Regulatory changes for annuities and bad weather have resulted in a challenging year for the insurance industry. However, Aviva (LSE: AV) (NYSE: AV.US) has delivered a 13% increase in value of new business year-on-year, which is the sixth consecutive quarter of year-on-year growth for the company.
Chief executive Mark Wilson, who joined Aviva last year, undertook a business-wide review to streamline operations and reduce expenses. In a bid to revive the insurer’s fortunes, Wilson has excited non-core, non-performing divisions and these decisions reduced the group’s net debt. Total external debt has been reduced by £240 million.
Aviva is the UK’s largest insurer with more than 14 million customers. It provides life insurance, general insurance and asset management, and it is Europe’s leading provider of life and general insurance. The insurance group was formed by the merger of CGU and Norwich Union in 2000, CGU came from the merger of Commercial Union and General Accident in 1998. The group re-branded under the Aviva name in July 2002.
If we consider market capitalisation, Aviva’s £15bn valuation does not constitute it a place anywhere in the top twenty league table of the world’s largest insurers. Despite this, Aviva claims to be the second-largest general insurer in Canada, one of the top foreign insurers in China and one of the largest insurers in Singapore. It has joint-venture projects in Indonesia and Vietnam and a strong market position in Hong Kong. In India it has a wide distribution network of 135 branches, spreading across nearly 1,000 towns and cities.
Whilst Aviva has been a darling of the analysts in recent months, the shares now have a consensus recommendation of ‘Hold’ from the eleven analysts that are covering the stock.
Rainy Days Ahead For Aviva, And A Watershed For The Industry?
Aviva has succeeded in its restructuring efforts and future cost benefits are now believed to be fully priced in. In addition, competition among insurers remains intense and further European regulatory changes are on the horizon. Industry commentators are predicting it may be a watershed for the industry over the next two years, as the Retail Distribution Review regulations will soon be introduced.
Regardless of what the lawmakers do, consumers will continue to demand transparency and less complex products, particularly as consumers are increasingly responsible for their own retirement welfare.
Growth in this industry is like many other sectors in that those looking east will reap the best rewards. Aviva has existing distribution channels in many of the developing markets and it well placed to leapfrog some other players in the industry. It is highly unlikely Aviva will rule the insurance world, but its size and ability to be agile as the industry shifts gear might give it more of an edge over some of the majors that are not known for their dynamism.
