(Adds Aviva Asia CEO comment.)
By Vladimir Guevarra
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- U.K. insurer Aviva PLC (AV.LN), which Wednesday posted a 25% fall in third-quarter new business sales amid a dip in consumer spending, said it may look into buying some insurance assets being sold by Dutch financial services company ING Groep NV (ING).
Despite the fall in sales, analysts and investors were cheered by the increase in Aviva's capital surplus, sending the shares sharply higher.
Aviva, the U.K.'s second-largest insurer by market capitalization, has in recent months been avoiding selling less-profitable insurance products and has been building up on cash through the sale of its Australian subsidiary, the floating of Dutch unit Delta Lloyd and listing on the New York Stock Exchange.
The company said the outlook on its profitability this year is good but the "economic outlook in the markets in which we operate remains uncertain."
It said total life and pensions new business sales for the quarter ended Sept. 30 was GBP6.59 billion on a present value of new business premiums, or PVNBP, basis, down from GBP8.82 billion a year earlier.
PVNBP is a measure of life and pension sales and is calculated as 100% of single premiums plus the expected present value of new regular premiums.
Aviva saw drops in sales across all major geographies--the U.K., Europe, Asia and North America, which until recently has seen high levels of growth.
For the first nine months, new business sales dropped 11% to GBP24.06 billion, which is lower than the GBP24.8 billion average forecast from 10 analysts polled by the company.
Despite the fall in sales, its capital position remains strong, with surplus capital rising to GBP3.7 billion from GBP3.2 billion at end-June and from GBP1.9 billion in September 2008.
"People are still cautious about making longer-term decisions on long-term savings...Given that there is a lesser degree of confidence in the performance of financial markets in the short and medium term, we are seeing people being more cautious," Chief Executive Andrew Moss said.
Mark Hodges, CEO of Aviva U.K., said: "In terms of previous recessions, our experience would be that it could be another six or nine months before that confidence resumes (in the U.K.) and before we start to see a pick-up in consumer behavior."
Andrea Moneta, Aviva Europe CEO, said he also doesn't see a strong pick-up in sales over the next six to nine months in Europe.
In North America, fourth-quarter sales are expected to be better than in the third, Moss said.
At 1158 GMT, Aviva shares were up 5.4% at 400 pence. The FTSE 100 index was up 0.9%.
Shore Capital analyst Eamonn Flanagan said the sales figures were "disappointing" and below expectations. But Flanagan noted that Aviva's net asset value has risen 25% from end-June to 520 pence a share and its capital position has become stronger.
"This leaves Aviva in a very strong position financially, possibly too strong. We hope it does not go down the acquisition trail as a consequence," he said, keeping his buy rating on the stock.
Panmure Gordon analyst Barrie Cornes said the drop in sales "reflects the concentration on better-margined products and the conservation of capital."
Cornes said Aviva will benefit from its plan to restructure its European operations and from the IPO of Delta Lloyd. Cornes kept his buy rating.
Aviva said it will gain GBP500 million in capital proceeds from floating Delta Lloyd.
In a briefing, CEO Moss said: "One of the largest financial institutions in the world (ING) said it wants to dispose its insurance assets. It's incumbent upon the executive team of Aviva to see whether there's anything within there which may make sense. That's a routine part of what we do."
Last week, ING said it will spin off its insurance and investment-management businesses and repay half the EUR10 billion it owes the Dutch government in a bid to assuage EU concerns over the state-aid package it received last year.
Moss said Aviva will be "very disciplined" and cautious in using its cash for acquisitions. "We will use this money in an inorganic way if we think the financial returns are compelling. We are in no rush," he said.
Aviva Asia Pacific CEO Simon Machell said that while the group is interested in ING's insurance business, absorbing all of it would be challenging.
Machell said ING has "concentration in some markets which may be hard for us to integrate into our business today." He didn't say which of ING's markets Aviva would have an interest in.
"There are individual ING countries which we may be interested in where it has a complementary impact on our businesses already...Would we want to look at the whole lot? I'd say that's probably more challenging," Machell said.
Moss also said it isn't interested in Direct Line, which is part of the insurance business that may either be sold or floated by Royal Bank of Scotland Group PLC (RBS.LN).
-By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com
(Sam Holmes in Singapore contributed to this article.)
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