Zurich and BAT May Form Major Financial Firm

Zurich Insurance Co., Switzerland’s No. 1 insurer, said it’s in talks with BAT Industries, a British tobacco and financial services group, to create a financial services company valued at $35.6 billion, as the consolidation in the industry continues.

The company would bring together businesses including Zurich’s Chicago-based Kemper Corp. and its New York-based money manager, Scudder, Stevens & Clark Inc., and BAT’s financial services units, Farmers Insurance Group of the U.S. and British insurers Eagle Star and Allied Dunbar.

BAT has been trying for some time to break off its financial services division from its tobacco units. It tried last year to merge it with Commercial Union of Britain, but talks broke down when they couldn’t agree on a management structure.

“For Zurich, it makes sense to have more assets under management, for money management is the most growing sector in the Western world,” said Michael Raude of GHR Raude & Partners in Zurich. “It’s the new dimension of globalization.”

Zurich said its shareholders would own 55% of the new business, while BAT shareholders would own the remaining 45%. Both companies would move their financial services operations into separate holding companies, Zurich said.

The talks come as a growing number of financial services companies unite in a bid to boost assets under management and to raise the stable earnings that money management tends to generate. They also come amid pressure on profit margins of European insurers.