Aviva, Britain’s largest insurer, has added a further £75 milion to the cost of claims for flooding caused by last summer’s freak weather, bringing the total bill to £475 million.
The company, which owns Norwich Union, also warned that UK growth of its long-term savings products would be sluggish this year due to uncertainties over the economy. Shares in Aviva fell 2.13 per cent, or 12.5p, to 597p in early trading – the lowest point since November 2004.
Aviva faced claims from about 45,000 households and 6,000 business in the wake of the floods last June and July, prompting the company to estimate a £340 million bill to cover the damage, bringing the total adverse weather costs for the year to £400 million.
The payout pulled back the group’s combined operating ratio (COR) – the industry method of evaluating profitability per policy – to 100 per cent. A figure under 100 per cent means an insurer is writing profitable business. Had Aviva not faced last year’s exceptional floods its group COR would have been 95 per cent, 3 per cent better than its internal target.
Aviva increased its total UK sales last year of long-term savings products from life insurance to pensions by 6 per cent to £14.4 billion, in line with its forecast of achieving medium term growth of between 5 per cent to 10 per cent.
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Commenting on future trading, Andrew Moss, the chief executive of Aviva, said that while previous recesssions have tended to trigger “a reversion to a higher level of savings,” he conceded the group may be hit by lower levels of payment protection business reflecting a drop in mortgage applications.
Mr Moss said: “There is still good growth in pensions and annuity business but a lot of uncertainty in the collective bonds and protection products due to what is going on in the economy more widely. We have cause to be optimistic due to our range of products. “
Stronger new business growth in Asia Pacific – up 60 per cent to over £4.089 billion – pushed total worldwide sales up 25 per cent to £38.58 billion, comfortably beating analysts’ forecasts.