Aviva profits dented by Covid-19 but bulk annuities offset fall
Aviva’s operating profit fell by 11% in the first half of the year as Covid-19 hit business activity, although a growth in bulk annuity sales partially offset the drop.
The insurer and pension provider reported an operating profit of £1.2bn in the first six months of the year, compared to £1.4bn in the same period last year.
Meanwhile, its operating earnings per share (EPS) also fell by 10.3% from 26.1 pence to 23.4 pence, while the basic EPS fell 29.1% to 20 pence.
But, the operating profit in its UK life division, including savings and retirement, rose by 9% to £817m, despite a £25m provision relating to the expected impact of higher mortality and morbidity experience in its protection and annuit portfolios, as well as disruption to new business activity.
Aviva Investors operating profit fell from £60m to £35m.
Nevertheless, Aviva said its results had been boosted by a rise in bulk annuity sales where value of new business (VNB) margins grew by 4.5% thanks to higher asset yields from wider corporate bond spreads.
The insurer reported £3.1bn of bulk annuities in the first half of the year, compared to £1.2bn in H1 2019. These included seven announced deals, six of which were buy-ins.
Aviva completed two buy-ins with the Co-operative Pension Scheme, worth £1bn and £350m, as well as a £150m buy-in with the General Healthcare Group Pension Plan, and a £95m buy-in with the British Bankers' Association Pension Scheme.
The VNB in annuities and equity release grew over 400% from £33m to £173m, aided largely by the increase in bulk annuity volumes.
Aviva said there had been "strong demand" and "attractive pricing" in the bulk annuity market, which had been less affected by Covid-19 restrictions. As a result, its pipeline "remains strong" although pricing and competition were returning to normal levels by the end of June.
Chief executive officer Amanda Blanc, who joined last month, said: "We will focus Aviva on our strongest businesses in the UK, Ireland and Canada and aim to be the UK's leading insurer. We are going to focus on those businesses where we have the necessary size, capability, and brilliant customer service to generate superior shareholder returns. This is where we will invest and grow. Where we cannot meet our strategic objectives, we will take decisive action and we will withdraw capital."
She added that the firm's financial performance was "robust, thanks to our diverse range of products, excellent partners, and our swift operational response to the Covid-19 pandemic."
The company has now declared a second interim dividend for the 2019 financial year of six pence per share, but it is now reviewing its longer-term dividend policy, with an objective of a "sustainable pay-out and lower levels of debt".
The scheme's own defined benefit pension schemes saw an increase in their IAS 19 surplus over both a six- and 12-month period, landing at £2.80bn as of 30 June, compared to £1.98bn in December and £2.78bn last June.
Last October, Aviva completed a £1.7bn buy-in with one of its own funds, the Aviva Staff Pension Scheme.
Around £10.3bn of bulk annuities have been confirmed for H1, with L&G reporting £3.2bn of deals and Phoenix Life today announcing £1.1bn.
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