How an Aviva Sale Could Change the UK PMI Market

In our most recent Private Medical Insurance In Focus article, leading health insurance market analyst, Ian Youngman, takes a look at how the sale of Aviva could change the UK private medical insurance (PMI) market.

Speculation is rife in London that bidders are lining up to buy Aviva. Separating reality from the fog of speculation is tricky as the potential seller and possible buyers spin their real aims. It is no secret that for years Aviva shareholders have been looking for a sale when the time and price is right.

News Summary

• Aviva was once a global giant.
• Aviva has been slimming down by exiting many countries and some types of business.
• But Aviva has entered HNW, is buying AIG Life in the UK, and is a bidder for the UK arm of RSA- another once great name.
• A while ago Aviva sold its IPMI book to Aetna, which in turn sold it to Allianz.
• Allianz has regularly looked at the PMI market so it can offer full health insurance to individuals and companies.
• If Bupa, Axa or Aviva wanted to buy or sell the PMI book to each other – a deal would almost certainly be banned by monopoly and completion regulators.
• So, any market leader wanting to sell its PMI book has to look to an outsider.
• Bupa, Axa, Aviva and Vitality control 90% of the UK PMI market.
• Latest figures from the ABI show that the number of people covered by individual and group PMI is 13 % of the population-8 million.
• 2022 Health insurance premium £ 4330 million.
• After years of being static and falling, the appalling state of the NHS means that PMI has been growing and is expected to grow.
• Allianz Care offers IPMI. Allianz in the UK but does not offer UK health insurance.
• Allianz plans to use UK partner LV= to enter the UK health insurance market are on permanent hold.
• Aviva Health offers PMI and health cash but not IPMI -to individuals, and small and medium-sized businesses, and to a lesser extent to larger businesses.
• Other mentioned buyers are Intact Financial Corporation of Canada and the Scandinavian group Tryg.
• CEO Amanda Blanc has been transforming the insurer into an investable company.
• Aviva refused to comment on speculation.
• Aviva Canada has 2.7 million customers but does not offer health insurance.
• Aviva-COFCO Life Insurance is Aviva’s joint venture in China and has the Aviva-COFCO Health and Wellness Platform.
• The digital platform offers health and wealth management advice and services for existing and new customers. It offers health insurance via a variety of distribution channels.
• Aviva is the 74% majority shareholder in Aviva Life Insurance Company India Limited (ALICIL), the group’s joint venture in India that sells PMI.
• Aviva Insurance Ireland in Dublin handles Irish and European-non-UK- business transferred from the UK but does not offer health insurance.
• In recent years Tryg and Intact partnered to buy most of UK insurer RSA.
• Rumours swirl of an American bidder but that may just be smoke.
• Activist Cevian Capital sold its stake in may so is no longer a potential bid blocker.

Analysis

• Allianz is the most likely bidder but will not be forced into buying Aviva at a premium price.
• City sources suggest that Aviva has already talked to potential bidders - but City gossip loves to make mischief.
• It could use other bidders to make the deal and then buy selected items.
• UK market analysts are reported as saying that a sale of Aviva as an entity is unlikely, as potential buyers would not want the UK life insurance portfolio.
• But Allianz is a major global life insurer,
• Intact Financial Corporation is a major Canadian motor and home insurer, and I can see no reason why they would want anything other than the substantial and profitable Aviva Canada operations.
• Tryg A/S is a Scandinavian insurance company present in Denmark, Norway, Sweden and Finland.
• Tryg is the largest provider of general insurance services in the Nordic countries.
• Tryg and Intact have separately and together buying UK personal lines and commercial business.
• A buy makes sense as Aviva has profit, excess capital and strong cash flow but the share price is low.
• Aviva does not want to comment and that always suggests that there is more than just smoke.
• Aviva would find it difficult to explain why someone would not be interested in buying them.
• Allianz is the natural insurance fit.
• Tryg and Intact have no real PMI or IPMI interest and it would make sense for them to combine with Allianz to buy Aviva then split the bits they want between them and sell of any excess baggage.
• Competing against each other would drive the price up so it makes sense to work together.
• Much depends on whether shareholders back Aviva or want to sell.
• Much depends on whether Aviva management back one or more bidders.
• Aviva may want to drum up interest to get a better price, but I doubt the market is there for that.
• There are reasons why potential buyers leaked details.
• One possibility is that if Allianz does not want the PMI book it could be offered to an insurer not in the UK PMI market.
• Rumours swirl of an American bidder but that may just be smoke.
• City sources suggest Axa could be interested but that would probably hit competition problems on the PMI book.

What Next?

• A sale may happen in the next few months but if it does not it is almost inevitable before Blanc retires.
• When or who buys Aviva will not affect the IPMI market.
• But a change of ownership of Aviva would change the UK PMI market.
• PMI rivals may prefer anyone other than Allianz as the buyer as they would be a serious and major new competitor in the cosy UK PMI market.