Job losses sour Aviva's profits upgrade

Aviva gave shareholders a pleasant surprise yesterday with news that its profits for the year are set to beat expectations, a day after it told 1,600 employees they would lose their jobs.

Aviva gave shareholders a pleasant surprise yesterday with news that its profits for the year are set to beat expectations, a day after it told 1,600 employees they would lose their jobs.

Despite announcing last month that sales of life and pension products over the year had been flat, Aviva said it had enjoyed a strong second-half performance in its life and general insurance operations. It now expects operating profits of about £1.9bn, compared with £1.7bn for 2002. Analysts had expected Aviva's profits to remain stable in 2003, given the stagnation in its life and pension sales, but the increase means Aviva will be back at profitability levels not seen since 2001. Shares in Aviva closed up 7 per cent at 536p, making it the day's top FTSE 100 performer.

The improvement in profits is expected to have come from its general insurance business, where premium rates have been high and claims may have been low in the fourth quarter. But cost-cutting measures are also thought to have been key to the increase. About 3,500 jobs have been lost at the company in the past year, with 2,350 being outsourced to India.

"The company has been trying to reduce central expenses and it seems this must have had more effect than people thought," Roman Cizdyn, an analyst at Commerzbank, said.

These measures are continuing, with Norwich Union, its UK brand, announcing on Thursday that it was closing its insurance broker business with the loss of 1,600 jobs.

The company said it was forced to make the announcement, which comes only two weeks before its full results, because of stock exchange rules. These require companies to disclose immediately if their expectations are different to the consensus in the market.

A spokeswoman for Aviva said its timing was "unfortunate" given the recent news about Hill House Hammond, its broking subsidiary that has been given the axe in favour of telephone and internet sales channels.

Dave Fleming, the national secretary for Amicus, said Aviva had been insensitive to the plight of staff. "This is good news for Aviva, but there has been bad news for employees. This leap in profits needs to be shared with employees by giving them secure jobs.... We all want to see companies doing well, but it should not just be the boardroom that benefits from good profits," Mr Fleming said.

Staff at Norwich Union are also angry that they are being asked to contribute to their pension fund for the first time.