Sales: $43 billion (£28 billion)
Stock Exchanges: Euronext Dublin London Paris
Ticker Symbol: AV (London)
NAIC: 523120 Securities Brokerage; 523920 Portfolio Management; 524113 Direct Life Insurance Carriers; 524126 Direct Property and Casualty Insurance Carriers
The product of multiple mergers, Aviva PLC is the United Kingdom’s largest insurance and financial services group and the seventh largest insurer in the world. The London-based insurer has 25 million customers, more than £200 billion (US $306.5 billion) under management, and premium income and investment sales of £28 billion (US $43 billion) for 2001. It derives revenues from a trio of business platforms: life and savings products, general insurance, and fund management. Long-term life and savings has become the key focus and principal source of growth for the company. Targeting the needs of the aging and affluent populations in the United Kingdom and Europe, Aviva offers life insurance, annuities, unit trusts, pensions plans, and financial and investment services. The company’s longstanding general insurance business focuses on home and auto coverage for individuals and the insurance needs of small businesses. Aviva is one of the top ten fund managers in Europe and the second largest U.K-based fund manager. The fund management business invests the group’s funds held for policyholders.
Commercial Union Rises from London Fire
Aviva attained prominence with a pair of dawn-of-the-century mergers. In 1998, U.K. insurance giants Commercial Union and General Accident combined to form CGU. Two years later, in 2000, CGU merged with U.K. life insurance rival Norwich Union to form CGNU. In 2002, shareholders approved renaming the company Aviva.
Commercial Union (CU) was the largest of the insurance trio that combined to form Aviva, and also was first on the scene. CU emerged in 1861 in the aftermath of London’s Great Tooley Street Fire, which raged for two days along the south bank of the Thames River. High claims from the destruction prompted insurance companies to more than double their rates for waterside warehouse fire coverage. Leading import and export merchants protested by forming the Commercial Union Fire Insurance Company, an insurer that would fix rates on a more precise evaluation of risks.
CU soon attracted a large volume of fire business as Britain’s cities and industries were growing fast during the 1860s. Within a few years it had opened branches in major cities and appointed agents throughout Britain, as well as one in Hamburg, Germany. At the same time, CU began selling other products, becoming a “composite” insurer. Its first life policies were issued in 1862, and its first marine underwriter was appointed in 1863. Profits from life and marine business helped keep it going when fire claims were high.
With trading connections through their import and export businesses, CU directors were particularly alert to overseas opportunities. By the end of the 1860s the company had agencies in India, South Africa, the Caribbean and other foreign ports used by British merchants. In the United States, CU appointed agents in San Francisco and New York. The company was doing business in Chicago and Boston in 1871 to 1872 when both cities suffered disastrous fires. Unlike some local companies, CU met the resulting claims in full. By the 1880s its U.S. business was providing more than one-third of the company’s fire premium income. By the end of the century, CU had expanded in Europe, Canada, and Australia and was drawing three-quarters of its premium income from abroad. The company ranked second only to the British company, Royal Insurance, in total worldwide fire income.
CU Grows Via Takeovers
At the start of the 20th century, CU appointed its first general manager, Evan Roger Owen, then looked to expand by buying existing insurance operations rather than opening new offices. The first strategic takeover came in 1900 when it bought Britain’s Palatine Insurance Company of Manchester. Palatine had a strong fire business and had also achieved success in the relatively new field of accident insurance. The Palatine purchase made CU the first British company to handle all four classes of insurance: fire, life, marine, and accident. Acquisition of a half dozen other companies followed. In the United Kingdom, these included specialist accident company Ocean; composite insurer Union Assurance; and the oldest of all British insurance operations, Hand-in-Hand Fire and Life Insurance Society. In the United States, it purchased two companies—Philadelphia-based American and the California Insurance Company. Acquisition of Union Assurance and American were rescue buyouts as a result of the companies’ severe losses from the 1906 San Francisco fire. By 1914, CU was the largest of the British composite companies, with a premium income of £7.5 million—almost four times what it had been in 1901. CU’s business continued to grow throughout World War I despite disruption in Europe. After the war, in 1919, it lost its top position in the British insurance industry when two of its major rivals Royal and Liverpool & London & Globe merged.
In the postwar period, CU became more dependent on industry trends and economic conditions. The 1921 depression caused the first drop in CU’s income since 1908, and the arrival of the Great Depression in 1929 brought a more lasting setback. Management switched from emphasizing expansion to cutting costs. Nevertheless, CU continued to grow, aided by the growth of automobile ownership and a huge new market for accident insurers. CU also continued to make acquisitions. It took over another small composite, British General, in 1926.
