July 28, 2015 / 5:35 AM / 4 years ago

Cash-rich Zurich Insurance eyes bid for British rival RSA

ZURICH/LONDON (Reuters) - Cash-rich Zurich Insurance ZURN.VX is weighing a bid for British rival RSA (RSA.L) which could top $8 billion, as insurers look to diversify amid tighter regulations and toughening market conditions.

The logo of Zurich Insurance Group is seen on a building in Bern February 10, 2014. REUTERS/Thomas Hodel

Zurich’s statement on Tuesday that it was considering a bid drove the largest one-day gain for 23 years in the British insurer’s shares, which closed up 18 percent at 490 pence.

European Union rules due in January governing how much money insurers must set aside to protect against market shocks have already prompted some tie-ups.

The rules reward insurers with a breadth of geographical or sector coverage, as this cuts their capital costs. With low investment returns and soft insurance prices in many markets, analysts also expect more industry consolidation.

Zurich, a 45 billion Swiss franc (£30 billion) group offering a range of life and general insurance products, said it was looking at a bid.

“Zurich notes the recent market speculation in relation to RSA Insurance Group Plc and confirms that the company is evaluating a potential offer,” it said, adding there was no assurance any offer will be made.

RSA, best known for its More Than home and motor insurance brand, said it had held no talks with Zurich and received no proposal.

The Financial Times said Zurich was considering a bid valuing RSA at 5.5 billion pounds, or 550p a share. Barclays analysts said Zurich had around $3 billion in surplus cash and could take on debt of up to $5 billion.

“RSA has many strengths that would complement our business,” a Zurich spokesman said. “RSA is very clearly strong in Britain but also in Scandinavia and Canada. And they have business in Latin America, a market which we want to expand.”

RSA shares stuck well below the reported 550p offer price, with analysts saying this reflected uncertainty a deal would take place. Zurich shares fell 1.8 percent on concern that a deal would cut chances of cash being returned to shareholders.

Zurich had said in May it had $3 billion (£1.9 billion) in extra capital it would either hand back to its owners or spend on acquisitions by the end of next year.

After multiple profit warnings, triggered in part by an accounting scandal in Ireland, RSA hired former RBS boss Stephen Hester last year to lead its recovery. The company swung to a profit in 2014.


A tie-up between Zurich and RSA would follow several big insurance deals. Swiss group ACE ACE.N bought upmarket property insurer Chubb Corp (CB.N) this month in a $28 billion deal to get access to wealthy clients.

Analysts said Zurich and RSA would be a good fit but there could be counter-offers. “AXA or a number of other U.S. and European insurers could be interested,” said Barrie Cornes at Panmure Gordon. “RSA is now effectively in play.”

French insurer AXA (AXAF.PA) said it did not comment on market rumours.

In its most recent results, RSA posted a 1 percent rise in net written premiums and said profits were ahead of plan, boosted by disposals. It was also weighing a possible sale of its Latin American business, a source told Reuters earlier this year.

However, RSA is battling a competitive UK insurance market and has struggled to boost investment income in the current low-interest rate environment. Its largest shareholder is activist investor Cevian Capital, with 13 percent.

Canaccord Genuity analysts said 550p a share would be a “fair offer” and noted the purchase would give Zurich a leading position in Britain. RBC analysts said RSA’s Scandinavian presence was particularly attractive.

Shore Capital analyst Eamonn Flanagan said an outright sale of RSA was preferable to a possible breakup, given concern any partial sale could see money diverted to plug a pension deficit.

Barclays analysts said RSA had a pension deficit of around 500 million pounds, while Zurich itself has a UK scheme deficit of around $2 billion, “so Zurich has significant experience of managing UK pension issues.”

Additional reporting by Paul Arnold in Zurich, Simon Jessop in London and Leigh Thomas in Paris; Editing by Mark Potter and David Holmes

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