Canadian Market (September 01, 2010)

RSA, AVIVA PLC CONFIRM REJECTION OF RSA’S OFFER TO BUY AVIVA’S CANADIAN BUSINESS

RSA has confirmed in “a response to press speculation” that it did in fact propose to acquire Aviva’s Canadian, UK and Irish general insurance business for 5 billion in cash.

In a separate public statement released on the same day, Aviva plc confirmed its board of directors rejected the deal, in part because it felt the offer undervalued its general insurance operations.

RSA says it considered the deal “a fair value” for the target businesses, representing a price-to-earnings ratio of around 9.8 times and a multiple to net assets of 1.6 times. RSA says the businesses it sought from Aviva had a profit of around 510 million in 2009 and net assets of about 3.2 billion.

RSA said it “remains open to discussions with Aviva.”

Aviva said in its statement that given the “compelling strategic and financial benefits to Aviva shareholders of retaining the GI [general insurance] business, its upside potential and the terms offered by RSA, the board was unanimous in rejecting this proposal.”

Aviva said the general insurance market is at a cyclical low. “Accordingly, the current business performance does not reflect its full earning potential,” the company said.

“Aviva is the leading general insurance business in the U.K. and in Ireland, and the number two player in Canada, and should be valued accordingly.”

CANADIAN BROKERAGES BOOST PROFITABILITY DESPITE 2008-09 MARKET CRASH: SURVEY

Canadian property and casualty insurance brokerages increased operating profitability by roughly 5% between 2007 and 2009, reports Berris Mangan Consulting Inc.

In its study, Property & Casualty Insurance Brokerage Industry Report, Berris Mangan surveyed 285 Canadian property and casualty brokerages.

The average operating profitability of the sample stood at 30.6% in 2009, an increase from 25.3% in 2007, despite the recession.

Of the 285 brokerages, 159 (56%) under-performed relative to the industry average. One hundred and twenty-six (44%) had above-average results.

BANK-OWNED INSURERS DOUBLE MARKET SHARE OVER THE PAST DECADE

Bank-owned insurers have effectively doubled their market share in personal lines between 2000 and 2009, according to the MSA/Baron Outlook Report Q1-2010.

Meanwhile, the broker channel has seen its market share in personal lines sink over the past decade from 66.6% to 59.5%.

Bank-owned insurers reported net premiums written of $2.88 billion in 2009, whereas personal/multi-line broker writers wrote $16.1 billion and non-bank direct writers wrote $8.1 billion.

“With the current rules in place, TD and RBC are chewing their way in ever-increasing chunks of the personal lines pie,” MSA Research Inc. president and CEO Joel Baker wrote in the report. “Their growth has far outstripped broker writers and other non-bank writers by huge margins.

“Their share of the noncommercial space effectively doubled since 2000 from 5.3% to 10.6% in 2009, while brokers saw their share slip and other [non-bank] direct writers’ shares effectively went nowhere.”