Aviva says buying insurance arm of RBS 'would not make sense'

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The Independent Online

Aviva, Britain's biggest insurer, has ruled itself out of the running to buy Royal Bank of Scotland's general insurance division, leaving the way open for overseas insurers or buyout firms to snap up the business, which includes Direct Line and Churchill.

Philip Scott, Aviva's finance director, said that any deal above a bargain price would not make sense for Aviva, which already owns Norwich Union and the RAC in the UK. "We can do all the business we want to do in the UK market under those brands," Mr Scott said. "It wouldn't make economic sense for us to think in terms of buying additional brands in the marketplace, which require continual investment, to compete with ourselves."

Mr Scott said that everything had a price, but that private-equity firms or foreign insurers looking to expand in the UK would be willing to pay more than Aviva would consider. No other UK insurance group is thought to have the firepower to countenance a bid.

Goldman Sachs and Merrill Lynch are working on a prospectus for the business, to be sent out next month. Excluding joint ventures with Tesco and in Spain, the business is valued at between £6bn and £8bn.

RBS is putting the business, which also includes Privilege, up for sale as part of its capital-raising effort. The bank wants to add about £4bn to its capital through disposals, which could also include its Angel Trains rolling-stock leasing company.

Announcing RBS's massive £12bn rights issue last week, Sir Fred Goodwin, the chief executive, insisted that RBS would not sell any assets for a knock-down price. He added that RBS received about one call a month from prospective buyers of the insurance business.

Insurers in the frame are understood to include AIG of the US, Generali of Italy and Germany's Allianz. Private equity firms such as Kohlberg Kravis Roberts, Apax and Cinven may also be considering a bid.

Mike Trippitt, banking analyst at Oriel Securities, said: "My gut feeling is that it will attract a lot of interest, either for consolidation or market entry. I'm slightly perplexed about RBS's decision to sell it. They seem to be allowing their capital position to drive their business strategy."

Sir Fred said on Tuesday that RBS had decided tosell partly because it was now focusing more on commercial banking after the acquisition of ABN Amro. RBS Insurance mighteven benefit from a change in ownership, he added.

Direct Line's products include motor, travel and home insurance. Sir Fred added to the business by buying Churchill for £1.1bn in 2003.

The UK general insurance market is highly competitive and is operating on thin margins. Aviva said yesterday that it was prepared to let business volumes slip to protect its margins in a tough market.

Aviva said yesterday that it was ahead of forecasts with a 5 per cent rise in first-quarter sales, helped by growth in the US and Asia, but warned economic uncertainty had hit life and pension sales in the UK and western Europe.

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