Two UK insurance giants to merge

LONDON, FEB 25: Two of Britain's major insurance groups, General Accident Plc and Commercial Union Plc, announced a merger on Wednesday whic...

int(2)

LONDON, FEB 25: Two of Britain’s major insurance groups, General Accident Plc and Commercial Union Plc, announced a merger on Wednesday which would create a group with combined net premiums of more than 15 billion pounds ($ 24.8 billion).

With a market capitalisation of $ 24.6 billion, the new group places itself in ninth position on the table of European insurance industry headed by Allianz of Germany at $ 75 billion. It will be the third British group after Prudential and Royal & Sun Alliance Insurance Group Plc to break into Europe’s club of top 10 insurance groups in terms of market capitalisation. The merging groups have named their venture CGU and it will be Britain’s largest broad-based insurance group, dealing in both life and general insurance segments. The group’s life insurance business would represent 42 per cent of its net written premiums, while the rest would cover 58 per cent. The group will be UK’s fifth largest life insurer and second largest general insurer after Royal & Sun.

CGU wouldhave operations in continental Europe, North America, Asia-Pacific with around 100 billion pounds under management in around 40 countries.Commercial Union shareholders will retain their shares, while General Accident shareholders will get 1,233 new CGU shares for every 1,000 held.

Story continues below this ad

After the merger, Commercial Union shareholders will control 53.6 per cent, while General Accident shareholders would have 46.4 per cent in the enlarged group.

The combination’s proforma pre-tax operating profits stood at 962 million pounds, based on 1997 results.

It is expected to reduce its pre-tax cost base by at least 225 million pounds per annum, within 24 months of the completion of the merger. Of these savings, 45 per cent is expected to arise in the UK, 30 per cent in the US, while the balance would be in rest of the world.

Both companies have a combined work force of 53,000, of which 5,000 jobs will go, 3000 of them in the UK. Cost savings will also come from reductions in property and information technologycosts.

Story continues below this ad

Both companies are expected to drive home their strengths in life insurance following economic integration of Europe with most countries in the continent reducing expenditure on pension needs of individuals.

Apart from UK, Commercial Union’s life business includes operations in France, Netherlands, Italy and Poland. The group is also negotiating the purchase of German group Berlinische Lebensversicherung AG, one of Germany’s top 30 life assurers.

CGU’s general insurance business would build on General Accident’s branch network which makes it the second largest general insurer in the UK. It is strong in both personal and commercial lines and is also among the top 30 of 2,700 property and casualty insurance groups in the US. CGU would inherit Commercial Unions’ new forays into several emerging markets, some of them considered potentially larger than existing ones. Commercial Union already has established businesses in Singapore, Hong Kong, Thailand and in Malaysia. It has started operations inTurkey and Indonesia and has identified partners and connections in India and China, two most populous countries in the world.

General Accident is the second largest insurer in New Zealand and is among the top 10 in Australia, Hong Kong and Malaysia.