Analysis: RSA Heading For International Waters, Not Choppy UK Seas

The acquisition of MoreThan by Admiral highlights a couple of trends across the UK insurance sector.

First, it’s becoming harder for smaller to medium sized brands to standalone, as the big three comparison sites dominate the car and home cover segments. A well known brand name does mean something when online shoppers scroll through the list of quotes, but only if that brand is seen as competitive value too. Two decades of switching insurers at renewal time in the UK has also watered down any consumer loyalty that once underpinned great names like Norwich Union (now Aviva) or the “Man from the Pru.”

Yep, there was once a whole army of men in suits – plus a few women – walking the streets of Britain, with briefcases full of weekly Life and Funeral Plan premiums. But loyalty doesn’t mean much in the digital age and whether RSA or Admiral own’s the MoreThan brand name, it will struggle to find a distinct identity in a crowded insurance market.

Secondly, the move was well flagged in advance when Intact Financial and Tryg agreed a deal to buy Admiral back in March 2020 for over £7 billion. The press statements and reporting at the time made it clear that some kind of major restructure would follow, with pieces of Admiral’s operations potentially being sold off. RSA announced its exit from Personal Lines back in March 2023.

GLOBAL STRATEGY

What does that repositioning of the RSA Group as an international brand, rather than something focused on the UK, mean in the longer term? Like many big insurers RSA needs to think global. The UK is a relatively large economy but it’s a minnow compared to say India, where the growth in Life and Healthcare cover is potetntially huge, as the old restrictions set by IRDAI (the regulator) are gradually dismantled, plus the population embraces digital cover and rejects the local version of the Man From The Pru.

RSA has already bought Direct Line’s Commercial Lines broker operation and it’s likely that more Commercial and Property cover opportunities both here and overseas will interest RSA in future. When you look at the costs involved in Motor by say 2030; large online marketing budget, in-house claims handling, expensive vehicle storage and salvage disposal in a high wage economy, it makes sense to look elsewhere for opportunities. Insuring assets like property requires less marketing push, or outspending the competition in terms of Motor claims handling and constantly managing the volatile values of used cars as the UK transitions – badly – to battery powered cars and vans using potholed, semi gridlocked roads.

CHOPPY WATERS AHEAD

The UK – along with the EU and North America – is also heading into a well organised recession as millions of migrants arrive in developed economies, infrastructure collapses and more climate change taxation gradually bankrupts millions of household budgets. At the same time billions in aid/loans is being given away to developing nations and to fight endless wars like the Ukraine or Gaza conflicts, which boosts debt vs GDP and downgrades international credit rating, thus forcing up the costs of government borrowing.

It’s a perfect storm of structural economic and political problems, regardless of which party or coalition is nominally in power. The net result of Net Zero is poverty for the majority by 2030, so expect the Motor sector decline and margins to shrink. IE expects many insurers to exit the wider car insurance market, not just EVs and luxury vehicles being targeted by professional gangs of thieves. The whole concept of ownership itself is being swept away by globalists in Western economies, so there is a bigger opportunity in insuring vehicles in India, the Middle East or even Russia, long term. Some countries will always embrace the idea of ownership of assets; land, property, cars, infrastructure and businesses. Plus HNW individuals are already amassing portfolios of properties and land holdings where they can relocate themselves, and assets like art, cars, holding companies etc. in the event of social collapse, war or civil unrest in their current home country. Those global holdings require global insurance solutions, of course.

It would also make sense for RSA to invest in data platform specialist companies, which can offer bigger brands an edge in understanding complex patterns or flows of data, across regions and different insurance policy books. This is where AI analysis of cross-referenced patterns, or touchpoints can really pay of as a competitive advantge. Potentially.

Interesting times ahead.

Here’s the word from Admiral yesterday;

Admiral Group plc (“Admiral”) announces that it has reached an agreement to acquire the UK direct Home and Pet personal lines insurance operations of RSA Insurance Group Limited (“RSA”). The consideration payable at completion is £82.5 million, with a further potential payment of up to £32.5 million depending on the number of policies successfully migrated to Admiral.

The acquisition is closely aligned to Admiral’s strategy to diversify its product offering and build multi-product customer relationships in its core markets. It will strengthen Admiral’s home business and accelerate its direct pet proposition launched in 2022. The transaction will see Admiral welcome c.300 new colleagues as well as the transfer of the renewal rights and the “MORE THAN” brand. Policies are expected to start renewing from Q3 2024. This acquisition does not include liabilities relating to existing policies, which will remain with RSA.

RSA’s direct UK Home and Pet personal lines operations generated c.£165 million of gross written premiums in 2022.

The transaction is expected to complete in Q2 2024 and will be funded through existing resources and credit facilities. The estimated pro forma Group’s Solvency II ratio at completion would remain well in excess of target levels.

Barclays is acting as financial adviser and Clifford Chance is acting as legal adviser to Admiral Group in connection with the Transaction.