March 6, 2014 3:11 pm

Aviva: unblocking the pipes

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CEO’s second year might not be as difficult as his first

In the UK it was Heath Robinson. In the US, Rube Goldberg. At Aviva, it was management. The first two kept their nonsensical machinery on paper; Aviva’s leaders built an insurance company of stupefying complexity. So pity Mark Wilson, chief executive of the insurer since January 2013, who has been trying to untangle his predecessors’ handiwork.

His top priority has been resolving the group’s £5.8bn internal loan from its UK general insurance subsidiary. Regulators were getting nervous about the size of the loan (what happens with the insurance claims if the group has a problem?). The regulatory interest then made shareholders nervous (how much cash will the group have to pay to the subsidiary?). The solution works as follows: the loan has already been cut to £4.1bn and the plan is to reduce it to £2.2bn by the end of next year. But of that £3.6bn reduction, less than £1bn is in cash. The rest comes via non-cash methods such as changes to internal reinsurance arrangements (Messrs Robinson and Goldberg would be proud). The result is more certainty about how much cash the group has. The share price jumped 9 per cent when the plan was unveiled on Thursday.

Next up is getting cash from the subsidiaries up to the group. This has been hampered by other elements of the Robinson/Goldberg set-up. In 2012, the subsidiaries sent up just 49 per cent of the cash they generated. Last year that rose to 72 per cent, and the aim is to get it to over 80 per cent – what other insurers manage. Once he has got his hands on the cash, Mr Wilson can decide what to do with it.

Other parts of Mr Wilson’s shake-up – £400m of cost cuts, a series of disposals – are more straightforward. Next up is the growth part of the plan. Given the maturity of Aviva’s European markets, that might be just as challenging as the first part.

Email the Lex team in confidence at lex@ft.com

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