Aviva to exit £6bn worth of non-core business segments
Insurer to seek £400m in cost reductions across its business as it confirms exit of bulk annuities market.
Aviva announced today (5 July) that it will be exiting 16 market segments that produce “below expectations” representing £6bn in capital and £300m operating profit.
In a message to shareholders, John McFarlane, newly appointed chairman at Aviva plc, said that examples of these non-profitable market segments are UK large-scale bulk purchase annuities, South Korea and small Italian partnerships.
Mr McFarlane said the firm plans to do this by seeking opportunities for new revenue growth, mainly in developed markets, and by achieving an expense reduction of £400m from the end of 2011 mainly through cuts to support, technology and operating costs by removing the “regional layer” of its structure.
In addition, it will reduce the “intervening management layers” between the chief executive and operational staff from nine to five levels, which will involve a “reduction in the number of managers.”
Following a full review of 58 individual business segments in the group, Aviva found that 15 segments have “unusually high return on growth”, including UK life protection and personal property, and its life units in Poland, Singapore and Turkey.
It also found that 27 segments need “significant improving” as they are “likely to produce” returns close to the group’s required return, including Aviva Investors, Ireland general insurance and Italy unicredit.
Mr McFarlane said: “We must overhaul our current management practices to sharpen bottom-line performance and return across the group, including programmes to raise revenue, reduce overheads, lower unnecessary losses and claims, and eliminate inefficient deployment of capital.”
Aviva also today announced a number of changes to senior management.
David McMillan, formerly chief executive of UK & Ireland general insurance, has been appointed director of group transformation to manage the implementation of the new strategic plan across the group.
Robin Spencer will replace Mr McMillan as chief executive at UK and Ireland general insurance, while John Lister will replace Mr Spencer in a new expanded role as group chief capital and risk officer.
John Ainley, group human resources director, has also stepped down after 12 years with the firm. Carole Jones will become acting group HR director.