Aviva, the insurer formed out of brands including Norwich Union and Commercial Union, has turned down a £5bn offer from one of its rivals for its general insurance unit, it emerged yesterday.
Insurance sector insiders said RSA had approached Aviva with the offer, for its general insurance businesses in the UK, Ireland and Canada.
Until now, Aviva's strategy has been to operate both life and general insurance businesses. RSA, by contrast, is focused only on general insurance and is keen to expand.
The proposal was made in a letter from John Napier, the chairman of RSA, to Lord Sharman, chairman of Aviva, but was swiftly rebuffed.
A deal of this size would accelerate RSA's expansion plans and would have required the company to turn to investors for funds. However, Andy Haste, the company's chief executive, is respected in the City for having pulled off a string of small and medium-sized acquisitions, though the Aviva purchase would have been almost 10 times bigger than any previous deal.
Mr Haste also has the benefit of having already consulted shareholders about their willingness to participate in a fundraising. The idea was discussed last year amid speculation that RSA planned to bid for a string of businesses, including units of the Spanish bank Santander.
While insiders say there are no ongoing talks between the companies, Aviva shares rose sharply yesterday on speculation that RSA might return to the table with a more substantial offer. The company was 5.5 per cent up at 383p. It is also possible that another bidder could emerge.
It is thought that RSA has yet to rule out another offer, though the £5bn already tabled would represent a generous price. The earnings of the businesses in play are around £500m a year, implying a multiple of 10 times', while previous deals in the sector have typically been priced at seven or eight times' earnings.
The mooted deal underlines the febrile atmosphere in the insurance sector just now, which is undergoing another wave of consolidation. Resolution, the insurance acquisition vehicle for the industry, has just completed a £2.75bn deal to buy the UK life operations of France's Axa, and is thought to be closing in on another target.
Both Aviva and RSA declined to comment yesterday.