1

FINANCIAL ANALYSIS ON AVIVA PLC

Background

Aviva Plc is a British global holding company offering customers long-term saving products and

fund management services, insurance and savings, and general and health insurance services.

The company is headquartered in London, England. It has a clientele base of about 33 million

customers and 29,600 employees in the 16 countries it operates in around Europe and Northern

America. It is the largest and leading general insurer and pension provider in the United

Kingdom. The Life sector offers; insurance, long-term health and accident, pensions, savings,

and annuity business and health, whereas in the general insurance segment, it caters to individual

and business insurances for risk related to property and liability vehicles and medical expenses.

History

Aviva Plc traces its history back to 1696 in the Hand in Hand Fire and life insurance society

establishment after the Great Fire of London. The insurance firm was based in London.

However, it came into existence in the current financial world after merging Norwich Union and

Commercial Union and General Accident (CGNU) British insurance firms on May 30th, 2000.

The name Aviva came into adoption in July 2002, where most of the group's operations were

carried out under the umbrella of AVIVA in 2005; it acquired RAC plc breakdown recovery

operation for about 1.1 billion pounds making it the largest player in insurance. Due to its rise in

prominence in the United Kingdom, it resoluted to lookout for a new market in the United States

of America. In 2006 it increased its existence by acquiring AmerUs Group, a subsidiary of Des

Moines financial service company founded in 1896 in a 2.9 billion dollar deal which

subsequently led to AmerUs Group rebranding to Aviva USA after the acquisition (Desai, 2016).
 2

In 2015, Aviva carried out a 5.6 billion pounds takeover of Friends Life Group. The largest

shareholders are Dodge & Cox (172.48 million shares) and The Vanguard Group Inc (95.27

million shares, they hold 4.39 percent and 2.43 percent of the total shares of the insurance firm,

respectively (Nicoletti, 2021).

Market Position

Aviva PLC is the leading insurer in the United Kingdom with a 23 percent share of the entire life

and savings market. It has gained clientele trust via its diverse and robust services due to its

ability to combine insurance heritage with investment to deliver profitable outcomes to its

customers compared to other insurance firms. Aviva protects homes, businesses against flooding

and cybercrime, and pensions, crucial to both individuals and corporates. Its main strengths are

based on digital innovation, brand recognition, and a high level of services. In the United

Kingdom, its claims service is ranked as the best in the universe since it is easier and simpler for

customer access. During its successful operation in the country (UK), it has a developed a long-

standing relationship with the largest banks within (Four out of six of the major bank) the region

to allow its consumers to access the most suitable insurance solutions. It also offers commercial

line insurance to various businesses ranging from micro to small, mid-market to large, and

multinational companies, a task that may be a hurdle to most insurance firms cannot comprehend

External Analysis

External analysis is the act of examining the industrial environment of corporate; this report aims

to analyze these environmental factors that are critical in the decision-making process of any

organization, but they usually beyond the control of a firm. The analysis is categorized into two

clusters: Macro External Environment Analysis and Micro External Environment Analysis.
 3

Macro External Environment Analysis on Aviva

In any firm, the purpose of carrying out external analysis is primarily to determine the

opportunities and threats in the industry or a segment that would yield profitability, volatility,

and growth. The Macro External Environment factors impacting Aviva PLC are:

Political Factors Impacting Aviva Plc

Political factors play a crucial role in determining the firm's long-term objectives on profitability

in a specific country or market. They consist of tax policies, trade restrictions, and laws. In the

UK, the government has made it compulsory for its citizens to have third-party insurance, a

factor that has positively impacted Aviva plc. Since Aviva operates in more than a dozen

countries, it is prone to diverse political arrangements and political environments. For Aviva to

be successful as dynamic insurance across several nations, it diversifies the systematic risks of a

political environment (Ahlström and Monciardini, 2021). It acknowledges an increase in taxation

would negatively impact the firm since the investment done by the clients will be low, hence

jeopardizing the firm's stability.

