Swiss Reinsurance buys GE unit for $6.8 billion in cash and stock

Nov 18 | Updated: Nov 19 2005, 07:29am hrs
Swiss Reinsurance Co, the worlds second-largest reinsurer, agreed to buy General Electric Cos reinsurance business for $6.8 billion in cash and stock, in the companys biggest acquisition ever.

Swiss Re, which is also assuming $1.7 billion of debt, will sell as much as $7.5 billion of securities to fund the purchase of GE Insurance Solutions, the Zurich-based company said in a statement on Friday.

General Electric will own more than 10% of Swiss Res stock after the sale. Swiss Re shares rose as much as 2.8% to 95.4 francs as they resumed trading in Zurich.

The purchase gives Swiss Re an additional $6.2 billion of annual net premiums, vaulting it ahead of Munich Re as the worlds biggest reinsurer, and coincides with an increase in insurance rates after a record US hurricane season. Now is a good time to buy reinsurers, said Florian Esterer a Zurich-based fund manager at Swisscanto Asset Management AG, which oversees $43 billion, including about 1.8 million Swiss Re shares.

General Electric chief executive officer jeffrey Immelt is selling insurance businesses to focus on faster-growing areas such as consumer finance. The Fairfield, Connecticut-based company on Friday raised its earnings forecast and increased a share buyback program following the sale to Swiss Re.

Adding Scale The purchase of Kansas City, Missouri-based GE Insurance Solutions, the worlds fifth-biggest reinsurer, will add to earnings per share and return on equity beginning in 2007, Swiss Re said.

A Square Deal

General Electric will own more than 10% of Swiss Re's stock after the sale
Purchase gives Swiss Re an additional $6.2 bn of annual net premiums ahead of Munich Re
Takeover will add assets of $41.5 bn, giving Swiss Re a total of $200 billion

The takeover will also add assets of $41.5 billion, giving Swiss Re a total of 265 billion francs ($200 billion). Scale does matter in our business, said Jacques Aigrain, 51, who takes over as CEO of Swiss Re from John Coomber on Jan 1. A strong balance sheet and absolute scale allows us to serve the industry and to serve the final clients better and with more capital efficiencies, especially in view of major catastrophes.

Swiss Re, which last month said it will miss a 2005 profit target after the hurricanes, in August picked Aigrain, a former mergers banker at JPMorgan Chase & Co, to help revive earnings growth.

Swiss Re, which helps reinsurers shoulder risk, had losses in 2001 and 2002 after claims from the Sept 11 terrorist attacks and as declining stock markets eroded the value of investments. This years record hurricane season in the US will probably lead reinsurers to raise catastrophe premium rates by an average of 20% to 30% next year, according to Michael Huttner, an analyst at JPMorgan Chase & Co.

Swiss Re said on Nov 4 theres a clear expectation in the US that prices will go up. Cost Savings GE Insurance Solutions, which mainly reinsures property, casualty and life policies sold by other insurers, contributes about two-thirds to GEs $71 billion in insurance assets, excluding Genworth.

Of the $3.7 billion in policies the unit booked in the first half of this year, $2.9 billion was from reinsurance.