Brokers react to consortium’s ‘strong bid for an iconic brand’ in potential RSA purchase

On 5 November, news broke that insurer RSA is considering a £7.2bn consortium bid for the business from Canadian insurer Intact Financial Group and Danish insurer Tryg.

If successful, Intact would take over RSA’s Canadian, UK and international business for £3bn, while Tryg would pay £4.2bn to assume control of the insurer’s Sweden and Norway operations. Both Intact and Tryg would co-own RSA’s Denmark business.

According to Philip Kett, an analyst at Jefferies, the bid represents a 51.5% premium to RSA’s undisturbed price of 452p, and a 24.5% premium to Zurich’s 2015 bid.

The deal will also have ramifications in terms of market share. For example, Jefferies said that Intact’s market share in Canada could increase from 17% to 23% as a result of the RSA purchase, while Tryg has the potential to become the largest non-life insurer in Scandinavia.

For Ashwin Mistry, executive chairman at Brokerbility, the proposed bid is very much a case of “when, not if”. He added that it was “not surprising” to hear news of the potential deal as it “was rumoured for a couple of months”.

“Following the failed merger with Zurich, it was on the cards,” he said. However, “we have to wait for confirmation, so it’s not a done deal just yet”.

Peter Blanc, group chief executive at Aston Lark, told Insurance Times that he understands why Intact and Tryg are putting the feelers out for an RSA takeover.

He said: “On the face of it this looks a really strong bid for an iconic brand in the UK market. In a hard market, I absolutely expect RSA to perform well so I can understand a keen bid at this time.”

Broker reaction

But will there be an impact for brokers as a result of the bid for RSA?

Mistry is keeping his fingers crossed that the “household name” doesn’t disappear.

He said: “As far as I am concerned, RSA is a fantastic brand. It resonates with long established clients who appreciate what RSA stands for and how they deal with them. Their business sticks and that can’t be said for all insurers.

“From a broker perspective, it will be such a shame if a household name potentially disappears from the composite market; it could reduce customer loyalty if any drastic changes are made without proper consideration.

“The market needs high profile insurers to lead the market, work in tandem with brokers and enter spaces being vacated by smaller capacity providers exiting the market.

“I do not believe, at this moment, the potential new owners would tamper with anything major [as] they could damage the value they seek to capitalise from.”

Blanc agreed that RSA’s legacy remains important for its future, regardless of ownership.

“From a broking perspective, we just have to hope that the plans will be to build on the hugely strong legacy that RSA has,” he explained.

“It’s a company that’s had its troubles in recent years, but from our perspective has really started to find its feet again; they’re writing new business, service levels are good and, crucially, they have a true underwriting pedigree.”

However, Simon Mabb, managing director for commercial insurance at Romero Insurance Brokers, takes a more tentative view of Intact and Tryg’s proposal. He told Insurance Times: “We wouldn’t want to see a name like RSA leave the market, so it would depend on the plans if the bid was successful.

“We do need as many strong insurers as possible right now. I think it is too early to say what this could mean for brokers right now. We will wait to see how this develops.”

External involvement

Trident Insurance chief executive Robert Marshall believes that external ownership could be a positive move for RSA.

He said: “Will it matter if they are owned by an external entity? Not at all - after all what are shareholders if not external to management?

“The UK needs external management who are not so patrician and focus on the bottom line.”

Marshall added that RSA’s brand name could fall victim to the deal.

“RSA was always a target, and in the harsh world where only the bottom line counts for corporates and shareholders, the name will ultimately most always go. Will it matter? No, not at all,” he continued.

Side effects

One red flag that Mistry raises is that “reducing choice within the market could be detrimental to end customers”.

Analyst firm Berenberg shares this opinion. The firm said: “Regulatory concerns about further consolidation in the already concentrated markets of Sweden and/or Denmark will need to be addressed in order for the deal to close.”

Mistry added that RSA’s staff also need to be considered within the deal, as they “have [a] great wealth of experience and I would be concerned if they are not catered for”.

RSA did not supply comment when contacted by Insurance Times.