GE sells insurance unit to Swiss Re for $6.8 billion | VailDaily.com
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GE sells insurance unit to Swiss Re for $6.8 billion

STAMFORD, Conn. – General Electric Co. sold most of its insurance unit to Swiss Reinsurance Co. Friday for $6.8 billion in cash and stock, completing a strategy to leave a troublesome segment and redeploy cash to investors and faster-growing businesses.GE, the industrial products, financial services and media conglomerate based in Fairfield, boosted its dividend and expanded its stock repurchase plan as it announced the deal.The sale of most of GE Insurance Solutions fulfills a strategy the company began three years ago to sell its insurance businesses.Over the last five years, the Insurance Solutions business lost $700 million and required the infusion of $3.2 billion of capital, company officials said.”We think this is a tremendous drag that has been eliminated from this company going forward,” GE Chairman and Chief Executive Jeff Immelt said during a conference call with analysts.GE also found the insurance business too volatile. GE incurred $377 million in hurricane-related reinsurance losses in the third quarter.GE expects to incur an after-tax loss of about $2.8 billion from the sale.GE has sold five insurance businesses in recent years as part of a larger strategy of reshaping the portfolio of the world’s largest company by market value by making major acquisitions in health care and entertainment. Immelt said GE will continue to make about $3 billion to $5 billion in industrial acquisitions annually, but he said the portfolio is in good shape to deliver double-digit earnings growth even when the economy slows.GE should consider selling more slower-growth businesses, such as lighting and appliances, said Robert Schenosky, an industrial analyst with Jefferies & Co.”I think it was the right decision for GE to make,” Schenosky said. “We believe a similar path should be taken in the industrial portfolio as well.”GE shares rose 88 cents, or 2.5 percent, to $35.54 in afternoon trading Friday. Swiss Re shares closed up 1.2 percent at $71.40 on the Zurich exchange.GE said its board has raised the quarterly dividend 14 percent to 25 cents a share, for a full-year 2006 total dividend of $1 a share, up from the current 88 cents a share.The board also expanded the existing share repurchase plan from $15 billion through 2007 to $25 billion through 2008.GE said it expects earnings per share of $1.92 to $2.02 next year, up 12 percent to 17 percent. The previous guidance was for 10 percent to 15 percent growth.Under the deal, GE will own 10 percent to 13 percent of Swiss Re’s common stock and will nominate GE Vice Chairman Dennis Dammerman to serve on the company’s board.General Electric said the transaction should be completed by the middle of 2006, but is still subject to regulatory approval.For Swiss Re, the acquisition of the world’s fifth-largest reinsurer should help the company compete with Germany-based Munich Re AG, the world’s largest reinsurer. Reinsurers sell backup insurance to other insurance companies, spreading risk so that enormous losses from natural catastrophes can be covered.Swiss Re, the world’s second-largest reinsurer, is also assuming $1.7 billion in debt as part of the deal with GE. It plans to finance the purchase by raising $7.5 billion in new capital.Some analysts were skeptical about the deal because Swiss Re will have to tap fresh capital to pay for the acquisition. It will also mean that Swiss Re will have a bigger slice of the U.S. reinsurance market.Chief Executive John Coomber said Swiss Re expects the transaction to boost earnings per share and return on equity beginning in 2007, and called it “a powerful business fit offering tremendous opportunities to strengthen our franchise.”GE Insurance Solutions’ U.S. life and health business will not be part of the Swiss Re transaction. Based in Kansas City, Mo., GE Insurance Solutions including the life and health businesses had net premiums earned of $6.2 billion in 2004 and total assets of $41.5 billion as of June 2005.Swiss Re will now have an estimated annual revenue of $34.9 billion, compared to Munich Re’s $44.5 billion. The addition of the GE unit will add approximately $6.2 billion in revenue.—Associated Press Writer Guido Schaetti in Zurich, Switzerland, contributed to this report.Vail, Colorado


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