Aviva, Britain’s biggest insurer, yesterday reported a 34 per cent fall in first-half profits in its general insurance business and disclosed costs of £400 million from flooding and storms.

The group, which operates its general insurance business under the Norwich Union brand, said that an 8 per cent drop in interim operating profits was mainly because of payouts on UK home insurance policies.

The result overshadowed the 24 per cent growth that Aviva reported in its life assurance division and an upbeat outlook from the company.

Andrew Moss, group chief executive of Aviva, which is parent company to Norwich Union, said that extreme floods and tough competition had reduced profits to £560 million in the first six months of 2007.

“We’ve just had an event which has cost £340 million all told in terms of the Norwich Union UK general insurance business,” Mr Moss said. “It’s broadly halved the profits of that business. If you look at the household business in isolation, we’ve lost a lot of money on that, we have to react to it reluctantly to say . . . we’re going to price for risk going forward.”

Aviva also revealed that a planned redistribution of part of £13 billion in inherited estates to policyholders would be delayed, but promised an update on negotiations before the end of the year. Philip Scott, the group finance director, said: “We remain optimistic that such reattribution could occur — the negotiations are continuing.”

Aviva’s operating profits, which fell from £1.67 billion in last year’s interim period to £1.54 billion, narrowly missed City forecasts, which had put Aviva’s operating income at £1.56 billion.

Despite the weather’s adverse effects, Aviva remained upbeat, disclosing that worldwide sales of its insurance products and services had risen by 25 per cent to £19.2 billion.

A series of bancassurance deals, including a partnership with HSBC, had added 30 million customers to the business, Aviva said.

Revenue from Aviva’s operations in the United States, boosted by the £1.6 billion acquisition last year of the insurer AmerUS, now known as Aviva US, rose 51 per cent to £1.7 billion.

Mr Moss said: “The jury has been out on the benefits of that acquisition. These numbers should change that.”

However, Mr Moss played down the prospect of further acquisitions. Shares in Aviva closed off 2p at 703½p.

Mr Moss said premium increases would be targeted toward areas that were more susceptible to flooding, adding that it was possible some households would escape higher premiums altogether. The average cost of a flood claim was more than £15,000, he said.

Aviva paid out £235 million for weather damage in the year’s first six months, including £175 million after the flooding in June and £60 million from storms in January. A further £165 million in losses from flooding in July will be taken into account in the group’s full-year results.

Analysts have welcomed a cost-cutting drive that will include merging Aviva’s asset management businesses, which operate as Morley in the UK.

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