Aviva would consider sale of U.S. unit; 1,300 employed in West Des Moines
April 15, 2012 by Adam Belz
5:19 AM, Apr. 13, 2012
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Aviva, the British insurance and financial services company with its North American headquarters in West Des Moines, would consider selling its U.S. business, analysts and news reports said Thursday.
The Financial Times reported late Wednesday that CEO Andrew Moss told investors the company would consider offers from those interested in buying its U.S. business.
The news prompted a response from Aviva USA CEO Chris Littlefield. He wrote a letter to agents, trying to reassure them, but not denying that a sale is possible.
“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,” Littlefield wrote.
Aviva employs about 1,300 people in its corporate headquarters on Mills Civic Parkway in West Des Moines. Aviva opened the 360,000-square-foot building in 2010.
Analysts on Thursday pointed out that Aviva has reasons it may want to sell.
Indexed annuities, the company’s signature U.S. product, lose some of their appeal when interest rates are as low as they are now. That’s because annuity sellers can make money only on the spread, the difference between the interest they pay to customers and the interest they earn by investing the money themselves. If rates are already low, the rates Aviva and other annuity companies can offer customers will be low.
Aviva’s North American division posted a 2011 operating profit of $693 million, a 15 percent increase year over year, but the company’s annuity sales in the U.S. fell. Industrywide, fixed annuity sales, including indexed, fell 1.1 percent in 2011.
“It is just unattractive in the current market,” said Eamonn Flanagan, an analyst with Shore Capital in Chester, England. “They were not quick enough to diversify products.”
Kevin Waetke, a spokesman for Aviva, disagrees, arguing that indexed annuities provide a safe return on investment.
Annuities also require the insurance company to have a lot of capital, and capital requirements may increase when Europe establishes a set of new, more demanding capital standards known as Solvency II, said Sheryl Moore, the president of AnnuitySpecs.com, based in Pleasant Hill.
Flanagan said he believes Aviva could deploy that capital toward more profitable enterprises, such as its businesses in Europe and the United Kingdom, its historic markets.
Waetke admits that the U.K. and Europe are strategic priorities for Aviva, but he said the United States is one of 12 core markets for the global company. He declined to specifically address speculation that Aviva would entertain offers to sell its U.S. business.
Flanagan said if Aviva were to sell, it would likely sell its life and annuity businesses as one. “I think they would probably have to sell the two together,” he said.
Flanagan said it would be difficult for Aviva to find a buyer, and if it were to sell today, the business would go for about half the $2 billion Aviva paid in 2006 when it acquired AmerUs of Des Moines.