The insurer getting left behind in global deal making
Aviva’s CEO has suddenly quit and the U.K.-based group looks ripe to be picked off
There may never be a better time to break up Aviva.
The U.K.-based insurer already faced questions about growth, business mix and strategy. Now it is also without a chief executive after Mark Wilson resigned suddenly on Tuesday.
As Britain quits Europe, depressing the value of the U.K. currency and U.K.-focused businesses, a breakup could give more value to Aviva’s investors than the board’s current plan. That is to try harder to gee up growth in the company’s dominant U.K. arm.
Splitting Aviva would fit with a wave of deal making across insurance that is serving investors’ desire for either scale, such as Axa’s takeover of XL Group, or specialization, like Prudential’s move to spin off its U.K. arm, Prudential M&G, from its higher-growth Asian and U.S. businesses.
Prudential M&G would be an obvious partner for Aviva’s U.K. arm.
This marriage has been talked about for nearly two decades.
Aviva’s flatlining stock price in the past couple of years has been frustrating for Mr. Wilson and the board. Investors didn’t buy his growth story, which is understandable given that Avi- va gets almost two-thirds of its profits from the U.K., a mature market with an uncertain economic future.
Aviva, much like U.K.-focused Lloyds Banking Group, trades at a discount to more outwardlooking London-listed peers, such as HSBC or Prudential. Mr. Wilson could be called the first executive casualty of Brexit.
Mr. Wilson did good things for Aviva’s U.K. shareholders: The stock is up 23% over his tenure and the total return including dividends is 60%. In dollar terms, however, the stock hasn’t moved and he has disappointed international investors in other ways.
His arrival from Asia promised international expansion, but instead he did a big U.K. deal. That bought capital efficiencies and eventually big payouts, but left Aviva in a stra- tegic halfway house.
Aviva isn’t large and diverse like European rivals Allianz and Axa. Even Zurich Insurance, the smallest of these, is worth double Aviva’s market value. Nor is Aviva a focused specialist like Hiscox. These polar opposites are what investors now want.
Aviva has a decent group of international businesses in Canada and Europe and some growth options in Asia. These could be more interesting to a bigger rival.
Allianz or Zurich have an appetite for deals, a U.S. or Asian buyer could be tempted by parts, and there are plenty of private-equity firms trying to build insurance businesses.
And a consolidated Prudential and Aviva in the U.K. could repeat Mr. Wilson’s earlier capital release trick. As Mr. Wilson splits, so should Aviva.