Ageas eyes £2bn GWP in Groupama takeover talks

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Brokers welcome a possible end to uncertainty over Groupama UK’s future

Ageas UK chief executive Barry Smith and Groupama UK chief executive Francois-Xavier Boisseau

Ageas revealed this week that it was in talks to buy Groupama in a deal that could propel the insurer towards the £2bn premium barrier.

Fuelled by acquisitions and a mega-deal with Tesco Underwriting, last year Ageas increased gross written premium (GWP) by 70% to £1.7bn and is now targeting £400m GWP insurer Groupama.

News of the deal was welcomed by brokers keen to see an end to the uncertainty surrounding Groupama UK. Its eurozone-hit parent was dumped into junk territory by agency Standard & Poor’s in June.

The deal is seen as a good fit in terms of the culture and business mix of the two companies.

In personal lines Groupama UK is heading for a year-end of £300m GWP, split between non-standard and standard products - mainly in motor, Ageas’s biggest line.

Ageas chief executive Barry Smith is also keen to grow the commercial book and Groupama is on target to produce between £100m and £120m GWP in commercial SME by the year-end.

Integration issues

The question for Smith is how much Groupama business he will have to shed to pave the way for its integration into Ageas.

Ageas would probably absorb about half the commercial book and keep Groupama’s motorcycle account - an area it is growing - but cast off a large chunk of the private motor book.

Groupama has faced fierce competition from rivals AXA and Aviva, which have been attempting to poach its business amid market uncertainty.

The book value of Groupama’s UK insurance arm is about £200m on paper but the final price may be below that figure following the problems caused by its parent’s junk status rating.

Groupama’s Paris-based bosses, who are being advised by Deutsche Bank, will ultimately decide whether to sell or not.

They are determined not to sell on the cheap, but are aware of broker pressure in the UK to end uncertainty and that Ageas is seen as an ideal home.

Market sources said the Ageas deal was a “last chance saloon” for Groupama to sell the UK arm. The business has been on the market for nine months but no buyer has been found as yet.

Support for the sale

Motorbike specialist MCE Insurance chief executive Julian Edwards welcomed the possibility.

“Ageas is best of breed at what it does - the acquisitions it makes seem to work,” he said. “I believe that it will be a good news day for most people involved.”

Giles chief executive Brendan McManus added: “If it happens it will be good news.”

Neither Ageas nor Groupama would comment on the deal, other than Ageas’s confirmation of talks.

Groupama UK chief executive François-Xavier Boisseau has rejected suggestions that the company is in trouble.

The insurer produced a combined ratio of 98.8% for the first half of 2012 and pre-tax profits grew 20% to £22.2m compared with the same period in the previous year.

According to Boisseau, Groupama’s UK solvency margin, measured on a Solvency I basis, was 218% as of 30 June - up from 174% on the same date last year.

Talking points …

● If Groupama is bought by Ageas what will happen to its broking arms? Bollington looks set for a private equity-backed management buy-out, motorbike broker Carole Nash for a trade sale.

● Ageas is made up of an insurance arm and diverse distributors - Kwik-Fit, Castle Cover and RIAS. Chief executive Barry Smith will bulk up the business with Groupama, but how long can he continue this buy-and-build strategy?

● Are the Groupama talks a back-up in case the Tesco Underwriting deal ends in a few years’ time?