Blog: What the Oak acquisition means for RSA, Zurich and the wider market

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Jonathan Swift looks at whether RSA selling Oak Underwriting to Zurich is going to trigger a bolt-on bonanza - and if it really equates to Manchester United selling Carlos Tevez to Manchester City.

Yesterday I saw three words in a headline that I thought I’d not see again for a long time, if ever, based on recent past history.

I am talking about “Zurich”, “buy” and “RSA”.

Of course the story was not some throwback to 2015 and a revised push by the Swiss insurer to acquire its UK headquartered counterpart. An aborted deal that since has seen the two players go down different paths with Zurich slashing 8000 roles soon after and appointing new CEOat group and UK board levels; whilst RSA recently unveiled a record underwriting profit of £394m.

No, it was the news that RSA had sold its high net worth specialist managing agent Oak Underwriting to Zurich a move that triggered me to ponder a trio of take homes.

Competitors selling to rivals – it’s like Carlos Tevez, but in insurance

It would seem “bolt-on” deals could be flavour of the month again, with Aviva recently speaking of a £600m war chest – the type that would not buy you an XL Catlin, but could get you a decent specialist MGA to integrate. I suspect brokers are not so much in demand when it comes to insurer M&A..

But two major top five UK general insurance players doing a deal with each other? In footballing parlance that is like Manchester United selling to Manchester City. It happens; but not very often, and when it does it raises eyebrows.

The deal might make sense for both parties, but this struck me as an unusual.

RSA – broker personal lines isn’t what it once was to the insurer

In 2015 RSA pulled out of personal lines broker, and as a consequence questions have since been asked about RSA’s other intermediated non-commercial interests including Oak – a business it only acquired in 2011.

Of course it still owns More Than – which this week was unveiled as sponsor of ITV’s prime dramas, and partnered with Nationwide on a household deal that indicates that RSA still sees a bright future in growing personal lines; it just isn’t through brokers.

And to think ten years ago RSA proudly boasted it was a top three player in broker home and motor.

While for Zurich the wealthy are more attractive than millennials - or are they?

Of course Zurich divested of one of its own recent purchases recently with the sale of Endsleigh to A-Plan.

In announcing the Oak deal, David White, head of retail at Zurich UK, said: “This deal broadens our distribution capabilities and enhances our regional footprint. We are confident the combined strengths of our businesses will create a market leading high net-worth proposition, focusing on high levels of service and depth of broker relationships.”

This would indicate that Zurich sees a lot more value in the high net worth market – populated by wealthy and more mature policyholders – than the student one – populated by those pesky connected millennials.

Both are highly coveted audiences, and competition is fierce for both. But Zurich seems to have concluded the HNW crowd is easier to win over; and the premiums are likely to be bigger, which helps – at least in the short-to-mid term.

Alternatively, Zurich might have decided Endsleigh, with its past in brick and mortar branches and the NUS ownership, had a legacy that held it back from being a fully functional digital player that spoke to its target market; and will instead continue to invest in its Innovation Foundry and businesses like Laka, that it might think speak better to this audience.

The long and short of this is that I suspect we will see a fair few more bolt-on deals before the end of the year; deals which will help crystallise brokers’ views of where their insurer partners are going, and the markets they see as providing the best return on their investment. 

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