pensions market
The Netherlands’ bancassurer SNS Reaal ended 2006 with a 6
percent share of the Dutch life insurance market. By the end of
2007 two major acquisitions, one recently closed and another now
under way, will have propelled its market share to almost 16
percent, placing it second only to rival ING Group, which held a
market share of 21.2 percent in 2006.
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Announced in November, the latest acquisition will see SNS Reaal
pay between €1.45 billion ($2.15 billion) and €1.54 billion for
Swiss Life’s Netherlands unit, Zwitserleven Netherlands, and
Belgian unit, Swiss Life Belgium (SLB). According to SNS Reaal, the
maximum purchase price values the Swiss Life units at 1.17 times
their market consistent embedded value, as at 30 September 2007,
and represents a price to earnings ratio equal to 16.7 times
annualised net earnings in the first half of 2007. The transaction
is expected to be completed by the end of the first half of
2008.
In terms of market-consistent embedded value, Zwitserleven
Netherlands (Zwitserleven) is by far the larger of the two units,
representing €1.1 billion (90 percent) of the €1.23 billion total.
Zwitserleven’s shareholders’ equity is also far larger at €591
million compared with SLB’s €81 million.
However, SLB is the more significant in terms of gross premium
income, having generated €1.68 billion (10 percent non-life) in
2006 compared with Zwitserleven’s €1.21 billion. SLB was also the
more profitable, producing a net profit of €65 million compared
with Zwitserleven’s €53 million.
Despite this, Zwitserleven was described by SNS Reaal as being “at
the heart of its growth strategy”, and stands out as the
bancassurer’s big prize in the deal. Indeed, the future of SLB in
SNS Reaal is uncertain. Speaking at a press conference, the
chairman of SNS Reaal’s executive board, Sjoerd van Keulen, noted
that SLB had been acquired as part of a package deal with Swiss
Life and that time was required to assess SLB’s various components
and decide what to do with them.
Key component
But he left no doubt about Zwitserleven as a key component in SNS
Reaal’s strategy. “This acquisition [Zwitserleven] is in line with
our strategic priorities of achieving scale through consolidation,
diversifying our income in the Dutch life insurance market,
strengthening our distribution, broadening our presence in the SME
segment and gaining a significant presence in the structurally
attractive pensions market,” he said.
Zwitserleven will continue to operate largely on a
stand-alone basis, led by its existing management team headed by
CEO Marco Keim. SNS Reaal intends to integrate all Reaal
Verzekeringen (insurance) pensions businesses, including those
acquired from Axa, into Zwitserleven and create what it termed “a
centre of expertise” at Zwitserleven’s head office. All pensions
businesses are to be rebranded under the Zwitserleven brand.
The announcement of the deal with Swiss Life came only five weeks
after SNS Reaal closed the acquisition of French insurer Axa’s
principal Netherlands life and general insurance operations, Axa
Netherlands, Winterthur Netherlands and DBV Netherlands, for a
total cash consideration of €1.80 billion.
Reassuringly, van Keulen noted that although the Swiss Life
transaction comes soon after the Axa deal, “we have the management
resources to safeguard the integration process”.
This Axa deal, which was announced in June, added €1.27 billion in
gross annual life premium income, increasing SNS Reaal’s share of
the Netherlands’ life insurance market from 6 percent to 10.8
percent and its share of the individual life segment to 20 percent
based on new production. The acquisitions also added €380 million
in gross annual general insurance premium income.
Business structure
The Swiss Life and Axa deals represent a major shift in SNS Reaal’s
overall business structure. According to 2006 data supplied by SNS
Reaal, gross premium income will increase from just more than €2
billion to a pro forma €5.34 billion and net profit from insurance
businesses will increase from €170 million to €583 million.
In the process, the importance of banking operations – primarily
retail bank SNS Bank – to SNS Reaal’s net income will decline. In
2006 banking contributed €214 million or 58 percent of group net
profit of €271 million.
SNS Reaal’s capital structure will also be altered by the Swiss
Life and Axa deals, which in total represent an outlay of about
€3.3 billion, almost equal to SNS Reaal’s equity capital of €3.2
billion at the end of 2006. SNS Reaal’s total assets stood at €83
billion as at 30 June 2007.
In part, the acquisitions have been financed via an increase in
equity capital – €350 million in the Axa deal and €600 million for
the Swiss Life deal – to be funded by SNS Reaal’s controlling
shareholder, Stichting Beheer SNS Reaal. To fund the Axa deal,
another €350 million in hybrid capital and €350 million in senior
debt was issued. Financing of the Swiss Life deal will require the
issue of up to €935 million of debt instruments.
Notably, Swiss Life and Axa had similar rationales for their exit
from the Netherlands market.
In a statement, Swiss Life said it believed that “it would not have
been possible for it to achieve a sustainable profitable market
position on a stand-alone basis, neither in the Netherlands nor in
Belgium, given the limited scope for consolidation opportunities
and the increasing importance of critical mass to deliver growth
and sustain margins”.
At the time of the announcement of its deal with SNS Reaal in June,
Axa said that “given the limited possibilities to reach a leading
position through organic growth in the foreseeable future, as this
market is highly competitive and dominated by large local players”,
it had decided to exit the Netherlands’ insurance market.
Decline in premium income
According to reinsurer Swiss Re, life insurance premium income in
the Netherlands stood at €49.9 billion in 2006. Although this was a
4.1 percent increase compared with 2005 in real, inflation-adjusted
terms, it represented a 0.5 percent decline.
Premium income per capita in 2006 was $2,017.60, ranking the
Netherlands seventh in Europe and well behind market leader the UK
at $5,139.60.
