New Aviva chief executive Amanda Blanc faces one major issue that needs solving, but she is already facing distractions
By content director Saxon East
The great business thinker John Adair said when tackling a problem, always identify and focus on the central issue at stake.
New chief executive Amanda Blanc’s arrival has triggered a small share price bounce
Do not get distracted, never lose sight of that central issue.
The key issue at stake for Aviva is very clear: how does it solve the problem of its sclerotic UK savings and protection arm?
Aviva’s share price will always struggle until this issue is solved.
After speaking to more than a dozen experts, who have studied the problem for years, they all stress this is the central issue.
But here’s the trap that awaits new chief executive Amanda Blanc.
An idea being floated is that Aviva could now become a UK champion.
It could sell-off its European and Asian life businesses, and concentrate on the UK.
This is flawed thinking that would have negative consequences for Aviva’s long-term share price.
Firstly, it is questionable how much money Aviva would get for those businesses. Ex-boss Maurice Tulloch ditched the idea of selling the Asian businesses, and it is widely understood there were few takers at the right price.
Secondly, and most importantly, you would be left with a downsized company with an even higher proportion of profits coming from the zero to low growth UK savings and protection arm.
Who could possibly believe this would be good for Aviva’s share price?
Even if things went perfectly, Aviva would struggle to become a UK champion.
UK champion is a myth
Suppose you sold off the European/Asia arms for a good price. Suppose you also sold off the UK legacy book to a run-off specialist for a good price.
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You use the extra capital for solvency (if needed) and rewarding shareholders.
You also use some of that capital to create a UK champion by investing into Aviva’s core UK savings and protection platform.
But here’s the problem.
Firstly, Aviva already has considerable, if declining, market share in a mature market of UK protection and savings.
Secondly, it is questionable how much market share Aviva could take off rivals.
In the past, Aviva had the market sown up in a cosy high-margin relationship with IFAs. The consumer has so much choice nowadays with electronic platforms, such as Hargreaves Lansdown, doing the job direct.
As for pensions, the workplace market has lost ground following the government’s automatic enrolment.
It that really a story to excite investors?
Blanc is in a tough position. Her predecessors Andrew Moss, Mark Wilson and Maurice Tulloch all kicked the can down the road.
The problem now lies at her feet. She is caught between the devil and the deep blue sea of dismantling Aviva.
Yet solving the problem of the UK life and savings arm is tough, but not impossible. There are options, as this analysis piece here outlines.
After their strategic review, if Blanc, and chairman George Culmer, cannot find a solution to the UK life and savings problem, then it should be explained clearly and in detail what is stopping them.
The City may not like it, but they will at least accept honesty.
It will be hard, difficult and even painful. But the problem of Aviva’s UK protection and savings must be addressed.
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