Aviva has agreed to sell Aviva USA Corporation, its US life and annuities business and related asset management operations, to Athene Holding for USD1.8bn (GBP1.1bn).
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 transaction represents further progress in narrowing the group’s focus on businesses and markets where Aviva enjoys leadership positions and is able to generate attractive returns with a high probability of success.
The transaction will increase Aviva’s pro forma economic capital surplus coverage ratio by 17 percentage points to 165 per cent (or the economic capital surplus by approximately GBP1.1bn) placing the group within its target range of 160-175 per cent of required capital (FY11: 130 per cent). The sale will reduce the group’s credit risk exposure by approximately 25 per cent, and also reduce the sensitivity of the group’s economic capital results to credit spread movements by approximately 30 per cent.
John McFarlane (pictured), chairman of Aviva plc, says: "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 USD1.55bn (GBP1.0bn) in cash, after the repayment of external debt. Of this, an amount of up to USD250m 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 7.9x 2011 US GAAP earnings and 0.6x 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 GBP2.3bn to GBP9.3bn, IFRS NAV per share would have reduced from 397p to 318p, and MCEV NAV would have increased by GBP0.2bn.
Athene Holding is a life insurance holding company focused principally on the retirement market and whose business, through its subsidiaries, is focused primarily on issuing and reinsuring fixed and equity indexed annuities.
Completion, which is subject to regulatory approvals, is expected in 2013.
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