Insurance giant Aviva is reserving more than half a billion pounds for acquisitions as profits are up 2 per cent in the past year to £3bn.
The firm said in its annual results out today (8 February) it expects to deploy a total of £2bn excess cash, including £900m towards debt reduction, £500m for returns to shareholders and about £600m for bolt-on acquisitions.
It said it had received cash remittances of £1.8bn, which included £500m from the integration of Friends Life.
The integration has so far generated £750m in cash towards a target of £1bn.
Operating profit on the UK life business meanwhile, is up 15 percent, from £1.5bn in 2016 to £1.76 bn last year, driven by a 13 per cent improvement in new business profits and continued growth of the long-term savings business.
UK long-term savings operating profit increased 30 per cent to £185m as assets under management increased to £118bn due to positive net flows and well performing markets..
Net fund flows at the firm increased to £5.6bn mainly due to inflows from workplace pensions and a sharp increase in net flows into the adviser platform, where assets under management increased by 56 per cent to £20bn.
Annuities and equity release operating profit increased 11 per cent to £725m with the value of new business premiums increasing 58% to £4.3bn and bulk annuities increasing to £2bn.
Mark Wilson, group chief executive officer, said: “In 2017, Aviva delivered growth in profits, in dividends, in capital and in cash. Aviva grew operating earnings per share by 7 per cent and our full year dividend by 18 per cent, the fourth consecutive year of double-digit dividend growth.
“Our largest market, the UK, has gone from strength to strength, growing sales, market share and profit. For Aviva, the UK is a dependable and growing business.
“We continue to invest in our businesses and in particular on priorities such as digital to make our products and services easier for our customers.”
Similarly to Legal & General, Aviva also benefited from changes to longevity assumptions made as part of its annual assumptions review.
The firm stated in its results: “We recognised benefits from changes in longevity assumptions, including the impact of completing our review of the allowance for anti-selection risk of £170m, updates reflecting our recent experience of £200m and updates to the rate of historic and future mortality improvements, including the adoption of CMI 2016, of £340m.”
Aviva’s legacy operating profit of £331m was flat year on year (2016: £332 million), with fund outflows being partially offset by positive investment markets.
The firm expects operating profit from the legacy business to continue to decline 10 per cent per year over the medium term.
Combined, the UK life, health and general insurance businesses, which was created in 2017 under a common leadership team, delivered an increase in operating profit of 13 per cent to £2.2bn.
carmen.reichman@ft.com