Shares in RSA were up to more than 490 pence after more than an hour of trading on Tuesday, while Zurich was down two per cent to around 291 cents on the Swiss market.
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Zurich and RSA would be a good fit, analysts said, but there could be counter-offers.
However, Zurich shareholders might be disappointed by the prospect of such a large deal, according to analysts at Citigroup, as it could harm the company’s ability to return cash to investors. It then recovered, climbing by 2.6% since today’s open to 505p (10.50am GMT).
It is thought Zurich is prepared to offer around 550p a share, or about £5.6billion – the same price paid by Aviva for rival Friends Life earlier this year.
Probable cost-cutting benefits justify an acquisition price of 550 pence a share, said Mark Cathcart and Anasuya Iyer, analysts at Jefferies worldwide Ltd.
RSA, which has endured a torrid 18-month period since the discovery of a £200 million black hole in its Irish business in late 2013, declined to comment.
Referring to the benefits for Zurich, he added: ‘RSA’s Canada and Scandinavia businesses are jewels in the crown and are very attractive to anybody.
Certainly, the fact that RSA is the subject of considerable takeover speculation shows that the company is turning its fortunes around after the accounting scandal and profit warnings that occurred in recent years.
Allianz SE, Europe’s biggest insurer, and France’s Axa SA may also bid for RSA, whose shares have trailed peers in the past year, analysts said.
However, RSA is battling a competitive UK insurance market and has struggled to boost investment income in the current low-interest rate environment.
Hester, a former CEO of Royal Bank of Scotland Group (LON:RBS), took the helm at RSA last year with a mandate to overhaul the group and has since introduced a string of “self-help” measures including a £773 million rights issue and trimming the insurer’s non-core assets.
The firm’s largest shareholder is activist investor Cevian Capital, with a 13 percent stake.
“We have not been keen on the break-up story on RSA due to the pension scheme deficit…”
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“RSA has many strengths that would complement our business”, a Zurich spokesman said.
