The Strategist

SoftBank wants to buy a stake in Swiss Re for $ 9.6 billion

03/30/2018 - 07:25

Swiss Re AG shares jumped after Bloomberg reported that the Japanese SoftBank Group Corp. is approaching the purchase of a 25% stake in the Swiss reinsurer, valuing the company at 37 billion francs ($ 39 billion).

MIKI Yoshihito
MIKI Yoshihito
In case of acquisition of a stake in Swiss Re, the founder and general director of SoftBank Masayoshi Son could support his business empire due to stable cash flows from reinsurance.

SoftBank is in talks to buy a stake in Swiss Re at a price of about 100-105 Swiss francs per share, the agency's interlocutors said.

The stake will be acquired at a price of 105 francs, with a 16% premium to Swiss Re's closing price on February 7 (the day before the company confirmed reports that the deal is being negotiated). At the same time, the transaction amount will be about $ 9.6 billion.

Shares of Swiss Re jumped 3.2% during trading in Zurich, reduced growth to 2.5% later and traded at 97.56 francs per share. Over the past 12 months, the company's shares have added about 10%.
As Bloomberg sources pointed out, the terms of the potential deal have not been finalized yet and may change. It is also possible that the companies will not be able to come to an agreement. If the deal does take place, it will replenish a number of similar transactions, actively concluded in the last few months in the reinsurance market. So, in January, the American company AIG agreed to buy Validus Holdings for $ 5.6 billion, and in March the French Axa entered into an agreement to buy the US XL Group for $ 15.3 billion.

Last month, Swiss Re CEO Christian Mumenthaler stated that the company would welcome a long-term investor. In a business where results can radically change from year to year, "it's good to have an anchor investor," he said at a conference in Zurich.

SoftBank previously acquired shares in companies from various industries, including chip manufacturing, construction of satellites and creation of robots. As noted by The Wall Street Journal, the company can try to offer Swiss Re’s insurance products directly to consumers, including Uber Technologies Inc., or people who use office spaces from WeWork Cos.

Last year, the Japanese telecom giant invested $ 4.4 billion in WeWork, an American start-up for the rental of offices. Softbank also became the largest shareholder in the Uber Taxi Service.

Besides, SoftBank has taken steps in the sphere of housing insurance. Last December, the Japanese company invested in Lemonade Inc., a New York start-up that uses artificial intelligence and bots to minimize paperwork and accelerate the application process for tenants and homeowners.

The net profit of the Swiss reinsurer Swiss Re in 2017, which became one of the most expensive years for the insurance sector in history, fell to $ 331 million.

In January 2018, the volume of reinsurer's premiums increased by 8%. Tariffs for reinsurance were increased by 2%.

The result includes estimated insurance claims, net of retrocession and before taxation, of $ 4.7 billion from major natural disasters such as the Debbie Cyclone in Australia, the Atlantic hurricanes of Harvey, Irma and Mary, the Mexican earthquakes and forest fires in California.

These events significantly influenced the results of property reinsurance, there were also problems with P&C reinsurance and corporate solutions. Swiss Re received a net loss of $ 413 million on property and liability in 2017, and corporate reinsurance brought a net loss of $ 741 million due to alleged insurance claims for natural disasters of $ 1 billion.

Life and health risk reinsurance (L&H) increased net income to $ 1.1 billion, supported by sustained underwriting and high investment performance. The gross profit of the reinsurer for life insurance rose to $ 998 million, net profit was $ 161 million.