Aviva could shed 15 divisions in radical overhaul
Aviva is considering selling or closing up to a fifth of its business divisions in a radical overhaul of one of the UK’s leading insurers.
By Kamal Ahmed, and Jamie Dunkley
9:41PM BST 30 Jun 2012
In a strategy presentation to be given to analysts this week, John McFarlane, the recently appointed executive chairman, will reveal that of the 58 business divisions identified in the company, between 10 and 15 could be sold or wound down.
Although it is unclear which businesses Aviva will highlight as possible sale or closure targets, analysts have previously questioned whether the insurer’s US life business is a strong enough performer. Commentators have also raised the prospect of Aviva further selling down its stake in Delta Lloyd, the Dutch insurance provider.
Last year, Andrew Moss, the former chief executive who resigned after a significant shareholder revolt over his pay, reduced the Aviva stake in Delta Lloyd from 58pc to 43.1pc, raising £400m.
Patrick Regan, Aviva’s chief financial officer, oversaw the strategy review, which was supported by Boston Consulting Group. Each business unit was ranked on the basis of growth potential and return levels. Many operating units were said to be “mediocre” in terms of performance.
The sale and closure process will mean that Aviva profits are likely to fall and net assets will be reduced. But with the reduction of poorly performing units, the release of capital and the cancelling of bad debts, tangible net worth will increase, the presentation is likely to say. Return on equity should also be improved.
Mr McFarlane also wants to reduce the cost-income ratio at Aviva and is looking at tackling head office costs, integrating technology across different businesses and reducing the number of management layers from 11 to five. The insurance company’s property portfolio will also be reviewed.
The Sunday Telegraph can also reveal that Mr McFarlane has waived any increase in the chairman’s remuneration package, despite taking on executive duties since Mr Moss’s departure. It is believed that after the shareholder rebellion over Mr Moss’s £5.2m pay package, Mr McFarlane thought it would have been politically difficult to agree any increase.
Mr McFarlane has taken the executive chairman role as an interim measure, with Aviva expecting to announce a new chief executive in the next six months. It is now clear that whoever is put in charge of executing the new strategy could have a good chance of getting the top job. Internal candidates in the running include Mr Regan.
Patrick Snowball, the former Aviva UK chief executive, has also been sounded out by headhunters. Mr Snowball left Aviva in 2007 after losing out to Mr Moss in the race to become chief executive. He now runs SunCorp in Australia and told The Sunday Telegraph that he is not interested in rejoining Aviva: “I did hold exploratory talks with headhunters and am flattered to have been approached. However, I have no plans to go back. I have a great job in a great country, so why change anything?”
Aviva has appointed City headhunder Spencer Stuart to conduct a global search for its new chief executive. This followed a “beauty parade” of candidates, which included MWM Consulting and JCA Associates, who both led the search for Aviva’s new chairman last year.
Barry Smith, the chief executive of rival insurer Ageas, is also believed to have been approached by headhunters in recent weeks. Mr Smith, a former chairman of the Chartered Insurance Institute, is highly regarded in the industry but known to be keen to stay in his current role. Industry insiders say that Ageas – part of the Belgian-Dutch financial group Fortis – could pursue a London Stock Exchange flotation in the next two years with Mr Smith at its helm.
Other candidates linked with the role include Nick Prettejohn, the former Prudential UK chief executive.