Zurich mulls over buying RSA

Swiss-based Zurich Insurance Group is “evaluating a possible offer” for rival insurer RSA, it said in a statement to the London stock exchange today.

Zurich confirmed that while this was no confirmation of a firm offer, the group was looking at the possibility of acquiring the UK-based insurer, worth an estimated £5.5bn, according to GR’s sister title Insurance Times.

RSA has declined to comment on the statement.

Earlier this year, Zurich announced an expected $3bn (£1.93bn) of excess capital.

At the time, chief executive Martin Senn told journalists that the firm would look to spend excess capital through channels such as M&A.

Zurich has until 25 August to announce a bid or withdraw, according to Stock Exchange rules.

RSA’s share price rose sharply today as a result.

At 10:40 am, RSA shares in London were up 15% at 503 pence, giving the company a market value of £5.13bn.

In Switzerland, Zurich shares were down 1% at 293 Swiss francs, recovering from an earlier fall of 3%.

A cash offer for RSA from Zurich at 550 pence per share would be a “fair offer” according to Canaccord. The investment bank’s analyts said, however, that while Zurich has access to sufficient excess capital “in the low single-digit billions”, part of any offer could come in the form of Zurich shares, which could come under some pressure as a result of the bid.

Panmure analyst Barrie Cornes was quoted as saying other bidders for RSA might now emerge: “AXA or a number of other US and European insurers could be interested,” Bloomberg reported.

Analysts were concerned, however, about the extent of RSA’s pension liabilities that would transfer to Zurich’s balance sheet.

Canaccord said Zurich shareholders are likely to be cautious about “the material long-tail and pension liabilities that would be brought onto Zurich’s balance sheet”.

Barclays said RSA’s pension deficit of about £500m should be managable by Zurich, whose own scheme has a deficit of about $2bn: “So Zurich has significant experience of managing UK pension issues,” the bank said.

Cannacord said RSA would give Zurich a leading position in the UK, add materially to its Latin American business, and give access to the Canadian market.

RBC Capital Markets pointed to RSA’s strong market positions in the UK, Scandinavia and Canada.