Aegon has ceased talks with Royal SunAlliance over buying its life assurance division
The chances of Royal SunAlliance (RSA) finding a buyer for its life assurance business have diminished with the decision of Dutch financial services group Aegon to walk away from talks.
The present condition of the global economy and outlook for equities has forced Aegon to reconsider. It was already sensitive to criticism after the controversial purchase last year of the direct marketing arm of JC Penny, the US retailer, for £890m.
These events leave RSA with no trade buyers in talks at present for the £1bn life business. Previous talks with potential buyers included GE Capital, the financial arm of the giant US conglomerate General Electric.
In August, Bob Mendelsohn, RSA's chief executive, said: 'As we disclosed earlier this year, work has been underway to release capital from our life business, with the intention of reinvesting it in the growth opportunities that we see in general insurance for some years to come. We said at the time we would consider all options including reinsurance and securitisation and that it could entail the sale of all or part of life operations.'
Events since 11 September have not helped matters. The value of RSA's life division in December 2000 was £1.77bn, but is estimated now to have fallen in line with the 20% drop in equity markets this year. RSA's assessment of its total exposure to the attacks is low at £150m, but has, never the less, affected its share price.
As a result, the argument for releasing value in the life business has become stronger. Gordon Aitken, analyst at Credit Suisse First Boston, said: 'We forecast that demand for non-life insurance will increase following the World Trade Center disaster as individuals and companies are less likely to self-insure and become less resistant to large price increases.
'However, growth may be constrained by limited supply. At current market levels only a finite level of capital is available. We believe that RSA will benefit from improved underwriting conditions, but its balance sheet may inhibit the company from fully realising its upside.'