Economic factors impacting Aviva Plc

Aviva Plc uses a country's economic state such as interest rate, inflation rate, savings rate,

economic cycle, and foreign exchange rate as signs to determine whether investing in that region

is a viable course. Aviva plc considers growth rate, consumer spending, and economic stability

to forecast the trajectory of insurance industries. With Britain's exit from the European Union,

Aviva was well prepared despite the unpredictable outcomes that would result from the

discussions. Aviva introduced a fairer taxation system and a simple regulatory environment as

mitigation measures to alleviate any adverse impacts from Brexit.

 4

Social factors impacting Aviva Plc

In any country, society's culture influences the way things are done; this directly impacts the

culture of an institution in that environment. Aviva Plc tries as much as possible to understand

the shared beliefs and attitudes of the target population as they play a critical role in determining

what services and products the locals are yearnings for and how they would design the

promotion message to win over the consumers as well as respecting their norms. This has

improved the living standards of the customers. In the UK, policies framed to regulate the

insurance industry are stiff; for instance, you are implored to make insurance for the vehicle

when buying it. This has played a crucial role in increasing the customer base. The citizens

become conscious of life insurance benefits to cover their health, leading to increased operations

and profits for Aviva plc. By observing the social factors of the target, Aviva firm has been able

to protect what is important to them and save their future; in 2019 alone, it paid out over £12.9

billion in claims and benefits in the UK alone.

Technological factors impacting Aviva

Technology has been a major catastrophe to most industries across the Globe. Any firm willing

to mitigate through any economic or financial turbulences must be ready to keep up with the

technology disrupting industries every day. Slow technological speed might give the firm time to

adapt to the changes and improve its services. In contrast, fast-speed technology might lead to

the company not coping with the situation hence incurring a loss. Aviva, through technology, has

focused on Digital Customer-centric plans such as the AvivaPlus, Quantum, and MyAviva

digital portal, which have significantly increased the interaction between the firm and its 15

million clients in the UK market.

 5

Micro External Environment Analysis on Aviva

In any firm, the purpose of carrying out external analysis is primarily to determine the

opportunities and threats in the industry or a segment that would produce profitability, volatility,

and growth. The Micro External Environment factors impacting Aviva PLC include;

Buyers impact on Aviva Plc

The buyers form the consumer base, and they dictate what products will be more profitable when

put on the market. Aviva Plc analyses the market based on the buyers available before venturing

into it. This attribute has enabled the firm to keep growing its clientele base from 25 million

customers in 2002 to 33.8 million in 2020.

Suppliers impact on Aviva Plc

When the suppliers in the UK are powerful, they make larger margins of profits compared to

Aviva itself. They lead to Aviva accumulating profits by growing the customer base, but they

may incur a loss when they are powerful.

New Entrants impact on Aviva Plc

When in a specific market, firms must keep on rebranding and updating their products to

maintain the status quo in the market. Aviva Plc has to analyze the market field and the impact

new entrants would have on its product and services; this will enable it to mitigate pressures and

retain its consumer base.

Substitutes Impact on Aviva Plc

Other insurance firms offering almost the same products and services lead to innovations and

appealing deals. Aviva has always resolved to offer suitable deals to its consumers. Due to its

devoted client association, the managing department can realize a high level of consumer

fulfillment among current clients and good brand equity amongst the likely clients.
 6

Competitors impact on Aviva Plc

In every market, different firms are offering similar goods with great plans. Aviva is always

faced with this, especially on international grounds where it is treated as a foreign entity. To gain

consumers, it offers the best deals, affordable and compelling insurance plans to create a gap

with its local competitors.

