Following the explosions in Tianjin last month, Zurich Insurance has abandoned their plan to acquire British insurance group RSA for £5.6 billion. The abandonment is due to a predicted $200 million loss after the blasts, and has resulted in RSA shares falling by 21%.
Zurich says it will now focus on its own general insurance business rather than buying RSA. Shares in RSA have been held up in recent months due to the expectations of Zurich’s takeover, but have now deceased by 403.5p in the wake of this announcement.
Zurich said that with the “recent deterioration in the trading performance in the group’s general insurance business, Zurich … has terminated its discussions in connection with a possible offer for RSA.”
They continued, stating, “The group’s focus instead will be on taking the necessary actions to deliver on the required performance.”
After the Tianjin explosions, Zurich announced losses of around $275 million, though their total cost had not been finalized. In addition to this loss, predictions show that there will likely be a loss of $300 million during the third quarter.
“Given the deterioration in profitability … General Insurance CEO Kristof Terryn is conducting an in-depth review of the business,” Zurich said.
The explosions in Tianjin earlier this summer were caused due to shortcuts made by a chemical company. Mobile storage containers had larger quotas of chemical products in them than allowed by regulations, which caused the blasts.
The two explosions took out many of the buildings in the port city, and the area is now being monitored for radiation levels. It will likely take years to build the city back up to where it once was.
Meanwhile, Zurich says it remains committed to hitting their financial goals through 2016. Their goals are a post-tax return on equity of 12 to 14%. They also expect to have weaker profitability than they originally expected due to the blasts, which will continue through the third quarter.
RSA’s chief executive, Stephen Hester, was predicted to leave RSA with more than £8.5 million if they had kept the deal with Zurich. That figure comes from the fact that, had the deal gone through, Hester would have been paid his salary totaling £950,000 coupled with a bonus of about the same. In addition, he owns 1.36 million performance-related shares in the company, which total around £7.5 million and would be paid out once the deal was done.