Aviva looking to strengthen capital base

Aviva confirmed it is looking to strengthen its capital base after news reports suggested it is considering offloading some of its UK pension assets.

The Telegraph reported that the insurer is considering divesting a portion of its UK pension assets, which in total are estimated to be worth billions of pounds. The assets in question will come from Aviva’s back book of annuities, the Telegraph said.

While declining to comment on the specific transaction suggested in the reports, an Aviva spokesman said: “As with any insurer we regularly look at various options to optimise our capital position, such as reinsurance and securitisation.”

Aviva’s solvency surplus in accordance with the European Union Insurance Groups Directive (IGD) slipped 33% to £2.7bn in the third quarter from £4bn at the half-year stage. The company attributed the slump mainly to adverse movements in interest and credit spreads in continental Europe.

Panmure Gordon analyst Barrie Cornes said in a research note that a UK annuities sale by Aviva, if it takes place, would be well received by the stock market.

He said that in the event of a the sale or transfer of the assets to a reinsurer, Aviva would receive an up-front payment which would boost the IGD surplus and stave off fears that the insurer will cut its dividend.

Aviva is the most-exposed UK listed insurer to the eurozone crisis. It had total exposure to peripheral eurozone sovereign debt, excluding policyholder assets, of £9.1bn as of 30 September. As such, however, it will profit most from an improvement in Europe’s economy.

“Aviva remains the best placed UK insurer to benefit from a recovery in the eurozone crisis and assuming that the end of the world is not nigh we believe that the valuation is compelling,” Cornes said.

Panmure Gordon has set a target price for Aviva at 528p. It is currently trading at 325.52p.