Shares in life assurer Aviva (AV.) are among the biggest gainers on the FTSE 100 index today, up 1.8% to 418p after new chief executive Maurice Tulloch announced a cost-reduction plan.
Tulloch, who took over the top job in March, has wasted no time in clearing the decks and setting out his vision for the firm.
Andy Briggs, former head of UK insurance and a rival for the chief executive role, stood down in April, and earlier this month it was announced that chief financial officer Tom Stoddard is standing down.
READ MORE ABOUT AVIVA HERE
Under the new plan, the UK life assurance and general insurance businesses will be managed separately to enable ‘stronger accountability and greater management focus’. The digital direct business, which launched AvivaPlus at the end of last year as well as growing the MyAviva platform, is being rolled into general insurance.
COST SAVINGS LOOK ACHIEVABLE
Tulloch is promising to reduce overheads by £300m per year by 2022 through ‘lower central costs, savings in contractor and consultant spend, reduction in project expenditure and other efficiencies’.
The plan also involves around 1,800 job cuts over the next three years, out of a total workforce of around 30,000, with a focus on ‘natural turnover’ (e.g. retirement ).
According to the 2018 report and accounts, core operating costs increased by around £300m last year to £3.84bn so the planned savings should be well within the realms of possibility.
DIVIDEND POLICY CONFIRMED
Aviva has also re-iterated its commitment to ‘a progressive dividend policy’ together with a reduction in net debt of £1.5bn. ‘The sustainability and security of our dividend is paramount,’ adds Tulloch.
As we flagged here, Aviva’s current dividend is more than twice covered by earnings and four times covered by cash flow, the firm has zero debt and its pension fund has a healthy surplus so today’s yield of 7.8% looks sustainable, although investors should note that dividends are never guaranteed.
Investors wanting to view the presentation being held later today can download the slides here.
