Zurich/RSA deal should focus on strengthening specialty offerings

An acquisition of RSA by Zurich will be a positive development for brokers if the consolidation leads to a strengthening of specialty offerings of markets for major clients.

But brokers warn that a consolidation that is based on commoditisation of business will be a negative development.

Earlier today Zurich said in a statement that it was evaluating a possible offer for RSA.

JLT deputy group chief executive Mark Drummond Brady said: “The key thing for us as a specialty player is that we have markets that also invest in speciality capability.

“When you look at the M&A landscape, you will see that some of this activity is defensive around shoring up weak suitors, and some of it is strategic. Obviously we look at the strategic ones as being a positive and the defensive ones as adding less to the marketplace.”

RK Harrison’s (RKH) UK retail business managing director Stuart Rootham said consolidation of the two businesses would likely lead to a fall out.

“There won’t be positions for everybody. There are some similarities between the two and big overlaps. Cost-cutting will be a significant part of what they are trying to achieve.

”It’s a case of not taking their eye of the ball while there is a whole heap of change.”

RKH said it had a healthy relationship with RSA and Zurich, while JLT said it was well placed to continue a trading relationship with either insurer.

Surplus capacity

Brokers agree the market will still have surplus capacity if Zurich buys RSA.

But they warn that if consolidation in the market continues at the current pace it would rapidly lead to less choice for customers.

If Zurich buy RSA it will follow a number of large-scale insurer acquisitions that have already taken place since the start of the year.

Earlier this month Ace announced it was buying Chubb for $28.3bn. In June Tokio Marine agreed to buy US insurer HCC for $7.5bn.

In February Fairfax confirmed it would buy Brit for £1.22bn, while in January XL said it would pay £2.79bn for rival Lloyd’s insurer Catlin.

Brady added: “If consolidations continued apace to the extent that the choice for clients is dramatically reduced, then that would be a negative development.

“We are an intermediary specialising in buying insurance for clients in a marketplace where we want to create competitive tension around product delivery and price.”

JLT Group commercial director James Twining added: “The market has got a fairly long way to go before clients start losing out through lack of choice. There are a lot of players out there and a lot of capacity. In the short term it is probably business as usual.”

Zurich has until 25 August to confirm whether it will make a formal offer for RSA.