Swiss Re to benefit from ReAssure IPO

An initial public offering (IPO) of the UK closed life book business ReAssure would be credit positive for Swiss Re because it would reduce the group’s exposure to credit and market risk, according to Moody’s.

Swiss Re is exploring a potential IPO of ReAssure in 2019.

Under Swiss Re's Swiss Solvency Test capital regime, ReAssure's asset-intensive business is subject to significant asset risk charges. Nonetheless, the closed book consolidation market remains an attractive growth area for Swiss Re, which is expected to remain a significant investor in ReAssure, the company said.

Moody’s noted that the transaction would allow Swiss Re to benefit from ReAssure’s growth without breaching its own appetite for asset risk, given that it plans to remain a significant shareholder. A reduction of Swiss Re’s stake in ReAssure would free up significant risk capital that could be deployed elsewhere or returned to shareholders, the rating agency noted. The potential IPO is in line with Swiss Re’s strategy of securing third-party capital investment in ReAssure, as demonstrated by the recent investments of MS&AD, Moody’s added.

In October 2017, MS&AD purchased 5 percent of ReAssure for £175 million, and has subsequently increased its holding to 15 percent for a total investment of £587 million. This implies a valuation of up to approximately £3.9 billion for ReAssure, according to Moody’s.

A further reduction of Swiss Re’s stake in ReAssure would lower the group’s capital requirements, the rating agency noted. Between 2017 and 2018, MS&AD’s investments in ReAssure contributed significantly to a decline in the capital Swiss Re holds against financial market and credit risk of $450 million and $249 million respectively.

“We would expect a more meaningful reduction in Swiss Re’s ReAssure stake to result in a correspondingly greater reduction in its capital requirements,” Moody’s noted.

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