Financial Services

Aviva to return £4bn to investors but Cevian demands more

Activist says planned capital return is ‘a good start’

The life and general insurer, which has its main businesses in Britain, Canada and Ireland, had previously promised a “substantial” capital return. Photograph: iStock

Thu Aug 12 2021 - 15:15

British insurer Aviva pledged on Thursday to return at least £4 billion (€4.7 billion) to shareholders, sending its shares surging, but activist investor Cevian Capital demanded more.

Cevian, which revealed in June it had built up a near 5 per cent stake in the FTSE 100 company, promptly reiterated that Aviva should return £5 billion of excess capital by the end of 2022.

“The at least £4 billion excess capital return . . . is a good start, but . . . would not be enough to address the overcapitalisation and we expect the company to return five billion pounds by the end of next year,” Cevian partner Niko Pakalén said.

Aviva has raised £7.5 billion pounds from selling eight businesses across the globe since the appointment of Amanda Blanc as chief executive in July 2020.

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The life and general insurer, which has its main businesses in Britain, Canada and Ireland, had previously promised a “substantial” capital return.

“We’ve provided guidance earlier than expected . . . we are accelerating the timing of the capital return,” Ms Blanc told a media call, adding that relations with Cevian were “constructive”.

Shares hit their highest in eight weeks on the news and were up more than 4 per cent at the top of the FTSE 100 index by lunchtime on Thursday.

Aviva said it intended to return the capital by the end of the first half of 2022, starting with an immediate £750 million share buyback.

Re-rating

JPMorgan analysts said the buyback announcement would likely lead to a rerating of the stock in the next six months, reiterating their “overweight” rating.

Aviva said it was on track to achieve a targeted £300 million pounds in cost savings in 2022.

The insurer has reduced its property portfolio by 30 per cent this year, generating savings of £20 million, Ms Blanc said, and was also making savings through digitisation.

Cevian has called for at least £500 million in cost savings by 2023.

Aviva reported a 17 per cent rise in first-half operating profit from continuing operations to £725 million , below a company-provided consensus of £781 million.

The group said it had not made an operating profit in its Irish life insurance business in the half as it “invested heavily” in the future of the unit through long-term cost reduction initiatives. In its Irish general insurance operation, it highlighted market rate pressures in the motor market, which offset new business growth and stable retention. – Reuters

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