Aviva resolves inter-company loan issue

Those subsidiaries were moved to sit under the group holding company, creating liabilities of £5.8bn to the UK general insurance arm.

Those liabilities were crystallised through the creation of an inter-company loan.

The Prudential Regulation Authority, Aviva’s primary regulator, was concerned that the UK general insurance business could be too reliant on the loan in the event of extreme stress, and asked that liabilities match assets.

Aviva will contribute £450m of cash to reduce the loan, and a further £1.45bn of non-cash items such as removing commercial paper guarantees and de-risking its pension scheme.

Analysts moved to welcomed the plan, with Panmure Gordon’s Barrie Cornes saying: “At this level [below £2.5bn] the general insurance operation can withstand a 1 in 200-year stress test impact without need to call on the internal loan. This is a significant achievement.”

Aviva made a post-tax profit of £2.15bn in the year to December against a loss of £2.93bn in the prior year.

Cash flowing back to the group from subsidiaries – one of Mr Wilson’s five key metrics – rose 40pc to £1.27bn, allowing the final dividend to be raised 0.4p to 9.4p.

The results reflected Mr Wilson’s attempts to restructure the business, not least his efforts to free up cash flow in core operations, such as in the UK and France, and to turn around businesses in the likes of Ireland, Italy and Spain.

The recent UK floods have cost £120m, albeit offset by better weather earlier in 2013 and a lack of snow, frost and high winds in January and February of this year.

Aviva Investors, its fund management business, took a £132m hit after the group discovered improper allocation of bond trades by two former employees.

The discovery was made last year, since when internal controls have been increased, and the matter has been handed to the Financial Conduct Authority.

Mr Wilson said that while he was pleased with the performance since taking the job at the start of 2013, there was still much to do.

“There is some room for optimism, but no room for complacency,” he said.

Shares in Aviva closed up 42p at 504.5p, a five-year high.

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