New Aviva boss Tulloch faces steep challenge - analysis

The scale of the challenge facing new Aviva boss Maurice Tulloch quickly became evident just hours after landing the top role.

Tulloch received a huge vote of confidence from UK insurance brokers, but his appointment as group chief executive received a more muted reception from the City.

Tulloch’s biggest challenge is improving the share price, something predecessor Mark Wilson failed to do, ultimately leading to his departure.

There will also be a big question marks over the future of UK head Andy Briggs, who was the hotly tipped favourite to take over, with Tulloch widely viewed as the outsider.

Investec analyst Ben Cohen said: “Having been at Aviva for 26 years, he will have his work cut out to convince investors as to what he will do differently to improve returns for shareholders. It also raises the question as to the intention of Andy Briggs, the chief executive of the UK division, who missed out on the top job.

“The structure of debt, the size of the pension liability and the business mix weighting towards UK life are all likely to make radical change difficult.”

In the run-up to the appointment, there was speculation that chairman Adrian Montague would opt for a more radical option, such as Bruce Hemphill, who led the break-up of Old Mutual. A break-up specialist would have been a gamble aimed at bolstering shareholder returns.

By going for Tulloch, there are unlikely to be any major strategic shifts, according to Shore Capital’s Paul De’ath.

De’ath said: “The appointment of Tulloch suggests to us that the overall direction of the group is unlikely to change dramatically.

“Tulloch has been on the board for some time and therefore has been part of the decisions that have been made in the past. There is scope for some changes, with a renewed vigour around customer experience and returns for shareholders, but we would not expect wholesale changes to the strategy at this stage.”

One idea being peddled by some analysts and investors is that Aviva should sell the life back book customers, which according to analysts at Berenberg, has seen an outflow of customers.

But one source said: “The problem with that is you end up with smaller earnings and the remainder of the business is not going to grow that quickly.

“Also, there’s a question mark over how much of all that extra capital just ends up being put back into the book for capital requirement or whatever else.”

If the life back book can’t be broken off and sold, then other parts of Aviva need to be looked at closely, says private investor Philip Meadowcroft.

Meadowcroft recalls how Aviva’s shares were worth £8 before the financial crisis, but are now trading at half that, leaving loyal investors with a sour taste in their mouths.

“They should be tossing off bits of Aviva to slim down and make it a less sluggish animal,” he said.

“Those parts of Aviva that require big sums of money to run need to be put under the microscope. But they say they want to be a composite, all things to all people. That is very questionable. There is no loss of face in being best at something, than below average in many things. Whether Maurice, given his 26 years in the company, can change from Mr Nice Guy to Mr Purposeful in changing things around, I don’t know.”

Some are convinced Tulloch won’t need to do anything radical, just keep his cool and continue to improve the business.

One person to come out in support of Tulloch is Panmure Gordon analyst Barrie Cornes.

He said: “It’s a good appointment. He has experience on both sides of life and general insurance. He’s a likeable person who will gather the team well.

“He understands the business, and knows what to do and where it needs improvement.”