“Improper allocation” of bond trades by two former employees of Aviva Investors have taken a £132m bite out of the operating profit for the unit in 2013, its parent company has revealed.
The revelations are detailed as part of the overview of Aviva’s various business units within chief financial officer Pat Regan’s summary of the year, part of the life and pension giant’s annual results published this morning (6 March).
Mr Regan states: “[W]e found evidence of improper allocation of trades in fixed income securities in Aviva Investors by two former employees. This occurred prior to 2013. The relevant regulatory authorities have been notified.”
He continues that a “thorough review of internal control processes” has been carried out and that measures to improve controls have been implemented. Aviva is “taking steps to ensure that customers will not ultimately be disadvantaged,” he adds.
The results reveal a slower turnaround at Aviva’s fund management arm than other parts of the business, with the business suffering net outflows of £5bn during 2013 and ending the year with assets under management of £241bn.
Performance in the wider business was strong in 2013 as cost reductions as a result of restructuring in previous years boosted margins and revenues increased marginally.
As a whole Aviva saw a turnaround in profitability of in excess of £5bn to post a £2.2bn profit for 2013, with operating profit rising 6 per cent from £1.9bn to more than £2bn. The business has reported a 7 per cent drop in operating expenses to £3bn and total costs savings from restructuring to date of £360m.
In UK life, Aviva’s life operating profit grew 5 per cent in 2013, with operating expenses 16 per cent lower. Value of new business was 4 per cent greater.
Individual protection sales were down however, as banks pulled back from advised selling.
Going forward, bosses said they expected to capitalise on Aviva’s “market leading position” in annuities, benefit from a partial rebound in protection sales in the bancassurance channel and extract greater efficiency from the back book.
Mark Wilson, group chief executive of Aviva, said: “The turnaround at Aviva is intensifying. We have focused the business on ‘cash flow plus growth’ and the benefits are starting to be reflected in our performance.
“Cash flows to the group are up 40 per cent, operating expenses are down 7 per cent, operating profit is up 6 per cent and value of new business is up 13 per cent. After a £2.9bn loss after tax last year, Aviva has delivered a £2.2bn profit.
“Following our exit from a number of low margin, underperforming or non-strategic businesses, Aviva is simpler, more focused and better managed.
“Although we have made progress in 2013, I want to guard against complacency. Aviva still has issues to address. Have we made progress? Yes, some. Is it a little faster than anticipated? Probably. Have we unlocked the full potential at Aviva? Not yet.”
