Sale of Aviva USA at higher price a credit positive

October 07, 2013 at 10:15 AM

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With the Oct. 2 completion of the sale of Aviva USA Corp. (Aviva USA) to Athene Holding Ltd (Athene), Aviva Plc (Aviva) was able to move on after a nine-month-long regulatory dance.

The British insurer let go of its U.S. life and annuities business for $2.3 billion, $800 million more than the initially announced price of $1.55 billion.

The higher proceeds, propelled by retained earnings and favorable market conditions coupled with the repayment of a $290 million loan, prompted Moody's Investor Service to label the deal a credit positive for Aviva.

Now able to refocus their efforts on businesses and markets where they have lead positions — the strategic basis for the sale of Aviva USA — Aviva has improved liquidity and now has more capital than expected, a position, according to Moody's, that could lead to attractive financial returns. Completing the sale for more than expected also counteracts execution risk.

The completion of the sale leaves Aviva a leaner, more limber entity, which will reduce its economic capital volatility to credit spread movements. Moody's maintains that the expected improvements will offset a large accounting loss Aviva previously incurred, although it will continue to be significant drag even with the higher returns.

Although the sale of Aviva USA results in nimbler company, the sale diminished the geographic diversification of Aviva's revenues and profits.

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