Email Mktg

Revised: 04/02/2008

40th Aniv. 2007

Zurich calls off U.S. Universal Underwriters sale

By Douwe Miedema

ZURICH, Jan 16 (Reuters) - Zurich Financial Services Group (ZURN.VX:) has cancelled the $1.1 billion sale of Universal Underwriters after a regulator found irregularities at the unit, the insurer said on Monday.

Zurich said the sale to a group of investors headed by private equity group Hellman & Friedman was cancelled after the Kansas-based U.S. auto-dealer insurance unit was forced to take a $100 million charge in the third quarter following a market conduct survey.

"Both parties ... were unable to complete the transaction at mutually agreeable terms," Zurich said in a statement.

The insurance heavyweight said in April it would sell the U.S. unit to the Hellman & Friedman-led group to focus on its core business. The deal had been expected to close in the third quarter of last year.

It has now decided to keep the business, integrating its back office into its other operations but keeping the separate distribution system at the direct underwriter and specialty insurer to car, truck and motorcycle dealerships.

Zurich shares dipped on the unexpected cancellation, but analysts were not overly negative, saying the operations were profitable and that the slight weakness in the shares could be used as a buying opportunity as the stock recovers.

"The company has recently achieved earnings above its book value contribution to the group, so the sale would have been slightly dilutive ... overall I regard the announcement as a neutral issue," said Roger Degen, insurance analyst at brokerage LODH.

The shares were down 0.3 percent at 283.25 Swiss francs by 0949 GMT in a broadly flat market <.SSMI>. The stock had dropped to as low as 279 francs in early morning trade.

Zurich has largely completed a restructuring drive after an ill-conceived foray into non-core business aggravated its financial troubles during the stock market slump at the start of the decade.

INVESTIGATION

The company said its decision to keep Universal Underwriters followed a routine investigation by insurance regulators in the Kansas unit, which found that the unit had charged some clients different prices for similar policies.

"In cooperation with the Kansas Department of Insurance, Universal Underwriters has put into place a comprehensive remediation plan, and it has made substantial progress in implementing this plan," Zurich said.

The unit will keep a closer eye on internal control to make sure it acts in line with the rules and is confident it will not have to take any further similar charges in the future, a company spokesman said.

In April, Zurich had said it planned to sell Universal Underwriters for more than 1.2 times its book value and that the unit had gross written premiums of $1.5 billion in 2004. The business was profitable, turning in a return margin that easily met Zurich's internal hurdle rates, a spokesman said.

The company's shares gained almost 50 percent last year as the insurer beat its organisation further into shape, recovering from a low valuation compared to its peer group. © Reuters 2006. All Rights Reserved.

An online information service of the United Farmers Agents Association, Inc.