U.K.’s Liverpool Victoria Buys Auto Insurer Highway

Declaring its ambitions in the broker-led arena, U.K. insurer Liverpool Victoria Insurance Co. Ltd. has made a successful 150 million pound (186.3 million euro) cash offer for U.K. auto insurer Highway Insurance Group plc.

The offer corresponds to a premium of 47% on Highway’s Aug. 26 closing price of 49.75 pence (61.8 euro cents) a share, Liverpool Victoria said.

In addition to winning a broker business, Liverpool Victoria said the deal should also bring in valuable skills and help widen its product offering.

Liverpool Victoria Insurance, which is part of Liverpool Victoria Friendly Society Ltd., provides home, travel and auto insurance by telephone and the Internet. It has more than 430,000 household policies and more than 650,000 car policies in the United Kingdom.

“LV believes that there is strong industrial logic to a combination of Highway and LV’s general [nonlife] insurance business,” Liverpool Victoria said in a statement.

The announcement of the deal came on the same day Highway (LSE: HWY) released its interim results that saw pretax profits fall to 1.4 million pounds from 11.8 million pounds in the first half of 2007.

The drop was in line with the results of other U.K. insurers, who have reported being hit hard by the decline in investment markets.

Highway’s net investment return fell to 0.4% from 3.9%. Earnings per share dropped to 0.5 pence from 4.1 pence. The interim dividend was unchanged at 1.65 pence. The combined ratio improved to 98.5 from 100.9.

“Although the result for the six months ended 30 June 2008 is disappointing when compared to previous years, we are pleased that our investment managers have protected capital during what has been a period of extreme conditions in financial markets in early 2008,” said Richard Gamble, Highway’s chairman, in a statement.

Highway has been mentioned in connection with a major deal in the past. In April 2004, Highway and fellow U.K. auto insurer Cox Insurance Holdings plc called off merger talks on the grounds that such a move would not effectively serve the interests of their respective shareholders (BestWire, April 30, 2004).

Last year, Highway pulled out of Lloyd’s as part of a long-planned reorganization. At the time, Andrew Gibson, group chief executive of Highway Insurance Group, said the move would “simplify our group structure, accounting and regulatory processes and streamline our capital position” (BestWire, Aug. 1, 2007).

Liverpool Victoria has been trading under the LV= brand name since 2007. It describes itself as the largest friendly society in the United Kingdom. A friendly society is a mutual that tends to provide a range of financial services products.

In 2007, the Liverpool Victoria group had income of 1.1 billion pounds and after-tax profit of 49.7 million pounds.

“General insurance is central to LV’s growth plans and our stated ambition is to become a top five insurer in our chosen markets by 2012,” Mike Rogers, group chief executive of Liverpool Victoria Friendly Society Ltd., said in a statement explaining the Highway deal. “This transaction has the potential to accelerate that aim, giving us considerably greater scale in the broker channel.”

Highway’s Gibson said the deal “represents an attractive financial result for Highway’s shareholders.”

“The combined business will also have greater resources to capitalize on opportunities in the broader general insurance market,” Gibson said in a statement.

Highway was trading at 73 pence a share in London on the afternoon of Aug. 28, up 14.06% from the previous close.

Highway Insurance Co. Ltd. currently has a Best's Financial Strength Rating of B+ (Good, based on public data). Liverpool Victoria Insurance Co. Ltd. has a rating of B (Fair, based on public data).

(By Robert O'Connor, London editor: [email protected])