With its shares down 16.5p to 358.3p so far on Monday, Aviva has issued an update saying the decision to leave the European Union would not have a major effect on its operations. It said:
Aviva’s capital position is resilient to market stress, and the company estimates that as of close of the markets on Friday 24th June 2016, its Solvency II coverage ratio remained close to the top of its working range of 150% – 180%.
As announced on 24th June 2016, Aviva has conducted extensive analysis of the possible implications of a vote to leave the EU and considers it will have no significant operational impact on the company.
At Aviva’s 2015 preliminary results, published in March 2016, Aviva reported a Solvency II ratio of 180% and a surplus of £9.7 billion. Aviva has one of the strongest and most resilient balance sheets in the UK insurance sector with low sensitivity to market stress and over the last four years Aviva has tripled its economic capital surplus.
Aviva will continue to monitor the technical implications of the vote to leave, which will only be resolved after several years of negotiating a new relationship between the UK and the EU.
Meanwhile analysts at Macquarie suggested the falls had been overdone:
Aviva share price fell by more than other UK insurers, inline with the UK banks. We believe this reflects the Aviva balance sheet of three years ago rather than today. Aviva have taken action to reduce volatility ahead of the solvency II framework including disposing distressed property loans, reducing equity volatility (a 25% fall in markets was only 3% off the solvency II ratio at the year end). While we do not believe Aviva has a “fortress” balance sheet, it does offer a compelling valuation and dividend yield.
We have lowered our price target to 442p from 502p on lower expected earnings, and have upgraded to outperform [from neutral].
While we expect flat earnings and modest dividend growth, we believe Aviva should outperform if the de-risking actions have made the business more resilient.
Source: The Guardian