Public announcements on the last working day before Easter are destined not to generate much attention. This explains why the April 17 news of RSA Insurance Group deciding to divest its Baltic and Polish holdings to Powszechny Zaklad Ubezpieczen SA (a.k.a. PZU), a Polish insurer, were somewhat lost in the pre-holiday rush.

Already for some time it has been no secret in the marketplace that RSA was actively looking for a buyer to its Baltic assets, including AAS Balta, a Latvian insurer. The expected transaction was just another, albeit quite a sizeable one, in the series of exits by Western European and Nordic strategic investors from Latvia over the last 6 to 12 months. It was surprising, though, to learn that instead of a local investor taking over the business we are seeing a Polish insurance company being catapulted from a rather modest presence in Lithuania and Latvia into becoming a significant Pan-Baltic market player.

In the announced transaction PZU has agreed to acquire Balta in Latvia, Lietuvos Draudimas in Lithuania, operations of Codan Forsikring A/S in Estonia and Link4 Towarzystwo Unbezpieczen SA in Poland. According to the information provided by RSA to the stock exchange the total consideration is estimated at EUR 360 million, with Baltic assets accounting for approximately EUR 270 million. The exact consideration to be received by RSA from each of the four transactions is expected to be determined at closing of the deal, based on the net asset value of the entities acquired.

According to the RSA information, the total assets of its Baltic operations as at the end of 2013 stood at EUR 314 million, net assets - at EUR 101 million and net written premiums amounted to EUR 202 million. On the basis of these numbers the transaction apparently has valued the operations at 0.9 times total assets, 2.7 times net assets and 1.3 times net written premiums. On the basis of unaudited preliminary financial statements Balta, with total assets of EUR 62 million, net assets of EUR 18 million and written premiums of EUR 45 million, accounts for approximately 20% of the RSA Baltic operations. Assuming that the purchase price consideration has been allocated proportionally, this would value Balta at c. EUR 54 million. The application of the above transaction multiples to Balta’s assets, net assets and net written premiums would result in a value range from EUR 49 million to EUR 60 million, confirming that this is a reasonable guess.

Indeed, this transaction might be the case when the RSA’s claim that “the total sales proceeds demonstrate the strong underlying value that exists within RSA” is not that exaggerated at all!

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