Codan settles Balta ownership with EBRD

RIGA - The European Bank for Reconstruction and Development on July 2 announced it had bought 24 percent of Latvia's largest insurance company, Balta, from Denmark's Codan, part of the Royal and Sun Alliance Group.

A Danish financing institution, the Investment Fund for Central and Eastern Europe, is expected to buy a 17 percent stake, according to the EBRD.

Agreements with the two institutions were sought by Codan in order to reduce the risk attached to investing in Balta. Under a similar deal the two also have stakes in Lithuania's largest insurance company, Lietuvos Draudimas, which Codan bought in 1999.

Toby Moore of the EBRD's Latvian office said the purchase, worth around 5 million lats ($7.8 million), was part of the bank's broader strategy to develop the Baltic states' fledgling insurance sector.

"The companies have grown to a certain size and now need external expertise to reduce costs and broaden their product range," he said.

The deal with the EBRD comes after Codan finalized its purchase of a 73.35 percent stake in Balta from its largest shareholders in May. Under Latvian law it was then obliged to make offers for the remaining shares and ended up with 99 percent of the company. The Finnish financial group Sampo, which had been trying to buy Balta for two years, sold Codan its 15 percent stake.

Poul Mortensen, Codan's managing director, said Balta and Lietuvos Draudimas would remain separate, though the same people would sit on their supervisory boards.

"The two companies are operating in different markets with different levels of maturity - Latvia's legislation is much more advanced. We won't bring them together, but we will try to carry experience gained in one country to the other. Lithuania is introducing legislation on third party liability, for example, which Latvia did three years ago. So the Latvian experience will be useful in Lithuania."

Commenting on the deal, Maris Manchinskis, head of financial markets at Latvia's Hansabanka, said it was part of a trend evident throughout the Baltic states' financial services sector for Western companies to take over home-grown firms.

"Estonia has just one or two independent insurance companies left and in Latvia the only major independent company is BTA. The rest of the Latvian insurance market is divided between Codan, Sampo and Ergo of Germany.

"Sampo would of course like to move into Estonia, but at the moment there is nothing to buy."

According to the Baltic News Service, Balta controls 21 percent of Latvia's risk insurance market and 29 percent of its life insurance market.