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Turmoil on world stockmarkets has wiped £600m off the surplus capital of life and pensions company Aviva in less than a month, executives admitted today.
The chief executive, Andrew Moss, also said there was a chance that a planned payout to policyholders from the company's orphan estate "might not happen", though he added that he was "a long way" from making that decision.
The group, which owns the Norwich Union brand, has seen its cushion of extra assets fall from £1.9bn on September 30 to £1.3bn on October 24 because of plunging share prices. Aviva said a further 20% fall in share prices would knock another £350m off its buffer, but claimed its capital position was strong.
The share price rose strongly in early trading by 31.5p to 276.75p, but has halved in the past month because of fears that Aviva and other insurers may have to turn to the state for a bail-out in the same way as the banks. Insurers in the Netherlands are already tapping the state for help.
Moss said there had been "no discussions" with the government over capital support, and that he believed rival insurers were also strong. He added that the group had plenty of liquidity, with direct access to £1.6bn of liquid assets and £2.2bn of committed credit facilities. This means it should not be caught short if a mass of customers rush to cash in policies.
The company has already said that it might revisit the terms of the planned share-out from its orphan estate - another pool of assets owned by shareholders and policyholders - because of the steep fall in shares, with the FTSE 100 index still under 4000 this morning, from 5421 at the end of July when the deal was announced.
However, this is the first time Aviva has acknowledged in public that the payout, scheduled for the middle of next year, might not go ahead at all. Moss added that any decision would be taken in consultation with Claire Spottiswoode, who is acting as an independent advocate for policyholders.
Aviva said defaults in its US corporate bond portfolio were £137m, relating mainly to losses on Lehman Brothers, Washington Mutual, Fannie Mae and Freddie Mac. Unrealised losses in the US almost doubled in the third quarter of this year to £1.58bn.
Sales of new life assurance and pensions policies rose 12% overall to £25.7bn, but dipped by 1% in the UK to £8.6bn. Moss said he expects the long-term savings market to fall by 5% in the UK because of difficult economic conditions, but added: "We are acutely aware that these are tough times for consumers but people are still saving and still buying insurance."
He added that there is "a real disconnect" between Aviva's current share price and the underlying value of the business. "Prices are being driven by fear. I expect more volatility until the end of next month and the bank rights issues."
He said he did not see a need for a rights issue to bolster capital and the dividend has been maintained. Moss said he is "cautious" on possible acquisitions, including assets from collapsed US insurer AIG.
Finance chief Philip Scott said he had been through five downturns in the 35 years he had been with Aviva, and that the 1975 share crash was worse, but added: "This is a very extreme financial event that we are living through."
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