Large losses and US motor woes ruin Zurich's RSA bid

Zurich has ended discussions with RSA to buy the insurer as a result of a deterioration in the trading performance of Zurich Group’s general insurance business.

The insurer warned this morning it expected that weaker than expected profitability in its general insurance business in the first half of 2015 would continue into the third quarter, driven by large losses and negative impact from US motor liabilities.

Zurich currently estimates aggregate losses of $275m related to the series of explosions at a container storage station in the Port of Tianjin in China in mid-August 2015.

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.

And as a result Group general insurance chief executive Kristof Terryn is conducting an in-depth review of the business.

The insurer said: “Recently completed reserve review indicate a likely negative impact of around $300m in the third quarter in relation to current and prior year liabilities for U.S. auto liability and certain other lines of business.

“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.”

However 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.