The break-up of Aviva

Mergers and acquisitions are back on the agenda in the UK general insurance market. This week, The Times revealed that Allianz, Zurich and Resolution had discussed taking over and splitting Aviva with RSA, whose £5bn bid had already been reported. The companies involved are refusing to comment, but experts are not surprised by the development.

Resolution is well known for its consolidation activity within the life market, and given that RSA would not be interested in Aviva’s life business, the split bid stacks up. Meanwhile, if the company were in play, it would make sense for insurers that have growth ambitions outside the UK to look at its foreign operations – Allianz and Zurich were reportedly interested in splitting Aviva’s European and Asian businesses between them. Allianz has been open about its acquisition plans - group chief executive Michael Diekmann told the Financial Times that the German insurer had earmarked €1bn (£864m) annually for acquisitions, with a focus on property/casualty.

Going cheap?

So why target Aviva? Rivals may be hoping to pick the business up cheap after a tough couple of years – its general insurance premium fell more than £1bn in 2009, following former chief executive Igal Mayer’s controversial distribution policies and rating actions.

One leading analyst says: “Aviva’s had a tough ride over the last two years. It was an absolute disaster when Igal Mayer was running the non-life side of the business. That was painful, and it’s taken some time to recover. There’s a fair wind behind them now, but they have a couple of years of damage to recover from. There’s been bad press about [group chief executive] Andrew Moss too, which makes it difficult.”

This, coupled with the fact the most insurance stocks are currently trading at low prices, makes it a good time to act.

M&A or the highway

The market should brace itself for further developments of this kind. Next year, insurer M&A will be the hottest topic in town as businesses prepare themselves for the Solvency II regime that comes into force in 2012. Under the new rules, they will need to hold more capital – and M&A is one of the simplest ways of achieving this.

Aviva may have lived to fight another day, but we haven’t heard the last of this.