Aviva soothes fears over accounting rules

Shares in the UK's largest life insurers were boosted yesterday after Aviva became the first company to adopt new European accounting rules for the sector, revealing the changes may not hit company values as hard as analysts had feared.

Shares in the UK's largest life insurers were boosted yesterday after Aviva became the first company to adopt new European accounting rules for the sector, revealing the changes may not hit company values as hard as analysts had feared.

The rules affect the way in which life insurers calculate their embedded value, the most common method for valuing life companies. Although the new method of calculation will not become mandatory before the end of the year, Aviva implemented the changes for its latest financial year, which ended on 31 December.

While some analysts had feared that the recalculation could reduce life insurers' embedded values by up to 20 per cent, Aviva announced yesterday that the rules will reduce its value by only 5 per cent.

Shares in Aviva rose as much as 1.7 per cent in early trading, while shares in its FTSE 100 rivals - Prudential, Legal & General and Friends Provident - were up more than 3 per cent during the day.

Although the rules will hit each individual firm by different amounts, investors took heart that the effects are unlikely to be as bad as feared. Andrew Moss, Aviva's group finance director, said the rules would lead to "greater transparency and comparability" for investors.