Let’s Talk Aviva: Smaller, Richer Insurance Company Seeks to Grow Again

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It has been an interesting time for insurance company Aviva. The City giant sacked its fund manager and was embroiled in a lease deal he hoped to avoid.

Nonetheless, after a year of cutting costs and selling off foreign assets, Aviva is confident for the future. The company is firmly on the investor radar, especially after announcing an ambitious share buyback program earlier this summer.

And recently, Aviva announced it has entered into a £ 320million bulk purchase annuity contract with the John Laing Pension Fund.

With major pension and corporate advisory firms picking up assets, the group has serious options for growth and the ability to continue its momentum through 2022.

As a result, the company strives to award its shareholders a salary of £ 4 billion and with shares rising by more than a third in the past twelve months alone, Aviva’s outlook is stable and roses.

Fund managers

Admittedly, news that Aviva is on the verge of laying off its top fund managers as part of a sweeping cost-cutting plan spread like wildfire across the city, when it was reported. for the first time in June. The insurance giant has laid off 10 equity managers from its asset management subsidiary Aviva Investors.

David Cumming, chief investment officer for equities, has reportedly left FTSE 100, while head of global equities Mikhail Zverev was among the fund managers who were to be ousted.

The news came as no complete surprise: The news came just days after Europe’s largest activist investor, Cevian Capital, revealed it had quietly built up a 5 percent stake in Aviva.

The Swedish investment firm, which manages $ 16 billion in assets, has urged Aviva to reduce the cost of selling some of its international units. Ideally, Aviva had already started to cede a multitude of non-British divisions.

This change in strategy abroad can be directly linked to Amanda Blanc, who took over the general management of FTSE 100 last year.

Blanc withdrew Aviva from overseas markets in Europe and Asia to focus on the company’s core markets in the UK, Ireland and Canada. It is understood that Cevian supports the management team of Blanc and Aviva.

The influence of Cevian Capital

More interestingly, Cevian’s call to return £ 5bn to shareholders. This bold statement did not go unnoticed in London: the Aviva share price, already up around 40% for the year, rose further.

Basically, Cevian, the same company that took a stake in education publisher Pearson last year, wants the company to cut costs by at least £ 500million over the next two years.

Despite Cevian’s support for senior management at Aviva, the fund manager layoffs raise questions about the extent of the activist investor’s influence over the insurer.

They also cast doubts on Aviva’s future status in the global asset management market. Aviva Investors would end up with around 25 fund managers once the departures were finalized.

Another issue that came up earlier this year was Aviva – working with home builder Persimmon – agreeing to revise their leases to make payments fairer to landlords.

The move came following an investigation by the UK’s markets regulator: the Competition and Markets Authority’s (CMA) investigation into Persimmon’s leases prompted the homebuilder to cap the price of full ownership at £ 2,000 in its right to purchase program until December 31, 2026.

CMA general manager Andrea Coscelli called the deal a “real victory” for thousands of tenants.

The AMC investigation allowed Aviva to agree to remove land lease terms that were considered unfair and reimburse landlords who saw rents double.

To illustrate the weight of the decision and its political impact, Housing Secretary Robert Jenrick described the doubling of land rents as “unfair practices, which have no place in our housing market”.

A salary of several billion

Most recently, Aviva confirmed that it will repurchase shares up to £ 750million, which began last month, with the aim of paying its shareholders a salary of £ 4 billion.

There was even a blessing from Cevian Capital, which said the insurer got off to a “good start” by returning billions.

“Return on excess capital of at least £ 4bn by June 2022 is a good start, but £ 4bn would not be enough to address overcapitalization and we expect the company to return £ 5 billion by the end of next year, “said Niko Pakalén, partner at Cevian Capitale.

In August, the insurance group posted an operating profit of just over £ 1.1bn in its half-year results, up from £ 1.2bn in the first half of last year. The results were widely welcomed by the market and seen as confirmation that the price hike of nearly 40 percent over the past twelve months is justified.

For the share buyback, Aviva has reached an agreement with Citigroup Global Markets to secure up to 300 million shares, which is expected to be finalized by the end of February next year.

“We are respecting our commitment to return a substantial return on capital to our shareholders”,

CEO Amanda Blanc

“We intend to return at least £ 4bn to investors by the end of the first half of 2022. subject to regulatory and shareholder approvals, the completion of divestments and market conditions, starting with a share buyback of up to £ 750million, ”the executive said. Explain.

Less risk

The share buyback is part of the downsizing of the group, as previously discussed, a strategy designed to streamline the company’s operations and move in a more profitable direction.

While Aviva may have felt more like “an auction house than an insurer over the past 18 months,” as analyst David Kimberley recently put it, most investors and watchers in the City appear to be very happy with the direction the business is taking: a lean business that is able to stay focused and, more importantly, stay profitable.

The idea of ​​Aviva being a global player may have been ditched for now, the numbers speak for themselves, is the consensus in the Square Mile.

One thing Aviva might want to keep in mind is that the buyout is obviously welcomed by those who wish to cash in, but Blanc and his team should not overlook investments in the business, including repayment of the loan. debt.

Nonetheless, the company weighs in at £ 4 billion compared to last year, as analyst James Andrews said. The recently pointed out that the pandemic has also forced customers to rethink their future plans, which further contributed to a favorable profit margin.

Path to growth

Although Aviva is heading towards 2022 as a smaller organization, it still has many options for growth.

This view is widely shared by analysts and industry watchers in City and Canary Wharf, including Nicholas Hyett, equity analyst at Hargreaves Lansdown.

“After spending the last few years suffering from an identity crisis, Aviva seems to have finally settled into life as a pretty boring, but very cash-generating, insurance business. Investors are reaping the rewards of the transition, with exceptional returns for shareholders, ”Hyett explained.

In its savings and retirement business, record net flows were recorded in the first six months of the year, up 24% to £ 5.2 billion, a jump of around £ 1 billion compared to the first half of last year.

Aviva expects continued growth in its UK savings and retirement business, and has said it is on track to complete its ambitious but realistic cost reduction target of £ 300million next year.

Hyett pointed out that “the group has some options for growth, including large retirement and workplace advisory companies that are picking up assets, some of which are making their way to the long-disliked Aviva Investors, but the vast majority of the business is more “Eddie Stable” than “Eddie the Eagle”.



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