Shares in insurance giant Aviva (AV.) were the second-best performers on the FTSE on Wednesday, gaining 4% to 295p, after the firm reinstated its dividends with a second 2019 interim payout of 6p per share and its new chief executive pledged to ‘unlock value for shareholders’.
Financially the first half of 2020 was ‘solid’, with operating profits down 12% to £1.22 billion as fewer customers bought insurance, insurance claims rose and the drop in financial markets reduced asset values.
Excluding the £165 million impact of Covid-19 on general insurance claims, operating profits would have been flat as strong results in UK annuities and a recovery in Canada offset higher weather-related claims and costs related to the pandemic.
Amanda Blanc, who last month became the third chief executive in two years, described the firm’s performance as ‘resilient’ thanks to its strong financial position and its swift operational response to the crisis.
However, Blanc was frank about the need to right-size the business and improve its efficiency. ‘Notwithstanding COVID-19, it is imperative that Aviva focuses on unlocking value for our shareholders. For too long, this has proven elusive and meaningful change is required. We have a long road ahead and much work to do.’
The new chief executive set out three key areas of focus: concentrating the portfolio on businesses that are best positioned and have a ‘right to win’ in their markets; positioning Aviva as a best-in-class provider across all product segments for customers, distributors and shareholders; and building further on its financial strength.
This means reducing its focus on Asia and Europe and focusing on the UK, Ireland and Canada, its strongest markets. Blanc said there may be better owners for its European and Asian businesses in the long term. Previous chief executive Maurice Tulloch explored selling the Singapore division but was unable to secure an attractive price for the business.
The decision to restart dividends was part of a longer-term review of the firm’s payout policy which aims to establish a ‘sustainable’ level of dividends together with lower levels of debt. The firm also cautioned that the outlook remained uncertain and that growth and profit targets would be harder to hit.