Reinsurance firm Swiss Re has entered into an agreement with HSBC to purchase over 400,000 individual and group pension and related annuity policies as well as GBP £4.2 billion in unit-linked assets from HSBC Life (UK) Limited.
This is the first transaction from Swiss Re’s Admin Re business unit in some time, the future of the Admin Re unit had been in some uncertainty after it sold its U.S. Admin Re business and also said it may seek third-party capital support for the UK Admin Re arm.
Admin Re is one of Swiss Re’s three core business units. It focuses on acquiring blocks of in-force life and health insurance business, aiming to give a diversified stream of income to Swiss Re and generate substantial cash for the reinsurance group. Swiss Re said this latest transaction; “Underscores Admin Re’s capability to execute transactions with key Swiss Re clients and migrate significant portfolios onto Swiss Re’s proprietary platform.”
As part of this deal, Swiss Re has also entered into a reinsurance agreement with HSBC, transferring certain economic risks and rewards of the business to Swiss Re from 1 January 2014 until completion of the transaction.
The purchase of the corporate and individual pensions policies and annuities book, as well as the reinsurance transaction, have been undertaken through an entity called ReAssure Limited, a wholly-owned subsidiary of Admin Re Group.
Approximately £4 billion of the underlying assets covered by this transaction are currently managed by HSBC Global Asset Management and that firm will continue to be the investment manager of those assets once the deal is completed.
John R. Dacey, Chairman of Admin Re and member of the Swiss Re Group Executive Committee, commented; “This transaction is an attractive opportunity for Admin Re and confirms our commitment to execute on the strategy to grow the Admin Re business in the UK. Transactions such as this allow Admin Re to maintain and increase the scale of its business and provide attractive shareholder returns.”
The transaction is subject to regulatory and Court approval and is expected to be completed in the second half of 2015.
Large transactions such as this are undertaken by Admin Re with an expectation of being able to manage and make a profit from the assumed business, while freeing up capital for the previous owners HSBC. Hence the introduction of third-party capital into Admin Re made a lot of sense as a strategy, but at this stage Swiss Re has not made any announcement as to whether it has gone any further down that path to allow third-party capital to share in the profits of Admin Re.