OREANDA-NEWS. December 24, 2012. Aviva plc ("Aviva") announces that it has agreed to sell Aviva USA Corporation, its US life and annuities business and related asset management operations (“Aviva USA”), to Athene Holding Ltd (“Athene”), for USD 1.8 billion (GBP 1.1 billion)1.  Aviva will retain the North American asset management activities of Aviva Investors that are focused on third parties, and Aviva plc assets outside of the USA2.

The transaction represents significant further progress in narrowing the group's focus on businesses and markets where Aviva enjoys leadership positions and is able to generate attractive returns with a high probability of success. The transaction will increase Aviva's pro forma economic capital surplus coverage ratio by 17 percentage points to 165%3 (or the economic capital surplus by approximately GBP 1.1 billion) placing the group within its target range of 160-175% of required capital (FY11: 130%). The sale will reduce the group's credit risk exposure by approximately 25%, and also reduce the sensitivity of the group's economic capital results to credit spread movements by approximately 30%4.

John McFarlane, chairman of Aviva plc, said: "The sale of Aviva USA is an important step forward in the delivery of our strategic plan. It considerably strengthens Aviva’s financial position, increases group liquidity and improves our economic capital surplus whilst also reducing its volatility.

“The disposal of the US business, combined with the recent settlement with Bankia, represents a successful end to the year and sets us up well for 2013.”

Aviva will receive sale proceeds of USD 1.55 billion (GBP 1.0 billion) in cash, after the repayment of external debt. Of this, an amount of up to USD 250 million may be received in the form of an interest-bearing vendor loan, repayable in cash within 12 months of completion. Cash proceeds will increase central group liquidity and will be used for general corporate purposes.

The transaction values Aviva USA at 7.9x 2011 US GAAP earnings5 and 0.6x US Statutory Capital Surplus at 30 June 2012. Had the transaction occurred at 30 September 2012, Aviva’s IFRS net assets would have reduced by GBP 2.3 billion to GBP 9.3 billion, IFRS NAV per share would have reduced from 397p to 318p, and MCEV NAV would have increased by GBP 0.2 billion.

Aviva USA generated an IFRS operating profit6 of GBP 223 million in 2011 and held GBP 3.2 billion IFRS net assets7 and GBP 39 billion IFRS total assets as at 30 June 2012.

Athene Holding is a life insurance holding company focused principally on the retirement market and whose business, through its subsidiaries, is focused primarily on issuing and reinsuring fixed and equity indexed annuities.

Completion, which is subject to regulatory approvals, is expected in 2013.

Goldman, Sachs & Co. and Morgan Stanley and Co. International plc acted as financial advisers to Aviva.

1. Headline price equates to cash payment of USD 1,550m plus retirement of an external loan financing agreement of USD 257m. Total US dollar headline price is converted to pounds sterling at GBP 1/USD 1.62.
2. The US-based asset management operations of Aviva Investors, which manage the funds of Aviva USA, will form part of the transaction. Following the acquisition by Athene Holding, the associated funds will be transferred to Athene Holding. The asset management operations of Aviva USA had assets under management of GBP 38 billion at 30 June 2012.
3. The estimated pro forma economic capital position as at 30 September 2012 includes the impact of the transfer of Aseval to Bankia, announced on 18 December 2012. The term 'economic capital' does not imply capital as required by regulators or other third parties.
4. Based on the Group’s 30 September 2012 economic capital credit risk exposures.
5. Adjusted for loan interest to Aviva
6. Pre-tax and after adjusting for the perimeter of the transaction, which includes the retention of Aviva Investors’ US-based third party asset management business by Aviva.
7. GBP 3.2bn represents the net assets of the business including the shareholder loan.