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Categorized | Insurance

Aviva confronts sceptics on Friends deal

Posted on October 29, 2015


Aviva’s chief executive has confronted sceptics over the insurer’s purchase of Friends Life, saying its latest financial results showed the £5.6bn transaction was “everything we expected it to be”.

Mark Wilson on Thursday acknowledged that much of the City was still not convinced about Aviva’s all-share acquisition of its FTSE 100 rival, the biggest UK insurance deal since 2000.

    But the New Zealander said the group was already reaping rewards from the tie-up
    with Friends as he unveiled a 23 per cent jump in quarterly new business profits at its life and pensions operation.

    “I understood the scepticism at the time — historically not too many deals have worked in the UK,” he said. “A lot of analysts and investors said we would be distracted.

    “But this one has shown, for two successive quarters, we are getting the benefits of the deal. It’s everything we hoped for and expected it would be.”

    He said Aviva had already generated £90m in savings from the integration, putting the group ahead of schedule in its plan to reduce annual costs by £225m by the end of 2017. About 1,500 jobs are expected to go.

    The acquisition has divided opinion in the City.

    Mr Wilson has pitched the deal, forged in the wake of chancellor George Osborne’s historic pensions reforms, as a way to improve Aviva’s cash generation and increase its financial firepower.

    Yet Aviva shares, which had rallied strongly after he took the helm, have struggled for momentum this year on concerns the insurer has paid a full price for an acquisition in a mature market.

    Aviva shares rose 0.8 per cent to 483p on Thursday. Yet they remain at a discount to peers, trading at less than 130 per cent of the company’s book value. Rival Prudential changes hands at about 320 per cent.

    “Clearly the market doesn’t yet believe,” said Mr Wilson, who was hired almost three years ago after a shareholder revolt ousted his predecessor Andrew Moss.

    But he added: “As people analyse this, they will see that all we’ve been doing is what we said we would — and maybe a little bit more.

    “The market will eventually see that.”

    Aviva’s life arm generated £289m worth of “value of new business” — a measure of profits — in the third quarter, up 23 per cent from the same period a year ago assuming currencies were constant.

    Aviva disclosed it held 72 per cent more capital than required by regulators and signalled the looming Solvency II shake-up of insurance financial safety standards would be manageable.

    The insurer said it had taken further steps to strengthen its balance sheet in recent months, disposing of a £2.2bn of commercial mortgage holdings and reinsuring a chunk of its UK general insurance business.

    Mr Wilson added the group was making progress turning round Aviva Investors, although the asset management arm endured net outflows in the period as £4.5bn worth of redemptions offset gross sales of £4bn.

    In general insurance, the group lost 94p in claims and expenses for every £1 worth of premium income in the first nine months of the year — an improvement from 95.9p in 2014, helped by fewer weather-related payouts.