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Aviva to make goodwill payment after preference share fiasco
Aviva and General Accident announced on Monday that they will offer a discretionary goodwill payment to shareholders who sold preference shares in the period from 8 to 22 March.
That FTSE 100 firm had noted its ability to cancel existing preference shares as part of considering its options to return capital to shareholders in its full year results announcement on 8 March, following what the board described as "clear legal advice".
Following that announcement, Aviva reportedly spoke to a large number of investors and received some "strong feedback" and criticism.
On 23 March, in light of that feedback, Aviva announced it would take no action to cancel the preference shares, enabling preference shareholders to "rest secure" in their holdings.
Under current regulation, the preference shares would no longer count as regulatory capital in 2026 and Aviva said it would work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards.
If, as 2026 approached, Aviva needed to reconsider that position, its board said it would do so after taking into account the fair market value of the preference shares at that time.
Aviva said on Monday that it recognised the uncertainty created for preference shareholders whilst it was considering its options, and the impact it had on the wider reputation and trust in the company.
It announced a further step towards restoring that trust, offering a discretionary goodwill payment to shareholders who sold preference shares in the period from 8 to 22 March inclusive, at a share price that was lower than the price that the preference shares returned to following its announcement on 23 March.
The board said that goodwill payment was 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 estimated that fewer than 2,000 individual investors sold their preference shares in the period from 8 to 22 March, and that the total cost of the goodwill payment scheme should not exceed around £14m.
Since the voluntary goodwill payment was first proposed by Aviva, it said it had consulted with the Financial Conduct Authority and would continue to engage with the FCA in its investigation of the preference share issue.
Aviva had appointed KPMG as an independent administrator to handle the goodwill payment process.
By 31 July, it expected to have completed the preparations required to open and operate that process, and would make a separate announcement along with writing to each affected registered holder individually at that time setting out full details of how eligible shareholders could claim their payment.
Eligible shareholders would have up to six months to make a claim from the date the goodwill payment process opens.
"Our announcement on 23 March meant that Aviva's preference shareholders could rest secure in their holdings," said group chief executive Mark Wilson.
"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."
Wilson said preference shares remained an industry-wide issue, adding that it was "clear" that the best way forward was to seek a regulatory solution before the 2026 deadline when the shares would 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."