Aviva reaches deal on surplus assets as profits rise

By Clara Ferreira-Marques

LONDON (Reuters) - Aviva posted a 12 percent rise in first-half profit as the strong euro helped offset the impact of market turmoil and announced a long-awaited deal to reallocate surplus assets held by two with-profit funds.

The insurer, which has been considering the future of the surplus assets or "inherited estate" for over two years, said it would make a 1 billion pound offer to policyholders to reattribute the cash -- money built up in the funds over the years above what is needed to meet policyholder commitments.

The payout, which amounts to roughly half the assets remaining after an earlier distribution, will be funded from shareholder resources. Unlike policyholders, equity investors do not get an immediate payout, but the 2.1 billion pounds can eventually be removed from the with-profit fund into Aviva's overall capital, helping to fund growth or to boost dividends.

Aviva said the reattribution would create a one-off embedded value profit of 225 million pounds, and a one-off statutory profit of 390 million, helping to underpin dividend growth.

Over the first-half, Aviva's operating profit on a European embedded value (EEV) basis rose to 1.72 billion pounds, broadly in line with forecasts and up from 1.54 billion a year ago, when it was hit by the cost of heavy flooding in Britain.

Statutory operating profit was up 7 percent at 1.23 billion pounds, also in line with analyst estimates.

Aviva is the first major UK insurer to report earnings for the first half of the year, and analysts said on Wednesday its numbers would likely reassure investors and the broader sector.

Aviva's shares, heavily sold ahead of the results, rose almost 8 percent and were up 4.3 percent at 487p by 10:58 a.m., beating a 1.5 percent rise in the FTSE index.