Aviva, Britain's largest insurer, yesterday confirmed it was in talks to sell most of its Australian and New Zealand general insurance business to Insurance Australia. The value of the deal is thought to be 1.8bn Australian dollars (£640m).
The move is part of Aviva's strategy to exit lines of business or geographical areas where it does not believe it can be a profitable top five payer.
Aviva's Australian businesses have been profitable recently and achieved a combined ratio of 102 per cent at the half year. This is one of the best ratios for a mixed general insurance business.
It has decided to sell because it wants to reduce the volatility of its general insurance arm. Australia is seen as quite a difficult market because of the number of natural disasters such as bush fires which insurers have to pay out on.
Insurance Australia, which is listed in Sydney, approached Aviva about a possible deal, which comprises of Aviva's Australian general insurance CGU business, Swann motor insurance and NZI Insurance in New Zealand.
Aviva has repeatedly denied that it needs to raise capital in the way that rivals such as Legal & General and Zurich Financial Services are doing. Aviva has already launched two bond issues and reduced its dividend.
Disposals will also help it muster capital to direct to areas where it does want to maintain or achieve a position as a top five player.
Insurance Australia, the country's biggest car and home insurer, is seeking acquisitions to reach its goal of doubling premium income in five years.
The Aviva property and casualty businesses in Australia and New Zealand had premiums of £583m last year.
Insurance Australia has said it may have to raise capital for acquisitions. It asked the Australian Stock Exchange to suspend trading in its shares after the Australian Financial Review reported the possible takeover.
Insurance Australia's shares have fallen 5.5 per cent this year. Aviva's shares closed down 35p at 453p.
Buying the Aviva units would expand Insurance Australia's geographic spread. More than half the company's income comes from the New South Wales state and Canberra. The Aviva units employ about 3,000 people at 80 branches and most of its business is in Victoria state, which is south of New South Wales and Canberra.
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