Change Is Good, Even for Insurers

(Bloomberg Opinion) -- After searching far and wide for a new CEO for the past five months, Aviva Plc is sticking with a familiar face: on Monday, it named a 26-year company veteran as its new boss.

More of the same may be just what the British insurer needs, but changing investors' negative view of that strategy could require time. It's a luxury incoming CEO Maurice Tulloch is unlikely to have.

After unceremoniously jettisoning his dealmaking predecessor, Mark Wilson, the insurer is trying to find a way to persuade investors to warm to his creation – and head off pressure for a more drastic overhaul.

To his credit, Wilson reshaped the life and general insurer. Known for a clear vision and a fiery temper, he sold non-core assets and bolstered capital with the biggest U.K. insurance deal in more than a decade, the acquisition of Friends Life Group Plc in 2015. His exit had as much to do with his personal style and decision to join BlackRock Inc.'s board as it did with the stock's painful under-performance.

Still, investors are right to seek change.

Even though about a third of Aviva's earnings come from outside the U.K., mostly in France, the company is still seen a boring, low-growth British insurer. For that, it is paying a steep price. The company's market capitalization is roughly the same as what it was a decade ago: about 17 billion pounds ($22.4 billion). The international operations alone could fetch as much as 13.5 billion pounds if offloaded, according to Barclays Plc analysts. Jettisoning them could provide a juicy return to shareholders or the opportunity to double down on the U.K.

But giving up on the international businesses would mean forgoing earnings and taking on a considerable execution risk. Less radically, Tulloch could continue to reduce debt and focus investments away from the low-growth U.K. life business to property and casualty businesses outside the country, areas he knows well.

Agreeing that a familiar pair of hands was in Aviva's best interest wasn't an easy choice. That the board reportedly considered bringing in an outsider who had helped break up another insurer is a sign that there was appetite for a new playbook. Since Wilson became CEO in January 2013, the Bloomberg Europe 500 Insurance Index has returned about 110 percent for investors, including dividends; at Aviva, the returns were less than half of that.

For Tulloch, the key to success may well be time. Investors won't have much patience. His first 90 days will be more critical than ever if he is to convince shareholders he can revive the insurer without a radical revamp. Failing that, consolidation will continue in the industry and acquirers may start to circle.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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