Aviva Plc (AV.) Ordinary Shares 32 17/19 pence

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Over the first nine months, Aviva’s General Insurance premiums grew 15% to £9.1bn. Sales grew in the Protection & Health and Retirement divisions 22% and 67% respectively, the latter benefitting from a near doubling of bulk annuity volumes to £6.1bn. Wealth net flows were up 21% to £7.7bn.

The solvency II ratio, which measures capital levels compared to requirements, dipped from 205% to 195%.

Medium term guidance, which is looking for operating profit of £2bn by 2026, was unchanged.

The shares rose 2.8% in early trading.

Our view

Aviva has come out with a very confident tone in its third-quarter trading update, with strong performance across all business lines.

Aviva brings insurance, wealth, and retirement under one roof. The general insurance arm centres around the UK and Canada. The latter now claims the number two spot in its market. General insurance in the UK & Ireland saw more challenging conditions for parts of last year, but we’ve seen a sustained improvement so far this year.

Higher prices are continuing to benefit key areas like motor and home insurance where Aviva is a market leader. It takes some time for these price hikes to feed through, but the benefits are starting to be felt. There’s still some work to be done in the Canadian business, but management is confident it’ll follow suit as we move into 2025.

Aviva's bulk annuity business (BPA), where it takes on final salary commitments from pension funds, has grown rapidly. The market's hot and Aviva’s already hit its £15-£20bn target across 2022-24. The focus continues to be on finding the right new business rather than pushing for market share. These contracts feed significant quantities of new assets into the business, which Aviva Investors can manage - increasing scale and profitability.

Being a huge workplace pension provider is the logic behind increasing its presence in the wealth management market. Plans are also underway to expand the advisory offering to help achieve the goal of at least 10% growth in net flows to wealth (6% in 2023). Performance this year has been impressive, but it’s a tough market, so it's one to watch.

The retirement products sit alongside Aviva’s protection business (this includes products such as life assurance and income protection policies). And this year’s acquisition of AIG Life UK saw protection sales jump 49% in the first half.

Aviva is a diversified player with fingers in basically all the pies. The insurance business is starting to benefit from an improving market, momentum in the wealth management division continues to be impressive, and Aviva’s capitalising on the resurgence of activity in the bulk annuity market.

We like the mix, and with a strong balance sheet, the 8.3% prospective forward yield looks attractive. However, there are no guarantees, and there’s more pressure to deliver than there’s been for some time, increasing the risk of ups and downs.

An independent Non-Executive director of Hargreaves Lansdown plc is also an Independent Non-Executive Director of Aviva plc.

Environmental, social and governance (ESG) risk

The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.

Aviva’s overall management of material ESG issues is strong.

Aviva values ESG management and focuses on transparency around key issues. The company actively addresses physical climate risks, data privacy, security, and sustainable finance. Aviva aims to boost sustainable investments by 2025 and integrates ESG factors into its investment strategies. The absence of customer satisfaction targets in FY2022 is a potential area for improvement.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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