Summary

• Investors rewarded Aviva’s stock as it closed 5.02 per cent higher at £303.20 on 11 September 2020, when it announced to sell its Singapore business.
• Aviva would sell the Singapore unit to a consortium led by Singapore Life Ltd (Singlife), for £1.6 billion.
• Aviva would now increase focus on the UK, Ireland, and Canada.
• Sale of the Singapore business aligned with Aviva’s new business strategies spearheaded by the newly appointed CEO Amanda Blanc.
• The sale proceeds would strengthen Aviva’s financial position and increase the company’s capabilities of meeting its strategic aims.

The stock of Aviva plc (LON: AV.) on 11 September 2020 closed 5.02 per cent higher at £303.20. Investors rewarded the British insurer’s decision to sell the business in Singapore to a consortium led by Singapore Life Ltd (Singlife), for £1.6 billion. The London-based Insurer, Aviva, planned to concentrate on its business in the UK, Ireland, and Canada.

Many analysts stressed that Aviva has been operating in too many countries and sectors, leading the shares to lag behind the competitors. Some analysts agreed that the decision to offload the Singapore business created outstanding value for Aviva. It also showed clarity in delivery from Aviva’s new CEO Amanda Blanc on her promise for decisive action and newer business strategies.

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We present the key details of the deal and recent financial performance of the company.

Sale aligned with Aviva’s business strategy

The announcement to offload the Singapore unit is aligned with Aviva’s business strategy that the British insurer announced in recent past to help create one of the UK’s leading insurance companies. It is to be recalled that in July 2020, the British life and general insurance company, appointed Amanda Blanc as the company’s new CEO.

Ms. Blanc had promised to revamp the organisation and indicated on reducing its operations across Asia and Europe. Further, the company planned to shift focus on its business in the UK, Ireland, and Canada. Ms. Blanc described the sale of Singapore business as a primary endeavour in Aviva’s new approach to increase focus on its portfolio.

She had been considering shifting the focus of the insurer’s business away from Asia, where some international players were struggling with competitive challenges. She emphasised that the British life and general insurance company has retained an investment in the Singapore unit’s life segment that hold attractive and long-term growth prospects.

Ms. Blanc said that the earnings from the sale of the Singapore business would make Aviva’s financial positions stronger in addition to increasing the company’s capabilities of meeting strategic aims. She informed that Aviva is planning on decisive activities on its portfolio with an objective of adding long-term value for the shareholders.

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Statement from Amanda Blanc, Aviva plc’s new CEO.

The deal’s finances

On 11 September 2020, Aviva informed that it would sell majority shareholding in the company’s Singapore unit to the Singlife consortium. On completion of the agreement between Aviva and the Singlife consortium, Aviva would get £1.6 billion in consideration.

This amount comprises of £1.2 billion in cash and marketable securities, besides a payment in terms of in vendor finance notes. The British insurer would also have a 25 per cent equity shareholding in the new group.

This transaction represented a multiple of 18.7x Aviva Singapore’s 2019 international financing reporting standards (IFRS) profit after tax, 2.0x solvency II own funds at 30 June 2020, and 1.9x net asset value at 30 June 2020.

Aviva plc’s net asset value at 30 June 2020 would have risen by £0.7 billion by this business deal. The company’s surplus solvency II capital would have strengthened by £0.5 billion.

In addition, the transaction would have raised the group solvency ratio on a shareholder basis by approximately 4 percentage points. The transaction is likely to be completed by January 2021 and would be subjected to customary closing conditions, including regulatory approval.

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Recent financial updates from Aviva

Aviva came up with its 2020 interim results in the first week of August 2020. The company posted an operating profit of £1.2 billion for H1 2020. The insurance company has a wide range of products and strong network of partners. The insurance company showed quick operational response to the coronavirus pandemic to assist its customers during the crisis.

Aviva announced dividend payout for FY 19 (6p per share). The company mentioned that it will be reviewing its dividend policy with respect to the changes in the economic outlook as a result of the coronavirus pandemic. Aviva’s goal is to sustain its dividend payouts.

Aviva’s CEO had stressed that the company would concentrate on its strongest businesses in the UK, Ireland, and Canada with an objective to become the UK’s leading insurer. Aviva would focus by investing and growing the businesses where it had the required size and capability in addition to an efficient customer service to grow the returns for its shareholders. Regarding the businesses where the insurer could not meet its strategic objectives, it would decide on withdrawing capital.

Key highlights of Aviva’s 2020 interim results

The consortium that bought Aviva’s Singapore business

The new business to be formed in Singapore would be branded as Aviva Singlife to begin with. The consortium is expected to combine the scale of Aviva Singapore and digital capabilities of Singlife.

The consortium comprises of TPG, a leading international private equity (PE) investor that would gain largest shareholding in the new group after completion of the deal, Sumitomo Life, a leading insurance company from Japan, and other existing shareholders of Singlife. Being one of the first PE companies to invest in the Asian continent, TPG Capital Asia, partners with several firms to deal with the challenges of business expansion and operational efficiencies.

Aviva’s deal with the Singlife consortium is considered to be one of the biggest in insurance sector within Southeast Asia region. The arrangement arrived at a time when Singlife was planning to expand its reach in the region.

According to the agreement of the deal, TPG would gain the largest shareholding in the new group with a 35 per cent stake. Aviva would hold the second largest interest by retaining a 25 per cent equity interest, The Japanese insurance major, Sumitomo, would get a 20 per cent equity stake. The rest would be held by several other investors in Singlife. It is to be known that it was in 2017 that Singlife began operations in Singapore and has acquired substantial customers with its digital offerings.

Conclusion

The investors seemed to have welcomed Aviva’s strategic decision to sell the Singapore business. Aviva’s stock closed about 5 per cent higher on the day the company announced the news. The decision to offload the Singapore business is aligned with Aviva’s business strategy that the company’s newly appointed CEO indicated in recent past. The British insurance company wants to focus on its business in the UK, Ireland, and Canada. Many experts believe that the company has acted in lines with its changing approach of conducting business.