RSA’s attempt to buy Aviva’s general insurance business is about building a dominant market share, not acquiring brands with strong equity, say observers.
The company, previously known as Royal & Sun Alliance, is said to be considering its next move after Aviva’s board rejected a £5bn bid earlier this month.
A successful acquisition would have provided RSA with 20% of the UK general insurance market.
Aviva is the UK’s market leader in general insurance with an estimated market share of 13%. RSA has a 6.6% share and is second in commercial property insurance and fourth in household and motor insurance.
Chris Skinner, chief executive of financial services consultancy Balatro, says RSA’s interest in Aviva is motivated not by the strength of its brands but about achieving a dominant market position.
He adds that consolidation in the general insurance market takes place on some level every five to seven years and has rarely got anything to do with acquisition of strong brands.
“The insurance market doesn’t understand branding. Why did Aviva dump one of the oldest financial services brands in the UK in Norwich Union? Strong brands have been wrapped up in mergers.”
Aviva has spent heavily on building awareness of its brand since rebranding from Norwich Union in the UK last year.
It launched advertisements featuring Bruce Willis and Elle Macpherson to highlight the name change and has since launched a series of campaigns starring comedian Paul Whitehouse to highlight the products it offers, including insurance.
Nick Gill, planning director at advertising agency DCH, who has worked with Direct Line and Privilege on acquisition, says although the rebrand campaign has been successful in raising brand awareness, the Aviva brand does not have the same equity in the UK as it does elsewhere.
“For RSA it is about market share. Aviva would be a feather in its cap, but the number one spot in UK general insurance would be a bigger and more colourful feather.”
Aviva says the matter is over and that its general insurance businesses in the UK, Ireland and Canada are not for sale. “The board of Aviva considered the proposal carefully in conjunction with its advisers and is convinced that the highest value to shareholders will be delivered by retaining these businesses within the group,” it adds.
Reports say that RSA hopes 40% of its investors who hold stakes in Aviva will put pressure on its board to open negotiations on a deal.