Aviva exploits low interest rates to issue ?1.2bn bond

Aviva, Britain's biggest insurer, yesterday announced a £1.2bn bond issue to bolster its capital position. Along with the rest of the insurance industry, Aviva has been hit hard by the three-year stock market downturn but the company said the move was not driven by pressure to shore up its balance sheet.

"It is not about needing to raise capital for regulatory purposes. It is about it being a sensible time, given the attractive rates in the market, to lock into some long-term financing," said a spokeswoman for the company, best known for its Norwich Union brand.

The company said the planned debt issue would be targeted at investors in the sterling and euro markets, with some of the proceeds likely to be used to pay off existing debt. It will be made, "subject to market conditions", following roadshows in Britain and on the continent.

Other insurers, including Standard Life, have also recently taken advantage of low interest rates with sizeable bond issues to raise capital.

Royal & SunAlliance last week announced a £960m rights issue, with much of the money likely to be used to bolster its ailing US operations and help cover losses.

Six weeks ago Aviva expressed some tentative optimism, saying its solvency position - which like many other insurers has been af fected by sliding share prices - had improved to 14% from 11.8% on the commonly used free-asset-ratio measure of financial strength.

It said it was beginning to increase its exposure to the stock market and said it believed that investor confidence was returning after the downturn.

Mike Biggs, Aviva's group finance director, said of the bond issue: "This cost-effective long-term core capital will support future growth and enhance further the group's capital position."

The issue was rated "A-" by credit rating agency Standard & Poor's, which said it expected Aviva "will be a winner in the consolidating UK life market".

Aviva's shares closed down 15p at 507.75p.