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Rothesay interest could grant Swiss Re full exit from UK closed life unit

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Rothesay interest could grant Swiss Re full exit from UK closed life unit

U.K. life insurance consolidator Rothesay Life PLC's rumored interest in buying Swiss Re AG's U.K. closed life insurance business could allow the Swiss reinsurer to make a complete exit from the division, according to one analyst. But another has doubted whether Swiss Re would be willing to sell its entire stake.

Sky News reported Jan. 4 that Rothesay had approached Swiss Re about a £3.5 billion takeover of ReAssure Ltd., which Swiss Re revealed on Aug. 3, 2018 that it was planning to spin off through an initial public offering, or IPO. Sky News said at the time the status of the discussions was unclear, but that its sources had indicated Rothesay was serious about making a formal offer "in the coming months."

All about price

Swiss Re had intended to remain a "significant investor" in ReAssure after the proposed IPO, Swiss RE CEO Christian Mumenthaler told journalists on a Aug. 3 conference call, and described it as an "attractive business".

In a Jan. 7 research note, Société Générale analyst Vikram Gandhi said that Swiss Re may be willing to exit ReAssure entirely "since we believe the group's intention to remain significantly invested in ReAssure was based on the premise of a potential IPO."

But another analyst told S&P Global Market Intelligence in an interview that he doubted Swiss Re would sell up entirely. He noted that the reported £3.5 billion Rothesay would look to offer matches the valuation used as the basis for MS&AD's planned additional investment, and so is not offering a better outcome for Swiss Re. He said: "If they got really a very good price maybe they would sell it." But he added: "For this price I would doubt they would sell everything."

The analyst, who declined to be named, said that he believed Swiss Re would "go ahead with their IPO plans."

Three-way deal

A further complication to any potential takeover is that Japanese insurance group MS&AD Insurance Group Holdings Inc. owns 15% of ReAssure, and Swiss Re announced Dec. 20, 2018 that MS&AD had agreed to boost its stake to 25% by investing a further £315 million in the company. Gandhi said in the research note that if Rothesay is looking to buy all of ReAssure, "it remains to be seen how the three parties ... might strike a deal to keep everybody happy — especially as MS&AD very recently agreed to raise its stake in ReAssure to 25%."

Gandhi added that assuming MS&AD wants to retain its stake, one likely outcome is that Rothesay could own 51%, MS&AD 25% and Swiss Re 24%.

Options open

While Swiss Re reiterated in its Dec. 20 announcement about MS&AD's additional stake that it was pursuing an IPO for ReAssure, it has not ruled out taking other options.

When asked whether Swiss Re would consider taking on additional investors instead of floating ReAssure, Swiss Re CFO John Dacey said on the Aug. 3 conference call: "We would be happy to have that discussion, but it is not our intention. Our intention right now is to be prepared for an IPO in 2019."