Thursday, 8 March 2012

FTSE results and spare capital - Aviva

Just when you thought, after first AEGON and then the Pru, the EU exodus was about to start at the thought of Solvency II compliance costs, up front the lads at Aviva with their results today, accompanied by their UK CEO stating they were committed to being part of UK plc 'hook line and sinker'.

Regardless of whether such an EU-centric company has anywhere else to go is another matter, but it is refreshing that such regulatory arbitrage is not near the top of everyone's agenda (at least not publicly!).

The view also seems somewhat perverse when you look at the numbers - IGD surplus is down seismically y-o-y (although the sneaky pro-forma IGD estimate for end of Feb highlights how much of that was due to grumpy markets), but of more interest from an overall solvency needs perspective, their economic capital coverage is also well down, sitting at around 125% at year end. Again, they have thrown a quick-and-dirty pro-forma in to show the number at 145-150% at end of February.

As they are calibrated to AA rated (p8), this is ample for SCR coverage I guess, but the cynic in me suspects that capital efficiency must be putting HQ moves on everyone's agenda, particlarly when you look at the £96m bill for their Solvency II preparations last year (p 31)!

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