Aviva to weigh selling some units
May 21, 2012 by Adam Belz
Insurer’s ex-CEO had said he’d consider offers for W.D.M.-based U.S. division
11:52 PM, May. 17, 2012 |
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The acting head of Aviva’s global company said Thursday that the company would take a hard look at all its businesses and decide which to keep.
Analysts have speculated for months that Aviva’s U.S. division, which is headquartered in West Des Moines with 1,300 employees, may be on the sale block.
John McFarlane, executive deputy chairman of London-based Aviva PLC since Chief Executive Officer Andrew Moss was forced out by shareholders earlier this month, said in a statement that the company would launch a strategic review of its business units to ensure the company is focused on the right divisions.
Aviva will “exit sensibly those that are not part of our future,” McFarlane said. “These will be reviewed by me and subsequently the board in June, and we will provide an update to you in July.”
The company released first-quarter sales figures Thursday. Global sales were down 3 percent, but they were solid in the U.S., and looked even better compared with disappointing results in the same quarter a year ago. U.S. sales grew 29 percent to $1.6 billion, compared with $1.3 billion in the first quarter of 2011.
The growth was fueled by a 36 percent increase in annuity sales and a 15 percent increase in life insurance sales, though the company’s life business saw its rate of return drop slightly to 13 percent. That was roughly in line with the companywide rate of return.
“We had a very strong first quarter, successfully growing both life and annuity sales and further strengthening our capital position,” said Chris Littlefield, Aviva USA president and CEO, in a statement. “In today’s marketplace, our indexed products provide the right fit for many customers. They offer protection from risk in the event of a market downturn, while maintaining the opportunity to benefit if the market does well.”
Aviva has scaled back sales of indexed annuities because capital requirements on the products cut into profits. The risk of losses on indexed annuities is borne by the insurer, unlike with variable annuities. So regulators require sellers of indexed annuities to carry higher levels of capital as a cushion against losses. The deliberate pullback led to a 13.5 percent decline in annuity sales for the company in 2010.
Solvency II, a new set of regulatory capital requirements for European insurance companies, creates further uncertainty for Aviva, because it might require the company to carry even more capital. The regulations could go into effect as early as Jan. 1, 2013.
Rumors have swirled most of the spring that Aviva may sell its U.S. business, ever since Moss told investors in April that he would consider offers on it. One British newspaper, the Times of London, went so far as to put a date on an announcement of the sale: May 24.
The spring has been tumultuous for the company. In April, three top executives — including Richard Hoskins, CEO of the company’s North American operations — stepped down. Littlefield in West Des Moines was then to report directly to Moss.
Then in early May, Moss resigned following a shareholder revolt over executive pay. McFarlane said the search for a new CEO has begun and should take the rest of the year.
McFarlane also said he wants to increase the company’s capital position, news that casts a pall on profit forecasts, since more capital means thinner profit margins for insurance companies.
Eamonn Flanagan, an analyst with Shore Capital in London, told the Wall Street Journal he takes the talk about capital improvement to mean a cut to the company’s dividend, and he downgraded Aviva stock from a buy to a hold. He also said the company would be in a holding pattern until it replaced Moss.
“We now anticipate a period of real hiatus in strategic direction for the group, with question marks over any book value support for the stock,” he said.
