Takeover interest revives in Lloyds’ insurance arm

LONDON/ZURICH: UK bank Lloyds faces renewed interest in its Scottish Widows insurance arm, with bidders potentially flushed out after two European insurers were reported to have pitched a bid for the business. A British newspaper said Lloyds had received and rejected a joint offer for Scottish Widows from Axa and Swiss Re, worth about £8bn ($14.8bn).

UK closed life insurer Resolution Life said on Monday it would be interested in buying Widows if it was for sale, and the business could attract interest from elsewhere after turning around its fortunes in the last two years. A spokesman for Resolution said, “We would pursue it if it were put up for sale but our understanding is that Scottish Widows is not for sale, which is why we have not pursued it.” He said Resolution had not made a formal offer. Lloyds declined to comment, as did Swiss Re and Axa.

Analysts said they would be surprised if the unit were sold as it is key to Lloyds’ stated strategy, but a bid near £10bn could be hard to resist and also increase the likelihood of a takeover for a slimmed-down Lloyds.
“They’d have some questions to answer on the strategy side if they did (sell it), but everything has its price,” said Ian Poulter, bank analyst at Teather & Greenwood.

“The management has gone through some tough times with it and now it’s starting to return capital to the group it seems a bit unfortunate they are now constantly being asked if they are going to sell it,” he added. Lloyds shares rallied to 595.5 pence, their highest level for seven months and just below a four-year high of 596.

Lloyds, Britain’s fifth biggest bank, has been widely rumoured to be a potential target, possibly for a big US bank such as Citigroup or Bank of America. Sluggish revenue growth in recent years has left it vulnerable to a predator looking for a strong UK bank franchise, analysts say.

Dealers said a 4% rally by Lloyds shares on Friday was fuelled largely by sale and takeover speculation. Lloyds chairman Victor Blank said in August a sale of Widows was not on the agenda and that the bancassurance model was a core part of strategy. Lloyds bought Widows for £6.7bn in 2000 and its fortunes have turned around after a tough few years following a stock market collapse.

Profits at the unit rose 12% last year to £601m as it focused on more profitable and less capital intensive business. The improvement accelerated in the first half of this year, when sales jumped 35% and Lloyds said the unit will pay about £400m pounds to its parent group.

A report said under the proposed deal Swiss Re would take on board the UK firm’s closed life funds, while Axa would take control of most of Scottish Widows, including its new business and fund management arms. The proposal was put to the Lloyds board last week, but was rejected, although insurers may return with a higher offer, the newspaper said.

On Friday, Swiss Re bought the GE Life business of US conglomerate General Electric for £465m, adding to its Admin Re business in which it buys closed life insurance portfolios and administers them.

CFO Ann Godbehere in August told reporters that Swiss Re would enter more such deals in the not too distant future, after a period of more than a year in which the group made no major acquisition in the field.