Swiss Re, whose U.S. headquarters are in Armonk, will sell its U.S. Admin Re business, known as the Reassure America Life Insurance Co., to Jackson National Life Insurance for $600 million in cash. Swiss Re will also get a pre-closing dividend of $300 million.
Admin Re is the unit of Swiss Re that acquires life and health insurance business and then administers the underlying policies. U.S. Admin Re said it expects a loss of $900 million from the transaction, which it said would be booked in the second quarter of 2012. The exact amount of the loss will be determined at closing. Swiss Re will retain certain blocks of business. Jackson National Life Insurance is headquartered in Lansing, Mich., but the unit that sells life insurance in New York state, Jackson National Life Insurance Co. of New York, is based in Purchase. Jackson is a unit of Prudential PLC of the United Kingdom.
Swiss Re said it wanted to free capital and monetize the value of Admin Re. It also said it wants to focus on life insurance in the United Kingdom and continental Europe.
"After conducting a thorough review of the Admin Re portfolio and evaluating the level of capital allocated to the Admin Re U.S. business, we concluded that we should redeploy the capital in other parts of our business," Admin Re Chairman David Blumer said.
"We consistently said the group's 2011 to 2015 financial targets are our top priority," said Swiss Re Group Chief Executive Michel Lies. "Redeploying the funds freed up through this transaction within the Swiss Re Group will have a beneficial impact on all three of our financial targets in the future, that is to say return on equity, earnings per share and economic net worth growth."
Mark Bonthrone, spokesman for Swiss Re in Armonk, said there are 118 Admin Re employees in the U.S. with 42 in Armonk The other workers are in New York City and Dallas. He said all would be offered jobs with Jackson National, except for what he called a "lean team" that would remain with Swiss Re.
"The company gave an investor presentation in April in which it highlighted Admin Re as a business where they need to improve returns; the business in the U.S. was producing weak returns," said Ben Cohen, an analyst at Canaccord Genuity in London who has a hold recommendation on Swiss Re.
He said the reasons for the low returns in the U.S. were declines in bond yields since the contracts were written, expense overruns and pricing changes.
"What they have done is consistent with the strategy to take the proceeds and invest them at a higher return, the best returns are in the property and casualty part of business."
Cohen said this move leaves Swiss Re with a business in the U.K. doing the same thing, and raises the question of Swiss Re's intentions toward Admin Re. "We think this increases the likelihood of an exit from Admin Re as a whole," he said, "particularly if the company is unable to gain traction in continental Europe." He said a complete exit would likely be well received.
Cohen pointed out that another part of the business that has been acknowledged to be a poor performer is the U.S. life reinsurance business. He said there's a question as to whether Swiss Re would look to sell that.
"But I don't think this is a retrenchment from the U.S.," he said. "On the property and casualty side there is a big commitment to the U.S. market, it's been profitable for them for many years. And on the life reinsurance side they still have a big market share, they are third in the U.S. life reinsurance market."
Raphael Caruso, an analyst at Raymond James in Paris who has an underperform rating on Swiss Re stock, agreed that the reason for the sale was to allow Swiss Re to redeploy capital to more profitable business units in the U.K. and continental Europe. He also pointed out that Swiss Re, as a reinsurer, a company that insures insurance companies, may find itself in a sweet spot this year. "Last year, 2011, was terrible for natural catastrophes and hard for reinsurers. But in 2012 we have seen the rates increase a lot for reinsurers. So 2012 could be very nice year for them." He said there have not been a lot of catastrophes or losses this year, although we have seen flooding in France, and earthquakes in Asia and Italy. None of that, of course, compares to the earthquake in Japan in 2011.
"It could be good to be on the reinsurance side this year rather than insurance," Caruso said. "In Europe we have the huge crisis about debt. A reinsurer has less exposure to the sovereign debt crisis than an insurer. Life insurance companies have big investment portfolios, they are exposed to the debt of Greece and Spain."