Aviva promises share buyback after boost from rising interest rates

FTSE 100 insurer Aviva has promised a share buyback funded by better than expected cash generation, months after returning £4.75bn to investors, prompting a sharp rise in its stock.

In its first-half results on Wednesday, Aviva said rising interest rates had also helped increase its Solvency II ratio — the proportion of capital it holds as a percentage of the minimum required — to 213 per cent, when adjusted for one-off items, above the 206 per cent average estimated by analysts.

Chief executive Amanda Blanc would not be drawn on the size of the buyback, which is due to be launched at full-year results, but said the company wanted to show investors that it was “more than aware of our commitment to return capital” above a 180 per cent solvency ratio.

Aviva’s share price had risen nearly 12 per cent by lunchtime in London.

Analysts at Citi estimated that the company could buy back £250mn to £300mn of shares and said the announcement had come earlier than expected.

Together with the recent return of capital through buybacks and a share consolidation, the move would take Aviva to the £5bn pushed for by activist investor Cevian, which launched a campaign for bigger shareholder returns last year.

The rise in the solvency ratio was fuelled by market movements and £800mn of cash Aviva generated during the period, with sales up across its general insurance and life businesses.

The ability of UK insurers to withstand high inflation is proving to be crucial to their recent performance, with diversified groups that offer life insurance products as well as personal cover faring better.

Blanc said the cost of claims to the business in various general insurance lines was rising at between 8 and 12 per cent a year, but Aviva has been increasing prices to offset this.

Interim profits at UK motor insurer Admiral almost halved in “turbulent” trading because of inflation and a continuing rise in the number of car accidents after a lull during the pandemic.

Admiral posted pre-tax profits of £251mn for the first half of 2022, down from £482mn in the same period last year but broadly in line with analysts’ expectations. Claims inflation was running at 11 per cent in the first half, the company said.

To counter inflation, the group increased prices by about 16 per cent between March and the end of July, which it said was higher than the market average. “We did increase prices a lot, the market probably will follow,” said Admiral’s chief executive Milena Mondini de Focatiis.

Admiral’s car insurance business also received a boost from reserve releases — money held against expected claims from previous years. Excluding these releases, the reported loss ratio for the period — a measure of claims as a proportion of premiums — was 91.3 per cent, a sharp deterioration from the 72.9 per cent level in the same period last year.

Barclays analysts said Admiral had “weathered” the challenging first half of the year well and in particular highlighted stronger than expected customer growth. UK insurance customer numbers rose by 12 per cent.

Shares in Admiral were up more than 8 per cent by the early afternoon in London, but remain down almost a third this year.