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Swiss Re Sees Chances As Insurance M&A Picks Up

Source: Dow Jones

Posted on 07 May 2010

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Swiss Re expects that its improved capital position will help it win new business from primary insurers as the industry enters a period of increased mergers and acquisitions activity, Chief Financial Officer George Quinn told Dow Jones Newswires Thursday.

The Zurich-based reinsurance company was badly hit by the credit crisis, losing its treasured double-A rating in the process and being forced to raise capital through a deal with Warren Buffet's Berkshire Hathaway Inc. (BRKB). Helped by a deep restructuring and recovering financial markets, the Swiss reinsurer has regained a solid capital base over the last year, which it hopes will help it attract new business.

At the end of the first quarter, Swiss Re had more than $12 billion more in capital than is required for a double-A credit rating, the company said Thursday.

This solid capital position "will allow us to support clients as the industry consolidates," he said.

Mergers and acquisitions among insurers are likely to increase in coming months, Quinn said.

This echoes comments by Moody's Investors Service, which said in a recent report that it expects the sector to witness a wave of consolidation, against the background of a changing regulatory and competitive environment.

The consolidation trend yields business opportunities for Swiss Re, Quinn said.

"In non-life, Swiss Re can offer traditional reinsurance as an alternative source of capital to help fund a transaction," he said.

For example, Swiss Re can write a significant quota share reinsurance contract to reduce required capital of the merged business, he said.

Swiss Re, which is a leading player in acquiring closed books of life insurance, can also help a life insurer client partially fund an acquisition by the sale of an existing closed block of insurance contracts, he added.

"This is possible in anticipation of a transaction or by involving Swiss Re as an acquirer of a closed block from the target," he said.

Turning to a more immediate trend, Quinn said that he expects insurance rates to stabilize, a forecast that will be put to the test in July when U.S. insurers renew their contracts with reinsurers like Swiss Re.

The high number of natural catastrophes in the year to date--ranging from winter storms in Europe to the Chile earthquake and the oil spill in the U.S. Gulf of Mexico--will raise sensitivity to such risks from clients. As a result, he expects prices for reinsurance to stabilize, but said he doesn't expect them to rise just yet.