Unit sold to Bermuda life company Athene Holding
Aviva has sold its US life and annuities business to Bermuda-based life company Athene Holding for $1.8bn (£1.1bn).
The insurer revealed in its third-quarter interim management statement that it was in talks to sell its US unit at a “substantial discount” to its IFRS book value of £2.4bn. Some commentators had expected the US business to be sold for between £800m and £850m.
The sale represents a loss of about £500m for Aviva. It bought its US life business from AmerUS Group in 2006 for £1.6bn.
Aviva will retain the North American asset management activities of Aviva Investors that are focused on third parties, and Aviva plc assets outside of the US.
The sale is part of Aviva’s drive to improve its capital base by exiting businesses that are not producing adequate returns or where the company does not have a leading position. It has earmarked 16 units, including the US life business, that it will sell or exit.
The sale of the business will increase Aviva’s pro forma economic capital surplus by £1.1bn, boosting the economic capital surplus coverage ratio to 165%. This places Aviva within its target range of 160%-175% of required capital (2011: 130%).
The sale will reduce the group’s credit risk exposure by about 25%, and also reduce the sensitivity of the group’s economic capital results to credit spread movements by about 30%.
Aviva chairman John McFarlane said: “The sale of Aviva USA is an important step forward in the delivery of our strategic plan. 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 US business, combined with the recent settlement with Bankia, represents a successful end to the year and sets us up well for 2013.”
Aviva will receive sale proceeds of $1.55bn (£1bn) in cash, after the repayment of external debt.
Of this, up to $250m may be received in the form of an interest-bearing vendor loan, repayable in cash within 12 months of completion. Cash proceeds will increase central group liquidity and will be used for general corporate purposes.
The transaction values Aviva USA at 7.9 times 2011 US GAAP earnings and 0.6 times US Statutory Capital Surplus at 30 June 2012.
Had the transaction occurred at 30 September 2012, Aviva’s IFRS net assets would have reduced by £2.3bn to £9.3bn.
Aviva USA generated an IFRS operating profit6 of £223m in 2011 and held £3.2bn IFRS net assets and £39bn IFRS total assets as at 30 June 2012.
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