Interactive Investor

Aviva shows strong progress in the face of Covid-19

4th March 2021 10:07

Richard Hunter from interactive investor

Insurer concentrates gaze on UK, Ireland and Canada as final dividend announced.

Insurer Aviva (LSE:AV.) is closing in on its preferred target markets and has shown some promising signs of progress despite pandemic challenges, according to its full-year results today.

With operations in France and Italy now being added to other disposals in the likes of Singapore, Hong Kong, Indonesia and Turkey, Aviva is removing the shackles piecemeal to leave it concentrating on its core markets of the UK, Ireland and Canada.

At the same time, this leaves the business well placed to capitalise on any number of growing areas as consumer requirements change. The growing equity release market, for example, is one where Aviva is enjoying some success, even though the figures slipped over the last year as in-person property valuations were not possible.

Of rather more potential is the workplace pensions market, where the company already enjoys the top spot. It estimates this overall market will grow to some £950 billion by 2028, from £390 billion in 2020.

In addition, the complexity of the area has resulted in a fast-growing adviser platform for financial advice, which already has assets of £32 billion.

The move towards digital is also continuing, which in due course should both cap the costs of providing products and offer more streamlined cross-selling opportunities. In the meantime, there have been record inflows for Aviva’s Savings & Retirement business, as well as Bulk Purchase Annuities.

The progress sits alongside a strong financial position, with surplus capital of £13 billion and a solvency ratio of 202% providing strong buffers.

The final dividend announced leads to a projected yield of 5.5%, which is punchy given the current interest rate environment, with the possibility of further returns.

Continued focus on costs and a dividend payout when the solvency ratio exceeds 180% paint a promising picture for additional future returns.

The effects of the pandemic on the business appear to have been generally contained. There was a cost of £84 million, for example in the general insurance business resulting from business interruption claims. Overall some of the numbers have remained static given the economic backdrop, with adjusted operating profit having slipped by 1% for the year.

Even so, a planned £1.7 billion reduction of debt in the coming half year and a target of £5 billion of new cash remittances by 2023 reflect Aviva’s ambitions.

The shares have not only spiked by 82% since the March 2020 low but are also in positive territory over the last year, having risen by 11%, as compared to a drop of 2% for the wider FTSE 100.

Such solid progress is likely to leave the market consensus of the shares as a strong ‘buy’ intact.

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