UPDATE 2-Aviva sales drop, capital buffer helps shares
* Life & pensions sales 24.1 bln stg vs 24.8 bln forecast
* Outlook for profitability "good", margin stable at 2.1 pct
* Shares up 7 pct in early trading, solvency helps
(Adds analyst quotes, background, detail, shares)
LONDON, Nov 4 (Reuters) - Consumer caution dented British insurer Aviva's (AV.L) nine months sales on Wednesday, although its shares rallied on the company's modestly positive outlook and strong capital buffer.
The country's second-largest insurer said life and pensions sales fell 11 percent to 24.1 billion pounds ($39.70 billion) -- just below an average forecast of 24.8 billion -- hit by a weaker than expected performance at home, where sales dropped 25 percent, and at its previously fast-growing U.S. business.
Aviva has said it is focusing on profitable business over volume, and new business margins were broadly stable over the period at 2.1 percent, compared with 2.0 percent a year ago.
It said the outlook for profitability was "good", but cautioned its base case was slow growth from 2010, with little hope of a recovery feeding into sales for another six to nine months for most of its core businesses, including Britain.
"It's very weak. The problem is they are focusing on value over volume, but the margins are not improving either," analyst Peter Eliot at MF Global said. "Operationally there was nothing there that got us excited."
However, shares in the insurer rallied, trading up 6.7 percent at 404.6 pence at 0922 GMT, making Aviva one of the top gainers among UK bluechips as investors were cheered by its capital buffer.
"Aviva's outlook statement is modestly positive. (The) stock has been a laggard going into the numbers and this might lead to a positive reaction today," analysts at Merrill Lynch said in a note.
"However, with sales being slightly weak and basically inline capital and (embedded value) numbers we see no reason to change our neutral stance on the stock."
Aviva stock has dropped over 15 percent since the end of September, a slight underperformance compared to its European rivals, as the entire sector has been battered by news of the EU-enforced breakup of bancassurer ING (ING.AS).
Aviva's Dutch unit, Delta Lloyd, was sold this week in western Europe's largest initial public offering this year, raising 995 million euros ($1.47 billion) for the UK parent. [ID:nL3529121]
Aviva CEO Andrew Moss told reporters on Wednesday that options included restructuring the balance sheet, writing more new business and bolt-on deals. He gave no details on potential acquisitions, though he said the group would, as a matter of course, look at assets put on the block by rival ING. Continued...
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