990 Coursework 3: Financial Strategy Comparison of Insurance Companies

This coursework assignment analyzes the financial strategies of two major insurance companies, Aviva plc and Prudential Company. The report begins with an introduction to insurance organizations and their financial strategies, followed by a brief overview of Aviva and Prudential. The core of the assignment focuses on comparing the financial strategies of both companies using key performance indicators (KPIs) such as Earnings per Share (EPS), Operating Profit, Solvency Ratio II, and Dividend per Share. The analysis includes financial data from 2017 and 2018, calculating percentage changes to highlight performance trends. The report also provides a table summarizing the financial strategies of both companies in terms of figures and analyzes the extent to which the financial strategies of both Aviva plc and Prudential Company are being achieved. The report concludes with an analysis of the financial performance and strategies of both insurance companies.

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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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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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percentage
EPS 54.8p 58.4p 6.8%
Operating Profit £3,068 million £3,116 million 1.5%
Solvency Ratio II 198% 204% 6%
Dividend per share 27.40p 30.00p 9.4%
This table shows the financial strategy of the Aviva plc14 in terms of figure and the detail
explanation of this table given in above paragraph.
Prudential Company
Ratios 2017 2018 Change in
percentage
EPS 145.2p 156.6p 7.8%
Operating Profit £4,699million £4,827 million 2.72%
Solvency Ratio II 202% 232% 30%
Dividend per share 47.00p 49.30p 4.8%
This table shows the financial strategy of the Prudential Company15 in terms of figure and the
detail explanation of this table given in above paragraph.
Analysis
In Order to analyse the extent to which, the financial strategy of Aviva plc16 and Prudential
Company being achieved is given below:-
a) Earnings per share
In 2017, Aviva plc targeted for more than 5% increment in operating earnings per share in
2018. After the analyses of the financial strategy of Aviva plc17, it has been found that the
company achieves this target.
In 2017, Prudential Company targeted for more than 4% increment in operating earnings per
share in 2018. After the analyses of the financial strategy of Prudential Company, it has
been found that the company achieves this target.
14 Aviva plc ‘Annual reports and account 2018’ (Aviva plc, 2018) <https://www.aviva.com/investors/annual-report-
2018/> accessed 25th April 2019
15 Prudential ‘ Financial Highlight’ (Prudential, 2019) <https://www.prudential.co.uk/investors/financial-highlights>
accessed 25th April 2019
16 Aviva plc ‘Presentations’ (Aviva plc, 2019) <https://www.aviva.com/investors/presentations/ > accessed 25th
April 2019
17 Aviva plc ‘Annual reports and account 2018’ (Aviva plc, 2018) <https://www.aviva.com/investors/annual-report-
2018/> accessed 25th April 2019
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b) Operating Profit
In 2018, Aviva plc had 1.5% increment in company’s operating profit. After analyse of the
financial strategy of Aviva plc, it has been found that the company still working on achieving
the target as the steady performance is shown in the operating profit of the company.
In 2018, Prudential Company18 had 2.72% increment in company’s operating profit. After
analyse of financial strategy of Prudential Company, it has been found that the company had
delivered the sustainable growth in the company’s operating profit.
c) Solvency Ratio II
In 2018, Aviva plc had 6% increment in company’s solvency Ratio II. After analyses of the
financial strategy of Aviva plc, it has been found that company is not achieved the target of
having solvency ratio II in between 150% - 180%.
In 2018, Prudential Company plc had 30% increment in the company’s solvency Ratio II.
After the analyses of financial strategy, it has been found that Prudential Company had not
achieved the target of having solvency ratio II in between 200% - 230%.
d) Dividend per share
In 2017, Aviva plc targeted to achieve increment in dividend per share. It must be between
55-60% by 2020. After the analyses of financial strategy, it has been found that Aviva plc19
might achieve its target by 2020.
In 2017, Prudential Company targeted to achieve the increment of more than 4%. After the
analyses of financial strategy, it has been found that the Prudential Company had 4.8%
increment in Dividend per share from the last preceding year.
Recommendations
There are some recommendations in following points for Aviva plc to improve the
organisational performance and financial strategy in this competitive environment:
 Aviva plc needs to improve its earnings per share to beat its competitive firm
as the company’s earnings per share shows the ability of profit generation,
which attracts the investor. The earnings per share of the company will only
increase, if the company’s earnings increases or the number of shares
reduced. Therefore, to increase the earnings per share, it is a
recommendation to increase company’s net profit and repurchase its own
stock.
18 Prudential ‘Annual Report 2018’ (Prudential, 2018) < https://www.prudential.co.uk/~/media/Files/P/Prudential-
V2/reports/2018/prudential-plc-ar-2018.pdf> accessed 25th April 2019
19 Aviva plc ‘2018 interim results announcement’ (Aviva plc, 2018) <https://www.aviva.com/newsroom/HY2018-
results/> accessed 25th April 2019
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 Aviva plc needs to increase its operating profit to sustain its growth in this
competitive environment as the operating profit shows the company is
potential of making profits in the business. To improve the operating profit
margin, Aviva plc has to increase its operating income20, improve its gross
profit, improve its net margin and improves total asset’s return. Therefore, it
is a recommendation for Aviva plc to reduce its expenditure, create
economies of scale and trim the wastage from the business.
 In general, Solvency Ratio II of the insurance companies expected to be
maintaining a 150% solvency margin. In Aviva plc this margin is already
achieved. In addition, Solvency Ratio shows the financial stability and helps
the investors in measuring the ability of the company to meet with its
obligations. Therefore, it is important for Aviva to maintain this solvency
margin for the sustainable growth in the business.
