Aviva's shares leapt over six per cent this morning after beating forecasts and building up a hefty cash pile to reward investors.
Similar to other insurers, Aviva was hit by the Lord Chancellor's decision to cut the discount rate. It said the move had hit profits after tax by £380m.
In its reported figures it decided to set aside the discount rate. General insurance net written premiums rose by 15 per cent to £8.2bn, while life insurance premiums increased by 13 per cent to £1.4bn.
Fund management operating profits shot up by 30 per cent to £138m.
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Group operating profit rose 12 per cent to £3.0bn while earnings per share were up three per cent to 51.1p.
Dividends per share leapt 12 per cent to 23.3p.
Its Solvency II ratio was 189 per cent, compared with 180 per cent in 2015.
Why it's interesting
Compared with the likes of Direct Line and Admiral, Aviva's hit from the change to the discount rate seems on the chunky side. And yet its shares have gone have flown.
The reason for this comes is threefold. First, is that it revealed last week how much its annual figures would be hit by Liz Truss' decision. Second, Aviva is much better diversified than the likes of the mainly motor players of Direct Line and Admiral.
And finally, and arguably most importantly it's the Solvency II ratio. This is a key focal point for investors in Aviva the discount rate hit only wiped a couple of percentage points off what is a better than expected ratio.
Oliver Steel, a research analyst at Deutsche Bank was gushing about today's figures. "These look to be a very strong set of results…The main focus today will be on the solvency ratio, which at 189 per cent is nine per cent above the top of the group's target range (equivalent to £1.1bn)."
Nicholas Hyett of Hargreaves Lansdown explained that with the exception of the likes of Prudential, investors tend to hold UK insurers for their dividend stream.
And with £1.1bn of more in reddies on the balance sheet, shareholders will be expecting the cash to be winding itself back to them either through an increase or special dividend, or a share buyback.
What the company said
Chief executive Mark Wilson said:
Aviva’s results are simple and clear cut: more operating profit, more capital, more cash, more dividend. And there is more to come.
Aviva’s financial position has been transformed and a distinctly stronger balance sheet and excess capital give Aviva more options.
We are now actively planning a capital return to our shareholders and debt reduction in 2017 and will invest further to grow our businesses.
The numbers speak for themselves.