A big drop in profits, relatively high cost base and changes at the top of Aviva spelled trouble
THE MOVE by Aviva to let go nearly 1,000 staff in Ireland stems from a combination of factors: a relatively high cost base, a significant drop in business and changing corporate strategies.
The 2,000-strong workforce in Ireland comprises staff working for Aviva’s Irish division dealing with life insurance, general insurance and health insurance as well as staff employed by its European operation, which set up in Dublin about two years ago.
The Irish Aviva operation is profitable. However, it is not as lucrative as it used to be as a result of the downturn in the economy.
Half-year financial returns, published in August, show that the Irish operation recorded profits of €32 million in the first six months of 2011. However, in the same period in 2010 profit levels stood at €86 million. Profits for the whole of 2010 were €122 million.
Chief executive of Aviva Europe Igal Mayer, who was in Dublin yesterday for the job cuts announcement, suggested the scale of the Irish operation had to be aligned to the decreasing size of the insurance market in the country.
He said the premium base of the life insurance sector had fallen by 50 per cent while the general insurance area was down by 25 per cent. However, crucially, he also pointed to the need to improve competitiveness.
This is an issue that was also alluded to earlier this month by Mayer’s boss, the global head of Aviva, Andrew Moss. In a recent television interview with MSNBC, he criticised a “culture of entitlement” – citing his company’s employees in Ireland who, he said, were paid 20 per cent more than their counterparts in the UK. He said this was not sustainable.
Union sources have maintained the average pay in the company is about €35,000 per year. They have argued this is not too far off the average industrial wage and is in keeping with pay rates in the insurance industry generally in Ireland.
Unions also maintained that pay scales had to be viewed in the context of a more favourable tax regime here.
Aviva’s answer to this issue is to bring the Irish operation under the arm of its UK division – a move which will result in the loss of 770 jobs. Up to 300 additional positions could be outsourced.
The company believes this will allow the Irish business to benefit from Aviva UK’s investment in technology, underwriting capability and purchasing power.
The company has given no details yet as to who precisely in its Irish operation will be affected by the job losses and how exactly it will fit into its UK business. It said it was committed to “keeping customer-facing roles in Ireland”.
However, whether this is business jargon to suggest most of the senior and management roles will be based in the UK remains to be seen.
The remaining 180 jobs to go are based in the Aviva Europe operations in Dublin. The move to transfer the holding company for its European headquarters to London represents a complete change in corporate strategy only two years after it decided to set up the base in Dublin.
This policy reversal has come in the aftermath of a change of senior executive personnel in Aviva.
Earlier this year Andrea Moneta, who was responsible for consolidating Aviva Europe’s 12 different national groups into one European business, and who oversaw the decision to locate the company’s headquarters to Dublin, left the company.
There has also been considerable change at the top of Aviva in Ireland.
Earlier this year David Simpson, who had been chairman since mid-2008, announced his departure.
His resignation came less than two months after the resignation of head of Aviva Health and former chief executive Jim Dowdall, who had recently taken up a role with Aviva Europe.
Stuart Purdy, who was chief executive of Aviva Ireland between 2007 and 2009, before taking up a senior European role with the company, left this year to take up a position with rival RSA.