Briefing: Break up or stay put? Why the new Aviva chairman is key

Briefing by content director Saxon East 

Chairman Adrian Montague had Maurice Tulloch’s back. 

It was his decision to appoint Tulloch in March last year, despite calls to appoint a more radical face. 

With yesterday’s announcement that Montague will step down, the obvious question is: what will this mean for Tulloch and Aviva?

Tulloch’s tough choice

Tulloch is under pressure. He’s inherited a share price that has performed poorly in the long term, and shows no signs so far of picking up under his leadership. 

Thanks to a consistent dividend, Aviva has avoided radical change - such as a break up - but patience is wearing thin.

Some, but certainly not all, investors and senior advisers are arguing for a break up. 

The argument goes something like this: Aviva is too small to compete with the likes of Allianz and AXA as a composite, and furthermore, billions in value could be unlocked by separating and selling off one of the life or general insurance arms.

Tulloch is resisting, instead taking the more conservative path of cutting costs, internal reorganisations and dangling the promise of more income from the dividend.

The new chairman will be a vital player in this debate.

If he becomes convinced greater change is needed, the pressure on Tulloch would become immense. 

That could mean a break up or perhaps selling off the life back book. 

But if he backs Tulloch’s vision, that would give him a lot of breathing space.

Aviva middle path 

For example, one option that Tulloch might fancy is a middle path: sell off all the international operations and become a UK-only player.

That will at least fit in with his wider strategy of simplifying Aviva. 

Meanwhile, he would argue that Aviva is better off with life and general insurance as there is capital benefits for both solvency and dividend. 

Interestingly, RSA’s former finance chief George Colmer is a non-executive director on the Aviva board. 

Could a UK-focused Aviva be in a better position for a general insurance merger between RSA and Aviva? 

The complexities of both firms, in addition to the pension liabilities, make such a tie up only an outside chance.

Yet these are people’s pontifications as they explore every option to shake off Aviva’s share price torpor. 

Whatever happens, Tulloch might have to become more bold or risk change from outside. 

Activist investor nightmare 

Aviva should look at AIG to see what happens when an activist investor takes charge. 

The board and its chief executive Peter Hancock were strong-armed by billionaire investor Carl Icahn. 

It was an unedifying spectacle and crushing experience for the harassed AIG board. 

Compared to AIG, an Aviva activist investor would have more strategic options, better board support and above all, backing from some shareholders. 

It’s surprising an activist investor has not already taken a minority stake Aviva, but perhaps Edward Bramson’s failure to force through change at Barclays has made them more wary.

But if Aviva share price sinks further, the UK’s largest non-life and life insurer will simply become too tempting a target.

That would be the ultimate nightmare for Tulloch. 

A new chairman might want Tulloch to take action, and fast, to kill off that threat.