Aviva divesting French business to Aéma Groupe for €3.2B

Aviva PLC agreed to sell its French business to Aéma Groupe for €3.2 billion in cash as part of the British insurer's shift in focus to the U.K., Ireland and Canada.

The consideration includes €1.1 billion in respect of Aviva France SA's intra-group debt. The transaction covers the French life, general insurance and asset management businesses and 75% shareholding in L'Union Financière de France, a wealth manager listed on the Paris Bourse.

The deal is subject to consultation and customary conditions, including regulatory approvals, and is expected to complete by 2021-end.

Aviva expects to use the increased capital and cash to reduce debt, invest in long-term growth and return excess capital to shareholders. Up to £500 million will be used to accelerate repayment of some of the group's internal loan with Aviva Insurance Ltd.

As part of the transaction, Aviva agreed to customary warranties and indemnities. This includes an indemnity agreement concerning "known price" contracts written by Abeille Vie between 1989 and 1997 that would share the risk in the unlikely scenarios of certain costs in respect of these contracts rising above Aviva France's already appropriate existing provisions. This will have a negligible impact on Aviva's solvency position, the insurer said.

Aviva France, which posted IFRS profit after tax of £293 million in 2019, is the largest part of the group's manage-for-value portfolio and has not remitted any dividends to Aviva in 2020, according to a statement. Aviva France's core business is capital intensive and the deal will reduce the volatility in the group's solvency ratio by removing exposure to interest rate risk from the Eurofonds guaranteed life insurance product, Aviva said.

Aviva expects the divestment to increase its Solvency II capital surplus by about £800 million and its Solvency II cover ratio by roughly 22 percentage points.

Aéma Groupe is a French mutual insurer with 8 million customers, revenues of over €8 billion and €7.4 billion of equity. It was created in January as the result of the combination of Aésio and Macif.

Aviva France is set to operate as a stand-alone entity within Aéma Groupe.