RBC downgrades Aviva on solvency ratio concerns

RBC Capital Markets has downgraded Aviva from ‘Sector Perform’ to ‘Underperform’ based on the company’s solvency ratio and as it steps away from the bulk annuities market.

The investment bank believed the insurance company’s economic capital coverage ratio at 172% was towards the lower end of what investors would find acceptable.

“We believe investors will be comfortable with ratios of 180% for life companies and 150% for non-life companies. Aviva is a composite and the equivalent ratio is 170%, in our view.”

RBC said the company’s move to selling commercial mortgages and staying clear of UK bulk annuities indicated the Aviva has realised the ratio is not high enough.

The company had also seen growth through acquisition instead of organic growth, and it’s major UK growth engine has been turned off.

“The group appears to have stepped back from bulk annuities in the UK which we see as high growth and high margin while the asset management business will take time to develop a three year performance track record which it needs to drive institutional inflows.”

RBC Capital Markets also reduced the company’s target price from 490p to 460p.

The company’s share price slowly slipped on Thursday morning, with shares down 5p (0.97%) to 509p at 1034 GMT.