Aviva urged to keep UKGI amid cost-cutting talk

Aviva has been urged to keep its UK general insurance arm, amid renewed talk of cost-cutting at the UK’s largest general insurer.

Aviva could sell up to 15 of its divisions, according to widespread reports yesterday. McFarlane has already stripped out management layers and has split Aviva’s operations into more than 50 units, which he has classified as either core, in need of improvement, or for sale.

Aviva is currently under the spotlight over its capital adequacy, which is deteriorating amid the eurozone’s problems and dampened markets.

McFarlane’s cutbacks will renew the focus on whether Aviva should sell its general insurance operations.

However, Panmure Gordon analyst Barrie Cornes said now was not the right time to sell UK general insurance, which is widely-regarded as an effective and well-run division.

Cornes said: “We hope that in his attempt to rebuild investor confidence, John McFarlane does not throw the
proverbial ‘baby out with the bathwater’.

“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.”

Few buyers for Aviva operations

Cornes said the investor day on 5 July would reveal more. On other possible sales in the group, he said there were few buyers around and urged caution.

He said: “We anticipate cost cutting announcement, particularly in management numbers and the reinforcing of the previously announced disposal programme.

“A disposal of the US operation has been well flagged (in the press) but we remain unconvinced that selling an
asset into a market where we understand there are few if any buyers is a clever thing to do.

“In a similar vein, any announcement to dispose of its shareholding in Delta Lloyd would only appear to create an overhang of Delta Lloyd shares depressing its share price.

“The Canadian operation is performing well and despite speculation that it will be sold because it appears that there would be strong demand for it, we think such a move unlikely.

“The Canadian operation is slightly different from the US operation in that it does not tie up relatively high levels of capital but it is a good business and in our view should remain in the business unless all other options were exhausted.”