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Zurich abandons plans for RSA takeover

Article By: ,  Financial Analyst
September 21, 2015 3:36 PM

RSA shares dropped around 23 per cent on Monday, following the announcement that Zurich Insurance was abandoning it's proposed £5.6 million takeover plan.

The takeover bid was one of many currently under consideration, as many insurance firms are considering tie-ups on the back of increased regulation and competition in the sector.

Difficulties for Zurich

Zurich forecasts a $200 million (£129 million) third-quarter loss, mainly due to the explosions at a container storage station at the Chinese port of Tianjin in August. The explosions led to Zurich's shares dropping 1.6 per cent and the firm announced aggregate losses of around $275 million.

In addition, Zurich has also recently completed reserve reviews, which indicated a likely negative impact of around $300 million in the third quarter for US auto liability and other lines of business.

The Swiss insurer said it that instead of taking over London-listed RSA, it would be conducting a review to improve the performance of its general insurance business.

In a statement, Zurich explained that general insurance CEO Kristof Terryn would be conducting an in-depth review following "the deterioration in profitability".

A spokeswoman also noted that the firm would continue to consider acquisition opportunities, adding that sale of its general insurance business was not an option, since much of those operations remained profitable.

RSA turnaround

RSA made clear that Zurich had found nothing "untoward" in its due diligence checks. The company, which is best known in the UK for its MoreThan insurance brand, is currently pursuing a turnaround strategy. In recent trading updates, the firm has had a positive outlook.

Last year, RSA reported a profit, following losses in 2013. In the first half of 2015, the firm posted above-forecast results. The insurer has stressed that it did not put itself up for sale, adding that it was confident for the future.

Analysts told Reuters it was doubtful that other bidders would come forward to buy RSA, however, as Allianz and AXA have previously indicated they are not interested.

At 12:35 BST, shares in RSA were down 20.4 per cent to 405.58.

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