Aviva turnround 'ahead of schedule'

Aviva's turnround is "on track and ahead of schedule" said the boss of the FTSE 100 insurer, reporting a 14 per cent increase in the value of new business in the first quarter of 2015 boosted by the growing popularity of equity release products in the UK.

Mark Wilson, chief executive, said that the expected reduction in annuity sales following the introduction of new pensions freedoms was being "more than offset" by products including equity release, which allow retirees to extract capital from their property.

Overall levels of equity release loans in the UK hit record highs in the first three months of 2015, surpassing £325m, as pensioners increasingly turn to cash locked up in their property to fund their retirement.

Equity release products in the UK provided a "significant" boost to new business written by the group's life assurance business, which rose 14 per cent in the first quarter to £247m. The UK accounted for £103m of this total, a rise of 15 per cent year-on-year.

"People are finding they need a range of different products [to fund their retirement]," Mr Wilson said. "When people buy more than one product with us, we'll give them discounts - that's the way it's heading - and equity release is one part of that."

The first-quarter results do not reflect April's £5.6bn merger with Friends Life - the largest deal in the UK insurance sector for 15 years - which completed after the reporting period.

Mr Wilson said on Thursday the integration plans were "well under way" and while the process was complex, Aviva was "confident of timely progress", adding that about £20m of funds that were directly managed by Friends have been transferred to Aviva Investors.

The enlarged group has 16m UK customers and £340bn of assets under management, but the deal is set to result in 1,500 job losses as the insurer targets £225m of annual cost savings.

Last month, management were forced to back down on plans to boost pay for senior directors after objections from shareholder groups.

"Growth in the equity release market looks inevitable as more people discover they haven't saved enough for retirement," said Tom McPhail, head of pensions research at Hargreaves Lansdown.

Draw down products - used to release a small monthly income against the value of a family home - "make sense" for retirees in their 70s and 80s struggling to meet care costs, he added, but he warned there were greater risks when extracting a large sum of capital with rolled up interest payments.

"Those who seek to release equity from their property in their 50s or early 60s are potentially going to have quite a long time to regret that," he said.

The value of new business at Friends Life declined 37.5 per cent to £20m in its first quarter, which the company said was driven by the expected decline in annuity sales following last year's Budget announcement.

Friends Life's London headquarters is to be closed, and an office in Exeter is being moved to smaller premises, the company said on Thursday.

Aviva's general insurance business reported a combined operating ratio of 96.4 per cent - an increase of 1.3 per cent in the period - coming in ahead of analyst expectations. A number below 100 per cent indicates a profit. The boost was described as "impressive" by Barrie Cornes, insurance analyst at Panmure Gordon.

However, performance was "more subdued" in Aviva's "growth markets" of Asia, Turkey and Poland, the company said, which accounted for more than a fifth of the company's new business in 2014.

In the first quarter, the value of new business written in Poland dropped by 22 per cent to £15m, reflecting a change to pensions regulation in Lithuania, Turkey reported growth of just 4 per cent and Asia grew 16 per cent as "strong performances" in China and Singapore were offset by India.

Following the merger, management have ambitions to expand further into China and Indonesia.

Shares in Aviva rose 2.6 per cent to 527p on Thursday.

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