07/03/2013 06:33 GMT

Aviva Reports £3bn Loss, Slashes Dividends And Cancels Executive Bonuses

Aviva, one of the UK's best known insurers, announced a catastrophic loss on Thursday morning of £3.05 billion, driven by the writedown of its US business.

The news of the loss was combined with an announcement that Aviva would be slashing its dividend payments to shareholders by a 44% cut in its final dividend from 16 pence to 9p, despite the fact it had enough liquidity to pay out at the full amount.

The decision to almost halve the dividend payment was taken to help Aviva balance its books, and reduce the level of debt it has compared to some of its peers.

It wasn't just the shareholders left smarting however; bonuses for top executives for 2012 have been cancelled, and there won't be any pay rises for 2013 either.

The painful announcement for the relatively new chief executive - Mark Wilson took up the post three months ago - is part of an ongoing restructure of Aviva, led by chairman John Macfarlane.

"Given our results, it is not appropriate we pay bonuses to executive directors," Wilson told the Telegraph, adding that Aviva would not look at clawbacks to help shore up the balance sheet.

Dumping the American book of insurance for less than half its market value, according to the FT, was described by Macfarlane as "strategically imperative", and part of a wider plan to produce a simpler, more transparent insurance company.

Its UK general insurance arm will also be separated from the holding company for most of its overseas subsidiaries and a new management structure was introduced last summer, eliminating various management committees to concentrate on three distinct levels;

  • Office of the Chairman – comprising the most senior group level executives who will meet weekly
  • Group Executive – The above executives plus other members of the senior executive team, who will meet bi-monthly.
  • and Senior Management Group – Around 90 senior managers who will meet twice a year to reinforce priorities and to develop a high performance culture.

The news of the £3bn loss had been known in the markets for some time, but the dividend cut took many analysts by surprise. Despite this, the mood has been broadly positive in the City for the embattled insurer.

John Truong, senior trader at Accendo Markets, said there was "blood on the trading floor" on the back of Thursday's announcement, adding the 15% drop in the insurer's share price seemed harsh.

"At 19 pence, the dividend yield is still over 6% at these prices, I would be snapping these up for a bounce and the longer term yield," he added.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, was also positive, saying this could mark a turning point for Aviva.

"The simplification of the business, the reduction of debt and the generally positive trading picture will be of some relief to those investors patient enough to stay with the stock. There are also improvements in the capital cushion, whilst the cost cutting programme remains in force," he said.

"Expectations have now been set at a lower level, including dividend prospects – indeed, some may see today's price drop as a potential entry point for what is now a recovery play. For other investors, though, the more immediate success stories lie elsewhere in the sector and so the general market view of the shares as a cautious buy will come under some considerable pressure."

Aviva's not the only insurer to disappoint shareholders recently; RSA lowered its dividend by 33% in February.

RSA, which owns the More Than, said the cut was "absolutely the right thing to do for the business", in an environment of "prolonged low bond yields".

The insurer's profits had been hit by by exposure to Hurricane Sandy in the US, the Costa Concordia cruise ship disaster and the wettest year on record in England affecting home and business insurance claims.