Aviva’s strategy day for its health business yesterday was enlightening said analysts, but ultimately it represents a small part of the business.
UK Health accounts for 5% of operating profit and is expected to grow at a 15% CAGR through 2026 to £ 100 million, though Citi notes this was a third higher than its models.
Profitability has been consistently low 90s combined ratio/underwriting profit including in 2023 when others saw post-pandemic severity issues that Aviva better anticipated.
Its expense ratio is very low at 11%, while Aviva is the #3 player with a market share of 13.5% against 32% and 37% for the market leaders.
Share is expected to grow by the mid-teens compared with 7-10% for the market, supported by a 10% annual revenue increment in lives from Corporate (leveraging group relationships) and Consumer & SMEs.
KBW added that Aviva expects all segments to contribute to Health's growth, with consumer and especially direct/digital perhaps increasing in the mix slightly.
Earnings growth is expected to be primarily a function of policy growth, with efficiency, business margins and inflation adjustments as second-order drivers overall.
Looking nearer term, KBW adder it sees the insurer’s solvency ratio below 205% when it next reports (on 23 May).
“The positive of divestments (+7pp) is offset by dividends / buy-backs (-11pp) and capital generation is offset by negligible/negative market movements (spreads/equities negatively offsetting the benefit of higher yields).
“We remain of the view that the 96.2% 2023 undiscounted combined ratio should improve by full year-end (2024E: 95.2%) – a lower number equals more profit.
"Aviva should also provide the usual update on savings trends. We do not expect any outsized moves relative to our full-year expectations."
KBW has a target price of 455p and 'market perform' rating.