NRMA set to buy State Insurance

SYDNEY - NRMA Insurance Group, Australia's biggest general insurer, is the front-runner to buy State Insurance from Britain's CGNU for as much as $A330 million ($397 million).

Analysts said the purchase, expected late next month, would be the first acquisition by Sydney-based NRMA as a publicly traded company.

It is pledged to buy a rival, enter an alliance or buy back its stock by June 30.

"NRMA seems the most logical buyer," said Jamie Nicol, analyst at Hartley Poynton. "They may be the most willing to pay, and they have the capacity to pay a premium."

NRMA began trading on the Australian Stock Exchange in August. Chief executive Eric Dodd said recently that it was aiming to buy rivals, overseas and in Australia, as part of a drive to double sales to $A4 billion over three years.

"The sale's been a competitive process with a number of parties, both Australian and overseas, expressing interest," said Frances Pyle, executive director investment banking, at Morgan Stanley Dean Witter, who is handling the sale for CGNU.

State Insurance, which has 19 per cent of New Zealand's general insurance market, is being sold by Britain's top insurer. Final offers were expected early next month, said Ms Pyle.

State was likely to fetch about $A330 million, said Tony Jackson, analyst at Macquarie Bank.

The purchase would be a "good fit" for NRMA, which has about $A2 billion for acquisitions, said Frank Costigan, analyst at UBS Warburg. "State's cost structure appears high and its distribution is very similar to NRMA. Both these factors make it attractive to NRMA."

Royal & SunAlliance Insurance Group, the UK's No 2 property and casualty insurer, could also be a strong bidder, said Nigel Pittaway, analyst at Salomon Smith Barney.

State Insurance was acquired by CGNU last year when it bought Norwich Union. State had net premium income of $325 million in 1999, net assets of $187 million at June 30, 2000 and underwrites more than 1.5 million policies.