Swiss Re to Buy Guardian Financial Services for $2.5B, Hiking UK Portfolio

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Swiss Re AG’s business unit Admin Re agreed to acquire Guardian Holdings Europe Ltd. from buyout firm Cinven for 1.6 billion pounds ($2.5 billion) to increase its portfolio of U.K. life-insurance policies.

The deal will give Admin Re an additional 900,000 annuity, life insurance and pension policies in the U.K. and Ireland and the purchase is expected to be completed early next year, Swiss Re said in a statement Wednesday.

“This acquisition is in line with Admin Re’s strategic goals as well as with our multi-year financial planning,” said Swiss Re Chief Financial Officer David Cole. The deal, which is subject to regulatory approval, won’t affect the company’s share buyback program, he said.

Swiss Re said the Guardian purchase is an opportunity to deploy part of its excess capital, which is prompting mergers across the industry. Admin Re was expected to pay $600 million in dividends from 2015 through 2016 before the Guardian deal as management sought to improve the unit’s profitability, Swiss Re said July 30.

The purchase “appears to be a strong step towards moving Admin Re’s return on equity from low single digits currently towards its target of 6 percent to 8 percent,” Jefferies International Ltd. analysts Anasuya Iyer and Mark Cathcart wrote in a note to clients on Wednesday. “The transaction is a positive step.”

Cinven bought Guardian from Dutch insurer Aegon NV for 275 million pounds in 2011 and made three acquisitions of closed insurance businesses since then. Guardian, based in Lytham Saint Annes, western England, and Admin Re both buy and consolidate blocks of existing life and pension insurance policies. After the purchase, Admin Re will have more than four million policies in the U.K.

Admin Re was competing with Phoenix Group Holdings, the U.K.’s biggest manager of closed life insurance funds, to acquire the business. Phoenix’s Chief Executive Officer Cliver Bannister and other firms including Royal London Group have said they expect to see similar businesses be put up for sale as the new capital rules, known as Solvency II, come into effect in January.

Shares of Swiss Re, Europe’s second-biggest reinsurer, were little changed at 82.40 francs as of 11:27 a.m. in Zurich, and the shares are down 1.5 percent this year.

–With assistance from James Cone, Neil Callanan and Sarah Jones in London.