Aviva Takes Hit on US Disposal as It Posts 3 Billion Pound
March 8, 2013 by Best's News Service
LONDON – A write-down related to the sale of its U.S. business led to a 2012 net loss in what Aviva plc described as a “year of transition” as the group seeks to shore up its capital position.
The group’s 2012 net loss was 3.05 billion pounds (US$4.6 billion), compared with a net profit of 60 million pounds a year earlier. The result included a 3.3 billion write-down on the disposal of Aviva’s U.S. business. Underlying operating profit (excluding Delta Lloyd and the U.S. business) fell 4.4% to 1.78 billion pounds.
Aviva agreed to sell its U.S. life and annuity business, Aviva USA Corp., to Bermuda-based Athene Holding Ltd. for $1.8 billion (Best’s News Service, . Last year, Aviva sold more than half its stake in Netherlands-based Delta Lloyd NV as part of its strategic plan to divest non-core assets (Best’s News Service, July 12, 2012).
Chairman John McFarlane said 2012 was a year of “radical repositioning” for Aviva as the group works on exiting 16 non-core segments while turning around 27 other segments. Aviva is also reducing its exposure to southern Europe and “capital-hungry segments.”
“Boosting capital was our main initial priority and I am pleased we were able to increase the economic capital surplus substantially by 3.5 billion pounds from the end 2011 to a pro-forma level of 7.1 billion pounds, within our stated target range,” said McFarlane in a statement.
Capital concerns led Aviva to make “the difficult decision” to cut its dividend “to a level that can be cash covered in 2014 and to enhance the availability of resources for important long-term structural requirements,” said McFarlane. The final 2012 dividend was cut 44% to 9 pence a share, bringing the full-year dividend down by 27% to 19 pence.
McFarlane noted “constraints, including regulatory, on capital and liquidity, are putting greater demands on resources, as does our transformation program, particularly this year.” He added while central liquidity balances “are likely to improve,” group resources “nevertheless contain insufficient provision for unknown risks, our desire to pay down internal and external debt, and to maintain prudent capital and liquidity levels.”
In Aviva’s life insurance segment, IFRS operating profit fell 5% to 1.83 billion pounds, mainly from adverse foreign exchange movements. U.K. profit fell as a result of one-off gains in 2011. Excluding those, U.K. operating profit would have gained 2%.
Profitability in both France and Italy improved, despite a drop in new business due to economic conditions. Improved capital efficiency, product design and returns were cited as contributing factors.
Spain’s profit was stable, and in Poland the profit level would have also been stable, but actually fell due to currency changes.
General insurance and health operating profit rose to 893 million pounds from 860 million pounds in 2011 (excluding the sold U.K. motor business RAC). Aviva cited good results in both the United Kingdom and Canada, driven by better underwriting, claims and cost management. The combined operating ratio was 97, compared with 97.5 in 2011.
Several underwriting units of Aviva plc currently have a Best’s Financial Strength Rating of A (Excellent).
(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com) BN-NJ-03-07-2013 1222 ET #
