Business World

Sunday 18 March 2018

Aviva's 'insurance man of endurance' has paid off

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John Lynch

The famous old song from the 1930s suggested that 'There's no one with endurance like the man who sells insurance' and the recent history of the company we are analysing this morning, London-based Aviva, proves that persistence can indeed produce its own rewards.

This column threw a critical eye over Aviva some five years ago, when it was about to put a new CEO in charge. The new boss was New Zealander Mark Wilson and it says much for his persistence and endurance that he is still in charge.

While Aviva's investors/fans may not now be calling him the 'Special One' like Jose Mourinho, they have good reason to be a lot more chipper than they were five years ago.

Our younger readers may be confused by the invented name 'Aviva' and may think it has something to do with the Football stadium in Lansdowne Road, but it is, of course, a creature of the 1990s when British financial services companies were thinking only of mega-mergers.

Aviva combined Commercial Union and General Accident, while the highly-rated Norwich Union Insurance was bolted on after a few years. Today the group offers life, general, accidental and health insurance along with a big asset management business. The company's revenues top £55bn, it employs 29,000 people and has 33 million customers in 16 countries, mainly Europe, Canada and Asia.

As mentioned earlier, the beginning of this decade was a bad place for Aviva. Its share price was in the basement and shareholders made their unhappiness abundantly clear for all those who chose to listen.

In 2011 its chairman was replaced by an ex-banker John MacFarlane (now chairman of Barclays) and the board set about finding a suitably qualified CEO that landed Mark Wilson with the job.

The new broom embraced the sweeping function with some enthusiasm.

He oversaw a string of asset disposals; he narrowed the group's focus on a small number of markets, and reduced its headcount.

He also cut the layers of management (CEO to operational staff) from 9 to 5, (a hint for our own Robert Watt, Secretary General in the Department of Public Service) and Wilson delivered impressive savings.

It wasn't all slash and burn. The group's life insurance business has been beefed up with the acquisition of Friends Life. While the purchase improved its presence in the corporate pension business, the deal involved pruning 1,500 jobs as part of the plan to deliver cost savings. Its general insurance business has been boosted by a Canadian bolt-on and the past few years has seen the company develop a significant asset management arm which now manages an impressive £350bn worth of stocks and bonds.

A few years back, Aviva was not the happiest place for investors. Its shares were in the doldrums and its debt level high. However since Wilson turned up for work in 2013 the share price has grown by about 77pc and the company generally has seen significant progress.

Today its market cap is £21bn. Its balance sheet has been strengthened and its debt reduction plan looks to be on track. While its asset management arm's contribution to profits has been disappointing, the overall increase in operating profits during this period is impressive: up £1bn to £3bn.

Its share trades at £5.24 way ahead of its five-year low of £2.95. Group cash generation has improved, driven by the UK's Life Insurance business. Shareholders' sentiment is positive with dividends per share up 56pc since 2013 and a promise from the CEO for further returns.

Meanwhile Aviva's solvency requirements are at the top end of the sector. The overall results were dented by a change in the way personal injury compensation reserve payments are calculated (the Ogden rate). So, can a 'star' manager make a difference?

Certainly in Aviva's case the CEO has helped turn the company around, transformed it, and positioned it for growth while keeping the shareholders happy. Aviva is a share worth considering.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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