Aviva, Britain's No.2 insurer, plans to sell or close 16 lame duck businesses as part of a shake-up aimed at regaining the support of investors irked by the group's flagging share price.

Aviva, whose weak stock market performance led to the removal of chief executive Andrew Moss in May, said on Thursday units earmarked for exit include its South Korean arm and account for 6 billion pounds of capital and 300 million pounds of after-tax profit.

"They've at last got to the nub of the matter which is that they've got lots of business units that are not making a proper return on risk capital," said Investec analyst Kevin Ryan.

"But clearly there's enormous execution risk in that this is not an environment in which to try and sell."

Aviva shares were up 2.1 percent by 11:20 a.m. British time, outperforming a 0.3 percent rise in the Stoxx 600 European insurance index.

The stock has lost about third of its value in the past year against a 10 percent decline for the sector, driven in part by fears the Europe-focused insurer is vulnerable to losses on its holdings of distressed euro zone sovereign bonds.

Aviva's regulatory capital buffer fell by a third between July and September last year as the escalating crisis in the euro currency area triggered sharp falls in the value of peripheral euro zone government debt.

BOND SALES

Aviva said it sold 2 billion euros ($2.5 billion) of Italian sovereign bonds in June, reducing its holding to 5 billion euros, and flagged up 400 million pounds of cost cuts to be achieved in part by stripping out superfluous layers of management.

"At the end of the plan, Aviva will be focused, financially strong and performing," Aviva executive chairman John McFarlane, who took day-to-day control of the insurer after Moss left on May 8, told reporters on a conference call.

"I believe I can make a difference here."

There will be no need to raise equity or cut Aviva's dividend provided economic conditions do not deteriorate, and Aviva would prefer to sell assets if they do, McFarlane added.

"There are things we would do before we would do those things - for example, we have very good businesses we could sell," he said.

The units earmarked for sale or closure also include Aviva's bulk purchase annuity business and its minority holding in Dutch rival Delta Lloyd, but the company declined to comment on whether its sizeable U.S. arm, acquired for 2 billion pounds in 2006, was also on the block.

A further 27 of Aviva's 58 units, including its general insurance business in Ireland, "require significant improvement," the insurer said.

The overhaul will yield results in 2014, and will be led by David McMillan, formerly CEO of Aviva's general insurance operations in Britain and Ireland, McFarlane said.

Aviva has hired headhunters Spencer Stuart to help it find a new CEO, and an appointment is expected in early 2013, he added.

(Reporting by Myles Neligan; Editing by Mark Potter)