Just where is Aviva going as key results loom?

Analysts fret over lack of capital surplus and warn of a slip in profits, but insurance giant insists its 'clear strategy' is paying off

Aviva faces its Waterloo on Thursday amid grave concerns about its European adventures.

The company is the only one among Britain's corps of life insurers to have significant exposure to some of the continent's troubled sovereign debt, which has cast a pall over its shares since the summer.

With a new chairman, John McFarlane, the one-time boss of Australian bank ANZ, preparing to take the reins, many wonder if there will also be a new chief executive soon, with questions lingering about the incumbent Andrew Moss.

Aviva has lost a number of top managers, and one analyst said: "What they really need is a bit of stability. It's no secret that there have been departures, and that some of its executives are unsettled."

Aviva is expected to unveil operating profits of just over £2.4bn for 2011 when it reports, against £2.55bn in 2010. In part the fall can be explained by the demerger of Netherlands business Delta Lloyd. However, life insurance profits are expected to be no better than flat, with general insurance falling slightly.

Of more concern to analysts is the decline in surplus capital. Between the interim and third-quarter results, analysts say, it dipped from £4bn to £2.7bn. Aviva has been alive to the danger, seeking to reassure investors that its exposure to the worst of the troubled Piigs (Portugal, Italy, Ireland, Greece, Spain) is a non-issue. But analysts still fret about Italy and Spain.

Nic Clarke at Charles Stanley says: "There is a worry about European sales going forward because investor confidence has evaporated."

Richard Gradidge at Numis adds: "On the operating side, Aviva has substantial European operations. In Spain, it distributes products through Cajas – the Spanish savings banks. A lot of them are going to have to merge, and the problem is that Aviva may only have relationships with one side in any transaction."

Both think Aviva is under valued even though, as Mr Gradidge says, it may not be "the highest-quality stock in the sector". He adds: "Aviva is the only one of the UK life insurers that has material holdings of eurozone debt, particularly Italian government bonds. Compared to the half year, the surplus capital of £4bn had fallen to £2.7bn in the third quarter.

"The market will look closely at that. Any deterioration would raise new concerns. It is one of the weaker capitalised stocks in the sector, although it does have that non-life business."

Mr Clarke notes that the general insurance business is a strength, which validates Mr Moss's decision to hold on to it when presented with a potential offer by Royal & SunAlliance. It was worth 40 per cent of Aviva's then market value for what amounts to 25 per cent of its business.

Says Mr Clarke: "They generate quite a lot of capital from the general insurance operation which feeds the rest. It has been doing quite well."

The analysts "feel a bit better now" than six months ago "when the price was falling every day".

But the results will be crucial. As Mr McFarlane prepares to join, it's all about capital. Longer-term, it may be more about strategy. This is an insurer that once felt it had the firepower to buy Prudential. The latter, despite some serious mis-steps, is now worth £18bn, while Aviva is valued at just under £11bn.

The corporate line is that bosses have "significantly transformed Aviva over the last few years". Aviva adds: "We've got a clear strategy in place that continues to pay off. We're looking forward to updating the market on our progress on 8 March."

But Ned Cazalet, an independent consultant who advises a number of life companies, sums up what much of the outside world feels about Aviva: "With the other life insurers, you might disagree with – be uncomfortable with – the journey, but you know where they're going. You can't say that with Aviva."

Campaign that didn't ring true: 'It sounds more like something you'd get out of Tesco'

Upon taking charge of Aviva in 2007, the chief executive Andrew Moss pledged to transform the business.

He unveiled a campaign called "One Aviva, Twice the Value", whose targets included doubling earnings per share by 2012 "at the latest". Mr Moss, right, made the campaign central to what he was intending to do, as he replaced the high-profile Richard Harvey.

He said it was about "accelerating transformational change to deliver a unified and more profitable company". The campaign also had an executive bonus plan attached.

Aviva had earnings per share of 48.9p in 2007, well below the 88p of the previous year. The figure had only climbed to 50.4p by 2010. It is unlikely the company will achieve anything close this year, barring some sort of financial miracle.

Mr Moss's defenders would point out that the group has endured unusually tough times during its attempt to meet the target, not least the financial crisis, swiftly followed by the European sovereign debt crisis.

Europe has always been central to Aviva's strategy, with the company arguing that it was poised to benefit from its ageing demographic. However, these crises have hit the entire insurance industry.

Critics have argued that the campaign failed to paper over the lack of a coherent strategy. They note it was only just over a year ago that a strategic review came up with a decision to concentrate its energy on 12 core markets where it stands the best chance of succeeding. Said one analyst: "You'd really have thought they'd have got that a little quicker."

Ned Cazalet, the independent life insurance analyst, said: "The problem with "One Aviva, Twice the Value" is it sounds more like something you'd get out of Tesco's than a long-term strategy."