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Is Aviva USA for Sale?

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A report in the Financial Times says that Aviva is considering the sale of its U.S. unit, a major player in the indexed annuity business.

The FT article was based on comments from investment managers at a meeting with Aviva chief executive Andrew Moss during which he reportedly said the company would consider offers for the U.S. division. Analysts have also speculated on the possible disposition of the U.S. unit.

In an email statement to this morning, a spokesperson for Aviva USA said, “It’s our company policy not to comment on speculation.”

In a memo to the company’s distribution partners, Aviva USA president and CEO Chris Littlefield addressed the report. “As a global organization, Aviva reviews its strategy and portfolio of businesses on a regular basis. Nevertheless, Aviva USA remains part of Aviva and the U.S. remains one of the 12 priority markets for the group. Obviously things can change and CEOs have an obligation to consider offers that make sense for the company’s shareholders. However, if there is ever a decision to sell the U.S. business, you will hear it from us directly rather than just read about it in the paper,” he wrote.

See also: Aviva Memo to Agents

While sales of annuities overall increased on 2011, sales of indexed annuities and fixed annuities were either flat or down slightly, according to LIMRA.

Given the low interest rate environment in the U.S., carriers have a tough time reserving for annuities while maintaining top insurer ratings, said Sheryl J. Moore, president and CEO of Moore Market Intelligence in Des Moines, Iowa, which follows the indexed annuity marketplace.

“Annuities are relatively capital intensive as compared to life insurance products,” she wrote in an email statement. “Given the historical low interest rates in the U.S. today, it can be a challenge to properly reserve for annuities, offer attractive annuity products, and still make a profit. Further consider the reserving challenges that accompany Solvency II, and it is not difficult to understand the rationale behind someone speculating on the potential sale of an insurer with a parent company that is domiciled in the U.K.”

What impact the sale, if it goes through, would have on the annuity business depends on a number of factors, Moore continued. “Who would be the acquirer? Do they already sell indexed insurance products? Is obtaining distribution their motivation for acquiring? There are just too many what-ifs,” she wrote.

Jack Marrion, president of Advantage Compendium, a St. Louis-based research and consulting firm, also commented that Solvency II could be the reason behind talk about the sale. “Solvency II could be a driving force behind the sale of a fixed indexed annuity carrier by a European insurer because the market consistent pricing (MCP) valuation methods tend to be less favorable to fixed indexed annuities than, say, variable annuities, requiring higher levels of reserves and reducing long-term insurer returns on this business,” he wrote in an email. “However, I am confident that any pullback in domestic sales capacity caused by Solvency II will be more than offset by new and current players in the indexed annuity market.”

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