GE sells insurance business to Swiss Re |
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Sun, 20 Nov 2005 01:35
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NEW YORK: U.S. industry and technology giant General Electric Company is selling its troubled insurance arm to Swiss Re, the world's second-largest reinsurer, for up to $7.6 billion. Even as it announced the decision, the company forecast better earnings growth for 2006 and said it will raise its quarterly dividend 14 per cent to 25 cents a share and increase its stock repurchase programme to $25 billion through 2008 from the previous plan to buy back $15 billion in shares through 2007.
GE will incur a $2.8 billion after-tax charge as a result of the deal, but in the bargain, it is getting rid of a business that has been affecting its earnings and cash flow.
GE's chief executive Jeff Immelt said the insurance business has been a tremendous drag on the company, which will now be eliminated. Post-deal GE will own between 10 and 13 per cent of Swiss Re's common stocks.
On the other hand, the acquisition will make Swiss Re the world's biggest reinsurer, surpassing incumbent Munich Re.
GE said it will receive up to $3.7 billion in cash and notes for sale. The balance will be in the form of Swiss Re shares. There is an assumption of debt of the order of $1.7 billion in the deal.
GE has been wanting to divest the insurance business so that it could allocate capital for some of its fast-growing businesses like consumer finance and medical equipment. It had in 2002 spun of its life and mortgage insurance business company Genworth Financial Inc. It plans to sell off its remaining 25 per cent stake in Genworth next year. It still holds a U.S. life and health reinsurance business as well as personal protection insurance firm Union Fidelity Life and GE Life (UK), a pensions and wealth management company.
The announcement sent GE's share up 88 cents to $35.54 on the New York Stock Exchange in afternoon trade on Friday.
The company said its earnings - excluding the insurance business - would rise 12-17 per cent in 2006 compared with the previous estimate of 10-15 per cent and its cash-flow would jump 20 per cent to $24 billion a year.
Swiss Re said it can turn a money-losing operation for G.E. into a profitable one by adding scores of corporate clients to an already booming international insurance business, diversifying to new markets and trimming $300 million annually in costs.
Kansas City, Missouri-based Swiss Re had net premiums of $6.2 billion last year. At the end of June, it had assets worth a total of $41.5 billion.
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