Aviva looks to save £400m and exit large-scale bulk annuity arm

Life company Aviva has announced plans to reduce costs by £400 million by the end of 2013 and is looking to exit up to 16 underperforming divisions, including its UK-based large scale bulk purchase annuity business, and cut a number of middle management positions.

In a note to shareholders chairman John McFarlane (pictured) said the company wanted to achieve an expense reduction of £400 million from the end of 2011, which is expected to be completed by the end of 2013.

He said some of the cost savings would be achieved through reducing the number of management layers between chief executive and operational staff from nine to five.

This is a new programme from the £400 million cost saving scheme Aviva announced in 2010 which it scrapped at the end of 2011 for the new scheme.

The 2010 scheme intended to save £200 million from absolute costs and £200 million from cost efficiency. By the end of 2011, the company had saved the £200 million from absolute costs.

Aviva would not confirm how many jobs would go as a result of this restructure and said it was currently consulting with those impacted.

McFarlane highlighted the UK-large scale bulk annuity business as one of the 16 non-core divisions the company was looking to exit.

He said Solvency II regulation was likely to push pricing of bulk purchase annuities beyond ‘economic point’.

There are 30 members of staff in the UK- large scale bulk purchase annuities segment however Aviva said not all will lose their jobs as the company will try to move some to other segments of business.

David Barral, chief executive of Aviva UK Life, said the return on capital for UK-large scale annuities was not attractive enough to maintain the business.