LONDON/ZURICH (Reuters) – Phoenix Group Holdings (PHNX.L) has agreed to buy the British business of Swiss Re (SRENH.S) for 3.2 billion pounds ($4.1 billion) in cash and shares, the UK insurer’s biggest deal to date, driving the two companies’ shares higher.
The logo of Swiss insurer Swiss Re is seen in front of its headquarters in Zurich, Switzerland, September 23, 2015. REUTERS/Arnd Wiegmann
The deal is the latest in a rapidly consolidating industry as many insurance companies, hit by tougher capital rules since the financial crisis, seek to sell legacy books of business to free up capital to invest in high-growth areas.
By consolidating the legacy books of business together, Phoenix aims to run them more efficiently. Its strong growth helped to propel it into Britain’s blue-chip FTSE 100 .FTSE this year.
“There are too many insurance companies in a market which is consolidating and we are the natural beneficiaries,” outgoing Phoenix Chief Executive Clive Bannister told a media call on Friday.
Aviva (AV.L) and M&G (MNG.L) are among insurers with substantial legacy books of insurance business that analysts have speculated could be for sale. The pipeline for large bulk annuity deals – insuring company defined benefit, or final salary pension schemes – is also strong.
The deal will take Phoenix’s total assets to 329 billion pounds and is expected to generate 800 million pounds of cost and capital synergies, Phoenix said. It is due to complete next year.
Phoenix’s shares were up 1% at 747 pence at 0902 GMT, slightly outperforming the FTSE 100, with analysts highlighting the promise of a 3% increase in the insurer’s 2020 final dividend.
Swiss Re was up 2.6% at 108.55 Swiss francs, at the top of the STOXX Europe 600 index .
Phoenix Group, Europe’s largest owner of life assurance funds closed to new customers, said acquiring ReAssure was expected to bring in additional cash flows of about 7 billion pounds over time.
Swiss Re said it would get a cash payment of 1.2 billion pounds and a stake in Phoenix of 13% to 17%. ReAssure’s minority shareholder, MS&AD Insurance Group Holdings Inc (8725.T), will receive shares in Phoenix representing an 11% to 15% stake.
The Swiss Re deal follows Phoenix’s 2.9 billion pounds deal for Standard Life Assurance in 2018, in which Standard Life Aberdeen (SLA.L) also retained a stake in the combined group.
Swiss Re Group CEO Christian Mumenthaler said the deal secured “a strong buyer” for the business.
Swiss Re, the world’s second-largest reinsurer, estimated the transaction, expected to close in mid-2020, would have a positive impact on its Group Swiss Solvency Test (SST) ratio and economic profit and a negative impact on its US GAAP results in the fourth quarter of 2019.
The Swiss company said it would take an estimated pretax charge of about $300 million in the fourth quarter, mainly to reflect the higher consolidated book value of ReAssure, driven by historically low interest rates.
The Zurich-based company in July shelved its plans for a $4.1 billion flotation of ReAssure, citing weak demand from institutional investors.
Additional reporting by Samantha Machado in Bengaluru; Editing by Stephen Coates/Edmund Blair/Jane Merriman