Aviva Plc

Aviva is the sixth largest insurance group in the world and the second largest life insurer in the United Kingdom. It is a leading provider of life
and pension products in Europe and is growing long-term savings and life insurance businesses in parts of Asia and the USA.

The Group is the only listed composite insurer in the United Kingdom, which means that it covers general insurance as well as life insurance and pensions.

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What about Avivia's recent track record?

Aviva appears to be somewhat of a cyclical business that moves forward for a number of years only to be hit by a major setback, leading towards
a dividend cut.

In the main, insurers are exposed to claim levels and are dependent on investment returns. Normally, insurance premiums are received before claims are paid out, while excess cash is used to generate investment returns.

However, when the credit crunch hit in 2007/2008 investment returns collapsed wiping out Aviva's profits for 2008 completely and pushing the Group into a substantial loss.

The share price fell from a high of £8.50 in mid 2007 to a low of £1.63
in March 2009

In order to return to profit, Aviva has made a number of corrective moves such as cutting costs as well as cutting the dividend and making business disposals, including:

  • exit from the Australian market with the disposal of the Group's Australian life business for £452m. Subsequent refocus on selected south-east Asian growth markets, including entree into fast growing Indonesia with the acquisition, earlier in 2010, of a 60 per cent stake in an Indonesian insurance company

  • part flotation of its Benelux dividend paying(!) business Delta Lloyd on Euronext, raising £500m

  • taking out significant costs from the operating cost base, saving an annualised figure of £500m, allowing margins to improve.

What about Avivia's dividend
track record?

The Group, which had been increasing its dividend pay-out since 2003, cut its dividend in the recent downturn by almost 27.3 per cent to 24 pence a share. This is unfortunately not the first time Aviva has cut its dividend - see Aviva's dividend history and dividend sustainability.

In earlier recessions, such as in 2002, dividends were cut by a massive 39.5 per cent, whilst in 1998 it fell by 13.5 per cent.

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Where is the dividend growth going to come from?

Avivia's mid term focus is on Europe

Interestingly, in comparison to fellow London-listed Prudential Plc, Aviva’s “long-term” business model is focused on the United Kingdom and most parts of Europe which as a geographical area is regarded as the largest life and pension business in the world.

Rather than the Far East or elsewhere, the Group believes that Europe offers the highest absolute growth for the next five years. Drivers of this European growth are perceived as:

the increased need for consumers to meet their own retirement, life insurance and saving needs, due to final salary pension schemes being closed at many companies across Europe as well as these schemes being threatened with closure in the public sector in many countries.

The recent economic downturn has also ‘shocked’ many consumers into saving more, spending less and re-paying debt. In the United Kingdom alone, more than half the population are now saving which is the highest proportion for some time.

Overall the long-term trend looks favourable for Aviva as individuals are having to take greater responsibility for their finances and retirement.

Selected Aviva newsflow

In a video interview with Andrea Moneta, Aviva’s chief executive of EMEA, earlier in September, 2010, Moneta warns that a growing “pension gap” is leading to a deterioration in the quality of life for many future European retirees, opening up opportunities for private pension providers such as Aviva.

With the release of its half year results, on August 5th, 2010, Aviva confirmed that sales growth had recovered whilst operating margins had improved due to cost cutting.

Earlier in July, Aviva had already briefed investors on their commitment to bringing greater clarity to how it generates capital, how that is turned into cash and what it does with that cash.

Information and Resources


1.the above mentioned Dividend Updates are solely examples of a UK listed company's future dividend intentions and is not to be construed as a share recommendation. Neither Early Retirement Investor nor EMAR Publishing are registered as an investment advisor or as an independent financial advisor and do not provide individualised advice

2.the price of shares and investments and the income derived from them can go down as well as up, and investors may not get back the amount they invested

3.where the information consists of pricing or performance data, the data contained therein has been obtained from company reports, financial reporting services, periodicals, and other sources believed reliable

4.data computations are not guaranteed by Early Retirement Investor.com or any of the data providers and may not be complete.

5.The editor or contributors may have an interest in the share mentioned.

6.Dividend yields move up and down. As a company’s share price increases the dividend yield falls. And vice versa: if the share price falls the dividend yield increases.

Return to Rising Dividends for announcements from other companies with an amended dividend policy.

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