ZURICH (Reuters) – Swiss Re (RUKN.VX: Quote, Profile, Research, Stock Buzz), the world's largest reinsurer, agreed to buy Barclays' (BARC.L: Quote, Profile, Research, Stock Buzz) life assurance portfolio for 753 million pounds ($1.48 billion) in cash, even as it wrote down more credit assets.
Swiss Re said on Tuesday it would acquire about 760,000 life insurance and pension policies and annuity contracts, for which Barclays had stopped writing new business since 2001, representing 6.8 billion pounds in invested assets.
The deal, boosting its Admin Re unit, which buys life insurance portfolios after other firms have stopped writing new business, showed that Swiss Re was strong enough to take advantage of tough markets, Chief Executive Jacques Aigrain said.
“The difficult market environment also creates new opportunities,” he said. “Swiss Re has the execution capability and capital strength to seize these opportunities.”
The strategy of adding top-line growth through the Admin Re unit is one of the reasons why Swiss Re says it will grow faster than other reinsurers as markets stall. It also said the acquisition would not impact its share buyback program.
“The acquisition and the price paid fits into the strategy and is good news,” said Lanksbanki Kepler analyst Fabrizio Croce.
Swiss Re, which also reported second-quarter net profit below expectations, said it made a mark-to-market loss on structured credit default swaps (CDS) of 362 million Swiss francs ($345.7 million) in the second quarter.
Swiss Re shares rose 0.9 percent to 66 francs by 0905 GMT, lagging a 3.5 percent gain in the DJ Stoxx European insurance sector . Barclays shares gained 6.1 percent to 360 pence, rising faster than the banks sector .
“The key is there is still enough excess capital to finance this and the buyback plan unchanged at 7.75 billion Swiss francs by April 2010,” JPMorgan analysts said.
The sale of a non-core asset will help Barclays' balance sheet, which is under strain from the impact of the credit crunch, and will add to the British bank's capital after it raised 4.5 billion pounds last month.
Barclays expected a post-tax gain of about 330 million pounds on the sale. Excluding that gain, the transaction is not expected to have a material impact on its earnings per share, and Barclays will continue to sell life insurance products from third-party providers.
Swiss Re — unlike many other reinsurers, which reinsure risk for other insurance companies — has been hit hard by the credit crisis, having now notched up total writedowns of some 2.7 billion francs in its financial services unit, which creates products to transfer risk to capital markets.
Germany's Munich Re (MUVGn.DE: Quote, Profile, Research, Stock Buzz) has also suffered, saying last month it expects to miss its full-year earnings target due to financial market turmoil, and sees more writedowns on its equity holdings in the third quarter.
Swiss Re, which had previously expected a further 350 million franc CDS writedown in the second quarter, said it expected 2008 and probably 2009 to be challenging years for the whole insurance industry, but maintained its targets.
The reinsurer now has less than 500 million francs in remaining exposure to Alt-A and subprime-related assets, Chief Financial Officer George Quinn said. Alt-A mortgages require less documentation and were often handed to borrowers with no equity stake in the property.
Swiss Re's second-quarter net profit was 600 million Swiss francs, behind an average forecast for 795 million francs, but its combined ratio, at 92.3 percent, beat expectations with analyst predicting 96 percent according to a Reuters poll.
By Sam Cage and Paul Arnold
(Additional reporting by Clara Ferreira-Marques in London; Editing by Will Waterman)