12 February 2018Insurance

SoftBank deal to bolster Swiss Re’s competitive advantage

Softbank’s communication and technology expertise and network of hi-tech investments would give Swiss Re a competitive advantage as the re/insurance sector adapts to transformational technologies that will over time test its business model, according to Moody’s.

Zurich-based reinsurance giant Swiss Re recently confirmed that it was in talks with Japanese conglomerate SoftBank Group regarding a potential minority investment in the reinsurer, according to a Feb. 7 statement.

The announcement followed a Wall Street Journal report stating that SoftBank is in "advanced talks" to buy a third of Swiss Re's shares that could be worth up to $10 billion or more.

A partnership with SoftBank would give Swiss Re access to an additional deep capital base, supplementing Swiss Re’s existing strong financial flexibility, Moody’s said in a Feb. 9 research note.

Advances in transformative technology, including autonomous vehicles and artificial intelligence, internet of things (IoT) and big data, will challenge the relevance of the traditional insurance model over time. Some industry participants expect widespread adoption of autonomous vehicles to reduce the frequency of motor accidents, and that growth in car-sharing will reduce car ownership, both of which could lead to lower demand for traditional motor insurance. However, other technologies could allow (re)insurers to increase their proximity and relevance to customers. For example, IoT-enabled sensors could provide loss mitigation and early warning services, complementing insurance sold to commercial customers.

Swiss Re is already at the forefront of developing and adopting transformative technologies, although on a relatively small scale compared with its traditional reinsurance business, often through partnerships with smaller insuretech firms, the agency noted. SoftBank, with its mobile data networks in the US and Japan, stakes in leading technology companies such as chipmaker ARM, e- commerce group Alibaba Group Holding and ride- hailing firm Uber, as well as its investment in numerous smaller internet-focused businesses through its SoftBank Vision Fund (SVF) would give Swiss Re access to a broad stable of expertise. The reinsurer would potentially also gain access to a significant amount of data that it could use in developing transformative insurance products. In addition, SoftBank, through its telecommunications and ride sharing operations has access to a massive number of users that create a potentially significant market for Swiss Re’s primary insurance offerings, such as iptiQ, Swiss Re’s primary life insurance platform.

An association with SoftBank would also dovetail with Swiss Re’s strategy of securing access to risk pools, Swiss Re’s term for insurable risk, and matching insured risks with the appropriate form of capital, be it Swiss Re’s own balance sheet or third-party capital. Similar to Swiss Re’s recent sale of a minority stake in its ReAssure business to MS&AD, the potential SoftBank transaction would increase Swiss Re’s access to third-party capital and would improve its capacity to insure an increasingly diverse set of risk pools.

Softbank has considerable financial resources, with total balance sheet assets of $267 billion as well as the SVF, which currently has funding in excess of $93 billion, and is backed by a number of sovereign wealth funds.

Softbank’s purchase of a potentially significant minority stake in Swiss Re would almost certainly give it some influence over the reinsurer’s strategy, Moody’s said. This could be helpful in accelerating technology enabled transformation, but could also challenge Swiss Re’s risk culture in some areas, the agency noted.

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More on this story

19 February 2018   Japanese conglomerate SoftBank is seeking to join Swiss Re’s board as it negotiates the acquisition of a minority stake in the reinsurer, according to a Feb. 18 Financial Times report.
29 March 2018   Swiss Re is reportedly close to sealing a deal which will see Japanese conglomerate SoftBank acquiring a 25 percent stake in the reinsurer, according to a March 28 Bloomberg News report citing "people familiar with the matter".
4 April 2018   Japanese conglomerate SoftBank is expected not to acquire more than a 10 percent share of Swiss Re’s share capital and therefore will not become the anchor shareholder Swiss Re would like to have, CEO Christian Mumenthaler said in an April 4 press conference.