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Royal and Sun Alliance nabs Norwich
Sunday 8th of March 1998
Royal and Sun Alliance (RSA), as expected, has nabbed Norwich Union's life and fund management businesses. What was not expected though was the price - $153.4 million.
After Norwich announced last year that it was reviewing the two businesses commentators placed a price tag of between $100 million and $120 million on the assets.
The main reason for the price achieved, which Royal and Sun Alliance managing director Tim Sole describes as a good deal, is that Norwich had a large amount of free assets which were subject to a covenant.
Besides buying the business the purchaser also had to pay for these free assets.
The free assets result from a move by Norwich's United Kingdom parent company to, in 1993, demutualise and domesticate its foreign operations. That is the business in New Zealand became a stand-alone operation instead of a branch office.
That involved the parent company injecting $72 million into the new company. Of that money $37 million went into shareholders' funds and $35 million went into policyholders' funds.
Consequently free assets rose to more than $100 million and they have continued to grow. The covenant restricted the New Zealand company paying dividends that would reduce free assets below the $100 million mark.
The sale, which was announced on Friday, moves RSA from being a middle sized player to a big one, Sole says, as it now has $1.5 billion under management.
Before the acquisition RSA managed in total about $800 million. While it picks up Norwich's $1 billion, only $770 of that will it retain.
The remaining $300 million is money Norwich managed for its associated fire and general business State Insurance.
Norwich keeps State and will make new arrangements for management of this $300 million.
On the risk side RSA jumps one place (over Sovereign) in market share to become the fifth largest player in New Zealand with about 8 per cent.
RSA has about 150,000 policies compared to Norwich's 65,000.
Good Returns understands Guardian Assurance was the underbidder.
Why Norwich was so attractive to Royal and Sun Alliance
After Norwich announced last year that it was reviewing the two businesses commentators placed a price tag of between $100 million and $120 million on the assets.
The main reason for the price achieved, which Royal and Sun Alliance managing director Tim Sole describes as a good deal, is that Norwich had a large amount of free assets which were subject to a covenant.
Besides buying the business the purchaser also had to pay for these free assets.
The free assets result from a move by Norwich's United Kingdom parent company to, in 1993, demutualise and domesticate its foreign operations. That is the business in New Zealand became a stand-alone operation instead of a branch office.
That involved the parent company injecting $72 million into the new company. Of that money $37 million went into shareholders' funds and $35 million went into policyholders' funds.
Consequently free assets rose to more than $100 million and they have continued to grow. The covenant restricted the New Zealand company paying dividends that would reduce free assets below the $100 million mark.
The sale, which was announced on Friday, moves RSA from being a middle sized player to a big one, Sole says, as it now has $1.5 billion under management.
Before the acquisition RSA managed in total about $800 million. While it picks up Norwich's $1 billion, only $770 of that will it retain.
The remaining $300 million is money Norwich managed for its associated fire and general business State Insurance.
Norwich keeps State and will make new arrangements for management of this $300 million.
On the risk side RSA jumps one place (over Sovereign) in market share to become the fifth largest player in New Zealand with about 8 per cent.
RSA has about 150,000 policies compared to Norwich's 65,000.
Good Returns understands Guardian Assurance was the underbidder.
Why Norwich was so attractive to Royal and Sun Alliance
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