Post-World War II Challenges for CU
World War II and its long aftermath of austerity in Britain halted CU’s growth in Europe through the 1940s. And the 1950s brought other challenges for the company. Fierce competition was driving rates down at a time when claims were rising and government regulations were imposing new burdens on insurers. As a result, all insurance companies found it more difficult to make profits, especially in the U.S markets. CU responded in 1959 with the friendly takeover of struggling North British and Mercantile Insurance Company, a longstanding U.K. insurer with a large proportion of its business in the United States. The merger boosted CU’s assets from £192 million to £319 million. With mergers seen as the way to reduce costs and spread out risk, CU went shopping again in 1968, buying Northern and Employers Assurance. Ranking as the fourth largest U.K. insurer, Northern and Employers had a substantial life business, which complemented CU’s comparative weakness in the area. The Northern and Employers acquisition restored CU for a time to the position of top U.K. composite and enabled the company to reduce its workforce. The U.K. staff, after rising to 11,800 in 1968, dropped to 8,400 in 1972, while premium income continued to grow. As a result, profits rose rapidly in the early 1970s.
In 1975, however, the company suffered its first loss in many years, mainly due to underwriting losses in the United States. Conditions were proving difficult for all insurers, partly because of increasing state control of premium rates. Profitability was restored in the following few years by reducing the company’s less successful business in the United States. Meanwhile, the United Kingdom had entered the European Economic Community (EEC), and CU moved to strengthen its position in that market. It made two important acquisitions in the early 1970s: the Belgian company Les Provinces Reunies and Dutch composite Delta Lloyd, which operated a strong life business.
In the 1980s, CU further reduced its U.S. business, following bad losses in 1984 to 1985, but made more acquisitions in Continental Europe. Europe now accounted for 30 percent of CU’s worldwide premium income. The company’s profits reached a new peak of £202 million in 1988, but fell back to £150 million in 1989. In 1990, a new holding company, Commercial Union PLC, was formed to facilitate expansion into financial services activities, including unit trusts and investment management, stockbrokerage, and individual savings accounts. In 1992, CU began operations in Poland, and in 1996 opened offices in South Africa and Vietnam.
General Accident Covers Employers
General Accident (GA) emerged out of the same British industrial fervor as Commercial Union and paralleled its development in many ways. But rather than offering a solution to high fire premiums, GA filled the need for employer liability coverage. With trade unions alarmed about unsafe factory machines and hazardous working conditions, the British government introduced the Employers’ Liability Act of 1880. The legislation made employers liable to workers involved in certain on-the-job accidents. In 1885, a group of entrepreneurs in Perth, Scotland, saw the insurance potential of this new legislation and formed General Accident & Employers Liability Assurance Association, Ltd. In return for an annual premium, the group would safeguard employers against any liability arising from employee accidents. Beyond the Perth office, GA assigned representatives to London and to Aberdeen and Edinburgh, Scotland.
Our strategy is clear: to become a leading European-based financial services group. We have chosen to focus on long-term savings as our engine of growth. We have also committed ourselves to developing a world-class fund management business and to raising the quality of our general insurance earnings. To generate real value for our shareholders, we will also concentrate on markets where (Aviva) can achieve a leading position.
The company received a boost in 1887. GA entered into an arrangement with Malcolm’s Diary & Time-Table of Glasgow to insure for £100 any passengers killed in railway accidents on the condition that the victim possessed a copy of a Malcolm’s timetable or diary. Malcolm’s paid a 1 cent premium to GA for every 25 items sold. This GA insurance innovation was the beginning of a lucrative coupon insurance scheme. And 1887 was also the year that 27-year-old Francis Norie-Miller became chief executive of GA. An insurance innovator with enormous energy, he dominated the management of GA for many years and remained highly influential until retiring as chairman in 1944.
GA quickly pursued new product lines and new markets. In 1896, GA produced its first prospectus for automobile coverage. In 1899, it merged with Scottish General Fire Assurance Corporation and began offering both fire and accident coverage. Norie-Miller established a U.S. office in 1899, and soon after overseas branches in Australia, Canada, South Africa, Belgium, France, and Holland. Because of diversification into new insurance markets, the company was renamed General Accident Fire and Life Assurance Corporation in 1906.
