ZFS cancels sale of unit to H&F over price

Zurich Financial Services on Monday announced the cancellation of the $1.1bn sale of its Universal Underwriters operation to a US private equity group after differences over the terms on the back of a regulatory investigation.

ZFS said the operation, which had never been fully integrated and worked on a stand-alone basis, would now be drawn more closely into the parent company, particularly as far as the back office was concerned.

Universal Underwriters generated gross premiums of $1.5bn in 2004. Profitability figures have not been revealed, but ZFS said the company’s results were “in excess of the group’s internal hurdle rate”.

The failed disposal will not have any visible impact on the group’s 2005 results, due next month, as ZFS had not released information about the likely one-off sale benefit. Analysts estimate the deal would have generated a gain of about $150m.

 ZFS attributed the collapse to differences with Hellman & Friedman, the US private equity buyers, over pricing.

 The two sides agreed last April to a sale, after an approach from H&F. Universal Underwriters, based near Kansas City, is the biggest seller of insurance to car and truck dealers in the US, and fitted in with ZFS’s strategy of concentrating on core activities.

However, the fact that the company, itself an acquisition, had never been fully integrated, made a disposal at an attractive price practicable.

Matters went sour after the insurance watchdog in Kansas, in a periodic “market conduct examination”, found Universal Underwriters had given no benefits to some clients with unusually good claims records.

Equally, some customers with poor claims records had not suffered premium increases.

ZFS last year agreed with the regulator to compensate clients where necessary, booking a $100m charge in its third-quarter accounts.

However, while ZFS argued matters were now resolved, H&F believed the episode justified renegotiating the pricing. After failing to reach agreement, the two sides decided to scrap the transaction.

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