The Aviva plc (LON: AV) share price remained muted after announcing that it would acquire AIG’s UK protection business for a total cost of £460 million. Investors barely reacted to the news because they might assume it would not be a significant acquisition for Aviva, but they could be wrong.
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Aviva noted that the acquisition is part of its strategy to grow its capital-light business model, and it would accelerate the company’s expansion in the attractive UK protection market. The transaction would add 1.4 million group protection members and 1.3 million individual protection customers.
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The transaction will also create significant capital and expense synergies for the company. Aviv noted that AIG UK has a business approach complements its own by focusing on innovative solutions and robust partnership distribution. Once combined, the enlarged protection business will benefit from AIG Life UK's successful high-net-worth and SME propositions.
Aviva intends to reach more customers via AIG Life UK’s relationships with corporate and regional IFAs and other crucial partners. The company intends to create a more efficient platform to serve new and existing customers.
The transaction is being funded via internal resources. It is expected to deliver solid financial returns, with an expected internal rate of return (IRR), including restructuring and integration costs in the low teens. The acquisition also allows Aviva to re-capture the economics of the business that AIG Life UK reinsures internally to the broader AIG Group.
The consideration paid by Aviva represents 0.9x AIG Life UK's Solvency II Own Funds when adjusted for expected capital synergies. The expected impact on the Group’s Solvency II shareholder cover ratio would have been a reduction of about 5% as of 30 June 2023.
Aviva noted that the acquisition was consistent with its capital management framework, which remains the same. The transaction is expected to close in H1 2024.
Amanda Blanc, the Group CEO of Aviva, said: “This acquisition brings significant strategic and financial benefits to Aviva. It strengthens our prospects in the highly attractive UK protection market and continues our progress in repositioning the Group towards capital-light growth. We look forward to welcoming our new customers and colleagues to Aviva.”
Aviva share price.
The Aviva share price edged 0.77% lower to trade at 397.35p, from Friday’s closing price of 400.45p.
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