Aviva (AV.) announced preliminary results for 2010 that reported profits up 26% from the prior year as return on equity reached almost 15% for the year. General insurance net written premiums rose 5% across the board while the combined ratio--expenses divided by premiums--dropped to 97% from 99% in 2009. Life and pension sales were up significantly in the United Kingdom but sales in the rest of Europe were flat. Book value per share increased 21% on a year-over-year basis and now exceeds levels of before the financial crisis.
Overall, Aviva had a very good 2010, as the rebound in global financial markets combined with the firm's repositioning efforts increased shareholder wealth. Recently, we reduced our cost of equity assumption for Aviva, which resulted in an increase in our fair value estimate, which remains unchanged. However, we still think the dynamics of the life insurance business coupled with uncertainty in the progress of international financial markets make investing in Aviva very risky.
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