Resolution Ltd., the U.K.’s biggest insurance buyout firm, said it will have a “high threshold” for future acquisitions after setting performance targets for the three businesses it already owns.
Resolution will achieve internal rates of return of at least 15 percent on new business, the Guernsey, Channel Islands-based firm said today in a statement. Its key markets will be individual income protection, corporate pensions and annuities.
Resolution, which is buying and merging U.K. life insurers, will this year finish the acquisition phase of its project, which began after Clive Cowdery set up the firm in 2008. The company, which has bought Friends Provident, Axa SA’s U.K. life business and Bupa Health Assurance Ltd., plans to sell the merged businesses within the next two or three years to a rival or through an initial public offering.
The company “will not contemplate acquisitions that would dilute the returns likely to emerge from the three acquisitions already made,” it said in the statement. “There is therefore a high threshold for evaluating further acquisitions.”
The stock dropped 0.6 percent to 287.4 pence at 8:28 a.m. in London trading, valuing the firm at about 4.2 billion pounds ($6.8 billion). Resolution is the best-performing member of the FTSE ASX Life Insurance Index in the past month, rising 16 percent as analysts at RBC Capital and Barclays Capital recommended investors buy the shares.
The strategic update “would appear to support the view that further acquisitions are unlikely,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. in London with a “buy” recommendation on the stock. “The shares are likely to re-rate further.”
Friends Provident Holdings, the merged entity of existing businesses, will have cost savings of 112 million pounds a year by the end of 2013, compared with the initial annual target of 75 million pounds, Chief Executive Officer John Tiner said on a call with reporters. The money will be saved in information technology, office rent and job cuts, he said, declining to give further details.
New products that require less capital to be set aside will help reduce reinvestment costs by 200 million pounds a year by 2013, Resolution said. Friends Provident’s international units will generate at least 50 million pounds a year by 2014.
Resolution will consider a range of options for selling Friends Provident including splitting up the new business unit and back book, Tiner said on the call.
“We are exploring whether there are structural solutions that would be beneficial for shareholders in separating those two books,” he said. “We haven’t reached any conclusions.”
The U.K. life-insurance consolidation project will be kept separate from other ventures the firm may undertake, Tiner also said today. Resolution will consider acquisitions in other markets and countries as it weighs future restructuring projects, he said.
The firm is due to report full-year results on March 24.