May 15, 2014 / 8:01 AM / in 4 years

UPDATE 1-Aviva starts 2014 with strong Asia and Europe, UK drop

(Adds detail, management and analyst comment)

By Chris Vellacott

LONDON, May 15 (Reuters) - British insurer Aviva saw mixed performances from its businesses in the first quarter of the year, with strong Asian and European markets offset by a big drop in UK business after a shake-up of its products and Britain’s pensions system.

The company’s key measure of growth in life insurance - value of new business - showed a 22 percent decline in Britain, while new business in Asia grew 96 percent and Italy, Spain and Ireland collectively doubled, Aviva said.

In its quarterly trading statement Aviva said the drop in UK volumes was largely driven by a rejig of its annuities business - focusing on selling fewer, higher margin products - which it started a year ago. Its UK business was subsequently affected by the government’s decision in March to free retirees from being obliged to buy annuities, allowing them to invest pensions savings elsewhere.

Chief Executive Mark Wilson called first quarter performance “reassuringly calm and stable”, in light of high weather-related insurance claims at the start of the year and the shake-up of Britain’s pensions system that has hit annuity sales across the industry.

On a conference call with journalists Wilson said the general insurance arm had taken a hit amounting to around 40 million pounds related to a “particularly harsh” winter in Canada.

Storms and floods in Britain during January and February also cost the firm around 60 million pounds in the first quarter, he added.

The combined ratio for the group, showing claims as a proportion of premiums which is used by insurance companies as a measure of profitability, declined to 97.7 percent in the quarter from 95.5 percent a year earlier, Aviva said.

Wilson has driven a far-reaching shake-up of Aviva since joining from Asian rival AIA in late 2012. He has cut costs, sold off non-core assets and reshaped top management.

Investors have warmed to the New Zealander after seeing the value of their Aviva shares rise more than a fifth during his first year at the helm.

Wilson said the his management team was “not showing any complacency” on tackling costs during 2014.

Aviva shares were down around three quarters of a percent on Thursday following the results, which Shore Capital analyst Eamonn Flanagan called “a bit of a mixed bag”. (Reporting by Chris Vellacott; Editing by Sophie Walker)

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