Athene Buys Aviva USA for $1.8 Billion

Deal ends months of speculation about sale

This article originally appeared in AdvisorOne’s sister publication,

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

Earlier this year, the London-based insurer embarked on a plan to shed noncore 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. The sale will reduce the group’s credit risk exposure by approximately 25%, and also reduce the sensitivity of the group’s economic capital results to credit spread movements by approximately 30%. Those numbers are significant as foreign-based insurers are facing tougher capital reserving requirements.

Aviva will receive $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.

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 (Iowa) 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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