Dear shareholders,
Aviva plc today announced its Q3 Interim Management Statement where the operating profit trend is broadly in line with the half year.
More importantly, I am pleased to report that we have taken, and are continuing to take, firm and decisive actions to transform Aviva. The key priorities remain:
To appoint a high quality CEO
To build the company's capital and financial strength, reducing also the risk and volatility of the balance sheet and income statement
To narrow focus on attractive core businesses and dispose intelligently of non-core segments
To improve earnings performance and return on equity with the aim of broadly replacing, by 2014, the earnings lost as a result of disposals with new earnings streams
Reporting on each of these in turn, the CEO search process is now well advanced and in line with the original timetable set out by the Board. Shortlisted candidates are in the process of being interviewed by non-executive directors, and on completion, we will then seek FSA approval for the Board's preferred candidate.
I am also pleased that we are getting good traction on building our financial strength. Economic capital surplus* as at the end of October 2012 was around £5.3 billion, up by £0.8 billion from the half year and by £1.7 billion from the beginning of the year - in ratio terms we are currently around 146% versus our target range of 160-175%. IGD capital surplus at the end of October was £3.7 billion, up £0.6 billion from the half year and with a ratio of 167%. In the quarter we also sold down part of our Italian sovereign bond holdings.
In the quarter we reduced our Delta Lloyd holdings and announced the sale of our business in Sri Lanka. While we are not yet in a position to make firm announcements on further non-core disposals, the progress is in line with planned timelines.
We can now confirm that we are in discussions with external parties with respect to our US life and annuities business and these are being actively pursued. While not agreed, any such sale would come at a substantial discount to IFRS book value, but would generate significant economic capital surplus. We believe any such sale would be in the best interests of the Group and we are hopeful of a satisfactory resolution reasonably soon.
Beyond this, there are eight smaller disposals which are now more likely to be in 2013, and we expect all to be done without a significant impact on the Group's IFRS book value.
The transformation and earnings enhancement process continues apace. A key initiative is the turnaround of our 27 "amber" business cells. In the quarter we assigned our most talented high-potential executives to each cell and they produced a plan for each. The analysis tended to show that within the cells we had a mix of performing as well as uneconomic or poorly performing sub-segments or products. The required actions ranged from revenue-enhancement, cost or loss reduction, capital withdrawal, or leveraging technology or the online space. We are now in the process of refining and implementing these plans and building the results into our 2013 and 2014 plans, and will be able to provide a more comprehensive update at the 2012 full-year results.
Unsurprisingly, getting traction on the change initiatives at Aviva has taken time.
On the one hand we are blessed with a terrific brand and really professional front-line staff who have the customer's interest fully at heart. For example, visiting the regional UK and international centres reveals an incredibly dynamic environment and a strong marketing ethic. The "systems thinking" initiatives are now well embedded in the culture of the UK business.
