In a statement to shareholders, the new Aviva chairman John McFarlane identified a further 13 non-core businesses “that are currently producing or will prospectively produce returns below the group’s required return” that will exit. The 16 affected businesses comprise £6bn of capital, £300m operating profit after tax, and 5% return on capital.
The full review of all 58 business segments in the group also highlighted 15 segments with unusually high return or growth, involving £3bn capital, £650m operating profit after tax, and 22% return on capital, such as Poland Life; Singapore Life; Turkey Life and Pensions; UK Personal Property; Canada Personal Property; and UK Life Protection.
According to the statement, the remaining 27 segments “are currently producing and likely to produce returns close to the group’s required return, but will require significant improvement”. These businesses comprise a chunky £7bn of capital, £750m operating profit after tax, and 11% return on capital and include Ireland General Insurance; Aviva Investors External; and Italy Unicredit.
McFarlane also acknowledged the disappointment about Aviva’s share performance in the statement and stated that he would address “legitimate concerns” about the complexity of the business structure; its financial strength; over-exposure to the Eurozone and capital-intensive life products; strategy; financial complexity; and its culture.
McFarlane said: “Shareholders find our business difficult to understand and feel we have expanded the international scope of our business too far. In addition, we have not demonstrated the benefits of being a composite insurer.”
A series of senior management changes also sees David McMillan, former chief executive, UK & Ireland General Insurance as Aviva’s new director group transformation to manage the implementation of the new strategic plan across the group.
The outline plan centres around three main objectives: to focus on fewer business segments , build financial strength and improve financial performance.
McFarlane stated: “Over and above this, we aim to advance our position and reputation with our customers and other stakeholders, and grow the capabilities of the group, such that we are in a stronger position at the end of each year in all respects than we began the year. In addition, we aim to implement a leaner and more agile operating culture, a higher performance ethic, and a less layered and bureaucratic management style."
He added that Aviva has great strengths that can be leveraged further, “including our strong position in the UK and Ireland, France, Canada, Poland, Singapore and in certain higher growth markets. The Aviva brand has also become incredibly distinctive.”