GA Makes Inroads in Auto Coverage
Improvement in British living standards followed World War I, including an increase in automobile ownership. In 1924, Norie-Miller introduced a scheme that boosted GA’s auto insurance income dramatically. In collaboration with Morris Motors, GA arranged that each car sold by that company would have free insurance coverage for one year; the premium to be paid by Morris. This plan had a high-claims cost because premiums were not tied to individual risks, but it introduced GA to a large section of the automotive community, and many motorists retained GA for auto and other types of insurance. The resulting business served GA well in the years that followed, especially after the introduction of the Road Traffic Act in 1930, which made third-party motor insurance compulsory for all drivers. By 1937, General Accident had already issued one million auto policies in Britain.
Throughout the 1930s, GA expanded in the United States as well as in Britain. The Potomac Insurance Company of Washington, D.C., GA’s U.S. subsidiary, increased the firm’s involvement in fire insurance. Other subsidiaries were added after World War II. In the United States, GA formed Pennsylvania General Fire Insurance Association in 1963. In Britain, GA took over The Yorkshire Insurance Company in 1967. A prolonged period of steady growth enabled GA’s assets to reach £1 billion in 1975. By the early 1980s assets were over £3 billion and total premium income was more than £1.5 billion. U.S. operations continued to generate one-third of premium income.
During the 1980s, deregulation of the financial services industry led to a blurring of boundaries between insurance brokers and insurance companies in the complex British insurance market. These measures, and the proposed integration of the European Economic Community in 1992, created an opportunity for enormous growth. But competition among insurers also intensified. In response, General Accident committed to a stronger acquisition strategy. By the end of the 1980s, GA had acquired over 500 real estate brokerage agencies to market its home and life insurance.
- Norwich Union is founded as a fire insurance company.
- London merchants form Commercial Union Assurance Company after the Great Tooley Street Fire.
- Commercial Union issues its first life policy.
- Commercial Union issues its first marine underwater policy.
- General Accident Employers Liability Assurance Association, Ltd., is founded in Perth, Scotland.
- General Accident merges with Scottish General Fire Assurance Corporation.
- Commercial Union purchases Britian’s Palatine Insurance Company of Manchester; and Commercial Union PLC is formed to expand financial services.
- Commercial Union acquires venerable British insurance company, the Hand-in-Hand Fire and Life Insurance Society.
- General Accident changes its name to General Accident Fire and Life Assurance Coporation.
- Commercial Union acquires North British and Mercantile Insurance Company.
- General Accident forms Pennsylvania General Fire Insurance Association.
- Commercial Union buys Northern and Employers Assurance, the fourth largest U.K. insurer.
- Commercial Union’s new London headquarters opens at St. Helen’s.
- Commercial Union begins operations in Poland.
- General Accident acquires the specialist pensions company Provident Mutual; Commercial Union opens offices in South Africa and Vietnam.
- Norwich Union is demutualised and listed on the London Stock Exchange.
- Commercial Union and General Accident merge to form CGU PLC.
- CGU and Norwich Union merge to form CGNU PLC, retaining the London headquarters of CGU.
- CGNU sells its U.S. general insurance business to White Mountain Insurance Group.
- CGNU changes its name to Aviva.
The real estate business was not initially successful: the depressed British mortgage market during the late 1980s and early 1990s subjected GA to considerable losses. GA also assumed a heavy financial burden when in 1988 it bought out NZI Corporation, a New Zealand-based insurance and banking firm. The company viewed NZI as the platform from which it would launch an expansion into the Pacific market, especially Korea and Taiwan. But the takeover resulted in substantial and embarrassing losses for GA. During the late 1980s, the once-profitable U.S. insurance market also developed problems. Large awards against drivers and regulation of premium rates by many state governments led to severe losses in the auto market. GA’s pre-tax losses in Massachusetts grew from US$4.5 million in 1984 to US$13 million in 1986. In 1988, GA withdrew entirely from Massachusetts. Harsh weather conditions worldwide caused massive losses through damage claims in the late 1980s. Life assurance premiums also rose due to the scare caused by acquired immune deficiency syndrome (AIDS).
In 1990, General Accident PLC was formed as the holding company for General Accident Fire and Life Assurance Corporation and new cost-cutting measures and market strategies were implemented. As a result, the company posted the largest profits among U.K. composite insurers in 1993. GA also added to its holdings by acquiring nonstandard auto insurer Sabre, in 1995, followed by life insurer and pension specialist Provident Mutual in 1996, and Canada’s General Insurance Group Ltd. in 1997.
