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SoftBank in talks to buy one-third stake in reinsurer Swiss Re as domestic rivals report record profits

Bloomberg, JIJI

SoftBank Group Corp. CEO Masayoshi Son is warming to an industry that’s long been a favorite of billionaires looking to diversify their business empires.

SoftBank could purchase as much as a third of Swiss Re AG, one of the world’s largest reinsurers, according to people familiar with the discussions who asked not to be identified because no agreement has been reached. The transaction could be valued at more than $10 billion. Swiss Re confirmed the talks and said they are at a very early stage.

Son would be following business titans including Warren Buffett in buttressing their conglomerates with healthy cash flows from reinsurance. The billionaire has racked up a dizzying array of investments over the past year as he reshapes the Tokyo-based telecommunications giant and majority owner of U.S. carrier Sprint Corp. into a force in the technology world.

SoftBank, which has raised $93 billion of its planned $100 billion Vision Fund, has taken stakes in businesses dealing in ride-hailing services, chip making and office sharing, satellite and robot manufacturing, and even indoor kale farming. The company may try to offer Swiss Re’s insurance products directly to consumers, including to people who drive for Uber Technologies Inc. or use office space from WeWork Cos., two of its investments, according to the Wall Street Journal, which reported the discussions earlier.

Swiss Re closed at about 90 Swiss francs Wednesday, for a market value of 31 billion francs ($33 billion). Its American depositary receipts soared 8.7 percent to $25.75 in New York.

“There is no certainty that any transaction will be agreed, nor as to the terms, timing, or form of any transaction,” Zurich-based Swiss Re said in a statement Wednesday. A spokesman for SoftBank didn’t immediately respond to requests for comment.

Reinsurers help insurers shoulder the costliest risks, like claims from hurricanes and earthquakes. Recently, however, the industry has faced some major challenges. A glut of capital — and new ways Wall Street dreamed up to transfer risk — has pushed down the prices that the companies can charge for coverage.

Even so, reinsurance has remained attractive to big-money investors. Buffett has used the “float” — or premiums held by such businesses before paying claims — to fuel his stock picks and acquisitions at Berkshire Hathaway Inc. Exor NV, the investment company for Italy’s Agnelli family, bought control of Bermuda reinsurer PartnerRe Ltd. two years ago as a way to diversify holdings, which range from Fiat Chrysler Automobiles NV to the publisher of the Economist magazine. Hedge-fund managers from David Einhorn to Dan Loeb have also started reinsurers in recent years.

“Reinsurance, especially through a high-class outfit like Swiss Re, is attractive for several reasons,” David Havens, an analyst at Imperial Capital, said in a note to clients. Higher interest rates could help boost earnings, the industry is generally uncorrelated to others, and “Swiss Re is a gem of a company with top-flight management, generally solid results, a strong balance sheet and global diversification.”

SoftBank has already taken steps in the home insurance industry, investing last December in Lemonade Inc., a New York-based startup that uses artificial intelligence and robots to minimize paperwork and speed up the claims process for renters and homeowners.

On Thursday in Tokyo, SoftBank and rival mobile phone operator KDDI Corp. each logged record group operating and net profits for the April-December period, their earnings reports show.

SoftBank saw operating profit rise 23.6 percent to ¥1.15 trillion and net profit climb 20 percent to ¥1.01 trillion from a year earlier, thanks partly to improved earnings at Sprint.

KDDI posted an operating profit of ¥813.7 billion, up 4.9 percent, and a net profit of ¥490.5 billion, up 4.1 percent. The rises were credited to solid performances by UQ, a budget brand for smartphone services, and Biglobe Inc., an internet service provider that became a KDDI unit in January 2017.

NTT Docomo Inc. also enjoyed year-on-year growth in net profit in the first three quarters of fiscal 2017, its report said.

The company’s net profit grew 11.0 percent to ¥654.2 billion as it received compensation from India’s Tata Group following the dissolution of their partnership.

But the firm’s operating profit declined 0.8 percent to ¥835.3 billion because of factors including the introduction of new service plans aimed at preventing customers from switching to rival carriers.