Swiss Re plans a stock market listing next year for its UK unit that specialises in managing the closed books of life assurance companies and could be worth about ÂŁ3.5bn or more.
An initial public offering of shares in ReAssure would pave the way for its further expansion, the Zurich-based reinsurer said on Friday. â€śItâ€™s a great business, but Swiss Re is not the ideal majority shareholder,â€ť said Christian Mumenthaler, Swiss Reâ€™s chief executive.
He cited regulatory factors, as well as differences between ReAssure and Swiss Reâ€™s main reinsurance businesses, as reasons for the move.
The proposed spin-off highlights the upheaval in the business of running closed books of life insurance policies. Insurers have been keen to get rid of what they see as legacy liabilities, while consolidators such as ReAssure see economies of scale in bringing several books together.
In October last year ReAssure was valued at ÂŁ3.5bn when Japanâ€™s MS&AD Insurance paid ÂŁ175m for a 5 per cent stake, with a commitment to invest a total of ÂŁ800m and take its stake to a maximum of 15 per cent.
Since then, ReAssure has acquired 1.1m Legal & General life policies for ÂŁ650m, which increased its total assets under management to ÂŁ77bn.
â€śGiven the size of potential opportunities that are expected to come up in the market over the mid-term, it is important for ReAssure to have access to substantial new capital to acquire additional closed books,â€ť Swiss Re said on Friday.
Phoenix, a direct rival of ReAssure, has proved that it is possible to raise money on the public markets for these businesses, despite their capital-intensive and long-term nature. The company has raised ÂŁ950m in a rights issue to fund the acquisition of Standard Life Aberdeenâ€™s legacy insurance book.
â€śWith total UK life reserves of $440bn, the closed book market presents a material growth opportunity, given that ReAssure already has scale in the UK, with a 14 per cent market share,â€ť said Philip Kett, an analyst at Jefferies.
He added that an IPO â€śwould give ReAssure access to equity capital markets, allowing it to swiftly raise additional capital when opportunities arise, rather than arranging long and complex private deals, such as the MS&AD dealâ€ť.
Swiss Re said ReAssure would be listed in the UK and it expected to remain a significant minority shareholder in the business. While Swiss Re said the IPO and deconsolidation of ReAssure made sense given the charges on asset-intensive businesses under Swiss solvency rules, Mr Mumenthaler said the move was not based on the assumption of a loose UK regulatory regime after Brexit.
News of the IPO plans came as Swiss Re reported net income of $1bn in the first half of 2018. Without US accounting changes, however, net income would have been $1.2bn â€” unchanged from the same period a year earlier. Gross written premiums rose 8 per cent to $19.6bn, powered largely by Swiss Reâ€™s life and health businesses.
Separately, Swiss Re confirmed it had stopped providing reinsurance and insurance to businesses with more than 30 per cent exposure to thermal coal, following similar moves by other large insurers.