CU and GA Merge: 1998
Faced with unrelenting competition and falling premium rates in Europe, Commercial Union and General Accident announced in early 1998 that they would merge, joining in the consolidation trend among insurers. In creating a new company, CGU PLC, the two companies expected to capture greater market share, cut operating costs by 10 percent through job losses and integrating information technology systems. Completed in June, the transaction left CGU with £100 billion (US $165 billion), in assets under management, and a stock market value of £14.8 billion, making it the second largest British insurer behind Prudential. Analysts believed the merger bolstered the life insurance business potential of the new company, and gave it a more powerful presence in Continental Europe and the United States.
The merger indeed marked a shift toward building a stronger life and savings business, including financial and investment management services. CGU management had witnessed the rise in bancassurance, a service model for financial institutions that fulfilled both banking and insurance needs. CGU saw opportunity in this area as well, especially with the competition and difficulty in profitable growth from general insurance. At the time of the merger, the CGU business was 60 percent general insurance (auto, fire, and health coverage) and 40 percent life and savings products (life insurance, personal pensions, annuities, units trusts and financial services). A year later, in 1999, life and savings business had grown to over 50 percent of CGU’s total business. The company solidified its relationships with French bank partner Société Générate that year, investing £490 to help it deflect a hostile takeover. It also entered into an agreement to buy 50 percent of The Royal Bank of Scotland Life Insurance Company, and entered into a bancassurance agreement with banks in Italy and Portugal.
Norwich Union Added to the Fold: 2000
In early 2000, CGU made another headline-grabbing move in line with its new strategy. The company announced plans to merge with giant life group Norwich Union, forming yet another new company, CGNU PLC. Norwich’s roots dated back to 1797 when it was founded as a fire insurance company. In 1997, it had de-mutualized and became a public limited company on the London Stock Exchange. With the merger, CGNU became the U.K.’s largest multiline insurer and among the top five insurance companies in Europe. Norwich Union continued to operate its life and pensions, retail fund management, and general insurance businesses under its own name in the United Kingdom.
CGNU continued to reposition itself as a European-based financial services group focused on long-term savings. And following the Norwich merger management began to divest the company of businesses that conflicted with that strategy. It exited general insurance markets in South Africa, Germany, and the United States. White Mountain Insurance Group purchased the U.S. general insurance operations for £1.3 billion (US $1.9 billion) in 2001. Over the next year the company also sold off life businesses in Canada; general insurance businesses in France, Portugal, Belgium, and Brazil; and mortgage indemnity operations in Australia. Meanwhile, it created new bancassurance relationships in Spain, Singapore, and Hong Kong.
By the end of 2001, about 50 percent of CGNU’s business was in the United Kingdom, and it held major market positions also in France, the Netherlands, Spain, Italy, Ireland, Poland, Turkey, Canada, Singapore, Australia, and New Zealand. Acquisitions and divestitures had significantly realigned CGNU’s business mix. Life and savings accounted for 70 percent of its premium income, and 90 percent of that income was generated from its European operations. In 2002, the company changed its name to Aviva.
CGNU Corporation (USA); CGNU Life Assurance; CGU Insurance; Commercial Union (Poland); Delta Lloyd (Netherlands); General Accident; Hibernian Group (Ireland); Morley Fund Management; Norwich Union; NZI (New Zealand); Scottish General Insurance Company.
Prudential PLC; Royal & Sun Alliance Insurance; Allianz; Legal & General Group; Zurich Financial Services; AXA.
Adams, Christopher, “Comment & Analysis: Not a Commercial Accident,” Financial Times (London), February 26, 1998, p. 17.
Cowell, Alan, “Two Large Insurers in Britain to Merge in $12 Billion Deal,” New York Times, February 22, 2000, p. C4.
The First Hundred Years, Perth: General Accident, 1985.
Gray, Irvine, A Business Epic 1835-1935: General Accident, Fire & Life Assurance Co. Ltd, Perth: General Accident, 1935.
“History,” Aviva PLC, accessed June 29, 2002, http//:www.aviva.com.
Knight, Alice W., The Yorkshire Story, York, 1975.
Liveing, Edward, A Century of Insurance: The Commercial Union Group of Companies, 1861-1961, London: Commercial Union, 1961.
Romance of a Business: Forty Years Work 1885-1924, Perth: General Accident, 1924.
Taylor, Roger, “Technological Advance Drives Union of GA and CU,” Financial Times (London), February 26, 1998, p. 22.
“Two Big British Insurers Agree to Merge in $11.5 Billion Deal,” New York Times, February 26, 1998, p. D4.
—update: Douglas Cooley