Aviva profit boost leaves further room to convince

The Aviva logo sits outside the company head office in the city of London, Britain March 7, 2019. REUTERS/Simon Dawson/File Photo

LONDON, Aug 10 (Reuters Breakingviews) - Aviva (AV.L) is finally firing on all cylinders. The near 13 billion pound UK general and life insurer boosted operating profit by 14% in the six months ending June 30 versus the same period last year, thanks in part to a pivot to higher value commercial insurance and a pull back from motor. Chief Executive Amanda Blanc, who has sold off assets and returned capital to shareholders, is now pledging a buyback. The company’s shares rose 9%.

Aviva’s valuation, however, is not factoring in these gains. After Wednesday’s share bounce, the insurer is valued on nine times its forward earnings. Its peers are valued on 13 times, according to data from Refinitiv. The fact Aviva operates in mature markets like Canada, the UK and Ireland doesn’t help. And rising inflation may scupper Blanc’s chances of slashing 750 million pounds worth of costs by 2024. The bigger issue, probably, is Aviva’s clunky model of combining general and life insurance, which adds complexity. Producing better than expected results will help Blanc close the valuation gap but she has yet to prove that Aviva’s model works. (By Aimee Donnellan)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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