Aviva increases exposure to Irish debt on foot of improving economy

The improvement in Ireland’s economy prompted global insurance group Aviva to increase its exposure to Irish sovereign debt in the first half of this year, according to results published today.

“In light of the improving economic situation in Ireland, we have made a modest increase in our exposure to Irish sovereign debt during the first six months of 2014,” UK-based Aviva stated.

Aviva’s results for the six months to the end of June show that its shareholder’s direct net exposure to Irish sovereign debt was £100 million compared with zero at the end of December.

It had no direct exposure at the half-year stage to either Greece of Portugal, euro zone members who also required EU-IMF financial bailouts.

In addition, its exposure to Ireland via funds in which it participates, rose to £600 million from £400 million over the same period.

Aviva’s results show that, in general insurance, it achieved net written premiums of £136 million in Ireland in the first six months. This was down from £146 million a year ago.

Its net claims reduced to £90 million from £117 million in the first half of 2013 with the division’s operating profit flat at £9 million.

Its combined operating profit improved to 96.6 per cent from 104 per cent in the same period of last year due to “improvements in both claims, and the commission and expense ratio, with positive prior year development only partially offset by the unfavourable weather”.

The company said its general insurance underwriting result was breakeven compared with a £1 million loss for the first six months of 2013. The £9 million operating profit in the first half of this year resulted from long-term investment returns.

Aviva said its operating expenses in this division in Ireland reduced by 14 per cent to £50 million, reflecting “cost-saving initiatives”.

In life, Aviva’s operating profit here reduced by 25 per cent year on year to £6 million, largely due to the disposal of Ark Life. Aviva said expenses in its life business in Ireland reduced by 50 per cent to £15 million reflecting “cost savings initiatives” implemented last year. Integration and restructuring costs doubled to £6 million.

The value of new business in its life unit in Ireland trebled to £6 million as a result of a “strategic shift in business mix to more profitable products and on-going expense efficiencies”.

The results also show that the internal rate of return on capital invested in the Irish business was just 5 per cent at the end of June. This was well below the 13 per cent return for the UK and the 14.6 per cent average for the group.

According to the results, it is estimated that it would take 11 years for the total capital invested in the Irish business to be repaid to shareholders. This compares with an average of 7 years for the group as a whole.

In a statement released to The Irish Times, Aviva said it had made “good progress” across its businesses here in the first half of the year and its aim was to capitalise on the opportunities in the market for commercially sustainable growth”.

“The value of new business in life has grown by €7 million as a result of the successful implementation of our strategy to grow in protection and annuities,” it added.

“In general insurance... the introduction of pricing sophistication has contributed to a good underwriting result.”