Aviva’s acting chief executive John McFarlane is faced with no easy answers for fixing Aviva’s woes

Who could ever forget former chief executive Andrew Moss trumpeting the slogan “one Aviva, twice the value”? That was the optimism before the outbreak of the financial crisis.

Nowadays, the joke around the City is “one Aviva, half the value” as the eurozone crisis and economic downturn leaves the insurer trading at well below book value. So where does Aviva go from here?

Chairman and acting chief executive John McFarlane believes that Aviva needs to strengthen its capital base, and more will be revealed at today’s investor presentation. He has three choices, all of which are fraught with risk.

First, he could slash the dividend and plough the money into capital reserves. But that could rile a clutch of powerful analysts who believe Aviva is already sufficiently capitalised, following the RAC and Delta Lloyd sell-offs. It may also antagonise institutional shareholders, some of whom will have suffered their third cut in a decade, and ultimately risk plunging the share price to historic new lows.

Few buyers are around, and the price would be low”

Secondly, he could sell major assets, such as the US life business, the Canadian general insurance arm or even the jewel in the crown, the UK general insurance operation. Few buyers are around, however, and the price would be low, representing a poor deal for shareholders.

Finally, McFarlane could dispose of underperforming bits and pieces while slimming down operating costs. But that might not raise much money, leaving Aviva undercapitalised and in need of drastic action if the markets suffer another shock. There’s always a rights issue, but that’s pretty much the nuclear option.

There are no easy answers for McFarlane and chief financial officer Pat Regan. Aviva cannot untangle itself from Italy and Spain, and as long as the seemingly interminable eurozone crisis drags on, the world’s sixth largest insurer is likely to remain vulnerable.