Shares in British insurance group RSA have slumped 21% after rival Zurich abandoned its proposed £5.6bn bid for the business as it forecast a $200m (£130m) loss due to explosions at the Chinese port of Tianjin.
Instead of buying RSA in a proposed transaction first announced in July, Zurich will focus on improving performance of its general insurance business, the Swiss group said. Shares in RSA, buoyed over the past few months by the takeover discussions, slumped by more than 100p to 403.5p in early trading.
With “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,” Zurich said.
“The group’s focus instead will be on taking the necessary actions to deliver on the required performance.”
Zurich announced aggregate losses of about $275m after the explosions at a container storage station in China. It said the final cost was uncertain. The insurer also said recently completed reserve reviews show a likely negative impact of about $300m in the third quarter for its US car activities and other lines of business.
“Given the deterioration in profitability … General Insurance CEO Kristof Terryn is conducting an in-depth review of the business,” Zurich said.
The insurer said it remained committed to achieving its financial targets for 2014 to 2016 of an post-tax return on equity from operating profit of between 12% and 14%.
In addition to claims relating to the Tianjin port explosions, Zurich said it expected weaker-than-expected profitability in general insurance in the first half of 2015 to continue into the third quarter.
Stephen Hester, the chief executive of RSA Insurance, was in line to leave the company with more than £8.5m if the deal had gone ahead.
Hester has 1.36m performance-related shares in RSA worth £7.5m that were likely to have paid out if a deal had been done. He also would have been paid his £950,000 salary and could have received a bonus worth a similar amount.