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Zurich mulls offer for RSA Insurance

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Zurich mulls offer for RSA Insurance

Zurich Insurance Group Ltd. said Tuesday it is evaluating a potential offer for London-based multiline insurer RSA Insurance Group P.L.C.

The Zurich-based insurer said in a statement that it noted recent market speculation and confirmed that it is considering a potential offer for RSA. It said a further announcement would be made as appropriate.

• PHOTO GALLERY: MERGER MANIA

In a statement Tuesday, RSA said it had neither held talks with nor received a proposal from Zurich, and advised its shareholders to take no action.

“We think the potential acquisition is a good fit for Zurich and … expect RSA shareholders to welcome the approach,” Sami Taipalus, a London-based analyst at Berenberg Bank, said in a briefing note Tuesday.

“There is an overlap between the operations of the companies in the United Kingdom, Latin America and Canada, which could create some potential for synergies,” he said.

“The deal would also buy Zurich a meaningful presence in the very attractive Nordic nonlife insurance space,” Mr. Taipalus said, adding, “There is a high likelihood that more bidders for RSA may emerge.”

“Large European and U.S. groups, such as Allianz S.E., Axa S.A., and American International Group Inc., are the most likely to enter the race,” in Berenberg's view, Mr. Taipalus said.

First indicator RSA could be on the block

Eamonn Flanagan, head of the Liverpool, England, office of Shore Capital Group Ltd., said Zurich's announcement was the first indication that a bid for the whole of RSA “may be on the cards.”

He said Shore Capital has not favored the idea of a breakup of RSA, in part because of the deficit in the company's pension plan, which might prompt the plan's trustees to seek some of the proceeds of any sale because of the potential weakening of the sponsor's covenant.

At the last formal valuation in March 2012, RSA's pension fund had a deficit of £477 million ($739.8 million), making it 93% funded, according to information from RSA.

“Our view has been that despite the group's recent woes, such as in Ireland, there are some terrific assets in RSA that are attractive to corporate predators, such as in Canada and Scandinavia,” Mr. Flanagan said.

“In addition, following the rights issue and disposals, the group is pretty well capitalized in our view,” he said. “In addition, the United Kingdom would offer Zurich the opportunity for some pretty material cost savings.”

A broker source who asked not to be named said that unlike some recent mergers and acquisitions, such as Ace Ltd.'s proposed acquisition of Chubb Corp., that have strong strategic rationale, a purchase of RSA by Zurich would be a strong player buying a weaker one.

A potential acquisition of RSA would not be surprising given the recent uptick in M&A activity in the nonlife insurance sector, he said, and a deal would give Zurich added strength in U.K. retail operations.

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