John McFarlane, the new executive Chairman of Aviva, has outlined detailed of the insurance giant's new strategic direction which, not for the first time, will result in changes at the senior management level.
The new strategic plan has three main objectives:
Narrow Focus - The group plans to focus on fewer business segments which offer attractive returns with a high probability of success. The group has appointed investment bank advisors to handle certain disposals of parts of the business.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Build Financial Strength - Achieve target economic capital levels in line with industry peers, reduce capital volatility, and bring leverage down to a conservative level. The group has announced new target economic capital levels of 160% - 175% of required capital - based on Aviva's internal assessments and capital management policies - that will require additional capital to be released. This will largely be achieved through disposals and reducing capital to businesses with lower returns. "Subject to execution, it is not our current intention to raise new equity," McFarlane said.
Improve Financial Performance - Aim to deliver a higher level of revenue growth, a lower cost-income ratio, lower losses and claims and a higher return on capital, notwithstanding the subdued economic environment in developed markets. The group is looking to achieve an expense reduction of £400m on the end of 2011 levels by conducting a review of the group centre and other support, technology and operating costs across the group, removing the regional layer of its structure, as well as implementing a more effective allocation of expenses across the business portfolio.
The bulk of the changes are expected to take place over the next 12 months but some will probably extend through to the end of 2013, which means the full effects of the transformed Aviva will not be seen until 2014.
This means that during this intervening period Aviva will remain "largely positioned in developed markets", something which has been an issue of concern for investors. McFarlane is cognisant of the need to expand the group's presence in high-growth markets but said he believed the group could "deliver good returns and moderate growth" from the markets in which it currently operates.
"We will remain a composite insurer, but mainly in the UK and a few other markets, and are determined to demonstrate the value of this particularly through diversification, the transfer of capabilities across markets and greater product penetration of our customer base," McFarlane said.
McFarlane, who has only been in the chair at Aviva for a few days, has wasted little time in reshaping the management structure of the insurance giant, although the group is still looking for a Chief Executive Officer (CEO).
David McMillan will take up a new appointment as Director Group Transformation to manage the implementation of the new strategic plan across the group, reporting to McFarlane.
McMillan's appointment is regarded as a pivotal one by Aviva, as he will have responsibility for refocusing and optimising the group business portfolio, achieving financial strength and performance improvement, and building a high-performance ethos across Aviva, including a delayering of the management structure.
McMillan's former role as Chief Executive of UK & Ireland General Insurance will be assumed by Robin Spencer, who will remain a member of the Group Executive reporting to John McFarlane and Trevor Matthews. The Group Executive consists of the executives John McFarlane, Pat Regan, Trevor Matthews, David McMillan and Simon Machell - collectively the "Office of the Chairman" - plus other members of the senior executive team.
John Lister will replace Spencer in a new expanded role as Group Chief Capital and Risk Officer, combining both functions and eliminating duplication between them. Lister will join the Group Executive reporting to John McFarlane for Risk and Chief Financial Officer Pat Regan for Capital.
The Group Human Resources (HR) Director, John Ainley, will be leaving the group and Carole Jones will consequently become Acting HR Director, joining the Group Executive and reporting to Kirsty Cooper, who is Head of the Office of the Chairman.
"The search for a new CEO internally and externally is in progress advised by Spencer Stuart. I would expect an appointment to be made at the beginning of the new year, or shortly thereafter," revealed McFarlane.
"In the meantime, it is essential that we have the right people in place to implement the strategic plan and to achieve higher financial strength and performance. I am aware of past concerns regarding the frequency of management changes at Aviva; nevertheless I judge these new appointments to be essential," McFarlane added.
-
FTSE 100 hits record highs – why is it rising and will we see more gains?Advice UK equities have been described as unloved for a long time but as the FTSE 100 hits new highs, we explain if now is the time to buy British.
-
How to invest in copperIt may be time to invest in copper as the red metal appears poised for a big jump. Dominic Frisby looks at what should investors should buy
