Aviva in talks to buy AmerUs

Britain's biggest insurer, Aviva Plc, is in talks to buy US life insurer AmerUs Group Co, valued at about $2.3 billion, in a deal that would boost Aviva's undersized presence in the booming US market.

Aviva, whose bid for UK rival Prudential was rebuffed in March, has long said it wants to expand in the United States, the world's biggest long-term savings market.

Des Moines, Iowa-based AmerUs, focused on lucrative indexed annuities, said in a statement yesterday there was no assurance the talks would end in a transaction.

But news of a possible deal - which Aviva expects to fund with a combination of internal resources, debt and a share issue - pushed the UK insurer's shares down by more than three per cent.

"They walked away from Prudential already, so there's a little bit of pressure on them to complete this deal. It won't reflect well on the company if they continue to walk away," analyst Mikir Shah at Fox-Pitt, Kelton said.

"It does mean they will get some US exposure - they won't get the right product range, the right scale of distribution or scale of business, but it's a first step. As far as I'm concerned it highlights their acquisition appetite."

Aviva had denied press speculation in January that it was poised to buy AmerUs, preferring instead to pursue a merger with Prudential, Britain's second largest insurer, largely for its fast-growing Asia and US operations.

Part of the attraction of Prudential was its Jackson National Life unit, one of the largest US life insurance companies with a strong position in the lucrative variable annuity market.  

Aviva gave no price for the possible AmerUs deal, but at a 15 per cent premium to Thursday's closing price, it could be worth around £1.5 billion.

That would value AmerUs at 12.8 times 2007 earnings forecasts, according to analysts at Fox-Pitt, Kelton, above US majors, such as MetLife on about 9.7 times.

"(At that price) it would be four per cent dilutive on Aviva's embedded value and two per cent accretive on earnings per share, assuming it is financed in equal proportions cash, internal resources and equity placing," Mr Shah said. "That indicates they'd be paying a fairly full price."

The United States currently represents four per cent of Aviva's new life and pensions sales outside Britain. The unit, focused on niche areas such as fixed annuities for teachers and structured settlements, had sales of £527 million in 2005.

"(AmerUs) is not transformational like the Prudential deal (would have been)," analyst Bruno Paulson at Sanford Bernstein said. "It turns them from negligible into tiny in the US".

AmerUs has assets worth $24.7 billion as of the end of March and is a market leader in indexed annuities, retirement savings products in which returns are linked to an index, typically equities - a sector that has expanded fivefold in the past five years to some $25 billion in 2005.

The Financial Times said in its report a deal could be announced as early as next week.

Aviva gave no timing, but said any equity placing would be accompanied by an update on Aviva's current trading.