Aviva gets mortality boost

But it was another change in assumptions that provided the fillip to earnings, one that Aviva does not expect to be repeated in coming years. This relates to the group’s use of the Institute and Faculty of Actuaries’ 2018 UK mortality tables, which showed a decline in life expectancy and led Aviva to reduce its longevity reserves by £781m.

In a similarly unexpected move, that has been partly offset by a £175m provision to cover a heritage pension product whose policyholders may not have known about available switching options. “Frustratingly, the gains have not made it through to the bottom line,” opined analysts at RBC, who point out that previous years’ bumper releases were also swallowed by the group’s digital transformation programme.

The boon from the UK life business reflects prudent estimates, but arguably makes up for an absence of strong profit growth elsewhere. While the release boosted the return on equity to 14.3 per cent, underlying returns will need to pick up if the group is to hit a more sustainable return of 12 per cent by 2022. Indeed, strip out management actions and the underlying return on equity dropped 80 basis points, to 8.1 per cent.

Still, there are some encouraging signs. Chief executive Maurice Tulloch highlighted a 2 per cent increase in customer numbers and an equivalent rise in general insurance sales, while corporate costs dropped a third, and a £300m cost-saving programme is reportedly on track.

Consensus forecasts are for earnings of 54.3p a share in 2020, rising to 57.4p in 2021.