CI: Blockbuster acquisition of GE may see Swiss giant move back into the sector it abandoned in 2002
Swiss Re may relaunch into the guaranteed critical illness (CI) market following its acquisition of rival reinsurer GE Insurance Solutions.
The purchase, worth $8.5bn, means that when the deal is formally concluded, Swiss Re will claim top spot as the world's largest reinsurance company. The significance of the merger has reverberated around the protection market and has raised fears that the deal may further diminish the availability of guaranteed rates for CI.
Swiss Re pulled out of the guaranteed CI market in 2002 claiming that medical advances and maturing books meant that such rates were becoming unsustainable. In the interim, GE has been one of the biggest providers of guaranteed CI, although new entrants have taken on a larger share in recent years. It is by no means clear, however, whether smaller reinsurers will be able to pick up the slack if the Zurich-based company decides to stop offering guaranteed rates through GE.
In light of these worries, Swiss Re has moved to quash such concerns with the news that, far from abandoning guaranteed rates, it may well move to embrace them once again.
"The acquisition is likely not to be concluded until the second quarter of 2006, so it is premature to be discussing the issue of guaranteed rates," said Beat Werder, media relations manager at Swiss Re. "On a case-by-case basis we will continue to analyse opportunities for re-entry into guaranteed CI. This is among the issues to be evaluated as we move toward the proposed integration of the two companies," he added.
Werder also disclosed that the issue of redundancies would not be decided upon until the staffing situation had been fully evaluated after the merger. The sale does not include GE Life, Employers Reinsurance Corporation or the Union Fidelity Life arms of GE, as "the two parties could not come to terms," according to John Novaria, spokesperson for GE.
Commenting on the acquisition, Sue Elliott, senior consultant at Watson Wyatt, said that the consequences of the purchase will not be as great as some fear. "GE has not been an active player in the guaranteed CI market in the last few years. It has tended to be the smaller reassurers who have done this, so I would not expect to see a major impact on rates," she said.
Under the terms of the deal, Swiss Re will incur $1.7bn of debt and will fund the remaining $6.8bn through cash and share options, effectively giving GE a stake in the business of between 10-13%.
