Tianjin explosions in China and US motor book to blame for the deal breaking down
Brokers were stunned by news that Zurich has scrapped its planned takeover of rival insurer RSA.
Senior figures in the broking sector said the acquisition had looked like it was “a done deal”.
Zurich announced yesterday that it was terminating talks with RSA because it needed to focus on fixing its own general insurance problems, following large losses related to the Tianjin explosions in China last month and difficulties with its US motor book.
The insurer warned that weaker than expected profitability in its general insurance business in the first half of 2015 would continue into the third quarter.
Zurich currently estimates aggregate losses of $275m related to the Tianjin explosions in China last month.
The insurer said the nature of many of the losses and the extended remediation period to complete repairs meant that uncertainty as to the final cost remained.
Additionally, large losses excluding those associated with the Tianjin port explosions will be at levels similar to the results for the first half of 2015.
Following the announcement, RSA’s shares fell by 20% to 403p in morning trading.
“It may not be next week, but once a company is looking to sell then they will ultimately sell. I wouldn’t be surprised to see Zurich come back in, but everything can change,” TEn Insurance director James Sharp told StrategicRISK’s sister title Insurance Times.
“I am terribly surprised though; if you can’t sell your company then it’s certainly bad news.”
Be Wiser chairman and chief executive Mark Bower-Dyke said that RSA’s decision to pull out of brokered private motor market business could make it a harder sell for another potential suitor.
“It’s a total shock, I think RSA thought it was a done deal. With RSA pulling out of private lines motor, they have become a less attractive proposition,” Bower-Dyke said.
“I am flabbergasted by it; I think it’s worth more than its share price.”
The insurer said: “The group’s focus will be on taking the necessary actions to deliver on the required performance of the General Insurance business.
“While it is not possible at this stage to provide a precise view on the outcome of this review, given claims relating to the Tianjin port explosions and the outcomes of the recent reserve reviews, it is currently expected that the general insurance business will report an operating loss of around $200 million for the third quarter.”
But Zurich added it remained committed to achieving its financial targets for 2014 to 2016 while its priorities for the use of $3bn of excess capital remain unchanged.
In response to the news RSA said Zurich’s due diligence findings were in line with their expectations, adding that Zurich had not found anything that would have prevented them from proceeding with the transaction.
RSA added: “Zurich’s interest in acquiring RSA, which was announced on 28 July 2015, was unsolicited.
“Since that time, RSA has continued to make good progress in the delivery of its Action Plans, as evidenced by our half year results. Trading results for July and August have been positive and ahead of our expectations.”
Both Zurich and RSA will update the market on their third quarter performances on 5 November.