Shares in insurer Aviva (AV.) gained 2% to a six-month high of 324p after the company announced it would sell its entire 80% holding in its Italian life insurance joint venture Aviva Vita.

The business, which had gross assets of £16.3 billion at the end of June, is 20% owned by Italian bank Ubi Banca which is paying €400 million (around £357 million) for Aviva’s stake.

DELIVERING ON ITS PROMISE

The price represents 8.4 times the unit’s 2019 net profit, but more importantly it confirms new chief executive Amanda Blanc’s determination to simplify Aviva’s portfolio and strengthen its balance sheet.

The deal increases the UK insurer’s net asset value (NAV) by £100 million and strengthens its Solvency II coverage ratio by 4% to 198%.

Aviva has three other operating insurance businesses in Italy, two of which are wholly-owned and one where it owns 51% in a joint venture with leading Italian bank UniCredit.

Combined Solvency II own funds in these businesses is around €1.2 billion (£1.07 billion) and the insurer said it ‘continues to evaluate how it manages these businesses to maximise shareholder value’, which leaves the way open for more disposals.

EYES TURN TO DIVIDENDS

‘Our strategy is about focus and delivery’, said Blanc. ‘The sale of Aviva Vita is another important step forward as we reshape our portfolio and follows the recent announcement of the majority sale of our Singaporean business.  We will continue to be decisive as we seek to transform Aviva for the benefit of our shareholders.’

As Jefferies analyst Philip Kett notes, the sale is ‘a further stepping stone on Blanc's path to deleveraging and de-risking from businesses impacted by low yields, and represents tangible progress in the disposal process that ought to drive a lower cost of equity via less interest rate exposure and less strategic execution risk.’

Aviva is due to report third quarter earnings this Thursday, and the main thing the market will be watching for is whether it reviews its dividend policy in the light of these recent disposals.

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Issue Date: 23 Nov 2020