John McFarlane is doing something right. In the six months since the Aviva chairman announced a strategic shakeup, the insurer's shares have risen by a third. Sure, all financials are rallying. But investors have warmed to his no-nonsense attitude (no doubt honed during a 10-year stint running an Australian bank) and to the disposal of businesses that account for just over a 10th of operating profits.
The U.S. business was sold just before Christmas, while the remaining stake in financial services group Delta Lloyd went for £353-million ($560-million) this week. The disposals reduce earnings but improve the group's capital position – Aviva now has capital equivalent to 170 per cent of the minimum required, which is within its target range. And the earnings impact should be offset by a £400-million cost-saving plan, more than half of which has already been achieved.
Now comes the hard part and, bang on cue, in comes Mark Wilson as chief executive officer. His job will be to complete Mr. McFarlane's tidying-up exercise (a few more disposals here, additional cost savings there) and then take stock of what is left. Aviva will bear very little resemblance to the high-growth insurers Mr. Wilson used to run in Asia. The economies of its five largest markets – the U.K., Canada, France, Spain and Poland – are expected to rise an average 1.1 per cent this year and 1.7 per cent next. There is little reason, in most of those markets, for insurance to do any better than that.
Aviva could generate a little more excitement by finding high-growth niches in those markets or by cutting costs. Anything more meaningful would require capital to be invested, the prospect of which would scare investors who cling to the company for its dividend. But with the alternative looking dreary, that might well be a risk worth taking. Over to you, Mr. Wilson.