Aviva UK Life profits boosted by Friends Life deal

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Aviva has reported a surge in operating profit within its UK Life business in the first half of the year, driven by the recent acquisition of Friends Life.

However, excluding the impact of the deal both Aviva UK Life and Aviva Investors have seen year-on-year profits tumble.

The insurer’s first half results, published this morning, reveal UK Life profits rose 17 per cent, from £476m in H1 last year to £555m this year. This includes a £120m contribution from Friends Life following its acquisition in April.

When the impact of the Friends Life deal is stripped out, profits within Aviva UK Life slumped 7 per cent, from £483m to £449m, although H1 2014 included a £100m benefit from “expense reserve releases following actions taken to reduce the current and future cost base”.

The first six months of 2015 saw similar expense releases – labelled as “non-recurring” – of around £50m, including £22m linked to property restructuring and “various smaller releases” from an ongoing review of back-book business.

The insurer has so far made £63m of cost savings following the merger with Friends Life. The group is targeting total savings of £225m.

Total UK operating expenses increased from £263m to £354m, including £115m of expenses from Friends Life. Excluding the impact of Friends Life, UK expenses dropped 9 per cent, from £263m to £239m.

Total UK integration and restructuring costs were £82m in the first six months this year, up from £8m in H1 2014. Some £71m of these costs relate to integration activity, with the remainder largely linked to Solvency II.

The value of new business written in the UK was up 43 per cent year-on-year, from £177m to £253m.

In UK Life, excluding the Friends Life deal, this figure improved by a third, from £177m to £232m, reflecting higher margins on pensions and health business, increased bulk annuity deals and equity release sales.

This was partly offset by a year-on-year drop in annuity sales, the insurer says.

Aviva Investors, the providers fund management arm, generated profits of £32m, down from £41m in the first six months of 2014. This was mainly due to higher expenses and the “adverse impact” of the disposal of the River Road business in June 2014, the firm says.

The profit figure was described as “inadequate” by Aviva chief executive Mark Wilso, although he adds “positive signs…are emerging”.

Funds under management at Aviva Investors increased 7 per cent, from £245.9bn to £262.6bn, driven by a transfer of funds from Friends Life Investments. Excluding this, funds under management dropped £5.6bn, with the company suffering net fund outflows of £300m, an improvement on the £1.7bn figure reported in the same period last year.

AIMS, the firm’s flagship fund, has seen net external inflows of £300m since the start of the year.

Funds under management on Aviva’s UK platform have risen from £5.3bn at the end of 2014 to £6.8bn at the halfway point this year, with the firm reporting increased demand following introduction of pension freedoms in April.

Aviva group chief executive Mark Wilson says: “After three years of turnaround we are now moving to a different phase of delivery. We have improved the balance sheet, simplified the group and we are now transforming our business. The progress is evident in these results.”