State Insurance up for sale

By RICHARD BRADDELL

State Insurance, New Zealand's largest personal insurer, has been put up for sale by its British owner, CGNU.

Clearance had previously been granted by the Commerce Commission for it to be merged with sister company New Zealand Insurance.

State and NZI are New Zealand's two largest insurance companies, each with 19 per cent of the market.

But CGNU said yesterday that after a review of the two businesses, it had decided that greater shareholder value could be generated by selling State rather than integrating it with NZI.

The sale is to be handled by merchant bank Morgan Stanley Dean Witter.

The two New Zealand insurers came into the same stable through the merger of their British parents, Norwich Union and CGU, in May. In September, CGNU's chief executive, Bob Scott, said it was possible State and NZI would remain separate entities since both had sufficient scale in their respective markets. While State is focused on personal business, NZI is stronger in the commercial market.

Norwich Union bought State from the Government for $736 million in 1990. But while it is estimated that State may now be worth no more than $400 million, the lower price to some degree reflects significant repayments of capital to the shareholders after the company was taken over.

State underwrites more than 1.5 million policies. Last year it wrote $357 million in premiums and earned a net profit before tax of $27.3 million.

As a general insurer, it is unlikely to be of great interest to a bank owner because it does not have savings activities.

The chief operating officer of ASB Bank, Hugh Burrett, said ASB was not interested, despite the bank's rapid expansion into other financial services through Sovereign and Colonial.

But neither the managing director of Tower, James Boonzaier, nor his counterpart at Royal & SunAlliance, Alan Bradley, ruled out an interest.

Mr Bradley said: "Yes, we are still in acquisition mode. I would really not want to say whether this one would be suitable."

Whether AMP, which has reinvigorated its fire and general business, would be in the market after the debacle with Australian insurer GIO is another matter.

CGNU's decision to sell State is regarded as a step in clearing uncertainty among staff who have been given few indications about their future since the merger of the parent companies.

It also reflects continuing consolidation in the local life and general insurance markets, and the exit of British insurers who have little strategic interest in this part of the world.