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Christian Mumenthaler, chief executive officer of Swiss Re AG, looks on during a news conference to announce the company's full-year results at the Swiss Re headquarters in Zurich, Switzerland, on Thursday, Feb. 23, 2017. Swiss Re AG said fourth-quarter profit fell 45 percent, missing analysts’ estimates, as losses from natural catastrophes in New Zealand and the U.S. weighed on earnings.

(bloomberg)

(Bloomberg) -- Billionaire Masayoshi Son’s SoftBank Group Corp. is likely to take a stake of 10 percent or less in Swiss Re AG as it seeks to gain a foothold in the cash-rich reinsurance industry. The Swiss company’s shares fell as much as 3.1 percent.

The companies are in talks about strategic cooperation as well as the anchor investment, Swiss Re said in a statement on Wednesday. It’s the first time the insurance firm has commented on the size of a possible transaction. SoftBank was considering buying as much as a quarter of the company in a deal that valued the insurer at as much as 37 billion francs ($39 billion), Bloomberg News reported last month.

A deal would see Japan’s third richest-man follow other business titans such as Warren Buffett in seeking to profit from the cash flows provided by reinsurance. Son is reshaping Japanese mobile-phone carrier SoftBank into a technology investor through its Vision Fund, while Swiss Re wants to use tech and data to develop new revenue streams, including from consumers.

Reinsurance companies generate cash flows from the premiums they collect. Working together with SoftBank, Swiss Re could leverage the Japanese conglomerate’s technology and access to high-growth Asian markets to fuel growth, Stefan Schuermann, an analyst at Bank Vontobel AG, said in a note to clients in February.

Back-Up Investor

“With SoftBank as an anchor shareholder, the reinsurer would gain a back-up investor offering protection of its balance sheet in nasty years," he wrote.

Swiss Re was down 2.8 percent at 93.66 francs as of 10:20 a.m. in Zurich. The stock has gained about 5 percent in the last 12 months.

Matthew Nicholson, a spokesman for SoftBank, said the company had nothing to add to the statement by Swiss Re.

There is no certainty that SoftBank and Swiss Re will reach an agreement on any investment or strategic partnership, the Zurich-based company said. The size of the stake in question is “currently expected not to exceed 10 percent of Swiss Re’s share capital,” the insurer said.

"If you have a small stake, you cannot influence the capital position, the assets,” Swiss Re Chief Executive Officer Christian Mumenthaler said on a conference call. “I feel there is a lot of paranoia about it.” The talks were initiated by SoftBank, he said.

Wide Reach

"All of these companies they own, they have probably about 800 million customers overall. They have a reach to 800 million customers,” Mumenthaler said. “These elements are worth exploring."

While Swiss Re holds a significant amount of treasury shares, “we would not act in a way that is disadvantageous to our existing shareholders,” Chief Financial Officer John Dacey said on the call. “It’s highly unlikely that we would simply shift the shares we currently own to any investor."

The traditional reinsurance model has come under pressure in recent years as hedge funds piled into the industry. In addition, competition is rising from the likes of more recent emerging market rivals such as India’s GIC Re and Qatar Re.

“Technology will fundamentally change the insurance value chain over the coming years,” Mumenthaler said in a statement ahead of the company’s investor day. “I am convinced it will blur industry boundaries and shift insured risks between insurance lines. Swiss Re’s tech strategy aims to access new risk pools and manage existing ones more effectively.”

The reinsurance industry should benefit from increasing prices, particularly in property & casualty and corporate solutions, following a series of natural disasters last year, Swiss Re said. Rising interest rates should also benefit the company’s investment returns, it said.

(Updates with shares in sixth paragraph, executive comments from ninth.)

--With assistance from Julie Edde

To contact the reporters on this story: Jan-Henrik Förster in Zurich at jforster20@bloomberg.net, Patrick Winters in Zurich at pwinters3@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, Andrew Blackman

©2018 Bloomberg L.P.

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