Australia’s top-heavy life insurance
market is set to become even more concentrated with Aviva’s
decision to sell its Aviva Australia Holdings (AAH) unit to
National Australia Bank (NAB).

Announcing the sale, Aviva conceded that it
would be “challenging” to achieve a leading market position in
Australia in the foreseeable future.

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The deal with NAB, the second largest player
in Australia’s life market, follows the sale of Aviva’s general
insurance operations in Australia and New Zealand in 2002, and
marks the UK insurer’s exit from the Australian insurance
market.

Under the terms of the deal, Aviva will
receive A$925 million ($735 million), of which A$825 million will
comprise cash from NAB, A$40 million a dividend to be paid by AAH
prior to the deal’s completion, and A$60 million representing a net
asset adjustment to be paid post-completion.

Based on AAH’s reported net profit of £28
million ($45.5 million) in 2008, the total amount to be received by
Aviva values AAH at a generous 16.2 price to earnings ratio.

Commenting on the deal, Aviva CEO Andrew Moss
said it would enable Aviva to redeploy capital to markets which
were anticipated to deliver better returns over the next few
years.

Specifically, Aviva Asia Pacific CEO Simon
Machell said focus will be on what he termed the “significant
long-term growth markets” of Asia, in particular China and
India.

Notably, since its entry into China six years
ago, Aviva has grown to become the country’s second-largest foreign
life insurer.

Aviva’s progress in Australia has been far
less impressive, particularly given that its presence in the
country dates back to the establishment of a life operation by
Norwich Union (NU) in 1957. NU and general insurer CGU merged in
2000 to create CGNU, renamed Aviva in 2002.

Based on data from Australian actuarial and
research firm Plan For Life (PFL), AAH recorded a premium inflow of
A$826 million in 2008, virtually unchanged from 2007. This gave AAH
a market share of 2.2 percent, ranking it eighth in the market.

NAB, according to PFL, recorded a premium
inflow of A$7.95 billion in 2008 giving it a market share of 21.5
percent. This ranked NAB second behind AMP Group which achieved
premium inflow of A$9.84 billion and a market share of 26.7
percent; ahead of ING Australia with a premium inflow of A$6.6
billion and a 17.8 percent market share.