As news of a potential takeover of large UK insurer Aviva emerged this morning, analysts suggest that while rumours are unsurprising, an acquisition of the whole Group seems unlikely given its position in the UK life sector.
After The Times newspaper cited talk of a potential takeover of Aviva, citing Allianz, Tryg, and Intact Group as potential buyers, shares in the insurer rose almost 9%.
Analysts at J.P. Morgan have responded to the claims, stating that it views Aviva as highly undervalued given its strong capital return potential. The report also says that Aviva is inexpensive and highlights the work of CEO Amanda Blanc in transforming the insurer into an investable company.
“It is in some ways not surprising to hear stories of this nature given how inexpensive Aviva is, in our opinion. Aviva offers a ~12% 2024E total capital return yield, including our forecast of a £300mn recurring annual share buyback,” say analysts.
J.P. Morgan also notes Aviva’s strong Canada property and casualty (P&C) business, which accounts for around a quarter of its operating profit.
“Amanda Blanc has also transformed Aviva into a highly investible company, disposing of European and International businesses that the market used to put a low multiple on, returning a large amount of capital to shareholders, and turning Aviva into a more sensible equity story,” say analysts.
Since Blanc took over the helm in July 2020, Aviva agreed to sell a majority stake in its Singapore business, sold its French business to mutual insurer Aéma Groupe, exited Turkey and Italy, and also divested its life insurance business in Vietnam to Manulife, and sold its Polish arm to Allianz.
Last month, the company completed its largest acquisition under CEO Blanc, acquiring AIG Life Limited (AIG Life UK) from Corebridge Financial, Inc. for £460 million.
The deal followed a solid set of results for the first-half of the year, with Aviva reporting an 8% rise in operating profit to £715 million.
However, while analysts feel the company is highly investible, they believe that a takeover of the whole Group seems unlikely.
“Allianz increased its position in the UK non-life market in recent years, through the acquisition of LV non-life insurance, and is a leading UK non-life insurer. It is now the 2nd largest non-life insurer in the UK after Aviva; hence buying Aviva would give it a really quite substantial market share in the UK non-life market. However, its increased exposure to UK motor has been challenging for profitability,” add analysts.
Further, analysts feel that Allianz, Tryg, and Intact are unlikely to be interested in the UK life market, which is a key driver of Aviva’s profits.
“Any takeover could, therefore, be complicated and would require any acquirer to potentially dispose of the UK life operations, which would be a very large acquisition for any life insurer consolidator to consider – in our view,” conclude analysts.
