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Aviva inherited estate plunges 33 per cent- share price falls 33 per cent

Aviva has revealed its with-profits inherited estate has plunged 33 per cent since June.

In the firm’s preliminary results, chief executive Andrew Moss reiterates that the original reattribution offer is off the cards but insists that negotiations with policyholder advocate Claire Spottiswoode to come up with a restructured offer continue. He says policyholders can expect an update in the next few months.

Aviva’s UK business saw a 4 per cent increase in life IFRS operating profit to £751m while profit on an MCEV basis jumped 7 per cent to £883m. Life and pension sales in the UK were up 1 per cent to £11.8bn in 2008 – its highest ever performance – but life new business gross margin dropped 1.7 per cent compared with 2007.

Aviva’s share price plunged 33 per cent on the news, to 189p at 4.30pm.

The group’s IFRS operating profit was up 4 per cent to £2.29bn despite recording a loss after tax of £885m. Operating profit on a MCEV basis was up 10 per cent to £3.35bn while losses reached £7.7bn. Aviva’s overall life and pensions sales jumped 11 per cent in 2008 to £36.2bn, while investment sales plunged 43 per cent.

Aviva made default losses totalling £140m in 2008 as a result of exposure to AIG, Lehman Brothers, Bradford & Bingley, Freddie Mac, Fannie Mae and Washington Mutual. This equates to just 0.2 per cent of the firm’s total corporate debt portfolio.

Moss insists the company’s capital position is secure, citing a capital surplus at year end of £2bn after undertaking “prudent reserve strengthening”. The firm says its solvency surplus would fall to £1.2bn if equity markets were to fall a further 40 per cent from December 31, 2008.

Moss says: “In a tumultuous year, our underlying business has shown great resilience. Operating profits are up and we have maintained our dividend. Bottom line earnings have been affected by investment markets which have predictably created significant unrealised losses during the year.

“Aviva remains financially strong. We’ve undertaken a thorough review of the value of our assets and liabilities, and have made cautious provision for future losses so that we are in good shape to withstand the ongoing volatility and uncertainty in world markets. Maintaining our capital strength has been a priority for us and remains so this year.

“Meanwhile we continue to transform Aviva for the future. In these markets only the fittest will emerge as winners. Our increased share of the UK life and pensions market in 2008 is a good example of a market where we have growing competitive advantage. Our strategy is well-suited to current markets and our geographic diversity and composite model continues to deliver for us.”

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