Swiss Re yesterday leapfrogged its rival Munich Re to become the world's biggest reinsurance company with the $7.6 billion (€6.46 billion) takeover of most of General Electric's reinsurance activities.
The deal will forge a bond between the Swiss and US groups, with GE potentially becoming Swiss Re's biggest shareholder, with 10-13 per cent of the stock. John Coomber, Swiss Re chief executive, said the purchase reflected a new emphasis on size in reinsurance after intensifying natural catastrophes. Size would also boost Swiss Re's pricing power at a time when reinsurance premiums were rising after natural catastrophes, most notably US hurricanes.
Adding $6.2 billion in annual premiums from General Electric Insurance Solutions (GEIS) to Swiss Re's current $25.8 billion will lift the group well ahead of the $28.9 billion at Munich Re, until now the uncontested industry leader.
The deal marks an important step for GE, completing its strategy of unwinding the sprawling insurance business.
GE began the process last May, with the flotation of its consumer insurance business, Genworth, to release capital for reinvestment in less volatile and faster-growing businesses, such as healthcare. The proceeds from the latest sale will be used to help increase GE's share buyback programme from $15 billion to $25 billion at a time when the conglomerate's share price has been languishing.
GE yesterday increased its 2005 dividend by 14 per cent and raised its earnings outlook for 2006. GE shares rose about 3 per cent in morning trading. Swiss Re closed up 1.24 per cent at SFr94.
To finance the deal, GE will receive up to $3.8 billion worth of Swiss Re shares, to be held for at least a year. Swiss Re's shareholders are expected to provide about $2 billion in new capital. The deal is expected to be closed in mid 2006.
GEIS, known for brands like Employers' Re in the US and UK and Frankona in Europe, has had patchy profitability. GE has put some $7.7 billion into reserve top-ups in recent years, and will add a further $3.4 billion as part of the disposal.- (Financial Times service)
