Friends Life acquisition drives Aviva UK Life profit surge

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Aviva’s mega merger with Friends Life saw profits at the insurer rocket 37 per cent last year, with the firm’s cost-cutting target set to be hit a year ahead of schedule.

Aviva’s annual results, published this morning, reveal profits in the UK Life business rose from just over £1bn in 2014 to over £1.4bn last year. Excluding the contribution made by Friends Life, profits were up just 2 per cent.

Both the 2015 and 2014 profit figures were skewed by non-recurring events which boosted the underlying profit figure. When these are stripped out, year-on-year profits rose 6 per cent.

The profitability of new business generated in the UK during 2015 increased from £473m to £609m, boosted by higher margins on pension and health business, and increased sales and improved margins on bulk annuities.

However, this was partly offset by a lower contribution from individual annuities on the back of the pension freedoms, the firm says.

In addition, the integration of Friends Life has “gone faster and better than expected”, Aviva chief executive Mark Wilson says.

As a result, the insurer expects to meet its target of £225m in annual cost savings in 2016, a year ahead earlier than planned.

Aviva Investors, the firm’s troubled fund management arm, saw operating profits surge 33 per cent year-on-year, from £79m to £105m. This included a £9m contribution from Friends Life Investments.

Aviva says the profit rise is an “important milestone” but adds it is “still early days” for the business. Last year Aviva described the profit delivered by its fund management business as “inadequate”.

Aviva Investors saw a £54.1bn rise in assets in 2015. However, the firm was also hit by outflows from funds.

Gross outflows reached £28.3bn for the business across the year, for both internal and external clients. The group saw gross sales of £23.2bn over the period, with the bulk coming from internal sales, at £17.2bn.

Adverse market movements also hit assets at the division.

However, Gars rival the Aviva Investors multi-strategy AIMS range saw £1bn of net inflows from external clients in 2015, taking assets to £3bn.