Germany's Hannover Re AG (HNR1.XE), one of the five largest reinsurers worldwide, Friday said it is acquiring a U.S. individual life reinsurance portfolio from Bermuda-based reinsurer Scottish Re Group Ltd. (SKRRF) in a non-cash reinsurance and asset-purchase transaction.

Hannover Re said it will assume all liabilities of the portfolio, dubbed ING Business, and will in turn receive assets from Scottish Re to fund those liabilities. No further financial details were disclosed.

The reinsurer will also acquire policy administration systems from Scottish Re, and other assets supporting the U.S. life reinsurance business.

Hannover Re said it won't need external funding to complete the transaction, that the acquisition of the portfolio will be net profit accretive from 2009 and is expected to close in the first quarter.

ING Business, was originally bought by Scottish Re from ING Groep NV (ING) in December 2004. Effectively, Hannover Re is replacing Scottish Re as reinsurer for the ING U.S. life reinsurance portfolio, a Hannover Re spokesman said.

Reinsurers such as Hannover Re, Munich Re AG (MUV2.XE) or Swiss Re Co. (RUKN.VX) reinsure primary insurers like Allianz SE (AZ), so the latter can take more risks onto their books.

In 2009, the new business is expected to generate a premium volume of around $1.2 billion for Hannover Re and will move it to the number five position in terms of individual life reinsurance in-force in the U.S., it said.

"This is a transformational step for our global life reinsurance ambitions," said Hannover Re Chief Executive Wilhelm Zeller. "It contributes a large block of business in force, together with industry-leading capabilities in mortality research, pricing, underwriting and reinsurance administration which will substantially increase our presence and earnings from the U.S. mortality risk market ..."

The acquisition includes all operating assets required to administer the portfolio. Hannover Re will also employ part of Scottish Re's staff, ensuring operational continuity and a transfer of know-how.

Scottish Re said in a press release on its Web site that it "originally had targeted a sale of its entire North American Segment, but following the historic disruption in the financial markets in late September, it was unable to consummate such a transaction."

In an effort to find ways to address its acute capital, liquidity and collateral needs and to allay regulatory concerns, Scottish Re pursued the sale of a specific block of individual life reinsurance in its North America Segment, the company said.

"This transaction is the next step in Scottish Re's previously disclosed change to its strategic focus to preserve capital and mitigate growing liquidity demands," said Scottish Re CEO Paul Goldean.

At 0930 GMT, Hannover Re shares were down EUR1.43, or EUR6.9% at EUR19.33, underperforming the wider market, which was down 2.9%.

Some analysts perceived the transaction as cautiously positive as it will increase the portion of less volatile business in the group's overall portfolio.

On the one hand, the transaction will boost the group's life reinsurance business by some 27% and lift net profit by 5% annually, assuming an operating profit margin of 5.5%, a Landesbank Baden-Wuerttemberg analyst writes.

As a result of the transaction, the group's earnings will be less vulnerable to heavy U.S. hurricane seasons and other natural disasters, which in recent years hit its property and casualty reinsurance business.

The portfolio acquisition will give Hannover Re access to the U.S. market and expertise in this business segment, Merck Finck analyst Konrad Becker writes, who rates the stock at sell. He added that he will discuss further earnings implications after Friday's 1200 GMT conference call.

However, the deal raises some questions, as Hannover Re decided about two years ago against buying Scottish Re as a whole, and peer Swiss Re (RUKN.VX) recently had problems with its U.S. life reinsurance business, the LBBW analyst writes who rates the share at hold.

Company Web sites: www.hannover-re.com

www.scottishre.com

-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500; ulrike.dauer@dowjones.com

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