Sources Report SCOR, RGA in Race to Acquire Aegon’s Transamerica Re

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French reinsurer SCOR Group and Reinsurance Group of America (RGA) are in the race to buy Dutch insurer Aegon NV’s Transamerica Reinsurance unit, sources familiar with the matter said.

The auction, which started after Aegon said in June it might sell Transamerica Re, is moving along, but a deal is not imminent, sources said. One key issue is the transfer of liabilities from the seller related to so-called Regulation XXX reserves, these sources said.

Under the regulation, companies have to set aside large amounts of reserves against some term life insurance products.

Over the years, they have met the reserve requirement through complex securitizations and long-term lines of credit from banks. But the securitization market for such products has more or less been shut since the financial crisis, and long-term bank lines remain hard to come by.

Transamerica Re, which operates globally, takes on pay-out obligations of other life insurers’ products.

The company would be a good strategic fit for both RGA and SCOR, said Clark Troy, an analyst at Aite Group.

For RGA, the deal would bring cost savings and catapult it to among the top life reinsurers in North America, Troy said.

SCOR gets about two-thirds of the life reinsurance premiums written in Europe. It would gain scale in the North American market, Troy said.

A deal would be the latest amid consolidation in the North American life reinsurance market, as companies try to position themselves for a rebound after the financial crisis.

Clarity on U.S. estate taxes is also expected to boost demand for life insurance products. The estate tax will be reinstated next year automatically with higher-than-2009 rates unless Congress acts.

Earlier this week, Warren Buffett’s Berkshire Hathaway Inc agreed to buy Canadian insurer Sun Life Financial Inc’s reinsurance business.

“There is an expectation that there may be turnaround in 2011-2012, so companies are positioning for that,” Troy said. “The resolution of the estate tax will make it easier for financial planners and estate planners to go back to using life insurance products.”

Aegon and SCOR declined to comment. The sources are anonymous because these talks are not public.

“RGA doesn’t comment or discuss specific acquisition opportunities, but our history is such that we have evaluated almost all opportunities that have come to market,” a company spokesman said in an emailed statement.

BUYER INTEREST
Earlier this month, Aegon’s Chief Financial Officer Jan Nooitgedagt said the Dutch insurer has seen much buying interest, from reinsurers and financial parties such as private equity firms, for Transamerica.

The names of any other bidders could not be learned, but one of the sources said private equity firms were looking to team up with SCOR or RGA on a bid.

“It’s a pretty chunky deal, and neither RGA nor SCOR can really do it without significant amounts of new capital,” the source said.

Most analysts expect the Aegon unit to be sold for less than the €1.6 billion ($2.2 billion) of its embedded value, a measure of an insurance company’s worth. Credit Suisse analysts have valued the unit at $1 billion to $1.2 billion.

Analysts in the past have also cited Hannover Re, Berkshire Hathaway’s General Re, and Munich Re as possible buyers of Transamerica Re.

Aegon, which still needs to repay €1.5 billion ($2.1 billion) in state aid, said in June it might sell Transamerica to free up capital. Transamerica Re is a unit of Transamerica Life Insurance Co. Aegon bought the group in 1999 for $9.7 billion.

RGA shares rose 0.8 percent to $50.10 on the New York Stock Exchange during afternoon trading. Aegon closed down 1.2 percent in Amsterdam, and SCOR closed down 0.3 percent in Paris.

(Reporting by Paritosh Bansal in New York and Victoria Howley in London; Additional reporting by Megan Davies; Editing by Gerald E. McCormick, Richard Chang and Bernard Orr)