2025’s been a great year for the Aviva (LSE:AV.) share price so far. The insurance giant has seen its valuation climb by around 11%, which is backed by impressive results and a potentially incoming boost to profitability. But is this growth just the tip of the iceberg for shareholders?
Let’s explore where the Aviva share price could end up 12 months from now.
A strategy-altering acquisition
Aviva has its fingers in many cookie jars within the insurance industry. However, one of the major pots is life insurance. While these products are more predictable compared to property & casualty insurance, they’re quite capital intensive. As such, management’s slowly been diversifying into offering cash-generative alternatives.
As of December, 56% of the group’s operating profits originate from its capital-light offer. But by the end of 2025, it could be as much as 70% should the group’s £3.7bn takeover of Direct Line succeed. The acquisition’s been in the works for several months now. And if everything goes to plan, it should close towards the middle of this year, adding more motor and home insurance to its overall portfolio.
However, performance within the firm’s life insurance business is still performing strongly. 2024 marked one of the best years in the company’s history for bulk purchase annuity (BPA) sales, delivering a record £7.8bn across 61 deals to companies including National Grid, RAC, and Michelin.
As a quick reminder, BPAs allow businesses to offload some of the risks of running defined benefit pension plans. They’re only really a viable option when interest rates are high, making them relatively unpopular until recently – a shift that insurance companies like Aviva are capitalising on.
12-month share price target
With an expected boost to profitability and financial flexibility, it’s natural to assume the 12-month outlook for Aviva’s share price is positive. Yet, looking at the consensus from institutional analysts, most seem to think the stock’s fairly valued right now.
Aviva’s share price target for March 2026 is only 565p, which, based on where it’s trading right now, is only a 5% jump. This implies that the expected benefits of the Direct Line deal are already baked into the stock price. As such, management will likely have to deliver results that are better than expected for the stock to climb higher.
In the long run, expansion shouldn’t be too challenging for one of the largest insurance companies in Britain. However, it’s worth pointing out that a significant chunk of Aviva’s income is coming from the sale of BPAs. While that’s advantageous for now, consistently beating its record sales will likely become far more challenging as the Bank of England eventually cuts interest rates, dampening demand – a risk that must be considered.
All things considered, I’m cautiously optimistic about Aviva’s long-term potential. With shares enjoying a double-digit rally over the last few months, the stock price might see some temporary weakness from profit-taking activity. However, this could provide a nicer entry point.
For my portfolio, I’ve already gained enough exposure to the insurance industry So, I’m not planning on buying any shares right now. But for other investors, Aviva may be worth taking a closer look.
