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Insurers Aviva and RSA in spotlight as half-year results revealed

15:44 01 August 2014

The insurance sector will be in the spotlight next week when Aviva, RSA and motor specialist esure step forward with half-year results.

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Aviva chief executive Mark Wilson will want to show the City his turnaround plan has not lost momentum when he unveils the insurer’s half-year results on Thursday.

The country’s second largest insurer, which has 31million customers worldwide, is expected to post an operating profit up a modest 4% to £1.05billion, compared to a year ago, according to brokers at Panmure Gordon.

Analysts at JPMorgan Cazenove expect cost savings the firm has made to be partly offset by winter storms claims in Canada and the UK, a strong pound and the lower sale of annuities for pensions as a result of changes made in the March Budget.

Aviva’s share price lost 5% or £550m on March 19 when the Chancellor made his surprise announcement that pensioners did not have to buy an annuity to draw their pensions.

The annuity market is worth around £12bn per year and the move is expected to impact 18m people.

Even though most of Aviva’s sales in this area are bulk annuities’ to employers’ final-salary pension schemes and are unaffected by the Chancellor’s proposals, the firm’s share price has not risen back above its pre-announcement peak.

Mr Wilson took charge in January last year after the departure of predecessor Andrew Moss in the wake of a humiliating shareholder revolt over his pay and the faltering pace of the business.

Since then he has cut hundreds of jobs and has disposed of parts of business as part of his turnaround strategy.

Mr Wilson told the market on July 9 he now planned to double the amount of excess cash the firm generated to £800m and to reduce its ratio of expenses to income from 54% to less than 50%, by the end of 2016.

Mr Wilson said: “We have made some progress at Aviva and it is time to move to the next phase of the turnaround. With a clear strategy and targets in place, the size of the opportunity for Aviva is compelling.”

But the firm’s share price was largely unmoved on the day the chief executive announced his plans. Next week’s results will allow Mr Wilson a second chance to make his case.

RSA chief executive Stephen Hester will update the market on the rescue plans for the More Than insurer when it posts half year results on Thursday.

The former Royal Bank of Scotland boss joined the firm in February following the resignation of Simon Lee in the wake of three profits warnings and the group’s Irish crisis when a £200m black hole was discovered in the division’s finances.

Mr Hester said he is ahead of where he thought he would be in his three-year plan to turn around a firm that had expanded into 30 countries over the last decade and overextended itself.

Since he took over he has successfully launched a £775m emergency rights issue, and raised around £600m by selling non-core businesses in regions that include Poland, the Baltics and China.

Mr Hester is reportedly poised to launch a plan to cut £150m over the next three years from RSA’s £2bn a year running costs.

He has also understood to have earmarked businesses in Germany and Italy as next for sale.

Analysts at Morgan Stanley expect the group to deliver a pre-tax profit of £177m, compared with £250m a year ago, due to bad winter weather in Canada and an earthquake in Chile.

But Morgan Stanley said the second half of the year will be better for the group as the majority of the cash from its disposals will flow into the group’s coffers.

The broker adds that RSA’s balance sheet is strong enough to support “a small interim dividend.”

But Mr Hester warned earlier this month that for the next two to three years acquisitions and giving money back to shareholders are off the table until the group has properly stabilised.

Sheilas’ Wheels owner esure is expected to reflect the pressure the industry faces over falling motor premiums when it reports half-year results on Monday.

The Surrey-based car and home insurer, which employs 1,400 people and has over 1.5m customers, is expected by the market to post flat profits before tax of £56.2m.

According to data from breakdown group the AA, average car premiums fell 19.3% in the year ending June 30 - the largest 12 month decrease since the group started compiling these figures two decades ago.

Over the last two years the car insurance industry has seen rates plunge as regulators have clamped down on fake whiplash claims as well as inflated hire car and garage repair bills that have padded out premiums.

This has meant that many insurance firms have had to dip into their reserves to write competitive policies and retain market share.

Analysts at Oriel Securities expect operating profits at esure to fall 6% to £60.9m as it faces claims from UK winter flooding as well as a car market where rates are falling.

However, management at the group, led by chairman and founder Peter Wood who also founded rival Direct Line, is widely admired with JP Morgan saying cash generation at the firm “remains healthy.”

There is a sign that as the economy improves insurers may begin to edge up prices.

Brokers at HSBC said that if this happens the well-capitalised esure, with around 5% of the car market and 2% of the home market is well-placed to grow.

AA insurance director Simon Douglas said: “This could be the ‘last hurrah’ for cheaper car premiums. These falls are now becoming unsustainable as insurers are digging into reserves to maintain their competitive edge. Some insurers are starting to resist pressure to cut premiums.”

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