Swiss Re Will Buy RSA’s Chinese Insurer Sun Alliance

Swiss Re Ltd., the world’s second-biggest reinsurer, agreed to buy a Chinese unit of the U.K.’s RSA Insurance Group Plc as it shifts capital to regions with higher premium growth prospects.

The company, based in Zurich, is buying Sun Alliance Insurance (China) Ltd. for 71 million pounds ($122 million), according to a statement today. The acquisition, which is subject to regulatory approval, will enable Swiss Re to offer corporate insurance directly from mainland China.

Swiss Re is expanding in faster-growing markets such as China, Indonesia and Brazil to increase the portion of premiums from those regions to between 20 percent to 25 percent by 2015 from 18 percent last year, it said.

The company last year bought a stake in New China Life Insurance Co. for about $493 million, and a holding in Brazilian insurer Sul America SA for $334 million. In October, it invested as much as $425 million in Hong Kong billionaire Richard Li’s FWD Group.

“Growing wealth and increasing urbanization are key drivers for a continuing demand” for insurance and reinsurance products in “high growth markets,” Swiss Re said in the statement. “With the overall outlook for these markets remaining intact, the growth rate for premiums is expected to stay at around 8 percent per year.”

That’s more than double the 3 percent premium growth rate foreseen in mature markets from 2013 to 2020, according to a presentation on the company’s website.

Shares Rise

Swiss Re rose 0.2 percent to 79.95 Swiss francs at 10:43 a.m. in Zurich trading, trimming losses this year to 2.6 percent. RSA climbed 0.1 percent to 474.6 pence in London. The stock has climbed 17 percent this year after dropping 27 percent in 2013.

Swiss Re said it’s “confident” it will reach a return-on-equity goal of 10 percent to 12 percent by 2015. It plans to invest $3 billion of excess capital by next year to grow its business and “a good bit” could be spent in high growth markets, Chief Financial Officer David Cole told reporters on a conference call.

“That doesn’t mean we are going to turn down opportunities in developed markets,” Cole said. Swiss Re will look at ways to return money to shareholders if it can’t invest the capital at a return-on-equity of 11 percent, he said.

RSA Strategy

RSA, which also owns businesses in Hong Kong, Singapore and India, is selling non-core assets to bolster capital after three profit warnings in the fourth quarter and an accounting scandal in Ireland. It sold a Canadian insurance broker to Arthur J. Gallagher & Co. in May and disposed of its eastern European units to PZU SA in April.

“We are continuing to evaluate further non-core disposals, some of which we expect to agree during 2014,” Chief Executive Officer Stephen Hester said in a statement.

The British insurer is looking to raise at least 300 million pounds from asset sales outside of its “core markets” of the U.K., Ireland, Canada, Scandinavia and Latin America in 2014, it said in February.

Before it's here, it's on the Bloomberg Terminal.