Swiss Re's decision to postpone the planned IPO of its UK life and pensions insurance consolidator ReAssure, was met with surprise by many in the life insurance industry - and a degree of consternation by some. But whilst the reasons for SR's decision may not be completely clear, it would be foolish to read into this any negative prophecies about the insurance back-book industry.
Whilst most commentators agree that the continental European life back-book market has been 'lumpy' over the past couple of years, the relatively high Market Risk Capitalisation of life insurers in some jurisdictions means that there is a degree of inevitability about the back-book industry's prospects. Allied to low rates and demographic trends, the S2 rulebook which was fully implemented in 2016 has brought with it a need for large life offices to manage their capital - and with it their choice of liabilities - with surgical precision.
In the UK the back-book market has been well supported by a mixture of life insurance companies like Aegon UK, the Pru and Standard Life which have chosen to exit capital-consumptive lines of business; and the extraordinary growth of the Pension Risk Transfer industry - led by life insurers which embrace the higher capital model. In 2018 PRT accounted for nearly £25bn of activity - nearly double that of 2017 - and in 2019 the market anticipates £30-40bn in transactions, with L&G's record breaking £4.6bn deal with Rolls Royce in June adding urgency to an already booming market.
A flood of private capital appears to be sat in wait for life book divestments wherever these may occur. To the experienced and insurance-savvy set of private equity firms and consolidators like CVC, Cinven, Apollo/Athora and Resolution (this last one now in its 4th incarnation), must be added an ever-increasing number of other premium investors such as KKR, TPG, ASR and Blackstone. Other privately funded firms like EICG and Utmost Group are equipping themselves with the sort of balance sheet management capability which will ensure smooth policy book transitions for cedents and policy holders alike.
Last year's acquisitions in the European market included Athora's deals for Aegon Ireland and Generali in Belgium, whilst Cinven and Hannover Re's Viridium subsidiary emerged victorious in a well fought bidding process for Generali's German business. This year the the recent sale involving Chinese insurer Anbang's Dutch subsidiary, Vivat, was reported to have been especially fiercely contested, with many of the names above said to have tendered in a competition which went down to the wire.
...All of which suggests that Swiss Re's decision might tells us more about the pre-Brexit IPO market in general than it does about the current state of the life insurance industry in Europe, or its relevance to either listed or private investors...
Swiss Re has pulled the £3bn flotation of ReAssure, its UK life insurance business, blaming weak investor demand. Trading in the shares had been due to start this week. The company launched the initial public offering last month but on Thursday said there had been “heightened caution and weak underlying demand” from institutional investors. John Dacey, Swiss Re’s chief financial officer, said: “While we firmly believe that the long-term interests of ReAssure are best served by a more diversified shareholder base, there has been no pressing need for Swiss Re to divest shares at a price that we consider to be unrepresentative of ReAssure’s value and future prospects.” He added: “We retain our objective to reduce Swiss Re’s ownership in order to deconsolidate ReAssure.”