SoftBank's Son Channels Warren Buffett in Swiss Re InterestBy and
Zurich-based Reinsurer says talks are at a very early stage
Reinsurance is a way for Son to tap into long-term cash flows
SoftBank has entered talks to buy as much as a third of reinsurer Swiss Re AG, said people with knowledge of the discussions who asked not to be identified. The transaction could be valued at more than $10 billion. Swiss Re confirmed the talks and said they are at a very early stage. Its shares soared.
Son would be following titans like Buffett in buttressing their conglomerates with the healthy cash flows provided by reinsurance. SoftBank has made a dizzying array of investments over the last year as he reshapes Japan’s largest mobile-phone carrier and majority owner of Sprint Corp. into a force in the technology world.
“Given SoftBank’s technology-vision, Swiss Re makes sense as a target given its extraordinary research & development capabilities.” Daniel Bischof, an analyst with Baader Helvea AG in Zurich, said in a note to clients.
Shares of Swiss Re jumped as much as 6.8 percent, the most since November 2011. SoftBank rose about 1 percent in Tokyo on Thursday.
SoftBank, which has raised $93 billion of a planned $100 billion Vision Fund, the world’s biggest private equity pool, has taken stakes in businesses including ride-hailing, chipmaking, office-sharing, satellite-building, robot-making and even indoor kale-farming.
Reinsurers help insurers shoulder the costliest risks, like claims from hurricanes and earthquakes. Recently, however, the industry has faced some challenges. A glut of capital -- and new ways Wall Street dreamed up to transfer risk -- has pushed down the prices that the companies can charge for coverage.
Even so, reinsurance has remained attractive to big-money investors. Buffett has used the “float” -- or premiums held by such businesses before paying claims -- to fuel his stock picks and acquisitions at Berkshire Hathaway Inc. Buffett has his own history with Swiss Re: he gave the reinsurer a 3 billion-Swiss franc ($3.2 billion) capital injection during the height of the financial crisis.
Exor NV, the investment company for Italy’s Agnelli family, bought control of Bermuda reinsurer PartnerRe Ltd. two years ago as a way to diversify holdings, which range from Fiat Chrysler Automobiles NV to the publisher of the Economist magazine. Hedge-fund managers from David Einhorn to Dan Loeb have also started reinsurers in recent years.
What’s more, the record low interest rates that have weighed on insurers’ investment returns for the past decade may finally be poised to rise.
“Reinsurance, especially through a high-class outfit like Swiss Re, is attractive for several reasons,” David Havens, an analyst at Imperial Capital, said in a note to clients. Higher interest rates could help boost earnings, the industry is generally uncorrelated to others, and “Swiss Re is a gem of a company with top-flight management, generally solid results, a strong balance sheet and global diversification.”
Son, 60, has made hundreds of investments since he founded SoftBank in 1981 and during the dot-com bubble was briefly the world’s richest man. The most successful of those transactions was an investment in Alibaba Group Holding that started with $20 million in 2000. SoftBank’s stake is now worth almost 15 trillion yen ($140 billion), one of the most lucrative venture investments of all time.
The company may try to offer Swiss Re’s insurance products directly to consumers, including to people who drive for Uber Technologies Inc. or utilize office space from WeWork Cos., two of its investments, according to the Wall Street Journal, which reported the discussions earlier.
“There is no certainty that any transaction will be agreed, nor as to the terms, timing, or form of any transaction,” Zurich-based Swiss Re said in a statement Wednesday. A spokesman for SoftBank didn’t immediately respond to requests for comment.
SoftBank has already taken steps in the home insurance industry, investing last December in Lemonade Inc., a New York-based startup that uses artificial intelligence and bots to minimize paperwork and speed up the claims process for renters and homeowners.
— With assistance by Katherine Chiglinsky, Molly Schuetz, Neil Callanan, and Jan-Henrik Foerster