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SoftBank investment in Swiss Re would be credit positive: Moody’s

12th February 2018 - Author: Steve Evans

According to rating agency Moody’s, a minority investment from technology, telecommunications and investment giant SoftBank would be credit positive for reinsurer Swiss Re.

SoftBank logoThe news broke last week that Swiss Re and Japanese tech conglomerate SoftBank have been in talks discussing a minority investment in the reinsurer.

An intriguing proposition, as it would see an industry outsider taking what has been mooted as up to a third of one of the largest reinsurance firms, much speculation has ensued as to the rationale behind such a deal.

Moody’s is relatively bullish about the prospects for such a deal, saying it would see such an investment as “credit positive” for Swiss Re.

“Selling a significant minority stake to SoftBank would be credit positive for Swiss Re over the longer-term, as Softbank’s communication and technology expertise and network of hi-tech investments would give the reinsurer a competitive advantage as the (re)insurance sector adapts to transformational technologies that will over time test its business model,” Moody’s explained.

Continuing, “A partnership with SoftBank would give Swiss Re access to an additional deep capital base, supplementing Swiss Re’s existing strong financial flexibility. We would nonetheless expect Swiss Re to diligently retain its risk-focused culture if SoftBank were to become a significant shareholder, given the substantial differences between the two companies.”

Moody’s goes on to say that advances in technology are set to “challenge the relevance of the traditional insurance model over time” citing the potential for demand changes, as well as for re/insurers to get closer to their customers.

The rating agency explains that Swiss Re is already making efforts to develop and adopt transformative technologies, both through its own internal initiatives and partnerships with other companies and insurtech start-ups.

While these efforts are small in relation to Swiss Re’s reinsurance business, they do have the potential to become increasingly important to the reinsurer.

A relationship with a company such as SoftBank, which creates its own technology, invests heavily in some of the most successful start-ups and also helps to launch new companies, could be a transformative proposition for the reinsurer.

Moody’s notes, that SoftBank’s investment activities could give Swiss Re access to a “broad stable of expertise” while the reinsurer could also capitalise on the access to data that a deal could open it up to.

Importantly, SoftBank also has access to huge numbers of users and customers, to which Swiss Re protection products could be opened up.

Additionally, Moody’s channels our sister publication Artemis in saying that a deal with SoftBank would be perfectly aligned with Swiss Re’s mission of creating and backing new risk pools, as well as efficiently matching risk with the right form of capital.

Moody’s does urge some caution though, saying, “Softbank’s purchase of a potentially significant minority stake in Swiss Re would almost certainly give it some influence over the reinsurer’s strategy. This could be helpful in accelerating technology enabled transformation, but could also challenge Swiss Re’s risk culture in some areas.”

However, Swiss Re would be expected by Moody’s to remain vigilant, to ensure it has safeguards in place to manage its business should a transformative deal with SoftBank be agreed upon.

There’s no guarantees at this stage that a SoftBank and Swiss Re deal will be agreed, but it has certainly opened up the eyes of the re/insurance industry and made it aware that there are opportunities to tie up with tech-led giants that could help re/insurers to transform their fortunes.

Swiss Re is already one of the leading companies in this sector, but a well-executed tie-up with the likes of SoftBank could propel it to new levels of success.

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