Aviva raises targets after resilient showing in 2011

The full year 2011 results announcement from insurance giant Aviva runs to 208 pages but so far as the group is concerned, the year can be summarised as one of good progress in which Aviva beat all of its operating targets.

As is usually the case with huge multi-national companies, the accounts are awash with adjustments and various interpretations of the numbers according to different accounting standards but the big number the market is likely to focus on is operating profit before tax, which eased 2% to £2.50bn from £2.55bn, ahead of market expectations of £2.41bn.

Alternatively, some analysts may prefer to exclude Delta Lloyd, the Dutch insurance firm which used to be majority owned by Aviva but which is now merely an associate company after the UK firm cut its stake. On this basis, operating profit before tax from continuing operations rose 6% to £2.16bn from £2.03bn the year before.

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On the revenue side, total life and pensions sales from continuing operations dipped to £27.92bn from £30.18bn in 2010, as Aviva Europe's sales slumped to £10.89bn from £13.54bn the year before. The UK business grew sales, however, with the 2011 number rising to £11.32bn from £10.30bn in 2010.

Life and pension sales in North America retreated to £3.93bn from £4.73bn a year earlier, while in Asia Pacific they rose to £1.78bn from £1.67bn.

Total investment sales across the globe edged up to £3.47bn from £3.39bn in 2010, which when combined with the life and pension sales worldwide means the 2011 long term savings sales from continuing operations fell to £31.39bn from £33.57bn.

Net written premiums on the general insurance and health side of the business (continuing operations only) improved to £9.16bn from £8.52bn the year before.

Turning to fund management, total funds under management slipped back to £337bn from £340bn at the end of 2010.

The group's combined operating ratio, which measures how wisely an insurance company has taken on insurance business (a lower number is better) improved to 96.8% from 97.1% in 2010.

Profit before tax collapsed to £87m in 2011 from £2.44bn the year before, resulting in earnings per share crashing to 5.8p from 50.4p. What the insurer calls "operating earnings per share", however, dipped 2% to 53.8p from 55.1p.

Non-operating items put a huge dent in the pre-tax profits, with the group making a negative adjustment of £2.38bn covering a veritable host of items, including:

* investment return variances and economic assumption changes on long-term business: -£1.62bn, including an £820m hit from Delta Lloyd (2010: +£791m)

* short term fluctuation in return on investment on long-term business: -£326m (2010: -£243m)

* Profit on the disposal of subsidiaries and associates: +£533m (2010: +£159m)

* Impairment of goodwill, associates and joint ventures: -£392m (2010: -£24m).

The upshot of all those adjustments is a tiny tax charge of £27m which will please the shareholders but which will not do much to repair the huge hole in Britain plc's accounts.

While the accounts may be Byzantine in their complexity for the average shareholder, one thing Joe Public can understand is the dividend payment, and with Aviva one of the better payers (yielding more than 7%) the stock's legion of income investors will be pleased to see the dividend edge up 2% to 26p from 25.5p in 2010, although investment analysts following the stock had predicted a more generous increase to 26.70p.

"During the year we beat our operating targets," declared Aviva's Chief Executive Andrew Moss. Having beaten its targets, the group has raised the bar with new operating targets.

"We generated £2.1bn of operating capital. In life insurance, we delivered an internal rate of return (IRR) of 14.4%. In general insurance, we achieved a combined operating rate (COR) of 96.8%. We also remain on track to meet out £400m cost and efficiency target by the end of 2012," Moss added.

As for those new operating targets, "we are targeting a general insurance COR of 97% or better, excluding RAC [the break-down recovery firm which Aviva has sold] which was a positive contributor to the COR; a life new business IRR of 13%; and between £1.6 and £1.9 billion of operating capital generation," Moss revealed.

The market responded positively to the results, with the share price rising 6.24p to 357.44p in the first hour of trading, although with 208 pages of numbers and statements to plough through, there is always the chance that sentiment may change after further review.

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