Private equity house bidding for 51% stake with Swiss Re ‘would be looking to float’.
RBS Insurance (RBSI) could be floated on the stock market within five years if the joint bid from private equity giant CVC and Swiss Re for 51% of the business succeeds, sources said this week.
The Royal Bank of Scotland’s insurance arm, owner of brands such as Direct Line, Churchill and NIG, is believed to be in advanced talks with CVC and Swiss Re, which are eyeing a majority stake for a reported price of more than £3bn.
This values the business, which is the UK’s third largest insurer, at about £6bn, £1bn less than the bank’s initial price tag.
RBSI has been on the market since May. Private equity was initially excluded from the auction but CVC was allowed to bid after a number of potential trade buyers, including Zurich and AIG, pulled out.
Allstate, the American insurance company, is understood to be the only trade buyer that submitted a bid.
The CVC bid is being led by Fred Watt, formerly chief financial officer at the bank, who joined the private equity house last year.
The structure of the deal between CVC and Swiss Re is not clear. Market sources speculated that Swiss Re saw the deal as a route to transacting more primary insurance business, and that it might offer reinsurance to RBSI at preferential terms in exchange for guaranteed business.
One source said: “I would have thought RBSI management would be excited at the prospect of this deal. For that kind of deal to work, it would need management incentives, they would need some sort of buy-in.
“I expect CVC would be looking to float the business in three to five years and management would have some sort of stake in that.”
RBS, CVC and Swiss Re declined to comment. Last week, an RBS spokesman confirmed that RBSI was still on the market following the bank’s £20bn government bail-out, and said it was in were “advanced discussions with a couple of interested parties”.
CVC also has a 21% stake in the merged AA and Saga.