16th Aug 2010 12:47
RSA response to press speculation
The Board of RSA Insurance Group plc ("RSA") notes the recent press speculation and the announcement made today by Aviva plc ("Aviva") regarding a possible transaction involving Aviva and RSA.
RSA confirms that it put forward a proposal to Aviva to acquire its UK, Canadian and Irish general insurance businesses excluding RAC and Health (the "Target Businesses"), for £5 billion in cash. RSA has for some time considered that the combination of RSA and the Target Businesses would make strong strategic sense. The proposed transaction represents in-market consolidation in geographies and lines of business that RSA knows well and in RSA's view, would give rise to significant cost synergies estimated at £300 million per annum pre-tax. RSA also believes that the resulting two strongly capitalised businesses, focused on life and general insurance respectively, would be in the interests of both sets of shareholders.
RSA has estimated that the Target Businesses had net income of around £510 million in 2009 and net assets of £3,219 million. RSA considers its proposal to be a fair value for the Target Businesses and represents a PE ratio of around 9.8 times and a multiple to net assets of 1.6 times. The transaction would be funded by a fully underwritten rights issue. Aviva rejected this proposal without any discussions taking place.
RSA has a strong track record of driving sustainable profitable performance, having delivered 26 consecutive quarters of combined operating ratios in the mid-90 per cents. During the period between 2006 and 2009, RSA's operating profits remained stable while Aviva's general insurance operating profits fell by 43 per cent. as disclosed in its annual reports.
RSA believes its focused business is the optimal model for writing general insurance and notes:
No other major primary UK insurer continues to pursue the composite model Aviva's returns on equity have been behind those of certain other UK insurers in the last three years and are reflected in its low PE multiples Under Solvency I, there is no capital advantage for writing general and life insurance together. Under Solvency II, it is too early to determine the net benefits which regulators may allow for composite insurers; however, the direction of the regulatory capital changes over the last three years has been to eliminate double-counting of capital.Several other UK life insurers have improved their cashflow and capital generation by focusing on capital-lite types of new business and thereby reducing new business strain. For Aviva, new business strain represented a negative £1.5 billion out of the £2.5 billion of capital generated in 2009. Aviva has suggested that its general insurance business is important for generating cash to support the dividend and other businesses in its franchise. However, RSA has estimated that the Target Businesses contributed only £0.5 billion of capital generated out of the total capital generated of £2.5 billion.
On 5 August 2010, RSA announced strong interim results with headline premium growth of 9 per cent. The Board remains confident in the outlook for the Group given its strong positions in attractive markets and is excited about the opportunities to move the business forward.
RSA considers that its proposal represents fair value for the Target Businesses and would be in the interests of both sets of shareholders. RSA remains open to discussions with Aviva.
For further information:
| Analysts | Press | ||||||
| Claire Cordell | Simon Kutner | ||||||
| Tel: +44 (0) 20 7111 7212 | Tel: +44 (0) 20 7111 7327 | ||||||
| Mob: +44(0) 7834 944 204 | Mob: +44 (0) 7795 445 656 |
Notes to editors:
| 1. | Net Asset Value and Tangible Net Asset Value at 31 December 2009 for Aviva's UK, Canadian and Irish General Insurance businesses are estimated at £3,219 million and £2,829 million respectively (source: Aviva Full Year 2009 Results and RSA estimates). | ||
| 2. | Pre-tax Operating Profits for Aviva's UK, Canadian and Irish General Insurance businesses are £713 million for the full year 2009 (source: Aviva Full Year 2009 Results). A tax rate of 28 per cent. is assumed. |
About RSAWith a 300 year heritage, RSA is one of the world's leading multinational quoted insurance groups. It has the capability to write business in over 130 countries and major operations in the UK, Scandinavia, Canada, Ireland, Asia and the Middle East, Latin America and Central and Eastern Europe. Focusing on general insurance, it has around 23,000 employees and, in 2009, its net written premiums were £6.7 billion.
Important DisclaimerThis press release may contain 'forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance results, strategic initiatives and objectives. Generally, words such as "may" "could", "will", "expect", "intend", "estimate", "anticipate", "aim", "outlook", "believe", "plan", "seek", "continue" or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to future events and circumstances which are beyond the Group's control, including amongst other things, UK domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, inflation, deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of tax and other legislation and other regulations in the jurisdictions in which the Group and its affiliates operate. As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the Group's forward-looking statements. Forward-looking statements in this press release are current only as of the date on which such statements are made. The Group undertakes no obligation to update any forward-looking statements, save in respect of any requirement under applicable law or regulation. Nothing in this press release shall be construed as a profit forecast.
Copyright Business Wire 2010
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