Aviva Sells US Life Business to Athene Holding for $1.8 Billion
December 24, 2012 by Jeff Jeffrey
Best’s News Service – December 21, 2012 01:29 PM
LONDON – Aviva plc has agreed to sell its U.S. life and annuity business, Aviva USA Corp., to Bermuda-based Athene Holding Ltd. for $1.8 billion.
London-based Aviva will retain Aviva Investors, the company’s North American asset management business.
The sale is the latest step in the company’s strategy of winnowing down its international operations and focusing on “businesses and markets where Aviva enjoys leadership positions and is able to generate attractive returns with a high probability of success,” Aviva said in a statement.
The company said the transaction will increase Aviva’s pro forma economic capital surplus coverage ratio by $1.8 billion to 165%, placing the group within its target range of 160-175% of required capital (FY11: 130%). The sale will reduce the group’s credit risk exposure by approximately 25%, and also reduce the sensitivity of the group’s economic capital results to credit spread movements by approximately 30%.
“The sale of Aviva USA is an important step forward in the delivery of our strategic plan,” John McFarlane, chairman of Aviva plc, said. “It considerably strengthens Aviva’s financial position, increases group liquidity and improves our economic capital surplus whilst also reducing its volatility. The disposal of the U.S. business, combined with the recent settlement with Bankia, represents a successful end to the year and sets us up well for 2013.”
The sale will bring Aviva $1.55 billion in cash, after the repayment of external debt. The company said the sale allows for up to $250 million to be paid in the form of an interest-bearing vendor loan, repayable in cash within 12 months of the sale’s completion. Cash proceeds will increase central group liquidity and will be used for general corporate purposes, the company said.
Aviva announced its intention to sell its U.S. business last month, a move that industry observers said could help the company reduce volatility and strengthen its balance sheet. That announcement came on the heels of news that Aviva saw a 5% dip in global sales during the first three quarters of 2012 (Best’s News Service, Nov. 8, 2012).
Aviva has undergone a dramatic corporate reorganization this year.
In May, Andrew Moss, Aviva chief executive officer, abruptly announced he would be stepping down. The company said as part of Moss’ departure the company would take a hard look at its business offerings. The announcement of Moss’ departure followed a shareholder revolt, in which a majority voted to shoot down the company’s salary plan. Mark Wilson, the former CEO and president of AIA Group, will be taking the reins at Aviva plc Jan. 1 (Best’s News Service, Nov. 20, 2012).
In April, Aviva said three top executives were leaving as it sought to focus on a smaller number of high-growth markets (Best’s News Service, April 19, 2012).
The company has also been selling off significant portions of its international operations.
In July, the company announced it would be exiting from 16 underperforming segments, including its South Korea presence, U.K. large-scale bulk purchase annuities and small partnerships in Italy. In an investor and analyst briefing, Aviva said its new strategy will involve a narrower focus on business segments that can produce “attractive” returns, an effort to bring economic capital up to the levels of industry peers and improved financial performance (Best’s News Service, July 5, 2012).
Later that month, Aviva sold more than half its stake in Netherlands-based Delta Lloyd NV. In all, Aviva sold 37.2 million shares of Delta Lloyd, leaving the multiple-line insurer with a stake of 34.3 million shares, or 19.8% of Delta Lloyd’s ordinary share capital. According to Delta Lloyd, the shares sold on the open market for a total of about 400 million euros (Best’s News Service, July 12, 2012).
In September, the company announced the sale of its Sri Lankan assets to Hong Kong-listed Asian life insurer AIA Group Ltd. for $109 million cash (Best’s News Service, Sept. 27, 2012).
The Aviva subsidiaries rated by A.M. Best currently have Best’s Financial Strength Ratings of A (Excellent).
On the morning of Dec. 21, shares of Aviva plc (NYSE: AV) were trading at $12.40, down 1.82% from the previous day’s closing price.
(By Jeff Jeffrey, Washington Bureau Manager: jeff.jeffrey@ambest.com) BN-NJ-12-21-2012 1328 ET #
