Market conditions have further deteriorated and the credit drought is likely to be much more prolonged than previously thought. It is now appropriate to batten down the hatches, strengthen the fortifications and prepare for a long siege. A plea from the Chancellor to banks for lower interest rates and leniency towards customers with mortgage problems, fell on deaf ears, despite the huge sums of our money the government is prepared to lend them.
Royal Bank of Scotland (RBS) is seeking £12 billion of new equity, a figure unprecedented in Britain, twice the size of the previous biggest rights issue. It would have been even bigger, presumably, had RBS not chosen to auction off some plum assets, such as its Direct Line insurance business.
Latest news is that RBS is auctioning off the insurance arm. The sale would appease annoyed shareholders and would also be in line with the group’s strategy of focusing on its core banking businesses.
RBS Insurance includes brands such as Churchill, Direct Line, Green Flag, Privilege, NIG, Nat West Insurance, and the personal finance venture with supermarket giant Tesco.
The list of potential buyers is getting longer by the day, although some insurers would have problems convincing competition authorities that their bid does not have problems such as giving them too big a share of the home or motor market.
AIG, Allianz, Axa, Generali, Aviva and Zurich have all been mentioned as potential buyers interested in what is probably the last major opportunity to acquire a key share of the UK market.
Hot favourite is AIG, where there are no competition problems, they want a major share of the personal lines market, and they have the funds. Compared to most other insurers, AIG works with a very slimmed down management structure, and has a ruthless attitude to unprofitable products, so they probably see more fat to trim in the RBS insurance business than others.
Although Direct Line and other insurers in the group are in life, travel and personal accident, their only link to PMI is their share in the Tesco banking and insurance business. Rumours suggest that Tesco, who are very hard bargainers, could buy out their partners at a deeply discounted price – which would allow them to solve the problem of using a single insurer that Tesco has found less competitive on price than it likes.
Life insurance: News update: April 2008