Aviva Plc, the U.K.’s second-biggest insurer by market value, said it may sell underperforming units while it takes the rest of this year to find a replacement for ousted Chief Executive Officer Andrew Moss.
“As far as you’re concerned I’m the CEO,” Executive Deputy Chairman McFarlane said in response to a reporter’s question about whether the review would pre-empt changes made by a new CEO. “If you’re suggesting, which I would regard as naïve, that the thing to do is not do anything just in case if we get a CEO down the road. That’s clearly ludicrous.”
Aviva is looking internally and externally to replace CEO Moss, who stepped down this month after an investor rebellion over the company’s pay. The insurer’s stock dropped 60 percent in the five years of his leadership after attempting a European growth strategy in 2009 and subsequently having its capital reserves eroded by the region’s sovereign debt crisis.
McFarlane said his review will go “much deeper” than Moss’s study in 2010, when he decided to focus on 12 core markets out of around 30 the insurer operated in. The company will identify underperforming businesses within its 45 main “profit centers” and either turn them around or “realize they’re not part of the future,” he said.
“The U.S. and potentially small parts of the group could be on the cards” for a sale, said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a hold rating on the stock. “Depressed valuations means that exits will probably be difficult and where possible, are likely to be dilutive.”
The review, which will be unveiled to shareholders in July, won’t affect the appointment of a CEO and whoever does get the job will be able to influence strategy, McFarlane said.
Aviva declined 4.7 percent to 267.7 pence in London, giving the company a market value of 7.8 billion pounds ($12.3 billion).
Shareholders are most concerned about the company’s capital position and its volatility, said McFarlane, former CEO of Australia & New Zealand Banking Group Ltd. Aviva’s capital surplus shrank by about 30 percent in the third quarter of last year as the euro area crisis worsened. It increased to 3.2 billion pounds at March 31 this year, compared with 2.2 billion pounds at the end of 2011, Aviva said today.
“The current level of capital is acceptable but it doesn’t give us a lot of financial flexibility,” McFarlane said. “We need to increase from where we are today.”
The firm’s dividend is “modest” compared to its total capital base and it plans to concentrate on generating “economic capital” from its existing businesses, he said.
Aviva’s first-quarter sales of life insurance and pensions dropped 7 percent to 6.52 billion pounds in the three months to March 31 as the European debt crisis hurt savers, the company said in the statement. That missed the 6.68 billion-pound estimate of Toby Langley of Barclays Capital, the top-ranked Aviva analyst tracking Aviva, according to data compiled by Bloomberg.
“Given the subdued demand for savings products in these markets, I would not expect conditions or new business sales to improve there in the near term,” Chief Financial Officer Pat Regan said on the call, referring to Europe.
More than half of Aviva’s shareholders rejected the firm’s compensation plans at its annual general meeting this month. It was only the fourth time since 2003 a FTSE 100 company lost a vote on compensation, according to Manifest Information Services Ltd., a proxy voting firm. Moss will receive as much as 1.75 million pounds when he leaves the firm, Aviva said.