4th UPDATE: Hannover Re Buys US Life Reinsurance Portfolio
23 Enero 2009 - 9:20AM
Noticias Dow Jones
Germany's Hannover Re AG (HNR1.XE), one of the five largest
reinsurers worldwide by gross premiums, Friday said it is acquiring
a U.S. individual life reinsurance portfolio from Bermuda-based
reinsurer Scottish Re Group Ltd. (SKRRF) in a reinsurance and
asset-transfer transaction that's expected to boost its market
presence in the U.S.
Hannover Re Chief Executive Wilhelm Zeller said the acquisition
of the portfolio will boost group net profit by $30 million
annually, or EUR0.20 a share, from 2009 and for the next five
years.
The earnings boost will be on top of a "high-double-digit
million U.S. dollars" one-off contribution in 2009 due to the value
of the portfolio acquired, Zeller said.
After five years, the annual profit contribution will gradually
decline in subsequent years, as the portfolio is in runoff, that
is, gradually to be wound down, he said. The deal is to be closed
in the first quarter.
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. Under the deal,
Scottish Re will transfer $1.3 billion liabilities and assets in
cash and/or securities acceptable to Hannover Re, Zeller said.
"There was no purchase price," Zeller said in a conference call
when asked to comment about financial details of the deal.
ING Business was 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.
ING agreed to provide more than $3 billion of collateral
initially, which will grow to $5 billion over time, Zeller
said.
The reinsurer will also receive policy administration systems
from Scottish Re and will also employ part of Scottish Re's staff,
ensuring operational continuity and a transfer of know-how.
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.
"This 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," Zeller said who will retire at the end of
June.
Scottish Re said it had originally had targeted a sale of its
entire North American Segment, but due to the financial crisis,
could pursue the sale of a specific block of individual life
reinsurance only.
"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 CEO Paul Goldean.
At 1424 GMT, Hannover Re shares were up EUR0.25, or EUR1.2% at
EUR21.01, outperforming the wider market, which was down 3.2%.
Standard & Poor's Rating Services Friday affirmed Hannover
Re's 'AA-' long-term counterparty credit and insurer financial
strength ratings.
Some bank analysts perceived the transaction as cautiously
positive for Hannover Re as it will increase the portion of less
volatile business in the group's overall portfolio, making its
earnings less vulnerable to heavy U.S. hurricane seasons and other
natural disasters, which in recent years hit its property and
casualty reinsurance business.
However, the deal raises some questions, as Hannover Re decided
in late 2006 against buying Scottish Re as a whole, and peer Swiss
Re (RUKN.VX) recently had problems with its U.S. life reinsurance
business, Landesbank Baden-Wuerttemberg analyst writes who rates
the share at hold.
In November 2006, Hannover Re said it had abandoned pursuing a
bid for all of Scottish Re, after it had indicated in September of
the same year its interest in bidding for the cash-strapped
reinsurer or parts of it, along with other peers such as Scor SE
(SCR.FR).
Scottish Re in July 2006 announced a $123.9 million
second-quarter net loss, which caused its stock to fall more than
70% in a single day and its chief executive to resign. The company
was recapitalized by two private equity investors at the end of
2006.
Company Web sites: www.hannover-re.com
www.scottishre.com
-By Ulrike Dauer, Dow Jones Newswires; +49 69 29725 500;
ulrike.dauer@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front
page of today's most important business and market news, analysis
and commentary. You can use this link on the day this article is
published and the following day.