Swiss Re is in line to become the world's largest reinsurer.
When Swiss Re completes its acquisition of GE Insurance Solutions (GEIS) next summer it will overtake rival Munich Re in size. The combined operation will have estimated revenues of $35bn and assets of $200bn as well as a highly diversified portfolio. “When this deal closes, Swiss Re will be the world's leading reinsurance company,” said GEIS CEO Ron Pressman.
GE had made no secret about wanting to sell its re/insurance business, which was a “tough strategic fit” according to GE CEO Jeff Immelt. According to Swiss Re CEO John Coomber, the reinsurer has been “examining the GEIS opportunity” for several months. “The power of diversification in our business has never been more important,” he explained. “The future favours strong players who can provide clients with the capacity and the security they need.”
In terms of capacity and diversity the acquisition bodes well due to complementary areas of strengths and weaknesses. “The GEIS business mix is quite fitting with our own business mix, but provides us with the opportunity for a better balance in regional terms between life and non-life,” explained Jacques Aigrain, who will succeed Coomber as Swiss Re CEO on 1 January 2006.
Swiss Re will buy GEIS for $6.8bn, effectively a 24% discount of its book value reflecting $3.4bn pre-tax and $2.1bn after tax in additional reserves to be provided by GE. In total, Swiss Re will raise $7.5bn of capital, of which GE will provide approximately half. It will fund the acquisition through cash, shares, mandatory convertibles and notes. Following the transaction GE is expected to own over 10% of Swiss Re shares.
“We are acquiring the company at the right price and that allows us to build from a position of strength,” commented Aigrain. Addressing the sceptics he said, “Swiss Re has a great track record delivering on its promises”. According to Coomber, Swiss Re's due diligence involved both inhouse and external advisors in an effort to assess GEIS' legacy issues. “We are satisfied that reserves at the time of closing will be of the same quality as our own,” he said.
Aigrain has only compliments for GEIS' management team, crediting them with “an extraordinary job of addressing underlying issues,” while Coomber adds, “we do not have a monopoly on the best people in reinsurance – we look forward to welcoming some new top class individuals”. What is certain is that GE will be keeping a close eye on things. While potentially becoming Swiss Re's largest shareholder, it has also been agreed that GE vice chair Dennis Dammerman will stand for election to the Swiss Re board. “The relationship with General Electric will provide us with a number of new opportunities,” said Aigrain.