Financial Strategy of Aviva plc and Prudential Company

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Introduction
Insurance organisation1 is the organisation, which provides and sells the insurance to the
public. It insures and provides protection to the customer from unexpected losses. In
addition, it also provides financial protection. Any insurance organisation needs its financial
1 Anand M. Agrawal, Krishn A. Goyal Emerging Trends in Banking, Finance & Insurance Industry (Atlantic
Publishers and Distributors, 2009)
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990Coursework assignment 3 answer template
strategy for pursuing its financial goal. The financial strategy helps the insurance companies
to achieve their financial targets.
Aviva plc
Aviva plc2 completed almost 19 years in the insurance industry. Its headquarters is in
London. They have more than 33 million customers from 16 countries. They have wide
range of insurance products and saving products, which gives protection as per the
customer requirement. In addition, they provide proper planning for good and bad times of
the customers. They distribute their products to the corporate, groups or individual with the
help of various networks. Their ‘Digital First’ plan provides cheaper and faster availability of
products to the customer and their financial strategy helps them to generate more profits in
the business. This plan launched by Aviva to be digitally strong in insurance market and this
plan helps in improving the financial strategy of the company. Hence, this organisation has a
good financial position in the market.
Prudential Company
Prudential company3 is one of the leading British multinational insurance companies.
Headquarter of this company is situated in the United Kingdom. It was founded in London in
May 1848. This company completed almost 170 years in insurance industry. Their work is to
provide financial securities to the public and gives them opportunity to build their future
secure. They have more than 26 million customers all over the world. The savings of
customers, invested by them to meet their long terms needs after the retirement. They have
a sustainable flow of profits and cash flow in the market because of their financial strategy.
About Financial Strategy
Financial Strategy4 of a business defined as the integral part of the organisational strategic
plan. This strategy helps the organisation in financial planning for different operational
activity of the organisation. Financial strategy helps the organisation to achieve its financial
goal.
The explanation given in the following paragraphs helps to understand the concept of
financial strategy in Aviva plc and Prudential Company.
Financial Strategy of Aviva plc and Prudential Company
There are different types of financial strategy adopted by the insurance company5 for the
future growth in the market. In this assignment, there is a discussion of financial strategy of
Aviva plc and Prudential Company. This discussion helps to understand the role of financial
strategy6 in achieving the objectives of both the organisations.
2 Aviva plc ‘Aviva’ (Aviva plc, 2019) <https://www.aviva.com/ > accessed 25th April 2019
3 Prudential ‘Prudential’ (Prudential, 2019) <https://www.aviva.com/ > accessed 25th April 2019
4 Bizfluent ‘The Importance of Financial Strategy’ (Bizfluent, 2018) <https://bizfluent.com/info-7978548-
importance-financial-strategy.html> accessed 25th April 2019
5 J. David Cummin, Georges Dionne Handbook of International Insurance (2nd edn, Springer-Verlag New York,
2013)
6 Verezubova Tatsiana ‘Financial strategy of insurance companies’ (2015) 11 PJMS 179
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Aviva plc financial position is very strong and resilience in insurance industry. The objective7
of the company is to provide growth in profit and cash. In addition, to fulfil this objective
Aviva plc becomes a diversified insurer, whose ability is to fulfil the commitment of cash flow,
profit ad growth in the business. The Aviva plc’s financial strategy helps the company in
fulfilling their objectives by achieving their financial targets.
In the same way, Prudential Company also have a very good financial position in the market.
In addition, they have a very strong distribution network. The company aim is to deliver the
sustainable growth in profits and cash and use the balanced metrics. The Prudential
Company’s financial strategy helps the company in fulfilling their objectives by achieving
their financial targets.
The financial strategy of Aviva plc and Prudential Company are as follows:-
a) Earnings per Share
A portion of profit earned by company allocated to each common stock shares defined as
earnings per share8. It serves as the indicator of profitability in company. It is the
responsibility of the company to adjust EPS for potential dilution of shares and extraordinary
items. Higher the EPS ratio indicates the ability of company to generate profits for
company’s shareholders. This ratio gives a better sense of value to the investors. Hence,
this is the significant financial strategy for the company.
