The Aviva (LSE: AV.) share price is up 39% in 2025, making it one of the best performers in the FTSE 100. But with the Direct Line integration now in full swing, and with a large chunk of its business pivoting to a capital-light model, I remain optimistic on its prospects.
Diversified business model
Most individuals associate the Aviva brand with general insurance. As the UK’s largest motor and home insurance provider, that fact is unsurprising. However, its core brand can be seen across both wealth and retirement.
Its Wealth division is capital-light and growing fast. At its H1 results, total assets stood at £210bn, with net flows growing 16% year on year.
The opportunity in workplace pensions is huge. Since auto enrolment was introduced in 2015, the market has more than tripled in size.
Regular contributions into a workplace pension from both employers and employees are as near to a guaranteed cash flow as you can get. Indeed, the market is expected to triple to over the next 10 years, reaching £1.3trn.
Direct Line
An update on the progress with the Direct Line integration is due next month. The takeover represents a further push toward its earnings mix coming from capital-light businesses.
Once the integration is complete, it estimates that over 70% of operating profit will be derived from such businesses. Stronger growth and better returns using less capital combine into a clear win for shareholders.
Since the buyout, the insurer now has over 21m UK customers. But more than that, the acquisition will boost its presence across retail channels, including price comparison websites. And the Churchill brand will strengthen its position in the all-important lower-cost segments.
Costs
The company has been on a capital spending spree over the past few years. This includes the purchase of Succession Wealth and Probitas, which gives it access to the Lloyd’s insurance market. It also entered into a distribution agreement with the Nationwide Building Society.
As a result of these purchases, distribution costs in general insurance ticked up modestly in the first half.
Over in Insurance, Wealth and Retirement the cost asset ratio has stalled recently. This ratio effectively measures operating expenses as a percentage of assets under management.
Now, when I load on top the significant upfront expenses that will be incurred from the Direct Line integration, clear risks begin to emerge.
Should the full benefits of these acquisitions not materialise or the market slows because of, say, a recession, then pressure on dividend coverage could increase.
Dividends
A rising share price has pushed the forward dividend yield down to 5.8%. However, this is still ahead of the FTSE 100 average.
My calculations show that if an individual reinvested their dividends annually into buying more shares, in 15 years they could nearly triple their investment. And that is assuming the share price remains flat.
For me, there is a lot to like about Aviva. Its diversified business model gives it exposure to several long-term growth markets — especially pensions, protection, and wealth management.
As more people realise the State Pension alone will not fund a comfortable retirement, Aviva’s products look set to stay in high demand. That is one reason I have been adding to my position recently — I still see the potential for strong returns over the long term.
