Aviva Ireland, under the helm of its seventh chief executive in a decade, killed off any lingering doubts about its commitment to Ireland this week by buying a 6 per cent share of the State's life insurance market through the purchase of Friends First.
The deal boosts its total share of the life market to 15 per cent and matches its general insurance market share.
It is a far cry from where the company stood earlier this decade. Less than two years after selecting Dublin as its future European headquarters, Aviva decided in 2011 to relocate the arm back to the London and shrink its local Irish insurance business – slashing its then 2,000-strong workforce in a struggling economy.
Aviva Ireland was downgraded further when its UK parent turned the Irish unit from a standalone subsidiary to a branch of the London group for general insurance in 2012 and life insurance in 2015.
It left Ireland – openly referred to by the group's straight-talking New Zealand chief executive Mark Wilson when took charge 2013 as an overstaffed "dog" – as Aviva's only overseas businesses that was not allowed to stand on its own two feet as a proper subsidiary.
Surgery, including a move between 2012 and 2013 to drop more than a quarter of its motor portfolio and close its 26-branch network, followed by the sale of its health unit in 2016, has paid off. While the broader insurance industry has been grappling with large underwriting losses in recent years, amid a surge in claims, court awards and legal costs, Aviva has stood out as something of a solitary bright spot.
The Irish unit’s insurance underwriting business has been consistently profitable since 2013 and reported an enviable 84.7 per cent combined ratio – a keenly followed gauge of net insurance claims and expenses divided by earned premiums – in the first half of this year. A ratio below 100 per cent indicates that an insurer is writing business profitably.
Seeking regulatory approvals
Wilson gave a clear signal of his commitment to the Republic last year by deciding, post the Brexit vote, to go down the road of seeking regulatory approvals to restore Aviva Ireland to its former status as a proper, standalone subsidiary. The deal with Friends First, which has been quietly on the blocks for years, further cements this and beefs up a life and pensions business that is less price sensitive than motor or other general insurance lines.
Aviva's London Stock Exchange announcement on the deal on Tuesday said that it was paying €130 million for Friends First, equivalent to 80 per cent of its net asset value.
Separately, the seller, the mainly customer-owned Dutch financial group Achmea, was bigging up what it was getting out of the deal: €220 million – including up to €90 million of excess capital it will have sucked out of Friends First before the deal is expect to close early next year. Talk about tailoring the message for your audience.
Meanwhile, it seems likely that Wilson will allow the head of the Irish unit of one year, John Quinlan, to take out the cheque book again next year. Although Aviva's €40 million-plus deal in 2009 to secure the naming rights to the Lansdowne Road stadium seemed ill-judged at the height of the insurer's woes in Ireland, the unit has good reason now to trigger an option by the end of 2018 to extend the deal by a further five years.
Bonds guru that spooked Irish banks tipped for Fed role
Reports during the week that the White House is considering appointing one of the biggest names in financial markets, Mohamed El-Erian, as vice-chairman in the US Federal Reserve may prompt an unhappy trip down memory lane for some in Dublin.
The then co-chief investment officer of the world's biggest bond firm, Pimco, rattled Irish bankers and government officials when he told Bloomberg TV in late November 2010 that Ireland risked a "major bank run" – just days after the State had applied for an international bailout.
“What you advise your sister in Ireland now is that you’d take your money out of an Irish bank and put it in another bank headquartered elsewhere,” he said at the time. “The Irish banking system has been bleeding deposits. It will seriously undermine the prosperity of this country for a generation.”
While El-Erian’s comments didn’t quite lead to queues outside banks on the streets, it surely added to volume of individuals and companies pulling deposits with the aid of a keyboard and mouse.
That’s the kind of individual you’d like to have as No. 2 in change of safeguarding financial stability in the world’s most important central bank.
