European Insurers Gear Up to Do Deals
By Julie Steinberg
LONDON -- European insurers have weathered the crucible of the
coronavirus pandemic and are ready to do some deals.
Last week a Canadian and Danish insurance consortium agreed to
buy the U.K.'s RSA Insurance Group PLC for GBP7.2 billion,
equivalent to $9.6 billion. And on Friday, Zurich Insurance Group
AG said it is in talks to acquire MetLife Inc.'s U.S. property and
casualty insurance business.
The RSA deal, which pushed up the share prices of some insurance
stocks when the proposal was announced on Nov. 5, portends further
mergers and acquisitions, industry participants say.
That is because the pandemic forced insurers of all stripes to
take a hard look at their businesses as losses from claims piled
up, bringing weaknesses into sharp relief. Some are recognizing the
need for scale to cement profitability, while others are pruning
units where they can't make enough money to compete. Bankers say
more deals are brewing.
Another factor that could ignite a shopping spree: the
regulatory environment. The European Insurance and Occupational
Pensions Authority in April urged the industry to temporarily
suspend dividends and share buybacks. As a result, cash has
accumulated on some companies' balance sheets, which dilutes return
on equity and is feeding the need to seek combinations.
Insurers' share prices reflect a tough year littered with losses
related to Covid-19 and the continuing impact of low interest rates
on their investment portfolios.
The Euro Stoxx Insurance Index is down 15% this year, lagging
behind the broad Euro Stoxx 600 stock-market index, which is down
6%. Lloyd's of London, the U.K. insurance and reinsurance market,
said in September it expects to pay out up to GBP5 billion,
equivalent to $6.6 billion, in coronavirus-related claims this
Some insurers reason the larger they are, the better. "The RSA
deal shows the importance of having scale to drive profitability
for the sector," said Tryfonas Spyrou, an insurance analyst at
Berenberg. Large insurers can operate in multiple markets,
negotiate better pricing with suppliers and have access to more
data, which allows better pricing of risks, he said.
Consolidation has been happening in the U.S. as well.
Insurance giant Allstate Corp. in July agreed to acquire rival
National General Holdings Corp. for about $4 billion in cash,
though discussions began before the crisis.
Private-equity firm KKR & Co. the same month said it would
buy retirement and life-insurance company Global Atlantic Financial
Group Ltd. for more than $4.4 billion.
Italian insurer Assicurazioni Generali SpA last week said it has
up to EUR2.5 billion, equivalent to $2.96 billion, to spend on
"acquisitions that are fully aligned to our clear strategic
priorities." The insurer in June took a 24% stake in an Italian
insurance company backed by Berkshire Hathaway Inc. that had been
told by Italian regulators to boost its capital.
U.K.-based insurer Aviva PLC has been trying to sell its
operations in France, according to people familiar with the matter.
A spokesperson declined to comment on a potential sale and pointed
to previous statements by the company that it would focus on its
businesses in the U.K., Ireland and Canada, and that it was in the
early stages of developing its strategy for its continental
Dutch insurer Aegon NV in August said it would review the more
than 20 countries in which it operates and concentrate on countries
and business lines where it could create the most value.
Belgian insurer Ageas NV in recent months has increased its
stake in its joint ventures, and recently said it has EUR700
million to EUR800 million in cash.
Some insurers are operating warily. Giulio Terzariol, German
insurer Allianz SE's chief financial officer, said earlier this
month that if buybacks aren't permitted in 2021, the insurer would
look at deploying capital. But he said the company wouldn't buy
"suboptimal assets" for fear of regretting it for the next 10
--Ben Dummett contributed to this article.
Write to Julie Steinberg at email@example.com
(END) Dow Jones Newswires
November 23, 2020 05:44 ET (10:44 GMT)
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