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LONDON (Alliance News) - Specialist insurer Chesnara PLC said Thursday its purchase of Legal & General PLC's Dutch business will give it a platform to take its insurance consolidation strategy to the Netherlands, with more acquisitions in mind.
Chesnara said the EUR160 million acquisition of L&G Nederland, which is still issuing policies, will complement its existing closed-book Dutch business Waard Group, which it bought in 2015.
L&G's Dutch operation had 170,600 policies at June 30, with a total of EUR2.2 billion in assets under management, and Chesnara said that the operational scale the purchase provides will offer it better prospects for further acquisitions in the Netherlands.
Chesnara said intends to build up an "appropriately targeted and profitable product offering", with a focus on profitability over sales volume, comparing the purchase to its Swedish subsidiary, Movestic, which it said has been profitable on "realistic" market share.
Other attractions include the strong capital position of the L&G business, which reported a Solvency II capital ratio, a measure of financial resilience for insurers, of 219% at June 30. Chesnara said the acquisition should be a absolute positive for its own capital ratio, which stood at 148% at June 30.
"This together with the fact that Legal & General Nederland is a profitable business results in the potential for phased, orderly capital extraction," noted Chesnara.
The EUR160 million cash price for the business is a 33% discount to its economic value, according to Chesnara's estimates. However the price tag is still hefty enough to require Chesnara, which has a GBP417.1 million market cap, to turn to a substantial share placing to part-finance the deal.
Chesnara said that it intends a placing and open offer to raise a total of approximately GBP70 million to part-fund the acquisition, at an issue price of 300 pence per share.
The new issuance is at a small discount to Chesnara's share price at the close of trading on Wednesday of 309p, but the market reacted positively to the acquisition plans, with Chesnara shares up 7.1% at 331.00p Thursday.
Chesnara also is arranging new debt facilities of GBP100.2 million with The Royal Bank of Scotland PLC. Part of those facilities will go towards refinancing the company's existing GBP52.8 million debt and some on financing the acquisition, in combination with existing cash reserves.
"Chesnara is delighted to be acquiring another well-run and attractive business in the Dutch life assurance market. As with our Swedish subsidiary Movestic, we will be writing protection and pension new business. This will complement our closed book consolidation business Waard. We see great opportunities for both organisations within the Chesnara group to deliver value to our customers, their advisors and our shareholders," said John Deane, chief executive of Chesnara.
L&G shares were up 0.5% at 235.93 Thursday.
By Adam Clark; adamclark@alliancenews.com
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