If Aviva disposes of the rest of its non-core portfolio, how much of the proceeds can be used for shareholder returns? It''s very sensitive to the Diversification impact. The Diversification debate Solvency II has plenty of features that sound purely technical but can actually be material. One of these relates to diversification benefit. Put simply - if Aviva sells its Non-Core operations, the Group gets less diverse, its risks are more concentrated, and that is negative for capital. But by how much? We previously assumed not a lot. But there is a debate amongst investors on the topic - and comments from management can be interpreted to imply a figure in the billions of pounds. A GBP2bn diversification loss could make the disposal programme EPS dilutive This note models the impact of a GBP2bn loss of diversification benefit: on our analysis, this would reduce the shareholder distribution potential by c.35% to GBP2.9bn and make the programme c.13% EPS dilutive. It could still make sense - the remaining business would deserve a higher multiple, and the Non-Core businesses likely have lower cash conversion than the core. But clearly a loss of diversification of this size would be impactful on potential value creation. Downgrading to Neutral after strong performance since December The disposal programme scenario analysis does not change our Target Price, because we do not model the impact of disposals until they have actually been announced. But the share has been very strong since our last update in December, outperforming UK life peers by c.13%. It has the lowest dividend yield in the UK life sub-sector. And we find ourselves c.5% behind consensus Earnings forecasts for 2021. Our Target Price remains unchanged, but we downgrade our recommendation from Outperform to Neutral.