Blanc says there ‘may be better owners’ for Europe and Asia business amid UK investment

Aviva chief executive Amanda Blanc confirmed this morning that “there may be better owners” for the insurer’s Europe and Asia businesses as Aviva instead focuses its investment spend on its UK, Ireland and Canada markets “with the aim of being the leading UK insurer”.

Following the publication of the firm’s H1 2020 results this morning, Blanc told journalists in a briefing call that she plans to “concentrate Aviva around our strongest businesses in the UK, Ireland and Canada, with the aim of being the leading UK insurer”.

She continued: “We are a top three player in each of these markets, we have a powerful brand and we deliver incredible customer service. In my view, these markets offer attractive growth and returns potential and this is where we will invest for growth.

“We already are the leading insurer in terms of the UK, we’re number one in life, we’re number one in GI. So, what we need to do is to ensure that we match our performance to our market leading position and I think we need to have a bold ambition in that regard. We have a hugely strong, powerful brand across our product lines.

“Our position in Canada is number three, I think we are a close three behind the number two player, so it’s all to play for. It’s a strong GI business with really strong partnerships with the likes of RBC. Ireland, we’re also a top three player.”

With investment spend focused on growth opportunities within Aviva’s top businesses, its Europe and Asia divisions will be forced to take a back seat and be managed “for long-term shareholder value”.

Blanc explained: “We will be selective about where we participate, and we will allocate capital with discipline.

“Where we see attractive opportunities to be market leaders and generate strong returns and deliver robust cash flows to the centre, we will invest.

”But if we cannot meet our strategic objective, we will take decisive action and we will withdraw capital. Ultimately, there may be better owners for these businesses than Aviva in the longer term.”

Despite this hint towards “better owners”, Blanc emphasised “we are not talking today about disposals of those businesses”.

“What we’re saying is that they’re great businesses, they’ve got great people, they’re delivering great service, but we need to think about how we manage them for long-term value.

”Are they meeting the criteria that we have set ourselves in terms of the performance of the business? Are they in markets where we believe that we can have a winning position? And those are the questions that we will be asking ourselves.

”We’re not today announcing anything specific about any of those businesses,” she added.

Three-pronged approach

This work on focusing Aviva’s business portfolios is one element of Blanc’s new three-pronged strategy, which designed to unlock the insurer’s “enormous potential” by making “meaningful change”.

“Aviva has enormous potential. We have fantastic businesses, market leading capabilities, trusted long-term relationships with both customers and partners and above all, we have great people,” Blanc said.

“However, it is already abundantly clear to me that to unlock this potential, meaningful change is required. That is exactly what I intend to deliver.”

Blanc’s second priority then is to “transform performance”. She aims to achieve this by building on Aviva’s “inherent strengths” of brand, customers, distribution and breadth of product to get top quartile results across efficiency, customer experience, pricing and risk management.

She explained: “If we have these inherent strengths, and I really think we do, why haven’t we converted these into performance and investor support? The truth is we haven’t been as good as we’ve needed to be in delivery and that will change.

“We’re going to shake up the organisation. We’re going to bring a new intensity to how we approach performance and competitiveness. It’s virtually impossible to compete and win if you aren’t top quartile on efficiency, customer experience, pricing and risk management and that is where we need to be.”

She added that Aviva needs to be “laser like” in delivering improved performance.

The last strand of Blanc’s strategy is centred around financial strength, resilience and sustainability.

“In recent years, we’ve maintained solid capital ratios and strong central liquidity, despite the external volatility. We’ve made progress in reducing debt; I’m committed to taking this further,” she said.

“The actions we intend to take to focus the portfolio will give us greater financial flexibility, giving us more options to either invest in our business or to return capital to our shareholders. Financial strength and active capital management are a key priority and they will be at the heart of our strategy.”

For Blanc, these three areas of focus – once delivered – will ensure that Aviva is “a winner”.

She continued: “Under my leadership, Aviva is embarking on decisive change that I’m confident will unlock significant value in the business.

”There is of course much to do, but I can assure you that the team and I are working with real urgency and intensity to ensure we deliver the results that our shareholders have the right to expect.

“I’ve only been in this seat for one month, but I’m already confident that we have many of the ingredients to make Aviva a winner.”

COR impact

Aviva’s combined operating profit (COR) for general insurance in the UK deteriorated in H1 of 2020, coming in at 106.3% versus 97.2% last year. Group wide, these figures are 99.8% and 96.8% respectively.

Jason Windsor, Aviva’s chief financial officer, attributed this primarily to the impacts of Covid-19 as well as the unusual weather conditions the UK experienced earlier in the year. The figures are more positive if these contributing factors are removed, he added.

Aviva has also estimated the impact of Covid-19 on claims at around £165m, which Windsor explained covered a range of potential scenarios – this includes the potential fallout of the FCA’s test case and how this could affect Aviva’s UK and Canadian businesses.