Swiss Re Insurance-Linked Fund Management

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Swiss Re forecasts reinsurance growth, says SoftBank limited to 10%


Reinsurance firm Swiss Re said this morning that it anticipates that reinsurance premiums will grow at a rate of 5% per-annum over the next five years at least, providing it with plenty of opportunity to put its strategy to work, but despite that opportunity a deal with a major investor remains under discussion.

Swiss Re SoftBankIn the same announcement the reinsurer also revealed that while its discussions with Japanese tech giant SoftBank Group are ongoing, the negotiations are over an investment stake with a maximum size of 10%.

Swiss Re is at the heart of the merger and acquisition rumour-mill these days, after it was revealed that the reinsurance giant is in early stage talks with Japanese tech giant SoftBank about the investor taking a stake in the reinsurer.

That stake had been mooted as focused on as much as 25% of Swiss Re’s share capital, but this morning the reinsurer said that the investment stake was seen at a maximum of 10% of the company, as our sister publication Reinsurance News reported earlier.

Swiss Re did say that the ongoing discussions with SoftBank do revolve around more than just a pure investment stake in the reinsurance firm, with other areas of “strategic cooperation” also under consideration.

CEO Christian Mumenthaler spelled out what is particularly attractive about having a firm like SoftBank as an anchor investor, saying this morning that the idea of partnering with a tech-driven giant that has full access to markets such as Asia and a growing client base of around 800 million people through its business is particularly attractive.

Swiss Re is itself driving in a more tech-driven direction, but the transformation that could be possible by integrating its risk capital and risk analysis with SoftBank’s tech-driven distribution capabilities to a massive client-base would be particularly compelling.

Making such a deal and the access to customers (real people) it would provide so attractive, is the expectation that the insurance and reinsurance industry is going to experience growth over the coming years.

Swiss Re is bullish about the possibilities for the reinsurance market, saying this morning that, “The current outlook for the re/insurance industry remains positive as the market environment continues to improve. Increasing prices are expected to be particularly beneficial for Property & Casualty Reinsurance and Corporate Solutions.”

At the same time the firm is convinced that, “Long-term trends for the industry remain positive and highly attractive.”

In fact, Swiss Re foresees growth of the risk-pools it targets, “Fuelled by demographic trends and a strengthening of the world economies’ combined GDP.”

Of course, much of the GDP growth that companies like Swiss Re really wants to tap into is going to be in markets like Asia and the access to risk that SoftBank could provide is one thing that makes an investment particularly compelling.

Swiss Re forecasts growth of the overall market of 5% across the next five years, based on expected reinsurance premium growth per annum in nominal USD terms.

However that reinsurance market growth rate increases to 8% for so-called high growth markets, offering the reinsurer “much potential” it said this morning.

Spelling out the strategy to capitalise on this reinsurance market growth and need for more risk capital in the world, Swiss Re explained, ” Technology-based solutions are expected to broaden insurance coverage and reduce the large protection gap by enabling the creation of improved, more efficient and less expensive insurance offerings.”

Mumenthaler said, “Swiss Re maintains its commitment to creating long-term value, and we are well-placed for growth. Our capital position is industry-leading, enabling us to deploy capital in the currently more positive environment. We are a risk knowledge company with strong R&D focus. Our tech strategy provides us with a competitive advantage to anticipate changes in the insurance value chain and secure access to new risk pools. Our insights allow us to continue partnering with our clients and to develop solutions which tackle the protection gap.“

This is where Swiss Re can really benefit from the SoftBank alliance, whether that’s an investment or some kind of understanding that Swiss Re is the risk capital provider of choice for the firm.

A growing market, despite competitive price dynamics, suggests a need for broader distribution and access to risk, which will drive increasing competition and push re/insurers to compress the value-chain even further over the coming years.

By securing an anchor partners like SoftBank Swiss Re can secure its future, to a degree, with an enhanced route to market, access to risk and distribution channel all of its own.

Mumenthaler has explained the rationale behind a SoftBank deal before, calling it, “A collaboration, coupled with a minority investment,” and saying that “We’re not just going to do M&A for no reason, it has to add value,” calling SoftBank the type of major investor that looks at every important tech investment globally, which he said for Swiss Re, “Why wouldn’t we find that attractive.”

Of course this all boils down to three things still, scale, relevance and transformation, which if achieved can position the reinsurance firm as the master of its own destiny, at least for a few more years, at a time when the rest of the market is feeling increasing pressure.

Swiss Re is trying to get ahead of the game, that has been its strategy in recent years, and this SoftBank deal would help to propel it ahead of even its closest rivals, at least for a time.

That makes the likelihood that some sort of deal or agreement is struck between Swiss Re and SoftBank high, we believe.

Now that one major reinsurer has begun discussions with an outside party on a potentially transformative deal, it’s increasingly likely that the likes of Munich Re, Hannover Re, SCOR, or major global primary insurers, are entering into discussions with the likes of Google, Amazon and Apple et al.

Nobody wants to get left behind and the more the Swiss Re – SoftBank deal is discussed without agreement, the greater the risk a competitor finds its transformative deal first.

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