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Athene buys Aviva USA for $1.8 billion

After months of speculation, Aviva PLC has found a buyer for its U.S. subsidiary. This morning, Athene Holding Ltd., a life insurance holding company that focuses primarily on fixed and equity indexed annuities, has agreed to acquire Aviva USA Corp. for $1.8 billion.

In a statement, John McFarlane, chairman of Aviva PLC, 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 while also reducing volatility.”

Earlier this year, the London-based insurer embarked on a plan to shed non-core business segments, cut expenses and streamline the organization.

According to a company release, the deal will boost Aviva’s pro forma economic capital surplus coverage ratio by 17 percentage points to 165 percent (or economic capital surplus by approximately £1.1 billion) placing the group within its target range of 160 percent to 175 percent of required capital. (It stood at 130 percent in FY 2011.) The sale will reduce the group’s credit risk exposure by approximately 25 percent, and also reduce the sensitivity of the group’s economic capital results to credit spread movements by approximately 30 percent. Those numbers are significant as foreign-based insurers are facing tougher capital reserving requirements.

Aviva will receive sales proceeds of $1.55 billion in cash, after the repayment of external debt, which will be used for general corporate purposes. The deal values Aviva USA at 7.9 times 2011 U.S. GAAP earnings and 0.6 times U.S. Statutory Capital as of the end of June. Included in the deal are Aviva’s U.S. life and annuities business and related asset management operations.

Though overall annuity sales have slumped in recent quarters, indexed annuities, a subset of fixed annuities, have shown some strength. In the third quarter, Aviva USA was number two in total fixed annuity sales at approximately $1.1 billion.

Discounted sale

The sale represents a significant discount from what Aviva PLC paid for the U.S. operation back in 2006 when it acquired AmerUs Group for roughly $2.9 billion. However, in November, the company stated it expected to sell Aviva USA at a substantial discount to book value.

Aviva USA specializes in indexed life insurance and indexed annuities and has more than 930,000 customers. The deal is expected to close next year.

“We look forward to becoming a part of Athene,” said Chris Littlefield, president and CEO of Aviva USA, in a statement. “When the transaction closes in mid-2013, our current location in West Des Moines will serve as U.S. operations headquarters for a newly named entity called Athene USA. I believe there will be significant opportunities for our employees as we help Athene continue to build a successful business.”

This is Bermuda-based Athene’s second foray into the U.S. market in recent months. In July, it acquired Presidential Life Corp. in a $415-million all-cash deal. Like Aviva USA, Presidential Life sells fixed annuities and life insurance as well as accident and health insurance products.

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