April 4, 2018 / 12:21 PM / 6 months ago

Breakingviews - SoftBank's less risky Swiss Re bet is still silly

LONDON (Reuters Breakingviews) - SoftBank’s silly Swiss Re bet may be getting smaller. The Japanese tech and telecom group is unlikely to buy more than a 10 percent stake, the Swiss reinsurer announced on Wednesday. That’s substantially less than previously suggested. Given the dubious benefits of any tie-up, though, it’s still a questionable use of SoftBank’s cash.

The logo of the world's second largest reinsurer Swiss Re is seen inside the company's offices in Zurich, Switzerland, February 23, 2018. REUTERS/Moritz Hager

As recently as February, several media reports suggested Masayoshi Son, SoftBank’s enigmatic chief executive, was looking to buy as much as 30 percent of Swiss Re. The $30 billion reinsurance company now says the investment will probably be no more than 10 percent, and that SoftBank will have to buy shares on the open market.

That looks a setback for the Japanese group’s ambitions to scale up in insurance. In the past year, SoftBank has taken a 5 percent stake in Chinese online insurer ZhongAn as part of the $11 billion group’s Hong Kong initial public offering. It has also backed a funding round for U.S. start-up Lemonade. Even a pared-back investment in Swiss Re, however, would be a $3 billion gamble with a murky strategic rationale.

One suggestion is that Swiss Re could offer insurance products directly to users of other companies the Japanese group has invested in, such as shared office group WeWork and ride-hailing app Uber. But a commercial deal does not need to be lubricated by share purchases. Another idea is that SoftBank is looking to gain some influence over Swiss Re’s capital pile. That’s hard to envisage with a minority stake.

Swiss Re shares have underperformed peers in the past year, according to UBS analysts. A dramatic rise in natural disasters boosted claims, but the company led by Christian Mumenthaler has been unable to lift insurance premiums to compensate for the outflow. SoftBank shareholders should be relieved the company’s Swiss Re bet has been scaled back. It would be even better if the Japanese group dropped the idea entirely.

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