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Aviva reports strong earnings beat

Published 08/14/2024, 03:46 PM
© Reuters

Investing.com -- Aviva PLC (LON:AV) posted strong earnings, surpassing consensus expectations across all headline metrics. For the reporting period, the company reported an operating profit of £875 million, which is 5% above the consensus estimate of £830 million. 

This outperformance was driven primarily by robust performance in UK General Insurance (GI) and Retirement segments. 

In UK GI, Aviva benefited from positive pricing trends and improved investment income, although this was partially offset by adverse prior year development (PYD) in the UK, which contributed 2.4 percentage points to the combined ratio. Meanwhile, the Retirement segment saw a notable increase in the Contractual Service Margin (CSM), growing 10% year-on-year.

Aviva's Solvency II operating Own Funds Generation reached £758 million, exceeding the consensus forecast of £700 million by 8%. This strong performance has supported a solid Solvency II ratio of 205%, also ahead of the consensus expectation of 199%. 

The company has reaffirmed its 2026 targets and capital return guidance, underlining its commitment to delivering long-term value to shareholders.

“In our view, Aviva remains the only UK insurer that can reliably deliver long-term special capital returns, accretive M&A, attractive ordinary dividend growth, and consistent EPS growth,” said analysts at Jefferies in a note. 

Jefferies' price target for Aviva is based on a discounted cash flow and sum-of-the-parts model, which incorporates surplus capital generation under Solvency II. The valuation considers surplus capital exceeding a 180% Solvency II coverage ratio for 2023 and 170% from 2024 onward. 

Risks to this valuation include potential credit defaults, equity market volatility, and declining real estate values.

 

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