The Royal Bank of Scotland (RBS) and Winterthur, the insurance arm of the Credit Suisse Group (CSG), have concluded a deal for RBS to acquire Churchill Insurance, CSG’s principle U.K. general insurance division, for £1.1 billion ($1.817 billion).
The acquisition places RBS, which already owns Direct Line, the highly successful seller of directly written automobile coverage, as the U.K.’s third largest general insurer. Only Aviva (Ex CGU-Norwich Union) and Royal & SunAlliance are larger. RBS became the U.K.’s second largest bank, behind HSBC, in 2000 when it acquired National Westminster Bank.
Most analysts hailed the acquisition as a “good move” for RBS at a reasonable price, around 18 times 2002 pretax earnings. Churchill reported premium income of £1.6 billion ($2.64 billion) last year and made an £86 million ($142 million) pretax profit. It has net assets of around £700 million (1.156 billion), and employs over 8500 people.
Analysts also indicated that Churchill, which specializes in homeowners insurance, but also owns NIG, a network of some 5000 brokers that sell commercial coverage, will complement RBS Direct Line, and will also produce significant cost savings. RBS said it intends to keep the two brands separate, but will integrate back office functions.
The deal also releases additional capital for Winterthur, which has been struggling in the face of lower investment returns, falling equity values and increasing reserve requirements. It has already sold off several other units, and recently announced plans to restructure its operations in Germany, Italy Spain and Belgium, by combining its P/C and life insurance operations.
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