Canadian Underwriter

Zurich Insurance Group will not make offer for RSA Insurance Group plc

September 21, 2015   by Canadian Underwriter

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Zurich Insurance Group has announced that it does not intend to make an offer for RSA Insurance Group plc, in light of Zurich’s recent deterioration in its General Insurance Business related to the Port of Tianjin explosions last month in China.

Zurich announced that “discussions with RSA have now been terminated, and that Zurich does not intend to make an offer to acquire the entire issued and to be issued ordinary share capital of RSA.”

Canadian Underwriter reported on July 28 that Zurich-based Zurich Insurance Group was evaluating a potential offer for RSA. At the time, RSA responded to market speculation and said that it had not “held talks with or received a proposal from Zurich and shareholders are advised to take no action.”

In a brief statement on Monday, Zurich, a multi-line insurer that serves customers in global and local markets, announced that “discussions with RSA have now been terminated, and that Zurich does not intend to make an offer to acquire the entire issued and to be issued ordinary share capital of RSA.”

The announcement was made in accordance with Rule 2.8 of the UK City Code on Takeover and Mergers.

Also on Monday, Zurich provided a preliminary update on the third quarter of 2015, announcing that it currently estimates aggregate losses of approximately US$275 million related to the series of explosions at a container storage station in the Port of Tianjin in mid-August 2015. The estimate is net of reinsurance and before tax and a further update will be provided with the Group’s third quarter results, due to be released on Nov. 5, the statement said.

Related: Zurich Insurance Group evaluating a potential offer for RSA Insurance Group plc

“In light of the above recent deterioration in the trading performance in the Group’s General Insurance business, Zurich announced this morning that it has terminated its discussions in connection with a possible offer for RSA,” the statement said. “The Group’s focus instead will be on taking the necessary actions to deliver on the required performance of the General Insurance business.”

“In addition to claims relating to the Tianjin port explosions, Zurich now expects that weaker than expected profitability in the General Insurance business in the first half of 2015 will continue in the third quarter,” the statement went on to say. “Specifically, large losses excluding those associated with the Tianjin explosion will be at levels similar to the results for the first half 2015. Further, recently completed reserve reviews indicate a likely negative impact of around US$300 million in the third quarter in relation to current and prior year liabilities for U.S. auto liability and certain other lines of business.”

Given the deterioration in profitability in certain parts of the General Insurance business, and following his appointment as General Insurance CEO, Kristof Terryn is conducting an in-depth review of the business, the statement added.

Related: RSA receives revised offer for company from Zurich, open to passing along offer to RSA shareholders

While it is not possible 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 US$200 million for the third quarter.”

Zurich’s Global Life and Farmers businesses are expected to perform in line with expectations, the statement said, and the company remains “committed to achieving its financial targets for 2014 to 2016, i.e. a business operating profit after tax return on equity of between 12% and 14%, solvency as measured by the Group’s internal capital model, the Z-ECM ratio, of between 100% and 120%, and net cash remittances to the Group after all central costs in excess of US$9 billion over the three years.”

The 2015 edition of the Canadian Underwriter Statistical Issue shows that Zurich Insurance Company Ltd. ranks 14 among private property and casualty insurance companies by total business; RSA Canada Group ranks fourth.