Aviva Profits Surge to 2008 Levels; CEO Restores Bonuses

By | March 6, 2014

Aviva Plc rallied to its highest in more than five years after profit beat analysts’ estimates and Chief Executive Officer Mark Wilson said he planned to restore bonuses at the U.K.’s second-biggest insurer by market value.

Operating income in the 12 months to Dec. 31 rose 6 percent to £2.05 billion [$3.427 billion], topping the £1.99 billion [$3.327 billion] estimate of 21 analysts provided by the company. Cost- cutting expenses fell 21 percent and its internal loan was reduced by £1.7 billion [$2.84 billion] to £4.1 billion [$6.854 billion], according to a statement today.

“The turnaround at Aviva is intensifying,” Wilson said on a conference call from London. “We said to the market that we will pay for performance and we talked to our shareholders and made sure they were aligned. Yes, we will be paying bonuses, and shareholders will be quite O.K. with that scenario.”

Wilson, 47, replaced Andrew Moss in January 2013 after shareholders rejected the former CEO’s compensation plans. Wilson scrapped directors’ bonuses for 2012 and froze pay for the firm’s top 400 managers as he sought to appease investors and rebuild capital depleted by the euro area’s debt crisis and repay the internal loan.

The shares surged 8.4 percent to 505 pence [$8.44] at 9:05 a.m. in London to the highest since September 2008, extending gains this year to 12 percent. Panmure Gordon & Co. upgraded the shares to buy from hold as the company reached an agreement with the Prudential Regulation Authority to reduce its internal loan to £2.2 billion [$3.678 billion] by the end of 2015.

‘Hugely Significant’

“We view this has hugely significant for Aviva and as a consequence, combined with better-than-anticipated results, we upgrade to buy,” Barrie Cornes, a Panmure analyst, said in a note to clients today.

The insurer reported net income of £2.2 billion [$3.678 billion] compared with a loss of £2.9 billion [$4.848 billion] a year earlier and also increased its capital surplus to £8.3 billion [$13.875 billion] from £7.1 billion [$11.869 billion]. Wilson, who cut the firm’s dividend by 44 percent last year, also declared a final payment in 2013 of 9.4 pence a share, up from 9 pence in 2012.

The insurer’s combined operating ratio, or claims and expenses as a percentage of premiums, rose to 97.3 percent from 97 percent as the company took an £60 million [100.3 million] hit from the recent U.K. floods.

–Editors: Steve Bailey, Jon Menon

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