Aviva shares pick up as 'mixed' results show promise

Aviva PLC (LSE:AV.) shares climbed 2.3% after the life insurer published what analysts said were slightly mixed but mostly on-target results for the first quarter and confirmed the cancellation of £200 million worth of preference shares. 

The results drew a neutral reaction from UBS analysts, who noted that strong growth across most of the business was offset by higher-than-expected claims in general insurance due to severe weather events.

Aviva’s group combined operating ratio (COR) of 96.6% was 1.5 percentage points worse than its estimate, driven by weather-related losses, particularly from Storm Eowyn – the largest windstorm in Ireland in 40 years – as well as inflation reserves in Canada related to US tariffs.

Despite these pressures, general insurance premiums reached £2.9 billion, 3% ahead of UBS’s expectations.

On a positive note, Aviva’s Life business outperformed, with 4% growth in retirement income sales, as retail annuities were up 32% and bulk annuities were flat.

Panmure Liberum analysts agreed that premiums growth was a highlight, with "decent" margins, while the COR was slightly better than they had pencilled in.

"The balance sheet remains strong with a Solvency II coverage ratio of 201% and management has reiterated they are on track to hit the 2026 targets on earnings and cash generation," said Panmure Liberum, noting that the stock is trading on 10 times 2026 forecast earnings and offers a 7% dividend yield, they noted. 

Analysts at Keefe, Bruyette and Woods said Aviva's solvency ratio looked better than expected.

"We expect the shares to trade slightly positively on the solvency and life detail. The combined ratio requires some faith in improvement for the full year, so a lot still hinges on Direct Line."

Also looking ahead, UBS said that Aviva’s outlook seemed positive, with the Direct Line acquisition "firmly on track" and the company’s profitability targets for health and wealth unchanged.

"While the mixed results may not generate much excitement among investors, the one-off nature of the catastrophe impacts means the underlying growth story remains intact," the UBS analysts said.

Panmure Liberum added that while the Direct Line acquisition has been referred to the CMA, "our view is that this will not slow the deal timeline, given the well-known competitive nature of the UK motor and home insurance market."

A re-evaluation of Aviva’s financial targets is expected once the Direct Line deal is completed, with a UK competition authority decision due by 10 July.