UPDATE: RSA Pursues Acquisitions, Buys Canada GCAN For GBP259 Million

U.K. general insurer RSA Insurance Group PLC (RSA.LN) is pursuing its aggressive acquisition strategy and said Monday that it is buying Canada's GCAN Insurance Co. for GBP259 million, two months after its GBP5 billion offer for parts of Aviva PLC's (AV.LN) general insurance operations was rejected.

Combining GCAN with its Canadian operations will make RSA the fourth-largest general insurer in the country based on gross written premiums, with a combined amount of around C$2.2 billion.

"Over the last five years, RSA Canada has grown its premiums by around 60% and doubled its underwriting result. The acquisition of GCAN accelerates this momentum and takes us to number four in the market," RSA Chief Executive Officer Andy Haste said.

"This is a great deal for RSA Canada and the group and we are excited about the strong potential of the combined business," Haste said.

GCAN is a unit of Glenstone Capital Inc., a portfolio company of Teachers' Private Capital, the private equity department of Ontario Teachers' Pension Plan Board. GCAN is a commercial property-and-casualty insurer and has offices in Toronto, Montreal, Calgary and Vancouver.

Since 2004, RSA has acquired around 40 companies, reflecting how it has made acquisitions a core part of its growth strategy.

Panmure Gordon analyst Barrie Cornes said: "We view this as yet another excellent acquisition by RSA...The cost appears quite full, but the acquisition is a strong performer that is well capitalized and set to deliver strong returns."

Cornes kept his buy rating and target price of 150 pence on the stock.

In late July, RSA proposed to buy Aviva's general insurance businesses in the U.K., Ireland and Canada, with the hope of leapfrogging into a much bigger general insurer.

However, that proposal was rejected by Aviva's board in early August, calling the proposal "unacceptable and not in the best interests of Aviva shareholders."

Analysts said the proposal was a bold move considering the offer was close to RSA's market capitalization.

If RSA's proposal went through, it would mean the breaking up of Aviva's "composite" business model, in which an insurer operates different lines of business, like life insurance, general insurance and asset management.

Earlier Monday, The Times newspaper reported that RSA previously discussed with Resolution Ltd. (RSL.LN) about mounting a multibillion-pound break-up bid for Aviva.

The talks, which also included Zurich Financial Services AG (ZURN.VX) of Switzerland and Germany's Allianz SE (ALV.XE), would have seen RSA secure control of Aviva's general insurance arm, The Times said.

Under the plan, Resolution would have picked up Aviva's U.K. life and pensions business as well as Aviva Investors. The Times said that "it is understood" that Zurich and Allianz would then have carved up the European and Asian businesses between them.

However, the talks fizzled out and Resolution couldn't achieve a valuation it was happy with, and the division of assets wasn't agreed, The Times said.

It said Resolution may still be interested in pursuing Aviva and that RSA "is thought" to remain interested in Aviva.

At a banking and insurance conference last week, RSA Chief Financial Officer George Culmer said that RSA is actively searching for acquisitions in the U.K., as well as international and emerging markets.

Culmer said that "that chapter has closed," referring to RSA's offer for Aviva, though he didn't say unequivocally that RSA will no longer be interested in Aviva.

GCAN offers property, liability and motor insurance, with a track record of profitability and a combined operating ratio of 77% in the past five years.

A combined ratio is a measure of claims against premiums. A figure below 100% indicates an underwriting profit, and a lower number indicates higher profitability.

RSA said GCAN's surplus capital is around C$110 million and that the acquisition will generate a return on investment in the mid-teens.

At 1536 GMT, RSA shares were down 0.1% at 133 pence, while Aviva shares were down 0.4% at 393 pence. The FTSE 100 index was down 0.66%.

- By Vladimir Guevarra, Dow Jones Newswires. Tel. [phone], [e-mail]