Confirmed: Aviva seeks buyer for U.S. annuity and life ops

Rumors of prospective sale date back to spring; insurer is a top indexed-annuity seller

Nov 9, 2012 @ 12:15 pm

By Darla Mercado

Aviva PLC is shopping its U.S. life and annuities business and is in talks with external parties on a deal.

In statement released Thursday confirming that the company is for sale, Aviva chairman-designate John McFarlane mentioned no potential suitors but noted that a sale would come at a “substantial discount to [international financial reporting standards] book value, but generate significant economic capital surplus.”

A memo sent to agents that day by Mike Miller, executive vice president of sales and distribution, also confirmed the search for a buyer.

“We have been open about saying that we would sell the business at a discount versus [IFRS] book value, but nonetheless, any sale, if we can conclude one, will be in the best interests of the group,” said Sue Winston, a spokeswoman for Aviva PLC.

Aviva is a major player in the indexed-products space, ranking second in sales to Allianz Life Insurance Co. of North America, with $2.3 billion in sales year-to-date through the second quarter, according to AnnuitySpecs. Aviva ranks first for indexed life insurance, with $80.5 million in sales year-to-date through the second quarter.

Low interest rates hobble the profitability of indexed annuities and will likely affect the price Aviva fetches for its business.

“The investor side feels like it can buy these assets more cheaply,” said Jack Marrion, founder of Advantage Compendium, an indexed-annuity-research company.

Private equity could be interested

Further, a sale would allow Aviva to get rid of its U.S. annuity block before Solvency II rules kick in, noted Judith Alexander, marketing director at Beacon Research Publications Inc. That regulatory regime would require European insurers that have an annuity business to keep greater reserves.

Potential suitors include private-equity firms, which have shown a recent penchant for snapping up indexed-annuity issuers. Harbinger Capital Partners LLC last year acquired Fidelity & Guaranty Life Insurance Co., while Guggenheim Partners LLC snapped up EquiTrust Life Insurance Co. and Security Benefit Corp., leading to a major boost in annuity sales at both companies.

If Aviva's buyer is a private-equity firm, agents who sell the carrier's product likely will have nothing to worry about — at least based on firms' recent track records with these acquisitions.

“What those private-equity firms have done is, take over the insurance company and continue selling the products; they're not closing off the blocks,” said Sheryl Moore, chief executive of Moore Market Intelligence. She noted that the insurers bought up by private-equity firms recently were all B-rated. If Aviva were purchased by such a suitor, it would be the first such transaction involving an A-rated company.

Buzz about a potential sale has been floating around since this spring.

The year has been a busy one for Aviva: Andrew Moss, the insurer's chief executive, left the company in May, reportedly on the heels of a shareholder revolt over executive pay. Mr. McFarlane has been filling in since then, and the company continues seeking a permanent replacement.

Aviva also is pushing to narrow its business focus and drop non-core segments: In September, the company exited its Sri Lankan business, with a sale valued at $109 million to AIA Group Ltd. Aviva also sold off a $494 million stake in Dutch insurer Delta Lloyd in July.

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