The Aviva plc (LON: AV) share price edged higher after releasing presentation slides and a financial information pack on its website comparing the financial results for the six months to 30 June 2022 and the 12 months to 31 December 2022 based on the adoption of IFRS 17 and IFRS 9.
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The insurance company noted that the restatement of its financial results did not impact its strategy, dividend guidance, capital generation or return on capital outlook. The company's cash remittances and capital allocation approach were unchanged by IFRS 17.
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The company also noted that its Solvency II ratio was unaffected by the restatement, given that it is an essential metric under which the Group is managed. The company’s dividend guidance of about £915 million in 2023 was also not impacted.
The insurance firm reiterated its commitment to returning capital to shareholders sustainably, which was unchanged. The company expects to meet or exceed its Group financial targets for its own funds' generation, cash remittances and cost reduction, which were unchanged under IFRS 17.
While the total profits earned by a company on any given contract remain unchanged over the contract's lifetime, when the profits are recognised will be altered, resulting in improved long-term predictability of profit.
The restated business unit profit for the 2022 financial year was £1.9 billion, 15% lower than under IFRS 4 and consistent with the company’s previous guidance. The figures reflect the accounting changes to Aviva’s annuities and protection businesses, with new business profits being deferred over the contract’s lifetime.
The company now expects its operating profits to grow from the restated base. IFRS 17 introduces two new balance sheet concepts, the contractual service margin (CSM) and the risk adjustment (RA), both significant stocks of future profit.
The Aviva Group CFO Charlotte Jones commented: “The adoption of IFRS 17 is a significant milestone for the insurance industry and provides a comprehensive and more consistent approach to accounting for insurance contracts. The operating profit and balance sheet impacts we are announcing today are consistent with our previous guidance, and there is no impact to the underlying economics of our business, our strategy or dividend guidance.”
*This is not investment advice.
Aviva share price.
The Aviva share price surged 1.58% to trade at 395.55p, from Tuesday’s closing price of 389.40p.
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