Swiss Re is buying GE insurance unit

November 19, 2005|By NEW YORK TIMES NEWS SERVICE

General Electric Co. said yesterday that it had reached a deal to sell its reinsurance business to Swiss Reinsurance Co. for $6.8 billion in cash and stock, substantially completing the company's exit from the insurance industry.

GE will register a $2.8 billion after-tax loss on the sale. Swiss Re also will assume $1.7 billion in debt.

The deal marks the fifth sale of an insurance business by GE since 2002 as its chief executive, Jeffrey R. Immelt, pushes for faster growth.

GE Insurance Solutions of Kansas City, Mo., had net premiums of $6.2 billion last year and assets of $41.5 billion as of June. The unit includes Employers Reinsurance.

The transaction will make Swiss Re, based in Zurich, the world's largest provider of reinsurance, a form of insurance that other insurance companies buy to cover their policies.

After the agreement was announced, GE raised its profit forecast and increased a share-buyback program to $25 billion.

Earnings from continuing operations at GE, the world's biggest business by market value, could increase 12 percent to 17 percent next year, to between $1.92 and $2.02 a share, the company said. The previous guidance was for growth of 10 percent to 15 percent.

The insurance deal, which is subject to the approval of regulators and Swiss Re shareholders, is expected to close in the first six months of next year, GE said.

Swiss Re will finance the deal by selling $5.5 billion in new stock and issuing $2 billion in new debt. After the deal is completed, GE will hold 10 percent of the insurer's stock, giving the company a seat on Swiss Re's board. Dennis D. Dammerman, GE's vice chairman, is to be nominated for the seat.

GE's shares climbed $1.09, or 3 percent, to close at $35.75 yesterday in New York trading.

Immelt is building higher-return businesses such as health care to bolster shares that have lagged behind the Standard & Poor's 500 index, investors said.

"Simply executing wasn't going to get the stock moving, and investors have been clamoring for Employers Reinsurance's divestiture for a long time," said Stephen W. Hoedt, an analyst with National City Corp. in Cleveland, which owns about 21.7 million GE shares. "It clearly was an underperforming business that didn't fit the growth strategy going forward."

Under Immelt's leadership, GE has sold its insurance businesses for a total of $25 billion. Some units sold, including the one announced yesterday, have not been profitable.

"Over the last five years, the Insurance Solutions business has lost $700 million and required the infusion of $3.2 billion of capital," Immelt said in a statement. "By its nature, reinsurance is volatile and consumes capital to grow. The terms of this transaction provide compelling value for our shareowners as well as more certainty and greater earnings consistency in the future."

The company will retain but reduce the staff at the U.S. life insurance division of GE Insurance Solutions.

GE also said it will boost its dividend 14 percent, to 25 cents a share, in January.

The company also will buy back up to $25 billion worth of its shares through 2008, up from the $15 billion previously announced.

The decision to increase the repurchase reflects Immelt's frustration with a stock price that had fallen 13 percent since he took over from Jack Welch in 2001.

GE is among a growing number of U.S. companies buying back stock. A record $225 billion worth has been repurchased this year, according to Standard & Poor's. The previous record was $197 billion in 2004, S&P said.

Bloomberg News contributed to this article.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.