04-24-2012, 10:32 AM
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CAS
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Join Date: Sep 2006
Studying for CAS 5
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Aviva USA for Sale?
ING, Sunlife, and now, may be Aviva? Looks like some companies that are not headquartered in the US are having trouble competing in the US marketplace.
http://www2.snl.com/InteractiveX/art...7-11818&KPLT=4
Quote:
Aviva Plc should sell its U.S. assets and accept an estimated £1 billion loss in order to restore its balance sheet, analysts told SNL Financial.
CEO Andrew Moss said at a meeting with investment bankers that the insurance group is open to offers. He is expected to officially announce the sale of Aviva USA Corp. on May 24, The Sunday Times in London reported April 22.
Aviva's shares have badly underperformed peers, shedding more than 60% of their value since January 2007, according to SNL data. This, Deutsche Bank's Oliver Steel told SNL April 23, can be attributed to "a large extent" to worries over Aviva's weak capital position.
A sale would bring badly needed capital ahead of the implementation of the Solvency II requirements, which impose particularly onerous restrictions on companies' operations in the U.S.
"If we look across the sector today, the companies with weaker-than-average balance sheets seem to trade on a much wider discount to the rest of the sector than those companies might do in normal conditions, for fairly obvious reasons," Steel told SNL, adding: "What seems to be going on at Aviva is that in anticipation of the new chairman coming in, management has taken the decision to get its solvency and balance sheet position to a more comfortable level rather than perpetually running the risk of being ultra-sensitive to market conditions. Personally, I think that's sensible."
Trevor Moss, an analyst at Berenberg Bank, predicts the market would welcome the disposal of Aviva's U.S. assets. Aviva's main business in the U.S. is fixed-income annuities, which offers customers guaranteed returns, Moss noted. These carry substantially more risk in a volatile market environment than other policies, forming a very large element of Aviva's solvency calculations, he said.
"I consider Aviva's U.S. operations to have been a vanity acquisition going back to [former Aviva CEO] Richard Harvey and others. … It carries a lot of economic solvency risk," he said. "Its disposal would be welcome. … It would raise some cash, it would remove significant risk, it would improve the solvency calculations substantially [and] it would add quite a lot to sentiment associated with Aviva's shares."
The comments counter those made by other analysts earlier in the month to SNL. Those analysts had argued that Aviva had "no shortage of capital" and that the U.S. business has not performed "anywhere near as badly as people think it has."
They also noted that selling its U.S. asset could force Aviva to book some large losses; some analysts say the move could bring in only £1 billion — half of what the group paid for the business in 2006, The Sunday Times noted. Deutsche Bank's Steel said £1 billion was "a bit hopeful," adding that his valuation puts the business at between £750 million and £800 million.
"I haven't actually seen any buyers named," he said. "The sort of business that Aviva is in [within] the States — fixed-indexed annuities — is typically not a product line that U.S. domestic life companies have a lot of interest in. I can't see that a European insurance company would be interested in buying it, given all the concerns about Solvency II. If they have a buyer lined up, my guess is that it would have to a non-industry player, like private equity or something like that."
Berenberg Bank's Trevor Moss disagreed, saying "lots of insurers" could bid for the asset, which he suspects could fetch £1 billion.
He pointed to Prudential Financial Inc., MetLife Inc. and New York Life Insurance Co. as "very plausible" buyers. Japanese insurers looking to enter the U.S. market have also been linked to the deal.
"There are a whole range of companies that might see it as a strategic acquisition to enter a new product line. You can list off a reel of names that might be 50 long," Trevor Moss said.
Aviva recently reshuffled its operating structure, effectively removing an entire management layer. Three directors — Igal Mayer, Alain Dromer and North America CEO Richard Hoskins — lost their jobs, while others were promoted to the group's executive committee.
The moves form part of Aviva's plan to bring in a new dual management structure based around developed and higher-growth markets to replace its four-part regional management structure, Reuters noted April 19.
Aviva CEO Andrew Moss said the changes will "result in a simpler and more efficient organization, which will deliver further operational benefits, accelerate delivery of our strategy and provide opportunities for profitable growth."
The insurer recently reported a full-year net profit of £60 million, down from £1.89 billion a year earlier, driven by adverse investment return variances of £1.06 billion.
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