Aviva will make a £2.3bn writedown after agreeing to sell its US arm for less than half its book value, the biggest disposal so far in a wide-ranging effort to bolster its solvency.
The FTSE 100 insurer has agreed to sell Aviva USA - which has been on the block for more than six months - to Athene Holding, the annuities provider controlled by private equity house Apollo, for $1.8bn including debt.
The sale is the latest in a series of retreats by insurers from US annuities, which have suffered from persistently low interest rates because they offer customers guaranteed returns.
But the private equity groups and asset managers that are snapping up US annuities businesses believe they can eke out profits where insurers have struggled.
This week Sun Life Financial of Canada sold its US division for about $1.35bn in cash to the backers of Guggenheim Partners, which had also been involved in takeover talks for the Aviva business.
Aviva has been shedding assets around the globe but has been particularly eager to offload the US operation because the policyholder guarantees make it especially capital intensive.
The UK insurer will receive cash proceeds of $1.55bn for the business, which carries about $260m of net debt. This is far less than the $3.6bn including debt Aviva paid for it in 2006.
Still, Aviva said the disposal would boost its “economic capital surplus coverage ratio” - the difference between available capital and the amount it needs - by 17 percentage points to 165 per cent.
John McFarlane, chairman, has been trying to revive the insurer’s fortunes after Andrew Moss left as chief executive following a shareholder revolt.
Alan Devlin, analyst at Barclays, said the deal “completes the largest part of Aviva’s battle to improve its solvency ratio”, adding the investment thesis would now focus on “the achievability of its more challenging ambitions around earnings and dividend.”
The latest sale comes after the UK company agreed to dispose of several other assets - a stake in Benelux insurer Delta Lloyd, a joint venture in Spain with Bankia and a business in Sri Lanka - in recent months.
The acquisition will make Athene - which received a $621m capital infusion shortly before the Aviva deal - the second-largest issuer of fixed indexed annuities in the US.
James Belardi, chief executive of Athene, said the purchase would “add significant scale to our retail sales”. Athene said it was “evaluating strategic options” of the Iowa-based operation, which employs 1,800 people.
Aviva was advised by Goldman Sachs and Morgan Stanley and Athene by Deutsche Bank and Lazard. The deal is subject to regulatory approval but the two parties expect to complete it next year.
Aviva shares fell 1 per cent to 380.3p, paring their gain for the year to 27 per cent.