 In this competitive scenario, it is tough for the business to sustain for longer
durations. Therefore, it is very important to achieve its sustainability in the
market, which can be done with the help of increment in dividend per share.
In 2017, Aviva plc sets the target for the company to achieve increment in the
dividend per share in the range of 50-60% by 2020. From the above
analyses, it is a recommendation for a company to increase its net profits
and improve its growth strategies.
The above recommendations help the Aviva plc to improve its performance in the market,
which helps in attracting the customers and investors towards the company. In addition,
these recommendations help in improving the financial position of the organisation in this
competitive environment.
Conclusion
From the above discussion, it can be concluded that all the Insurance Company has its own
space in the market and to secure its good position in the market the company needs to be
20 C. S. Agnes Cheng, Joseph K. Cheung, V. Gopalakrishnan ‘On the Usefulness of Operating Income, Net
Income and Comprehensive Income in Explaining Security Returns’ (1993) 23 ABR 195
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financially sound. Aviva plc has a good and sustainable financial position in the insurance
industry. In the same manner, its competitive firm Prudential Company has also a secured
position in the market. Both the companies have their own targets. In addition, to achieve
their targets with the help of financial strategy, both the companies have to work efficiently
on it.
The financial strategy of an insurance company is shown with the help of important ratios of
business such as earnings per share, dividend per share, cash remittances, operating
income and solvency ratio II. These ratios of financial strategy mentioned in the above
paragraphs help in understanding the importance of financial strategy in the insurance
organisation. In addition, there is the detailed analysis on the financial strategy of both the
companies. This analysis helps in understanding the position of both the firms in the market.
Recommendation for Aviva plc also explained in the above paragraphs with the help of
analysis on financial strategy of Aviva plc. These recommendations help Aviva plc in
improving its financial position in this competitive era. Overall, Aviva plc needs to change
little bit strategies of a company to perform better in the market.
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Referencing must be completed before submission
All sources must be referenced in the body of your answer as well as in your reference list. See
the 990 Specimen coursework assignment and answer for examples of how to reference
correctly in text and in your reference list.
References
Bibliography
Books
Agrawal A., Goyal K. Emerging Trends in Banking, Finance & Insurance Industry (Atlantic
Publishers and Distributors, 2009)
Cummin J., Dionne G. Handbook of International Insurance (2nd edn, Springer-Verlag New
York, 2013)
Articles
Ali a., Urcan O. ‘Dividend increases and future earnings’ (2012) 19 JAE 12
Borch K. ‘The objectives of an insurance company’ (1962) 1962 SAJ162
Cheng C., Cheung j., Gopalakrishnan V. ‘On the Usefulness of Operating Income, Net
Income and Comprehensive Income in Explaining Security Returns’ (1993) 23 ABR 195
Jordan C., Clark S., Smith R. ‘Should Earnings Per Share (EPS) Be Taught as a Means of
Comparing Intercompany Performance?’ (2007) 82 JEB 343
Tatsiana V. ‘Financial strategy of insurance companies’ (2015) 11 PJMS 179
Vesa R. , Lasse K. , Raoul B. ‘Topical modelling issues in Solvency II’ (2007) 2007 SAJ 135
Websites
Aviva plc ‘2018 Aviva plc Result 2018’ (Aviva plc, 2018)
<https://www.aviva.com/investors/results/> accessed 25th April 2019
Aviva plc ‘2018 interim results announcement’ (Aviva plc, 2018)
<https://www.aviva.com/newsroom/HY2018-results/> accessed 25th April 2019
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
Aviva plc ‘Annual reports and account 2018’ (Aviva plc, 2018)
<https://www.aviva.com/investors/annual-report-2018/> accessed 25th April 2019
Aviva plc ‘Aviva’ (Aviva plc, 2019) <https://www.aviva.com/ > accessed 25th April 2019
Aviva plc ‘Presentations’ (Aviva plc, 2019) <https://www.aviva.com/investors/presentations/
> accessed 25th April 2019
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Bizfluent ‘The Importance of Financial Strategy’ (Bizfluent, 2018) <https://bizfluent.com/info-
7978548-importance-financial-strategy.html> accessed 25th April 2019
Prudential ‘ Financial Highlight’ (Prudential, 2019)
<https://www.prudential.co.uk/investors/financial-highlights> accessed 25th April 201
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
Prudential ‘Annual Report 2018’ (Prudential, 2018) <
https://www.prudential.co.uk/~/media/Files/P/Prudential-V2/reports/2018/prudential-plc-ar-
2018.pdf> accessed 25th April 2019
Prudential ‘Prudential’ (Prudential, 2019) <https://www.aviva.com/ > accessed 25th April
2019
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Glossary of key words
Analyse
Find the relevant facts and examine these in depth. Examine the relationship between
various facts and make conclusions or recommendations.
Construct
To build or make something; construct a table.
Describe
Give an account in words (someone or something) including all relevant characteristics,
qualities or events.
Devise
To plan or create a method, procedure or system.
Discuss
To consider something in detail; examining the different ideas and opinions about
something, for example to weigh up alternative views.
Explain
To make something clear and easy to understand with reasoning and/or justification.
Identify
Recognise and name.
Justify
Support an argument or conclusion. Prove or show grounds for a decision.
Outline
Give a general description briefly showing the essential features.
Recommend with reasons
Provide reasons in favour.
State
Express main points in brief, clear form.
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