Insurers Aviva and Legal & General reap the rewards – as we won’t live as long as they feared
The change has prompted insurers to reassess the funds they are required to hold to pay out to retired customers.
Aviva, which makes most of its profits in life insurance, is expected to report a 1 per cent rise in profits to £3.1billion.
In the money? Insurance giants Aviva and Legal & General are poised to announce higher profits this week
Analysts at JP Morgan said Aviva’s operating profits were flattered by a £200million release from the funds the company must hold – because customers were not living as long as previously forecast.
Legal & General is expected to benefit from a similar one-off charge. Around £300 million of funds previously set aside are expected to help boost profit by 11 per cent to £2.3billion.
But other insurers are likely to complain of tougher times.
Car specialist Direct Line is expected by analysts to post a 12 per cent fall in full-year operating profits to £565 million following bigger losses from bad weather.
And Direct Line’s gross written premiums – the revenue an insurer expects to receive from its contracts – are forecast by analysts to fall for the first time since 2013 after key partnership deals with Sainsbury’s and Nationwide ended.
Its premiums are tipped to total £3.22billion for the year, down 5 per cent from £3.39billion in 2017.
Andreas van Embden, analyst at Peel Hunt, said the motor and home insurance markets in the UK were ‘in flux’ and Direct Line was facing higher claims on its personal insurance products.
‘Both segments of the market are suffering from an increase in claims frequency whilst rate increases are struggling to match this trend,’ he said. Van Embden has forecast Direct Line will announce a £90million loss on weather-related claims.
However, despite the profits drop, Direct Line is expected to announce a special dividend of 7.5 pence per share on top of a final dividend of 14 pence.
The updates from big insurers come after RSA’s share price was knocked last week after unveiling its first decline in profits since 2013.
The insurer was hit by higher insurance claims from the ‘Beast from the East’ cold snap which struck this time last year. RSA’s operating profit fell 19 per cent to £517million.
Admiral, regarded as one of the best performers in car insurance, is tipped by analysts to announce that profit before tax rose from £403.5million to £445.8million.
The insurer boasted a 12 per cent increase in customers in the first half of the year, a trend experts think will continue.
The results come as insurers restructure their businesses in preparation for the UK’s exit from the European Union.
Insurers are moving millions in assets out of the country so they can continue to pay out to European clients if Britain loses access to EU markets.
Admiral has moved £374.4million to Madrid, while AIG and Hiscox have moved £5.6billion and £421.5million respectively to Luxembourg.