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Scottish Re Will Acquire ERC Life Re

By Jim Connolly

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Analysts expressed general support for Scottish Res announced acquisition of ERC Life Reinsurance Corp.

On Oct. 24, Scottish Re, Hamilton, Bermuda, said it would acquire 95% of the outstanding capital stock of ERC Life Re for $151 million in cash. ERC Life is a unit of Employers Reinsurance Corp., Overland Park, Kan. General Electric Company is ERCs parent.

The business of ERC Life consists of a closed block of mostly traditional life reinsurance. The company has about $800 million in total assets and about $100 million of statutory capital and surplus.

The gross face amount of the in-force business, approximately $170 billion, represents about 5% of GE ERCs life and health reinsurance business.

Increasing the size of Scottish Res block of business is a positive step but there could be integration risks, says Scott Robinson, vice president and senior analyst with Moodys Investors Service, New York. But, overall, it fits within Scottish Res plans, Robinson adds.

In general, one risk associated with an acquisition includes making sure the original business being assumed was well underwritten and accounted for. Integrating different administrative systems is another risk in many cases.

As an example of this risk, Robinson notes that Scottish Re took a $12.5 million third quarter charge to account for revised death claims reporting by a ceding company.

In its third quarter 2003 announcement, the company said that after it had identified inconsistencies in information provided by the cedent through August 2003, it determined that death claims from two annuity reinsurance treaties had been consistently underreported since its inception in early 2000.

What will be important, according to Robinson, is that Scottish Re replenishes capital used in the acquisition so that it has sufficient collateral to meet its needs.

A positive, he says, is the fact that the acquired business is mortality business.

Scottish Re says the pre-Triple-X business will improve its spread of risk in a capital efficient fashion.

Doug Meyer, a senior director with Fitch Ratings, Chicago, says there are no financial issues surrounding the acquisition since the company had completed a public offering in July.

The offering consisted of 8 million newly issued ordinary shares at a price of $20.75.

By doubling its life reinsurance business, diversification is improved and risk dispersed, Meyer says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.