Eastern promise Japan's SoftBank Eyes Up Swiss Re

The Japanese financial conglomerate may be mulling a big stake in the Swiss reinsurer, sources say. Corporate raid or strategic stake-building?
Some objects appear as big as they really are.

Speculation is rife whether SoftBank has gone sweet on reinsurance giant Swiss Re, following a mysterious surge in the latter's stock price this week. Is the Japanese telecoms and technology investor seeking access to additional capital for its growing ventures? Or merely seeking reliable returns? Whatever its true motivation, SoftBank, which cut its teeth in the internet dot-com boom, always has savvy and very specific plans for its prey, say investors in the reinsurance market.

SoftBank "discovered something in Swiss Re's figures or business model that we haven't yet seen," mused one big UK investor. That discovery could lie in the bulging balance sheets of Swiss Re, the world's biggest reinsurer with a €130 billlion investment portolio. A strategic investor could conceivably shake free funding to invest in success stories like Supercell, the Finnish mobile game-development company that Softbank nurtured and sold in 2016. SoftBank has proved to have a nose for future trends, by investing in hot properties such as chip manufacturer ARM, taxi company Uber and office-sharing service WeWork.

The Zurich-based company refused to disclose details, merely confirming that talks are at an early stage and an agreement isn't certain. SoftBank, meanwhile, has refused to comment. The Wall Street Journal has reported that SoftBank could acquire up to one-third of Swiss Re's shares for $10 billion or more.

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The deal is particularly surprising because the insurance sector is something of a closed shop, with transactions usually restricted to the insurers themselves. Sources close to Munich Re say it hasn't been approached by SoftBank, suggesting that this isn't a broader raid on the industry, but a carefully-targeted move.

The unusual pairing of nimble SoftBank and stuffy Swiss Re could work out in operational terms. Reinsurers hoard vast amounts of data that supercharged technology is sorting and analyzing at ever-greater speeds. Its rival Munich Re, the global number two, recently expanded its partnership with Microsoft and plans to invest heavily in what Chief Executive Joachim Wenning calls a "data hunting unit."

As it happens, Swiss Re is also seeking new applications for its mine of data. Led by its Swiss Re Institute, a research unit, the reinsurer hopes to identify trends and develop new risk models. Jonny Urwin, an analyst at UBS, said that combining its knowledge with SoftBank's would open up new opportunities for Swiss Re.

"A minority stake in Swiss Re could fit into SoftBank's strategy," said Stefan Schürmann, an analyst at Vontobel, a Swiss investment bank. He pointed out that the reinsurer's investment in the development of new insurance policies – for example, for self-driving cars or to protect against hacker attacks – would tie in nicely with Softbank's portfolio of interests.

Softbank's boss, Masayoshi Son, wants to invest in companies that will still be around in 300 years.

However, the Japanese group may simply be chasing reliable returns. Despite making a loss of €400 million ($490 million) for the first nine months of 2017, following a dreadful hurricane season and two earthquakes, Swiss Re is regarded as a steady payer of dividends. "It may be that SoftBank simply uses Swiss Re as a source of capital to finance further acquisitions," Mr. Schürmann said. Another option would be to unlock value by prompting a revamp of Swiss Re's underperforming divisions such life-insurance.

It isn't known exactly how SoftBank intends to build up its stake. Swiss Re might sell shares from its own holdings or issue new equity, or SoftBank could simply purchase the holding on the stock market, most likely at a premium. Investors appear to be speculating on the latter, as Swiss Re's stock price surged by up to 7 percent during trading on Wednesday.

A strategic stake would suit SoftBank's boss, Masayoshi Son, who is the driving force behind the group's transformation from a cell phone manufacturer into a technology investor. A prime example of Japan's famously long-term business thinking, the CEO says he wants to tap SoftBank's $93 billion "Vision Fund" to invest in companies that will still be around in 300 years.

Michael Brächer is a financial correspondent for Handelsblatt based in Zürich. Martin Kölling is the East Asia correspondent based in Tokyo. Christian Schnell covers financial markets from Frankfurt. Jeremy Gray, an editor at Handelsblatt Global, contributed to this story. To contact the authors: [email protected][email protected], and [email protected]