SUN Life & Provincial, which made an agreed £3.4 billion takeover bid for Guardian Royal Exchange, has said that it is carrying out a strategic review of its Guardian PMPA subsidiary which could lead to a sale of Ireland's largest general insurance group.
Sun Life's chief executive, Mr Mark Wood, said that following the takeover of GRE, the group is carrying out a strategic review of the Irish operations along with GRE's life assurance operations in Britain. On the Irish operations, Mr Wood emphasised that the strategic review will not necessarily result in a decision to sell, stating that one option is the integration of Guardian PMPA into the merged Sun Life/GRE operations in the UK.
"That's one option that's at the opposite end of the spectrum to disposal," he said. If Sun Life does opt to merge Guardian PMPA with its operations in the UK, it would be a reversal of the trend which has seen most foreign-owned insurers in Ireland converted into standalone subsidiaries of the parent company. The strategic review is expected to be completed within the next four or five months.
If a decision is taken to sell, there are likely to be plenty of potential bidders given Guardian PMPA's strength in the Irish market. Guardian PMPA is the biggest general insurer in Ireland, with a market share of over 18 per cent and non-life premium income of almost £274 million last year.
The non-life business had underwriting losses of £17.4 million last year, a slight fall on the 1997 underwriting loss. Guardian also has a small presence in the life assurance market, with premium income of £23.4 million and profits of £1 million last year.
This business, however, has less than 2 per cent of the Irish life and pensions market. The third arm of the Guardian business in Ireland is an operation in the IFSC which writes overseas insurance business and which had premium income of over £168 million last year and profits of £27.5 million.
Last year, Guardian PMPA increased its pre-tax profits from £87.8 million to £97.9 million. However, this masks a somewhat lacklustre performance in the Irish business, where operating profits rose from £17.8 million to £18.9 million. This was made up of investment income of £35.3 million, underwriting losses of £17.4 million and a £1 million profit from Guardian Life.
Guardian also had investment gains of £51.5 million and profits from the IFSC business of £27.5 million, producing the pre-tax profits of £97.9 million.
Putting a value on Guardian PMPA is difficult as pre-tax profits each year are largely dependent on the investment income that is generated to compensate for the underwriting losses that are almost inevitable in the general insurance business.
Industry sources said that the combined business would undoubtedly be worth over £500 million, given the stock market value of Guardian's main competitor in the Irish market, Hibernian. The same sources said that it is conceivable that if Sun Life does decide to sell the Irish operations, the non-life and life parts of the business could be sold separately.
Hibernian has already said that it could spend up to £350 million on an acquisition in the Irish market and would undoubtedly be an interested party if Guardian non-life operations were offered for sale. Other likely interested parties would be Royal SunAlliance, Eagle Star and AGF-Irish Life.
The life assurance business is small, but would still attract interest from the bancassurers, Ark and Lifetime, Irish Life & Permanent and virtually every other decent-sized player in the Irish market.
