General Electric has agreed to sell most of its Insurance Solutions business, including Employers Reinsurance Corp., to Swiss Re for $6.8 billion. It will retain some life insurance business.
The transaction is subject to customary regulatory approvals and typical closing conditions, and is expected to close in the first half of 2006.
“Since 2002 we have been executing a strategy to redeploy capital to faster-growth and higher-return businesses,” said GE Chairman and CEO Jeff Immelt. “Since that time, we have completed or announced five insurance divestitures, generating approximately $25 billion in cash.
“For GE investors, this allows us to enter 2006 with the fastest-growing, highest-return set of businesses we have had for many years,” Immelt said. “We will have a better mix of growth, higher return on equity financial services businesses and faster-growing industrial businesses, all driving stronger free cash flow.”
As consideration for Insurance Solutions, GE will receive up to $3.7 billion in cash and notes, representing up to 55 percent of the purchase price and shares of Swiss Re common stock equivalent to the remaining 45 percent of the value of the transaction. Swiss Re will assume $1.7 billion of debt. GE will retain the U.S. life reinsurance operations of GE Insurance Solutions, which is being downsized.
“Insurance Solutions has been a tough strategic fit for GE,” Immelt said. “Over the last five years, the Insurance Solutions business has lost $700 million and required the infusion of $3.2 billion of capital. By its nature, reinsurance is volatile and consumes capital to grow. The terms of this transaction provide compelling value for our shareowners as well as more certainty and greater earnings consistency in the future.”
The transaction values the business units sold at approximately 28 times the average of 2003-2005 earnings. Despite this valuation, GE expects to incur an after-tax loss of approximately $2.8 billion from the disposition, which includes loss on Insurance Solutions book value, goodwill write-off and taxes.
“We believe this is a good transaction for both companies,” Immelt said. “Led by CEO-elect Jacques Aigrain, Swiss Re will become the world’s leading reinsurance company. These are complementary platforms with great teams. We believe the GE investment in Swiss Re will benefit from strong execution and financial synergies resulting in further upside for GE shareowners.”
Upon completion of the transaction, GE will own approximately 10-13 percent of Swiss Re’s common stock. GE will have the right to nominate one director for election to the Swiss Re Board of Directors. GE Vice Chairman Dennis Dammerman will be nominated to serve. The company also indicated its plans to sell its remaining holdings in Genworth by the end of 2006.
“With this transaction our portfolio has been streamlined for growth,” said Immelt. “Our businesses continue to capitalize on strong market demand, a healthy environment, unstoppable demographics and improved efficiencies and synergies from our reorganization. With the proceeds from this sale and robust growth in cash flows from operating activities, we are returning greater value to our shareowners with a significant increase to our buyback program and 2006 dividend. For the year ahead, we see great opportunities for sustained performance.”
Based in Kansas City, Mo., GE Insurance Solutions had net premiums earned of $6.2 billion in 2004 and total assets of $41.5 billion as of June 2005 (excluding GE Insurance Solutions’ US life and health business which will not be part of the transaction).
The acqusition is a strong addition to Swiss Re, bringing complementary products and skills and an attractive client base across many geographies.
“This is both strategically and financially a very attractive transaction
that creates significant value for our shareholders,” said John Coomber, Swiss Re CEO. “The acquisition of GE Insurance Solutions provides a powerful business fit offering tremendous opportunities to strengthen our franchise.”
Under the terms of the transaction, Swiss Re will purchase GE Insurance Solutions for $6.8 billion, subject to closing adjustments. This represents 76 percent of the approximate $8.9 billion US GAAP book value (before additional reserves) of the businesses to be acquired. As part of this transaction GE Insurance Solutions will provide approximately $3.4 billion pre-tax in additional reserves to the extent permitted by accounting rules.
The consideration to be paid to GE will consist of cash, Swiss Re shares, Mandatory Convertibles and Notes. As a result, GE is expected to hold in excess of 10% of Swiss Re shares.
Also under the terms of the agreement, Dennis D. Dammerman, vice chairman of the Board of GE, will stand for election to the Board of Directors of Swiss Re at the Extraordinary General Meeting to be held in January 2006.
Jacques Aigrain, who will succeed John Coomber as CEO of Swiss Re on Jan. 1 2006, added, “This transaction further enhances our client base and our product capabilities in attractive lines of business. Together, Swiss Re and GE Insurance Solutions will offer clients the security of the world’s largest and most diversified reinsurance provider. GE’s retention of an equity interest in our combined reinsurance business is a strong endorsement of our business expertise and strategy.”
“Over the past five years, we have fundamentally repositioned GE Insurance Solutions’ business,” said GE’s Immelt. “We believe that
Swiss Re, with its reinsurance focus and its proven track record of
successfully integrating acquired businesses, is ideally positioned to develop GE Insurance Solutions’ business further for the benefit of clients and GE’s shareholders.”
Separately, Swiss Re said that Pierre Ozendo, currently
head of Swiss Re’s client markets in Asia, will succeed Andreas Beerli as Head of Property & Casualty client markets for the Americas.