10 August 2015 Insurance

No negatives for RSA in potential acquisition by Zurich

If UK-based insurer RSA were to be acquired by Zurich there would be significant opportunities and very little negatives for both parties.

This is the opinion of two executives at specialist insurance investment manager Twelve Capital who commented on the potential transaction.

In July, Zurich said it noted “the recent market speculation in relation to RSA Insurance Group” and confirmed that it is “evaluating a potential offer”.

Marcus Rivaldi, executive director of Twelve Capital, said: “It’s a significant opportunity for Zurich to build scale in the UK and become more efficient. There are a number of potential synergies.”

He added: “Additionally, RSA has some very interesting assets from a Zurich perspective. It has fast-growing businesses in Latin America, a region of the world that Zurich has heavily invested in itself and wants to play a big part in.

“RSA’s Scandinavian operations are in a highly consolidated market, which is very hard to break into organically via a green field operation.”

William Hardcastle, director at Twelve Capital, said: “RSA recently announced its second quarter results where the company highlighted the potential for further cost savings, in excess of those that RSA had previously talked about.”

On the potential of other bidders for RSA, Hardcastle said Axa and Aviva had confirmed that RSA was not an asset they were looking for.

Hardcastle added: “From a European perspective, it’s difficult to see any other likely candidates.”

Initially, Zurich’s share price fell slightly. Rivaldi explained that “there was a degree of initial disappointment from Zurich’s shareholders that a capital return might be off of the table, as the capital was being used for M&A.”

However, soon after shareholders began to see the logic behind the transaction.

Hardcastle added: “It’s difficult to see any real negatives from the transaction for RSA. Such a deal would realise value that would otherwise most likely have taken a number of years to achieve."

Despite this, the investment manager added: “Like many other M&A transactions in the insurance space, one plus one doesn’t necessarily equal two when you’re thinking about premium in certain lines. There may be some cannibalisation in premium lines, but that should be more than offset by the potential synergies of the transaction.”

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