The chief executive says the insurer is ‘stronger together’

Aviva chief executive Maurice Tulloch has rejected the possibility of a break-up plan, designed to buck the insurer out of its current stock market slump, instead telling the Sunday Telegraph that the firm is “stronger together”.

According to the Sunday Telegraph, senior directors at Aviva have been pushing for the firm to split itself in two – this would then mitigate concerns that the business could become a target for an aggressive activist investor, who could purchase large numbers of the company’s shares in order to obtain a seat on the board and effect significant organisational change.

Although Aviva’s board is reportedly in support of a break-up, which would separate the business’s general insurance arm from its life insurance division, Tulloch last month opted not to investigate this further, instead choosing to simplify Aviva’s structure to affect change; he presented this strategy to investors last month.

The break-up proposal, drawn up in conjunction with several investment banks, suggested splitting Aviva’s general insurance and life insurance divisions; the general insurance portfolio could then feature as a separate stock market listing or be sold to a rival, such as RSA.

Tulloch’s plans, however, centre around reorganising Aviva, reducing its current 14 markets down to five new divisions. Tulloch further confirmed plans to invest £1.3bn over three years while protecting dividend and cutting debt, stated the Sunday Telegraph.

When asked about a potential break-up, Tulloch reportedly said: “As part of my strategic review, I left no stone unturned.”

Creating goals

Back in November, from Aviva’s investor day, Tulloch stated that the organisation’s strategic review had been “rigorous and thorough”. 

He continued: ”I am committed to running Aviva better. We will be more commercially focused, manage costs rigorously and be more disciplined in how we invest. We will excel at the basics, giving customers a simpler, faster and more convenient service. Getting these fundamentals right will result in a simpler, stronger, better Aviva, while also improving returns for shareholders.

”We are now going to be a business with ambition, a simpler strategy, a simpler structure and attractive growth engines. There are significant financial benefits to keeping Aviva together and, ultimately, I am focused on a progressive dividend policy and delivering growing shareholder value.”

In contradiction to the Sunday Telegraph’s findings, also in November this year Chairman of Aviva’s board Sir Adrian Montague said: ”The board and I agree that this strategy will both inspire our people and put Aviva on a trajectory to realise all the promise of its wonderful franchise.”

Market environment

Senior City sources contacted by the Sunday Telegraph said a break-up could boost Aviva’s slumping stock market value by a potential £3bn. The move could also do away with threats of an activist campaign, from businesses such as Elliott Management or Carl Icahn.

Aviva is currently valued at £16.3bn on the London stock exchange; the organisation’s share price, however, fell by more than 4% as investors reacted to Tulloch’s less radical strategic approach – the City hoped for a more ambitious plan to be actioned.

Other insurers, on the other hand, are taking the break-up plunge. Legal and General, for example, sold its general insurance division to Allianz earlier this year, while Prudential is in the final stages of splitting its business in two, with focuses in the UK and Asia.