Aviva: a Boris bet
It is up to the insurer’s chief executive to bring a clearer focus
Nobody is entirely sure what Aviva is for. Rival London-listed insurer Prudential is about Asian savings growth. Legal & General has a social purpose. Aviva is, er, really big and does, um, stuff.
It is the task of Maurice Tulloch to frame the purpose of this sprawling composite more compellingly. This newish chief executive is unlikely to respond with: “Aviva is a bet on Boris Johnson proving less incompetent that he appears.” But that was the characterisation suggested by half-year results.
Look at it this way. The UK generated more than half of Aviva’s operating profits before central costs. Europe accounted for another third. A chaotic Brexit would hurt sales of discretionary insurance and savings products and ensure interest rates stayed low. This is one reason Mr Tulloch is holding a lot of capital — he remembers that former chief executive Andrew Moss was kicked out in 2012 for having too little.
Aviva’s £24.4bn of regulatory capital is 194 per cent of the regulatory minimum. The group’s target range is 160-180 per cent. Mr Tulloch has no immediate plans to refund investors that surplus, worth up to £4bn. This is wise when the UK government is being run by B Team Tories.
If Mr Johnson disengages from the EU less messily than feared — food and medicine shortages are possible — there will be plenty of upside in Aviva shares. This is despite group profits flatter than the group’s Norfolk birthplace. The underperforming stock has a hefty 8 per cent yield.
A promise by Mr Tulloch to consider selling Asian businesses is another reason for contrarian optimism. Asian savings are growing like crazy, even with confidence weakening. Why sell? Why indeed, except that too many European banks and insurers are expanding there for all to prosper. A needy rival may pay over the odds for Aviva assets valued at $2bn-$4bn.
The motto “you zig, we’ll zag” lacks gravitas as a company motto. Call it a working title. Over to Mr Tulloch to devise something better.