(Rewrites and adds detail and CEO and analyst 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 new business sales in the third quarter 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 stock higher and making it one of the best performers in mid-morning trading.
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 its 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 in the same period last year.
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 of the year, 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 last year.
"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 in a briefing.
Mark Hodges, CEO of Aviva's U.K. business, 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, CEO of Aviva Europe, 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 quarter, Moss said.
At 1012 GMT, Aviva shares were up 6% at 402 pence, outperforming the FTSE100 index which was down 0.67%.
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 on the stock.
Aviva said it will gain GBP500 million in capital proceeds from floating Delta Lloyd.
In the 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.
Moss also said it isn't interested in Direct Line, which is part of the insurance business which may either be sold or floated by Royal Bank of Scotland Group PLC (RBS.LN).
"Direct Line was on the block not very long ago...We made it clear at that time that buying another large brand in the U.K. didn't make sense to us because the Aviva and RAC brands are trading successfully. Buying another brand doesn't stack up for us," he said.
Company Web site: www.aviva.com
-By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com