UPDATE: RSA Pursues Acquisitions, Buys Canada GCAN For GBP259 Million
October 04 2010 - 11:12AM
Dow Jones News
U.K. general insurer RSA Insurance Group PLC (RSA.LN) is
pursuing its aggressive acquisition strategy and said Monday that
it is buying Canada's GCAN Insurance Co. for GBP259 million, two
months after its GBP5 billion offer for parts of Aviva PLC's
(AV.LN) general insurance operations was rejected.
Combining GCAN with its Canadian operations will make RSA the
fourth-largest general insurer in the country based on gross
written premiums, with a combined amount of around C$2.2
billion.
"Over the last five years, RSA Canada has grown its premiums by
around 60% and doubled its underwriting result. The acquisition of
GCAN accelerates this momentum and takes us to number four in the
market," RSA Chief Executive Officer Andy Haste said.
"This is a great deal for RSA Canada and the group and we are
excited about the strong potential of the combined business," Haste
said.
GCAN is a unit of Glenstone Capital Inc., a portfolio company of
Teachers' Private Capital, the private equity department of Ontario
Teachers' Pension Plan Board. GCAN is a commercial
property-and-casualty insurer and has offices in Toronto, Montreal,
Calgary and Vancouver.
Since 2004, RSA has acquired around 40 companies, reflecting how
it has made acquisitions a core part of its growth strategy.
Panmure Gordon analyst Barrie Cornes said: "We view this as yet
another excellent acquisition by RSA...The cost appears quite full,
but the acquisition is a strong performer that is well capitalized
and set to deliver strong returns."
Cornes kept his buy rating and target price of 150 pence on the
stock.
In late July, RSA proposed to buy Aviva's general insurance
businesses in the U.K., Ireland and Canada, with the hope of
leapfrogging into a much bigger general insurer.
However, that proposal was rejected by Aviva's board in early
August, calling the proposal "unacceptable and not in the best
interests of Aviva shareholders."
Analysts said the proposal was a bold move considering the offer
was close to RSA's market capitalization.
If RSA's proposal went through, it would mean the breaking up of
Aviva's "composite" business model, in which an insurer operates
different lines of business, like life insurance, general insurance
and asset management.
Earlier Monday, The Times newspaper reported that RSA previously
discussed with Resolution Ltd. (RSL.LN) about mounting a
multibillion-pound break-up bid for Aviva.
The talks, which also included Zurich Financial Services AG
(ZURN.VX) of Switzerland and Germany's Allianz SE (ALV.XE), would
have seen RSA secure control of Aviva's general insurance arm, The
Times said.
Under the plan, Resolution would have picked up Aviva's U.K.
life and pensions business as well as Aviva Investors. The Times
said that "it is understood" that Zurich and Allianz would then
have carved up the European and Asian businesses between them.
However, the talks fizzled out and Resolution couldn't achieve a
valuation it was happy with, and the division of assets wasn't
agreed, The Times said.
It said Resolution may still be interested in pursuing Aviva and
that RSA "is thought" to remain interested in Aviva.
At a banking and insurance conference last week, RSA Chief
Financial Officer George Culmer said that RSA is actively searching
for acquisitions in the U.K., as well as international and emerging
markets.
Culmer said that "that chapter has closed," referring to RSA's
offer for Aviva, though he didn't say unequivocally that RSA will
no longer be interested in Aviva.
GCAN offers property, liability and motor insurance, with a
track record of profitability and a combined operating ratio of 77%
in the past five years.
A combined ratio is a measure of claims against premiums. A
figure below 100% indicates an underwriting profit, and a lower
number indicates higher profitability.
RSA said GCAN's surplus capital is around C$110 million and that
the acquisition will generate a return on investment in the
mid-teens.
At 1536 GMT, RSA shares were down 0.1% at 133 pence, while Aviva
shares were down 0.4% at 393 pence. The FTSE 100 index was down
0.66%.
- By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0)
2078429486, vladimir.guevarra@dowjones.com