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Aviva looks to bolt-on acquisitions, debt reduction as cash pile grows

A large capital surplus means Aviva Plc is in a position to consider both M&A deals and reductions to its debt, CEO Mark Wilson told journalists during a first-half earnings call.

The British insurer finished the half with a capital surplus of £11.4 billion and has a Solvency II ratio of 193%, which is "well above our working range," he said. Aviva is sitting on a "fairly large pile of cash" and is now considering its next move.

"Having that surplus position offers us a lot of options," Wilson said. "We are considering bolt-on acquisitions in our existing markets, as well as reducing our debt load."

Wilson added: "We've also shown our ability to return capital to shareholders. We've worked really hard to build that [cash reserve] up in the past few years, and we won't be frivolous with it.

"Maybe we will look at buying technological businesses that have a skill set that we don't [have]. Maybe we will buy something in one of our growing markets, such as Poland or Turkey."

Aviva recently announced the sale of its Spanish business and Friends Provident International Ltd.

"We've been pretty tough about reallocating capital around the group to the business lines and products that offer higher returns," Wilson added.

On the subject of which businesses he was thinking of pruning in the future, he said he was considering an exit from Taiwan but rethinking his previously bearish view on India.

"[Taiwan] is a small business — it's a distraction and it doesn't add a lot to the group," he said. "On the other hand, we are reassessing other parts of the group.

"It's well known that I haven't been a fan of the Indian market for some time. But when the dynamics in the market change, it's wise to reassess, and it has changed in India. There's been demonetization and increasing digitization. We are assessing our options. Can we be disruptive? Can we significantly grow in that market?"

Growth in UK

Aviva was able to grow its business in the U.K. despite a "subdued" economic backdrop, according to Wilson.

"One of the reasons we are doing well is we have a diversity of products and 50% of our business outside the U.K.," he said.

The U.K. and Irish life business saw 6% year-over-year growth in first-half operating profit to £756 million, while profits in the U.K. and Irish general insurance segment rose 17% to £259 million.

Wilson described the the Ogden rate, a discount rate used to calculate personal injury payouts in the U.K., as "a piece of random policy-making," adding that he was "waiting with bated breath" for the result of the government's ongoing review of the rate.

Aviva hiked its interim dividend by 13% to 8.4 pence per share on the back of an 11% rise in first-half operating profit to £1.47 billion.