Zurich Insurance Ends Takeover Talks With RSA -- dUpdate
September 21 2015 - 11:36AM
Dow Jones News
By John Letzing and Ian Walker
ZURICH-- Zurich Insurance Group AG has called off a planned
acquisition of U.K.-based RSA Insurance Group PLC as the Swiss firm
focuses instead on recovering from losses incurred by the deadly
explosions in China last month.
Zurich Insurance revealed on Monday it was exposed to the deadly
explosions at a port in Tianjin, China and expects losses of about
$275 million as a result. That will compound other difficulties at
the company's largest unit, general insurance, leading to an
operating loss for that unit in the third quarter of roughly $200
million, the Zurich-based company said.
The deterioration prompted Zurich Insurance to end its talks
with RSA, the company said, adding that an "in-depth review" of the
general insurance business is now under way.
A spokesman for Zurich Insurance said the company found nothing
during its due diligence that caused it to halt its pursuit of RSA,
although that process hadn't been completed.
In its own statement, RSA confirmed that talks with Zurich
Insurance had ended, but said it has made recent progress in
strengthening its position as a stand-alone company. Still, shares
of RSA tumbled 21% in afternoon trading, while shares of Zurich
Insurance fell more than 2%.
The scuttling of Zurich Insurance's pursuit of its U.K. peer is
the latest effect felt by businesses as a result of the explosions
roughly a month ago at the Tianjin port, which were caused by the
improper storage of hazardous chemicals. The explosions killed more
than 100 people, and created logistical glitches and supply-chain
issues that are expected to hinder companies using the facility for
months to come.
Insured losses resulting from the disaster could top $1.5
billion, according to an estimate from Fitch Ratings.
Vontobel analyst Stefan Schürmann noted that Zurich Insurance
does a significant amount of business offering coverage for many of
the automobiles shipped through Tianjin. However, Mr. Schürmann
said the estimated amount of the company's exposure to the disaster
is "higher than expected."
The disaster comes at an inopportune time for Zurich Insurance,
which had disclosed in July that it was interested in buying RSA.
Last month, the Swiss firm proposed making an $8.8 billion
acquisition offer, just hours before a deadline imposed by U.K.
regulators. RSA said at that time that it was willing to recommend
the bid to its shareholders.
The deal was intended to help bolster Zurich Insurance, at a
time of low investment returns and flagging profits. Zurich
Insurance and RSA both sell insurance to corporations, and had
business units including those in the U.K. that were potentially
complementary.
Mr. Schürmann, the analyst, said he was somewhat surprised that
the proposed deal was pulled entirely, given that the two companies
had indicated relatively recently that they were talking it over.
However, he said, investors wary of an extended integration of the
firms may be relieved.
In addition to losses stemming from the Tianjin port disaster,
Zurich Insurance said it expects a $300 million impact on its
reserves in the third quarter primarily related to its U.S. auto
liability business.
RSA said on Monday that Zurich Insurance's acquisition interest
was unsolicited, and that the U.K. firm has made "good progress" on
its continuing overhaul.
That overhaul began after it appointed former Royal Bank of
Scotland Group PLC Chief Executive Stephen Hester as CEO early last
year. The firm has raised fresh capital, and earlier this month
agreed to sell its operations in Latin America to Suramericana SA,
the insurance subsidiary of Grupo de Inversiones Suramericana.
Mr. Hester was appointed after his predecessor, Simon Lee,
abruptly left the company at the end of 2013 amid difficulties at
RSA's Irish unit. Earlier that year, RSA opened an investigation of
the Irish unit's claims and finance functions after a routine audit
discovered a number of issues.
Write to John Letzing at john.letzing@wsj.com and Ian Walker at
ian.walker@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 21, 2015 11:21 ET (15:21 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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