INSURER RSA said yesterday it was open to talks with Aviva after its larger rival rejected RSAs £5 billion (€6.1 billion) cash offer for its core non-life units.

Analysts and investors said RSA might have to raise its offer by several hundred million pounds if it really wanted Aviva’s general insurance businesses in Ireland, the UK and Canada.

RSA declined to comment on whether it might raise its offer but maintained that a deal made strategic sense.

“RSA considers that its proposal represents fair value for the target businesses and would be in the interests of both sets of shareholders,” RSA said, adding that the deal could generate £300 million in annual cost synergies before tax.

Aviva – which in 2006 had an abortive attempt at buying insurer Prudential – said it has told RSA that it felt the offer was unacceptable.

“Given the compelling strategic and financial benefits to Aviva shareholders of retaining the general insurance business, its upside potential and the terms offered by RSA, the board was unanimous in rejecting this proposal,” said chairman Colin Sharman.

Aviva also pointed out that a 21 per cent rise in half-year operating profit showed it was in good shape. Aviva’s general insurance operations had a 2009 operating profit of about £1 billion – roughly half of the group’s overall operating profit.

RSA’s bid overtures to Aviva are the latest consolidation attempt in the international insurance industry. – (Reuters)