Aviva Plc vs. Legal & General financial performance in 2020

In the financial year 2020, Aviva Plc, just like almost all firms, its revenues plummeted due to

the global pandemic by the Covid-19 disease. The firm seemed to mitigate the economic crisis as

its operating profit stood at £3.161 billion, a slight fall from the previous year's £3.184 billion. In

contrast, Legal & General had an operating profit of £ 2.22 billion, a 3% fall in its 2019

operating profit which stood at £ 2.29 billion; this showed that Aviva plc gained on the net profit

ratio whereas Legal & General incurred a loss. The Aviva plc profits surged from £2.663 billion

up to £ 2.910 billion while legal & general profits after tax plummeted by a margin of 12% from

£1.834 billion to £ 1.607 billion. This indicated that Aviva Plc gained on the gross profit ratio

whereas Legal & General incurred a loss. Aviva Plc's gain significantly strengthened its capital

and liquidity, while Legal & General's low revenue resulted from unpredictable market

movements and low interest rates. Aviva Plc's revenue value as of 2020 was 46.57 billion GBP

while that of Legal & General was at 50.23 billion GBP. In relations to share prices in the

financial year 2020, Aviva share prices surged by approximately 11% in the H1 results (350p per

share), with its stock plummeting by 30% on that financial year while Legal & General shares

were up by 6% translating to 228p per share with it stock plummeting by 26% in the financial

year. This showed Legal & general was able to withstand the challenging market conditions
 7

better than Aviva Plc in alleviating the effects of the pandemic on its stock

(www.insurancebusinessmag.com).

Internal Analysis

To analyze Aviva plc's competitive position in the insurance market, we will use SWOT

Analysis.

Strengths

Aviva's low-cost structure enables it to produce affordable products for its customers. Its

financial position, which has been profitable for the last five years, makes the firm fund its future

expenditures. It also has a large asset base providing it with better solvency.

Weaknesses

Aviva Plc is spending less than its major competitors in research and development; this sector

results in innovations, and Aviva may lag in establishing new products. Aviva Plc has also not

conducted data on market research in the UK for the past two years; it is making decisions

centered on two years old information while the client's wants may have evolved.

Opportunities

Social media has recently gained many users; Aviva can capitalize on that to promote its

products, interact with consumers and get feedback from them to improve their services. E-

commerce has gained popularity as a new trend; Aviva Plc can open online stores to gain

revenue and sell via the platform.

Threats
 8

Customer tastes are changing, which puts pressure on corporates to change their products to meet

consumer needs constantly. The increase in competition puts pressure on Aviva to reduce prices

to maintain its market, which results in a decrease in revenue.

Theory Applied by Aviva Plc

The firm applies the Contingency Organizational theory to organize its corporation in making

decisions based on the prevailing market situations. This has enabled Aviva UK to embrace

Brexit and still thrive in marinating its local market.

Managerial Recommendations

Aviva Plc should employ highly skilled staff to ensure its high-quality services and products are

maintained; this can be achieved by holding training and learning programs to equip its staff with

the necessary or new information regarding the insurance industry. This would result in a skilled

workforce that is motivated and hungry to achieve more hence adding value to the firm.

The current asset ratio and liquid asset ratios indicate that the firm needs to use the cash more

efficiently and appropriately than it is doing now; there is a need for financial planning since it is

currently not done properly.

Aviva Plc should embrace technology since it provides a significant opportunity for the firm to

practice differentiated strategy and pricing as market changes; this will enable the company to

maintain its loyal customers due to its effectiveness and lure new customers.
 9

References

Desai, D. (2016). An analytical study on retention of financial planning advisors at Aviva Life

Insurance, Pune, Maharashtra, India. ZENITH International Journal of Business Economics &

Management Research, 6(3), 41-53.

Spencer, R. (2013). General Insurance in the twenty-first century: Meeting the challenges. CII

Thinkpiece, 1-4.

Nicoletti, B. (2021). Platforms for Insurance 4.0. In Insurance 4.0 (pp. 173-259). Palgrave

Macmillan, Cham.

Ahlström, H., & Monciardini, D. (2021). The Regulatory Dynamics of Sustainable Finance:

Paradoxical Success and Limitations of EU Reforms. Journal of Business Ethics, 1-20.

www.insurancebusinessmag.com

Forbes Magazine.