Aviva lifts its targets for earnings and investor returns as it throws off cash

● Insurer says its financial and strategic position has been ‘transformed’

Insurance major Aviva cheered investors yesterday as it hoisted targets for earnings, cash and dividends following what it hailed as its “transformed” financial and strategic position.

The insurer said that it was now targeting more than 5 per cent annual earnings growth from 2019, and raising its dividend payout ratio target to between 55 per cent and 60 per cent of earnings by 2020.

Explaining the upgrades, the insurer, which employs 2,500 across two sites at Perth and Bishopbriggs, said: “Aviva’s financial and strategic position has been transformed.

“The capital surplus has tripled; the group has been streamlined and Aviva is now focused on markets where it has high-quality franchises and is gaining market share.

“As a result Aviva is upgrad- ing the financial objectives it set out previously.”

Aviva has also increased its remittance target from £7 billion to £8bn, which analysts said will allow the firm to deploy £3bn of excess cash over 2018 and 2019.

This is expected to be used to repay £900 million of debt next year and pay for bolt-on acquisitions and additional returns to investors via buybacks, the company added.

Mark Wilson, chief executive of Aviva, said: “We are upgrading our cash flow and growth targets.

“After a few years of restructuring, our businesses are now high quality and we expect good, sustainable growth from each of them.

“We have improved the consistency and quality of our profits and so we are raising our expectations for earnings growth to more than 5 per cent annually from 2019 onwards.”

Jon Hocking, equity analyst at Morgan Stanley, said in a note: “In terms of capital return, there is no firm guidance on the size of the buybacks.

“Given the optionality on the M&A side, however, it looks to us that there is opportunity for Aviva to retire all of the £900m of (expensive) debt that is available for first call in 2019 and still exceed our £500m buyback assumption. Furthermore, in full year 2019 there is scope to beat our £300m buyback assumption as there is £1bn to redeploy.”

In August, Aviva reported a sharp jump in first-half profits after it was boosted by its general insurance division. The group said overall operating profit rose 11 per cent to £1.46bn in the first six months of the year.

Profits from general insurance and health lifted 25 per cent to £417m, aided by the acquisition of RBC Insurance in Canada last year, as well as foreign exchange benefits.