Swiss Re is moving forwards with long-discussed plans for an initial public offering (IPO) of shares in its UK closed life book consolidator business ReAssure.
An IPO registration document for the ReAssure Group plc share offering is due to be filed today, pending the approval of the UK’s Financial Conduct Authority, Swiss Re said this morning.
Swiss Re said that the publication of an IPO registration document today, if approved by the regulator, is the first step to listing ReAssure ordinary shares on the London Stock Exchange.
ReAssure is focused exclusively on the acquisition and management of closed books of life insurance policies, seeking to consolidate multiple books into one portfolio and generate efficiencies through better management and by leveraging the strength of Swiss Re’s overall group-wide capacity.
Swiss Re originally announced back in August 2018 that an IPO for the ReAssure business could be on the cards. However, the firm has actually been discussing bringing new, third-party capital into the closed life book business under Admin Re (which was parent company to ReAssure) since as long ago as 2013.
An initial public offering (IPO) of ReAssure’s shares provides a route to bring fresh capital into the business, providing working capital to put into new transactions and grow the UK life insurance book under the brand.
Economies of scale matter in the closed book consolidator business and a fresh capital injection could help Swiss Re to add scale to ReAssure, while not putting more of its own capital into that business.
In addition, the IPO would be an opportunity for investors to back the business and benefit from the returns possible in this area of life insurance, under a Swiss Re owned brand, which could be attractive.
Swiss Re said that should ReAssure proceed with this IPO it will look to reduce its stake in the business from the 75% holding it has today to below 50%.
Japanese insurance group MS&AD Insurance Group Holdings Inc (MS&AD) owns the other 25% of ReAssure, having bought into the business, having bought some of Swiss Re’s stake in two transactions completed in early and late 2018.
Swiss Re said this morning that ReAssure has now been reorganised into a standalone group, in preparation for the IPO.
As part of that process of readying the ReAssure business for IPO, its current stakeholders are set to inject more capital into the life insurer.
Swiss Re said that this will give ReAssure “a more efficient and appropriate capital structure” helped by a net increase of GBP £481 million in ReAssure’s capital position made by the two shareholders, Swiss Re and MS&AD, in proportion to each of their current holdings in the firm.
Analysts have suggested that Swiss Re could save as much as $4 billion from an IPO of ReAssure, if it took the opportunity to sell down its stake to a level where it was simply an equity holding risk to the firm.
That’s in terms of the capital relief it would offer if the firm decided to significantly reduce its stake.
Analysts said that the more of its stake that was sold the greater the relief for Swiss Re, given the UK credit risk it is exposed to through its stake consumes a disproportionate level of capital under Swiss Solvency Test (SST) regulations.
So, it will be interesting to see how much of ReAssure Swiss Re seeks to float in any IPO and how much the firm retains as its own stake going forwards.