- Singapore Life sale marks end of the road
- The dividend looks well covered
Aviva (AV.) further burnished its dividend credentials after sealing the £800mn cash sale of its 25.9 per cent stake in Singapore Life Holdings to Sumitomo Life Insurance Company. The deal comprises £500mn for the stake and £300mn for two debt instruments.
The minority stake was treated as an investment on Aviva’s balance sheet as the company did not have any operational control over the business. The sale means that Aviva’s operations have now been largely scaled back to the core UK and Ireland business, along with Canada.
The company’s last Asian stake is Aviva COFCO, based out of Hong Kong, which recently received a reaffirmed A- rating from ratings agency Fitch. With the consolidation of Aviva’s international businesses all but complete, investors can now make a more objective assessment of a significantly slimmed-down company.
Last year, Singapore Life contributed about £17mn to Aviva’s overall operating profit, which should be seen in the context of an adjusted operating profit for the group of £2.2bn in 2022. The sale marks the final exit from the Singapore market after Aviva sold its majority stake in Aviva Singapore in 2020, which arguably started the process of business divestment that eventually encompassed the France Aviva business and emerging market franchises such as Vietnam. The sales helped to fund a total capital return for shareholders of £4.75bn in 2022. An additional £300mn buyback followed earlier this year.
The question now is what Aviva decides to do with the cash from Sumitomo. As Aviva does not need to boost its capital position, even with the accounting treatment demanded by IFRS17, the funds are unrestricted and so can be used for bolt-on acquisitions, as well as funding returns for shareholders. The sale total almost covers the entire cost of Aviva’s annual dividend, which was £828mn in 2022, so shareholders can look forward to at least a stable baseline payout in cash terms for this year-end.
This should help to offset the news that the head of its successful UK and Ireland general insurance arm, Adam Winslow, will join rival Direct Line as chief executive from January next year after a prolonged courtship. Aviva’s motor insurance arm is generally considered to have been ahead of the curve in upping rates early to combat inflation in car supply chains, which has seriously unbalanced some insurers over the past 18 months. Winslow has been personally credited with coming up with the pricing strategy and helping to grow Aviva’s market share in both personal and commercial lines during that period.
Aviva has now appointed Jason Storah as chief executive of its UK and Ireland insurance business. Storah comes internally from the Aviva Canada business and has been with the company in various roles for the past 20 years.
