High-yielding Aviva rewards investor patience

Aviva is rewarding investors who stayed the course while the insurer streamlined its operations.

Having previously gone through a streamlining operation which left Aviva (LSE:AV.) fitter, the focus is now turning to a strategy review to ensure the company maintains its relevance.

Perhaps not surprisingly, this has resulted in mixed fortunes as the business transforms. There has been a reduction in net earned premiums, operating profit is flat, and challenging market conditions have made for difficult reading with the life insurance and asset management businesses.

The Asian business, which should be an exciting source of opportunity, remains insufficiently tapped and exploited.

The combined operating ratio, which should not exceed 100% for insurance companies, currently stands at over 111%.

While this is an improvement on the previously reported number of 125%, it nonetheless shows that is much focus needed in the area and led to speculation leading up to the numbers that a sale of its Asian business was a distinct possibility.

The company has neither confirmed nor denied this specifically, but in any event at least the Asian business should receive the focus which is overdue.

More positively, the financial stability and cash generative ability of the company is ever-present. The capital cover ratio stands at a still highly impressive 194%, despite a dip from 204% as previously announced, but still well above its target range.

Combined operating ratios in the UK, Canada and Europe are also on the right side of 100%, pre-tax profit spiked sharply and the company remains focused on £300 million per annum cost savings by 2022.

The longer-term outlook for the industry is one of positive possibilities as individuals begin to plan far in advance on their personal finances.

In the meantime, even after an ongoing battle to reduce debt, Aviva has shown its confidence in prospects by increasing a dividend which was already adequately covered and yielding just under 8%, a clear reward for investors who have stayed the course as the group refines its direction.

The market has not been quite so sanguine, however. The shares have dropped by 23% over the last year, as compared to a dip of 7.4% for the wider FTSE 100, although there has been a tentative improvement of late.

There is clearly a majority within the investment community of those willing to accept Aviva's strategic aspirations, with the current market consensus coming in at a strong buy.