INSURANCE giant Aviva has said its recovery is gaining momentum, with new work in corporate pensions and emerging markets making up for the government's surprise shake-up of retirement annuities.
The firm, chaired by Scots-born businessman John McFarlane, announced a four per cent rise in operating profits to £1.05 billion for the first six months of the year.
Operating costs dropped eight per cent and an ongoing restructuring is progressing faster than expected.
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Aviva's life insurance arm brought in new business worth £453m, up nine per cent on the same time last year despite a 41 per cent drop in annuity sales. Chief executive Mark Wilson told reporters that annuities represent just four per cent of the group's operating profit, adding that the reforms "have impacted us less than most".
Almost £5 billion was wiped off the stock market value of British insurers in March when the Chancellor George Osborne unveiled sweeping changes to the way savers can access their pensions, removing the requirement to buy an annuity, which guarantees a yearly income.
HM Revenue & Customs expects 130,000 pensioners to use the new rules to withdraw cash from their pension pot next year, generating a tax windfall of £320m for the exchequer.
Mr Wilson said new business from annuities was already slowing before Mr Osborne's unexpected announcement, with many savers deferring their retirement, prompting Aviva to make "a deliberate choice to withdraw some of our capacity as margins declined".
"It's hard to say where individual annuities will end up, but as interest rates start to increase annuities will start to come more into favour," he said, adding that equity release was also soaring in popularity in Britain.
Sales of bulk annuities, or deals struck with companies to take on the risks of their defined benefit pension schemes, doubled to £260m in the first half of the year.
The company this week clinched a £300m contract with FTSE 250 group Interserve, and Mr Wilson said Aviva was targeting more agreements with mid-sized companies.
"We have reduced our debt, decreased expenses and increased profit - this is good business. Aviva remains a work in progress, and these results are a step in the right direction," said Mr Wilson, who took charge of the company at the start of 2013 following the departure of Andrew Moss.
"While some macro-economic trends are encouraging, we are not waiting for the markets to spur improvement in results."
Areas deemed growth markets, such as Poland, Turkey and Asia, now make up a quarter of Aviva's new business, up from 19 per cent last year. This expansion is helping to offset subdued growth in established markets that "all remain far from their potential", according to Mr Wilson.
In Aviva's general insurance business, which includes car and home cover, payouts for heavy storms in Canada took the shine off the strongest performance in UK and Ireland since 2006.
Aviva Investors, which brought in Euan Munro as its boss last year, now manages £234 billion and increased its operating profit 32 per cent to £41m in the period.
Mr Wilson has cut staff, sold businesses and slashed costs as part of his turnaround plan. He expects to have cut £568m a year from the business' expenses this year, beating the target of £400m set in 2012.
The firm hiked its interim dividend by 4.5 per cent to 5.85p, giving shareholders a lift after two years of almost no dividend growth.
Aviva's London-listed shares rose 12.8p to 502.5p.
Analysts at JP Morgan said profits at Aviva were one per cent ahead of forecasts. "Overall we believe that the results are reassuring of the progress Aviva is making into restructuring and achieving efficiency," they said.