Incoming chairman is expected to announce the sale or closure of 15 divisions
Analysts have warned that now is not the right time for Aviva to sell its UK general insurance (GI) business as new chairman John McFarlane prepares to unveil the company’s latest strategy plans today.
The insurer could close or sell up to 15 divisions in an overhaul of the business, including the company’s US operation, said to be worth £1bn, and its stake in Dutch insurer Delta Lloyd, according to reports.
Aviva’s capital position, dividend payment and potential sales of underperforming businesses are all likely to come under the spotlight at today’s presentation to the market.
Panmure Gordon analyst Barrie Cornes said the timing for any potential sale was not opportune right now.
“We hope that in his attempt to rebuild investor confidence, John McFarlane does not throw the proverbial baby out with the bathwater,” he said.
“We have said previously that a disposal of the non-life operation would be positive, given its implied valuation as part of the group, but without a ready buyer (RSA has effectively now ruled itself out) we do not think that such a move currently would be sensible.”
McFarlane became chairman of Aviva this week, replacing Lord Sharman of Redlynch, and has assumed charge of the company with the departure of chief executive Andrew Moss in May. McFarlane is expected to reveal at today’s presentation that between 10 to 15 businesses will be shut or sold.
He has already stripped out four layers of management at the company’s London headquarters, and has split the operations into more than 50 units, classified either as core, in need of improvement, or for sale.
Sources close to the situation said that cost-cutting and deciding whether to slash the dividend would also be high on the agenda.
“My sense is that they will announce a load of cost-cutting,” one insider said. “McFarlane actually starts this week, so in order to make himself look as good as possible, he will get all of the bad stuff out of the way first and then build from there. After all, it didn’t happen on his watch, so he has the chance to wipe the slate clean.”
But the source questioned how much money Aviva could raise from any potential sale, given the lack of buyers in the market and the need for substantial capital backing.
“I think we will see piecemeal disposals as and when an opportunity comes up,” he said.
If Aviva does push ahead with selling businesses, it will be a continuation of its strategy to dispose of non-core assets.
Aviva sold roadside assistance company RAC for £1bn in 2010, and has reduced its stake in Dutch financial services firm Delta Lloyd.
Pass notes: Aviva
What parts of the business might Aviva look to sell?
The company is widely reported to be interested in selling its US operation but, with few buyers around, it may not attract many suitable bids. Similarly, any disposal of the company’s stake in Delta Lloyd could depress its share price. Aviva also has a Canadian operation, which is performing well, but despite speculation, its sale is unlikely.
Who’s in the running for the top job?
Chief financial officer Pat Regan remains the leading internal candidate to become chief executive, while former Aviva UK chief executive Patrick Snowball has ruled himself out of the running. Former RSA chief executive Andy Haste is said to only be interested if he can set his own agenda.
What happened to Aviva’s share price?
Aviva’s shares have climbed 7.4% over the last week, rising 2.8% to 282.7p in Monday’s trading when reports of the restructure broke. The insurer’s share price is down 9.3% since the start of the year.
Talking points …
● Will McFarlane cut the dividend? It would save money to plough into capital reserves, but could aggravate shareholders.
● Does Aviva really have a problem with its capital solvency? Some say the Delta Lloyd and RAC sales have strengthened Aviva’s position. But McFarlane is leaning towards those who believe there is a shortfall.