Aviva, the UK’s second-largest insurer by market value, said its operating profits had risen 6% to £2.2bn while its smaller rival, Friends Life, said its operating profit had jumped 38 percent to £556m.
Aviva chief executive Mark Wilson, appointed two years ago from Asian giant AIA, said the results for Aviva showed all the company’s key metrics moving in the right direction.
“Cash is up 65%, operating earnings per share is up 10%, value of new business is up 15% and book value is 26% higher,” he said.
Among the areas Aviva had identified as targets for new business growth, the company reported that Poland, Turkey and Asia had grown 25% last year and these now make up 22% of the total value of new business.
At Friends Life, Group, chief executive Andy Briggs said the company’s strong results had come in the face of “unprecedented regulatory and legislative challenges.”
“We have delivered a substantial improvement in cash today, marginally ahead of guidance, and put ourselves in a strong position to deliver cash tomorrow,” Briggs said in a statement accompanying the results.
In its international division, annual premium equivalent (APE) sales fell by 13% to £110 million reflecting the difficult market conditions across the regions, especially in the first half of 2014. However, it said volumes in the second half of the year are up 34% compared with the first half of 2014 to £63 million due to higher bond sales and regulatory changes in UAE and Hong Kong.
The value of new business (VNB) dropped 43% to £12 million, reflecting lower sales volumes and the impact of adverse operating assumption changes, particularly in respect of maintenance expenses.
The company said recent regulatory changes in the Middle East to prevent sales by unlicensed companies were expected to strengthen its competitive position in that region.
In Hong Kong and Singapore it said regulatory changes to their respective unit-linked markets, which will see a move away from upfront commissions, will cause some challenges and market disruption in the short term.
Planned changes to the UK pension system due to take effect on 6 April are also putting pressure on all life insurance companies, leading to a sharp drop in their of income-bearing annuities.
If, as expected, the shareholders in both companies support the deal to merge Aviva and Friends Life at meetings this month the Friends Life brand will disappear with the newly-merged company set to become the UK’s biggest insurance, savings and asset management business.
“I have the utmost confidence in our standalone position, but I’m excited by the opportunity the Aviva deal offers to accelerate our proven, successful strategy.” Briggs said.
Aviva said the transaction would add about £600m to cash flow, eliminate any need to de-lever, and generate about £225m of expense synergies, which are expected to include significant job losses.
“Strategically, this transaction secures our position in our home market, adds up to £70bn of funds to Aviva Investors and gives us flexibility to invest in key existing growth segments and markets,” Wilson said.