The Investment Column: European insurance policy puts a premium on Aviva so keep buying

The consumer spending spree in the UK may finally be over as fears of rising interest rates deter Britons from piling more on to their smoking credit cards. But they are still saving far less than their fellow citizens in continental Europe.

Aviva, the insurance giant which trades as Norwich Union in the UK, now generates nearly 60 per cent of its life and pensions business from overseas. Yesterday it reported stellar growth figures from its European operations, where life sales claimed 31 per cent in the first three months of the year, overshadowing a meagre 1 per cent growth in UK revenues.

Aviva's success overseas owes a lot to its smart tie-ups with local banks which sell its products through their branches. It has recently struck up partnerships with Credit du Nord in France and UniCredito Italiano in Italy. Philip Scott, Aviva's head of international life operations, admitted that the first-quarter growth rates in Europe were exceptional and would fall to low double-digit levels for the rest of the year, but that still leaves a number of European life markets growing more strongly than Britain.

The British market isn't as bad as Aviva's performance suggests. The 1 per cent revenue growth is very poor compared with the numbers announced this month by Norwich Union's competitors. The laggardly performance is partly down to a decision to improve profitability rather than chase new business at any price. Norwich Union profit margins have improved to 3.1 per cent from 2.9 per cent as it cut commissions to pension sales advisers.

Aviva expects its UK sales to pick up over the year, in line with the 5 per cent growth forecast for the market as a whole. That compares with a more bullish target of 10 per cent at Prudential, but offers a decent balance between volume and margin growth. It could do even better if the UK pensions time bomb starts to penetrate the popular consciousness and gets people to save.

About one-third of Aviva's business is general insurance - everything from car insurance to loss of earnings protection. Last month's £1.1bn deal to buy the motoring services group RAC will create exciting cross-selling opportunities, as it will bring together two of the UK's biggest brands and tap into RAC's membership.

The dividend yield this year is forecast to be 4.6 per cent on the current share price, and the stock is a buy.