CityAm confirmed that RSA is in talks with a consortium of Canadian insurer Intact Financial and Danish insurer Tryg about a possible break-up deal that will value it at £7.1bn. Shares in RSA shot up 46% to close at 670p by the close of play Friday 6th November.
RSA said its board would be minded to recommend the proposal for 685p in cash per RSA share, plus the payment by RSA of its previously announced interim dividend of 8p per share.
RSA said it received the proposal 2 October, which values the home, motor and commercial insurer at a premium of 50% to its closing price on the day before.
Intact and Tryg have until 3 December to make a firm offer.
Jefferies analysts said the offer price represented “more than fair value.”
Robey Warshaw, Goldman Sachs and Bank of America are working with RSA on the deal, the insurer said.
Best known its More Than brand, RSA also has large operations in Canada, Ireland and Scandinavia.
Under the terms of the deal, Intact will keep RSA’s Canada and UK & International operations, while Tryg will take control of RSA’s Sweden and Norway business.
Intact and Tryg would co-own RSA’s Denmark business.
RSA appointed Christian Baltzer, a former CFO of Tryg, as head of its Danish business last year.
The insurer has been open to offers since 2015 when a previous bid approach by Zurich Insurance fell through, industry sources say. Both Intact and Tryg have been mooted as potential bidders for several years.
RSA chief executive Stephen Hester, a former boss of NatWest who joined RSA in 2014, has been scaling back underperforming business.
Rising commercial insurance rates, lower non-pandemic related claims and a tightening up of its underwriting strategy boosted RSA’s underwriting profit in the first nine months of 2020, despite the impact of Covid-19, it said earlier.
RSA’s combined ratio, a measure of performance in which a level below 100% indicates a profit, stood at 90% in the third quarter, compared with 93.6% at the end of 2019.
The insurer said it was revising down its initial estimate of the gross impact of a September judgment in a UK test case brought by the British markets regulator around the payment of business interruption insurance by around 20 million pounds.