Will the public float of Royal & SunAlliance’s Asia/Pacific assets be a success? It depends on the continuing profitability of the industry, according to analysts and industry insiders.

The decision to float the assets rather than seek a buyer for individual units has been generally well received in the Australian market, although brokers have greeted the news warily. As well they might, considering that CGU has been snapped up by IAG and Lumley is on the market.

If the industry continues to pick up big profits over the next year, the R&SA assets will be attractive to investors when they are floated in the first half of next year. The only possible storm clouds are the possibility of steeper reinsurance rises, a major disaster or a continuing collapse of equity markets.

Against the possible downside is a lot of upside, analysts said yesterday. For starters, CEO Mike Wilkins is seen as a skilled professional, and future Chairman Ewoud Kulk is regarded as a consummate manager.

“The wealth management assets [Tyndall, which has been on the market for much of the year] might be a drag on interested parties,” one insider said. “But AAMI is a fantastic performer, and Australian Pensioners Insurance Agency is travelling well. They’re both great performers in their niches, with low distribution costs, and their NZ operation is the market leader.”

While the British parent hasn’t revealed what it wants for the deal, analysts say the mooted IPO will probably raise about $2 billion – more than the $1.8 billion IAG is paying for Aviva’s Australian and NZ general insurance assets.

There is also speculation that the whole new organisation could be picked up by another insurer, although according to the Australian Financial Review a direct buy was spurned by Allianz, Suncorp and QBE. “No one is going to throw big wads of cash at their Australian companies right now,” an analyst said. “The Asian assets are a mixture of good and indifferent, but the real reason is that Australia isn’t in the strategic picture the Europeans and Americans are following.”

R&SA’s parent surprised the market last week when it announced an IPO for the Asia/Pacific assets. Most had expected some kind of sale as the London-based parent sinks slowly into a sea of equity and claims losses.

R&SA (the parent) needs to raise nearly $10 billion to cover the losses. Acting CEO Bob Gunn, who took over from ousted CEO Bob Mendelsohn two months ago, also announced R&SA will sell some its US-based RSUI general insurance unit as well as cut 1700 jobs in Britain and the US. The global workforce will fall by 10,000 to 40,000.  

Will it be enough to save R&SA? Will anyone buy the Asia/Pacific operation in a bear market? They’re big questions, and the answers will be very important to the Australian market.