Scottish Re Group Ltd. will acquire the U.S. individual life reinsurance business of ING Re.[@@]
The transaction includes ING’s transfer of $800 million in reserves and its payment of a $560 million ceding commission to Scottish Re.
The transaction consists of traditional mortality business, which in the life reinsurance industry requires collateral to satisfy the reserve requirements of the Valuation of Life Insurance model regulation, better known as Triple-X, and its successor Guideline, A-Triple X. Scottish Re is already in the traditional mortality business and the transaction will provide the company, based in Hamilton, Bermuda, with scale, says Melissa Daly, a Scottish Re spokesperson.
In a statement, Fred Hubbell, ING’s executive board member, said that the transaction fits ING’s strategy of allocating capital where it can generate the best returns. The transaction is expected to reduce the capital requirements of ING’s U.S. reinsurance business by $560 million, improve ING Group’s debt/equity ratio by .2% and increase the capital coverage ratio of ING Insurance by 19%.
Following the acquisition, Scottish Re will have approximately $1 trillion of face amount of life reinsurance in-force, $8 billion in assets, $2.1 billion in revenues; and a capital base of approximately $1.3 billion.
In addition to the assets transferred by ING Re, Scottish Re will raise an additional $230 million in new capital, which will satisfy the capital requirements for the new business. The new capital includes $180 million to be provided by the Cypress Group, a private equity firm based in New York, and, an additional $50 million of trust-preferred securities. The size of Cypress Group’s stake in Scottish Re in exchange for the investment is 9.9% of ordinary shares, according to Daly. If warrants and subdebt are exercised, the total would increase to 22% of Scottish Re’s ordinary shares, she adds.