British insurance company Aviva (NYSE:AV) inked a $1.8 billion pact on Friday to unload its American annuity and life insurance businesses to Athene Holding.
The move is part of Aviva’s strategy to narrow its focus to businesses where the company has a leadership position and bolster its balance sheet.
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Aviva said the transaction will bolster its pro forma economic capital surplus coverage ratio by 17 percentage points to 165%, which is within its target range. The company’s credit risk exposure will also tumble by 25%.
"The sale of Aviva USA is an important step forward in the delivery of our strategic plan,” Aviva Chairman John McFarlane said in a statement. “It considerably strengthens Aviva's financial position, increases group liquidity and improves our economic capital surplus whilst also reducing its volatility.”
Based in West Des Moines, Iowa, Aviva USA provides indexed life insurance and indexed annuities to 930,000 customers. The company, which employs about 1,800 people, was acquired in 2006 by Aviva for about $2.9 billion in addition to the assumption of about $700 million in debt.
The sale to Athene Holding values Aviva USA at 7.9 times its 2011 U.S. GAAP earnings and 0.6 times its U.S. statutory capital surplus as of June 30.
After paying back external debt, Aviva expects to receive proceeds of $1.55 billion in cash. Aviva plans to use the new funds to increase liquidity and for general purposes.
Aviva said it plans to hold on to the North American asset management activities of Aviva Investors that are focused on third parties. Aviva Investors North America is the global asset management business that had $82 billion in assets under management as of September 30.
The transaction is expected to close in 2013, subject to regulatory approval.
U.S.-listed shares of London-based Aviva dropped 1.70% to $12.42 Friday morning.
Aviva was advised on the deal by Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).