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FT Opening Quote: Aviva shrugs off impact of claims changes

Summary:
Aviva shrugs off impact of claims changes, Morrisons reaps benefits of turnaround and Countrywide profits drop. FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here. It’s not been so much Compare the Market, as compare the car crash. This week, three of Britain’s biggest motor insurers have shown how badly their their profits have been dented by a change to the way personal injury claims are calculated. For Direct Line it was £217m; for Admiral £91; and, this morning, for Aviva – despite promoting its policies to “safer” drivers – it has proved to be a charge of £380m.Without that damage, operating profit increased 12 per cent to £3bn – well ahead of Panmure Gordon’s forecast of an 8 per cent increase to

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Aviva shrugs off impact of claims changes, Morrisons reaps benefits of turnaround and Countrywide profits drop. FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can sign up for the full newsletter here.

It’s not been so much Compare the Market, as compare the car crash. This week, three of Britain’s biggest motor insurers have shown how badly their their profits have been dented by a change to the way personal injury claims are calculated. For Direct Line it was £217m; for Admiral £91; and, this morning, for Aviva – despite promoting its policies to “safer” drivers – it has proved to be a charge of £380m.

Without that damage, operating profit increased 12 per cent to £3bn – well ahead of Panmure Gordon’s forecast of an 8 per cent increase to £2.9bn. This was helped by strong performances from UK and Ireland general insurance, fund managers Aviva Investors, and a full-year contribution from the acquisition of Friends Life, with its associated cost synergies.

General insurance net written premiums were up 15 per cent to £8.2m, while the value of new life insurance business grew 13 per cent £1.3bn.

Aviva’s Solvency II ratio – of capital as a proportion to the new regulatory requirement – also increased, from 180 per cent in 2015 to 189 per cent. In fact, it is so pleased with the progress in strengthening its capital position that it is planning to return cash to shareholders this year. It did not elaborate on how it would return the capital but did push the full year dividend up by 12 per cent.

Chief executive Mark Wilson said: “Aviva’s results are simple and clear cut: more operating profit, more capital, more cash, more dividend. And there is more to come.”

But investors hoping for signs that Aviva’s new digital strategy can offset the personal injury hit – by boosting online cross selling, and taking Compare The Market out of the equation – may have to wait. Increasing the number of multi-product customers, using a new 15m customer database, is described as “the next phase of our digital journey”

Price comparison is unavoidable in the supermarket sector, and the latest data from Nielsen suggest it is continuing to benefit Aldi and Lidl – in market share at least – at the expense of the UK’s big four. Of that four, however, WM Morrison, has lately been on top: recording the strongest growth in sales in the 12 weeks to 25 February. Over the period, Nielsen said Morrisons achieved a 1.9 per cent year-on-year increase in sales, adding to evidence that the restructuring under chief executive David Potts is starting to bear fruit (as well as pies).

This morning’s annual results show this is a continuation of an improving trend: like-for-like sales excluding fuel were up 1.7 per cent in full-year 2016, and positive in all four quarters. As a result, group revenue rose 1.2 per cent year-on-year to £16.3bn, despite store closures. But reported pre-tax profit leapt by 50 per cent to £325m, as the benefits of the turnaround plan, rather than the costs, were felt. Net debt was also cut by £552m to £1.2bn.

This morning, Mr Potts said: “Our turnaround has just started, and we have more plans and important work ahead. If we keep improving the customer shopping trip, I am confident that Morrisons will continue to grow.”

Royal Dutch Shell is seeking to cut debt, too, albeit on a larger scale after its £47bn acquisition of BG. And this morning it found the means to pay down another chunk, by selling a series of Canadian oil sands interests and trimming a stake in another, netting proceeds of $7.2bn.

Chief executive Ben van Beurden said:

“This announcement is a significant step in reshaping Shell’s portfolio in line with our long-term strategy. We are… prioritising businesses where we have global scale and a competitive advantage such as integrated gas and deep water. The proceeds will accelerate free cash flow and reduce gearing and make a meaningful contribution to Shell’s $30 billion divestment programme.”

And, finally, Countrywide, which owns the UK’s largest network of residential estate agencies, has put rival Foxtons’ halving of pre-tax profit in context – by reporting a 59 per cent fall in its own, to £19.5m. It will now conduct a share placing amounting to up to 9.99 per cent of its share capital to reinforce its balance sheet.

It has also said it can pay no final dividend for the year and will have to rebase its dividend policy to a lower percentage of underlying pre-tax profit. Who’d be an estate agent? Don’t answer that.

Beyond the Square Mile

Asia Pacific stocks’ performance more generally was mixed. Sydney’s S&P/ASX 200 index was headed into the close off 0.3 per cent, while Tokyo’s Topix was up 0.3 per cent and in Hong Kong the Hang Seng was down 1.1 per cent.

Oil prices were fighting to recover in Asia trading after their biggest fall in more than a year on news that US crude inventories climbed for the ninth straight week to a fresh high.

The dollar index — a measure of the greenback against a basket of its peers — was up 0.1 per cent at 102.21.

Investing through uncertainty

What will Brexit, European elections and Trumpflation mean for London as a financial centre? Join the FT’s markets editor, Mike Mackenzie, and editor of FT Trading Room Philip Stafford for an evening of drinks and discussion at the Financial Times.

Intraday

In the US, the S&P 500 is expected to start the trading day flat in New York.

Corporate earnings reports out today include Hugo Boss, Carrefour, Morrisons, Old Mutual, Domino’s, Countrywide, Premier Oil and Aviva.

The economic calendar for Thursday is starts late but ends strong (all times London):

10.00: Greece unemployment rate
11.00: Ireland Q4 GDP
12.45: European Central Bank interest rates decision

The markets at 07:57

Asian markets
Nikkei 225 up +64.55 (+0.34%) at 19,319
Topix up +4.43 (+0.29%) at 1,555
Hang Seng down -272.95 (-1.15%) at 23,509

US markets
S&P 500 down -5.41 (-0.23%) at 2,363
DJIA down -69.03 (-0.33%) at 20,856
Nasdaq up +3.62 (+0.06%) at 5,838

European markets
Eurofirst 300 up +0.37 (+0.03%) at 1,469
FTSE100 down -4.38 (-0.06%) at 7,335
CAC 40 up +5.48 (+0.11%) at 4,960
Dax up +1.17 (+0.01%) at 11,967

Currencies
€/$ 1.05 (1.05)
$/¥ 114.41 (114.32)
£/$ 1.22 (1.22)
€/£ 0.8662 (0.8658)

Commodities ($)
Brent Crude (ICE) up +0.41 at 53.52
Light Crude (Nymex) up +0.36 at 50.64
100 Oz Gold (Comex) down -4.00 at 1,205
Copper (Comex) down -0.02 at 2.58

10-year government bond yields (%)
US 2.57%
UK [Symbol not found: GB10,P:FSI]
Germany 0.37%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.33bps at 19.52bp
Markit iTraxx Europe +0.51bps at 71.81bp
Markit iTraxx Xover +3.67bps at 285.06bp
Markit CDX IG +1.33bps at 63.77bp

Sources: FT, Bloomberg, Markit

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Siona Jenkins
Former Cairene; FT Middle east news editor. Views my own.