Aviva (AV.) has announced that CEO Mark Wilson will step down as CEO with immediate effect and will leave the company on April 9, 2019. We maintain our fair value estimate of 575p, which is above the current share price of around 465p.
The announcement does come as a surprise, particularly, in our view, the short transition period to find a suitable replacement. Still, we think there have been small tell-tale signs that Wilson has been looking elsewhere, namely his appointment to the board of BlackRock in March 2018.
However, Wilson is a turnaround specialist and we think Aviva is through the worst of this. For the next stage of its development, the business needs a different set of skills; more of a steady hand on the tiller than a rescue mission.
Our most preferred candidate to replace Wilson is Tom Stoddard, and we think he would meet the above principles. However, we anticipate it would be very difficult to replace Stoddard and his current skill set within the position of CFO. In the absence of this transition, we think Maurice Tulloch, CEO of International Insurance, would be the next best fit.
Aviva Now on a Stronger Footing
Aviva is a midmarket insurer that has historically had its fair share of problems. It has been overleveraged and previously had substandard processes and controls. Largely an undifferentiated composite insurer, it missed opportunities to expand its asset management arm and establish a competitive advantage. However, the business is now on a stronger financial footing, and there is operational momentum within asset management and digital.
Aviva’s retail platform is fairly small, but the business has the largest auto-enrolment offering in the United Kingdom. The second addressable area within digital is quality and the control environment. Aviva has had a poor track record on process controls and customer service, which was exemplified by the 2015 technical errors and 2007-12 fixed-income trade allocation failings. Digital is helping to resolve these issues. Within customer service, the reliance on digital lowers the risk of incorrect or incomplete advice.