Swiss Re plans to raise $7.5 billion in new capital for GE Insurance Solutions acquisition

By Rebecca Melvin

Princeton, N.J., Nov. 18 - Swiss Reinsurance Co. plans to raise up to $7.5 billion in new capital, including shares and mandatory convertibles, in connection with its planned $6.8 billion acquisition of General Electric Co.'s GE Insurance Solutions.

The financing includes up to $5.5 billion in shares and mandatory convertibles, of which GE has agreed to take, based on certain provisions of the acquisition agreement, $3.0 billion to $3.8 billion.

The Zurich, Switzerland-based reinsurer also plans to raise $2 billion in hybrid debt securities.

The shares to GE will be issued without subscription rights to existing shareholders. Also Swiss Re plans to offer shares through a rights offering and mandatory convertibles to the capital markets.

The actual mix of these securities will be determined by market conditions; and terms will be announced at the time of the offerings, Swiss Re said in a news release.

A market source contacted by Prospect News had no further details on the financing plans and Swiss Re did not respond to requests for more information.

Swiss Re has an existing 6.125% mandatory convertible that is due July 23, 2007, which at the time of issuance in July 2004 was for a total amount of €640 million. BNP Paribas and Merrill Lynch were joint lead managers for the offering.

GE Insurance Solutions is the fifth largest reinsurer worldwide. After closing the transaction, which is estimated to occur by midyear 2006, Swiss Re will have estimated combined revenues of CHF 46 billion, based on 2004 figures, and assets of CHF 265 billion as of June 2005.

Based in Kansas City, Mo., GE Insurance Solutions had 2004 net premiums earned of $6.2 billion and total assets of $41.5 billion as of June 2005, excluding GE Insurance Solutions' US life and health business, which will not be part of the deal.

Swiss Re expects the transaction to be accretive to earnings per share and return on equity beginning in 2007, the first full year after closing.

Swiss Re's purchase price represents 76% of US GAAP book value of $8.9 billion.

As part of this transaction, GE Insurance Solutions will provide about $3.4 billion pre-tax in additional reserves to the extent permitted by accounting rules. What is paid to GE will consist of cash, Swiss Re shares, mandatory convertibles and notes. As a result, GE will hold in excess of 10% of Swiss Re shares.

Also under the terms of the agreement, Dennis D. Dammerman, GE board of directors' vice chairman, will stand for election to the board of directors of Swiss Re in January.

Jacques Aigrain, who will succeed John Coomber as Swiss Re chief executive on Jan. 1, said, "This transaction further enhances our client base and our product capabilities in attractive lines of business. Together, Swiss Re and GE Insurance Solutions will offer clients the security of the world's largest and most diversified reinsurance provider.

"GE's retention of an equity interest in our combined reinsurance business is a strong endorsement of our business expertise and strategy."

The creation of authorized capital and the increase of conditional capital for the acquisition will be subject to shareholder approval at the extraordinary general meeting to take place in January.

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