2nd UPDATE: Hannover Re Buys US Life Reinsurance Portfolio
23 January 2009 - 9:24PM
Dow Jones News
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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