Aviva suffered a 21 per cent year-on-year drop in the profitability of new business in its UK Life arm, from £224m in the first six months last year to £177m in 2014, as the Budget pension reforms hit annuity sales.
The insurer’s interim results, published this morning, reveal profits within the UK Life business rose 8 per cent during the period, from £438m in H1 2013 to £472m this year.
However, this year’s profit figure includes a £100m additional benefit from “a reserve release arising as a result of reducing the current and long-term cost base”.
When this is stripped out, UK Life year-on-year profits dropped 15 per cent as Government reforms to annuity rules hit profits across the sector.
This was despite operating expenses being cut by 11 per cent, from £296m to £263m, as the firm reduced staff numbers and the amount it spends on property.
The firm has also set aside £150m to cover the expected impact of the Government’s 0.75 per cent charge cap.
Aviva says: “In the UK, VNB was down 21 per cent…reflecting the impact of a significant reduction in individual annuities following the announcements made in the UK Budget and a general market decline as increasingly customers are choosing to defer taking their pension.
“The decline was partially offset by an increase in sales of bulk purchase annuities in 2Q14 and improved margins on equity release and protection products.”