Liverpool Street station, London, UK. The UK is a targeted growth market for Admin Re®.

A year of transformation

Admin Re® strengthens its operational platform, preparing for further growth in Europe, and especially the UK

Admin Re® has long been a recognised force in the closed life business – a position it strengthened during 2012. The sector offers significant opportunities over the medium term as banks and insurers seek to refocus on core business lines.

Shifting demographic trends, regulatory changes, and varying financial returns prompt insurers to sell their legacy life insurance portfolios to third parties, thereby reducing administrative costs and freeing up capital. Admin Re® acquires and integrates closed and legacy books of life insurance, administering them efficiently as a single business with a single IT system. This business model is inherently cash generative, delivering consistent returns for shareholders.

Admin Re® has long been a recognised force in the closed life business — a position it strengthened during 2012. Admin Re is in the final year of a three-year transformation programme: it has restructured its balance sheet to report as a standalone Business Unit and to facilitate potential third-party investment. This transformation has provided increased transparency about financial performance, clarity about the business model, and efficiency and robustness of operating processes. As a substantively self-standing Business Unit within Swiss Re Group, Admin Re® is now ready for further growth in Europe, especially in the UK.

Since becoming a separate Business Unit in 2011, Admin Re® has conducted an in-depth review of its global portfolio and underlying actuarial models with the aim to increase capital productivity and maximise gross cash generation (excess capital available compared with the target capital position) through a more active approach to portfolio management. The decision to undertake the portfolio review was based on management’s need for a comprehensive view of both the assets and liabilities of the Admin Re portfolio in order to inform decisions about investment in new opportunities and divestment of under-performing blocks of business. The global portfolio review revealed that elements of the US portfolio in particular tied up significant amounts of capital and no longer met internal return criteria. At the same time, Jackson National Life Insurance Company (Jackson) had approached Admin Re® about acquiring parts of its US business.

Admin Re® CEO – Bob Ratcliffe at his offices in London (photo)

Admin Re® CEO Bob Ratcliffe at his offices in London

Jackson wished to increase its share of underwriting-based earnings relative to its spread and fee-based business lines; acquiring an in-force life insurance portfolio therefore made good sense. Admin Re®, as the owner of one of the largest life closed books of mortality risk in the US market, was a natural fit. And since Jackson is the US subsidiary of UK insurer Prudential plc, a major client of Swiss Re, the two companies already enjoyed a close and longstanding relationship.

The deal closed in September 2012, allowing Swiss Re to unlock the capital from its US business and redeploy it to other areas. Swiss Re received a total of USD 933 million in proceeds: USD 589 million paid by Jackson for the acquired businesses (with an additional USD 74 million deferred until 2013) and USD 270 million in pre-closing dividends. In exchange, Admin Re® transferred 1.6 million policies and USD 10 billion in statutory reserves to Jackson.

The Admin Re® business model is inherently cash generative. The predictable, long-term dividends that emerge from Admin Re® will be highly attractive to investors in today’s market environment.

Having returned a substantial dividend to the Swiss Re Group, Admin Re® is now focusing on growth through selective acquisitions in Europe, especially the UK. The sector offers significant opportunities over the medium term as banks and insurers seek to refocus on core business lines and to prepare for the new European insurance and banking regulatory regimes, Solvency II and Basel III. Admin Re® management has already identified a number of opportunities that meet its strict internal criteria.

Over the last year, Admin Re® has upgraded its core actuarial, finance, and IT capabilities and systems, boosting the efficiency and effectiveness of its portfolio risk management. The Business Unit is well prepared for changes in the regulatory environment such as Solvency II and Basel III.

Admin Re® has also created a UK-based service company. Providing high-quality customer service to each individual policyholder in a portfolio of acquired businesses, while at the same time complying with regulation and achieving the cost efficiency of large-scale integration, can present significant operational challenges to life insurers. A dedicated service company with clear evaluation procedures will help ensure that all these critical targets are fully met and that Admin Re is able to generate long-term value from the integration and management of acquired life insurance portfolios.

Admin Re® is well placed to build on this streamlined and scalable operational platform, as well as its strong UK market presence. Its focus is on increasing the scale of its operations, potentially raising third-party capital to help fund future growth in Europe while continuing to generate cash for reinvestment, servicing debt obligations, and paying dividends to the Group. It is the strongly held conviction that the predictable, long-term dividends that emerge from Admin Re® will be highly attractive to investors in today’s market environment.

Further reading: Our experts reflect on the fundamental drivers of the closed life business, beginning in the chapter Expert Views