According to its third quarter interim management statement, the life and pensions company is still forging its way through its severe cost reduction strategy, part of which involved the sale of its US business earlier this year.
While it has seen a strong growth in the UK life market, rising from £288m in the three months to end September 2012 to £302m in the first nine months this year, it is still struggling to make money in Ireland, Spain and Italy - although Ireland has moved into a net positive this year, compared to an £11m loss reported over the same period last year.
Costs of delivering insurance business remain high for the company. According to its interim results, published today (7 November), Aviva is operating to a “stable” 96 per cent average cost to income ratios (COR) with the UK’s lower cost so far - driven by mostly favourable conditions - partly offset by exceptionally high costs for “other Europe”.
This latter stood at 109.2 per cent at end September. This metric includes Poland, as well as a couple of other more minor markets, meaning it is making a loss while it carries out growth plans.
Mark Wilson, group chief executive, said: “Turkey GI is clearly an under-performing market and we are making strategic decisions about that. The COR in Ireland is still too high and we have been addressing that significantly. That said it is making some strides and good progress to delivering what we want so frankly it is mixed.
“The large businesses are still getting satisfactory CORs and some of the people moves are designed to improve our business lines, for example, the UK life business has seen some people moves. Is our COR still to high? Yes it is and we do want to improve that year after year.”
He added: “The turnaround is still in its ascendancy but it is not there yet, there is no room for complacency and there is some for optimism; we have made a start but it is just a start. Aviva is capable of delivering a lot more for its shareholders and its customers.”
The results showed that integration and restructuring costs at Aviva have been historically high and an impediment to cash remitted to the group. While they are down year on year, they are still unsatisfactory, Mr Wilson acknowledged.
According to the results, in the first nine months of 2013 restructuring costs had fallen to £198m.
Mr Wilson said: “In line with our previous indications, we expect restructuring costs for 2013 to be lower than the 2012 level of £461m and materially lower in 2014.
“Reducing our expense base is essential to the transformation of Aviva and improving cash flows. We have made further progress in this area, and operating expenses are 10 per cent below the 2011 baseline expense level and 7 per cent lower year-on-year.
“We are on track to deliver a cost-base in 2014 which is £400m lower than 2011, regardless of the impact of inflation.”
