ii view: Aviva still popular amid AI growth drive

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First-half results to 30 June

• Operating profit up 24% to £1.33 billion
• Operating earnings up 10% to 31.8p per share
• General Insurance Premiums up 29% to £8.09 billion
• Wealth net flows up 32% to £7.6 billion
• Assets Under management up 25% to £261 billion
• Interim dividend up 7% to 14p per share
• Capital cushion or solvency II ratio of 176%, up from 171% in late March

Guidance:

• Continues to target compound earnings per share growth of 11%

Chief executive Amanda Blanc said:

“We have now achieved six consecutive years of excellent financial performance, with much more to come.

“We are making very good progress with the integration of Direct Line. We have quickly improved Direct Line’s profitability, grown price comparison website sales, and maintained excellent levels of customer service. We are well on track to deliver all the financial benefits of the acquisition.

“Our broad and now expanded range of products, 25 million strong customer base, market-leading brand, and the rich and extensive data we have, are major competitive advantages which will drive our future growth. Together they represent a significant opportunity for Aviva to apply artificial intelligence to deliver an even better service to customers, meet more of our customers’ needs over their lifetime, and drive even more value for our shareholders. Aviva’s long-term prospects are very bright indeed.”

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ii round-up:

Aviva (LSE:AV.) provides savings, retirement pension products and general insurance including car and home cover to around 25.3 million customers across the UK, Ireland, and Canada.

It operates in five areas: (1) Insurance, Wealth & Retirement (IWR), offers protection insurance such as life and health cover as well as savings.

General Insurance covering items such as homes and cars is split into two. (2) The UK & Ireland general insurance business and the (3) Canadian general insurance division.

(4) Aviva investors takes in its asset management operations, while finally, (5) International Investments holds its share stakes for partnered operations in China and India.  

For a round-up of these latest results announced on 14 August, please click here.

ii view:

Aviva highlights itself as the UK’s only diversified insurer with market-leading positions across the UK, Canada & Ireland. A FTSE 100 company, just over seven million of its UK customers hold two or more policies with the company. Management targets to 2028 include growing operating earnings per share per year by 11% or more, and generating a Return on Equity of more than 20%.

For investors, exposure to general insurance leaves Aviva calculating risks in relation to unknown events such as increased flooding and wildfires in Canada. Competition for Bulk Purchase Annuities (BPA) sales made within its IWR division remains intense with rivals also battling hard. A prospective price/earnings (PE) ratio above the three-year average may suggest the shares are not cheap, while previous business sales have reduced geographical diversity.

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More favourably, increased efficiencies via previous takeovers including that of Direct Line, continue to be pursued. Investments in AI to boost efficiencies and reduce costs include spending on customer engagement and claims and underwriting. Management remains confident of hitting goals out to 2028, while product and geographical diversity exist including exposure to China and India via investments there.

For now, and with a focus on capital-light business growth and the shares on a forward dividend yield of close to 6%, this major UK savings and insurance play will likely remain a popular way to gain exposure to the sector and generate income. 

Positives:

• Targeting costs
• Attractive dividend yield (not guaranteed)

Negatives:

• Reduced geographical diversity
• General insurance is subject to events outside of management’s control

The average rating of stock market analysts:

Cautious buy