In its full year results announcement on 8 March 2018, following clear legal advice, Aviva noted its ability to cancel existing preference shares as part of considering its options to return capital to shareholders. Following that announcement, Aviva spoke to a large number of investors and received some strong feedback and criticism.
On 23 March 2018, in light of that feedback, Aviva announced it would take no action to cancel the preference shares. That announcement enabled our preference shareholders to rest secure in their holdings. Under current regulation the preference shares will no longer count as regulatory capital in 2026 and Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time.
Aviva recognises the uncertainty created for preference shareholders whilst Aviva was considering its options and the impact it had on the wider reputation and trust in the Company. Today, Aviva announces a further step towards restoring that trust. Aviva will offer a discretionary goodwill payment to shareholders who sold preference shares in the period from 8 to 22 March 2018 (inclusive) at a share price that was lower than the price that the preference shares returned to following our announcement on 23 March 2018. This goodwill payment is intended to put those shareholders in the same financial position they would have been in had they sold their preference shares following the 23 March announcement, rather than the first announcement.
Based on the information currently available, Aviva estimates that fewer than 2,000 individual investors sold their preference shares in the period from 8 to 22 March 2018 (inclusive) and that the total cost of the goodwill payment scheme should not exceed approximately £14 million.
Since this voluntary goodwill payment was first proposed by Aviva, Aviva has consulted with the FCA and will continue to engage with the FCA in its investigation of the preference share issue.
Aviva has appointed KPMG LLP as an independent administrator to handle the goodwill payment process. By 31 July 2018, Aviva expects to have completed the preparations required to open and operate that process and will make a separate announcement along with writing to each affected registered holder individually at that time setting out full details of how eligible shareholders can claim their payment. Eligible shareholders will have up to six months to make a claim from the date the goodwill payment process opens.
Mark Wilson, Group Chief Executive Officer of Aviva plc, said:
“Our announcement on 23 March meant that Aviva's preference shareholders could rest secure in their holdings. However, we recognise that whilst we were considering our options for the preference shares this caused uncertainty and led some investors to sell their shares.
“The Board and I want to do the right thing and make this goodwill payment.
“Preference shares remain an industry-wide issue and it is clear now that the best way forward is to seek a regulatory solution before the 2026 deadline when the shares no longer count as regulatory capital under Solvency II.
“We accept that whatever action we take, we will continue to hear divergent views on this topic from various stakeholders. However, together with our previous announcement not to proceed with the cancellation of the preference shares, we hope this goodwill payment goes some way to restoring trust in Aviva.”
Further detail on the goodwill payment can be found at the end of this announcement. Questions and answers relating to the goodwill payment can be found at www.aviva.com/investors/preference-shares. A dedicated helpline has been established for any investors wishing to discuss the goodwill payment scheme on:
UK Freephone: 0800 046 8988
International: +44 (0) 1603 606389