Aviva purchases Probitas from Lloyd’s of London for £242m

Aviva returns to the largest insurance market in the world after nearly a quarter of century with a £242million deal to buy the Lloyd’s of London competitor Probitas.

The FTSE100 company stated that the Lloyd’s Market represented “a significant source of untapped growing” which would allow it to expand both its corporate and specialty business.

Aviva left Lloyd’s in 1994, shortly after CGU and Norwich Union merged to form the group.

The Probitas purchase is another step forward in the turnaround of Aviva, which has been driven by Lady Amanda Blanc ever since she assumed control of the company back in July 2020. She has refocused the company on its core markets of Canada, UK and Republic of Ireland.

Blanc stated: “Aviva’s arrival in the Lloyd’s Market opens new opportunities for our capital-light General Insurance business to grow.”

Lloyd’s, the oldest insurance market in the world and a City of London landmark, can trace its origins to an Edward Lloyd-opened coffee house from the second half of 17th century. London’s coffee houses were centres for commerce and markets, and Lloyd’s quickly became the place to exchange information about shipping.

It has developed into a leader in the maritime insurance market, and is still a key part of today’s modern market. This includes coverage for natural disasters, cyberattacks, satellite launches and even nuclear risks.

Also, it has offered more niche policies. Michael Flatley the famous dancer Lord of the Dance turned to Lloyd’s to insure his legs, and Bruce Springsteen the singer/songwriter used the market to get cover for his vocals.

Markets are operated by independent underwriting syndicates and brokers negotiating contracts. Syndicate 1492 is led by Probitas, and focuses on property, casualty, and construction insurance, as well as reinsurance. Aviva stated that the syndicate had generated gross premiums worth £288m last year, and Aviva claimed it was one the “top performers in the Lloyd’s Market” with an average combined rate of 82 percent since 2019. A combined ratio of 82 per cent is considered a good result.

Aviva anticipates completing its purchase of Probitas before the middle of this calendar year. Blanc’s return to Lloyd’s was rumored, and the deal came after that speculation. She said in August of last year, “clearly Lloyd’s was interesting” for the group. The group is Britain’s largest composite insurer providing both life and general insurance.

Aviva left the market in 2000, when it signed a deal with Warren Buffett’s Berkshire Hathaway Investment Group to sell its Marlborough Underwriting Agency. It was called CGNU at the time, after being formed by the £19 billion merger between Norwich Union and CGU. The withdrawal from Lloyd’s is part of the strategy to focus more on its other growth areas, like personal lines.

Since then, Lloyd’s has grown more profitable, and new, attractive lines of business, like the rapidly growing area of covering cyber-threats, have emerged. Lloyd’s made a profit before tax of £3.9 billion for the six-month period ending June last year, which was a significant improvement on the £1.8 billion it had lost a year ago when interest rates rose and impacted the value of the investments.

Bank of America analysts noted that Probitas’s book “looks aligned” with Aviva’s existing operations because of the focus on Britain and Ireland, while Jefferies’ analysts were “pleasantly shocked” by how well it fits into their group’s strategy.

Aviva shares closed at 448 1/2p, up 3/4p or 0.2 percent.

Another day, another deal for Dame Amanda Blanc. Or at least, that’s what it feels like, as the Aviva chief has agreed to a series of sales and purchases since she took over the insurer in July of 2020.

Her goal was to calm down a frustrated shareholder base after years of poor stock market returns. Many City insiders would consider the first phase of Blanc’s turn-around a success.

Her initial goal was to streamline Aviva’s business by removing it from Italy, Vietnam France, Turkey, Poland, and Singapore. The group has refocused on its core markets of Britain and Canada, as well as the Republic of Ireland.

Cevian Capital, a activist investor who revealed in 2021 that it held a large stake in Aviva and had urged Aviva to increase capital return to its investors, praised Blanc for returning more than £5 billion to shareholders. Cevian Capital, which sold Aviva’s stake last year said that the group was “transformed” from a “poorly performing conglomerate into a well-performing and focused insurance company”. It also claimed to have delivered “strong shareholder return”.

The focus is now on the next phase in Blanc’s revitalization of Aviva, and her pursuit for capital-light growth. This is why the acquisition of Probitas was a good fit and gave the company access to the Lloyd’s of London, a huge market.

Aviva has also made smaller acquisitions, including a £460 million deal in September to purchase AIG’s British Protection business and a £100,000,000 takeover of Optiom O2 Holdings for the purpose of bolstering its presence in Canada.

Blanc sought to expand Aviva’s wealth management operations, a capital-light sector, by acquiring Succession Wealth two years ago for £385 millions.

The share price of Aviva has not increased despite Blanc’s efforts to reshape the company. This is due to investor aversion towards London-listed financial service shares. The stock price has increased from 273 1/2p to 448 1/2p since Blanc took over, but it remains flat when compared with a year ago.