Aviva to Sell U.S. Unit at “Substantial Discount,” CFO Says

Aviva Plc (AV/), the U.K.’s second-biggest insurer by market value, said it’s in talks to sell its U.S. life unit in what would be the biggest disposal since Chairman John McFarlane took charge in May.

The sale would be at a “substantial discount” to the unit’s book value of 2.4 billion pounds ($3.8 billion) at the end of June, Chief Financial Officer Pat Regan told reporters on a conference call today as the company posted a 5 percent decline in nine-month sales. The division, the third-biggest fixed annuity provider in the U.S., may fetch more than $1 billion, people with knowledge of the matter said in September.

McFarlane has pledged to exit 16 businesses that together tie up 6 billion pounds of capital in July as the insurer seeks to build up reserves depleted by the European sovereign debt crisis. Aviva’s capital has been hurt by the crisis more than any other U.K. insurer because it gets 40 percent of its life insurance operating profit from the region and holds more euro zone sovereign debt than competitors.

“Management continue to take sensible steps in rationalizing Aviva,” Matthew Preston, a London-based analyst at Berenberg Bank with a buy rating on the stock, wrote in a note to clients today. “While there is no ‘big bang’ in this release, it highlights the ongoing progress being made.”

The shares rose 0.6 percent to 330.3 pence in London trading for a market value of 9.6 billion pounds. The stock has gained 10 percent this year, lagging the FTSE All-Share Life Insurance Index’s 26 percent increase in the period.

U.S. Bidders

Apollo Global Management LLC (APO), Harbinger Capital Partners and Guggenheim Partners LLC have made offers for the U.S. division, the people said in September.

Aviva acquired most of its U.S. operations through the $2.9 billion purchase of Des Moines, Iowa-based AmerUs Group Co. in 2006, the company’s largest acquisition. It was part of a plan to tap the U.S. baby-boomer retirement market and expand outside Europe. In August, Aviva wrote down the value of the business by 876 million pounds as it readied it for a sale.

“Such a sale would generate a significant economic capital surplus and we believe would be in the interests of the group,” Regan said.

Aviva is interviewing candidates for its vacant chief executive officer position this week and expects to make an announcement the “very near future,” McFarlane said on today’s call. Andrew Moss stepped down in May after a shareholder rebellion over pay. Regan is one of the leading candidates to take the role, according to Eamonn Flanagan, a Liverpool, England-based analyst at Shore Capital Group Ltd. (SGR)

Sales Tumble

Aviva’s revenue from life insurance and pensions declined 10 percent to 18.8 billion pounds in the first nine months as sales in Spain, Italy and Poland fell by more than 30 percent, the insurer said in today’s statement. That missed the 19 billion-pound estimate of Barrie Cornes at Panmure Gordon & Co. (PMR), Britain’s top-ranked insurance analyst over the past year according to data compiled by Bloomberg.

“In this low interest-rate environment you deliberately take pricing action and reduce guarantee levels,” Regan said, referring to the drop in European sales. “People are saving less in the short term in the continental markets.”

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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