Aviva risks vulnerability in a big sell-off, experts say

Global rating agency Fitch Ratings recently stated that general and business insurance provider Aviva’s life insurance operations would become highly vulnerable to takeover attempts if it were to sell its general insurance division.

Aviva publicly rejected RSA’s £5 billion offering for its general insurance business last week because it claimed that it undervalued its worth; several of Aviva’s shareholders have been urging Aviva to give the offer more thought, however.  In addition to RSA, there have been reports that Axa UK, that offers life and indemnity insurance coverage, has also expressed interest in Aviva’s general insurance division.

David Prowse, insurance senior director for Fitch, commented that the strategic direction for the entire group would come into question if Aviva were to go ahead with any plans to sell its general insurance division.  Mr Prowse continued, stating that remaining shareholders would find the less diverse operations of Aviva as a whole not as appealing, perhaps looking to diversify into companies that offered other types of commercial insurance.

The new Solvency II framework, set by the EU to go into effect in 2012, would impact Aviva much more strongly if they were to sell off their general insurance arm added Mr Prowse, commenting that as the rules are currently written, Aviva would get more benefit from having both general and life insurance cover than if it were to become a less diversified insurance provider.

Mr Prowse concluded by stating that there will be significant affects to the annuity market, resulting in many major players deciding on quite drastic and sometimes diametrically opposed approaches to their business strategies.

Aviva experienced a rise in their annuity sales by over 90 per cent for the first half of this year, with the basis of present value driving new business from £883 million up to £1.6 billion.

A spokeswoman for the insurance giant commented on the new figures, stating that the life insurance business in the UK has been a source of record-breaking profit margins at the half-year point, demonstrating strong and solid performance.

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