Aviva goes flat as jitters take toll

Paul Armstrong12 April 2012

INVESTOR nervousness stemming from the turbulence on financial markets left insurance giant Aviva with a flat operating profit of £979m for the first half of the year.

The renamed CGNU said pre-tax result slumped £462m into the red, from a £106m profit previously, after taking a £499m hit in relation to poor investment returns.

'Market conditions for long-term savings are becoming increasingly difficult as investors are discouraged by the ongoing uncertainty in worldwide investment markets and changes in the macro-economic environment,' said chief executive Richard Harvey.

Many Europeans who had invested in equity-based products for the first time had been quick to switch their money into fixed-interest accounts when the stock market started to wobble.

But Aviva rejected suggestions that its financial strength was in question as a result of falling share prices, saying its businesses would withstand further huge drops in financial markets without suffering liquidity problems.

Its free-asset ratio, the yardstick used to measure an insurer's solvency, slipped from 14.7% to 14.1% in the six months, although the latest figure was calculated using the Financial Services Authority's recently-downgraded equation. The figure-has also been boosted by the inclusion-of future profits. Without these, the ratio stood at 10.1% at 30 June compared with 10.8% at the end of last year.

Aviva also cited last night's decision by Standard & Poor's to reaffirm the group's AA credit rating as evidence of its financial stability. The rating agency's move came as German financial services giant Allianz spread more gloom over the European insurance sector with a profits warning that triggered a 12% slump in its share price. Allianz said it lost e350m (£219m) in the second quarter and had abandoned its 2002 profit target of e3bn.

Aviva's general insurance business was the bright spot in its figures, posting a 13% rise in operating profit to £480m on the back of the recovery in premiums and improved underwriting.

But fund management made a profit of only £3m compared with £24m previously, reflecting reduced demand for retail investment products.

The dividend is 8.75p, in line with Aviva's decision in February to cut the year's payout to 23p from 38p for 2001 to conserve cash.

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