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Share performance showed time was right for Aviva CEO to go, analysts say

Mark Wilson's exit from the CEO role at Aviva PLC, the U.K.'s largest insurer, comes as little surprise, according to analysts, because of lackluster share price performance and unclear profit growth prospects.

Aviva announced Oct. 9 that Wilson, who has been at the helm since January 2013, will step down as CEO immediately, although he will remain with the company until April 2019. The insurer said a search for a successor, expected to take four months, will start immediately.

Some have read the lack of an immediate replacement and the recent share price performance to mean Wilson was pushed out. Berenberg analysts in a research note described the move as "a swift departure with Mark Wilson effectively being relieved of his duties," while a source familiar with the situation told Reuters that Wilson had left after disagreeing with the board about how to improve the insurer's share price performance.

S&P Global Market Intelligence data shows that Aviva's share price has lagged the Stoxx Europe 600 insurance index for roughly three years.

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Strategic direction 'lost'

Analysts did have some praise for Wilson's tenure — Shore Capital's Paul De'Ath described his efforts to turn Aviva around as "very successful, while Panmure Gordon's Barrie Cornes wrote that Wilson did a "good job" at focusing the company on its largest and most profitable businesses. But several felt the time was right for a change.

Cornes said in a research note that following an initial bounce when Wilson first arrived, "the shares have flatlined for the last five years." He added: "Aviva seems to have lost its strategic direction in recent times and as such we believe the change will probably be well received."

Shareholders initially seemed to have reacted positively to the news, with Aviva up about 2% in early trading, although by late afternoon, shares were almost flat at 464 pence.

Aviva said it remains on track to hit its targets of delivering more than 5% earnings-per-share growth in 2018 and achieving a dividend payout ratio of between 55% and 60% by 2020. But Berenberg analysts said Wilson is leaving behind "a highly levered company with an unsustainable operating growth target and dividend growth rate," and they also contended that operating earnings had been propped up by one-off reserve releases and management actions "which are unsustainable in our view."

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Cornes said that, like other analysts, "we struggle to see where the growth will come from."

Investec's Ben Cohen agreed, saying: "[I]t is not easy to identify the catalysts for a step-change in performance from here, and [we] posit that this has played a role in Wilson's decision to exit."

UBS analyst Colm Kelly said that although he believes Wilson did a good job delivering his "cash flow plus growth" strategy, an investor survey the bank conducted showed that management execution ranked as the second-biggest concern.

"This indicates scope for improved investor confidence around execution could drive upside from here," he said in a note.

Next in line

It is not yet clear who Wilson's successor will be, and Aviva said it is considering both internal and external candidates. Kelly said UBS expects an appointment within Aviva's ranks, and Cornes noted that Aviva has "two strong internal candidates" in international insurance CEO Maurice Tulloch and U.K. insurance CEO Andy Briggs, who was head of Friends Life when it agreed to be acquired by Aviva in late 2014.

The new CEO would need to "improve quality of earnings over time, amplify long-term earnings growth and improve confidence in consistent book value growth that is sustainable through time," said UBS's Kelly.