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GI sale could leave Aviva vulnerable

Aviva’s life business would be more vulnerable to a takeover and exposed to the risks of Solvency II if the group chooses to sell off its general insurance arm, according to Fitch Ratings.

Last week, Aviva rejected a £5bn bid for its GI business from RSA, claiming the price was too low, although influential shareholders are understood to be pressing Aviva to reconsider the offer. Axa is also reported to be interested in a bid for the GI arm.

Fitch insurance senior director David Prowse says: “If Aviva were to sell its GI arm, it might throw into question the strategic direction of the group. Also, the loss of diversification might make the remaining life operations less appealing for existing shareholders. From a Resolution perspective, its model does not involve GI so a life target might be cleaner than the life part of a composite. If things were changing at Aviva, a takeover would become more likely.”

Without its GI arm, he says Aviva would be more vulnerable to the impact of Solvency II.

He says: “As the rules stand, Aviva is likely to get some benefit through having a combination of life and non-life business so if it were to become just a life player, it would lose that Solvency II capital benefit.

“Annuity business is significantly affected and the strange thing is that some of the major companies are taking drastically different approaches.

“A number of companies are deliberately playing down their annuity business while Aviva is not, therefore it is much more exposed to potential risks emerging from Solvency II although it is still a large global group.”

Aviva saw a 92 per cent year-on-year rise in annuity sales for the first six months of this year to £1.6bn from £833m on a present value of new business basis.

An Aviva spokeswoman says: “The UK life business has produced a very strong performance, with record profits at the half-year.”

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