Aviva's recovery gathers pace

The markets seem to be on board: the company's shares rose 6 per cent on the day, matched by those of its acquisition target, Friends Life. The deal is expected to deliver £225m of cost synergies, but critics have pointed out that upping Aviva's exposure to its home UK market does not fit with the stated strategy of international diversification. In response, management stressed that Friends Life would bring the group "flexibility to invest in key existing growth segments and markets".

Operating profit grew 6 per cent to £2.17bn in 2014 (from £2.1bn in 2013), against market expectations of £2.15bn. This matched the growth rate seen in 2013, as reductions in expenses and a stronger contribution from the UK life business outweighed the negative effects of currency moves, lower individual annuity sales and non-core asset disposals.

Despite the government's decision to ditch compulsory annuitisation last year, new business in the UK life market remained steady at £473m - nearly half the group total. The value of new annuity business fell 16 per cent as strong bulk annuity sales - where Aviva assumes the liabilities of defined-benefit schemes - failed to offset the decline in individual annuity sales. But protection business, which includes insurance against unemployment or illness, made up the shortfall.

At group level, the value of new business grew 15 per cent, despite the drop in gross written premiums to a record £1bn (from £904m in 2013). The growth markets of Poland, Turkey and Asia expanded by 25 per cent, underscoring management's focus on geographic diversification.

Another feature of Aviva's recovery story has been the reduction in inter-company debt. Its loan balance stood at just £2.8bn at the end of last month, down from £4.1bn a year earlier, and is on course to hit its regulatory target of £2.2bn by the end of the year.

Broker Deutsche Bank expects EPS this year of 45.5p (from 47p in 2014).