Aviva profits up 12%

Wednesday 30th July 2008

Insurer Aviva today reported a 12 per cent rise in operating profit to £1.719 billion, despite the current economic slowdown

Aviva results out today show growth came from higher sales in North America and Asia Pacific offsetting "the more challenging markets of Europe, including the UK", explained Andrew Moss, Aviva group chief executive.

The owner of Norwich Union will increase dividends by ten per cent to 13.09p.

Mr Moss added the firm could benefit from the current downturn as the public turn to saving.

"Customers have naturally shown a preference for products with guarantees" the Aviva chief said.

"Over the medium term economic analysis shows us that in tough times people do return to saving. They first cut discretionary spending, reduce debt and then focus on providing financial security for themselves and their families. Aviva can benefit from this behaviour."

Also the insurer announced a deal over the reattribution of the £2.1 billion inherited estate, giving average cash payments of £1,000 to policyholders as 70 per cent of funds will be returned.

As many as 700,000 people could receive a payout between £400 and £1,000, while 220,000 could be offered between £1,000 and £3,500, if policyholders accept the deal.

"This is an excellent result for our customers and shareholders," said Mr Moss

"Policyholders and shareholders will benefit from this ground-breaking deal, that is fair to all parties involved."

Clare Spottiswoode, who brokered the deal on behalf of Aviva customers in her role as policyholder advocate, said: "I am delighted that we have a deal that is in the interests of the great majority of policyholders. There is a substantial amount of cash on offer.

"Eligible policyholders are also benefiting from a very large distribution of some £2.1 billion related to the reattribution. This deal is good in all respects. It also provides a fair return to shareholders."

Inherited estates refer to surplus assets in a with-profits fund which have built up over many years.

With-profits funds operate a technique known as ‘smoothing’. This means that some of the return from the investments in the fund is kept back in good years and added back to top-up returns during periods of poor performance.

Inherited estates often build up as companies hold back too much money.

Last month Prudential announced it was holding back its inherited estate from policyholders to use as a cushion against future stock market falls.

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