A Good Year for Aviva, But Risks Remain

We still think the dynamics of the life insurance business coupled with lingering uncertainty in financial markets make investing in Aviva very risky

Jim Ryan 4 March, 2011 | 9:23AM
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Aviva (AV.) announced preliminary results for 2010 that reported profits up 26% from the prior year as return on equity reached almost 15% for the year. General insurance net written premiums rose 5% across the board while the combined ratio--expenses divided by premiums--dropped to 97% from 99% in 2009. Life and pension sales were up significantly in the United Kingdom but sales in the rest of Europe were flat. Book value per share increased 21% on a year-over-year basis and now exceeds levels of before the financial crisis.

Overall, Aviva had a very good 2010, as the rebound in global financial markets combined with the firm's repositioning efforts increased shareholder wealth. Recently, we reduced our cost of equity assumption for Aviva, which resulted in an increase in our fair value estimate, which remains unchanged. However, we still think the dynamics of the life insurance business coupled with uncertainty in the progress of international financial markets make investing in Aviva very risky.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Aviva PLC458.50 GBX-1.48Rating

About Author

Jim Ryan  Jim Ryan is a senior analyst with Morningstar.

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