Aviva shares leap on £5bn move for general insurance arm by RSA

SHARES in insurance giant Aviva jumped 5.5 per cent yesterday after its UK rival RSA made a £5 billion approach for the company's general insurance division.

Neither side would comment but the unsolicited move was immediately rejected by Aviva. It is believed to have been made in a letter from RSA chairman John Napier in recent weeks.

No stock exchange announcement was made by either side, as the approach was for a business stream rather than the whole company. It is understood no talks are taking place.

Analysts said there was strategic logic in RSA's move. Norwich-based Aviva is the UK's leading general insurer, with an estimated 13 per cent market share.

RSA has a 6.6 per cent share, is number two in commercial property insurance, and number four in household and motor insurance. It also has a strong position in pet insurance.

RSA and Aviva both have general insurance businesses in the UK, Ireland and Canada, and RSA was reported last year to be mulling bigger takeovers than the small-scale acquisitions it has traditionally favoured.

A banking source familiar with the insurance sector said RSA had been working on its own, and had been mainly interested in Aviva's UK and Canadian businesses.

The source said: "RSA made the approach, but it was several weeks back and this isn't going anywhere now." Analysts said the price mooted suggested an offer of ten times the operating profits of Aviva's general insurance arm.

One analyst said: "RSA's hope is that institutional investors are not totally sold on Aviva's composite model of life assurance, general insurance and asset management. Both companies share a number of the same shareholders, and you would probably be talking of synergies running into hundreds of millions from de-duplication in shared business territories like Britain, Canada and Ireland."

However, Tom Dorner, insurance analyst at Oriel Securities, said: "It's a very ambitious move from RSA against the backdrop of Prudential's failed bid for AIA (American International Asia].

"RSA would have to raise more than its market capitalisation to get the deal done, and they have a stated strategy of making small bolt-on acquisitions. It's going to be a tough sell to investors."

At an Aviva presentation to analysts on 2 July it stressed the positive characteristics of the general insurance business, including throwing off cash to invest in the company's various operations and also backing the dividend. Aviva's shares closed up 5.5 per cent at 387.4p; RSA slipped 1.1p to 127.4p.