Aviva update pleases investors
LONDON, England (Reuters) -- Britain's largest insurer, Aviva, pleased investors with an unscheduled, bullish update on its full-year performance on Friday, boosting its shares and the entire sector.
In an unusual move, Aviva said a strong second-half at its life and general insurance units would lift 2003 operating profit to around £1.9 billion ($3.48 billion), 12 percent above flat market consensus estimates of around £1.7 billion.
With less than three weeks to go before the insurers' earnings season begins, Aviva is in a 'closed' period when traditionally it is prevented from revealing information relating to its performance.
A company spokeswoman, however, said it was obliged under stock exchange rules to update the market after analyst estimates came in significantly below their own expectations.
"Some of the analysts appear to be working in a bear market mentality when they are looking at our sector,'' she said.
Aviva's shares were up over 6.5 percent at 532-1/2 pence in morning trade. The company's statement buttressed growing market optimism about the sector's prospects, lifting rival insurers and helping keep the blue chip index in the black.
Shares in rivals Prudential and Legal & General were up 2.42 percent and 3.34 percent respectively in a general market up 0.4 percent.
Cost cutting?
Roman Cizdyn, insurance analyst with Commerzbank, said it wasn't clear from Aviva's statement where the boost had come from but he expected a cost-cutting programme initiated by former finance director Mike Biggs was reaping better-than-expected gains.
"Analysts operate with the data that we are given. We don't have the life margins for the second half but the impression was that they were not out of line with previous trends.
"On the general insurance side, we had Royal & Sun Alliance recently report an increase in subsidence claims so I think we are looking at cost cutting gains,'' said Cizdyn, who had forecast achieved operating profit at £1.7 billion and has an "overweight'' rating on the stock.
Lehman Brothers analyst Farooq Hanif said he was surprised at the update and pointed to the general insurance side as the key.
"I think it's probably more likely to be the general business...where this surprise is coming from. If it is,... there are questions over the sustainability longer term because we know the profitability of that business can be quite cyclical.''
Aviva said operating profit on a modified statutory basis -- which compares with the profitability measure across the rest of the corporate sector -- across its life and general insurance businesses, at around £1.45 billion, was also expected to exceed consensus forecasts of about £1.25 billion.
The firm, which has previously indicated a robust market outlook for 2004, on Thursday announced plans to cut 1,600 UK jobs as it closes its national broker subsidiary, Hill House Hammond.
Last month, Aviva reported flat 2003 new business sales for pensions and savings products, slightly above expectations, of £2.377 billion.
Shares in Aviva have risen nearly eight percent so far this year on the back of improving stock market sentiment, after falling more than 10 percent in 2003.
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