In 2017, Aviva plc9 operating earnings per share of the company is 54.8p and in 2018, it is
58.4p. There was 7% of increment in earning per share. This increment showed the better
performance of company form the preceding years.
In 2017, Prudential Company operating earnings per share of the company is 145.2p and in
2018, it is 156.6p. There was 7.8% of increment in earning per share. This increment
showed the better performance of company form the preceding years
b) Operating Profit
Operating Profit is a profit earned from business operations before the deduction of taxes
and interest. It derived after the deduction of operating expenses form the gross profit. It
used to investigate the performance of business. Hence, this financial strategy of the
company shows the profit making potential of a business.
In 2017, Aviva plc operating profit is £3,068 million and in 2018, it is £3,116 million. There
was £48 million increment in operating profit. This increment showed that company has the
better profit making potential form the preceding years.
In 2017, Prudential Company10 operating profit is £4,699 million and in 2018, it is £4,827
million. There was £48 million increment in operating profit. This increment showed that
company has the better profit making potential form the preceding years.
7 Karl Borch ‘The objectives of an insurance company’ (1962) 1962 SAJ162
8Charles E. Jordan, Stanley J. Clark, W. Robert Smith ‘Should Earnings Per Share (EPS) Be Taught as a Means
of Comparing Intercompany Performance?’ (2007) 82 JEB 343
9 Aviva plc ‘Annual reports and account 2017’ (Aviva plc, 2017)
<file:///C:/Users/SystemJP/Downloads/Annual_Report_and_Accounts_2017%20(2).pdf> accessed 25th April 2019
10 Prudential ‘Annual Report 2017’ (Prudential, 2017) <https://www.prudential.co.uk/~/media/Files/P/Prudential-
V2/reports/2017/prudential-plc-ar-2017.pdf> accessed 25th April 2019
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c) Solvency Ratio II
The ratio, which used to measure the ability of the organisation to meet with the debt
obligations of the organisation, is the solvency ratio of the company. It shows the company’s
ability to meet with the long term and shot term liability. In Solvency II11, the ratio of the
eligible to the required own funds is known as solvency ratio. This ratio is derives when
operating income after tax is divided by the total debt. Higher the Solvency Ratio II
considered the company is financially sound. Hence, this financial strategy of company
shows the financial stability of the company.
In 2017, Aviva plc the percentage of Solvency Ratio II is 198% and in 2018, it is 204%. This
increment in Solvency ratio II by 6 % shows that the company financial position from the
preceding years is better.
In 2017, Prudential Company the percentage of Solvency Ratio II is 202% and in 2018, it is
232%. This increment in Solvency ratio II by 30 % shows that the company financial position
from the preceding years is better.
d) Dividend per share
Dividend per share12 is the summation of announced dividend issued by company for
ordinary share, which are outstanding. It is calculated by dividing the total business paid out
dividends in which interim dividends is included by the number of ordinary shares which are
outstanding. If the company’s dividend per share increases, it gives shareholder a strong
signal of good performance, which is a good way for company to show its growth in the
market. Hence, this financial strategy shows sustainability of company in the market.
In 2017, Aviva plc13, the dividend per share is 27.40p and in 2018, it is 30.00p. This
increment in dividend per share by 2.60p shows shareholders the growth of the company
from the preceding years.
In 2017, Prudential Company, the dividend per share is 47.00p and in 2018, it is 49.30p.
This increment in dividend per share by 2.30p shows shareholders the growth of the
company from the preceding years.
The above paragraph theoretically explains the significant role of financial strategy in both
the insurance organisations with the help of important ratios. The following table helps to
understand more clearly the contribution of financial strategy in Aviva plc and Prudential
Company in the last proceeding years.
Financial Strategy of Avia plc and Prudential Company (in terms of Figure)
Aviva plc
Ratios 2017 2018 Change in
11 Ronkainen Vesa, Koskinen Lasse, Berglund Raoul ‘Topical modelling issues in Solvency II’ (2007) 2007 SAJ
135
12 Ashiq Ali, Oktay Urcan ‘Dividend increases and future earnings’ (2012) 19 JAE 12
13 Aviva plc ‘2018 Aviva plc Result 2018’ (Aviva plc, 2018) <https://www.aviva.com/investors/results/> accessed
25th April 2019
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