AVIVA IRELAND saw profits in its life division plummet by 75 per cent in the first six months of the year, as it felt the full impact of the ending of its joint venture with AIB.
Operating profits at the insurer dropped down to £8 million (€ 10.1 million) from £32 million for the same period in 2011, as the firm cited “adverse market and economic conditions”, while the fall in value of the euro relative to sterling also had an impact.
Aviva also saw a dramatic slide in operating profits in its general insurance division, with profits falling by 90 per cent from £24 million to £3 million, reflecting “adverse weather claims, increased costs and difficult economic conditions” according to the company.
Chief executive of Aviva Ireland Seán Egan said that while it was a “subdued and challenging” first half of the year, the company was now taking the “necessary steps” to build its financial strength.
“Our restructuring plan, agreed and announced in May, is enabling us to address our cost base and become a more responsive, more competitive company.
“ Across the three divisions of the business, there is a renewed focus on growth,” he said, noting that the recent expansion of its Galway facility had “crucially” opened up new business development opportunities for the Irish operation.
Last January, AIB announced that it would end its agreement with Aviva to distribute life and pensions products through its network of branches and instead opted to link up with Irish Life.
The arrangement came to an end at the end of March and Aviva expressed disappointment at the decision at the time.
The Irish operation is also undergoing a major restructuring and, according to the group’s accounts for the first six months of the year, restructuring costs were £186 million, up from £111 million in 2011, due to the costs associated with Solvency II implementation and the merging of businesses in Britain and Ireland.
Restructuring in Ireland follows the abandonment of plans to set up a European base for the British business in Ireland and will result in up to 720 redundancies.
The insurance group recently told staff that it was closing its defined pension scheme.
At group level, Aviva reported that its operating profit fell by 10 per cent to £935 million, “as a result of the sale of RAC, adverse foreign exchange movements, the adverse impact of recent UK weather and higher restructuring costs”.
On an after-tax basis, the group reported a loss of £681 million, up from £465 million in 2011.
Aviva chairman John McFarlane acknowledged that he expected further challenging conditions.
“This environment is likely to continue and therefore we expect second-half performance trends to be broadly similar to the first six months, but with higher restructuring costs as we implement our strategic plan,” Mr McFarlane said.
