Aviva plc’s return to Lloyd’s of London through the acquisition of Probitas is in line with its medium-term strategy but still a bit of a surprise, said brokers.
The insurer announced the deal yesterday, with the price a premium to listed Lloyd’s peers but in line with the sub-sector, according to Jefferies, with an expected internal rate of return (IRR) in the high teens.
Through the transaction, Aviva intends to expand the company's market opportunity for the Global Corporate & Specialty (GCS) business.
“This is consistent with the group's broader strategy to accelerate growth in their UK General Insurance (GI) business.
“Given the combined ratio since 2019 has been an average of just 82%, this business is accretive to Aviva's non-life margins,” the broker added, retaining a buy recommendation and 490p price target.
Citi also said the acquisition is consistent with Aviva's capital management framework which includes bolt-on M&A.
“We don't expect any impact on the expected £300mn recurring buyback likely to be announced as its full year results on results on Thursday.
“Overall the acquisition is relatively small and is not a complete surprise… but provides an alternative distribution opportunity for capital-light general insurance growth and a high-teens IRR.”
Shares were flat at 446p today.