Aviva working hard at a turnaround

Aviva, the insurance group which surprised the market in March with an unexpected cut in its dividend, said on Thursday that it is delivering on its turnaround strategy.

The company said that the pro-forma value of new business, a key measure of its growth, was up 18% in the first quarter at £191m from £162m the year before, driven by improved profitability in UK life insurance as well as growth in its Asian businesses.

General insurance profitability was said to be "stable" with a flat combined operating ratio (COR) of 96%, as a strong result in Canada helped offset rising CORs in both Ireland (to 108%) and the UK (to 98%). The COR is a key performance indicator for insurers, and compares losses and expenses with premiums - anything under 100% is considered to be healthy and indicated an underwriting profit.

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Operating expenses fell 10% year-on-year to £769m and it remains on track to hit its cost-savings target of £400m this year.

Net asset value per share increased by 9.0% from 278p to 302p, reflecting operating profit in the first quarter and favourable investment variances.

Meanwhile, operating capital generation (a precursor to cash and an indicator of the capacity to remit cash to the group) was stable at £0.5bn during the quarter.

"Aviva is a turnaround story and these results demonstrate early steps in delivering our investment thesis - cash flow and growth," said Chief Executive Officer Mark Wilson.

"I am conscious of the challenges and do not want to set expectations at an unrealistic level. Progress so far has been satisfactory and there is a great deal more we need to do for our shareholders."

The stock now stands around 11% lower than it was three months ago after the company slashed its full-year dividend by 27% in a move to reduce leverage and increase retained earnings after swinging to a loss after tax of £3.05bn in 2012.

This compared with a profit of £60m the year before after the company sold off its US operations in December to narrow its focus on lucrative businesses and markets.

Aviva says that its balance sheet is in a stronger position after reducing its debt by £300m in the first quarter, in line with its target of reducing internal leverage by £600m over the next three years.