Aviva life insurance unit profit falls
Insurer Aviva said operating profit at its Irish life business plunged in the first six months of 2012, falling to £8 million (€10.1 million).
That compared to £32 million in the same period of 2011, and comes after Aviva and AIB ended a joint venture in March.
In May, Aviva Ireland announced it would make between 500 and 540 people redundant, down from initial plans to cut 770 from its workforce. It also began recruiting last month for 220 additional posts in claims insurance and direct sales in Galway.
"While this has been a subdued and challenging half, we are taking the necessary steps to build the company's financial strength," Aviva Ireland's chief executive Seán Egan said.
"The path we are on is challenging but necessary. I am confident that we are becoming a fitter, more market responsive business and by doing so, better positioned to retain and grow our 1.3 million customer base."
The company is also fighting poor market conditions across Europe.
“As expected, our businesses in the eurozone have experienced difficult trading conditions due to the economic environment. This, and the decline in value of the euro, has impacted profitability across the markets,” Aviva said in a statement.
On a group basis, Aviva swung to a first-half loss after writing down the value of its US arm by £876 million and said restructuring costs will increase.
The company admitted there will be no quick-fix to its problems and warned of more challenging conditions this year.
The insurer, which has been the focus of shareholder anger following its lacklustre performance, has pinned its hopes on a restructuring drive that will see it eliminate non-core businesses and cut costs.
It has been encouraged by recent trading in the UK, where its motor and household insurance arm grew profits by 17 per cent on an underlying basis despite £40 million of weather-related claims in June.
Aviva recorded a net loss from continuing operations of £745 million in the six months to June 30th, compared with a £125 million profit in the same period a year earlier.
"While this has been a challenging first half, we are taking the necessary actions to improve our position," executive chairman John McFarlane said. "This environment is likely to continue and therefore we expect second-half performance trends to be broadly similar to the first six months, but with higher restructuring costs as we implement our strategic plan."
Mr McFarlane, who took over from former chief executive Andrew Moss in May after a shareholder rebellion over executive pay, is restructuring the insurer by selling off or exiting at least 16 businesses and turning around at least 27 others. The insurer has about £18 billion of European sovereign debt, more than any other UK insurer, has lower and more volatile capital reserves than competitors and its share price dropped 60 per cent during Mr Moss's five-year tenure.
Mr McFarlane said he believed the company’s three-year turnaround strategy was the right one.
“It is my sense that we have the right agenda, we have the people in place to execute it, and we are broadly on track with the programme we set out last month,” he said.
Operating profit, including earnings from its Dutch unit, Delta Lloyd NV, declined 2 per cent to £1.12 billion in the first half, compared with the £1.14 billion median estimate of nine analysts surveyed by Bloomberg.
The insurer wrote down the value of its US division because "intangible assets" related to the unit bought for $3.1 billion in 2006 are "no longer recoverable".
Additional reporting: Agencies