Last week, the Financial Times reported that Aviva PLC was mulling the sale of its U.S. unit. Although the U.S. is on a list of 12 countries identified by Aviva as “core,” the division is under pressure as it specializes in selling fixed indexed annuities, a type of policy that offer savers guaranteed returns, but which require the group to set aside large amounts of capital.
The euro zone crisis
Aviva has had to deal with several headwinds in recent months. It recently dismissed suggestions it would move its corporate headquarters outside of the U.K. after addressing fears that its capital position is being eroded by the euro zone debt crisis.
In November 2011, the group spooked investors by revealing that falling euro zone government bond prices had wiped 30 percent off its surplus capital between July and September, weighing on its shares.
Andrew Moss, Aviva’s chief executive, said the company had made “good strategic progress” during the year. He insisted he was optimistic that international efforts to overcome the fiscal crises in Greece and other heavily indebted euro zone nations were now beginning to work.
In March, the company said its capital surplus stood at £3.3 billion as of February 29, compared to £2.2 billion at the end of the year. Aviva’s shares have risen by almost 20 percent since the turn of the year.
Forthcoming Solvency II regulations in Europe could increase Aviva’s burden, however. European insurers have complained that the new rules will make their U.S. operations uncompetitive against American rivals. Prudential PLC has previously threatened to relocate to Asia over the issue.
Aviva USA has sought to boost its profitability by writing less business at higher prices. The Financial Times notes that sales fell 17 percent last year, but operating profits rose 13 percent.
Yet Aviva PLC shareholders recently breathed a sigh of relief as the insurer, which has been buffeted by the euro zone storm, held its final dividend and maintained its high yield.
The high-yielding dividend looks fairly secure after March 2012’s full-year results. Nevertheless, the cloud over the company’s prospects will only be fully lifted by a solution in the euro zone crisis.