RSA likely to bid again as Aviva knocks back £5bn offer

The market is braced for a revised RSA bid for Aviva, after the first offer was knocked back amid a war of words between the country’s two biggest general insurers.

Aviva confirmed this week that it had received a £5bn bid on 28 July for its general insurance businesses – excluding RAC and health – in the UK, Ireland and Canada.

Aviva rejected the bid, stressing it should be “valued accordingly” for its market-leading position, and outlined the benefits of composite life and general insurance model.

But RSA immediately hit back, criticising Aviva’s unique UK composite model as outdated and urging for a deal that would make “strong strategic sense”.

Now analysts and leading industry figures expect a revised bid next month or at the latest in October. A bid from a rival, such as AXA, or a counter bid from Aviva are also possibilities. Collins Stewart analyst Ben Cohen said cost savings from the merger should be reflected in a higher bid. “Sharing cost saves with Aviva could justify a price of around £5.5bn, on first view,” he said.

Bluefin chief executive Stuart Reid said: “I would be very, very surprised if they did not come back with a revised offer.”

The market is closely watching the reaction of Aviva’s shareholders, reported to be unhappy at not being consulted on the first bid, which came in the form of a letter from RSA chairman John Napier to his Aviva counterpart, chairman Lord Sharman.

Royal London Asset Management head of equities Jane Coffey said there was a “price for everything”, but added: “We don’t think £5bn was enough. We think it should be worth more than that.” Investments director at Standard Life Investments, Euan Stirling, said: “I think if RSA were to come back with a more serious bid, a slightly raised bid, then Aviva would have to take that more seriously, and who knows what happens beyond that?”

Insurance Times understands there is a real determination within the Aviva camp to fight to keep the general insurance business, with staff convinced it is well positioned for growth in personal lines and there is no serious threat to its market dominance in SME.

But Aviva could find a revised bid from RSA irresistible. One insurance industry source said: “It looks like a fair value bid and I’m sure the Aviva shareholders know that. It’s a pretty big price from what I can see.

“There will be a shareholder reaction to the board, and no doubt RSA will consider a revised offer. The two businesses blend well. RSA is a large corporate player and Aviva is good in small corporate, while both have motor operations in personal lines. It generally looks like a good deal if it happens.”

Market view: ‘a logical move’

Broker bosses reacted positively this week to the prospect of an RSA and Aviva merger, while insurer heads believed a merger would leak premium to rivals.

Bluefin chief executive Stuart Reid believes a new insurance giant would have the power to move the market. He said: “It has been a long, long time since we’ve had consolidation in the general insurance market and any consolidation has to be good.

“There will be people who will have greater control of the money and drive through rating increases.”

Towergate chief executive Andy Homer, speaking from a broking perspective, said insurer consolidation was “unavoidable”. “While the timing is a surprise, we think it is a logical thing for them to do, given the state of the market.”

Jelf chief executive Alex Alway said that, from his company’s perspective, it would be a shame to lose the synergies Aviva has across its general insurance, life and healthcare businesses, but ultimately the two companies would complement each other well.

Heath Lambert chief executive Adrian Colosso said brokers would be saddened at the potential loss of Aviva, because it meant one less insurer and, ultimately, less choice for the customer.

From an insurer perspective, Allianz commercial director Chris Hanks said he was relaxed about the possible merger. He said: “Big mergers always result in management taking their eye off the ball and there will be opportunities for insurers in that sense.”

Homer, also responsible for Towergate Underwriting, agreed. “We know from the past big mergers, such as CGU and Norwich Union, that there is a tendency for a lot of internal focus while the merger is done. If it’s done badly, it would give the competition a chance to grow.”

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