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Aviva still growing

RESULTS: Aviva's headline figures may have been hit hard by investment losses amidst volatile market conditions - but the life assurer's underlying performance looks robust
March 9, 2012

Don't worry too much about the slide in life assurer Aviva's reported profits - they were heavily distorted by investment losses arising from volatile market conditions. That included an unrealised loss of £820m on the Delta Lloyd operation, although this Dutch unit was partially disposed of in May, along with a further £796m hit on continuing operations. Aviva's operating profit was actually roughly flat at £2.5bn - not bad in tough conditions - and the shares still look too cheap when compared to embedded value.

IC TIP: Buy at 360p

Indeed, Aviva's total life operating profit rose 7 per cent in 2011 to £2.12bn, with UK life profits up 9 per cent to £931m on sales that rose 10 per cent. And, while sales dropped 17 per cent in North America, pricing discipline helped life profits there grow 13 per cent to £197m. Europe, however, had a rougher ride with sales down 20 per cent - although life profits still rose 1 per cent to £898m. Asia Pacific saw sales rise 10 per cent with life profits up 52 per cent to £108m. The general insurance side performed well, too - operating profit rose 3 per cent to £935m, while the combined ratio (of claims to premiums) improved from 97.1 per cent to 96.8 per cent.

Aviva beat internal targets, too, by generating £2.1bn of operating capital and delivering a new business internal rate of return of 14.4 per cent. The group is also on target to deliver a further £400m of cost savings by the year-end. Group finances look healthy as well and, while surplus capital fell from £3.8bn to £2.2bn - largely reflecting falling corporate bond prices - better conditions in the first two months of 2012 have since boosted that surplus back to £3.3bn.

Investec Securities expects operating profit of £2.6bn for 2012 and EPS of 73.6p.

AVIVA (AV.)
ORD PRICE:360pMARKET VALUE:£10.5bn
TOUCH:359-361p12-MONTH HIGH:481pLOW: 266p
DIVIDEND YIELD:7.2%PE RATIO:62
NET ASSET VALUE:442pEMBEDDED VALUE:595p

Year to 31 DecGross premiums (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
200731.01.8649.233.0
200836.22.37-36.833.0
200934.72.0237.824.0
201036.32.4450.425.5
201132.10.095.8026.0
% change-12-96-88+2

Ex-div:21 Mar

Payment:17 May