Shares in Britain's Royal & Sun Alliance Insurance Group surged as much as 13 per cent yesterday after newspaper reports that Zurich Financial Services was planning a £7 billion sterling (€11.2 billion) takeover bid.
Analysts said the speculation of a bid by the Anglo-Swiss group was credible and any move by Zurich could spark a bidding war that dragged in Germany's Allianz and Royal & Sun's British rival CGU.
Royal & Sun's shares were up 35p (or 8.6 per cent) at 441p after rising as much as 52p (or 12.8 per cent) to 458p on heavy turnover of 2.4 million shares.
"They are plausible rumours, definitely, and the rise in the share price serves to highlight just how depressed Royal & Sun got in terms of it relative rating," commented Fox Pitt Kelton analyst Mr Andrew Ritchie. Royal & Sun has been the British insurance sector's laggard this year, falling 17 per cent and underperforming the FTSE by 31 per cent. It remains below its July 1999 high of 600p after hitting a three-year low of 351p on December 7th.
It has also underperformed the British insurance index by 10 per cent this year on concerns about poor conditions in the general insurance market, Year 2000 fears and ongoing investor worries about Royal & Sun's performance.
Analysts said a Royal & Sun takeover would make strategic sense for both groups, boosting Zurich's British non-life presence and lifting Royal & Sun's exposure to the lucrative life assurance and funds management sectors.
Zurich Financial was formed from the 1998 merger of Switzerland's Zurich Insurance with British American Tobacco's financial operations, which included British property and casualty group Eagle Star, British life assurer Allied Dunbar and the US property and casualty group Farmers Group. The reports, which did not include attribution and were placed in comment columns rather than as full stories, said Zurich wanted to boost its British non-life presence and saw the opportunity for significant cost savings.
Both Royal & Sun and Zurich have declined comment.
A combined Zurich/Royal & Sun would increase Zurich's British non-life market share to 17.9 per cent from 8.8 per cent and make it Britain's largest property and casualty insurer.
Zurich was reported to want an agreed deal and would offer current Royal & Sun chief executive Mr Bob Mendelsohn the role as head of non-life insurance in the merged group.
European analysts also said such a deal would make sense and Zurich Allied, the Swiss-listed arm of Zurich Financial, firmed in Swiss trade this week.
Analysts said Zurich Financial's and Royal & Sun's operations would be complementary in continental Europe and Scandinavia, while a joint approach would help Zurich Financial, one of the world's largest insurers, make a bigger dent in the US market.
Royal & Sun has substantial US operations, particularly since the acquisition this year of property and casualty insurer Orion Capital for $1.4 billion (€1.4 billion), which would add to Zurich's Farmers, which is the third largest property and casualty operator in the US.
A combined Royal & SunZurich group would have annual premium income of more than $50 billion worldwide, lifting it above Axa's $46 billion to become Europe's largest insurer.
A combination of the group's funds under management would also lift Zurich's current $423 billion to $515 billion and boost it into the world's top 10 fund managers.
