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Son's not running for cover in Softbank's Swiss Re swoop
WHAT could be a more perfect match than a cash-rich company with waning returns and a consummate dealmaker with an insatiable desire for investments?
That may be the best lens through which to consider the news that Masayoshi Son's SoftBank Group Corp is in talks to buy 25 per cent of Swiss Re AG, in a deal that would value the reinsurer at as much as 37 billion Swiss francs (S$50.8 billion).
The US$500 billion reinsurance industry has been going through a tough time lately, with a clutch of new entrants including hedge-fund manager Dan Loeb intensifying competition just as a string of natural disasters has pressured earnings.
Net income at Swiss Re fell more than 90 per cent to US$331 million last year, hammered by claims from hurricanes Harvey, Irma and Maria, and struggles in its core property and casualty reinsurance business. Meanwhile, years of low interest rates have depressed returns on the company's "float" - the premiums collected by insurers before claims are paid.
It's this pool of funds that may be the key attraction for Mr Son. As a minority investor, SoftBank wouldn't be in a position to direct Swiss Re's investment strategy. But it may have influence. SoftBank is seeking a board seat, and Swiss Re in February welcomed the prospect of such an "anchor shareholder" after being approached by the Japanese company.
Using the float is a model set by Warren Buffett that many Asian billionaires have sought to emulate. The US investor used cash flows from insurance to help fund deals that turned Berkshire Hathaway Inc into a US$500 billion powerhouse.
In the meantime, Swiss Re stock offers a chunky dividend yield of more than 5 per cent that would help SoftBank service its Venezuela-like debt levels.
There may also be a strategic logic. The purchase potentially would create an in-house insurer for SoftBank's many stakes in the so-called gig economy, from Uber Technologies Inc to WeWork Cos. Mr Son could even potentially disrupt the US$700 billion motor insurance market that is the most important business line for reinsurers. SoftBank is probably the world's biggest investor in ride-hailing companies: Besides Uber, it has stakes in China's Didi Chuxing, India's Ola and Singapore's Grab.
The Japanese technology investor could also bring online heft to Swiss Re's digital strategy. SoftBank already has stakes in US startup Lemonade Insurance Agency LLC and China's ZhongAn Online P&C Insurance Co. It's pouring money into startups spun out of Ping An Insurance (Group) Co, perhaps the most innovative of China's insurers. With big data crucial in analysing losses and risks at insurers, Swiss Re could do worse than connect with these players.
Another explanation that may be less reassuring for SoftBank investors is that Mr Son simply can't control his hunger for deals. On Wednesday, the billionaire signed an agreement with Saudi Arabia to build a US$200 billion solar power development that's far larger than any other project. SoftBank's US$93 billion Vision Fund, the world's biggest private equity pool, "may be lost in a complex loop of flows" when it comes to Saudi Arabia, its biggest investor, according to Jefferies Group LLC. Mr Son is already on the hook to pour as much as US$10 billion into state-controlled Saudi Electricity Co.
The blizzard of dealmaking has taken a toll on investors, with SoftBank stock persistently trading at a discount to the value of its assets. The company is planning an IPO of its telecom unit, partly in an attempt to narrow that gap.
Insurance is a staid business, but the past two days suggest Mr Son isn't ready to settle down yet. Swiss Re may just be fuel for further adventures. BLOOMBERG GADFLY
- This column does not necessarily reflect the opinion of Bloomberg LP and its owners.