LONDON Aviva (AV.L), Britain's second-biggest insurer, is closing in on the sale of its underperforming U.S. business, a key part its drive to strengthen its finances in an uncertain economic climate and revive its share price.
The disposal, expected "reasonably soon," is set to fetch less than the 2.4 billion pounds ($3.8 billion) at which the unit is valued on Aviva's books, but should free up capital, the insurer said on Thursday.
Aviva is four months into a reorganization in which 16 lagging businesses that contribute 18 percent of operating profit - but tie up over a third of its capital - will be sold.
The revamp was launched in July by chairman John MacFarlane, who took day-to-day charge of Aviva in May after shareholders, irked by a 60 percent slide in the company's share price over five years, forced out chief executive Andrew Moss.
Capital freed through disposals could be used to strengthen the insurer's reserves against a potential further deterioration in the troubled euro zone.
Aviva holds distressed euro zone sovereign debt to generate income for customers in the region, and its exposure has been a worry for investors.
Aviva's U.S. business, bought in 2006 for 2 billion pounds, is the biggest asset in a for-sale list that also includes the group's minority stake in Dutch insurer Delta Lloyd (DLL.AS).
A further eight businesses will probably be sold next year, Aviva said, declining to name them.
Aviva shares were up 0.3 percent by 1105 GMT, just ahead of a 0.2 percent rise in the FTSE 100 share index .FTSE.
The stock, has risen 10 percent since the start of the year, lagging a 25 percent increase in the STOXX 600 European insurance index .SXIP.
"Aviva remains a work in progress, and we can understand the nervousness of potential investors, but at the same time we view the valuation as compelling," Panmure Gordon analyst Barrie Cornes wrote in a research note.
The company is on track to appoint a replacement for Moss early next year, MacFarlane said, with non-executive directors interviewing candidates this week. Finance chief Pat Regan is seen as a likely potential successor.
Aviva, which sells home and motor insurance as well as life and savings polices across Europe, said total sales fell 5 percent to 28.9 billion pounds ($46 billion) in the first nine months of the year, reflecting tough conditions in recession-hit Italy, Spain and Ireland.
Potential buyers of Aviva's U.S. business include investment managers Guggenheim Partners, Apollo Global Management, and Harbinger Capital Partners, according to press reports.
($1 = 0.6255 pound) (Editing by Dan Lalor and Mark Potter)