Aviva Eyes Cost Cuts, Asset Management to Boost Profit

Aviva Plc (AV/) Chief Executive Officer Mark Wilson pledged to continue cost cuts and attract funds to its investment unit in an effort to boost earnings at the U.K.’s second-biggest insurer by market value. The shares fell.

The CEO plans to cut the operating expense ratio to less than 50 percent from 54 percent in 2013 and double annual excess cash flow to 800 million pounds ($1.4 billion) by the end of 2016, the insurer said in a statement today. It also aims to report positive fund flows from external clients at its Aviva Investors unit by next year.

Wilson has changed at least half of his senior managers including hiring Euan Munro from Standard Life Investments as he seeks to rebuild capital, shrink a 4.1 billion-pound internal loan and boost profitability. The insurer reiterated its debt targets including its aim to reduce the gross external debt ratio to below 40 percent of tangible capital.

“We sense the market may well be expecting a much more ambitious delivery,” said Eamonn Flanagan, a Liverpool England-based analyst at Shore Capital Group Ltd. (SGR) with a sell rating on the shares. “The targets exclude a date for the achievement of the external leverage, which is disappointing. The latter is particularly important in the context of the group’s dividend paying ability.”

Shares Drop

The shares declined 3.6 percent to 493.9 pence in London trading, trimming its gain this year to 9.8 percent. That’s the biggest sell-off since March.

Chief Financial Officer Tom Stoddard, who joined in April from Blackstone Group LP (BX), said today that Aviva had met its 400 million pound cost-cut target that it sought to achieve by 2014. The London-based company has also reduced the markets it operates in to 17 from 28 in 2011.

Munro, Aviva Investors’s CEO, last week announced a new multi-asset strategy to increase profitability at the unit and attract new investors. Wilson hired Munro to mirror the performance of competitors including Prudential Plc (PRU) and replicate his success at Standard Life, where he helped grow the global Absolute Return Strategies fund to more than 17 billion pounds in assets under management.

“We have made some progress at Aviva and it is time to move to the next phase of the turnaround,” Wilson told investors and analysts in London today. “Aviva Investors needs to take a far bigger role in the group. To drive earnings in asset management, we need more external fund flows.”

Aviva Investors oversees about 240 billion pounds in assets, with the insurer’s funds accounting for the majority.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net Steve Bailey

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