Shares in RSA Insurance (RSA) rose 14 per cent to 500p on news that Zurich Insurance is evaluating a potential offer for the FTSE 100 insurance company. RSA confirmed that it has not held any talks or received a proposal from Zurich yet. The group has a market capitalisation of £4.4bn, although there are suggestions that Zurich could launch a bid valuing RSA at £5.6bn; that's around 550p a share. Zurich is Europe's fourth largest insurer by market value, with a capitalisation of around £30bn.
RSA has struggled to make headway despite a restructuring plan, and since Stephen Hester was installed as chief executive to lead a recovery the shares have underperformed the FTSE non-life sector by 18 per cent. In the first quarter of this year, net premiums were up just 1 per cent, with premiums in the UK - which make up 40 per cent of group premium income - remaining soft across all major lines.
Crucially, lower interest rates have hit investment income, with the average book yield falling from 3.1 per cent a year to 3 per cent, with yields on the bond portfolio - some 85 per cent of the overall book - slipping from 3 per cent to 2.7 per cent. Furthermore, first-quarter profits were flattered by disposal gains of £109m.
Under UK takeover rules, the release of the statement means that Zurich has four weeks to make a firm offer and walk away.
