4th Mar 2024 12:20
(Alliance News) - Aviva PLC's acquisition of Probitas, the Lloyds of London platform, was no surprise and makes strategic sense, according to analysts.
On Monday, the London-based insurer returned to the Lloyd's of London insurance market for the first time in over two decades after it announced the GBP242 million acquisition of Probitas.
The London-based insurer exited Lloyds in 2000, when the firm – then known as Norwich Union – merged with CGU, itself formed by the combination of General Accident and Commercial Union in 1998.
Aviva said the deal is consistent with its strategy of executing high quality, bolt-on acquisitions in core markets to accelerate growth in capital-light businesses.
Strong financial returns are expected, supported by disciplined underwriting and profitable growth, the firm asserted.
Aviva pointed out the acquisition price is equivalent to around 7 times estimated 2026 post-tax IFRS operating profit, and the transaction is expected to deliver a high-teens internal rate of return.
The estimated impact on the group's solvency II shareholder cover ratio would have been a reduction of around three percentage points as at December 31 2023, Aviva said.
Aviva described Probitas as a "top performer within the Lloyd's market".
Bank of America pointed out the transaction had been discussed in the press "for over a year, so should not come as a surprise".
"The terms look sensible to us and do not affect the trajectory of capital return we forecast for Aviva," BofA said.
BofA pointed out Probitas's portfolio appears to align with Aviva's existing operations, with around 35% UK & Ireland and 20% Canada and only 5% US.
Around 30% of the book is property, around 30% casualty and other significant portfolios include financial lines and construction, BofA noted.
BofA said that its understanding was that Probitas's has no exposure to US casualty, which should be "a relief".
The bank said it expects Aviva to receive questions about potentially buying a commercial lines P&C business at the top of the cycle but believes the purchase price "seems reasonable".
BofA reiterated a 'buy' rating on Aviva.
UBS agreed that the deal was no surprise.
"Aviva has been in the the news previously around looking for an entry into the Lloyds market, a market we consider attractive", the broker said.
UBS said the move was consistent with Aviva's strategy of bolt-on mergers and acquisitions.
The bank noted that the syndicate outperformed the Lloyds market over 2018-2022 on a combined ratio basis, indicating good underwriting discipline.
UBS reiterated a 'buy' rating on Aviva.
Shares in Aviva rose 0.5% to 450.10 pence in London on Monday.
By Jeremy Cutler, Alliance News reporter
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