially the general insurance business.

But the group revealed last month that the insurance arm faces a 100 million 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 20 million, while claims relating to flooding in Ireland generated around 80 million.

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.