ii view: Aviva excels and predicts Direct Line will be growth booster

Full year results to 31 December 

• Operating profit up 20% to £1.77 billion
• Insurance, Wealth & Retirement (IWR) sales up 22% to £43.5 billion
• General Insurance premiums up 14% to £12.2 billion
• Final dividend of 23.8p
• Total 2024 dividend up 7% to 35.7p per share
• Capital cushion or solvency II ratio of 203%, down from 207% in 2023

Guidance:

• Continues to target £2 billion of operating profit by 2026, up from £1.77 billion in 2024

Chief executive Amanda Blanc said:

“2024 was an excellent year, right across Aviva. We made clear strategic progress and delivered another set of very good numbers, with higher sales, higher operating profit and a higher dividend. 

“Over the last four and a half years we have completely transformed Aviva, built a track record of consistently strong results, and returned £10 billion to shareholders.

“Aviva is in great shape. We have clear trading momentum which is generating strong and reliable growth. So I’m more excited about Aviva’s future than ever before, and I’m personally looking
forward to delivering this next phase of progress.”

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ii round-up:

Insurance and savings provider Aviva (LSE:AV.) today detailed profits that beat City forecasts, with no change to management’s previous target of £125 million of annual cost savings following the £3.7 billion acquisition of insurer Direct Line. 

Second-half operating profit of £893 million beat analyst estimates of £777 million, driving full-year operating profit up 20% to £1.77 billion. A final dividend of 23.8p per share, payable to eligible shareholders on 22 May, leaves the total payment for 2024 up 7% at 35.7p per share. 

Shares in the FTSE 100 company rose 2% in UK trading having come into these latest results up 17% over the last year. That’s similar to Asia-focused insurer Prudential (LSE:PRU) and ahead of a near 14% gain for the FTSE 100 index over that time. 

Aviva provides savings, retirement pension products and general insurance including car and home cover to over 20 million customers across the UK, Ireland, and Canada. 

General insurance premiums rose 14% year-over-year to £12.2 billion, with the underlying combined ratio, a measure of underwriting profitability in which a figure below 100% indicates a profit, improving to 95.3% from 97.5% in 2023. 

Insurance, or life and health protection, along with Wealth and Retirement sales (IWR), were 22% higher than a year ago at £43.5 billion. Wealth net inflows, up 23% to £10.3 billion, were behind a 17% gain in Assets Under Management to £198 billion.

Aviva continues to expect a 10% uptick in earnings per share following the acquisition of Direct Line, with the deal expected to enhance shareholder returns over time. Share buybacks are expected to resume in 2026. 

Broker UBS reiterated its ‘buy’ stance on the shares post the results, flagging a fair value of 675p per share. A first-quarter trading update is scheduled for 15 May. 

ii view:

Aviva employs over 25,000 people. Insurance, Wealth and Retirement generated its biggest slug of profits in 2024 at 51%. That was followed by UK and Irish general insurance at 34%, Canadian general insurance at 14% and Aviva Investors or its fund management division the balance of just over 1%. 

Group goals are focused on accelerating capital-light growth, aided by Direct Line, and delivering on shareholder promises including the targeting of £2 billion of operating profit by 2026 which compares with £1.47 billion in 2023. Competitors include Legal & General Group (LSE:LGEN) and Phoenix Group Holdings (LSE:PHNX). 

For investors, exposure to general insurance leaves it calculating risks in relation to unknown events such as wildfires in Canada and increased flooding under global climate change. Geographical diversity has been reduced following various business sales. Savings such as ISAs and pensions remain subject to government regulation, while heightened or more normalised bank deposit rates now offer a more realistic alternative to saving with its Wealth business. 

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More favourably, a government transfer of responsibility to individuals to save for their own pensions is likely aiding demand. Easing inflation is likely to have helped previously elevated motoring claims. Product diversity remains high, while Aviva’s capital cushion, or Solvency II ratio of over 200% remains robust.

Despite continued risks, a focus on operational efficiency, enhanced by the takeover of Direct Line, and a forecast dividend yield of close to 7% are likely to keep Aviva on investors' radars.

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:

Buy