Speculation that the United Kingdom-based company might sell its U.S. unit has been circulating ever since August, when un-sourced reports surfaced that Guggenheim Partners, a private equity company, was reportedly a potential buyer...
By Linda Koco
Aviva plc confirmed today that it is talking with unnamed “external parties” about selling its U.S business, Aviva USA, which operates out of Des Moines.
Speculation that the United Kingdom-based company might sell its U.S. unit has been circulating ever since August, when unsourced reports surfaced that Guggenheim Partners, a private equity company, was reportedly a potential buyer. Aviva USA focuses heavily on annuities, especially indexed annuities, and Guggenheim has been building up its annuity book in the past year.
At least two other private equity firms have been said to be possible buyers of the U.S. business, as well.
The speculation followed the company’s announcement that it was planning to sell non-core units and make other changes to shore up operating results. The company did not say that its U.S. operation would go on the block but market watchers soon began telling reporters that this might happen. The company did not comment on the speculation.
Letter to producers
News confirming the talks about selling the U.S. operation reached advisors today in a letter written by Mike Miller, executive vice president of sales and distribution at Aviva USA. The letter was addressed to key distribution partners and producers, and was obtained by InsuranceNewsNet.com.
In the letter, Miller stated that Aviva has not disclosed additional details about a potential transaction and the company has not specified a timeline.
He acknowledged that speculation over what might happen to the U.S. business has created a “great amount of uncertainty” during the last few months. Then he thanked the field force for their “support and commitment” during this period.
He described the third quarter results as “strong.” For example, in the third quarter, he said that:
• Total life and annuity sales grew by about 8 percent, based on present value of new business premium or PVNBP.
• Individual annuity sales increased about 2 percent year over year but were below second quarter’s results. The carrier continues to maintain pricing discipline in annuities during the very low interest rate environment, he said.
• Life insurance sales grew about 24 percent over third quarter 2011 on a PVNBP basis, and that the carrier’s life sales now account for approximately 31 percent of Aviva’s total US sales.
In addition, Miller wrote, as of third quarter, “our risk based capital (RBC) – a key measure of financial strength – is 391 percent.”
Word of the “discussions with external parties” also appeared in a press release announcing the firm’s third quarter results. Appearing over the name of Aviva plc Chairman John McFarlane, the release said the discussions pertaining to the company’s U.S. life and annuity business are being “actively pursued.”
Any such sale would come at a “substantial discount to IFRS book value, but would generate significant economic capital surplus,” according to the statement as published on the company website. IFRS refers to International Financial Reporting Standards
The company is hoping for a “satisfactory resolution reasonably soon,” the statement also said.
The company’s third quarter report—called the “Q3 2012 Interim Management Statement “—points out that, in the United States, “life new business profitability was level. In response to the low interest rate environment we have taken pricing action, re-pricing equity indexed annuities three times this year.”
As for U.S. annuity sales, the third quarter report says these sales declined by 5 percent in the quarter compared to second quarter. In addition, it said “we expect a further reduction in sales as a result of the actions we have taken.”
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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