How will Aviva's downgrade affect its strategy?

Aviva adopted a defiant position in July when it announced its strategy to improve its business after shareholders revolted over directors’ pay.

Today that position took its first hit as rating agency Standard and Poor’s downgraded Aviva’s financial strength by one notch, from AA- to A+. S&P questioned Aviva’s strategy as part of the downgrade, querying Aviva chairman John McFarlane’s plans to sell units.

A financial strength downgrade is never good news for insurers, as brokers and clients use this benchmark to judge how likely insurers are to pay out on claims.

However, for Aviva the downgrade is not likely to be a big concern, as its rating is still high enough to avoid any awkward questions.

However, the message that the downgrade sends out is a bigger concern. The insurer has a lot riding on its overhaul and this been snubbed by Europe’s most powerful rating agency. It certainly does nothing to silence those that doubt Aviva’s turnaround plan will work.

But Aviva clearly believes it has the solution and it has been quick to put its plan into action. Last month it cut a director loose, announced plans to pull out of Taiwan and sold its eastern European businesses – all part of the new strategy.

Perhaps the downgrade will make Aviva even more determined to prove the doubters wrong.