Co-operative Group decides against sale of insurance business following revised recapitalisation process at banking arm
The Co-operative Group has opted to hold on to its general insurance business, ten months after putting it up for sale.
The decision was made as the mutual no longer needs the money the sale could have brought in, following a revision of the plans to fill the Co-op Bank’s £1.5bn black hole.
It comes despite what are understood to be a series of strong second round bids, from suitors including Legal & General and private equity house AnaCap.
Co-op management, led by chief executive Euan Sutherland, felt that the bids undervalued the business given its growth potential and value to the group overall.
Analyst estimates as to its worth varied between £250m and £600m.
The mutual originally decided to part with the business in March 2013 as part of plans to bolster the Co-op Bank’s capital position.
Proceeds from the sale of the general insurance arm – and the life insurance arm, which was sold to Royal London for £219m last July – were intended to be used to safeguard the future of the bank.
Following the discovery of a £1.5bn capital shortfall at the bank last summer, the requirement for the proceeds intensified yet further.
Under the Co-op Group’s original recapitalisation plans for the bank, the group was due to fund £1bn, with £500m coming from bondholders.
However, following a redrafting of those plans in November, distressed debt funds which held a significant portion of the Co-op Bank’s debt opted to inject a greater amount, meaning the Co-op Group’s funding requirement reduced from £1bn to £462m.
In a statement, the Group said that the decision to hold on to general insurance was part of Mr Sutherland’s wider strategic wider review, the details of which are expected as early as its annual results in March.
In addition to the sale of its life insurance arm, the Co-op Group said it would look to the “strategic management” of property assets across the group – which is understood to relate to plans for a series of sale-and-leaseback.
Mr Sutherland commented: “Having considered the sale process, and in light of the changed requirements on us under the Bank recapitalisation process, we believe it is in the best interests of our members, customers and colleagues, that we retain this strong business and develop it further.”
The news follows The Telegraph’s weekend report that the Co-op Group is to cut its £850,000 annual donation to the Labour Party as a result of the problems at its banking arm.
Lord Myners, who is carrying out a review of the mutual’s corporate governance and relationship with third parties, confirmed that his study will lead to a reduction in the funding the Co-op gives to the party.
“The scale of giving to others cannot go unaffected by the change in the Co-op’s economics,” said Lord Myners. “It’s got less money to spend on everything.”
“As a member-owned organisation, do you spend what money you have on pricing, on the dividend, on the retail estate, or on charitable giving? The new reality requires a question of priorities,” he continued.