12 April 2012

Reuters: Aviva seen struggling to sell US operations

British insurer Aviva may struggle to sell its American operations, estimated to be worth some £1 billion ($1.6 billion), due in part to a tough regulatory environment, investment bankers familiar with the industry said.

Aviva Chief Executive, Andrew Moss, recently told an investor conference that the company would be open to offers for its American unit, two sources with knowledge of the matter said on Thursday. Aviva declined to comment.

Bankers said potential European buyers could be put off from bidding because of new European insurance rules due to come into force, the so-called Solvency II Capital Directive. Solvency II could force European companies to hold more capital against their American businesses if European regulators decide US capital standards for insurers are less exacting than their own.

"That leaves North American buyers like Prudential Financial and MetLife and there is no guarantee they would want to buy as opposed to just writing more new business of their own", said one banker.

Shore Capital analyst, Eamonn Flanagan, said that if Aviva did manage to sell Aviva USA, it would be well received by its shareholders, since the business has underperformed in relation to its domestic rivals.

"It would remove an under-performing unit and one that suffers poorly by comparison with Prudential's Jackson National", said Flanagan. "Secondly, it takes out a capital-intensive business from Aviva's stable - a positive move in the group's focus on improving its RoE (return on equity)."

Aviva USA, previously branded AmerUs, is a large provider of equity-indexed annuities, where returns are usually linked to an underlying equity index, but its business has been hit by the recent market volatility.

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