Aviva (LSE: AV.) shares have spent the past few years benefiting from a major shift in strategy, as the insurer streamlined its operations and exited weaker parts of the business.
That restructuring helped drive a re-rating in the stock. But the bigger question now is whether a second phase of growth is beginning to emerge.
With Direct Line being absorbed into the group and the wealth and retirement businesses continuing to expand, could the stock continue to surprise the market?
Wealth management
While Aviva shares are still widely viewed as a traditional insurance play, a closer look at the business suggests the earnings mix is steadily shifting.
One of the biggest drivers of that change is wealth management.
The UK wealth market could grow from around £1.6trn today to more than £4.3trn over the next decade as rising pension savings and long-term demographic trends continue to increase demand. That represents a structural growth opportunity rather than a short-term cycle.
The company already has a meaningful position in this market, managing over £234bn in assets across its wealth businesses. It also has a built-in customer advantage, with millions of UK customers and a large base of mass-affluent households that can be cross-sold retirement and investment products over time.
Crucially, management is increasingly positioning wealth as a capital-light engine of growth alongside its core insurance operations. With workplace platforms, adviser services, and direct wealth offerings being expanded, the group is gradually building a more diversified earnings base that is less dependent on traditional underwriting conditions.
Cash flows
What makes this opportunity more interesting is not just the size of the market, but the quality of the underlying cash flows driving it.
A large part of wealth growth comes from workplace pensions, where contributions are made regularly by employees and employers. These flows are highly resilient, with the vast majority coming from existing members. This makes the revenue base far more predictable than many other financial services businesses.
The model is also highly sticky over time. Workplace pension relationships often last for decades — from early career savings through to retirement planning. That creates multiple opportunities to serve the same customers with additional products. Today, 7.2m of its customers own more than one policy.
On top of this, the market itself is still expanding. Auto-enrolment has already driven significant growth in workplace pensions. But further increases in contribution rates and long-term demographic trends suggest there is still a long runway ahead.
Taken together, recurring inflows, long-duration relationships, and structural growth give the wealth line of business the potential to become a dependable engine of future earnings.
What could go wrong?
The main risk for the wealth story is that, while workplace pension flows are highly recurring, earnings are still partly linked to financial markets. A weaker investment environment could reduce asset values and dampen fee growth, even if contribution levels remain stable.
There’s also a degree of dependence on long-term policy direction, particularly around pension reforms and auto-enrolment rates, which have helped support the industry’s growth.
That said, I think the shares remain worth considering. I have added to my position in recent months after a pullback. I still think Aviva has the potential to surprise the market over time.
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Andrew Mackie owns shares in Aviva.
