UPDATE 2-Aviva plans more bulk pensions deals to offset reforms

Thu Aug 7, 2014 9:26am EDT

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By Richa Naidu

LONDON, Aug 7 (Reuters) - British insurer Aviva said it would make more mid-sized bulk pension deals with companies in the second half of the year to help shield it from the government's sweeping reforms to retirement annuities.

Aviva was the top gainer on the FTSE 100 index of blue-chip shares on Thursday after the company reported a 4 percent rise in half-year operating profit.

Life insurers were put under pressure in March when Finance Minister George Osborne scrapped a requirement for individual savers to use their pension pots to buy an annuity from an insurer, which gave them an income for life.

Dominant players have sought to mitigate a slump in demand for individual annuities by aggressively building share in the bulk annuities market, selling the instruments in high volumes to companies looking to outsource all or part of their pension scheme liabilities.

Aviva's overall annuity sales fell 23 percent in the first half, while bulk deals more than doubled.

Chief Executive Mark Wilson said bulk annuities deals in the second half of the year should exceed the 260 million pounds it sold in the first six months.

Building services and construction company Interserve said on Wednesday that it had struck a deal with Aviva for 300 million pounds of its pensioner liabilities. Wilson said the contract would be accounted for in Aviva's second-half results.

He said Aviva preferred mid-sized deals to multi-billion ones because the margins were higher.

Wilson said the annuities reforms had had minimal impact on Aviva, because the products are only a small part of its diversified business.

Rival life and pensions group Legal & General said on Wednesday that its strong position in the bulk annuities market was helping to offset the impact of annuities reforms.

COST CUTS

Aviva's operating profit rose 4 percent to 1.05 billion pounds in the six months ended June 30 as its European and UK general insurance businesses built on a strong start to the year, making up for weakness in Canada.

The company, which provides personal lines of insurance including motor, home, travel and life cover, also said it was aiming for an operating expense ratio of below 50 percent and to double its annual excess holding company cash flow to 800 million pounds ($1.4 billion).

Morgan Stanley research analyst Jon Hocking said Aviva's first-half operating expense ratio of 52.1 percent suggested the company might more than meet its target expense ratio of below 50 percent by the end of 2016.

He maintained his "overweight" rating on Aviva's stock, which was up 3.1 percent to 504.6 pence at 1321 GMT.

Aviva has been looking to cut costs and has promised income- hunting investors bigger returns by laying off staff, spinning off some businesses and shaking up its asset management arm.

It said last month it hoped to double the amount of excess cash that the next stage of its ongoing turnaround plan could generate.

($1 = 0.5937 British pounds) (Editing by Erica Billingham)

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