Big UK insurer may sell to Canadian, Danish rivals in $9B deal

(Reuters) -- RSA Group PLC said it is in talks with a consortium of Canadian insurer Intact Financial Corp. and Danish insurer Tryg A/S about a possible break-up deal that values the British firm at £7.1 billion ($9.3 billion).

RSA said its board would be minded to recommend the proposal for 685 pence in cash per RSA share, plus the payment by RSA of its previously announced interim dividend of 8 pence per share.

RSA said it received the proposal on Oct. 2, which values the home, motor and commercial insurer at a premium of 50% to its closing price on Oct. 1.

Intact and Tryg have until Dec. 3 to make a firm offer.

(Intact bought U.S. insurer OneBeacon Insurance Group Ltd. in 2017).

Shares in RSA shot up 46% to close at 670 pence on Thursday. Jefferies analysts said the offer price represented “more than fair value.”

Robey Warshaw, Goldman Sachs and Bank of America are working with RSA on the deal, the insurer said.

Best known in Britain for its More Than brand, RSA also has large operations in Canada, Ireland and Scandinavia.

Under the terms of the deal, Intact will keep RSA's Canada and UK & International operations, while Tryg will take control of RSA’s Sweden and Norway business. Intact and Tryg would co-own RSA’s Denmark business.

RSA appointed Christian Baltzer, a former chief financial officer of Tryg, as head of its Danish business last year.

The insurer has been open to offers since 2015 when a previous bid approach by Zurich Insurance Group Ltd. fell through, industry sources say. Both Intact and Tryg have been mooted as potential bidders for several years.

RSA Chief Executive Stephen Hester, a former boss of NatWest who joined RSA in 2014, has been scaling back underperforming business.

Rising commercial insurance rates, lower non-pandemic related claims and a tightening up of its underwriting strategy boosted RSA’s underwriting profit in the first nine months of 2020, despite the impact of COVID-19, it said earlier.

RSA’s combined ratio stood at 90% in the third quarter, compared with 93.6% at the end of 2019.

The insurer said it was revising down its initial estimate of the gross impact of a September judgment in a U.K. test case brought by the British markets regulator around the payment of business interruption insurance by around £20 million.