Swiss Re, the world’s largest reinsurer, has agreed to buy Barclays’ life assurance portfolio for £753 million ($1,474 billion) in cash, even as it wrote down more credit assets.
Swiss Re said on Tuesday it would acquire about 760,000 life insurance and pension policies and annuity contracts, for which Barclays had stopped writing new business since 2001, representing £6.8 billion ($13.3 billion) in invested assets.
The deal, boosting its Admin Re unit, which buys life insurance portfolios after other companies have stopped writing new business, showed that Swiss Re was strong enough to take advantage of tough markets, CEO Jacques Aigrain said. “The difficult market environment also creates new opportunities,” he said. “Swiss Re has the execution capability and capital strength to seize these opportunities.”
The strategy of adding top-line growth through the so-called Admin Re unit is one of the reasons why Swiss Re says it will grow faster than other reinsurers as markets stall. “The acquisition and the price paid fits into the strategy and is good news,” said Lanksbanki Kepler analyst Fabrizio Croce.
Swiss Re, which also reported Q2 net profit below expectations, said it made a mark-to-market loss on structured credit default swaps (CDS) of 362 million Swiss francs (£176 million, $343.9 million) in the Q2. “There are still uncertainties over its CDS exposure,” said Vontobel analyst Viktor Dammann. “The profit forecasts could still be cut.” The weak results and fear of more writedowns hit Swiss Re shares, which fell 1.2% to 64.60 francs by 8:10 a.m..
Barclays shares rose 1.7% to 345 pence. Barclays said the unit was not core and it expected a post-tax gain of about 330 million pounds on the sale. Excluding that gain, the transaction is not expected to have a material impact on its earnings per share, and Barclays will continue to sell life insurance products from third party providers.
Unlike many other reinsurers -- which reinsure risk for other insurance companies -- Swiss Re has been hit hard by the credit crisis, having now notched up total writedowns of some 2.7 billion francs ($2.56 billion) in its financial services unit, which creates products to transfer risk to capital markets.
Germany’s Munich Re expects to miss its full-year earnings target due to financial market turmoil, and sees more writedowns on its equity holdings in the Q3.
Swiss Re, which had previously expected a further 350 million franc CDS writedown in the Q2, said it expected 2008 and probably 2009 to be challenging years for the whole insurance industry, but maintained its targets. Its Q2 net profit was 600 million Swiss francs, behind forecasts, but its combined ratio, at 92.3%, beat analysts’ expectations. Swiss Re had been expected to post net profit of 795 million francs in the Q2, according to a Reuters poll. Its combined ratio was seen at 96%. (Reuters)