LONDON (Reuters) - Aviva (AV.L: Quote, Profile, Research), Britain's largest insurer, reported a 10 percent rise in nine-month sales on Thursday, towards the low end of expectations, and said profits came under pressure in the UK as it cut prices to stave off tough competition.
Sales of life and pensions rose to 16.3 billion pounds from 14.7 billion in the same period last year. Analysts had on average forecast a result of 16.4 billion pounds with individual forecasts ranging between 16.2 billion and 16.5 billion pounds.
Aviva, which operates as Norwich Union in Britain, cut prices on key UK product lines such as loan insurance and raised commissions earned on individual pensions in the third quarter to maintain sales momentum amid tough competition, dragging its profit margins down.
Gary Withers, the head of Norwich Union's life and pensions business, said he expected pricing pressure had peaked in the loan protection market and he expected competition to ease off for individual pensions after April next year, when new pension rules take effect.
"Looking forward from here, some of the price competition will be less intense," Withers told analysts, adding that sales would keep rising in the UK during the rest of the year and into 2006.
Aviva's UK gross margin -- before tax and the cost of capital -- fell to 3 percent in the third quarter from 3.2 percent at the half-year. The margins would have been weaker but for a decision to reduce the amount of capital needed to sell annuities, analysts said.
"This is the first glimpse we have had of margins in the UK market and it's not good. We expected pressure but not this much," said Craig Bourke, an analyst with Exane BNP Paribas, which has an "underperform" rating on the stock.
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