Christian Mumenthaler, the Chief Executive Officer (CEO) of reinsurance giant Swiss Re, has said that the firm is “not the ideal owner” of its UK closed book business, ReAssure, following an announcement that the reinsurer is to explore a potential Initial Public Offering (IPO) of the business in 2019.
Speaking during the reinsurer’s first-half 2018 earnings call, Mumenthaler commented on the potential IPO of the business in 2019. He stressed that “Swiss Re is not the ideal owner of this business, as a large amount of the risk you take is asset risk.”
Swiss Re is subject to the Swiss Solvency Test (SST) capital regime, which makes holding asset risk more difficult. As a result, the reinsurer explains that ReAssure’s asset-intensive business is subject to substantial asset risk charges, which Mumenthaler explained the firm is not comfortable with, adding that it “actually hinders our ability to hold assets in other business units.”
Part of the Group’s strategy with ReAssure is securing third-party capital to pursue further closed book transactions, demonstrated by the investment of MS&AD in the business.
The CEO said that after finding an anchor investor, such as MS&AD, the “IPO is the next logical step.”
He added that an IPO is not something the firm is forced to do, but more that it’s making preparations with a view of creating “a great future for this business.”
The reinsurer notes in its H1 2018 earnings release, that “Given the size of potential opportunities that are expected to come up in the market over the mid-term, it is important for ReAssure to have access to substantial new capital to acquire additional closed books.”
But despite feeling that Swiss Re isn’t the “ideal” owner of the business, the reinsurer notes that the closed book business is still an attractive growth area for the firm, and so it plans to remain a significant investor in ReAssure.