Global reinsurance giant Swiss Re has been reported to be in talks to sell a £1 billion stake in its closed life insurance book arm Admin Re unit, with pension funds, sovereign wealth and other third-party capital providers thought the likely candidates.
Swiss Re has been seeking third-party capital support for the Admin Re unit for some years now, as the reinsurance firm sought to both capitalise on the business and extract value from it to support the firms continued growth ambitions. The unit has more recently become know as Swiss Re Life Capital Partners, with Admin Re perhaps now more the vehicle.
The business of acquiring closed books of life insurance business, that Admin Re operates, should be extremely attractive to the same kinds of third-party capital investors that appreciate insurance-linked securities (ILS).
Therefore the very large pension funds and sovereign wealth funds will be natural targets, who would have the capital to take a large and importantly a long-term stake in the Admin Re business, freeing up capital for the reinsurance firm to use elsewhere.
Sky News reported today that it has learned that Swiss Re “held initial talks with pension funds and sovereign wealth funds about a deal to bring one or more of them in as a substantial minority shareholder.”
Credit Suisse is said to be running the potential sale process, but sources told Sky News that the formal discussions may not happen until after the summer, which suggests that this is the early stages of marketing Admin Re.
Admin Re should be an attractive proposition for large institutional investors, particularly with the units results having improved in recent quarters which should help with the sale of a stake (and may also explain why the discussions a few years ago never progressed).
For a large institutional investor, such as a pension fund or sovereign wealth fund, accessing the returns of closed books of life insurance business could become another attractive way to harness returns of the insurance market.
With Swiss Re’s track record for being able to access business, as one of the largest reinsurance firms in that space, as well as it’s ability to manage the books as they run down, we’d imagine some investors will look at the chance to take a stake very seriously.
One other thought on this might be that Swiss Re could set up a vehicle to allow investors to co-fund Admin Re, almost like a sidecar or feeder-fund that would allow multiple large investors to finance the £1 billion stake.
That might be an even easier sell, in the current environment where investors are extremely attracted to insurance linked investment opportunities. However it may not offer the long-term commitment Swiss Re would likely be looking for.