Swiss Re finally extricates capital from closed life business, sells ReAssure

Global reinsurance firm Swiss Re has finally achieved its long-held goal of freeing up some of its capital that was locked up in its closed life insurance book consolidator and is set to sell its ReAssure business to Phoenix Group.

As far back as 2011, Swiss Re regularly discussed its desire to do something to release capital that was tied into its business unit that bought closed life insurance books.

Called Admin Re at the time, the unit allowed Swiss Re to enter into bulk purchases of life insurance policies, but overall it was seen as a drag and non-core, leading to numerous attempts to free up some of the capital in a variety of ways.

Among those was the option of bringing in third-party capital (first discussed in 2013), as the reinsurance firm considered allowing third-party investors to participate alongside it in transactions to buy new blocks of life business.

Swiss Re exited the U.S. business under Admin Re back in 2012, but the UK entity, which became better known under the ReAssure brand, continued to enter into transactions, but there had always been a focus on exiting or monetising this business area.

Now, Swiss Re has entered into an agreement to sell ReAssure to the largest European pension and life consolidator Phoenix Group Holdings, in a deal valued at UK £3.25 billion, as our sister publication Reinsurance News explained first thing this morning.

Swiss Re will benefit from a UK £1.2 billion cash payment as part of the sale of Reassure, but with the balance set to be paid in Phoenix shares which will give it a strong foothold in the life consolidation sector, without the operational and capital overheads.

Swiss Re will take as much as a 17% stake in Phoenix after the close, depending on the share price at the time. ReAssure stakeholder MS&AD Insurance Group Holdings, the Japanese insurer, will also keep a stake in Phoenix after the deal, retaining up to 15% of its shares.

So, Swiss Re gets its wish, of freeing up a significant chunk of capital, with the rest paid in shares in a growing business, that it can then hold or sell to raise more capital as it chooses.

There could be benefits to holding the shares, beyond just any appreciation in value, as it may position Swiss Re well to put capacity to work as well, should reinsurance support be required for life or pensions deals. Swiss Re is, of course, a major player in mortality and longevity reinsurance products and other areas of the life market through its Life Capital unit.

The deal will benefit Swiss Re’s solvency, driving as much as a 12% increase in its Group Swiss Solvency Test (SST) ratio.

The cash generated will also be put to work, and Swiss Re said that its Board of Directors will “assess the optimal use of the proceeds of the sale,” with an update set to come with its full-year results.

Interestingly, Swiss Re has recently cancelled its latest share buyback, after stating that the reinsurance market looks increasingly conducive to deploying more capacity and it sees growth opportunities in an improving pricing environment, causing it to halt the return of capital.

So Swiss Re could choose to deploy some of the cash generated from the sale of ReAssure into renewal business perhaps, giving it even more firepower to capitalise on the improving price environment.

That could have ramifications for the rest of the reinsurance market, especially alongside Swiss Re’s increasing use of third-party capital and growing appetite for catastrophe risks, that are set to position it as an increasingly dominant player in global property cat risks.

Freeing up capital that was locked into the closed life book business at this time may prove particularly opportune for Swiss Re, as the timing could be ideal for it to capitalise and grow market share again.