The UK's largest insurer reveals a 34 per cent decline in UK profits after 'some of the worst floods in living memory'

Aviva, Britain's biggest insurer, has sustained £400 million in weather-related losses during the first seven months of the year, as its operating profits fell 8 per cent to £1.54 billion.

The insurer reported a £235 million loss in the six months to June 30, 2007, £175 million of which directly relates to this year's floods, with the subsequent bad weather during July adding a further £165 million to Aviva's losses, which will be reported in its full-year results.

The company said today that "some of the worst floods in living memory", as well as an increasingly competitive market in general insurance, reduced profit in its UK business by 34 per cent to £560 million during the first six months of 2007.

Aviva's UK business, Norwich Union, which insures one out of every five homes in Britain, has increased the cost of household insurance by 10 per cent.

Although Andrew Moss, the group chief executive at Aviva, said that home insurance claims had been rising before the floods, because of increasing numbers of bathrooms being added to homes, thereby increasing the risk of water damage, and the prevalence of expensive wooden flooring in houses.

Underwriting profits from general and health insurance fell from £222 million last year to a £46 million interim loss.

Operating profits, which fell from £1.67 billion in last year's interim period to £1.54 billion, narrowly missed City forecasts which pegged Aviva's operating income at £1.56 billion.

Despite the weather's adverse effect on profits, Aviva remained upbeat, revealing that worldwide sales of its insurance products and services had risen by 25 per cent to £19.2 billion. However, shares fell from 705.5p to 697.5p in early trading.

Revenue from Aviva's US operation, boosted by the £1.6 billion acquisition last November of the local insurer AmerUS, which is now known as Aviva US, increased by 51 per cent to £1.7 billion.

Mr Moss said: "Overall, Aviva has performed well in the first half of 2007. Substantial weather related losses in the UK have been countered by strong growth across our life and asset management business."

The company also said today that its exposure to the troubled US sub-prime mortgage business was "negligible" through its asset management business which operates as Morley in the UK.

Aviva US has $30 billion (£14.7 billion) worth of assets under management which the company said had only a "tiny" exposure to collateralised debt obligations (CDOs).

These are a type of asset where debt is repackaged, invested in and sold on and is also a source of potential concern in today's market because it is often difficult to determine if there is high risk debt mixed in with other debt in the CDO. Aviva said that it has £377 billion worth of assets under management and a robust risk assessment system.

(Published by Times Online, August 9, 2007)

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