New Aviva disposal plan and cost-saving target

INSURANCE GROUP Aviva unveiled a broad disposal plan and an enhanced cost-saving target yesterday in an attempt to reverse the weak performance of its shares.

John McFarlane, executive chairman, said the moves should allow the group to avoid issuing new shares or cutting its dividend – in the short term at least.

The fresh direction for Aviva follows a review of 58 individual business segments within the insurer, which identified 16 weak performers that needed to be sold.

It said these included its South Korean arm, its UK large-scale bulk-purchase annuities business, its 41 per cent economic stake in Delta Lloyd, the Dutch insurer, and smaller partnerships with Italian banks.

However, it did not comment on the future of its US arm, which has been mooted as a sale candidate. The US was absent from a list of markets – including Britain, Ireland, France and Canada – where Aviva deemed itself to be strong.

It was not in Aviva’s interests to be too categoric about which units would be sold, Mr McFarlane said: “It will make the execution of this much more difficult.”

Mr McFarlane, a former chief executive of ANZ, the Australasian bank, took over the leadership of Aviva in May as an interim measure after Andrew Moss stood down as chief executive after a revolt by investors over executive pay.

As he took on the job, Mr McFarlane said he wanted to “regain the respect” of Aviva’s shareholders by reducing the discount at which its shares were trading relative to book value. He also said he wanted to strengthen the group’s balance sheet to address analyst concerns about its capital buffer.

Yesterday, Mr McFarlane said his meetings with shareholders in recent weeks had revealed “legitimate” gripes about the complexity and financial strength of the insurer, as well as its exposure to the euro zone.

He also criticised previous restructuring: “We have had £1.3 billion of below-the-line restructuring charges over the past five years, and yet we are perceived to be bureaucratic and inefficient.”

Aviva is looking for £400 million of annualised cost savings between the end of 2011 and the start of 2014. This replaces a previous target of £200 million of savings by the end of 2012.