LONDON (Bloomberg)—Aviva P.L.C., Britain's second-biggest insurer, said it rejected a £5 billion ($7.80 billion) bid for its general insurance businesses in the United Kingdom, Canada and Ireland because the deal wasn't in shareholders' interests.

Aviva's management was unanimous in rejecting the offer from RSA Insurance Group P.L.C. after considering the proposal with its advisers, the London-based insurer said in a statement Monday. RSA confirmed in a separate statement that it made the cash bid, which it said made “strategic sense,” and that the offer was rejected without a discussion.

Investors may start pushing for the breakup of Aviva following the RSA offer because the units may be worth more than the value of the group, based on the firm's share price. U.K. insurers tend to specialize in life assurance or general insurance, whereas Aviva operates in both areas.

“From a short-term point of view, a breakup could generate more profit for shareholders,” said Paul Mumford, who helps manage about $1 billion at Cavendish Asset Management Ltd. in London and holds Aviva and RSA stock. “This really puts a firework under the directors of Aviva's tails to get this business to perform.”

Shareholders' interests

The acquisition would be RSA CEO Andy Haste's biggest in his seven years at the helm and would add to the company's focus on home and car insurance. The purchase price would surpass RSA's £4.3 billion ($6.71 billion) market value, leaving Aviva to concentrate on life insurance in the U.K. and Europe.

RSA said Monday it was considering making an offer for some time and that the acquisition would be in the interests of all shareholders. The bid, made at “fair value,” would create pretax “cost synergies” of £300 million ($467.8 million) a year, RSA said, adding that it “remains open to discussions with Aviva.”

The current performance of Aviva's general insurance unit doesn't reflect its full earnings potential because the market is at a “cyclical low,” the company said in its statement. The general insurance businesses “in aggregate” made operating profit of £1 billion ($1.56 billion) in 2009, compared with £1.7 billion ($2.65 billion) in 2006.

Unanimous rejection

“Given the compelling strategic and financial benefits to Aviva shareholders of retaining the general insurance business, its upside potential and the terms offered by RSA, the board was unanimous in rejecting this proposal,” Aviva Chairman Colin Sharman said in the statement.

Operating a life and non-life business model delivers capital and earnings benefits, and having a general insurance division will help to increase the dividend, Aviva said.

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