Aviva returns to Lloyd’s with bet on climate change
Insurance giant agrees £242 deal for platform that gives it access to thriving commercial market
AVIVA is returning to Lloyd’s of London for the first time in more than two decades as threats such as climate change and cybercrime boost demand for speciality insurance.
The insurance giant has agreed to buy Lloyd’s insurance platform Probitas for £242m, giving it a lucrative foothold in the booming commercial insurance sector.
Founded in 1688, Lloyd’s is the world’s largest and oldest insurance hub – boasting a network of more than 380 brokers and 77 underwriting syndicates.
Probitas is a speciality property and casualty insurer and also offers insurance in emerging sectors such as renewables.
Though small, the takeover will allow Aviva to diversify away from home and motor insurance products, and gain exposure to higher margins and faster growth.
“This acquisition is another step in our strategy to invest in Aviva’s future profitable growth,” said Dame Amanda Blanc, the Aviva chief executive.
“Aviva’s presence in the Lloyd’s market opens up new opportunities to accelerate growth in our capital-light general insurance business.”
The takeover marks Aviva’s return to the London market for the first time since the turn of the millennium.
Aviva, then known as Norwich Union, quit Lloyd’s in 2000 after selling Marlborough Underwriting Agency to Warren Buffett’s Berkshire Hathaway.
The 2000 exit coincided with a merger between Norwich Union and CGU, which created Aviva.
Aviva is planning to retain the Probitas branding and management team once the deal is completed later this year.
Probitas, which is 49.9pc owned by Saudi Arabian insurer Saudi Re, has been in sale talks with the FTSE 100 group for more than a year. Aviva had reportedly been considering creating a Lloyd’s start-up, but it has instead decided to acquire a business off the shelf.
Ash Bathia, the Probitas chief executive, said linking up with Aviva would help build “one of the most successful and profitable franchises in the Lloyd’s market”.
The Probitas acquisition also marks part of a broader shift by Dame Amanda to diversify Aviva away from traditional consumer products like car insurance.
Since taking the helm in July 2020, she has streamlined Aviva by selling eight non-core businesses and recouping about £8bn, £5bn of which has been returned to shareholders.
Probitas joins a number of other bolt-on acquisitions for Aviva, including Succession Wealth and AIG’S UK protection business.
The strategy has pleased shareholders, who suffered years of dismal performance under former bosses Andrew Moss, Mark Wilson and Maurice Tulloch. Shares have risen 60pc since Dame Amanda took over.
Her decision to trim Aviva’s sprawling empire also saw off activist shareholder Cevian Capital, which sold its stake last year.
Probitas will join Aviva’s global corporate and speciality division, which already provides commercial insurance.
The Lloyd’s deal will add an extra distribution channel, and other opportunities to grow the division.
The latest acquisition won the support of City analysts, who said Aviva had struck the £242m deal at the right time.
“Lloyd’s is a good market to be in,” said Abid Hussain, an insurance analyst from Panmure Gordon. “We are going to see pricing power coming through to prime insurers and it diversifies Aviva away from their other lines of business. It ticks all the boxes.”
Analysts at Bank of America also hailed the deal, saying Probitas’s business “aligned with Aviva’s existing operations” stretching across Britain, Ireland and Canada.
The fresh foray into the Lloyd’s market will help Aviva tap into a recent boom in Leadenhall Street. Rising risks such as climate change and cyber threats have triggered a surge in global companies buying ever more complex insurance products, driving up premiums and margins.
John Neal, Lloyd’s chief executive, has predicted Lloyd’s current underwriting figures of £47bn could double over the next decade because of demand wrought by climate change and cyber attacks.
“The Lloyd’s market is quite different than it was 20 years ago,” said Mr Hussain. “It has entered a favourable underwriting cycle, so from a timing perspective it’s a good entry point.” About 60pc of Probitas’s book is property and casualty insurance, with finance, construction and cyber also key to its offering, meaning that it is exposed to the rising tide of specialist demand at Lloyd’s.
Lloyd’s observers say the underwriter is a relatively small player in the market, so Aviva is dipping its toe in the water rather than wading in.
“This isn’t like the Man City takeover, and materially changing the Premier League,” said one industry observer. “What they are not intending is for it to be a game changer.”
‘It diversifies Aviva away from their other lines of business. It ticks all the boxes’