Simon Evans: Insurers circle their wagons as zombie goes on the prowl

Were the sector's results a good defence? Not really
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The Independent Online

You'd be forgiven for thinking that last week's results from Britain's life insurers read like one giant defence document.

With Clive Cowdery, the zombie fund entrepreneur, stalking the sector, insurers used their results to put the case forward for independence.

Not all were convincing.

After a disastrous set of results in March, which saw an effective run on the sector prompting tumbling stock values, insurance bosses went on the front foot, buoyed by a combination of improved, patched-up capital buffers and much higher share prices. These chief executives must be thankful that the regulator's investigation into Mr Cowdery's affairs, which surfaced around the same time as the results season but unearthed nothing, came when it did.

Surely one of them would have fallen into his clutches by now without the investigation. But that's one for the conspiracy theorists.

Taking Friends Provident out of the equation – there is now a certain inevitability that Resolution will win Friends – comments from Legal & General's chief executive, Tim Breedon, particularly interested me. Apparently, consolidation isn't for him, and he added that the life insurance sector isn't really one where economies of scale are easily derived.

This is the same Mr Breedon whose company Legal & General owns a near 5 per cent stake in Cowdery's Resolution, and whose raison d'être is the consolidation of the sector and the benefits. I assume that L&G, like the other shareholders in Resolution, such as Prudential and Aviva, have made the investments to make money?

Perhaps the split personality at L&G is catching, up the road at Aviva. Just last month, the chief executive Andrew Moss said the company had no plans to sell off any more assets after the sale of its Australian business. But last week, Mr Moss told us that Aviva was planning to float its Dutch business, Delta Lloyd, which could net it as much as £1.3bn. The money will be used as a war chest for acquisitions in the life insurance sector, an arena where Aviva has a great track record of putting firms together, said Mr Moss.

How Aviva must be kicking itself that it didn't take a pop at Friends Provident earlier, gatecrashing Mr Cowdery's plans. With a 7.6 per cent stake in Resolution – these cross-holdings are perplexing – at least Aviva has some exposure to the deal.

And then there's Standard Life.

The outgoing chief Sir Sandy Crombie told us that Standard Life, which owns 5 per cent of Resolution, was not a good fit with the rest of the sector, had no interest in consolidation and would merrily plough its own organic path. A defence – albeit a rather weak one.

Against the backdrop of this week's numbers, Mr Cowdery has remained quiet, but privately he must be concerned. Apparently he told trusted advisers that he expected a deal to be agreed by April. We are now in August and the clock is ticking.

Resolution tells us that there is no timeframe for acquisitions and there is no timeframe for funding commitments from its shareholders – Aviva, Standard Life, Legal & General etc.

Depending upon how soft these commitments are, is it possible we could see these shareholders renege on putting up cash?

And what price on there being a further fly in the ointment in the Resolution plan?

Last week, the rescuing of Pearl edged closer, with its takeover by Liberty, a Cayman-based group, slated for the last week of the month.

Conventional wisdom suggests that Pearl and its chief, Hugh Osmond, Mr Cowdery's sworn enemy, have been neutered beyond all recognition. I doubt it. I'm sure the banks that swapped a large chunk of their debt for equity in the business have suitably incentivised the old Pearl bunch with an option or two. I think the prospect of Mr Osmond crossing swords with his old enemy is a very real one. And what a battle that'll be.

Next week sees Friends Provident and Prudential deliver numbers to the market. Friends Provident has already made its defence case clear, but it'll be interesting to hear what the Pru, which still looks ripe for break-up, tells the market.

Rumours fly of a BAE old mates' reunion hosted by GKN

In all the excitement generated by Anglo-Aussie miner BHP Billiton snaffling former Ford boss Jac Nasser as its chairman, a very significant appointment elsewhere was largely overlooked last week.

Mike Turner, the former chief executive of defence giant BAE Systems, was appointed non-executive director at aerospace engineer GKN.

Ok, GKN doesn't have the prestige of an acquisitive Ftse-100 giant, but the announcement was worth more than a short article in the Birmingham Post and the odd news in brief in the nationals.

This is why: industry spies (what better term to use when discussing the defence industry?) believe that Turner is being lined up to become chairman. Although at 62 the incumbent, Roy Brown, is only two years older than Turner, he has held the post for more than half-a-decade.

Turner is also the bigger name, and remains one of aerospace's major players through his chairmanship of the Defence Industries Council, the sector's powerful lobbying group. However, he is otherwise only chairman of support services group Babcock International and non-executive director at Lazard and Art Properties UK.

For a man who ran one of Europe's biggest companies until last year, Turner is not exactly overburdened. Taking the chairmanship of a company that employs 40,000 people and is battling an £800m debt pile should get Turner's juices flowing.

So far, so speculative. But where the rumours gain weight is in the key personal relationship involved. GKN's chief executive is Turner's mate Sir Kevin Smith. Once tipped to succeed Turner at BAE, the duo rose through the company until Smith went to GKN in 1999.

Four years later, under Turner's stewardship, BAE poured £73m into GKN's coffers by purchasing its stake in tank builder Alvis. Who knows? As Turner and Smith grew from prodigies to stars together at BAE over 20 years, maybe they dreamt that one day they would work in tandem at the helm of a major corporate?

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