Dow Jones – European Insurers Gear As much as Do Offers

By Julie Steinberg 

LONDON — European insurers have weathered the crucible of the coronavirus pandemic and are able to do some offers.

Final week a Canadian and Danish insurance coverage consortium agreed to purchase the UK.’s RSA Insurance coverage Group PLC for GBP7.2 billion, equal to $9.6 billion. And on Friday, Zurich Insurance coverage Group AG stated it’s in talks to amass MetLife Inc.’s U.S. property and casualty insurance coverage enterprise.

The RSA deal, which pushed up the share costs of some insurance coverage stocks when the proposal was introduced on Nov. 5, portends additional mergers and acquisitions, business contributors say.

That’s as a result of the pandemic pressured insurers of all stripes to take a tough take a look at their companies as losses from claims piled up, bringing weaknesses into sharp reduction. Some are recognizing the necessity for scale to cement profitability, whereas others are pruning items the place they cannot make sufficient cash to compete. Bankers say extra offers are brewing.

One other issue that would ignite a buying spree: the regulatory setting. The European Insurance coverage and Occupational Pensions Authority in April urged the business to quickly droop dividends and share buybacks. Because of this, cash has gathered on some corporations’ steadiness sheets, which dilutes return on fairness and is feeding the necessity to search combos.

Insurers’ share costs replicate a troublesome yr affected by losses associated to Covid-19 and the persevering with impression of low rates of interest on their funding portfolios.

The Euro Stoxx Insurance coverage Index is down 15% this yr, lagging behind the broad Euro Stoxx 600 stock-market index, which is down 6%. Lloyd’s of London, the UK. insurance coverage and reinsurance market, stated in September it expects to pay out as much as GBP5 billion, equal to $6.6 billion, in coronavirus-related claims this yr.

Some insurers cause the bigger they’re, the higher. “The RSA deal exhibits the significance of getting scale to drive profitability for the sector,” stated Tryfonas Spyrou, an insurance coverage analyst at Berenberg. Massive insurers can function in a number of markets, negotiate higher pricing with suppliers and have entry to extra knowledge, which permits higher pricing of dangers, he stated.

Consolidation has been taking place within the U.S. as nicely.

Insurance coverage big Allstate Corp. in July agreed to amass rival Nationwide General Holdings Corp. for about $Four billion in cash, although discussions started earlier than the disaster.

Personal-equity agency KKR & Co. the identical month stated it could purchase retirement and life-insurance firm World Atlantic Monetary Group Ltd. for greater than $4.Four billion.

Italian insurer Assicurazioni Generali SpA final week stated it has as much as EUR2.5 billion, equal to $2.96 billion, to spend on “acquisitions which might be absolutely aligned to our clear strategic priorities.” The insurer in June took a 24% stake in an Italian insurance coverage firm backed by Berkshire Hathaway Inc. that had been advised by Italian regulators to spice up its capital.

UK.-based insurer Aviva PLC has been attempting to promote its operations in France, in accordance with individuals aware of the matter. A spokesperson declined to touch upon a possible sale and pointed to earlier statements by the corporate that it could give attention to its companies within the UK., Eire and Canada, and that it was within the early phases of creating its technique for its continental European enterprise.

Dutch insurer Aegon NV in August stated it could evaluation the greater than 20 nations wherein it operates and focus on nations and enterprise strains the place it may create probably the most value.

Belgian insurer Ageas NV in latest months has elevated its stake in its joint ventures, and just lately stated it has EUR700 million to EUR800 million in cash.

Some insurers are working warily. Giulio Terzariol, German insurer Allianz SE’s chief monetary officer, stated earlier this month that if buybacks aren’t permitted in 2021, the insurer would take a look at deploying capital. However he stated the corporate would not purchase “suboptimal belongings” for concern of regretting it for the following 10 years.

–Ben Dummett contributed to this text.

Write to Julie Steinberg at [email protected]

(END) Dow Jones Newswires

November 23, 2020 05:44 ET (10:44 GMT)

Copyright (c) 2020 Dow Jones & Firm, Inc.