Aviva plc (LON:AV) announced the agreement to sell its U.S. businesses to Athene Holding Ltd., a Bermuda-based life insurance holding company for $1.8 billion.
According to Aviva plc (LON:AV), the transaction includes its life and annuities business and related asset management operations in the United States. The company said it would retain its North American asset management operations of Aviva investors concentrated on third parties and its assets outside the United States.
The move is part of Aviva plc (LON:AV) restructuring efforts prior to the implementation of new capital requirements for insurers in the European region. The company is second largest insurer by market value in the United Kingdom.
The report from Wall Street Journal cited that European insurers with large operations in the United States are concerned about the Solvency II, a new and stricter capital rules imposed by the European Union. The insurers are worried the new rules, which requires them to hold more capital than assets, might reduce their capability to compete with their competitors in the U.S.
Commenting on the transaction, John McFarlane, chairman of Aviva plc (LON:AV) said, “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,” added McFarlane.
Aviva said the deal with Athene Holding would increase its pro forma economic capital surplus coverage ratio by 17 percent to 165 percent or £1.1 billion, and reach the required capital target range at 160 percent to 165 percent.
In addition, the company said the transaction would reduce its credit risk exposure and economic capital sensitivity by approximately 25 percent and 30 percent, respectively.
Aviva will receive £1 billion in cash after paying the £159 million outstanding debt of its U.S. business. The company could receive $250 million interest-bearing loan, to be repaid in cash within 12 months of upon completion of the deal.
According to the company, the deal represents 7.9X of Aviva USA 2011 US GAAP earnings and 0.6x US statutory capital surplus as of June 30 2012.