Can Harvey revitalise Aviva's prospects?

Business Profile: The head of UK's largest insurer has still to convince the City that he is up to the job

Richard Harvey has come a long way in the past 10 years. In 1992 he ran the far-flung New Zealand outpost of a medium-sized, mutually-owned insurer, Norwich Union.

Mirroring the dramatic transformation through a series of mergers of the company itself, Mr Harvey now finds himself in the top job at Aviva, the UK's largest insurer, which on its own controls 2.5 per cent of all shares in the FTSE 100 index.

Such an elevated station brings a seriously elevated office, with panoramic City views stretching from St Paul's to Tower Bridge, where Mr Harvey grants this interview over lunch.

The lunch is a few sandwiches, befitting Mr Harvey's healthy lifestyle and trim physique. He goes to the gym regularly in the bottom of the company's head office, risking sweaty encounters with staff, and is fond of spending his holidays skiing. Eating only one or two of the sandwiches, Mr Harvey warns The Independent's photographer not to snap him "stuffing a sandwich in my mouth in a most embarrassing way".

The company, which includes Norwich Union, changed its name from CGNU to Aviva earlier this year. The new name, dreamed up by consultants and not, as the rumour went at the time, ripped off from a dress shop in Norwich, is meant to convey "life" and "vitality".

This is all good spin for a company in a sector which is predicated on the basis that people will have accidents, have possessions stolen and eventually die. Aviva, it was thought, would go down well in its crucial Continental market, where it now has 40 per cent of its business.

Mr Harvey, a committed Christian who is rumoured to give a large chunk of his income to the Church, points to the life and vitality he and his team have breathed into Aviva itself. "We are full weight in the UK – number one in life and general insurance. We are long established in the Netherlands and France and in Spain we have gone in the last three years from being 30th to number four in new business."

Those who have worked with Mr Harvey, an actuary by training, say he is an astute businessman, who is fiercely interested in the numbers side of business and hot on keeping costs down.

It seems strange, then, that he has let the company's margin slip in the past two years, in contrast to arch rivals Prudential and Legal & General.

Critics say Mr Harvey has in fact gone too far down the path of grabbing market share at the expense of profitability. They say there is growing pressure on him to deliver hard evidence of underlying progress to investors and to his own board, which include ambitious colleagues such as Aviva's finance director, Mike Biggs, and Philip Scott, who heads the company's UK life business.

Such charges irritate Mr Harvey. He is otherwise very affable – a characteristic which has reinforced the rumour that in his spare time he is a Church of England warden. In fact it was his wife who held the post, though both are regular church-goers.

Mr Harvey, 52, is dismissive of the criticisms of his management style. "That is complete nonsense. Those are very odd analysts you have been talking to. You must choose your friends more carefully," he says.

Mr Harvey, who joined Norwich Union from Sun Alliance, now part of the struggling Royal & SunAlliance, argues that to be successful in the UK insurance market now you need a large market share and have to be able to sell your products much more cheaply than ever before.

Mr Harvey says: "We manage this company on a shareholder value basis. Shareholders can reasonably expect in a growing business for total volumes to grow a bit faster than total profit, leading to a slight drop in margins, but that does not mean you are not going forward."

Mr Harvey has overseen some clever moves since he became chief executive of Aviva. He sold the company's risky Lloyd's of London business in 2000 to the US investor Warren Buffet and this year got a very good price for its profitable but volatile general insurance business in Australia.

The decision to slash the dividend by 40 per cent in February went down much less well in the City. Investors reacted angrily to the move, which seemed to come out of the blue, sending Aviva's shares tumbling by more than 50 per cent.

Mr Harvey acknowledges that the dramatic cut could have been handled better. "We have heard people's requests very seriously and we took care to publish more information at our last set of results, but let's be absolutely clear, it may have been jolly nice to warn a few people early, but that is illegal," he says.

Mr Harvey points out that "with hindsight it is easy to see the wisdom of the dividend cut." While rivals struggled to boost capital in this year's tough stock market conditions, Aviva has been in a reasonably strong position and not needed to embark on a rights issue.

Mr Harvey is undoubtedly an able manager, keeping close control over his sprawling business, but some say he is lacking in the grand vision department. One source said: "I know the business very well but I couldn't tell you what the long-term strategy is."

Mr Harvey argues that much of the strategy lies in further expansion in Europe, where Aviva is already the largest supplier of life and pensions business, despite only having about half of the market capitalisation of giant Continental insurers.

Some parts of Europe, where the level of private pension provision is almost non-existent, have "much stronger growth prospects than the UK. But equally you have to work a bit harder to get into that culture," Mr Harvey says.

To that end, Mr Harvey brushes up his French with a tutor once a week and is about to go on a week-long intensive language course to help when he speaks to French colleagues. He often finds himself talking to his tutor, Madame Claude, about the theatre rather than insurance, as seeing plays is one of his great passions.

He acknowledges that it is still impossible to outdo rivals by becoming a truly pan-European insurer. "The tax rules in Europe are still separate, meaning that we have to manufacture everything locally. The next step in Europe is a truly free labour market, which means coming up with a transportable pension. That step is very important," Mr Harvey says.

Back in the UK, Aviva has waded deeply into stakeholder business and seems to be taking a gamble that the Government will eventually swallow the politically bitter bill of forcing individuals who can afford it to contribute to private pensions.

Mr Harvey denies that he is betting on compulsion, because other measures to boost pensions savings, such as raising the age of retirement, have not yet been tried. But he adds that he would like to see the need for overhauling the pension regime "further up the political agenda".

He says the Government and insurers want the same thing – individuals to provide for their own retirement – but believes that the insurance industry and Downing Street "are not doing well enough at working together at the moment to make that happen".

Mr Harvey has yet to convince all quarters of the City that he is up to the biggest job in the insurance sector, so leading the discussions on pension reform would probably be a good move. In the meantime, all eyes will be on Aviva's next set of results, in February, to see whether Mr Harvey has revitalised its prospects.

RICHARD HARVEY REGULAR CHURCH-GOER

Age: 52

Pay: £923,000 in salary and bonus in 2001.

Education: Read Maths at the University of Manchester.

Career record: Joined Phoenix Assurance in 1973 as trainee actuary. Moved to New Zealand in 1979, before returning to the UK in 1982. Went back to NZ in 1986 as general manager of Sun Alliance New Zealand. Joined Norwich Union in 1992 to become chief executive of its NZ interests. Returned to the UK in 1993 and was made finance director. Became chief executive in 1998, before the company merged with CGU in 2000, forming CGNU (now Aviva).

Interests: Theatre and skiing.