RSA valued at A$2 billion plus

Royal & SunAlliance Asia Pacific, which is currently in the process of preparing itself for an IPO, is likely to have a value of around A$2.1 billion.

The jewel in the crown of its business is the direct general operations in Australia (AAMI and AAI) which has a value of about A$1.7 billion. Life insurance and funds management are valued at about A$600 million while the mix of businesses in Asia have a collective value of less minus A$200 million.

Brokers expect it will be hard to sell the company in the current market. Adding to the difficulties is the poor performance of shares in other listed insurers and fund managers.

One analyst suggests that RSA's UK-based parent company would still prefer a trade sale, as an IPO is unlikely to realise full value for the assets.

There has been some speculation that RSA may now be interested in trying to acquire Tower following the shock announcement of a loss last year and a collapse in its share price. However, brokers say that it is highly unlikely that this would happen.

(Earlier, before Tower ran into trouble, there was speculation it wanted to buy RSA, or some of its assets).

Merrill Lynch says it's unlikely an Australian organisation would buy RSA in a trade sale, and the most likely acquirer would be a North American non-life insurer.

The broker says that on a normalised basis (implying an average year for investment returns), RSA's Australian and New Zealand operations would roughly generate A$160 million to A$180 million. That implied a price to earnings ratio of 11 to 12 times and a price to net assets of 1.34 times.

While the general insurance business is good, it says that the life business was heavily exposed to the disability insurance market, which has proved a difficult market for all Australian life insurers in recent years.

On the funds management side RSA's two businesses are Tyndall in Australia and New Zealand Guardian Trust Funds Management in New Zealand. It says that Tyndall's good recent investment performance had not translated into funds flow.

RSA has not yet disclosed which assets will be included in the IPO, or how much of the business it will retain. The intention to do an IPO was announced in November and it is expected to go ahead in the first half of this year.

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